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 Section
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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Four Oaks Fincorp, Inc.
April 5, 2010
Dear Shareholder:
Accompanying this letter is the Notice of Annual Meeting, Proxy Statement,
Summary 2009 Annual Report to Shareholders and proxy card 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 10, 2010, 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 to ratify the appointment of
Dixon Hughes PLLC as our independent registered public accounting firm for the
fiscal year ending December 31, 2010, vote on a shareholder proposal to amend
our bylaws to require an independent chairman of the board, 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, 2009.
As mentioned above, we also have included a Summary 2009 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 10, 2010
_____________________________________________________________________
You are cordially invited to attend the Annual Meeting of Shareholders of
Four Oaks Fincorp, Inc., which will be held on Monday, May 10, 2010 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 ratify the appointment of Dixon Hughes PLLC as our independent
registered public accounting firm for the fiscal year ending December 31, 2010;
(3) To vote on a shareholder proposal to amend the bylaws of Four Oaks
Fincorp, Inc. to require an independent chairman of the board; and
(4) 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 25, 2010 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, 2009, 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 5, 2010
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 2009 Annual Report to Shareholders are being mailed to
shareholders on or about April 5, 2010 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 10, 2010, 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 10, 2010:
The Summary 2009 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) ratify the appointment of Dixon Hughes
PLLC as our independent registered public accounting firm for the fiscal year
ending December 31, 2010; (iii) vote on a shareholder proposal to amend our
bylaws to require an independent chairman of the board; and (iv) 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 proxies named on the enclosed proxy card may vote 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:
- 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 10, 2010, at
3:00 a.m. Eastern time. If you vote by telephone, you need not return
your proxy card.
- 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
10, 2010, at 3:00 a.m. Eastern time. If you vote over the Internet,
you need not return your proxy card.
- 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 7, 2010.
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:
- filing a written notice of revocation with our corporate secretary;
- duly executing a subsequent proxy and filing it with our
corporate secretary before the revoked proxy is exercised;
- timely submitting new voting instructions by telephone or over
the Internet as described above; or
- 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, "FOR" the ratification of Dixon Hughes PLLC as our
independent registered public accounting firm for the fiscal year ending
December 31, 2010, and "AGAINST" the shareholder proposal to amend our bylaws to
require an independent chairman of the board set forth in this Proxy Statement.
Record Date
Our board of directors has fixed the close of business on March 25, 2010 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 25, 2010, we had 7,458,430 shares of common stock
outstanding.
Voting Rights
On all matters to come before the annual meeting, each holder of common
stock will be entitled to one (1) vote for each share held. Shareholders do not
have the right to vote cumulatively in electing directors.
How You Can Vote Shares Held by a Broker or Other Nominee
If your shares are held by a broker, bank, custodian or other nominee, you
may have received a voting instruction form with this Proxy Statement instead of
a proxy card. The voting instruction form is provided on behalf of the broker
or other nominee to permit you to give directions to the broker or nominee on
how to vote your shares. Please refer to the voting instruction form or contact
the broker or nominee to determine the voting methods available to you.
SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information as of March 25, 2010
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 25, 2010, 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) 165,157 2.2%
Paula Canaday Bowman(3) 66,885 *
William J. Edwards(4) 36,623 *
Warren L. Grimes(5) 24,441 *
Percy Y. Lee(6) 67,581 *
Dr. R. Max Raynor, Jr.(7) 40,045 *
Clifton L. Painter(8) 53,671 *
John W. Bullard(9) 54,331 *
Jeff D. Pope(10) 21,413 *
Michael A. Weeks(11) 32,069 *
All Current Directors and
Executive Officers as a Group
(13 persons) (12) 601,077 8.1%
- -------------
*Less than 1%
(1) Based upon 7,458,430 shares of common stock outstanding on March 25, 2010.
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 25, 2010 under outstanding stock
options. Beneficial ownership may be disclaimed as to certain of the
securities.
(2) Includes 9,400 shares subject to stock options which are exercisable within
60 days of March 25, 2010, and 34,725 shares owned by Mr. Lee's spouse who
has sole voting and investment power with respect to such shares.
(3) Includes 830 shares subject to stock options which are exercisable within
60 days of March 25, 2010, and 47 shares owned by Ms. Bowman's spouse who
has sole voting and investment power with respect to such shares.
(4) Includes 830 shares subject to stock options which are exercisable within
60 days of March 25, 2010, 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 830 shares subject to stock options which are exercisable within
60 days of March 25, 2010, 10,631.3402 shares owned jointly with Mr.
Grimes' spouse, and 2,153.4379 shares owned by Mr. Grimes' spouse who has
sole voting and investment power with respect to such shares.
(6) Includes 830 shares subject to stock options which are exercisable within
60 days of March 25, 2010, and 46,092.331 shares owned jointly with Mr.
Lee's spouse.
(7) Includes 830 shares subject to stock options which are exercisable within
60 days of March 25, 2010.
(8) Includes 4,910 shares subject to stock options which are exercisable within
60 days of March 25, 2010, 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 25, 2010, and 9,937.7185 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 4,700 shares subject to stock options which are exercisable within
60 days of March 25, 2010 and 2,985 shares pledged as security.
(11) Includes 830 shares subject to stock options which are exercisable within
60 days of March 25, 2010, 14,587 shares owned by Mr. Weeks' spouse who has
sole voting and investment power with respect to such shares, and 477.156
shares held in Mr. Weeks' name as custodian for his children and
grandchildren.
(12) For all current directors and executive officers as a group, includes a
total of 55,342 shares subject to stock options which are exercisable
within 60 days of March 25, 2010.
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 ("CEO"), 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 Listing Rules.
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 ten 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 ten 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.
Board Leadership Structure
Our CEO also serves as the Chairman of our board of directors and we have a
Lead Independent Director with broad authority and responsibility. Our board of
directors has determined that it is appropriate for Ayden R. Lee, Jr. to serve
as both our CEO and Chairman at this time since Mr. Lee has the most familiarity
with the company and its unique challenges from his position in senior
management and since he is the longest serving member of our board of directors.
As such, his ability to lead discussions on matters affecting our company
maximizes the efficiency and productivity of the board of directors. Mr. Lee
also acts as a bridge between management and the board of directors, helping
both groups to act with a common purpose and thereby ensuring maximum value for
shareholders.
Michael A. Weeks currently serves as our Lead Independent Director. The
Lead Independent Director's responsibilities include 1) presiding over all
meetings of our board of directors at which the Chairman is not present,
including executive sessions of the independent directors; 2) serving as liaison
between the Chairman and the independent directors; 3) reviewing and providing
input on the agenda and materials to be provided to directors in advance of each
board meeting, in consultation with the Chairman; 4) adding items to the agenda,
as necessary; 5) calling meetings of the independent directors, as necessary; 6)
serving on our nominating and corporate governance committee; and 7) ensuring
that he or she is available for consultation and direct communication, upon
shareholder request. Our governance policy is that our independent directors
will meet in executive sessions without the presence of members of our
management at least quarterly. These meetings will occur in connection with
regularly scheduled board meetings and from time to time as the independent
directors deem necessary or appropriate.
Given the experience of the current CEO-Chairman and the role of our Lead
Independent Director to further promote the governance goals of effectively
overseeing risk, actively developing and implementing corporate strategy and
maximizing the efficiency and effectiveness of our board and its independent
committees, the board of directors finds the combined CEO-Chairman role to be in
the best long-term interest of our company and its shareholders at this time.
Board's Role in Risk Oversight
We operate in a complex environment and are subject to a number of
significant risks. Our board of directors works with our senior management to
manage the various risks we face. The role of our board of directors is one of
oversight of our risk management processes and procedures; the role of our
management is to implement those processes and procedures on a daily basis and
to identify, manage and mitigate the risks that we face. As part of its
oversight role, our board of directors will regularly discuss, both with and
without management present, our risk profile and how our business strategy
effectively manages and leverages the risks that we face.
To facilitate its oversight of our company, our board of directors has
delegated certain functions (including the oversight of risks related to these
functions) to board committees. Our audit and risk committee assists our board
of directors in fulfilling its oversight responsibilities with regard to the
identification, assessment, review, and reporting of risks inherent in our
business and the control processes with respect to such risks. In this role, our
audit and risk committee reviews and assesses the adequacy of the framework and
related processes established to identify, evaluate, prioritize, monitor, and
report on current and emerging internal and external risk exposures within and
across business units and provides guidance to our board of directors on
ensuring risk exposures are adequately evaluated and tolerances are
appropriately measured and established. The audit and risk committee is also
responsible for reviewing and concurring in the appointment of our company's
chief risk officer and overseeing and evaluating the chief risk officer's
performance. Our compensation committee evaluates the risks presented by our
compensation programs and analyzes these risks when making compensation
decisions. Our nominating and corporate governance committee evaluates whether
the composition of our board of directors and corporate governance policies and
practices are appropriate to fulfill the board's fiduciary duties and respond to
the risks that we face. The asset liability management committee, which is
composed of four board members and certain members of management and reports to
the full board, considers interest rate, liquidity, and other related risks,
limits, and strategies. The roles of these committees are discussed in more
detail below.
Although our board of directors has delegated certain functions to various
committees, each of these committees regularly reports to and solicits input
from the full board regarding its activities.
Board of Directors Meetings
During the last fiscal year, our board of directors met fourteen (14)
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
May 11, 2009, seven (7) directors were present and in attendance.
Board Committees
Our board of directors has three standing committees: the audit and risk
committee, the compensation committee, and the nominating and corporate
governance committee.
The Audit and Risk Committee. The audit and risk 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 Listing Rules and SEC rules, including the special
independence requirements applicable to audit committee members. In addition,
two members of our audit and risk committee have past financial experience
resulting in their financial sophistication as required by Nasdaq Listing 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 Listing 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 "Executive Compensation-2009 Director
Compensation-Agreements with John W. Bullard." The board of directors
nevertheless appointed Mr. Bullard to the audit and risk committee because it
determined that it was in our best interest to utilize Mr. Bullard's significant
financial experience through service on the audit and risk 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
Listing Rules regarding independence are applicable to our board of directors.
The audit and risk committee was established by our board of directors for
the purpose of overseeing our risk management, our accounting and financial
reporting processes and audits of our financial statements. The audit and risk
committee reviews the results and scope of the annual audit and other services
provided by our independent auditor and reviews our financial statements and
audit letters provided by our independent auditor. The audit and risk committee
is also responsible for reviewing our systems of internal control over financial
reporting with management and the independent auditor. In addition, the audit
and risk committee oversees our company's risk management, internal audit, and
compliance functions and is responsible for hiring and setting the compensation
of the independent auditor, reviewing and concurring in the appointment of our
chief risk officer and general auditor, and reviewing and approving the
evaluation and compensation of our chief risk officer, general auditor, and
compliance officer. The audit and risk committee met thirteen (13) times during
2009.
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
Listing Rules. During 2009, the compensation committee met four (4) 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.
The compensation committee has two primary responsibilities: (i) assisting
the board of directors in carrying out its responsibilities in determining the
compensation of our 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 2009, the compensation committee engaged Matthews, Young & Associates,
Inc., also known as Matthews, Young - Management Consulting, which assisted the
compensation committee with a review of prevailing levels of directors'
compensation in community banks. This consulting firm assisted the compensation
committee with recommendations for directors' compensation in 2009 based on a
market study of director pay in comparably sized community banks in the
southeast and across the U.S. While the study revealed that our director's
compensation was approximately 25% below the median of peer banks, the
recommendation from the consulting firm was to forego an increase in director
compensation in 2009. The recommendation was presented and approved by the
compensation committee in January 2009.
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, Warren L. Grimes, and Michael A. Weeks, 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 Listing Rules.
During 2009, the nominating and corporate governance committee met one (1) time.
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 his or her 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. When
evaluating candidates, the committee considers the following attributes and
corresponding criteria set forth by the committee: education, additional
training, knowledge, work experience, perspective, skills, expertise, diversity,
personal and professional integrity, character, business judgment, time
availability, dedication, absence of conflicts of interest, independence, and
any other relevant factors the committee deems appropriate in the context of the
needs of our board of directors. The committee may retain recruiting
professionals to assist in identifying and evaluating candidates for director
nominees.
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.
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, our 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:
Positions and Offices with our Company
Director & Business Experience During
Name Age Since Past Five (5) Years
- ---- --- -------- --------------------
Ayden R. Lee, Jr. 61 1983 Chairman of the Board of Directors, Chief Executive
Officer, and President of Four Oaks Fincorp, Inc.
and Four Oaks Bank & Trust Company
Michael A. Weeks 58 2007 Lead Independent Director of Four Oaks Fincorp, Inc.
and Four Oaks Bank & Trust Company. Since 1987, Mr.
Weeks has served as architect and President of
Weeks Turner Architecture, P.A., a full service
architectural firm. Mr. Weeks is also Member
Manager of the following real estate development
companies: 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, Tryon
Theater, LLC, Knightdale Business Partners, LLC,
APMW, LLC, WRS, LLC, Mann's Chapel Properties, LLC
and Bud Leigh, LLC. Mr. Weeks also serves as Member
Manager of a family farm, Weeks Associates, LLC,
and co-owner of Lake Wheeler Estates, LLC, a mobile
home park. In addition, Mr. Weeks has diverse
experience serving on various government, community
and private boards.
Dr. R. Max Raynor, Jr. 52 2000 Director of Four Oaks Fincorp, Inc. and Four Oaks
Bank & Trust Company. Dr. Raynor has been an
optometrist since 1985 and owns Professional Eye
Care, a full scope eye care practice, with
locations in Benson, Clinton and Roseboro, North
Carolina.
Positions and Offices with our Company
Director & Business Experience During
Name Age Since Past Five (5) Years
- ---- --- -------- --------------------
Paula Canaday Bowman 61 1989 Director of Four Oaks Fincorp, Inc. and Four Oaks
Bank & Trust Company. Ms. Bowman is a retired
school teacher. Since 2006, Ms. Bowman has served
as director of Benson Area Medical Center.
William J. Edwards 66 1990 Director of Four Oaks Fincorp, Inc. and Four Oaks
Bank & Trust Company. Since 1975, Mr. Edwards has
served as President, Chief Executive Officer, and
Chairman of the Board of Edwards Food Stores.
Percy Y. Lee 69 1992 Director of Four Oaks Fincorp, Inc. and Four Oaks
Bank & Trust Company. Since 1975, Mr. Lee has
served as President of T.R. Lee Oil Co., a retailer
of LP gas, gasoline, oil, and garage work and
inspection station. Mr. Lee is also the co-owner of
Lee Brother's Partners, a rental property company
and land developer, since 1990 and owner of Percy
Lee Rental, a rental property company, since 2000.
Warren L. Grimes 61 1992 Director of Four Oaks Fincorp, Inc. and Four Oaks
Bank & Trust Company. Since 2001, Mr. Grimes has
served as Executive Director of Smithfield Housing
Authority, which provides public housing for low
income persons. Mr. Grimes has also served as
Partner in Reedy Creek Direct Marketing Associates,
a website hosting company, as Chief Financial
Officer of Reedy Creek Technologies, a software
development company, and owned and operated a
private solid waste business for 22 years.
John W. Bullard 58 2008 Director of Four Oaks Fincorp, Inc. and Four Oaks
Bank & Trust Company, Consultant to Four Oaks Bank
& Trust Company. Since 2008, Mr. Bullard has owned
Bullard Appraisals & Consulting, a real estate
appraisal and consulting firm, and served as an
associate broker with Keller Williams Realty, a
residential and commercial real estate broker. From
2003 until its merger with Four Oaks Bank & Trust
Company in 2008, Mr. Bullard served as President
and Chief Executive Officer and a director of
LongLeaf Community Bank. Mr. Bullard was appointed
to the board 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.
Factors Bearing on Qualifications of Directors and Nominees
The experience, qualifications, attributes, skills and other factors that
lead our board of directors to conclude that each of our directors listed in the
table above should serve or continue to serve as a director are described below.
Ayden R. Lee, Jr.
- Management experience and understanding of our goals, values and
culture through service as Chief Executive Officer since 1980, a
director since 1983, President since 1989, and Chairman of the Board
of Directors since 2006;
- Extensive knowledge of the banking industry and experience with
various regulatory agencies;
- Accounting background and ability to read and analyze financial
information;
- Leadership skills and ability to work with and motivate others; and
- Visible and active community leader.
Michael A. Weeks
- Understanding of our culture, values and goals through service as
a director of our company since 2007;
- Management experience through managing, operating, and growing a
successful architectural firm since 1987;
- Ability to read and analyze financial statements and communicate
with accounting professionals;
- Knowledge of the real estate market in a portion of our banking
market through managing various real estate development companies;
- Familiarity with regulatory agencies and procedures gained from
his broad-ranging experience on government and private boards and his
real estate development activities; and
- Visible and active community leader.
Dr. R. Max Raynor, Jr.
- Understanding of our goals, values and culture through service as
a director of our company since 2000;
- Management experience through managing, operating, and growing a
successful eye care practice since 1985;
- Ability to identify with the financial needs of small and
mid-sized businesses, which is an important segment of our customer
base; and
- Visible and active community leader.
Paula Canaday Bowman
- Understanding of our goals, values and culture through service as
a director of our company since 1989;
- Varied prior board experience through service on the nominating
and corporate governance committee and the compensation committee and
as director of Benson Area Medical Center;
- Knowledge of the economy in a large part of our market area; and
- Substantial personal financial interest in our long-term growth,
stability and success because of her ownership of our stock.
William J. Edwards
- Understanding of our goals, values and culture through service as
a director of our company since 1990;
- Ability to read and analyze financial statements;
- Management experience through managing, operating, and growing a
successful retail company since 1975; and
- Ability to identify with the financial needs of small and
mid-sized businesses, which is an important segment of our customer
base.
Percy Y. Lee
- Understanding of our goals, values and culture through service as
a director of our company since 1992;
- Management experience through managing, operating, and growing a
successful retail and service company since 1975;
- Ability to identify with the financial needs of small and
mid-sized businesses, which is an important segment of our customer
base; and
- Knowledge of the real estate market in a portion of our banking
market through ownership of rental property companies.
Warren L. Grimes
- Understanding of our goals, values and culture through service as
a director of our company since 1992;
- Ability to read and analyze financial statements;
- Management experience as owner and operator of a private solid
waste business for 22 years; and
- Familiarity with regulatory agencies and procedures gained from
service as executive director of a public housing authority.
John W. Bullard
- Understanding of our goals, values and culture through service as
a director of our company since 2008;
- Executive management experience and extensive knowledge of the
banking industry through service as President and Chief Executive
Officer and a director of LongLeaf Community Bank and various
positions with other banks;
- Ability to read and analyze financial statements and communicate
with accounting professionals;
- Knowledge of the real estate market in a portion of our banking
market through experience as a real estate appraiser and broker; and
- Visible and active community leader.
Number of Directors and Term
The number constituting our board of directors must be at least five (5),
but not more than twenty-one (21). The number of directors within this variable
range may be fixed or changed from time to time by our shareholders or our board
of directors. Our board of directors has set the number of directors at eight
(8). The members of our board of directors are elected by our shareholders to
serve one (1) year terms.
All of our directors 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 AND RISK COMMITTEE REPORT
As described above, the audit and risk 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 and risk 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 auditor 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 and risk committee's responsibility is to
monitor and oversee these processes. The audit and risk committee also hires
and sets the compensation for our independent auditor. Members of the audit and
risk committee rely without independent verification on the information provided
to them and on representations of management and our independent auditor.
Accordingly, the audit and risk 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 and risk 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 and risk committee has met and held discussions
with our management, who represented to the audit and risk committee that our
consolidated financial statements were prepared in accordance with accounting
principles generally accepted in the United States of America. The audit and
risk committee has reviewed and discussed the consolidated financial statements
with both management and the independent auditor. The audit and risk committee
also discussed with the independent auditor matters required to be discussed by
Statement on Auditing Standards No. 61, as amended (AICPA, Professional
Standards, Vol. 1. AU section 380), as adopted by the Public Company Accounting
Oversight Board ("PCAOB") in Rule 3200T. Our independent auditor also provided
to the audit and risk committee the written disclosures and letter required by
applicable requirements of the PCAOB regarding the independent auditor's
communications with the audit and risk committee concerning independence, and
the audit and risk committee has discussed with the independent auditor its
independence.
Based upon the audit and risk committee's discussions with management and
the independent auditor and the audit and risk committee's review of our
consolidated financial statements, representations of management, and the report
of the independent auditor to the audit and risk committee, and subject to the
limitations on the role and responsibility of the audit and risk committee
referred to above and the audit and risk committee charter, the audit and risk
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, 2009 for filing with the Securities and Exchange
Commission.
Audit and Risk Committee
Warren L. Grimes (chairman)
John W. Bullard
William J. Edwards
Michael A. Weeks
INFORMATION CONCERNING EXECUTIVE OFFICERS
Certain information regarding our executive officers is set forth below.
Executive officers are appointed by our board of directors, or a duly appointed
officer if authorized by the board of directors, to hold office until their
death, resignation, retirement, removal, disqualification or until their
successor is appointed and qualifies. Information regarding Mr. Lee is included
in the director profiles set forth above.
Executive
Officer Positions and Offices with our Company & Business
Name Age Since Experience During Past Five (5) Years
- ---- --- -------- -------------------------------------
Ayden R. Lee, Jr. 61 1980 Chief Executive Officer and President of Four Oaks
Fincorp, Inc. and Four Oaks Bank & Trust Company
Clifton L. Painter 60 1989 Senior Executive Vice President, Chief Operating
Officer and Chief Credit Officer of Four Oaks Fincorp,
Inc. and Four Oaks Bank & Trust Company. Mr. Painter
has been our Senior Executive Vice President since
1990, Chief Operating Officer since 1993, and Chief
Credit Officer since 2005. From 1989 to 1990, Mr.
Painter served as Senior Vice President, as City
Executive from 1988 to 1993, and as Vice President and
Branch Manager from 1986 to 1988.
Nancy S. Wise 54 1992 Executive Vice President, Chief Financial Officer of
Four Oaks Fincorp, Inc. and Four Oaks Bank & Trust
Company. Ms. Wise has been our Executive Vice
President and Chief Financial Officer since 2005. She
joined our company as Senior Vice President and Chief
Financial Officer in 1991.
W. Leon Hiatt, III 42 1996 Executive Vice President of Four Oaks Fincorp, Inc. and
Four Oaks Bank & Trust Company, Chief Administrative
Officer of Four Oaks Bank & Trust Company. Mr. Hiatt
has been our Executive Vice President and Chief
Administrative Officer of Four Oaks Bank & Trust
Company since 2005. From 1996 to 2004, he served as
our Senior Vice President, and from 1994 to 1996, he
served as our Credit Administrator.
Jeff D. Pope 53 2004 Executive Vice President of Four Oaks Fincorp, Inc. and
Four Oaks Bank & Trust Company, Chief Banking Officer
of Four Oaks Bank & Trust Company. Mr. Pope has been
our Executive Vice President and Chief Banking Officer
of Four Oaks Bank & Trust Company since January 2009.
From 2005 until January 2009, he served as Executive
Vice President and Branch Administrator, and from 2000
until 2005, he served as Senior Vice President and
Regional Executive.
Lisa S. Herring 34 2009 Executive Vice President of Four Oaks Fincorp, Inc. and
Four Oaks Bank & Trust Company, Chief Risk Officer of
Four Oaks Bank & Trust Company. Ms. Herring has been
our Executive Vice President and Chief Risk Officer of
Four Oaks Bank & Trust Company since July 2009. From
2005 until July 2009, Ms. Herring served as our Senior
Vice President and General Auditor. From 2002 until
2005, Ms. Herring served as our Vice President and
General Auditor.
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table shows the annual and long-term compensation paid to, or
accrued by us for, our CEO and our next two most highly compensated executive
officers for services rendered to us during the fiscal years ended December 31,
2008 and 2009. We refer to the persons identified on the table below as our
"named executive officers."
Non-equity
incentive
Option plan All other
Name and Principal Salary Bonus awards compensation compensation Total
Position Year ($) ($) ($)(1) ($)(2) ($)(3) ($)
-------- ---- ------ ----- ------ ------------ ------------ ------
Ayden R. Lee, Jr., 2009 $ 262,257 $ 200 $ 10,644 - $ 3,499 (4) $ 276,600
Chairman, Chief
Executive Officer
and President 2008 $ 262,257 $ 200 $ 16,109 $ 50,100 $ 12,551 (5) $ 341,217
Clifton L. Painter, 2009 $ 163,286 $ 200 $ 5,535 - $ 3,215 (6) $ 172,236
Senior Executive
Vice President,
Chief Operating
Officer and
Chief Credit Officer 2008 $ 163,286 $ 200 $ 8,377 $ 25,050 $ 11,021 (7) $ 207,934
Jeff D. Pope, 2009 $ 152,174 $ 200 $ 5,322 - $ 3,048 (8) $ 160,744
Executive Vice
President,
Chief Banking
Officer 2008 $ 147,743 $ 200 $ 8,055 $ 25,050 $ 9,841(9) $ 190,889
(1) Reflects the aggregate grant date fair value computed in accordance with
Financial Accounting Standards Board ("FASB") Accounting Standards
Codification Topic 718, Compensation - Stock Options ("ASC Topic 718") of
the option awards granted to each of our named executive officers.
Assumptions used in the calculation of this amount for the fiscal years
ended December 31, 2008 and 2009 are included in Note O of our audited
financial statements for the fiscal year ended December 31, 2009, included
in our Annual Report on Form 10-K filed with the SEC on March 31, 2010.
(2) These amounts are the cash awards to the named executive officers under our
2008 Bonus Plan. These cash awards were earned as of December 31, 2008, but
paid out in February 2009, respectively. There was no Bonus Plan for 2009.
(3) The amounts shown reflect for each named executive officer:
- contributions by us to each named executive officer under our
Four Oaks Bank & Trust Company Retirement Plan;
- contributions by us under the Employee Stock Ownership Plan ("ESOP");
and
- the value attributable to term life insurance premiums paid by us.
(4) Includes $3,109 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan and $390 in life insurance premiums paid by us on behalf of
the named executive officer.
(5) Includes $2,920 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $9,200 in contributions under our ESOP, and $431 in life
insurance premiums paid by us on behalf of the named executive officer.
(6) Includes $2,825 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan and $390 in life insurance premiums paid by us on behalf of
the named executive officer.
(7) Includes $2,570 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $8,020 in contributions under our ESOP, and $431 in life
insurance premiums paid by us on behalf of the named executive officer.
(8) Includes $2,658 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan and $390 in life insurance premiums paid by us on behalf of
the named executive officer.
(9) Includes $2,337 in contributions under our Four Oaks Bank & Trust Company
Retirement Plan, $7,073 in contributions under our ESOP, and $431 in life
insurance premiums paid by us on behalf of the named executive officer.
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 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 (each as defined in the
Employment Agreements) 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 (as defined in the Employment Agreements) or
because of Disability, the executive officer is entitled to receive as a lump
sum an amount equal to his 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. 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
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 most recent annual compensation, including the amount of
his most recent bonus. In addition, the named executive officer is entitled to
reimbursement for additional costs he incurs in obtaining health insurance
benefits equivalent to the group benefit plan in which he participated prior to
termination of employment for a 24-month period following the termination of
employment or, if sooner, until he obtains comparable coverage in connection
with subsequent employment.
2009 Stock Option Grants
Grants of stock options to our named executive officers 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. The following table contains information about the option
grants made to our named executive officers in 2009.
2009 Outstanding Equity Awards at Fiscal Year-End
Number of Number of
Securities Securities
underlying underlying
unexercised unexercised Option
options options Exercise
(#) (#) Price Option Expiration
Name Exercisable Unexercisable ($) Date
- ------------------------- ------------------- ----------------- ---------- --------------------
Ayden R. Lee, Jr. - 5,000 (1) $ 8.64 2/25/2014
5,000 (2) - $ 15.55 2/25/2012
4,400 (3) - $ 24.41 2/26/2011
5,500 (4) - $ 16.73 2/21/2010
Clifton L. Painter - 2,600 (1) $ 8.64 2/25/2014
2,600 (2) - $ 15.55 2/25/2012
2,310 (3) - $ 24.41 2/26/2011
2,853 (4) - $ 16.73 2/21/2010
Jeff D. Pope - 2,500 (1) $ 8.64 2/25/2014
2,500 (2) - $ 15.55 2/25/2012
2,200 (3) - $ 24.41 2/26/2011
2,715 (4) - $ 16.73 2/21/2010
(1) Option was granted on February 25, 2009 pursuant to our Nonqualified Stock
Option Plan. This option has a two-year vesting period and expires five
years after the date of grant.
(2) Option was granted on February 25, 2008 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 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.
(4) 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.
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.
SERP
Under the terms of the SERP adopted for Ayden R. Lee, Jr. by our
subsidiary, Four Oaks Bank & Trust Company, upon Mr. Lee's retirement from the
bank, the bank will provide him with supplemental annual payments for the
remainder of his life. The purpose of the SERP is to encourage Mr. Lee to
remain as an employee of the bank and to reward him for contributing materially
to the success of the bank. Under the SERP, 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.
Qualified Retirement Plans
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 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 the ESOP that makes our employees 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.
Severance and Change in Control Arrangements
Employment Agreements. As described in the "Amended and Restated Executive
Employment Agreements" 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:
- 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.
- 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.
- 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.
- 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 her 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.
Nonqualified Stock Option Plan. Our Nonqualified Stock Option Plan and the
stock option agreements with each named executive officer provide the following:
- 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.
- 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.
- 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 for awards granted prior to
2009 and not more than five years after the date of the option grant
for awards granted beginning in 2009. 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 for awards granted prior to 2009 and not more
than five years after the date of the option grant for awards granted
beginning in 2009.
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.
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.
2009 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 2009.
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 2009, all of the non-management directors were
paid a discretionary cash Christmas bonus of $200.
The table below summarizes the compensation paid by us to non-management
directors for the fiscal year ended December 31, 2009.
Fees Earned or Option All Other
Name Paid in Cash Awards Compensation Total
(1) ($) ($) (2) ($) (3) ($)
- ---------------------------------- ---------------- ---------------- ------------------- ----------------
Paula Canaday Bowman $ 17,575 $ 1,064 $ 200 $ 18,839
William J. Edwards $ 22,950 $ 1,064 $ 200 $ 24,214
Warren L. Grimes $ 23,025 $ 1,064 $ 200 $ 24,289
Percy Y. Lee $ 19,525 $ 1,064 $ 200 $ 20,789
Dr. R. Max Raynor, Jr. $ 17,625 $ 1,064 $ 200 $ 18,889
Michael A. Weeks $ 23,100 $ 1,064 $ 200 $ 24,364
John W. Bullard $ 22,150 $ 1,064 $ 119,800 $ 143,014
(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 aggregate grant date fair value computed in
accordance with FASB ASC Topic 718. Assumptions used in the
calculation of this amount are included in Note O of our audited
financial statements for the fiscal year ended December 31, 2009,
included in our Annual Report on Form 10-K filed with the SEC on March
31, 2010. As of December 31, 2009, each director has the following
number of options outstanding: Paula Canaday Bowman 1,742; William J.
Edwards 1,742; Warren L. Grimes 1,742; Percy Y. Lee 1,742; Dr. R. Max
Raynor, Jr. 1,742; Michael A. Weeks 1,742; and John W. Bullard 21,277.
Mr. Bullard received 20,777 options as a result of the assumption of
LongLeaf Community Bank stock options in connection with the 2008
merger of LongLeaf Community Bank with and into Four Oaks Bank & Trust
Company and not as compensation for service on the board of directors.
(3) Reflects a discretionary cash bonus of $200 for each director,
$50,000 in consulting fees paid to Mr. Bullard and $69,600 in
severance payments to Mr. Bullard during 2009.
Agreements with John W. Bullard
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 (the
"Merger Agreement"). 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.
Also on April 17, 2008 and pursuant to the terms of the Merger Agreement,
Mr. Bullard entered into a three-year consulting agreement with 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:
- 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
- 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.
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.
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 (i) 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 and (ii) certain
outstanding stock options granted under the Nuestro Banco 2007 Nonstatutory
Stock Option Plan and Nuestro Banco 2007 Incentive Stock Option Plan in
connection with our acquisition of Nuestro Banco in December 2009. The
following table sets forth aggregate information regarding our equity
compensation plans as of December 31, 2009:
(a) (b) (c)
Number of securities
remaining available for
future
Number of securities to Weighted-average issuance under equity
be issued upon exercise exercise price of compensation plans
Plan Category of outstanding options, outstanding options, (excluding securities
warrants and rights warrants and rights reflected in column (a))
- -----------------------------------------------------------------------------------------------------
Equity compensation plans
approved by security holders N/A N/A N/A
Equity compensation plans not
approved by security holders 184,738 (1) $15.48 673,805 (2)
------------------------ -------------------- ------------------------
Total 184,738 $15.48 673,805
======================== ==================== ========================
(1) Represents shares issuable upon exercise of outstanding stock
options under our Nonqualified Stock Option Plan. Excludes 116,001
shares issuable upon exercise of outstanding stock options assumed in
the acquisition of LongLeaf Community Bank, which have a
weighted-average exercise price of $10.92 per share, and 13,928 shares
issuable upon exercise of outstanding stock options assumed in the
acquisition of Nuestro Banco, which have a weighted-average exercise
price of $40.79 per share.
(2) Includes 508,870 shares of our common stock remaining available
for future issuance under our Nonqualified Stock Option Plan and
164,935 shares of our common stock remaining available for future
issuance under our Employee Stock Purchase and Bonus Plan.
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 25, 2010, 1,542,773 shares had been reserved for issuance under
the Option Plan. As of March 25, 2010, there were 205,750 outstanding stock
options, and 447,845 shares remained available for future grants. During 2009,
options to purchase 58,075 shares of our common stock were granted at an average
exercise price of $8.64 per share. On September 1, 2009, we increased the number
of shares reserved for issuance under the Option Plan by 200,000 shares from
1,342,773 to 1,542,773 shares.
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.
As of March 25, 2010, 368,554 shares of our common stock had been reserved
for issuance under the Purchase Plan, and 203,619 shares had been purchased.
During 2009, 23,063 shares were purchased under the Purchase Plan. On September
1, 2009, we increased the number of shares reserved for issuance under the
Purchase Plan by 100,000 shares from 268,554 to 368,554 shares.
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. Since January 1, 2008, loans outstanding to our directors and
executive officers and their associates as a group amounted to a maximum of
approximately $4,411,000 or 5.70% 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.
We sold $12 million aggregate principal amount of subordinated promissory
notes in several closings from May through August 2009. In the initial closing
on May 15, 2009, Percy Y. Lee, a current director of our company, and his spouse
Joyce Lee jointly purchased $250,000 principal amount of the notes, and Peggy
Edwards, the spouse of William J. Edwards, another director, also purchased
$250,000 principal amount of the notes. We are obligated to pay interest on the
notes at an annualized rate of 8.5% payable in quarterly installments commencing
on the third month anniversary of the date of issuance of the notes. As of March
25, 2010, we have paid $15,938 in interest on each of the notes held by Mr. and
Mrs. Lee and by Mrs. Edwards. We may prepay the notes held by Mr. and Mrs. Lee
and Mrs. Edwards at any time after May 15, 2014 subject to compliance with
applicable law.
Upon the occurrence, and during the continuation, of an event of default
under which we fail to pay any amounts when due or fail to observe or perform
any material covenant that remains uncured for 30 days, the notes will bear
interest at a rate equal to the lesser of the existing interest rate plus 2% or
the maximum rate permissible under law. In addition, payment of the notes will
be automatically accelerated if we enter voluntary or involuntary bankruptcy or
insolvency proceedings.
The notes are unsecured and subordinated to (i) all indebtedness we owe to
our secured creditors and general creditors; (ii) obligations arising from
off-balance sheet guarantees and direct credit substitutes; (iii) obligations
associated with derivative products such as interest rate and foreign exchange
contracts, commodity contracts and similar arrangements; and (iv) any such
indebtedness or any debentures, notes or other evidence of indebtedness issued
in exchange for or to refinance any senior indebtedness or any indebtedness
arising from the satisfaction of any such senior indebtedness by a guarantor.
For a description of our agreements with Mr. Bullard in connection with our
2008 acquisition of LongLeaf Community Bank, please see "Executive
Compensation-2009 Director Compensation-Agreements with John W. Bullard." We had
no other transactions with related persons in 2008 or 2009 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 2010.
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, 2009, all Section 16(a) filing requirements
applicable to our officers, directors, and ten percent (10%) shareholders were
satisfied, except:
- Mr. John W. Bullard failed to timely file a Form 4 for shares
that he purchased on March 3, 2009; and
- Mr. Michael Weeks failed to timely file a Form 4 for shares that
his spouse purchased on November 4, 2009.
AUDITFIRM FEE SUMMARY
During the fiscal years ended December 31, 2009 and 2008, we retained our
independent auditor, Dixon Hughes PLLC, to provide services in the following
categories and amounts:
2009 2008
Audit Fees(1) $ 99,380 $ 154,638
Audit-Related Fees(2) 90,195 136,846
Tax Fees(3) 9,300 21,050
All Other Fees(4) - -
----------------------------- --------------------------
TOTAL $ 198,875 $ 312,534
============================= ==========================
(1) "Audit Fees" are fees for professional services billed by Dixon
Hughes PLLC for the audit of our annual financial statements, for the
reviews of financial statements included in our quarterly reports on
Form 10-Q, for the 2008 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.
(2) "Audit-Related Fees" are fees billed for assurance and related
services performed by Dixon Hughes PLLC that are reasonably related to
the performance of the audit or review of our financial statements,
and are not reported above under "Audit Fees." In 2009 and 2008, these
services included 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. In 2009 and 2008, these services also included those related
to the acquisition of Nuestro Banco and Longleaf Community Bank,
respectively.
(3) "Tax Fees" are fees billed for professional services performed by
Dixon Hughes PLLC with respect to tax compliance, tax advice, and tax
planning. In 2009 and 2008, these services included preparation of
income tax returns and quarterly estimate income tax payments.
(4) "All Other Fees" are fees billed for other products and services
provided by Dixon Hughes PLLC that do not meet the above category
descriptions.
Our audit and risk committee has considered the compatibility of the
non-audit services performed by and fees paid to Dixon Hughes PLLC in fiscal
year 2009 and fiscal year 2008 and determined that such services and fees were
compatible with the independence of the public accountants. During fiscal year
2009, Dixon Hughes PLLC did not utilize any personnel in connection with the
audit other than its full-time, permanent employees.
Policy for Approval of Audit and Non-Audit Services. Before we engage an
accountant for any audit or permissible non-audit service, we are required to
obtain the approval of our audit and risk committee. In determining whether to
approve a particular audit or permitted non-audit service, our audit and risk
committee considers, among other things, whether such service is consistent with
maintaining the independence of the independent public accountant. Our audit
and risk committee also considers whether the independent auditor 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 2009 and 2008 were pre-approved by the audit and
risk committee.
Proposal No. 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The audit and risk 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, 2010. 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.
Although shareholder ratification of the appointment is not required by
law, our company desires to solicit such ratification as a matter of good
corporate governance. If the appointment of Dixon Hughes PLLC is not ratified by
a majority of the shares cast at the annual meeting, the audit and risk
committee will consider the appointment of another independent registered public
accounting firm for subsequent fiscal years.
Vote Requirement
Assuming the presence of a quorum, approval of the 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
broker non-votes will not count as votes cast and will have no effect on the
outcome of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE RATIFICATION OF THE
APPOINTMENT OF DIXON HUGHES PLLC AS OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM FOR THE FISCAL YEAR ENDING DECEMBER 31, 2010 AS DESCRIBED IN THIS PROPOSAL
NO. 2.
Proposal No. 3
SHAREHOLDER PROPOSAL REGARDING INDEPENDENT
CHAIRMAN OF THE BOARD
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 William M.
Womble, Jr., 3 Scotscraig Court, Pinehurst, North Carolina 28374, who holds
27,339 shares of our common stock.
The shareholder proposal and the supporting statement read as follows:
Resolved: That the shareholders of "Four Oaks Fincorp, Inc." request the
Board of Directors to amend Section 7 of the bylaws to add the
following text:
"The Chairman of the Board of Directors shall be a director who is
independent from the corporation. For purposes of this bylaw,
"independent" has the meaning of being not affiliated with management,
that is, a nonmember of management."
Stockholder's statement supporting the Proposal:
Four Oaks Fincorp, Inc.'s CEO and President, Ayden R Lee, Jr. currently
serves as Chairman of the Board. Yet the duties of CEO/President and
Chairman are very different and often in conflict, and combining the roles
can lead to focusing on short-term goals. Developing oversight of
management objectively is crucial to Four Oaks long-term growth prospects
because:
1. An independent chairman serves as a check on the overall
risk appetite of the CEO;
2. Allows the CEO to run the business while the Chairman leads
the board in policy making duties;
3. Allows full debate by the board about key issues such as
risk management;
4. Allows the board to better fulfill their fiduciary
responsibility to shareholders.
Four Oaks is an excellent financial institution impacting the local
economies it serves. Yet as we investors have seen clearly this year,
improved risk management and oversight is critical to the Bank's
sustained success, especially in the wake of challenging economic times.
I therefore urge each stockholder to vote FOR this Proposal.
Company Response to Shareholder Proposal
After thoughtful consideration, the board of directors believes that this
proposal is not in the best interest of our shareholders and strongly opposes
this shareholder proposal.
This shareholder proposal would put into place a rigid, inflexible
requirement that limits the board's ability to select the best and
most-qualified individual to serve as its chair, while the existing selection
process allows the board to take into account the specific challenges and needs
of the company, as well as the relative strengths and weaknesses of each board
member, to determine whether the roles of Chairman and Chief Executive Officer
should be held by one or different individuals at any given time. The current
Chairman is also the Chief Executive Officer, Ayden R. Lee, Jr. Mr. Lee is the
longest-running member of the board, having first been appointed in 1983, and he
is the most familiar with the company and its unique challenges from his
position in senior management. As such, his ability to lead discussions on
matters affecting the company maximizes the efficiency and productivity of the
board. The board members are the best-situated individuals to determine how to
organize the directors and executives to serve the shareholders most effectively
over time. It would be to the shareholders' detriment to tie the board's hands
on such an important decision.
Additionally, concerns about the ability of the board to effectively manage
risk with a combined CEO-Chairman are fully addressed by the board's current
governance structure. The active and largely independent board (six of our
eight directors meet the Nasdaq definition of "independent director") is
involved in developing and implementing strategy and providing oversight of
business results and the accompanying risk. The board rigorously evaluates the
CEO's performance and compensation, and it further demonstrates its dedication
to independence by continually developing and adhering to corporate governance
policies that ensure both objectivity and performance at the highest possible
levels. Our compensation committee and nominating and corporate governance
committee are entirely independent, the audit and risk committee has a majority
of independent directors, and our independent directors meet in Executive
Session at least quarterly.
To demonstrate its continuing commitment to strong corporate governance and
board independence, the board recently created the role of Lead Independent
Director to further reduce any chance of potential conflicts when the roles of
CEO and Chairman are held by the same individual. Elected by and from the
independent board members, the Lead Independent Director is a non-management
director with clearly delineated duties, including the following: 1) presiding
over all meetings of the board of directors at which the Chairman is not
present, including Executive Sessions of the independent directors; 2) serving
as liaison between the Chairman and the independent directors; 3) reviewing and
providing input on the agenda and materials to be provided to directors in
advance of each board meeting, in consultation with the Chairman; 4) adding
items to the agenda, as necessary; 5) calling meetings of the independent
directors, as necessary; 6) serving on the nominating and corporate governance
committee; and 7) ensuring that he or she is available for consultation and
direct communication, upon shareholder request. The board has selected Michael
A. Weeks to serve as its first Lead Independent Director.
Finally, the candor, objectivity, and effectiveness of the board's
deliberations are not affected by the status of its chair as a member of
management. On the contrary, the board actively seeks out opportunities to hear
not only from the CEO but also from other members of senior management who can
provide critical insight on relevant topics, and the board does not at all find
the current chair's dual role to have a negative impact on the board's ability
to make independent, objective decisions. The CEO-Chairman acts as a bridge
between management and the board, helping both groups to act with a common
purpose and thereby ensuring maximum value for shareholders.
Given the experience of the current CEO-Chairman, the board's substantial
independence, and its recent creation of a Lead Independent Director position to
further promote the governance goals of effectively overseeing risk, actively
developing and implementing corporate strategy, and maximizing the efficiency
and effectiveness of the board and its independent committees, the board finds
the continued option to appoint a combined CEO-Chairman to be in the best
long-term interest of the company and its shareholders.
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 broker non-votes will not count as votes cast and will have no
effect on the outcome of this proposal.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "AGAINST" THE SHAREHOLDER PROPOSAL
TO AMEND OUR BYLAWS TO REQUIRE AN INDEPENDENT CHAIRMAN OF THE BOARD AS DESCRIBED
IN THIS PROPOSAL NO. 3.
ADDITIONAL INFORMATION
A copy of our Annual Report on Form 10-K for the fiscal year ended December
31, 2009, including the financial statements and schedules thereto, as filed
with the SEC (without exhibits) will be furnished, without charge, upon written
request 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 2011 ANNUAL MEETING
Any proposals that shareholders intend to present for a vote of
shareholders at the 2011 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 6, 2010 (120 calendar days prior to the anniversary of the date of this
proxy statement). Proposals received after December 6, 2010 will not be
considered for inclusion in our proxy materials for our 2011 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
2011 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 19, 2011 (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 19, 2011, that the proponent intends to deliver a proxy statement and
form of proxy to holders of at least the percentage of our voting shares
required under applicable law to carry the proposal, (y) include the same
statement in its proxy materials filed with the SEC, and (z) immediately after
soliciting the percentage of shareholders required to carry the proposal,
provide us with a statement from any solicitor, or other person with knowledge,
that the necessary steps have been taken to deliver a proxy statement and form
of proxy to holders of such percentage of shares.
OTHER MATTERS; DISCRETIONARY AUTHORITY
As of the date of this proxy statement, we know of no business that will be
presented for consideration at the annual meeting other than the items referred
to above. The enclosed proxy confers discretionary authority to vote with
respect to any and all of the following matters that may come before the annual
meeting: (i) matters for which we did not receive timely notice; (ii) approval
of the minutes of a prior meeting of shareholders, if such approval does not
amount to ratification of the action taken at the meeting; (iii) the election of
any person to any office for which a bona fide nominee is named in this proxy
statement and such nominee is unable to serve or for good cause will not serve;
(iv) any proposal omitted from this proxy statement and the form of proxy
pursuant to Rule 14a-8 or Rule 14a-9 under the Exchange Act; and (v) matters
incidental to the conduct of the annual meeting. If any such matters come
before the annual meeting, the proxies 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 2010 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 10, 2010, 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 5, 2010
Ayden R. Lee, Jr.
Chairman, Chief Executive Officer,
and President
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FOUR OAKS FINCORP, INC.
FOR THE 2010 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 10, 2010 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" proposals #1 and #2 and "AGAINST" proposal #3 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 10, 2010
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 10, 2010
1. To elect the following nominees to the board of directors
[] 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. To ratify the appointment of Dixon Hughes PLLC as Four Oaks Fincorp, Inc.'s
independent registered public accounting firm for the fiscal year ending
December 31, 2010
[ ] FOR
[ ] AGAINST
[ ] Abstain to vote
- ------------------------------------------------------
3. Shareholder proposal to amend the bylaws of Four Oaks Fincorp, Inc. to
require an independent chairman of the board
[ ] FOR
[ ] AGAINST
[ ] Abstain to vote
THE BOARD OF DIRECTORS FAVORS A VOTE "FOR" PROPOSALS #1 AND #2 AND "AGAINST"
PROPOSAL #3, 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
10, 2010. 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 10, 2010:
1-866-265-2185
- --------------------------------------------------------------------------------
Vote by Internet
anytime prior to 3 a.m., May 10, 2010, 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 _______