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First Community Bancshares DEF 14A 2007 Table of Contents
FIRST COMMUNITY BANCSHARES, INC.
(Name of Registrant as Specified In Its Charter)
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
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First
Community Bancshares, Inc.
One Community Place Bluefield, Virginia 24605-0989
To the Stockholders of First Community Bancshares, Inc.:
The Annual Meeting of Stockholders of First Community
Bancshares, Inc. will be held at Fincastle Country Club located
at 1000 Country Club Drive, Bluefield, Virginia, at
11:30 a.m. local time on Tuesday April 24, 2007, for
the purpose of considering and voting upon the following items
as more fully discussed herein.
Only stockholders of record at the close of business on
March 6, 2007, are entitled to notice of and to vote at the
Annual Meeting or at any adjournment thereof.
By Order of the Board of Directors
Robert L. Buzzo, Secretary
March 22, 2007
WHETHER OR NOT YOU ATTEND THE ANNUAL MEETING, YOUR VOTE IS
IMPORTANT TO US. YOU MAY VOTE BY THE FOLLOWING METHODS:
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PROXY
STATEMENT
Annual
Meeting of Stockholders
The Board of Directors of First Community Bancshares, Inc. (the
“Corporation”) solicits the enclosed proxy for use at
the Annual Meeting of Stockholders of the Corporation (the
“Annual Meeting”), which will be held on Tuesday,
April 24, 2007, at 11:30 a.m. local time at Fincastle
Country Club, 1000 Country Club Drive, Bluefield, Virginia, and
at any adjournment thereof.
The expenses of the solicitation of the proxies for the Annual
Meeting, including the cost of preparing, assembling and mailing
the notice, proxy statement and return envelopes, the handling
and tabulation of proxies received, and charges of brokerage
houses and other institutions, nominees or fiduciaries for
forwarding such documents to beneficial owners, will be paid by
the Corporation. In addition to the mailing of the proxy
material, solicitation may be made in person, by telephone or by
other means by officers, directors or regular employees of the
Corporation.
This Proxy Statement and the proxies solicited hereby are being
first sent or delivered to stockholders of the Corporation on or
about March 22, 2007.
Shares of common stock (par value $1.00 per share)
(“Common Stock”) represented by proxies in the
accompanying form, which are properly executed and returned to
the Corporation, will be voted at the Annual Meeting in
accordance with the stockholder’s instructions contained
therein. In the absence of contrary instructions, shares
represented by such proxies will be voted FOR the election of
the nominees as described herein under “Election of
Directors,” FOR approval of the amendment to the Articles
of Incorporation of the Corporation and FOR ratification of
Dixon Hughes PLLC as the Corporation’s independent
registered public accountants.
Any stockholder has the power to revoke his proxy at any time
before it is voted. A proxy may be revoked at any time prior to
its exercise by the filing of written notice of revocation with
the secretary of the Corporation, by delivering to the
Corporation a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if
you are a stockholder whose shares are not registered in your
own name, you will need additional documentation from your
record holder to vote personally at the Annual Meeting.
The Board of Directors has fixed March 6, 2007, as the
record date for stockholders entitled to notice of and to vote
at the Annual Meeting. Shares of Common Stock outstanding on the
record date are entitled to be voted at the Annual Meeting and
the holders of record will have one vote for each share so held
in the matters to be voted upon by the stockholders.
Stockholders of the Corporation do not have cumulative voting
rights.
The presence in person or by proxy of a majority of the shares
of the Common Stock entitled to vote is necessary to constitute
a quorum at the Annual Meeting. Abstentions are considered in
determining the presence of a quorum. Directors are elected by a
plurality of the votes cast at a stockholder’s meeting with
a quorum present. The three persons who receive the greatest
number of votes of the holders of Common Stock represented in
person or by proxy at the Annual Meeting will be elected
directors of the Corporation. Approval of the amendment to the
Corporation’s Articles of Incorporation requires the
affirmative vote of two-thirds of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting. Approval
of the ratification of the independent registered public
accountants requires that the number of votes cast in favor of
the proposal exceeds the number of votes cast against.
Abstentions and broker non-votes will have no effect on the
election of directors or ratification of the independent
registered public accountants. Because abstentions and broker
non-votes represent shares entitled to vote, abstentions and
broker non-votes will have the same effect as a vote against the
proposal to amend the Corporation’s Articles of
Incorporation. A broker non-vote occurs when a bank, broker or
other nominee holding shares for a beneficial owner does not
vote on a particular proposal because it does not have
discretionary voting power with respect to that item and has not
received voting instructions from the beneficial owner.
As of the close of business on March 6, 2007, the
outstanding shares of the Corporation consisted of
11,268,552 shares of Common Stock.
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The Corporation’s Board of Directors is comprised of nine
directors, including eight non-employee directors, divided into
three classes with staggered terms. All directors are elected
for three-year terms. All directors have been determined to be
independent by the Board of Directors except for Mr. John
M. Mendez, who is employed by the Corporation as President and
Chief Executive Officer.
The nominees for the Board of Directors to serve until the
Annual Meeting of Stockholders in 2010 are set forth below. All
nominees are currently serving on the Corporation’s Board
of Directors. In the event any nominee is unable or declines to
serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by
the present Board of Directors to fill the vacancy. In the event
that additional persons are nominated for election as directors,
the proxy holders intend to vote all proxies received by them
for the nominees listed below. All nominees named herein have
consented to be named and to serve as directors if elected.
No director or executive officer of the Corporation is related
to any other director or executive officer of the Corporation by
blood, or marriage or adoption, except for Mr. Stafford who
is the father of Mr. Stafford, II.
THE BOARD
OF DIRECTORS RECOMMENDS A VOTE “FOR” EACH OF THE
NOMINEES FOR DIRECTOR.
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The following persons will continue to serve as members of the
Board of Directors until the Annual Meeting of Stockholders in
the year of the expiration of their designated terms. The name,
age, principal occupation and certain biographical information
for each continuing director are presented below:
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The name, age, principal occupation and certain biographical
information for each continuing executive officer are presented
below:
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The following table sets forth, as of March 6, 2007,
certain information as to the Common Stock beneficially owned by
(i) each person or entity, including any “group”
as that term is used in Section 13(d)(3) of the Exchange
Act, who or which was known to the Corporation to be the
beneficial owner of more than 5% of the issued and outstanding
Common Stock; (ii) directors and named executive officers
of the Corporation and its major subsidiaries; and
(iii) all directors and executive officers of the
Corporation as a group. Except as otherwise indicated, the
persons named in the table below have sole voting and investment
power with respect to the Common Stock shown as beneficially
owned by them.
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Section 16(a) of the Securities and Exchange Act of 1934,
as amended (the “Exchange Act”), requires the
Corporation’s officers, directors and persons who own more
than 10% of the Corporation’s capital stock (collectively,
“Reporting Persons”) to file reports of ownership and
changes in ownership with the Securities and Exchange Commission
and the National Association of Securities Dealers, Inc. The
Reporting Persons are required by regulation to furnish the
Corporation with copies of all forms they file pursuant to
Section 16(a) of the Exchange Act.
Based solely on review of the copies of such forms furnished to
the Corporation, or written representations from its officers
and directors, the Corporation believes that during, and with
respect to, fiscal 2006, the Corporation’s officers and
directors complied in all respects with the reporting
requirements promulgated under Section 16(a) of the
Exchange Act.
CORPORATE
GOVERNANCE
The Board of Directors held nine meetings during 2006. All
directors attended at least 75% of all meetings of the Board and
any committee of which they were members. Directors are
encouraged to attend annual meetings of the Corporation’s
stockholders. All directors attended last year’s Annual
Meeting.
The Board of Directors of the Corporation previously established
an Audit Committee, which consists of Chairman Perkinson and
Messrs. Hamner, Harvey and Groome, all non-employee members
of the Board. Each Audit Committee member is independent under
the NASDAQ Global Select listing standards as well as the
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Sarbanes-Oxley Act of 2002. The Audit Committee, which operates
under a Board-approved charter, held thirteen meetings during
2006, reviews and acts on reports to the Board with respect to
various auditing and accounting matters, the scope of the audit
procedures and the results thereof, the internal accounting and
control systems of the Corporation, the nature of service
performed for the Corporation by, and the fees to be paid to,
the Independent Registered Public Accounting Firm, the
performance of the Corporation’s Independent Registered
Public Accounting Firm and internal auditors, and the accounting
practices of the Corporation. In 2003, the Board of Directors
designated Mr. Harvey as the Audit Committee’s
Financial Expert, based upon his qualifications and experience.
The Audit Committee is responsible for the appointment of the
Independent Registered Public Accounting Firm. The 2006 Report
of the Audit Committee is presented beginning on page 9 of
this Proxy Statement. The Corporation’s Audit Committee
charter is available at the Corporation’s website at
www.fcbinc.com.
The Compensation and Retirement Committee, which operates under
a Board-approved charter, consists of Chairman Groome and
Messrs. Hamner, Modena, and Stafford, II, all of whom
are independent. The Compensation and Retirement Committee is
responsible for the review and consideration of the form and
amount of compensation and contractual employment terms of the
President and Chief Executive Officer of the Corporation; the
review of compensation of other executive officers; and the
review of stock-based compensation plans and various
non-qualified compensation and retirement programs maintained by
the Corporation.
Other responsibilities of the Compensation and Retirement
Committee include the development of proposed contractual terms
of employment and establishment of a framework for a competitive
compensation package for the CEO and long-term compensation
programs for all executive officers that adequately reward
performance. In carrying out its responsibilities, the
Compensation and Retirement Committee considers: i) the
need to retain competent and effective management personnel;
ii) past performance of the CEO and other executive
officers as measured against predetermined goals and objectives;
and iii) the achievement of overall corporate goals.
The Compensation Discussion and Analysis regarding compensation
matters is presented beginning on page 11 of this Proxy
Statement, and the 2006 Report of the Compensation and
Retirement Committee is presented on page 8 of this Proxy
Statement. In addition, the Corporation’s Compensation and
Retirement Committee charter is available at the
Corporation’s website, www.fcbinc.com.
The Board of Directors of the Corporation previously established
an Executive Committee, which consists of Chairman Stafford and
Messrs. Hamner, Harvey, Mendez, Modena, and
Stafford, II. Except for Mr. Mendez, each member of
the Executive Committee is independent. The Executive Committee
held no meetings during 2006. The Executive Committee is
empowered to act on behalf of the Board on most corporate
matters not involving business combinations.
The Governance and Nominating Committee is comprised of
Messrs. Harvey, Hamner, Kantor and Modena, all independent
directors. This Committee operates under a Board-approved
charter that outlines Committee responsibilities, including
review of the composition and qualifications of the Board of
Directors, periodic evaluation of the Board and its
effectiveness, review of Board membership needs, search,
screening, and evaluation of director nominees and the
evaluation of and response to stockholder proposals regarding
board composition and membership, when and if presented to the
Corporation. The Committee also annually reviews and reassesses
the adequacy of corporate governance practices of the
Corporation, recommends any proposed improvement and changes to
the Board for approval, and considers other corporate governance
matters and related issues including review of conflicts of
interest and matters involving the Corporation’s Code of
Conduct.
The Governance and Nominating Committee replaced the former
Nominating Committee in August of 2006. Changes were made to the
Committee’s charter and duties at that time. The
Corporation’s Governance and Nominating Committee charter
is available at the Corporation’s website at www.fcbinc.com.
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Nominations to the Board of Directors by stockholders to be
considered at the 2007 Annual Meeting of Stockholders must be
made in writing and delivered or mailed to the Corporate
Secretary not less than thirty days prior to the 2007 Annual
Meeting. However, in the event that less than thirty days notice
of the 2007 Annual Meeting is given to stockholders, such notice
of nomination shall be mailed or delivered to the Corporate
Secretary no later than the close of business on the seventh day
following the day on which the notice of the meeting was mailed.
The notice must set forth the candidate’s name, age,
business address, residence address, principal occupation or
employment, number of shares beneficially owned by the
candidate, qualifications for Board membership, and any other
information that would be required to solicit a proxy under
federal securities law. In addition, the notice must include the
nominating stockholder’s name, address, and number of
shares beneficially owned and holding period of each share.
The Committee believes that Board members and nominees to the
Board of Directors must at a minimum possess the ability to read
and understand financial statements, have a history evidencing
the ability to make sound business decisions, be possessed of
strong personal financial standing, be possessed of good moral
character and demonstrate high ethical behavior. At least one
member of the Board must possess superior financial expertise to
such a degree so as to be designated as a financial expert not
only by the Board of Directors, but in particular by the Audit
Committee on which the financial expert would serve.
The Governance and Nominating Committee will consider
stockholder recommendations for Board candidates when the
recommendations are properly submitted. Any stockholder
recommendations for candidates to be nominated for Board service
submitted under the criteria summarized above should be
addressed to:
Corporate Secretary
First Community Bancshares, Inc. P.O. Box 989 Bluefield, Virginia 24605-0989
Some of the directors and officers of the Corporation and
members of their immediate families are at present, as in the
past, customers of the Corporation’s subsidiary bank, and
have had and expect to have transactions with the bank. In
addition, some of the directors and officers of the Corporation
are, as in the past, also officers of or partners in entities
that are customers of the bank and have had and expect to have
transactions with the bank. Such transactions were made in the
ordinary course of business, were made on substantially the same
terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
persons, and did not involve more than normal risk of
collectibility or present other unfavorable features.
No member of the Compensation and Retirement Committee is an
officer or employee of the Corporation and no such member or
executive officer of the Corporation has a relationship that
would constitute an interlocking relationship with executive
officers or directors of another public corporation.
The Committee has reviewed and discussed the Compensation
Discussion and Analysis with management, and based on its review
and discussion, the Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be
included in this proxy statement and incorporated by reference
in the Corporation’s Annual Report on
Form 10-K.
Harold V. Groome, Jr.
Allen T. Hamner A. A. Modena William P. Stafford, II
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This Compensation and Retirement Committee Report shall not be
deemed to be incorporated by reference into any filing under the
Securities Act or the Exchange Act, unless the Corporation
specifically incorporates this report by reference, and shall
not otherwise be deemed filed under the Securities Act or the
Exchange Act.
The Audit Committee of the Board is responsible for providing
independent, objective oversight of the Corporation’s
accounting functions, financial reporting process and internal
controls.
The responsibilities of the Audit Committee include the
appointment of an Independent Registered Public Accounting Firm
to be engaged as the Corporation’s Independent Registered
Public Accounting Firm for the purpose of performing an audit of
the Corporation’s financial statements, expressing an
opinion as to the conformity of such financial statements with
accounting principles generally accepted within the United
States, and expressing an opinion on the effectiveness of the
Corporation’s internal control over financial reporting.
Additionally, and as appropriate, the Audit Committee reviews,
evaluates, discusses, and consults with management, internal
audit personnel, and the Independent Registered Public
Accounting Firm regarding the following:
The Audit Committee Charter incorporates standards set forth in
Securities and Exchange Commission regulations and the listing
standards of the NASDAQ Global Select market. After appropriate
review and discussion, the Audit Committee determined that the
Committee fulfilled its responsibilities under the Audit
Committee Charter in 2006.
The Audit Committee is responsible for recommending to the Board
whether the Corporation’s financial statements be included
in its annual report. The Committee held thirteen meetings
during the fiscal year 2006 and took a number of steps in making
the Independent Registered Public Accounting Firm
recommendation. First, the Audit Committee discussed with its
Independent Registered Public Accounting Firm those matters the
firm communicated to and discussed with the Audit Committee
under applicable auditing standards, including information
regarding the scope and results of the audit. These
communications and discussions are intended to assist the Audit
Committee in overseeing the financial reporting and disclosure
process. Second, the Audit Committee discussed the Independent
Registered Public Accounting Firm’s independence with that
firm and received a letter from the Independent Registered
Public Accounting Firm concerning independence as required under
applicable independence standards for auditors of public
companies. This discussion and disclosure informed the Audit
Committee of the Independent Registered Public Accounting
Firm’s independence and assisted the Audit Committee in
evaluating such independence. Finally, the Audit Committee
reviewed and discussed with the Corporation’s management
and the Independent Registered Public Accounting Firm, the
Corporation’s audited consolidated balance sheet at
December 31, 2006 and consolidated statement of income,
cash flows and stockholders’ equity for the year then
ended. Based on discussions with the Independent Registered
Public Accounting Firm concerning the audit, the independence
discussions, the financial statement review, and such other
matters deemed relevant and appropriate by the Audit Committee,
the Audit Committee recommended to the Board (and the
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Board approved) that these financial statements be included in
the Corporation’s 2006 Annual Report to Stockholders and
its Annual Report on
Form 10-K
filed with the Securities and Exchange Commission.
Robert E. Perkinson, Jr., Chairman
Harold V. Groome, Jr. Allen T. Hamner B.W. Harvey
This Audit Committee Report shall not be deemed to be
incorporated by reference into any filing under the Securities
Act or the Exchange Act, unless the Corporation specifically
incorporates this report by reference, and shall not otherwise
be deemed filed under the Securities Act or the Exchange Act.
In 2006, the Audit Committee selected Dixon Hughes PLLC as the
Corporation’s Independent Registered Public Accounting Firm
for the year ended December 31, 2006. Prior to that
selection, Ernst & Young LLP served as the
Corporation’s Independent Registered Public Accounting
Firm. Fees for professional services provided by both firms for
the respective fiscal years ended December 31 are set forth
below:
Fees for audit services include fees associated with the annual
audit of the Corporation’s financial statements and
management’s assessment of internal controls over financial
reporting, the reviews of the Corporation’s quarterly
reports on
Form 10-Q
and annual report on
Form 10-K,
review of other documents filed with the Securities and Exchange
Commission and required statutory audits. Audit-related fees
primarily include fees paid for certain accounting
consultations. As indicated above, no fees were paid related to
tax or any other services. All services described above were
approved by the Audit Committee.
The Audit Committee has adopted a policy that requires advance
approval of all audit, audit-related, tax services, and other
services performed by the Independent Registered Public
Accounting Firm. The policy provides for pre-approval by the
Audit Committee of specified audit and non-audit services.
Unless the specific service has been previously pre-approved
with respect to that year, the Audit Committee must approve the
permitted service before the Independent Registered Public
Accounting Firm is engaged to perform it. The Audit Committee
has delegated to the Chair of the Audit Committee authority to
approve permitted services provided that the Chair reports any
decisions at its next scheduled meeting.
The Corporation’s Compensation Committee is empowered to
review and submit for the approval of the full Board of
Directors, the annual compensation and compensation procedures
for the Corporation’s executive officers, including the
named executive officers (“NEO’s” or “Senior
Executives”) listed in the Summary Compensation
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Table set forth below. The Corporation’s 2006 NEO’s
include the President & Chief Executive Officer, the
Chief Financial Officer and three additional executives, who
together comprise the five highest compensated executives
employed by either the Corporation or its banking subsidiary.
The following discussion and analysis addresses all material
elements of the Corporation’s compensation for its
NEO’s.
The objectives of the Corporation’s compensation programs
are to attract and retain highly qualified executive officers to
ensure that the long-term financial objectives of the
Corporation are met. A further objective of the compensation
program is to provide incentives and reward each executive for
his or her contributions to the Corporation. In particular, the
goals are to reward past performance, incent future performance
and align executives’ long-term interests with those of
investors. The Corporation strives to be competitive in total
compensation available to executives. Employment agreements are
used when necessary and appropriate to ensure that the services
of key executives are retained and to provide non-compete
arrangements in order to protect the Corporation.
The Corporation believes that the quality, skills and dedication
of senior executive officers are key factors affecting both the
short and long-term performance and value of the Corporation.
The Corporation also believes that a significant portion of a
Senior Executive’s compensation should be tied not only to
individual performance, but also to the performance of the
Senior Executive’s business unit, division, department or
function and to the Corporation’s performance measured
against both financial and non-financial goals and objectives.
During periods when performance meets or exceeds the established
objectives, Senior Executives should be paid at or more than
expected levels, respectively. When performance does not meet
key objectives, incentive award payments, if any, should be less
than higher performance levels.
With the foregoing mission in mind, the Compensation Committee
determines the compensation program for the Chief Executive
Officer (the “CEO”), which is designed to reward
performance as measured against predetermined performance
objectives. The CEO then works closely with the Compensation
Committee to develop compensation plans specific to the other
NEO’s that link each executive’s pay to his or her
performance through annual incentive bonus arrangements.
Elements
of Compensation and Rationale for Pay Mix
A variety of compensation elements are used to achieve the
Corporation’s goals, including base salary, annual bonuses,
stock option awards, restricted stock awards, deferred
compensation plans, a supplemental retirement plan, automobile
allowances and payment of country club dues, all of which are
discussed below. The Compensation Committee relies on its review
of performance and business judgment regarding its yearly
assessment of the CEO and, in turn, upon the CEO’s
assessment regarding the performance of the other executives and
their impact on the Corporation’s overall financial
performance, to determine the amount and types of compensation
awarded to executives. Factors influencing the Compensation
Committee’s judgment include:
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The Committee also considers each executive’s current
salary and previous year’s bonus and the need to establish
a balance between incentives for long-term and short-term
performance.
Base salaries for Senior Executives are determined by evaluating
a Senior Executive’s level of responsibility and experience
and the comparison of the Corporation’s actual performance
to targeted performance goals. Adjustments to base salaries, if
any, are driven by individual performance and an evaluation of
the Senior Executive’s success in achieving business
results, implementing the Corporation’s strategies, coupled
with demonstration of leadership skills. In general, the
Compensation Committee establishes annual target performance
goals for the CEO that will correspond to achievement of the
Corporation’s budgeted net income, return on average equity
and growth in assets for the ensuing year. The Compensation
Committee does not consider comparative industry peer group
compensation statistics when establishing the level or types of
compensation awarded to the CEO and the NEO’s. When
considering the base salary of Senior Executives for 2006, the
Compensation Committee considered the Corporation’s
continued achievement of the following short-term and long-term
goals:
Base salary decisions for 2006 reflected the Corporation’s
success in meeting these goals as well as the individual goals
of each Senior Executive. The Compensation Committee, after
obtaining recommendations from the CEO, recommended and the
Board approved adjustments to base salaries.
Base salary constitutes 75% — 95% of total annual
compensation, while performance bonus, if any, approximates
5%-25% of the CEO’s total annual compensation depending
upon the outcome of an annual performance review and performance
against predetermined goals set by the Compensation Committee,
subject to approval by the independent members of the Board.
The Compensation Committee oversees establishment of an annual
bonus pool that is targeted to reward achievement for
outstanding results beyond those targeted. In 2006, coupled with
the use of its judgment to assess the performance of the CEO and
NEO’s, the Committee adopted a “Performance
Compensation Formula” (“PCF”) to gauge
eligibility and to calculate amounts available for a bonus pool,
with an established minimum and maximum potential collective
bonus pool for the CEO, NEOs and other Senior Executives. For
2006, the PCF was designed to compensate and reward performance
based upon annual growth in both the Corporation’s fully
diluted earnings per share and in total assets. Performance
targets were established that were achievable, but required
better than expected planned performance. In 2006, based upon
the Corporation’s record setting performance, the
NEO’s achieved approximately 34% of the maximum PCF,
indicative of the ambitious goals established in advance of the
year.
Stock
Option Plans and Stock Ownership Plans
The granting of stock options serves as an effective long-term
incentive for Senior Executives to continue with the Corporation
and strive to excel in their performance. Each stock option
permits the Senior Executive, generally for a period of ten
years, to purchase one share of the Corporation’s stock at
the exercise price, which is the closing price of the
Corporation’s stock on the date of grant. Stock options
have value only to the extent the price of the
Corporation’s stock on the date of exercise exceeds the
exercise price. Stock options granted in 2006 will generally
become exercisable in four equal installments beginning one year
from the date of grant. The number of stock options granted to
Senior Executives and the value of these awards based on the
Black-Scholes pricing model, are shown in the Grants of
Plan-Based Awards Table below.
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The stock option programs are an important element in the
Corporation’s efforts to identify, develop and motivate
current and future leaders who will sustain the
Corporation’s performance as it continues to focus on
providing a high caliber of financial services. The granting of
stock options reinforces within the Corporation the
entrepreneurial environment and spirit of a small company by
providing real incentives for employees to sustain and enhance
the Corporation’s long-term financial performance. Both the
Senior Officers and the Compensation Committee believe that the
superior performance of these individuals will contribute
significantly to the Corporation’s future success.
Various individuals are involved in the stock option granting
process. The Compensation Committee recommends for approval to
the Board of Directors stock option grants to Senior Executives,
employees and directors of the Corporation. The Compensation
Committee, with the assistance of the Corporation’s General
Counsel and its Senior Vice-President of Human Resources,
oversees the stock option practices and administration of the
Corporation’s various stock option plans. The Chief
Financial Officer has established procedures that provide for
consistency and accuracy in determining the fair market value of
options and the expense regarding the stock option grants in
compliance with FAS 123R.
A primary objective of the Corporation’s Stock Option Plans
is to strengthen the relationship between the long-term value of
the Corporation’s stock price and the potential financial
gain for the Senior Executives. Stock options provide Senior
Executives as well as Directors and employees of the Corporation
with the opportunity to purchase the Corporation’s Common
Stock at a price fixed on the grant date regardless of future
market appreciation. Therefore, a stock option becomes valuable
only if the Corporation’s Common Stock price increases
above the option exercise price and the holder of the option
remains employed by the Corporation. Stock options also link a
portion of the recipient’s compensation to
stockholders’ interests by providing an incentive to
increase the market value and thus the price of the stock.
The Board may from time to time grant to eligible participants
awards of incentive stock options or non-qualified stock
options; provided however, that awards of incentive stock
options shall be limited to employees of the Corporation or any
of its subsidiaries. Options intended to qualify as incentive
stock options must have an exercise price at least equal to the
fair market value of a share of Common Stock at the time of
grant. Non-qualified stock options may have an exercise price
that is equal to, below, or above the fair market value of a
share of Common Stock at the time of grant. The exercise price
applicable to a particular award shall be set forth in each
individual award agreement.
The Board may from time to time grant restricted stock awards to
eligible participants in such amounts, on such terms and
conditions, and for such consideration, including no
consideration or such minimum consideration as may be required
by law, as it shall determine.
The Board may, in its discretion, grant performance awards that
become payable on account or attainment of one or more
performance goals established by the Board. Performance awards
may be paid by the delivery of Common Stock or cash, or any
combination thereof, as determined at the sole discretion of the
Board.
Incentive stock options and non-qualified stock options granted
to participants shall become vested so that 25% of the option
award shall vest as of the date of the grant and 25% of the
option award shall vest on each one year anniversary thereafter,
so that 100% of such option award shall be vested as of the
third anniversary of the date of grant, unless otherwise
determined at the discretion of the Board and memorialized in
the stock award agreement. Notwithstanding the foregoing, no
vesting shall occur on or after the date that an employee’s
employment or personal services contract with the Corporation or
any of its subsidiaries terminates for any reason other than his
death, disability or retirement. In determining the number of
shares of Common Stock with respect to which such awards are
vested
and/or
exercisable, fractional shares will be rounded up to the nearest
whole number if the fraction is 0.5 or higher, and down if it is
less.
Awards granted to a participant shall generally be exercisable
at any time on or after they vest until the earlier of
(i) ten (10) years after its date of grant or
(ii) the date that is six (6) months (ninety
(90) days in the case of incentive stock options granted to
employees) following the last day on which the participant is
employed or renders services for the benefit of the Corporation
or its subsidiaries.
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In 1999, the Corporation instituted a Stock Option Plan (the
“1999 Plan”) to encourage and facilitate investment in
the Common Stock of the Corporation by key executives and to
assist in the long-term retention of service by those
executives. The 1999 Plan covers key executives as determined by
the Corporation’s Board of Directors from time to time.
Options under the 1999 Plan were granted in the form of
non-statutory stock options with the aggregate number of shares
of common stock available for grant under the 1999 Plan set at
332,750 shares. Total options granted and outstanding under
the 1999 Plan at December 31, 2006 represent the right to
acquire an aggregate of 218,393 shares. Under the 1999
Plan, an optionee is deemed to have been granted options in five
annual installments on January 1 of each year beginning
January 1, 1999 through January 1, 2003. All stock
options granted pursuant to the 1999 Plan vest ratably on the
first through the seventh anniversary dates of the deemed grant
date. The option price of each stock option is equal to the fair
market value of the Corporation’s Common Stock on the date
of each deemed grant during the five-year grant period. Vested
stock options granted pursuant to the 1999 Plan are exercisable
for a period of five years after the date of the grantee’s
retirement (provided retirement occurs at or after age 62),
disability, or death. If employment is terminated other than by
retirement at or after age 62, disability, or death, vested
options must be exercised within 90 days after the
effective date of termination. Any option not exercised within
such period will be deemed cancelled.
In the event of a change of control or upon dissolution of the
Corporation, the stock options granted under the 1999 Plan
continue to vest and are exercisable in accordance with the
terms of the original grant. Change of control provisions
further provide that any optionee who is terminated without
cause by the Corporation, its successor or affiliate during the
12 months preceding, or at any time following a change of
control, and any participant who remains employed by the
Corporation or any affiliate during the
90-day
period following a change of control and thereafter resigns,
shall continue to receive grants on the deemed grant dates and
vest as if the optionee continued to be employed, and optionee,
or his estate, shall be entitled to exercise such options within
five years after death or attainment of age 62, whichever
first occurs.
In addition, the 2003 acquisition of The CommonWealth Bank added
additional stock options of 120,155 shares
(124,380 shares adjusted by the merger conversion factor of
.9015 and the 10% stock dividend in 2003). These options
included awards to employees and directors and were issued by
The CommonWealth Bank in 12 grants beginning in 1994 and ending
in 2002 with adjusted exercise prices ranging from $4.75 to
$17.40. These options are fully vested and are exercisable for
up to ten years following the grant date. At December 31,
2006, 22,792 option shares were outstanding and exercisable
under the former CommonWealth Plan.
At its regularly scheduled meeting in January 2004, the Board of
Directors adopted an additional plan, the 2004 Omnibus Stock
Option Plan (the “2004 Plan”) of the Corporation,
which was subsequently approved by the stockholders of the
Corporation at the 2004 Annual Meeting. A total of
200,000 shares of Common Stock were reserved for future
issuance pursuant to the 2004 Plan. The Board shall, at its
discretion, determine from time to time which employees,
officers, directors, consultants or independent contractors will
participate in the 2004 Plan and receive awards under the 2004
Plan.
The purpose of the 1999 Plan and 2004 Plan is to promote the
long-term success of the Corporation and the creation of
stockholder value by (a) encouraging officers, employees,
directors and individuals performing services for the
Corporation as consultants or independent contractors to focus
on critical long-range objectives; (b) encouraging the
attraction and retention of officers, employees, directors,
consultants and independent contractors with exceptional
qualifications; and (c) linking officers, employees,
directors, consultants and independent contractors directly to
stockholder interests through ownership of the Corporation. Each
of the 1999 Plan and the 2004 Plan seeks to achieve this purpose
by providing for awards in the form of options to purchase
shares of the Corporation. Awards may be granted individually or
in tandem with other awards.
In addition, the Corporation’s qualified Employee Stock
Ownership and Savings Plan (KSOP) has permitted the NEO’s
as well as most of the Corporation’s employees to become
long-term stockholders of the Corporation. The KSOP has served
as the Corporation’s principal form of retirement plan
since 1996. Although recent amendments to Section 409A of
the Code require the Corporation to emphasize the importance of
diversification of KSOP shares to participants, it is positive
to note that the NEO’s continue to hold approximately 8.2%
of the 461,925 shares currently held beneficially by the
KSOP. Although not the recipients of any restricted stock or
option awards under the 2004 Plan, Messrs. Mendez, Buzzo
and Lilly hold outstanding vested and unvested options
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granted to them under the 1999 Plan, which upon exercise between
now and full vesting in 2009 would result in the acquisition of
additional shares totaling 42,323 (Mr. Mendez); 35,667
(Mr. Buzzo); and 31,280 (Mr. Lilly). No option
re-pricing has occurred under either the 1999 Plan or the 2004
Plan.
The Corporation offers a variety of health and welfare programs
to all eligible employees. The Senior Executives generally are
eligible for the same benefit programs on the same basis as the
rest of the employees. The health and welfare programs are
intended to protect employees against catastrophic medical loss
and encourage a healthy lifestyle. These programs include
medical, pharmacy, dental, vision, life insurance and accidental
death and disability. The Corporation offers a 401(k) savings
and retirement plan, which is generally available to all
employees, including Senior Executives.
The Corporation sponsors two non-qualified deferred compensation
plans to permit the NEO’s and other highly compensated
employees who participate in the Corporation’s KSOP to
defer amounts in excess of contribution limits imposed by
provisions of the Internal Revenue Code. All NEO’s are
currently eligible to participate in these non-qualified plans
and, with the exception of Mr. Brown, are current
participants or have balances of previously deferred
compensation in one or both of these plans. The governing plan
documents require the Corporation to delay distributions from
these non-qualified plans to the NEO’s for a period of six
months beyond actual retirement or termination dates. Assets of
the Non-qualified Deferred Compensation Plan and the
Supplemental Executive Retention Plan are held in Rabbi trusts
which are intended to ensure fulfillment of the
Corporation’s obligations, although they remain assets of
the Corporation and are subject to the rights of creditors.
In 1999, the Corporation established a Supplemental Executive
Retention Plan (“SERP”) for key members of senior
management, including the individuals named in the Summary
Compensation Table. The SERP provides for a benefit at normal
retirement (age 62) targeted at 15% of final
compensation projected at an assumed 3% salary progression rate.
Benefits under the SERP become payable at normal retirement
age 62 even if early retirement at age 60 is taken.
Actual benefits payable under the SERP are dependent on an
indexed retirement benefit formula
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that accrues benefits equal to the aggregate after-tax income of
associated life insurance contracts less the Corporation’s
tax-effected cost of funds for that plan year. Benefits under
the SERP are dependent on the performance of the insurance
contracts and are not guaranteed by the Corporation.
In connection with the SERP, the Corporation has also entered
into Life Insurance Endorsement Method Split Dollar Agreements
(the “Life Insurance Agreements”) with
Messrs. Mendez, Buzzo and Lilly covered under the SERP.
Under the Life Insurance Agreements, the Corporation shares 80%
of death benefits (after recovery of cash surrender value) with
the designated beneficiaries of the executives under life
insurance contracts referenced in the SERP. The Corporation as
owner of the policies retains a 20% interest in life proceeds
and a 100% interest in the cash surrender value of the policies.
The SERP also contains provisions for change of control, as
defined, which allow the executives to retain benefits under the
SERP in the event of a termination of service, other than for
cause, during the twelve months prior to a change in control or
anytime thereafter, unless the executive voluntarily terminates
his employment within 90 days following the change in
control.
The vesting schedule under the SERP provides for graded vesting
of benefits. Benefits under the SERP, which begin to accrue with
respect to years of service under the SERP, vest 25% after five
years, 50% after ten years, 75% after 15 years, and an
additional 5% per year thereafter, with vesting accelerated
to 100% at age 62.
The Corporation provides NEO’s with perquisites and other
personal benefits that the Corporation and the Compensation
Committee believe are reasonable and consistent with its overall
compensation program to better enable the Corporation to attract
and retain superior employees for key positions. The
Compensation Committee periodically reviews the levels of
perquisites and other personal benefits provided to its
NEO’s. Perquisites include the following:
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Section 162(m) of the Internal Revenue Code of 1986, as
amended (the “Code”), places a limit of $1,000,000 on
the amount of compensation that may be deducted by the
Corporation in any year with respect to the CEO or any other
Senior Executive unless the compensation is performance-based
compensation as described in Section 162(m) and the related
regulations. The Corporation has qualified certain compensation
paid to Senior Executives for deductibility under
Section 162(m), including certain compensation expense
related to options granted. The Corporation may from time to
time pay compensation to its Senior Executives that may not be
deductible, including discretionary bonuses or other types of
compensation outside of plans. Although the Corporation has
generally attempted to structure executive compensation so as to
preserve deductibility, it also believes that there may be
circumstances where its interests are best served by maintaining
flexibility in the way compensation is provided, even if it
might result in the non-deductibility of certain compensation
under the Code.
Although equity awards may be deductible for tax purposes by the
Corporation, the accounting rules pursuant to FAS 123R
require that the portion of the tax benefit in excess of the
financial compensation cost be recorded to
paid-in
capital.
The Corporation entered into an employment agreement with
Mr. Mendez in October 2000 (the “Agreement”). The
Agreement provides that Mr. Mendez will serve as President
and Chief Executive Officer of the Corporation for a three-year
period with annual renewals contemplated for a rolling
three-year period or until the Corporation terminates his
employment or he resigns. The Agreement provides that
Mr. Mendez is eligible for the Corporation’s employee
benefit plans and other benefits in the same manner as and to
the same extent as the Corporation’s other executive
officers. The Agreement also provides that Mr. Mendez will
receive severance benefits consisting of his then current salary
and benefits for a period of 35 months after termination
if, prior to the Agreement’s expiration, the Corporation
voluntarily terminates his employment for any reason other than
“cause” (as defined in the Agreement) or if either he
or the Corporation terminates his employment due to a change in
the ownership or control (as defined in the Agreement) of the
Corporation within three years following such a change in
ownership or control. Payment of Mr. Mendez’ severance
and post-termination benefits would, to the extent required by
Section 409A of the Code, be delayed for a period of six
(6) months after termination of employment with the
Corporation.
Mr. Mendez’s Agreement also contains confidentiality
provisions to protect the Corporation’s proprietary
information and trade secrets. The Agreement also provides a
covenant not to compete during his employment term and for a
period of thirty six (36) months after termination as
further detailed in the Agreement. In 2006 there were no
recommended changes in the employment contract of the CEO. In
addition, the Corporation has entered into similar employment
agreements with Messrs. Buzzo and Lilly.
The Corporation and its subsidiary bank have Indemnification
Agreements for all directors, NEO’s, and certain other
officers. The Indemnification Agreements indemnify each director
and officer to the fullest extent permitted by law. The
Indemnification Agreements cover all expenses (including
attorney’s fees), judgments, fines and amounts paid in
settlement, if such settlement is approved in advance by the
Corporation, paid in any matter relating to the director’s
or officer’s role as the Corporation’s director,
officer, employee or agent when serving as its representative
with respect to another entity. A director or officer would not
be entitled to indemnification in connection with a proceeding
or claim initiated by such director or officer voluntarily and
that is not a defense.
SUMMARY
COMPENSATION TABLE
The following Summary Compensation Table sets forth information
concerning compensation for services in all capacities awarded
to, earned by, or paid to the Corporation’s President and
Chief Executive Officer, Chief Financial Officers, and to the
other three named executive officers during the year ended
December 31, 2006.
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In review of cash compensation of the CEO for the 2006 fiscal
year, the Board of Directors awarded a merit increase that
resulted in a total increase in base compensation from $350,000
to $364,000 annually. This salary adjustment was effective
January 1, 2006. The Board of Directors also awarded merit
increases to the base compensation of other NEO’s annually
as follows: David D. Brown from $70,000 to $100,000; Robert L.
Buzzo from $200,000 to $208,000; Samuel L. Elmore from $190,000
to $195,000; and E. Stephen Lilly from $200,000 to $208,000.
For 2006 the Board of Directors considered the performance of
the CEO against predetermined performance objectives and
established operating budgets for the Corporation, which served
as the basis for their recommendation of an annual bonus.
The actual bonus payment to the CEO in the first quarter of 2007
was $75,000, based on a performance review for the 2006 fiscal
year.
The following “Summary of All Other Compensation
Table” provides further detail to the Summary Compensation
Table above.
18
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The following table sets forth information regarding all
incentive plan awards that were made to the Senior Executives
during 2006, including the incentive plan awards (equity based
and non-equity based) and other plan-based awards. Disclosure on
a separate line item is provided for each grant of an award made
to a named executive officer during the year. The information
supplements the dollar value disclosure of stock, option and
non-stock awards in the Summary Compensation Table by providing
additional details about such awards.
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OUTSTANDING
EQUITY AWARDS AT FISCAL YEAR-END
The following table sets forth information on outstanding option
and stock awards held by the Senior Executives at
December 31, 2006, including the number of shares
underlying both exercisable and unexercisable portions of each
stock option as well as the exercise price and the expiration
date of each outstanding option.
The following table sets forth certain information concerning
exercises of stock options and vesting of stock awards for the
executive officers listed in the Summary Compensation Table
during the fiscal year ended December 31, 2006.
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The following table summarizes activity and balances in
nonqualified deferred compensation accounts for each of the
NEO’s.
The following table shows the present value of accumulated
benefits payable to each of the NEO’s, including the number
of years of service credited to each such NEO under the
applicable plan determined using interest rate and mortality
rate assumptions consistent with those used in the
Corporation’s financial statements.
Each NEO’s number of years credited service with respect to
the SERP is different from each participating NEO’s years
of service with the Corporation, because the plan was adopted
after the employment date of each participating NEO.
The tables below reflect the amount of compensation to be paid
to each of the named executive officers of the Corporation in
the event of termination of employment. The amount of
compensation payable to each named executive officer upon
voluntary termination, early retirement, involuntary termination
not for cause, termination for cause, termination following a
change of control and in the event of death of the executive is
shown below. The amounts shown assume that such termination was
effective as of December 31, 2006, and thus include amounts
earned through such time and are estimates of the amounts which
would be paid out to the executives upon their termination. The
actual amounts to be paid out can only be determined at the time
of such executive’s separation from the Corporation.
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Regardless of the manner in which a named executive
officer’s employment terminates, he may be entitled to
receive amounts earned during his term of employment. Such
amounts include:
In the event of the retirement of a named executive officer, in
addition to the items identified above:
In the event of the death or disability of a named executive
officer, in addition to the benefit payments made upon
termination or retirement, the named executive officer or his
beneficiary will receive disability or life insurance benefits
under the Corporation’s disability plan or life insurance
plan, as appropriate.
Payments
Made Upon a Change of Control
The Corporation has entered into Employment Agreements with
certain of the named executive officers, which agreements
include change of control provisions. Pursuant to these
agreements, if an executive’s employment is terminated
following a change of control (other than a termination by the
Corporation for cause) or if the executive terminates his
employment in certain circumstances defined in the agreement, in
addition to the benefits listed under the heading “Payments
Made Upon Termination” the named executive officer will
receive:
The employment agreements for Messrs. Mendez, Buzzo and
Lilly are substantially similar. Forms of these agreements have
been filed as Exhibits to the Corporation’s
Form 10-Q
for the quarter ended June 30, 2002 and incorporated by
reference in all subsequent
Forms 10-Q
and 10-K.
Generally, pursuant to these agreements, a change of control is
deemed to occur:
(i) If any person acquires 30% or more of the
Corporation’s common stock; or
(ii) By the approval of stockholders of the Corporation of
a reorganization, merger, consolidation, share exchange or
similar transaction pursuant to which persons who were
stockholders of the Corporation immediately prior to the
effective date of such transaction do not, immediately after
such date, own more than 60% of the combined voting power
entitled to vote generally in the election of directors of the
surviving corporation; or
(iii) A liquidation or dissolution of the
Corporation; or
(iv) The sale of all or substantially all of its assets.
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The following tables show the potential payments upon
termination or a change of control of the Corporation for each
of the named executive officers. In the instance of
Messrs. Mendez, Buzzo and Lilly, termination following a
change of control (other than termination by the Corporation for
cause or by reason of death or disability), they are each
entitled to severance payments over time as indicated in the
pertinent table.
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The Corporation uses a combination of cash and stock-based
incentive compensation to attract and retain qualified
candidates to serve on the Corporation’s Board of
Directors. In setting director compensation, the Corporation
considers the significant amount of time that directors expend
in fulfilling their duties to the Corporation, as well as the
skill-level required by the Corporation of its Board members.
During 2006, non-employee members of the Board of Directors
received a retainer fee of $700 per month. During 2006,
Audit Committee members received a retainer fee of
$1,500 per quarter ($2,000 for Chairman). Members of the
Corporation’s Executive Committee also receive a fee of
$250 per meeting unless held in conjunction with monthly
board meetings, in which case no committee fee is paid. Members
of the Governance and Nominating Committee receive a fee of
$200 per meeting. Directors of the Corporation may also be
reimbursed for travel or other expenses incurred for attendance
at Board or committee meetings. Directors who are employees of
the Corporation receive no compensation for service on the Board
or its committees.
In addition, non-employee directors of the Corporation are
eligible to participate in the 2001 Directors’ Stock
Option Plan (the “Directors’ Option Plan”). The
Directors’ Option Plan was implemented to facilitate and
encourage investment in the Corporation’s future growth and
continued success. No grants were made under the Director’s
Option Plan in fiscal 2006. In fiscal 2001, non-employee
directors were granted options to purchase 45,000 shares of
Common Stock. Considering 10% stock dividends distributed in
both 2002 and 2003, as well as certain option exercises, the
outstanding options exercisable at December 31, 2006, by
non-employee directors were 36,206 shares. The exercise
price of each option is the market value of a share of Common
Stock on the date of grant adjusted for the aforementioned stock
dividends. The options are fully vested and must be exercised
within 10 years of grant or two years following the
director’s retirement, whichever occurs first.
In 2001, the Corporation established a Directors’
Supplemental Retirement Plan for its non-employee directors.
This Plan provides for a benefit upon retirement from service on
the Board at specified ages depending upon length of service.
Benefits under the Supplemental Retirement Plan become payable
at age 70, 75 and 78 depending upon the individual
director’s age and original date of election to the Board.
Actual benefits payable under the Supplemental Retirement Plan
are dependent on an indexed retirement benefit formula that
accrues benefits equal to the aggregate after-tax income of
associated life insurance contracts less the Corporation’s
tax-effected cost of funds for that plan year. Benefits under
the Supplemental Retirement Plan are dependent on the
performance of the insurance contracts and are not guaranteed by
the Corporation.
In connection with the Directors’ Supplemental Retirement
Plan, the Corporation has also entered into Life Insurance
Endorsement Method Split Dollar Agreements (the
“Agreements”) with certain directors covered under the
Plan. Under the Agreements, the Corporation shares 80% of death
benefits (after recovery of cash surrender
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value) with the designated beneficiaries of the directors under
life insurance contracts referenced in the Supplemental
Retirement Plan. The Corporation as owner of the policies
retains a 20% interest in life proceeds and a 100% interest in
the cash surrender value of the policies.
The Supplemental Retirement Plan also contains provisions for
change of control, as defined, which allow the directors to
retain benefits under the Plan in the event of a termination of
service, other than for cause, during the twelve months prior to
a change in control or anytime thereafter, unless the director
voluntarily terminates his service within 90 days following
the change in control.
The Supplemental Retirement Plan was designed to retain the
future services of directors. Benefits become payable in a lump
sum commencing 30 days following termination of service,
except for cause, prior to retirement age as defined in the Plan
document.
Director
Compensation Table
The following table summarizes non-employee director
compensation for fiscal year 2006.
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At the Annual Meeting, stockholders will be asked to consider
and approve a proposal to amend the Corporation’s Articles
of Incorporation, as amended (“Articles of
Incorporation”) to eliminate current mandatory retirement
age of seventy (70) for directors of the Corporation. The
amendment to eliminate the mandatory retirement age was
unanimously approved by the Board of Directors at its regularly
scheduled meeting on February 27, 2007.
The Articles of Incorporation currently prohibit any person who
has attained the age of 70 years to be elected or appointed
as a director of the Corporation; provided, however that every
person, otherwise eligible, who was serving as a director of the
Corporation on December 31, 1990 shall continue to be
eligible for re-election as a director of the Corporation
regardless of age. As currently written, the Articles of
Incorporation permit the following directors to remain eligible
for re-election without regard to age: (Messrs. Harvey,
Stafford, Kantor and Modena). The proposed amendment to the
Articles of Incorporation would permit all current and future
directors to be eligible for re-election as a director of the
Corporation regardless of age. If the amendment is authorized,
the last sentence of the second paragraph of Article SIXTH
of the Corporation’s Articles of Incorporation would be
deleted and amended to read as follows:
“Every person, otherwise eligible, who is currently elected
or who shall be elected or appointed a director of the
Corporation, shall continue to be eligible for re-election as a
director of the Corporation regardless of age.”
The Corporation is seeking stockholder approval to amend its
Articles of Incorporation for several reasons. The Board of
Directors has determined that the age of its individual
directors has no bearing on the Board of Directors’ ability
to provide the Corporation with input and guidance regarding the
Corporation’s current or future operations. The Board of
Directors has determined that the ineligibility of any
particular director due to attaining the age of 70 years is
a detriment to the Corporation and a search for additional
directors caused by retirement of ineligible directors due to
age serves as a distraction to the continued focus and
understanding of the Corporation’s business interests that
has traditionally been acquired through years of experience
gained through Board service. Further, the Corporation does not
discriminate on the basis of age, race, religion, sex, national
origin, marital status, or physical or mental handicap. The
Board of Directors believes that continued service beyond
age 70 serves the best ongoing interests of the Corporation.
If stockholders of the Corporation approve the proposed
amendment to the Articles of Incorporation, the Corporation will
file articles of amendment to the Articles of Incorporation of
the Corporation with the Secretary of State of the State of
Nevada reflecting the elimination of a mandatory age for
directors.
THE BOARD
OF DIRECTORS OF THE CORPORATION UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS OF THE CORPORATION VOTE “FOR” APPROVAL OF ADOPTION OF THE PROPOSAL TO AMEND THE ARTICLES OF INCORPORATION TO ELIMINATE A MANDATORY RETIREMENT AGE FOR DIRECTORS.
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Effective on May 10, 2006, the Corporation selected Dixon
Hughes PLLC (“Dixon Hughes”) as its new Independent
Registered Public Accounting Firm for the fiscal year ended
December 31, 2006. During the two most recent fiscal years
and subsequent interim period prior to its selection as
independent accountants, Dixon Hughes had not been consulted by
the Corporation on any of the matters referenced in
Regulation S-K
Item 304(a)(2)(i) or (ii). Stockholders are being asked to
ratify the selection of Dixon Hughes, as the Independent
Registered Public Accounting Firm of the Corporation and its
subsidiaries for the fiscal year ending December 31, 2007.
Dixon Hughes has no relationship with the Corporation or its
subsidiaries except in its capacity as proposed Independent
Registered Public Accounting Firm. In connection with its audit
of the Corporation’s financial statements for the year
ending December 31, 2007, Dixon Hughes will review the
Corporation’s annual report to stockholders and its filings
with the Securities Exchange Commission.
The Audit Committee of the Board of Directors has recommended to
the Board of Directors the Dixon Hughes be appointed as the
Independent Registered Public Accounting Firm for the year
ending December 31, 2007. The Board of Directors has made
that appointment and recommends that the stockholders ratify the
selection of Dixon Hughes as Independent Registered Public
Accounting Firm for the ensuing year.
A representative of Dixon Hughes is expected to be present at
the Annual Meeting to respond to stockholders’ questions
and to make a statement if the representative so desires.
On May 10, 2006, the Audit Committee of the Corporation
approved the dismissal of Ernst & Young LLP
(“E&Y”) as the Independent Registered Public
Accounting Firm for the Corporation. The report of E&Y on
the consolidated financial statements of the Corporation for the
years ended December 31, 2005 and 2004, contained no
adverse opinion or disclaimer of opinion, and such report was
not qualified or modified as to uncertainty, audit scope, or
accounting principles. During the years ended December 31,
2005 and 2004, and through May 10, 2006, there were no
disagreements with E&Y on any accounting principles or
practices, financial statement disclosure, or auditing scope or
procedure, which disagreements if not resolved to the
satisfaction of E&Y would have caused it to make a reference
to the subject matter of the disagreements in connection with
its report on the Corporation’s financial statements for
such years. No reportable event as described in
paragraph (a)(1)(v) of Item 304 of
Regulation S-K
occurred during the years ended December 31, 2005 and 2004,
and through May 10, 2006. The Corporation provided a copy
of the foregoing disclosures to E&Y prior to the date of the
filing of its Current Report on
Form 8-K,
which was filed on May 15, 2006 (the
“Form 8-K”)
and requested that E&Y furnish it with a letter addressed to
the United States Securities and Exchange Commission stating
whether or not it agrees with the above disclosures. A copy of
the E&Y letter furnished in response to that request was
filed as Exhibit 16 to the
Form 8-K.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE RATIFICATION
OF DIXON HUGHES AS THE CORPORATION’S INDEPENDENT REGISTERED
PUBLIC ACCOUNTING FIRM FOR THE YEAR ENDING DECEMBER 31,
2007.
All properly executed proxies received by the Corporation will
be voted at the Annual Meeting in accordance with the
specifications contained thereon. The Board of Directors knows
of no other matter that may properly come before the Annual
Meeting for action. However, if any other matter does properly
come before the Annual Meeting, the persons named in the proxy
materials enclosed will vote in accordance with their judgment
upon such matter.
A copy of the Corporation’s Report on
Form 10-K
for the year ended December 31, 2006 accompanies this Proxy
Statement. Such report is not part of the proxy solicitation
materials.
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Upon receipt of a written request, the Corporation will furnish
to any stockholder without charge a copy of the
Corporation’s Annual Report on
Form 10-K
for fiscal 2006 required to be filed under the Exchange Act.
Such written requests should be directed to the Chief Financial
Officer, First Community Bancshares, Inc., P. O. Box 989,
One Community Place, Bluefield, Virginia
24605-0989.
The
Form 10-K
is not part of the proxy solicitation materials.
Stockholders may communicate with the Board of Directors by
sending a letter to the First Community Bancshares, Inc. Board
of Directors, c/o Corporate Secretary, First Community
Bancshares, Inc., P.O. Box 989, Bluefield, Virginia
24605-0989.
The Corporate Secretary has the authority to disregard any
inappropriate communications or to take other appropriate
actions with respect to any such inappropriate communications.
If deemed an appropriate communication, the Corporate Secretary
will submit your correspondence to the Chairman of the Board or
to any specific director to whom the correspondence is directed.
If any stockholder intends to include a proposal in the
Corporation’s proxy statement for the 2008 Annual Meeting,
such proposal must be submitted to Robert L. Buzzo, Corporate
Secretary, First Community Bancshares, Inc., P.O. Box 989,
Bluefield, Virginia,
24605-0989,
and received by the Corporation at its principal executive
offices on or before November 20, 2007. Otherwise, such
proposal will not be considered for inclusion in the
Corporation’s Proxy Statement for such meeting. In order to
be considered for possible action by stockholders at the 2008
Annual Meeting of Stockholders, stockholder proposals not
included in the Corporation’s proxy statement must be
submitted to Robert L. Buzzo, Corporate Secretary, at the
address set forth above, no later than February 5, 2008.
You are urged to properly complete, execute and return the
enclosed form of proxy or vote via the Internet or toll free
number provided elsewhere in the proxy material.
By Order of the Board of Directors
Robert L. Buzzo, Secretary to the Board
March 22, 2007
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YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO THE TIME IT IS VOTED. Please sign your name(s) exactly as shown imprinted hereon. If more than one name appears as part of the registration name, all names must sign. If acting as executor, trustee or other fiduciary capacity, please sign as such.
5 FOLD AND DETACH HERE 5
WE ENCOURAGE YOU TO TAKE ADVANTAGE OF INTERNET OR TELEPHONE VOTING,
BOTH ARE AVAILABLE 24 HOURS A DAY, 7 DAYS A WEEK.
Internet and telephone voting is available through 11:59 PM Eastern Time
the day prior to annual meeting day. Your Internet or telephone vote authorizes the named proxies to vote your shares in the same manner
as if you marked, signed and returned your proxy card.
If you vote your proxy by Internet or by telephone, you do NOT need to mail back your proxy card.
To vote by mail, mark, sign and date your proxy card and return it in the enclosed postage-paid envelope. Choose
MLinkSM for fast, easy and
secure 24/7 online access to your future proxy materials, investment
plan statements, tax documents and more. Simply log on to Investor
ServiceDirect®
at www.melloninvestor.com/isd where step-by-step instructions will prompt you through enrollment.
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PROXY
FIRST COMMUNITY BANCSHARES, INC.
ONE COMMUNITY PLACE
BLUEFIELD, VIRGINIA 24605
ANNUAL MEETING OF STOCKHOLDERS
This Proxy is Solicited on Behalf of The Board of Directors
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