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 |_|
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|_| Preliminary Proxy Statement
|_| Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to 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)
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(1) Amount Previously Paid:
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(4) Date Filed:
Four Oaks Fincorp, Inc.
April 6, 2009
Dear Shareholder:
Accompanying this letter is the Notice of Annual Meeting, Proxy
Statement, Summary 2008 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 Monday, May 11, 2009, 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 shareholder proposal
to stop awarding stock options 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, 2008.
As mentioned above, we also have included a Summary 2008 Annual Report to
Shareholders that contains additional information about our company, including a
financial summary, a letter from me to our shareholders, and selected financial
data.
As always, we hope to see you at the Annual Meeting, and please remember
to vote your shares as directed on your proxy card provided as soon as possible.
Sincerely yours,
/s/ Ayden R. Lee, Jr.
---------------------
Ayden R. Lee, Jr.
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
Monday, May 11, 2009
---------------------------------------------------------------------
You are cordially invited to attend the Annual Meeting of Shareholders of
Four Oaks Fincorp, Inc., which will be held on Monday, May 11, 2009 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 vote on a shareholder proposal to stop awarding stock
options; 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 26, 2009 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, 2008, is enclosed
herewith.
Your vote is very important. WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING IN
PERSON, 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 decide to attend the Annual Meeting in person or for any other
reason desire to revoke your proxy, you may do so at any time before your proxy
is voted.
By Order of the Board of Directors
/s/ Ayden R. Lee, Jr.
---------------------
Ayden R. Lee, Jr.
Chairman, Chief Executive Officer, and
President
April 6, 2009
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 2008 Annual Report to Shareholders are being mailed
to shareholders on or about April 6, 2009 by Four Oaks Fincorp, Inc. in
connection with the solicitation of proxies by our board of directors 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 Monday, May 11, 2009, 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.
Important Notice Regarding the Availability of Proxy Materials
For the Shareholder Meeting to Be Held on May 11, 2009
The Summary 2008 Annual Report to Shareholders and Proxy Statement are
also available on the Internet at http://www.cfpproxy.com/5662.
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) vote on a shareholder proposal to stop
awarding stock options; 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 Monday, May 11,
2009, 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
Monday, May 11, 2009, 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
Friday, May 8, 2009.
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 "FOR" the election of the eight (8) nominees to
our board of directors and "AGAINST" the shareholder proposal to stop awarding
stock options 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 26, 2009
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 26, 2009, we had 6,965,358 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.
2
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.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 26, 2009
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. As of March 26, 2009, we are not aware of any
person who beneficially owns more than five percent (5%) of our common stock.
The business address for each of the persons listed below is 6114 US 301 South,
Four Oaks, North Carolina 27524. Except as otherwise indicated, the persons
listed below have sole voting and investment power with respect to all shares of
our common stock owned by them, except to the extent that such power may be
shared with a spouse. Fractional share amounts are rounded off to the nearest
whole number.
- --------------------------------------- ------------------------------- --------------------------------
Name of Amount and Nature of
Beneficial Owner Beneficial Ownership(1) Percent of Class(1)
---------------- ----------------------- -------------------
- --------------------------------------- ------------------------------- --------------------------------
Ayden R. Lee, Jr.(2) 168,676 2.4%
- --------------------------------------- ------------------------------- --------------------------------
Paula Canaday Bowman(3) 67,297 1.0%
- --------------------------------------- ------------------------------- --------------------------------
William J. Edwards(4) 36,035 *
- --------------------------------------- ------------------------------- --------------------------------
Warren L. Grimes(5) 24,168 *
- --------------------------------------- ------------------------------- --------------------------------
Percy Y. Lee(6) 66,483 1.0%
- --------------------------------------- ------------------------------- --------------------------------
Dr. R. Max Raynor, Jr.(7) 23,606 *
- --------------------------------------- ------------------------------- --------------------------------
Clifton L. Painter(8) 54,088 *
- --------------------------------------- ------------------------------- --------------------------------
John W. Bullard(9) 53,743 *
- --------------------------------------- ------------------------------- --------------------------------
Nancy S. Wise(10) 11,194 *
- --------------------------------------- ------------------------------- --------------------------------
W. Leon Hiatt, III(11) 27,408 *
- --------------------------------------- ------------------------------- --------------------------------
Jeff. D. Pope(12) 22,384 *
- --------------------------------------- ------------------------------- --------------------------------
Michael A. Weeks(13) 16,520 *
- --------------------------------------- ------------------------------- --------------------------------
All Current Directors and Executive 571,602 8.21%
Officers as a Group (12 persons)(14)
- --------------------------------------- ------------------------------- --------------------------------
- -----------------
*Less than 1%
3
(1) Based upon 6,965,358 shares of common stock outstanding on March 26,
2009. 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 (the "SEC").
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 26, 2009 under
outstanding stock options. Beneficial ownership may be disclaimed as to
certain of the securities.
(2) Includes 14,900 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, and 32,725 shares owned by Mr. Lee's
spouse who has sole voting and investment power with respect to such
shares.
(3) Includes 1,242 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, and 47 shares owned by Ms. Bowman's
spouse who has sole voting and investment power with respect to such
shares.
(4) Includes 1,242 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, 2,684 shares owned by Mr. Edwards'
spouse who has sole voting and investment power with respect to such
shares, and 221 shares held in Mr. Edwards' name as custodian for his
granddaughter.
(5) Includes 1,242 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, 10,338.1796 shares owned jointly with
Mr. Grimes' spouse, and 2,094.0574 shares owned by Mr. Grimes' spouse who
has sole voting and investment power with respect to such shares.
(6) Includes 1,242 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, and 45,152.7247 shares owned jointly
with Mr. Lee's spouse.
(7) Includes 1,242 shares subject to stock options which are exercisable
within 60 days of March 26, 2009.
(8) Includes 7,763 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, 3,514 shares owned by Mr. Painter's
spouse who has sole voting and investment power with respect to such
shares, and 601 shares held in Mr. Painter's name as custodian for his
child.
(9) Includes 20,777 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, and 9,663.6847 shares owned by Mr.
Bullard's spouse who has sole voting and investment power with respect to
such shares. Mr Bullard disclaims beneficial ownership of the shares held
by his spouse.
(10) Includes 7,415 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, 1.000 share owned jointly with Ms.
Wise's spouse, 52.8164 shares owned by Ms. Wise's spouse who has sole
voting and investment power with respect to such shares, and 113.1782
shares held in Ms. Wise's name as custodian for her children.
(11) Includes 7,415 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, 212.8704 shares owned by Mr. Hiatt's
spouse who has sole voting and investment power with respect to such
shares, and 2,043.7006 shares owned by minor children who reside in Mr.
Hiatt's home.
(12) Includes 7,415 shares subject to stock options which are exercisable
within 60 days of March 26, 2009 and 2,985 shares pledged as security.
(13) Includes 1,242 shares subject to stock options which are exercisable
within 60 days of March 26, 2009, 188.6106 shares held in Mr. Weeks' name
as custodian for his children and grandchildren.
(14) For all current directors and executive officers as a group, includes a
total of 73,137 shares subject to stock options which are exercisable
within 60 days of March 26, 2009.
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., and Michael A. Weeks meet the definition of "independent director"
as that term is defined in the Nasdaq Marketplace Rules. William Ashley Turner,
who served on the board of directors in 2008, was also determined by the board
of directors to meet the definition of "independent director" as that term is
defined in the Nasdaq Marketplace Rules.
4
There are no family relationships between any of our directors or
executive officers. There are no material proceedings to which any of our
directors or executive officers, or any of their associates, is a party adverse
to us or has a material interest adverse to us.
To our knowledge, none of our directors or executive officers has been
convicted in a criminal proceeding during the last five years (excluding traffic
violations or similar misdemeanors), and none of our directors or executive
officers was a party to any judicial or administrative proceeding during the
last five years (except for any matters that were dismissed without sanction or
settlement) that resulted in a judgment, decree, or final order enjoining the
person from future violations of, or prohibiting activities subject to, federal
or state securities laws, or a finding of any violation of federal or state
securities laws.
Director Compensation
For 2009, the directors, except Ayden R. Lee, Jr. 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 2008 board compensation, please see the discussion under "Executive
Compensation--2008 Director Compensation" below.
Board of Directors Meetings
During the last fiscal year, our board of directors met twelve (12)
regular times. Each incumbent director attended seventy-five percent (75%) or
more of the aggregate of the total number of board of directors meetings and the
total number of meetings held by all committees of the board of directors on
which he or she served. Our independent directors have resolved to hold
meetings, separate from management, at least 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 28, 2008, 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 nominating and corporate
governance committee.
5
The Audit Committee. The audit committee is composed of Warren L. Grimes
(chairman), John W. Bullard, 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.com in the "Investor Information" 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 of Messrs. Grimes,
Edwards, and Weeks 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,
two members of our audit committee have past financial experience resulting in
their financial sophistication as required by Nasdaq Marketplace Rules.
The board of directors has determined that Mr. Bullard meets the
definition of "audit committee financial expert" as that term is defined under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Mr.
Bullard does not meet the definition of "independent director" as that term is
defined by Nasdaq Marketplace Rules or SEC rules and does not meet the special
independence requirements applicable to audit committee members due to the
transactions involving Mr. Bullard described under "Certain Transactions." The
board of directors nevertheless appointed Mr. Bullard to the audit committee
because it determined that it was in our best interest to utilize Mr. Bullard's
significant financial experience through service on the audit committee. In
addition, our securities are quoted on the OTC Bulletin Board and are not listed
on a national securities exchange. Therefore, neither the SEC nor the Nasdaq
Marketplace Rules regarding independence are applicable to our board of
directors.
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 2008.
The 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 directors and the review of our
compensation plans and policies. During 2008, the compensation committee met six
(6) times. The committee operates pursuant to a charter that is available on our
website at http://www.fouroaksbank.com in the "Investor Information" 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.
6
The Nominating and Corporate Governance Committee. The members of our
nominating and corporate governance committee are Dr. R. Max Raynor, Jr.
(chairman), Paula Canaday Bowman, and Warren L. Grimes, 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 Information" 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
of directors 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 of directors.
To be considered by our nominating and corporate governance 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 of directors. 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 of directors 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 2008, the nominating and corporate governance committee met two
(2) times.
The nominating and corporate governance 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.
7
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 Information" 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.
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
First & Business Experience During
Name Age Elected Past Five (5) Years
- ---- --- ------- -------------------
- -------------------------- ------- ----------- -----------------------------------------------------------------------
Ayden R. Lee, Jr. 60 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, Jr. 51 2000 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Chairman of our Nominating and Corporate Governance
Committee; Owner of Professional Eye Care, with locations in Benson,
North Carolina, Roseboro, North Carolina, and Clinton, North Carolina
- -------------------------- ------- ----------- -----------------------------------------------------------------------
Paula Canaday Bowman 60 1989 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Director of Benson Area Medical Center
8
- -------------------------- ------- ----------- -----------------------------------------------------------------------
Year Positions and Offices with our Company
First & Business Experience During
Name Age Elected Past Five (5) Years
- ---- --- ------- -------------------
- -------------------------- ------- ----------- -----------------------------------------------------------------------
William J. Edwards 65 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 68 1992 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; President and co-owner of T.R. Lee Oil Co.; Senior Partner
and co-owner of Lee Brother's Rental; Owner of SouthBend MHP
- -------------------------- ------- ----------- -----------------------------------------------------------------------
Warren L. Grimes 60 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.
- -------------------------- ------- ----------- -----------------------------------------------------------------------
Michael A. Weeks 57 2007 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, and WRS, LLC
- -------------------------- ------- ----------- -----------------------------------------------------------------------
John W. Bullard 57 2008 Director of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company; Consultant to Four Oaks Bank & Trust Company; Associate
Broker with Keller Williams Realty; Owner of The Bullard Company, a
real estate appraisal and consulting firm; Chief Executive Officer,
President and Director of LongLeaf Community Bank from its
incorporation in 2003 until its merger with Four Oaks Bank & Trust
Company in 2008. Mr. Bullard was appointed to the boards of
directors of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company pursuant to the merger agreement entered in connection with
the merger of LongLeaf Community Bank with and into Four Oaks Bank &
Trust Company.
- -------------------------- ------- ----------- -----------------------------------------------------------------------
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.
9
All of our directors hold office until the next annual meeting or until
their successors are elected and qualified. Each of our executive officers holds
office until his or her death, resignation, retirement, removal,
disqualification or until his or her successor is appointed and qualifies. 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.
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), John W. Bullard , 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 Information" 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.
10
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, as amended, as adopted by the Public Company
Accounting Oversight Board ("PCAOB") in Rule 3200T. Our independent accountant
also provided to the audit committee the written disclosures and letter required
by applicable requirements of the PCAOB regarding independent accountant's
communications with the audit committee concerning independence, 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 accountant's independence and has discussed with the independent
accountant its independence.
Based upon the audit committee's discussions with management and the
independent accountant and the audit committee's review of our consolidated
financial statements, representations of management, and the report of the
independent accountant to the audit committee, and subject to the limitations on
the role and responsibility of the audit committee referred to above and the
audit committee charter, the audit committee recommended that our board of
directors include the audited consolidated financial statements in our Annual
Report on Form 10-K for the fiscal year ended December 31, 2008 for filing with
the Securities and Exchange Commission.
Audit Committee
Warren L. Grimes (chairman)
John W. Bullard
William J. Edwards
Michael A. Weeks
11
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 Chief Executive Officer ("CEO") and executive officers as
well as members of the board of directors; 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 Nonqualified Stock Option Plan, also
has authority in its discretion to determine the employees and directors to whom
stock options shall be granted, the number of shares to be granted to each
employee or director, 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 2007, the compensation committee engaged Matthews, Young & Associates,
Inc., also known as Matthews, Young - Management Consulting, which assisted the
compensation committee in determining 2008 base salary ranges and performing a
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 2008. In 2008, the compensation committee
continued to rely on the results of the 2007 survey, modified by a 2008 cost of
labor adjustment derived by Matthews, Young & Associates, Inc. The compensation
committee considered this approach to be adequate given that the compensation
practices in our industry typically do not change drastically from year to year.
The compensation committee engaged Matthews, Young & Associates, Inc. during
2008 to update the 2007 survey and to assist the compensation committee with
recommendations for compensation for 2009.
12
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 four of the named executive positions, Matthews, Young -
Management Consulting gathered 2007 and 2008 industry survey data for the
following peer groups:
o U.S. Financial Institutions with assets from $500 million to $1.9
billion with median assets of $1.1 billion (37 institutions)
o U.S. Community Banks with assets from $700 million to $999 million
(23 institutions)
o U.S. Financial Institutions with assets from $500 million to $1
billion (23 institutions)
o U.S. Financial Institutions with assets from $500 million to $1.9
billion with median assets of $975 million (14 institutions)
o NC Financial Institutions with assets above $400 million (13
institutions)
Executive Compensation -- Elements
Our executive compensation program has four primary components: base
salary, annual cash incentive compensation, long-term equity 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.
13
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 select 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. In October 2008,
Matthews, Young & Associates, Inc. adjusted the current salary structure using a
projected 2009 cost of labor increase and provided oversight for computing the
annual salary increases due in January 2009.
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.
2008 Base Salary
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 2007
to 2008:
14
- --------------------------------------------------------------------------------
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%
- --------------------------------------------------------------------------------
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 CEOs 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 Community Bank acquisition. The compensation committee also considered
the competitiveness of Ms. Wise's salary to peer company chief financial
officers 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 function 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 Officers
as provided by Matthews, Young.
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.
15
2009 Base Salary
The following chart shows annual base salary rates for 2008 and 2009 for
each of our named executive officers, as well as percentage increases from 2008
to 2009:
- --------------------------------------------------------------------------------
Name Fiscal 2008 Fiscal 2009 Percent Increase
- --------------------------------------------------------------------------------
Ayden R. Lee, Jr. $262,257 $262,257 -%
Nancy S. Wise $143,048 $147,339 3%
Clifton L. Painter $163,286 $163,286 -%
W. Leon Hiatt, III $142,444 $146,717 3%
Jeff D. Pope $147,743 $152,175 3%
- --------------------------------------------------------------------------------
When compared to the banks in our peer group (as defined above), the base
salary of our CEO ($262,257) is 2.8% above the median base salary of $255,000
for a President/CEO in our peer group. The base salary of our Chief Operating
Officer ($163,286) is 2.2% below the median base salary in our peer group of
$167,000. The base salary of our Chief Administrative Officer ($146,717) is
11.2% above the median base salary in our peer group of $132,000. The base
salary of our Chief Financial Officer ($147,339) is 3.8% above the median base
salary in our peer group of $142,000. Collectively, the executive team as a
group is 3.39% above the median for the peer group.
Normally, we target the annualized percentage increases for our
executives to be consistent with executive base salary increases in our peer
market. For 2009, we capped all raises at 3% due to the impact of current
economic conditions on our company's financial performance. Specific factors
considered in determining the size of the salary increase for each named
executive officer are summarized below:
Mr. Lee was offered a 3% increase in base salary in 2009, which he chose
to decline due to the impact of current economic conditions on our company.
Therefore, Mr. Lee's base salary for 2009 did not increase from 2008. In
determining to offer Mr. Lee the 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 CEOs 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 acquisition of LongLeaf Community Bank and efforts
contributing to the loan and deposit growth achieved during 2008.
Ms. Wise's base salary increase for 2009 was 3%. 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 Community Bank acquisition. The compensation committee also considered
the competitiveness of Ms. Wise's salary to peer company chief financial
officers as provided by Matthews, Young.
16
Mr. Painter was offered a 3% increase in base salary in 2009, which he
chose to decline due to the impact of current economic conditions on our
company. Therefore, Mr. Painter's base salary for 2009 did not increase from
2008. In determining to offer Mr. Painter the increase, the compensation
committee considered the performance review prepared by the CEO, along with
individual contributions to the overall success of the such as his contributions
to the company's asset quality through managing the loan review and approval
function. Mr. Painter also led the loan review due diligence related to the
LongLeaf Community Bank acquisition. The compensation committee also considered
the competitiveness of Mr. Painter's salary to peer company Chief Lending
Officers as provided by Matthews, Young.
Mr. Hiatt's base salary increase for 2009 was 3%. 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 2009 was 3%. 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 2008 and the continued growth of the
branch network was considered.
Annual Cash Incentive Compensation
In February 2008, the compensation committee approved our 2008 Bonus
Plan. The 2008 Bonus Plan is designed to align the interests of our named
executive officers with the interests of our shareholders by linking bonus
amounts directly to our performance. Named executive officers were eligible to
receive cash bonuses under the 2008 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 2008, 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 2008. 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 2008 Bonus Plan
in its sole discretion.
17
The 2008 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.
In February 2009, the board of directors approved payments to the CEO and
the executive officers under the 2008 Bonus Plan as set forth below. These
payments were based on the actual achievement of the following tier target
levels under the 2008 Bonus Plan:
o Fee income: Tier 3
o Average loan balances: Tier 4
o Average deposit balances: Tier 4
o Net interest spread: Tier 1
o Net income: Tier 0
Based upon the achievement of these target levels, the board of directors
awarded cash awards for 2008 performance to the named executives as follows: Mr.
Lee $50,100; Ms. Wise $25,050; Mr. Painter $25,050; Mr. Hiatt $25,050; and Mr.
Pope $25,050. The board of directors did not approve any discretionary cash
bonuses for fiscal 2008 under the 2008 Bonus Plan. In addition, the board of
directors awarded each named executive officer a $200 cash Christmas bonus. This
bonus was not made pursuant to the 2008 Bonus Plan.
The compensation committee has not approved a bonus plan for 2009 due to
the impact of current economic conditions on our performance. If economic
conditions improve and our profitability increases, the compensation committee
may determine to adopt a bonus plan for 2009 at a subsequent time.
Our variable annual cash incentive pay plan is designed to provide
competitive cash payment opportunities based on achievement of certain financial
performance criteria. The opportunity for a more significant award increases
when we achieve higher levels of performance as measured against the performance
criteria. Due to a wide range of performance measures and actual performance
among peer banks, it is difficult to compare our performance and resulting
payouts to those of our peer banks. However, we have compared our maximum annual
cash incentive payout potentials to potential payout ranges of peer banks and
found the following table reflective of how we compare:
Executive Four Oaks Maximum Potential Peer Potential Range
- --------- --------------------------- --------------------
President / CEO 34% 45 - 50%
Chief Operating Officer 27.5% 35 - 40%
Chief Administrative Officer 31.5% 30 - 35%
Chief Financial Officer 31.5% 30 - 35%
18
Long-Term 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 and aligns executive's
compensation with the interests of our shareholders.
In 2008, after reviewing our historic approach to long-term, equity-based
compensation opportunities, peer practices, and considering other pertinent
factors, such as Statement of Financial Accounting Standards ("SFAS") No. 123
(revised 2004), "Share-Based Payment" ("SFAS No. 123(R)"), regarding the
accounting for equity-based awards, the compensation committee;
o determined that the level of stock option awards to executive
officers was below our peer group; specifically, when comparing the underlying
value of stock of stock options granted during the past five years (2004 - 2008)
to commonly used equity target values as determined as a multiple of annual base
salary, the actual value granted was less than half of the peer target value, as
follows:
President / CEO 44% of peer target value
Chief Operating Officer 43% of peer target value
Chief Administrative Officer 49% of peer target value
Chief Financial Officer 49% of peer target value
o recommended that we consider an increase to the level of awards of
stock options to executive officers.
Neither our board of directors 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 of directors 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 of
directors has granted options during its annual February meeting following the
end of a fiscal year.
On February 25, 2009, in recognition of 2008 performance, the
compensation committee granted our named executive officers options to purchase
stock at a price based on the December 31, 2008 tangible book value with two
year vesting and expiring in five years under our Nonqualified Stock Option Plan
as follows: Mr. Lee 5,000 shares; Ms. Wise 2,500 shares; Mr. Painter 2,600
shares; Mr. Hiatt 2,500 shares; and Mr. Pope 2,500 shares.
19
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 5% of their compensation, with a maximum purchase amount of
$1,000 per year. We match, in cash, 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 of 1986, as amended
(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 25% of the first 6%
of pre-tax salary contributed by each participant; however, contributions under
the plan are made at the discretion of our board of directors.
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 of directors
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.
20
Amended and Restated Executive Employment Agreements
On December 11, 2008, we entered into Amended and Restated Executive
Employment Agreements (the "Employment Agreements") with the CEO and the other
named executive officers. The Employment Agreements include the substantive
provisions of the prior Severance Compensation Agreements that we had with each
of the executive officers. The Severance Compensation Agreements were
terminated. The primary purpose of entering into the Employment Agreements was
to effect certain technical amendments required by Section 409A of the Internal
Revenue Code and the regulations thereunder. Also, as described below, the
Employment Agreements added provisions entitling the executive officers to
severance if he or she is terminated by us without "Cause" or for "Disability"
prior to a "Change in Control" (each as defined in the Employment Agreements)
and entitling him or her to severance in the event of a "Good Reason" (as
defined in the Employment Agreements) termination following a Change in Control.
The Employment Agreements are intended 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 in control of the company, and terms of
compensation in connection with such an event, are included in these Employment
Agreements consistent with what the compensation committee believes to be best
industry practices. The change in control language in the Employment 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 in control
appropriate.
The Employment Agreements provide the named executive officers a base
annual salary that may be increased at the discretion of the board of directors
and also provide for additional benefits generally available to executive
personnel and to all salaried employees, including insurance benefits, sick
leave, and reimbursement of expenses incurred in the course of performing duties
under the Employment Agreement. Each Employment Agreement provides for
termination by us for Cause or Disability of the executive officer as well as by
us without Cause. In the event the executive officer's employment is terminated
without Cause prior to a Change in Control or because of Disability, the
executive officer is entitled to receive as a lump sum an amount equal to his or
her then current monthly salary for the greater of six months or the then
remaining term of the Employment Agreement.
The Employment Agreements with each of our named executive officers also
provide for certain severance benefits in the event the executive officer's
employment is terminated within two years following a Change in Control. The
purpose of these severance arrangements is to recognize the services and
contributions of our named executive officers as key employees and the
uncertainties relating to continuing employment, reduced employee benefits,
management changes, and relocations in the event of a Change in Control. If the
executive officer's employment is terminated by us within two years following a
Change in Control without Cause or if the executive officer terminates his or
her employment for Good Reason within two years following a Change in Control,
then the executive officer is entitled to receive as a lump sum a severance
payment equal to two times his or her most recent annual compensation, including
the amount of his or her most recent bonus. In addition, the named executive
officer is entitled to reimbursement for additional costs he or she incurs in
obtaining health insurance benefits equivalent to the group benefit plan in
which he or she participated prior to termination of employment for a 24-month
period following the termination of employment or, if sooner, until he or she
obtains comparable coverage in connection with subsequent employment.
21
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
Warren L. Grimes (chairman), Paula Canaday Bowman, and Dr. R. Max Raynor,
Jr. served on the compensation committee during 2008. None of these individuals
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 2008. In addition, no interlocking
relationships existed during 2008 between our board of directors or compensation
committee and the board of directors or compensation committee of any other
company.
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 of directors, and the board of directors 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, 2008 and
the company's Proxy Statement for the Annual Meeting of Shareholders to be held
on May 11, 2009.
Warren L. Grimes (chairman)
Paula Canaday Bowman
Dr. R. Max Raynor, Jr.
22
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, 2007, and 2008.
We refer to the persons identified on the table below as our "named executive
officers."
- ------------------------------- ------- --------- -------- ---------- -------------- --------------- -------------- ----------
Change in
pension value
and
Non-equity nonqualified
incentive deferred
Option plan compensation All other
Name and Principal Position Year Salary Bonus awards compensation earnings compensation Total
--------------------------- ---- ------ ----- ------ ------------ -------- ------------ -----
($) ($) ($)(1) ($)(2) ($)(3) ($)(4) ($)
- ------------------------------- ------- --------- -------- ---------- -------------- --------------- -------------- ----------
Ayden R. Lee, Jr., 2008 $262,257 $200 $16,869 $50,100 $35,510 $12,551 (5) $377,487
Chairman, Chief Executive
Officer and President
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2007 $250,246 $200 $24,712 $16,100 $31,774 $12,364 (6) $335,396
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2006 $226,236 $200 $19,074 $49,450 $43,829 $12,077 (7) $350,866
- ------------------------------- ------- --------- -------- ---------- -------------- --------------- -------------- ----------
Nancy S. Wise, 2008 $143,048 $200 $ 8,434 $25,050 - $ 6,503 (8) $183,235
Executive Vice President,
Chief Financial Officer
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2007 $133,405 $200 $12,346 $ 8,050 - $ 7,492 (9) $161,493
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2006 $120,607 $200 $ 9,415 $24,725 - $ 8,810 (10) $163,757
- ------------------------------- ------- --------- -------- ---------- -------------- --------------- -------------- ----------
Clifton L. Painter, 2008 $163,286 $200 $ 8,777 $25,050 - $11,021 (11) $208,334
Senior Executive Vice
President, Chief Operating
Officer and Chief Credit
Officer
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2007 $147,889 $200 $12,964 $ 8,050 _ $12,021 (12) $181,124
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2006 $136,678 $200 $ 9,892 $24,725 - $10,547 (13) $181,442
- ------------------------------- ------- --------- -------- ---------- -------------- --------------- -------------- ----------
W. Leon Hiatt, III, 2008 $142,444 $200 $ 8,434 $25,050 - $ 9,793 (14) $185,921
Executive Vice President,
Chief Administrative Officer
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2007 $132,842 $200 $12,346 $ 8,050 - $ 9,129 (15) $162,567
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2006 $120,098 $200 $ 9,415 $24,725 - $11,220 (16) $165,658
- ------------------------------- ------- --------- -------- ---------- -------------- --------------- -------------- ----------
Jeff D. Pope, 2008 $147,743 $200 $ 8,434 $25,050 - $ 9,841 (17) $191,268
Executive Vice President,
Chief Banking Officer
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2007 $136,082 $200 $12,346 $ 8,050 - $ 9,304 (18) $165,982
------- --------- -------- ---------- -------------- --------------- -------------- ----------
2006 $119,914 $200 $ 9,415 $24,725 - $11,217 (19) $165,471
- ------------------------------- ------- --------- -------- ---------- -------------- --------------- -------------- ----------
23
(1) Reflects the dollar amount recognized for financial statement
reporting purposes for the fiscal years ended December 31, 2006,
2007, and 2008, respectively, in accordance with SFAS No. 123(R),
without regard for adjustments for forfeiture assumptions.
Assumptions used in the calculation of this amount for the fiscal
years ended December 31, 2006, 2007, and 2008 are included in Note
A of our audited financial statements for the fiscal year ended
December 31, 2008, included in our Annual Report on Form 10-K
filed with the SEC on March 12, 2009.
(2) These amounts are the cash awards to the named executive officers
under our 2006 Bonus Plan, 2007 Bonus Plan, and 2008 Bonus Plan,
as described in "Compensation Discussion and Analysis" above.
These cash awards were earned as of December 31, 2006, 2007, and
2008, but paid out in February 2007, 2008, and 2009, respectively.
(3) The amount reflects the actuarial increase in the present value
under our Supplemental Executive Retirement Plan ("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 $2,920 in contributions under our Four Oaks Bank & Trust
Company Retirement Plan, $9,200 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 $2,933 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.
(7) 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.
(8) Includes $6,072 in contributions under our Employee Stock
Ownership Plan and $431 in life insurance premiums paid by us on
behalf of the named executive officer.
(9) 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.
(10) 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.
24
(11) Includes $2,570 in contributions under our Four Oaks Bank & Trust
Company Retirement Plan, $8,020 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 $2,590 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.
(13) 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.
(14) Includes $2,257 in contributions under our Four Oaks Bank & Trust
Company Retirement Plan, $7,105 in contributions under our
Employee Stock Ownership Plan, and $431 in life insurance premiums
paid by us on behalf of the named executive officer.
(15) 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.
(16) 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.
(17) Includes $2,337 in contributions under our Four Oaks Bank & Trust
Company Retirement Plan, $7,073 in contributions under our
Employee Stock Ownership Plan, and $431 in life insurance premiums
paid by us on behalf of the named executive officer.
(18) 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.
(19) 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 $392 in life insurance premiums
paid by us on behalf of the named executive officer.
2008 Grants of Plan-Based Awards
Estimated future payouts under All other
non-equity incentive plan awards (1) option
------------------------------------- awards: Exercise Grant
Number of or base date fair
securities price of value of
underlying option stock and
Threshold Target Maximum options awards option
Name Grant Date ($) ($) ($) (#)(2) ($/Sh) awards(3)
- --------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Ayden R. Lee, Jr. 2/25/2008 $12,750 $32,000 $90,000 - - -
2/25/2008 - - - 5,000 15.55 $16,109
Nancy S. Wise 2/25/2008 $ 6,375 $16,000 $45,000 - - -
2/25/2008 - - - 2,500 15.55 $ 8,055
Clifton L. Painter 2/25/2008 $ 6,375 $16,000 $45,000 - - -
2/25/2008 - - - 2,600 15.55 $ 8,377
W. Leon Hiatt, III 2/25/2008 $ 6,375 $16,000 $45,000 - - -
2/25/2008 - - - 2,500 15.55 $ 8,055
Jeff D. Pope 2/25/2008 $ 6,375 $16,000 $45,000 - - -
2/25/2008 - - - 2,500 15.55 $ 8,055
(1) Under our 2008 Bonus Plan there were five target areas for
measurement of performance: fee income, average loan balances,
average deposit balances, net interest spread and net income.
Within each target area there were four performance tiers, and the
target tier for each target area for 2008 was as follows (with
tier 1 representing the lowest payout level and tier 4
representing the maximum payout level): fee income - tier 2,
average loan balances - tier 2, average deposit balances- tier 2,
net interest spread - tier 2, and net income - tier 2. For 2008,
the actual tier level achieved for each area under the 2008 Plan
were as follows: fee income - tier 3, average loan balances - tier
4, average deposit balances - tier 4, net interest spread - tier
1,and net income - tier 0. Payments under the threshold column are
calculated based on the assumption that tier 1 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 4 in all five target
areas is met.
25
(2) Neither our board of directors 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 of directors 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 of directors 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 25, 2008. The options all have one year vesting
periods and expire four years after the date of grant on the
earlier of February 25, 2012 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 fair value for these stock
option grants. We used the following assumptions in calculating
the grant date fair value for these grants: (i) an expected option
term of four years; (ii) an interest rate of 2.7%, (iii) a
dividend yield of 1.7%, and (iv) volatility of 26.1%.
2008 Outstanding Equity Awards at Fiscal Year-End
- ------------------ --------------- --------------- -------------- --------------
Number of Number of
Securities Securities
underlying underlying Option
unexercised unexercised Option Expiration
Name options options Exercise Price Date
---- ------- ------- -------------- ----
(#) (#) ($/Sh)
Exercisable Unexercisable
- ------------------ --------------- --------------- -------------- --------------
Ayden R. Lee, Jr. - 5,000 (1) $15.55 2/25/2012
4,400 (2) - $24.41 2/26/2011
5,500 (3) - $16.73 2/21/2010
6,875 (4) - $13.24 2/22/2009
- ------------------ --------------- --------------- -------------- --------------
Nancy S. Wise - 2,500 (1) $15.55 2/25/2012
2,200 (2) - $24.41 2/26/2011
2,715 (3) - $16.73 2/21/2010
- ------------------ --------------- --------------- -------------- --------------
Clifton L. - 2,600 (1) $15.55 2/25/2012
Painter 2,310 (2) - $24.41 2/26/2011
2,853 (3) - $16.73 2/21/2010
3,566 (4) - $13.24 2/22/2009
- ------------------ --------------- --------------- -------------- --------------
W. Leon Hiatt, - 2,500 (1) $15.55 2/25/2012
III 2,200 (2) - $24.41 2/26/2011
2,715 (3) - $16.73 2/21/2010
3,394 (4) - $13.24 2/22/2009
- ------------------ --------------- --------------- -------------- --------------
Jeff D. Pope - 2,500 (1) $15.55 2/25/2012
2,200 (2) - $24.41 2/26/2011
2,715 (3) - $16.73 2/21/2010
3,394 (4) - $13.24 2/22/2009
- ------------------ --------------- --------------- -------------- --------------
26
(1) Option was granted on February 25, 2008 pursuant to our
Nonqualified Stock Option Plan. This option has a one-year vesting
period and expires four years after the date of grant.
(2) Option was granted on February 26, 2007 pursuant to our
Nonqualified Stock Option Plan. This option is fully vested and
exercisable and expires four years after the date of grant.
(3) Option was granted on February 21, 2006 pursuant to our
Nonqualified Stock Option Plan. This option is fully vested and
exercisable and expires four years after the date of grant.
(4) Option was granted on February 22, 2005 pursuant to our
Nonqualified Stock Option Plan. This option is fully vested and
exercisable and expires four years after the date of grant.
All of the options listed above expire on the earlier of the date
indicated in the option expiration date column or 15 months after termination of
the recipient's employment, except in cases of death or disability. Options may
be exercised to the extent they are vested. Upon termination of employment, all
unvested options are forfeited, except in cases of death or disability, in which
case the vesting is accelerated. Upon a merger in which we are not the surviving
corporation, or liquidation or a sale of substantially all of our assets,
outstanding options will become fully vested and exercisable and, to the extent
not exercised, will terminate upon the effective date of such a transaction.
2008 Option Exercises and Stock Vested
- -------------------------- ----------------------------------------------------
Option Awards
----------------------------------------------------
Number of Shares Value Realized
Name Acquired on Exercise on Exercise
---- -------------------- -----------
(#) ($) (1)
- -------------------------- -------------------------- --------------------------
Ayden R. Lee, Jr. 8,593 (2) $ 54,222
- -------------------------- -------------------------- --------------------------
Nancy S. Wise - -
- -------------------------- -------------------------- --------------------------
Clifton L. Painter 4,511 (3) $ 28,464
- -------------------------- -------------------------- --------------------------
W. Leon Hiatt, III 4,189 (4) $ 26,433
- -------------------------- -------------------------- --------------------------
Jeff D. Pope 3,222 (5) $ 20,331
- -------------------------- -------------------------- --------------------------
(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 of directors based on
the most recent annual appraisal conducted by an independent
appraisal firm, as adjusted for recent trading activity.
(2) On February 13, 2008, Mr. Lee exercised options to purchase a
total of 8,593 shares of our common stock for an exercise price of
$10.24. The fair market value of our common stock on February 13,
2008 was determined to be $16.55.
27
(3) On February 14, 2008, Mr. Painter exercised options to purchase a
total of 4,511 shares of our common stock for an exercise price of
$10.24. The fair market value of our common stock on February 14,
2008 was determined to be $16.55.
(4) On February 8, 2008, Mr. Hiatt exercised options to purchase a
total of 4,189 shares of our common stock for an exercise price of
$10.24. The fair market value of our common stock on February 8,
2008 was determined to be $16.55.
(5) On February 7, 2008, Mr. Pope exercised options to purchase a
total of 3,222 shares of our common stock for an exercise price of
$10.24. The fair market value of our common stock on February 7,
2008 was determined to be $16.55.
Pension Benefits
- ----------------------- ------------------- ----------------- ----------------- -----------------
Number of Present Value Payments
Years Credited of Accumulated During Last
Name Plan Name Service (#) Benefit ($) Fiscal Year ($)
---- --------- ----------- ----------- ---------------
- ----------------------- ------------------- ----------------- ----------------- -----------------
Ayden R. Lee, Jr. Supplemental N/A $233,063 -
Executive
Retirement Plan
- ----------------------- ------------------- ----------------- ----------------- -----------------
The present value shown in the SERP in the table above is based on
benefits earned as of December 31, 2008 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, effective as of January 1, 1998.
On December 11, 2008, the bank entered into an amended and restated SERP with
Mr. Lee to reflect technical changes necessary to comply with Section 409A of
the Internal Revenue Code. These changes clarify the timing of payments and the
definitions of certain payment triggers. 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, upon Mr. Lee's retirement
on or after the normal retirement age of 65, the bank will be obligated to pay
Mr. Lee in monthly installments an annual payment 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 normal retirement benefit equal to 75% of his Average Annual Compensation
(as defined in the SERP) on the date of his retirement. If Mr. Lee retires
before age 65, the annual payment as a percentage of Mr. Lee's normal retirement
benefit will vary (from 58% of normal retirement benefit at age 55 to 100% at
age 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 $50,000 per year. In the event of a change of control (as defined in
the SERP) of Four Oaks Fincorp, Inc. or the bank and termination of Mr. Lee's
employment within 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 normal retirement benefit under the SERP as of such date.
28
Potential Payments upon Termination or Change-in-Control
Severance and Change in Control Arrangements
As described in the "Compensation Discussion and Analysis" section above,
we have Employment Agreements with each named executive officer and those
Employment Agreements contain certain severance arrangements. As described
above, if the executive officer's employment is terminated without Cause prior
to a Change in Control or because of Disability, the executive officer is
entitled to receive as a lump sum an amount equal to his or her then current
monthly salary for the greater of six months or the then remaining term of the
Employment Agreement. In addition, the executive officer is entitled to receive
certain severance benefits if his or her employment is terminated by us without
Cause or by the executive officer for Good Reason within two years following a
Change in Control. For purposes of the Employment Agreements, a Change in
Control means one or more of the following occurrences:
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 Four
Oaks Fincorp., Inc., which constitutes more than 33% of the
company's then outstanding shares entitled to vote.
o The consummation of a merger, share exchange, consolidation, or
reorganization involving Four Oaks Fincorp, Inc. and any other
corporation or entity as a result of which less than 50% of the
combined voting power of Four Oaks Fincorp, Inc. or of the
surviving or resulting corporation or entity after such
transaction is held in the aggregate by the holders of the
combined voting power of the outstanding securities of Four Oaks
Fincorp, Inc. immediately prior to such transaction.
o All or substantially all of the assets of Four Oaks Bank & Trust
Company or Four Oaks Fincorp, Inc. 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, as defined in the Employment
Agreements, would constitute a Change in Control.
Each of the Employment Agreements provides that if the executive
officer's employment is terminated following a Change in Control under the
circumstances described above, he or she is entitled to receive a lump sum, cash
severance payment equal to two times the amount of his or her most recent annual
compensation, including the amount of his or her most recent bonus. In addition,
the named executive officer is entitled to reimbursement for additional costs he
or she incurs in obtaining health insurance benefits equivalent to the group
benefit plan in which he or she participated prior to termination of employment
for a 24-month period following the termination of employment or, if sooner,
until he or she obtains comparable coverage in connection with subsequent
employment ("Benefits").
29
The following table indicates the payments that each named executive
officer would have received in connection with such a termination as of December
31, 2008:
- ------------------------- ----------- -------------- ----------------------- --------------------
Multiple Lump Sum Total Value of
Name of Salary Payment Value of Benefits Payments
---- --------- ------- ----------------- --------
(1)
- ------------------------- ----------- -------------- ---------------------- ---------------------
Ayden R. Lee, Jr. 2X $524,514 $9,066 $533,580
- ------------------------- ----------- -------------- ---------------------- ---------------------
Nancy S. Wise 2X $286,096 $9,066 $295,162
- ------------------------- ----------- -------------- ---------------------- ---------------------
Clifton L. Painter 2X $326,572 $9,066 $335,638
- ------------------------- ----------- -------------- ---------------------- ---------------------
W. Leon Hiatt, III 2X $284,888 $9,066 $293,954
- ------------------------- ----------- -------------- ---------------------- ---------------------
Jeff D. Pope 2X $295,486 $9,066 $304,552
- ------------------------- ----------- -------------- ---------------------- ---------------------
(1) The value of the Benefits is comprised of benefits from health
insurance premiums paid by us in 2008 and calculated based on
24months of coverage for each of Mr. Lee, Ms. Wise, Mr. Painter,
Mr. Hiatt and Mr. Pope.
Nonqualified Stock Option Plan
Our Nonqualified 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 or her death), such
officer may exercise his or her options (to the extent vested) at
any time within 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 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 15 months after his or her death but not more than
four years after the date of the option grant.
The table below sets forth the cash payment each named executive officer
would have received as of December 31, 2008 for his or her unvested options,
calculated based on the following assumptions: (i) an Acceleration Event
occurred as of December 31, 2008, 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
$6.90 per share, which was the closing price of our stock on the OTC Bulletin
Board on December 31, 2008.
30
- ------------------------------- -------------------------------- --------------------------------
Estimated Cash Payment Related
Number of Shares of Common to Exercise of Unvested Options
Stock Underlying in Connection with
Unvested Options an Acceleration Event
Name as of December 31, 2008 as of December 31, 2008 (1)
---- ----------------------- ---------------------------
- ------------------------------- -------------------------------- --------------------------------
Ayden R. Lee, Jr. 5,000 -
- ------------------------------- -------------------------------- --------------------------------
Nancy S. Wise 2,500 -
- ------------------------------- -------------------------------- --------------------------------
Clifton L. Painter 2,600 -
- ------------------------------- -------------------------------- --------------------------------
W. Leon Hiatt, III 2,500 -
- ------------------------------- -------------------------------- --------------------------------
Jeff D. Pope 2,500 -
- ------------------------------- -------------------------------- --------------------------------
(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, 2008 exceeded the closing price of our
stock on the OTC Bulletin Board on the same date.
Cash Bonus Plan
Our 2008 Bonus Plan does not address the impact of the plan on the
termination of an employee for any reason.
SERP
Pursuant to Mr. Lee's SERP in the event of a change in control of Four
Oaks Fincorp, Inc. or Four Oaks Bank & Trust Company and termination of Mr.
Lee's employment within 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 normal retirement benefit under the SERP as of such date. In
connection with such a termination of Mr. Lee's employment as of December 31,
2008, he would have been entitled to a lump sum cash payment of $215,051 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, 2008 were valued at $250,000 for Mr.
Lee, Ms. Wise, Mr. Painter, Mr. Hiatt, and Mr. Pope.
31
2008 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 $1,275 per month in 2008.
In addition, the non-management chairman of each board committee was paid $375
and the other non-management directors were paid $325 for each board committee
meeting they attended. During 2008, all of the non-management directors were
paid a discretionary cash Christmas bonus of $200.
In connection with the merger of LongLeaf Community Bank with and into
Four Oaks Bank & Trust Company, Mr. Bullard entered into a three-year consulting
agreement with the bank under which he will receive an annual retainer of
$50,000, to be paid in substantially equal monthly installments, in exchange for
his services and for certain obligations contained in the consulting agreement.
The consulting agreement is described in detail below under "Certain
Transactions."
The table below summarizes the compensation paid by us to non-management
directors for the fiscal year ended December 31, 2008.
- ----------------------------- -------------------- -------------------- -------------------- --------------------
Fees Earned or Option All Other
Name Paid in Cash Awards Compensation Total
---- ------------ ------ ------------ -----
(1) ($) ($) (2) ($) (3) ($)
- ----------------------------- -------------------- -------------------- -------------------- --------------------
Paula Canaday Bowman $17,225 $1,629 $ 200 $19,054
- ----------------------------- -------------------- -------------------- -------------------- --------------------
William J. Edwards $24,350 $1,629 $ 200 $26,179
- ----------------------------- -------------------- -------------------- -------------------- --------------------
Warren L. Grimes $22,625 $1,629 $ 200 $24,454
- ----------------------------- -------------------- -------------------- -------------------- --------------------
Percy Y. Lee $19,200 $1,629 $ 200 $21,029
- ----------------------------- -------------------- -------------------- -------------------- --------------------
Dr. R. Max Raynor, Jr. $17,325 $1,629 $ 200 $19,154
- ----------------------------- -------------------- -------------------- -------------------- --------------------
William Ashley Turner (4) $ 9,250 $1,629 - $10,879
- ----------------------------- -------------------- -------------------- -------------------- --------------------
Michael A. Weeks $24,075 $1,629 $ 200 $25,904
- ----------------------------- -------------------- -------------------- -------------------- --------------------
John W. Bullard (5) $14,750 - $69,967 $84,717
- ----------------------------- -------------------- -------------------- -------------------- --------------------
(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, 2008 in
accordance with SFAS No. 123(R), without regard for adjustments
for forfeiture assumptions, and thus includes amounts from awards
granted in and prior to 2008. Assumptions used in the calculation
of this amount for the fiscal years ended December 31, 2006, 2007
and 2008 are included in Note A of our audited financial
statements for the fiscal year ended December 31, 2008, included
in our Annual Report on Form 10-K filed with the SEC on March 12,
2009. The grant date fair value of each stock option award granted
in 2008 was $1,611, computed in accordance with SFAS No. 123(R).
As of December 31, 2008, each director has the following number of
options outstanding: Paula Canaday Bowman 1,757; William J.
Edwards 1,757; Warren L. Grimes 1,757; Percy Y. Lee 1,757; Dr. R.
Max Raynor, Jr. 1,242; William Ashley Turner 1,757; Michael A.
Weeks 1,242; and John W. Bullard 20,777. Mr. Bullard received his
options as a result of the assumption of LongLeaf Community Bank
stock options in connection with the merger of LongLeaf Community
Bank with and into Four Oaks Bank & Trust Company and not as
compensation for service on the board of directors.
32
(3) Reflects a discretionary cash bonus of $200 for each director and
$69,767 in consulting fees paid to Mr. Bullard during 2008.
(4) As of July 28, 2008, Mr. Turner resigned from the board of
directors.
(5) Mr. Bullard was appointed to our board of directors on April 28,
2008 following the merger of LongLeaf Community Bank with and into
Four Oaks Bank & Trust Company, as more fully described below
under "Certain Transactions."
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. We have also assumed certain outstanding stock
options granted under the LongLeaf Community Bank Director Stock Option Plan and
LongLeaf Community Bank Employee Stock Option Plan in connection with our
acquisition of LongLeaf Community Bank in April 2008. The following table
corrects the "Equity Compensation Plan Information" table included in Item 12 of
our Annual Report on Form 10-K for the year ended December 31, 2008 and sets
forth aggregate information regarding our equity compensation plans as of
December 31, 2008:
- ------------------------------------ --------------------------- --------------------------- ---------------------------
(a) (b) (c)
- ------------------------------------ --------------------------- --------------------------- ---------------------------
Number of securities
remaining available
for future
issuance under equity
Number of securities compensation plans
to be issued Weighted-average (excluding securities
upon exercise of exercise price of reflected in
Plan Category outstanding options outstanding options column (a)) (1)
------------- ------------------- ------------------- ---------------
- ------------------------------------ --------------------------- --------------------------- ---------------------------
Equity compensation plans
approved by security holders N/A N/A N/A
- ------------------------------------ --------------------------- --------------------------- ---------------------------
Equity compensation plans not
approved by security holders 289,469 $14.84 331,866
------- ------ -------
- ------------------------------------ --------------------------- --------------------------- ---------------------------
Total 289,469 $14.84 331,866
======= ====== =======
- ------------------------------------ --------------------------- --------------------------- ---------------------------
(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, 2008: Nonqualified Stock Option Plan
-- 366,946 shares; and Employee Stock Purchase and Bonus Plan --
88,539 shares; LongLeaf Community Bank Director Stock Option Plan
-- 76,180 shares; and LongLeaf Community Bank Employee Stock
Option Plan -- 47,439 shares. We assumed the options outstanding
under the LongLeaf Community Bank Director Stock Option Plan and
LongLeaf Community Bank Employee Stock Option Plan, which have a
weighted average exercise price of $10.92 per share,in connection
with our acquisition of LongLeaf Community Bank in April 2008.
Shares underlying the assumed options are issuable under the
Nonqualified Stock Option Plan, and, therefore, the number of
shares listed above as remaining available for issuance under the
Nonqualified Stock Option Plan includes the options assumed under
the LongLeaf Community Bank Director Stock Option Plan and
LongLeaf Community Bank Employee Stock Option Plan.
33
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 26, 2009, 1,342,773 shares had been reserved for issuance
under the Option Plan, including shares issuable under the LongLeaf Community
Bank Director Stock Option Plan and LongLeaf Community Bank Employee Stock
Option Plan. As of March 26, 2009, there were 311,403 outstanding stock options
(including assumed options), and 185,252 shares remained available for future
grants. During 2008, options to purchase 52,325 shares of our common stock were
granted at an average exercise price of $15.55 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.
Once a year, participants in the Purchase Plan may purchase our common
stock at fair market value equal to 5% of their compensation, up to $1,000. We
match in cash 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.
34
As of March 26, 2009, 268,555 shares of our common stock had been
reserved for issuance under the Purchase Plan, and 180,016 shares had been
purchased. During 2008, 9,628 shares were purchased under the Purchase Plan.
LongLeaf Community Bank Director Stock Option Plan
In connection with the acquisition of LongLeaf Community Bank in April
2008, we assumed certain outstanding stock options granted under the LongLeaf
Community Bank Director Stock Option Plan. Since the closing of the acquisition,
no additional stock options have been awarded, nor are any authorized to be
awarded, under the plan. As of March 26, 2009, 76,180 stock options were
outstanding under the plan.
LongLeaf Community Bank Employee Stock Option Plan
In connection with the acquisition of LongLeaf Community Bank in April
2008, we assumed certain outstanding stock options granted under the LongLeaf
Community Bank Employee Stock Option Plan. Since the closing of the acquisition,
no additional stock options have been awarded, nor are any authorized to be
awarded, under the plan. As of March 26, 2009, 47,439 stock options were
outstanding under the plan.
Certain Transactions
Certain of our directors and executive officers, members of their
immediate families, and entities with which they are involved are customers of,
and borrowers from, Four Oaks Bank & Trust Company in the ordinary course of
business. From January 1, 2008 to December 31, 2008, loans outstanding to our
directors and executive officers and their associates as a group amounted to a
maximum of approximately $4,467,000 or 6.70% of the equity capital of the bank.
All outstanding loans and commitments included in such transactions are made
substantially on the same terms, including interest rates 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.
On April 28, 2008, John W. Bullard was appointed to the boards of
directors of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company pursuant
to the terms of the Merger Agreement, by and among Four Oaks Fincorp, Inc., Four
Oaks Bank & Trust Company, and LongLeaf Community Bank, dated December 10, 2007.
Prior to the completion of the merger on April 17, 2008, Mr. Bullard served as
LongLeaf Community Bank's President and Chief Executive Officer and as one of
its directors. Under the terms of the Merger Agreement, we agreed to cause, as
soon as reasonably practicable after the later of (A) the effective time of the
Merger Agreement or (B) our first annual meeting following the date of the
Merger Agreement, Mr. Bullard to be elected or appointed to the boards of
directors of Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust Company,
conditional upon Mr. Bullard's consent thereto and upon obtaining any necessary
regulatory approvals.
On April 17, 2008, pursuant to the terms of the Merger Agreement, Mr.
Bullard's employment agreement with LongLeaf Community Bank was terminated
without "cause" (as defined in his employment agreement). In connection with the
termination of his employment agreement with LongLeaf Community Bank, Mr.
Bullard will receive approximately $298,069, which represents the amount payable
as severance upon termination without cause in connection with a change in
control under his employment agreement with LongLeaf Community Bank, to be paid
in 36 equal monthly installments commencing with the first full calendar month
following the closing of the merger.
35
Also on April 17, 2008 and pursuant to the terms of the Merger Agreement,
Mr. Bullard entered into a three-year consulting agreement with the Four Oaks
Bank & Trust Company. Under the terms of the agreement, Mr. Bullard will provide
such consulting services as may be reasonably requested by Four Oaks Bank &
Trust Company upon reasonable notice to Mr. Bullard. He will receive an annual
retainer of $50,000, to be paid in substantially equal monthly installments, in
exchange for his services and for certain obligations contained in the
consulting agreement. Four Oaks Bank & Trust Company will also pay expenses
reasonably incurred by Mr. Bullard in rendering his consulting services.
The consulting agreement may be terminated by Mr. Bullard upon 30 days'
written notice to Four Oaks Bank & Trust Company. Four Oaks Bank & Trust Company
may terminate the consulting agreement only if Mr. Bullard materially breaches
the agreement or engages in dishonesty, fraud, felonious conduct or other
conduct that is materially injurious to Four Oaks Bank & Trust Company. In the
event the consulting agreement is terminated, regardless of the reason for such
termination, Mr. Bullard will be entitled to receive payment of the monthly
retainer amount, prorated through the last date he performs services and
reimbursement of any then outstanding expenses.
Pursuant to the terms of the consulting agreement, Mr. Bullard agreed
that, for a period of three years from the closing of the merger (regardless of
whether the consulting agreement may have been terminated earlier than the end
of that period), he will not:
o compete with Four Oaks Bank & Trust Company, directly or
indirectly, on his own or on another's behalf, in Richmond County,
North Carolina, any county in North or South Carolina that is
contiguous to Richmond County, or any other county in which Four
Oaks Bank & Trust Company maintains a business office on the date
of termination of the consulting agreement; or
o hire, offer employment to or otherwise solicit for employment any
person who is employed by Four Oaks Bank & Trust Company at any
time during the three-year period following the closing date of
the merger or who was employed by Four Oaks Bank & Trust Company
as of that date.
The consulting agreement does not prohibit Mr. Bullard from providing
appraisal or appraisal review services for lending institutions as an
independent contractor. Ownership by Mr. Bullard, directly or indirectly, of not
more than one percent of the issued and outstanding stock of any bank or company
whose shares are regularly traded on a national securities exchange or in the
over-the-counter market will not violate the non-competition provision.
36
In connection with the execution of the Merger Agreement, Mr. Bullard
entered into a voting agreement on December 10, 2007 with us under which he
agreed to vote his shares in favor of the merger and not to make any transfers
of his stock prior to closing. At closing, Mr. Bullard beneficially owned 59,981
shares of LongLeaf Community Bank common stock and held options to purchase an
aggregate of 18,000 shares of LongLeaf Community Bank common stock. As a result
of the merger, Mr. Bullard's LongLeaf Community Bank common stock was converted
into 32,508 shares of Four Oaks Fincorp, Inc. common stock. In addition, Four
Oaks Fincorp, Inc. assumed all outstanding and unexercised options to purchase
LongLeaf Community Bank common stock, resulting in Mr. Bullard receiving options
to purchase 20,777 shares of Four Oaks Fincorp, Inc. common stock at an exercise
price of $10.92 and with an expiration date of July 18, 2015.
We had no other transactions with related persons in 2008 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 2009. 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 our Chief Administrative Officer's
assistant to gather information concerning transactions greater than $120,000
with related persons and provide the information to the Controller
semi-annually. The Controller will aggregate, summarize and review the
information and provide recommendations to the audit committee to assess whether
any actual or potential transaction constitutes or may constitute a disclosable
related person transaction subject to review, approval or ratification in
accordance with the policy. The audit committee considers all of the relevant
facts and circumstances available to it including (if applicable) but not
limited to:
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; and
o The terms available to unrelated third parties or to employees
generally.
37
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 or ratifies 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.
Prior approval of related person transactions is not required except when the
amount of the transaction exceeds $120,000 for charitable contributions or $2.5
million for non-Regulation O loans. Non-Regulation O loans exceeding $2.5
million are pre-approved by either the loan committee, executive loan committee,
or the board of directors, depending on the size of the loan. Loans covered by
Regulation O are handled according to the Regulation O policy for pre-approval
and approval. If a transaction requiring pre-approval has not been previously
approved or previously ratified and is pending or ongoing, the appropriate
committee will evaluate whether the pending or ongoing related person
transaction should be ratified, amended or terminated. If a transaction
requiring pre-approval has not been previously approved or previously ratified
and has already been completed, the appropriate committee will evaluate whether
the transaction should be terminated and whether any disciplinary action is
appropriate.
The transactions with Mr. Bullard described above were not reviewed by
the audit committee pursuant to our Policy and Procedures with Respect to
Related Person Transactions, but were approved by the full board of directors in
connection with its approval of the acquisition of LongLeaf Community Bank.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act 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 SEC. 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 reports that were filed with the SEC, we believe that during the fiscal year
ended December 31, 2008, all Section 16(a) filing requirements applicable to our
officers, directors, and ten percent (10%) shareholders were satisfied, except:
o Mr. John W. Bullard failed to timely file a Form 4 for shares that
he and his wife received on June 16, 2008 in connection with the
merger of LongLeaf Community Bank with and into Four Oaks Bank &
Trust Company;
o Dr. R. Max Raynor, Jr. failed to timely file a Form 4 for shares
that he purchased on April 29, 2008 and May 1, 2008; and
o Mr. Michael Weeks failed to timely file a Form 4 for shares that
he purchased on May 1, 2008.
Proposal No. 2
SHAREHOLDER PROPOSAL REGARDING STOCK OPTIONS
We received notice that a shareholder intends to present the following
proposal at the annual meeting. The proposed resolution and its supporting
statement, for which neither we nor the board of directors accepts
responsibility, are set forth below. The proposal was submitted by O. L.
Canaday, 713 Camellia Avenue, Parker, Florida 32404, who has advised us that he
holds 9,140.1152 shares of our common stock.
38
The shareholder proposal and the supporting statement read as follows:
--PROPOSAL 1. Resolved: That shareholders of "FOUR OAKS FINCORP, INC"
request the Board of Directors to adopt a policy to immediately stop
awarding Stock Options.
Supporting Statement:
(It is a fact, that exercising options is part of the `Insiders'
compensation approved by the Board of Directors.)
--Shareholders are concerned about mushrooming executive compensation
packages. The `Exercise of Options' provides huge monetary gains, via
`Insider Trading and does not correlate to increased `Shareholder' value
in dividends and share price.
--There is an appearance to stockholders that `Insider Trading' via
exercise of options gives "Enormous Cash Compensation" to `The Insiders'.
When options are exercised, no value is added to company net profit, and
this is where the `Shareholders' dividends are grown. There is an
appearance that `Shareholders Assets' are being used by `Insiders' for
`Insider Profiteering' when exercising options. Review the four examples
below for the option compensation received. These `Exercise of Options'
show enormous gains with no risk. (Cost to `Exercise Options' are known,
selling price is known, one deducts "Exercise Option' from price of stock
and stacks the cash gain.)
---(This additional compensation of options is added to: Salary,
Retirement Package, Health Insurance, Life Insurance, Bonuses,
Annual Raises to Salary, and other Perks.)---
-12 Feb-07, C. L. Painter exercised 5,126 options at $9.22
($47000.) sold for $26.50 ($135,839.), 1 day gain of $88,839.
-11 Dec-06, W. L. Hiatt III exercised 4,760 options at $9.22
($44,000.) sold for $26.25 ($125,000.) 1 day gain of $81,000.
-15 Dec-06, N. S. Wise exercised 3,085 options at $14.56
($45,000.) sold for $26.30 ($81,000.) 1 day gain of $36,000.
-27...30 Nov-06 A. R. Lee, Jr exercised 9765 options at $9.22
($90,000) sold for $27.000 ($314,705.) 4 day gain of $224,705.
--During the last two annual stockholder' meetings the
`Stockholders' have voted to repurchase 90,894 shares thru the
stock repurchase plan. This correlates close to 91,329 option
exercise during same two years The stockholders'
repurchased/retired 90,894 shares ($1,765,161.) to offset the
dilution that accompanies the purchase of the stock option
exercise and dividend reinvestment. The `Insiders' two year gain
is stated at $1,060,000 for the options.
39
-To summarize: the company Net Profit is used to repurchase the
cost of the option shares 90,894 at $19.42 ($1,765,161). The
`Insiders' pocket $l,060,000.as their gain for the two years. -
Thus no benefits to the Shareholders, and gives the appearance
that `Insiders' used the Shareholder assets for profiteering via
the `Stock Option Plan'.
--The incentive for `Insiders' to have stock options is not in the best
interest of the shareholders. (Enron and World Com were destroyed by
`Insider Trading'.) The shareholders believe the Officers are extremely
well compensated for this geographic area of CONUS without the stock
options.
--Shareholders should be looking at the company net profit, as this is
where the stockholder dividend is generated.
--Vote for the Directors to immediately stop the giving of stock
options.
Company Response to Shareholder Proposal
The board of directors strongly opposes this shareholder proposal. The
board of directors believes that there have been no "mushrooming executive
compensation packages" and that, in fact, compensation packages remain at
average levels compared to the company's peers from year to year. It also
believes the company needs the ability to award stock options as part of a
balanced and effective incentive compensation program. Equity compensation, such
as stock options, is an important component in attracting and retaining quality
banking professionals and the use of equity compensation is a well established
practice in publicly traded community banks. The company's goal to become an
"employer of choice" in our markets will be greatly hampered if we can no longer
offer stock options as a form of compensation. In fact, if the company cannot
offer stock options as a form of compensation, the company will be at a
competitive disadvantage for attracting and retaining the highest quality
banking professionals.
Our compensation matrix is determined with the assistance of compensation
specialists who compare us to similar banks in similar markets and determine
ranges of competitive compensation based on position and performance. Our
compensation program reflects a mix of stable and at risk compensation, designed
to fairly reward employees and align their interests with those of shareholders
in a cost-efficient manner. Stock options are granted as part of the
compensation package approved by the compensation committee of the board of
directors with the intention that these awards will grow in value over time as
our stock price increases, which rewards employees for performance that
maximizes long-term shareholder returns.
Unlike base salary, stock options are considered "at risk" compensation,
because the option holder may or may not benefit from the option depending upon
the performance of the company, economic conditions, and the sentiment on Wall
Street. At the date of grant, the exercise price of our stock options
historically has been set at the fair market value of the underlying shares as
determined by a combination of independent valuation and recent trades on the
open market. The stock options become exercisable after one year and expire at
the end of four years. At the date of exercise, the option holder pays the
exercise price in cash. The then current fair market value is determined by a
combination of independent valuation and recent trades on the open market, and
the option holder receives a benefit in the amount of the difference between the
exercise price and the fair market value at the exercise date (the "spread").
However, this spread is taxable as ordinary income to the option holder, which
may be considered an additional cost to purchase the stock. The option holder
can only benefit from the exercise of a stock option if (1) the price of our
common stock has increased in value from the grant date, (2) the option holder
remains employed by us for at least a year, and (3) the option is not terminated
for any reason, such as termination of employment, certain types of merger, or
death. Therefore, stock options provide employees and directors with an
incentive to remain with us and focus on our long-term performance, which, in
turn, increases the value of their stock options.
40
There are currently 68 directors and employees eligible for stock option
grants as a part of their compensation packages. The selected option exercises
Mr. Canaday notes in his supporting statement reflect options that were held
from 22 to 48 months after their grant date and had value because our stock
price rose during that time. However, options granted in 2006 and 2007 have
exercise prices of $16.72 and $24.41 and certainly have no value in the current
market, so individuals who still hold these options currently are not able to
benefit from them. In addition, the $1,060,000 "gain" Mr. Canaday refers to
relates to compensation recognized by 12 individuals during a 30-month time
frame on 32 stock option exercises. All of this compensation was in the form of
appreciation of the share price from the grant date to the exercise date. Only a
portion of this total was realized by the individuals who exercised the options
since our stock price has subsequently fallen and any shares retained and not
sold by these individuals have significantly declined in value, while the
individuals have recognized taxable income based on the fair market value of the
shares at the date of the exercise.
Outstanding stock options may only be exercised according to the terms of
our stock option agreements with the option holders, subject to federal
securities law prohibitions against insider trading. We have no knowledge of any
insider trading by anyone employed by the company or Four Oaks Bank. Under
Section 10(b) of the Securities and Exchange Act of 1934, as amended, our
directors and employees are prohibited from buying or selling our securities
while aware of material nonpublic information and from disclosing such
information to others who then trade in our securities. To satisfy our
obligation to prevent illegal insider trading, our company has a securities
trading policy. We are confident that our securities trading policy helps our
personnel avoid the severe consequences associated with violations of the
insider trading laws and prevents even the appearance of improper conduct on the
part of anyone employed or associated with us.
Our share repurchase program is independent of our stock option plan. The
repurchased shares are retired and are not available for purchase. The primary
purpose of the share repurchase program is to create shareholder value by
increasing the liquidity of our common stock, our stock price, and earnings per
share. The repurchase and retirement of shares also offsets the dilution that
accompanies the purchases in our dividend reinvestment plan and stock option
exercises. The board of directors has deemed the share repurchase program a
sound use of corporate funds and has placed certain restrictions on the program
to ensure that we maintain the ability to pay any debt obligations, liabilities,
and preferential rights of shareholders.
41
Mr. Canaday implies that the company repurchased all of the shares
resulting from option exercises through the share repurchase plan. In fact, many
of the shares received upon exercise of stock options are still held by our
insiders. The shares repurchased in the share repurchase program are bought on
the open market. To ensure that no shares held by insiders are repurchased by
the company in the future, we have instructed our market maker not to offer for
repurchase by the company any shares that are being sold by our insiders.
Our use of stock options as a form of compensation has been instrumental
in attracting, motivating, and retaining highly qualified employees and
directors. Stock options can be used as an effective tool to align employee,
director, and shareholder interests and to provide incentives to employees and
directors and are commonly used by publicly traded community banks for this
purpose. A prohibition on stock option grants would deprive us of needed
flexibility in designing competitive incentive compensation programs that
incorporate stock options as part of a balanced and effective overall
compensation program.
Our board of directors believes the shareholder proposal, if implemented,
could significantly hinder our ability to achieve results for the benefit of all
of our shareholders. It is in the best interest of our shareholders to provide
equity compensation, including stock options, along with other forms of
compensation that motivate our employees and directors and assure competitive
compensation programs.
Vote Requirement
Assuming the presence of a quorum, approval of the shareholder proposal
requires that the votes cast in favor of the proposal exceed the votes cast
opposing the proposal. Under North Carolina law, abstentions are treated as
non-votes in determining whether shareholders have approved a proposal.
Abstentions and non-votes will have no effect on the vote to approve this
proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE SHAREHOLDER
PROPOSAL TO STOP AWARDING STOCK OPTIONS AS DESCRIBED IN THIS PROPOSAL NO. 2.
Audit Firm Fee Summary
During the fiscal years ended December 31, 2008 and 2007, we retained our
independent accountant, Dixon Hughes PLLC, to provide services in the following
categories and amounts:
- ------------------------ --------------------------- ---------------------------
2008 2007
- ------------------------ --------------------------- ---------------------------
$ %(1) $ %(1)
- ---- - ----
- ------------------------ ------------- ------------- ------------- -------------
Audit Fees(2) $ 145,538 $ 147,481
- ------------------------ ------------- ------------- ------------- -------------
Audit-Related Fees(3) 31,296 0% 15,724 0%
- ------------------------ ------------- ------------- ------------- -------------
Tax Fees(4) 21,050 0% 8,400 0%
- ------------------------ ------------- ------------- ------------- -------------
All Other Fees(5) 98,850 0% - 0%
--------- --------- --------- ---------
- ------------------------ ------------- ------------- ------------- -------------
- ------------------------ ------------- ------------- ------------- -------------
TOTAL $ 296,734 $ 171,605
========= =========
- ------------------------ ------------- ------------- ------------- -------------
42
(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 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,
consultation regarding SFAS No. 159, "The Fair Value Option for
Financial Assets and Financial Liabilities -- Including an
amendment of FASB Statement No. 115," 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. These services include those related to the
acquisition of Longleaf Community Bank.
Our audit committee has considered the compatibility of the non-audit
services performed by and fees paid to Dixon Hughes PLLC in fiscal year 2008 and
fiscal year 2007 and determined that such services and fees were compatible with
the independence of the public accountants. During fiscal year 2008, 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, 2009. 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 be
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
2008 and 2007 were pre-approved by the audit committee.
43
ADDITIONAL INFORMATION
A copy of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2008, 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, Corporate Secretary, Four Oaks
Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina 27524 ((919) 963-2177).
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 2010 ANNUAL MEETING
Any proposals that shareholders intend to present for a vote of
shareholders at the 2010 Annual Meeting of Shareholders, and that such
shareholders desire to have included in our proxy statement and form of proxy
relating to that meeting, must be sent to our principal executive office, marked
to the attention of Ayden R. Lee, Jr., and received at such office on or before
December 7, 2009 (120 calendar days prior to the anniversary of the date of this
proxy statement). Proposals received after December 7, 2009 will not be
considered for inclusion in our proxy materials for our 2010 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 2010 annual meeting, other than by submitting a proposal for inclusion in
our proxy statement for that meeting, the shareholder must give timely notice in
accordance with SEC rules. To be timely, a shareholder's notice must be sent to
our principal executive office, marked to the attention of Ayden R. Lee, Jr.,
and received at such office on or before February 20, 2010 (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 February 20, 2010, 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.
44
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 Exchange Act; 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.
REQUESTS FOR DIRECTIONS TO OUR ANNUAL MEETING
The 2009 Annual Meeting of Shareholders will be held in the cafeteria of
Four Oaks Elementary School, located at 180 West Hatcher Street, Four Oaks,
North Carolina, on Monday, May 11, 2009, at 7:00 p.m., local time. Requests for
directions to the meeting location may be directed to Wanda J. Blow, Corporate
Secretary, Four Oaks Fincorp, Inc., P.O. Box 309, Four Oaks, North Carolina
27524 ((919) 963-2177).
By Order of the Board of Directors
April 6, 2009
Ayden R. Lee, Jr.
Chairman, Chief Executive Officer,
and President
45
Appendix A
----------
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
FOUR OAKS FINCORP, INC.
FOR THE 2009 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 undersigned 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 Monday, May 11,
2009 at 7:00 p.m., and any adjournments thereof (1) as hereinafter specified
upon the proposals listed below as more particularly described in the Company's
proxy statement, receipt of which is hereby acknowledged; and (2) in their
discretion upon such other matters as may properly come before the meeting and
any adjournments thereof. In order to vote for the proposals, place an X in the
appropriate box provided on the reverse side. The Board recommends a vote "FOR"
proposal #1 and "AGAINST" proposal #2 listed on the reverse side.
PLEASE COMPLETE, DATE, SIGN, AND MAIL THIS PROXY 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, MAY 11, 2009
YOUR VOTE IS IMPORTANT!
Annual Meeting Materials are available on-line at:
http://www.cfpproxy.com/5662
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 SHAREHOLDERS
MAY 11, 2009
1. To elect the following nominees as directors of a one year term
[ ] For [ ] Withhold [ ] For All
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) Michael A. Weeks
(08) John W. Bullard
INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE(S) WRITE
THAT NOMINEE(S) NAME ON THE LINE PROVIDED BELOW.
- -------------------------------------------
2. Shareholder proposal to stop awarding stock options
[ ] FOR
[ ] AGAINST
[ ] Abstain to vote
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" PROPOSAL #1 AND "AGAINST" PROPOSAL
#2, 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 proxy card in the box below. Date __________________
---------------------------------------
Shareholder 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
Shareholders 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 card.
Please note that telephone and Internet votes must be cast prior to 3 a.m., May
11, 2009. It is not necessary to return this proxy card if you vote by telephone
or Internet.
- --------------------------------------------------------------------------------
Vote by Telephone
Call Toll-Free on a Touch-Tone Phone anytime prior to 3 a.m., May 11, 2009:
1-866-265-2185
- --------------------------------------------------------------------------------
Vote by Internet
anytime prior to 3 a.m., May 11, 2009, 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.
ON-LINE ANNUAL MEETING MATERIALS: http://www.cfpproxy.com/5662
Your vote is important! Control Number ________