Unassociated Document
SCHEDULE
14A
(Rule
14a-101)
INFORMATION
REQUIRED IN PROXY STATEMENT
SCHEDULE
14A INFORMATION
Proxy
Statement Pursuant to Section 14(a) of the Securities
Exchange
Act of 1934 (Amendment No. )
Filed
by
the Registrant x
Filed
by
a Party other than the Registrant ࿇
Check
the
appropriate box:
࿇
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 Rule 14a-11(c) or Rule 14a-12
First
United Corporation
(Name
of
Registrant as Specified in Its Charter)
N/A
(Name
of
Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment
of Filing Fee (Check the appropriate box):
x No
fee required.
࿇
Fee
computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title
of
each class of securities to which transaction applies: N/A
(2) Aggregate
number of securities to which transaction applies: N/A
(3) Per
unit
price or other underlying value of transaction computed pursuant to Exchange
Act
Rule 0-11 (set forth the amount on which the filing fee is calculated and state
how it was determined): N/A
(4) Proposed
maximum aggregate value of transaction: N/A
(5) Total
fee
paid: N/A
࿇
Fee
paid previously with preliminary materials: N/A
࿇
Check
box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously.
Identify the previous filing by registration statement number, or the form
or
schedule and the date of its filing.
(1) Amount
previously paid:
(2) Form,
Schedule or Registration Statement no.:
(3) Filing
Party:
(4) Date
Filed:
FIRST
UNITED CORPORATION
March
23,
2007
To
Our
Shareholders:
On
behalf
of the Board of Directors and the whole First United Team, I cordially invite
you to attend the Annual Meeting of Shareholders to be held on Tuesday, April
24, 2007, at 3:00 p.m., at the Wisp at Deep Creek Mountain Resort, McHenry,
Maryland 21541. The notice of meeting and proxy statement accompanying this
letter describe the specific business to be acted upon.
In
addition to the specific matters to be acted upon, there will be a report on
the
progress of your Corporation.
It
is
important that your shares be represented at the meeting. Whether or not you
plan to attend in person, we would ask that you mark, sign, date and promptly
return the enclosed proxy in the envelope provided.
There
will be a reception with light refreshments immediately following the meeting
for all registered shareholders. I look forward to seeing you
there.
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Sincerely
yours,
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|
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|
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|
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WILLIAM
B. GRANT
|
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Chairman
of the Board &
|
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Chief
Executive Officer
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P.O.
Box
9 Oakland, MD 21550-0009 Telephone 888-692-2654
FIRST
UNITED CORPORATION
19
South Second Street
P.O.
Box 9
Oakland,
Maryland 21550-0009
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
March
23,
2007
To
Shareholders of First United Corporation:
Notice
is
hereby given that the Annual Meeting of the Shareholders of First United
Corporation (the “Corporation”) will be held at the Wisp at Deep Creek Mountain
Resort, McHenry, Maryland 21541. The meeting is scheduled for:
TUESDAY,
APRIL 24, 2007, at 3:00 p.m.
The
purposes of the meeting are:
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1.
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To
elect six (6) Class III Directors to serve until the 2010 Annual
Meeting
and until the election and qualification of their
successors.
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2.
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To
approve the First United Corporation Omnibus Equity Compensation
Plan.
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3.
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To
transact such other business as may be properly brought before the
meeting
or any adjournment thereof.
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WE
HOPE THAT YOU WILL ATTEND THE MEETING. HOWEVER, WHETHER OR NOT YOU CONTEMPLATE
ATTENDING THE MEETING, PLEASE SIGN THE ENCLOSED PROXY CARD AND RETURN IT
PROMPTLY. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN
PERSON, IF YOU SO DESIRE. ALL SHAREHOLDERS OF RECORD AT THE CLOSE OF BUSINESS
ON
FEBRUARY 9, 2007, ARE ENTITLED TO VOTE AT THIS MEETING.
Anyone
acting as proxy agent for a shareholder must present a proxy properly executed
by the shareholder authorizing the agent in form and substance satisfactory
to
the judges of election, and otherwise in accordance with the Corporation’s
Amended and Restated Bylaws.
By
order
of the Board of Directors
ROBERT
W.
KURTZ
Secretary
[THIS
PAGE INTENTIONALLY LEFT BLANK]
FIRST
UNITED CORPORATION
19
South
Second Street
P.O.
Box
9
Oakland,
Maryland 21550-0009
March
23, 2007
PROXY
STATEMENT
The
enclosed proxy is solicited by the Board of Directors of First United
Corporation (the “Corporation”) in connection with the Annual Meeting of
Shareholders to be held on April 24, 2007, at 3:00 p.m. at the Wisp at Deep
Creek Mountain Resort, McHenry, Maryland 21541, and any adjournment or
postponements thereof. The cost of soliciting proxies will be borne by the
Corporation. In addition to solicitation by mail, proxies may be solicited
by
officers, Directors and regular employees of the Corporation personally
or by telephone, telegraph or facsimile. No additional remuneration will be
paid
to officers, Directors or regular employees who solicit proxies. The Corporation
may reimburse brokers, banks, custodians, nominees and other fiduciaries for
their reasonable out-of-pocket expenses in forwarding proxy materials to their
principals. The approximate date on which this proxy statement and form of
proxy
will be mailed to shareholders is March 23, 2007.
OUTSTANDING
SHARES AND VOTING RIGHTS
Shareholders
of record at the close of business on February 9, 2007 (the “Record Date”) of
issued and outstanding shares of the Corporation’s common stock, par value $.01
per share (“Common Stock”), are entitled to notice of and to vote at the Annual
Meeting. As of the Record Date, the number of issued and outstanding shares
of
Common Stock entitled to vote is 6,146,443, each of which is entitled to one
vote.
The
presence, in person or by proxy, of stockholders entitled to cast a majority
of
all votes entitled to be cast at the Annual Meeting shall constitute a quorum.
All matters to be acted upon by shareholders are decided by a majority of all
votes cast at the Annual Meeting on that matter. The withholding of a vote
for a
Director nominee will constitute a vote against that nominee. A broker non-vote
with respect to the election of Directors will have no impact on the outcome
of
that vote. Abstentions and broker non-votes with respect to any other matter
will have no impact on the outcome of the vote. A withheld vote, an abstention
and a broker non-vote will all be counted for purposes of determining whether
a
quorum is present for the transaction of business.
All
properly executed proxies received pursuant to this solicitation will be voted
as directed by the shareholder on the proxy card. If no direction is given,
the
proxy will be voted FOR
ALL NOMINEES
named in
Proposal 1, FOR
approval
of the First United Corporation Omnibus Equity Compensation Plan discussed
in
Proposal 2, and in the discretion of the proxies as to any other matters that
may properly come before the meeting.
Please
complete and sign the enclosed proxy and return it promptly to our transfer
agent, Mellon Investor Services. Your proxy may be revoked at any time prior
to
its use by signing and delivering another proxy bearing a later date or by
delivering written notice of the revocation to Robert W. Kurtz, Secretary,
First
United Corporation, P.O.
Box
9, Oakland, Maryland 21550-0009.
Should
you attend the meeting and desire to vote in person, you may withdraw your
proxy
prior to its use by written request delivered to the Secretary of the
Corporation at the meeting.
BENEFICIAL
OWNERSHIP OF COMMON STOCK BY
PRINCIPAL
SHAREHOLDERS AND MANAGEMENT
The
following table sets forth information as of the Record Date relating to the
beneficial ownership of the Common Stock by (i) each person or group known
by
the Corporation to own beneficially more than five percent (5%) of the
outstanding shares of Common Stock; (ii) each of the Corporation’s Directors,
Director nominees and named executive officers (as defined below under
“REMUNERATION OF EXECUTIVE OFFICERS”); and (iii) all Directors, Director
nominees and executive officers of the Corporation as a group. Generally,
a person “beneficially owns” shares if he or she has or shares with others the
right to vote those shares or to invest (or dispose of) those shares, or if
he
or she has the right to acquire such voting or investment rights, within 60
days
of the Record Date (such as by exercising stock options or similar rights).
Except
as
otherwise noted, the address of each person named below is the address of the
Corporation.
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Common
Stock
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Percent
of
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Beneficially
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Outstanding
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Owned
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Common
Stock
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Directors,
Nominees and Executive Officers:
|
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David
J. Beachy
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6,627
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(1)
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.11
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%
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M.
Kathryn Burkey
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2,366
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(2)
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.04
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%
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Faye
E. Cannon
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2,122
|
|
|
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.03
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%
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|
Paul
Cox, Jr.
|
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1,908
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|
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.03
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%
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|
William
B. Grant
|
|
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9,328
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(3)
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.15
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%
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Eugene
D. Helbig, Jr.
|
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2,867
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(4)
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.05
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%
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Raymond
F. Hinkle
|
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5,684
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(5)
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.09
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%
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Robert
W. Kurtz
|
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3,568
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(6)
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.06
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%
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Steven
M. Lantz
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1,576
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(7)
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.03
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%
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John
W. McCullough
|
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5,086
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|
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.08
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%
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Elaine
L. McDonald
|
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5,396
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(8)
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|
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.09
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%
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Donald
E. Moran
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135,164
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(9)
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2.20
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%
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Karen
F. Myers
|
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8,503
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(10)
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.14
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%
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|
Carissa
L. Rodeheaver
|
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1,045
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(11)
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.02
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%
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Gary
R. Ruddell
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1,394
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(12)
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.02
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%
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|
I.
Robert Rudy
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31,727
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(13)
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.51
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%
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Richard
G. Stanton
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14,018
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(14)
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.23
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%
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|
Robert
G. Stuck
|
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3,395
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|
|
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.05
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%
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H.
Andrew Walls, III
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50
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|
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.00
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%
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|
|
|
|
|
|
|
|
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Directors
& Executive Officers as a Group (22 persons)
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260,379
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|
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4.24
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%
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|
|
|
|
|
|
|
|
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5%
Beneficial Owners:
|
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Firstoak
& Corporation
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432,954
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(15)
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7.04
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%
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P.O.
Box 557
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Oakland,
Maryland 21550
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(1)
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Includes
21 shares owned by spouse.
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(2)
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Includes
239 shares owned by spouse.
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(3)
|
Includes
5,836 shares owned jointly with spouse, 200 shares owned by son,
11 shares
owned by daughter, 2,425 shares held in a 401(k) plan account, 346
shares
owned by spouse’s IRA, and 186 shares owned by spouse and
daughter.
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(4)
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Includes
380 shares owned jointly with spouse, 275 shares owned by an IRA,
and
2,212 shares held in a 401(k) plan
account.
|
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(5)
|
Includes
5,584 shares owned jointly with
spouse.
|
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(6)
|
Includes
2,295 shares held in a 401(k) plan
account.
|
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(7)
|
Includes
50 shares owned jointly with spouse, 5 shares owned by son and 1,130
shares held in a 401(k) plan
account.
|
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(8)
|
Includes
230 shares held by spouse’s IRA and includes 1,000 shares held by Grantor
Trust of which Ms. McDonald is trustee and beneficiary, which shares
are
pledged to secure a line of credit.
|
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(9)
|
Includes
86,593 shares owned by daughters over which Mr. Moran has shared
investment discretion and 25,000 shares owned by
spouse.
|
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(10)
|
Includes
1,000 shares held by Grantor Trust of which Ms. Myers is a beneficiary
and
trustee.
|
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(11)
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Includes
240 shares held jointly with spouse, 15 shares held by spouse for
benefit
of a minor child and 790 shares held in a 401(k) plan
account.
|
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(12)
|
Includes
36 shares owned jointly with
spouse.
|
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(13)
|
Includes
767 shares owned jointly with spouse, 5,775 shares owned by spouse,
3,828
shares owned by daughters, 15,575 shares owned by I.R. Rudy’s, Inc. of
which Mr. Rudy is owner.
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(14)
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Includes
1,484 shares held in spouse’s IRA.
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(15)
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Shares
held in the name of Firstoak & Corporation, a nominee, are
administered by the Trust Department of First United Bank & Trust in a
fiduciary capacity. Firstoak & Corporation disclaims beneficial
ownership of such shares.
|
ELECTION
OF DIRECTORS (PROPOSAL 1)
The
number of Directors constituting the Board of Directors is currently set at
16.
Directors are divided into three classes, as nearly equal in number as possible,
with respect to the time for which the Directors may hold office. Each Director
is elected to hold office for a term of three years, and the terms of one class
of Directors expire each year. The terms of Class III Directors expire this
year, the terms of Class I Directors expire in 2008, and the term of Class
II
Directors expire in 2009. In all cases, Directors are elected until their
successors are duly elected and qualify.
Stockholders
are being asked to vote for a total of six (6) Director nominees at this year’s
Annual Meeting. Each of the current Class III Directors is standing for
re-election. Except for H. Andrew Walls, III, all Class III Directors were
previously elected by shareholders. Mr. Walls was elected in October 2006 by
the
Board as permitted in the Corporation’s Bylaws after being recommended by a
non-management Director.
No
Director or nominee holds any directorship in any other public company. All
current Directors and Director nominees serve on the board of directors of
First
United Bank & Trust, the Corporation’s wholly-owned subsidiary (the “Bank”).
The Corporation’s Chief Executive Officer (“CEO”) is a Class I Director, and the
Corporation’s President and Chief Risk Officer (“CRO”) is a Class II Director.
The
following tables provide information about the Director nominees, including
their ages as of the Record Date, their principal occupations and business
experience, and certain other information. In the event a nominee declines
or is
unable to serve as a Director, which is not anticipated, the proxies will vote
in their discretion with respect to a substitute nominee named by the Board.
Nominees
for Class III (term
expires in 2010):
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Occupation
|
Director
|
|
Name
|
Age
|
During
Past Five Years
|
Since
|
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|
|
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M.
Kathryn Burkey
|
56
|
Certified
Public Accountant, Owner,
|
2005
|
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M.
Kathryn Burkey, CPA
|
|
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|
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Karen
F. Myers
|
55
|
President,
Mountaineer Log & Siding Co., Inc.
|
1991
|
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President,
Recreational Industries Inc.;
|
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Member,
DC Development LLC;
|
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Real
Estate Broker, Wisp Resort
|
|
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|
Development,
Inc.
|
|
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|
|
|
|
I.
Robert Rudy
|
54
|
President,
Rudy’s Inc.,
|
1992
|
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Retail
Apparel and Sporting Goods.
|
|
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|
|
|
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Richard
G. Stanton
|
67
|
Retired.
Served as Chairman, President
|
1985
|
| |
|
and
Chief Executive Officer of First United
|
|
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|
Corporation
and First United Bank & Trust
|
|
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|
until
1996.
|
|
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|
|
|
|
Robert
G. Stuck
|
60
|
Vice
President, Oakview Motors, Inc. - Retired.
|
1995
|
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Realtor,
Long & Foster Real Estate, Inc.
|
|
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H.
Andrew Walls, III
|
46
|
President,
Morgantown Printing & Binding;
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2006
|
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Member,
MEGBA, LLC.
|
|
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR
ALL NOMINEES.
Information
about the Directors whose terms do not expire in 2007, including their ages
as
of the Record Date, and their principal occupations and business experience
for
the past five years is listed in the tables below.
|
Class
I Directors (term
expires in 2008):
|
|
|
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|
Occupation
|
Director
|
|
Name
|
Age
|
During
Past Five Years
|
Since
|
| |
|
|
|
|
David
J. Beachy
|
66
|
Fred
E. Beachy Lumber Co., Inc.
|
1985
|
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|
Building
Supplies - Retired.
|
|
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|
|
|
|
Faye
E. Cannon
|
57
|
Consultant,
Director of Dan Ryan Builders, Inc;
|
2004
|
| |
|
Former
Chief Executive Officer and President
|
|
| |
|
of
F & M Bancorp, Frederick, Maryland - Retired.
|
|
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|
|
|
|
Paul
Cox, Jr.
|
67
|
Owner,
Professional Tax Service.
|
1993
|
| |
|
|
|
|
William
B. Grant
|
53
|
Chairman
of the Board, CEO
|
1995
|
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|
First
United Corporation and
|
|
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|
First
United Bank & Trust.
|
|
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|
|
|
|
John
W. McCullough
|
57
|
Certified
Public Accountant. Retired in 1999
|
2004
|
| |
|
as
Partner of Ernst & Young, LLP.
|
|
|
Class
II Directors (term
expires in 2009):
|
|
|
| |
|
Occupation
|
Director
|
|
Name
|
Age
|
During
Past Five Years
|
Since
|
| |
|
|
|
|
Raymond
F. Hinkle
|
70
|
Tax
Consultant.
|
1996
|
| |
|
|
|
|
Robert
W. Kurtz
|
60
|
President,
CRO, Secretary, and Treasurer,
|
1990
|
| |
|
First
United Corporation and
|
|
| |
|
First
United Bank & Trust.
|
|
| |
|
|
|
|
Elaine
L. McDonald
|
58
|
Realtor,
Long & Foster Realtors.
|
1995
|
| |
|
|
|
|
Donald
E. Moran
|
76
|
Acting
President, General Manager, Secretary
|
1988
|
| |
|
and
Treasurer, Moran Coal Corporation.
|
|
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|
|
|
|
Gary
R. Ruddell
|
58
|
President,
Hobby House Press, Inc., dba
|
2004
|
| |
|
Total
Biz Fulfillment, provides business
|
|
| |
|
services;
Member, Gary R. Ruddell LLC,
|
|
| |
|
commercial
real estate; Member, MSG
|
|
| |
|
Glendale
Properties LLC, residential real
|
|
| |
|
estate;
Secretary, and Treasurer Hansa Toys USA, Inc.
|
|
Family
Relationships Among Directors, Nominees and Executive
Officers
Director
nominee I. Robert Rudy and Senior Vice President Jeannette R. Fitzwater are
siblings.
Committees
of the Board of Directors
The
Board
of Directors has an Audit Committee, an Asset and Liability Management
Committee, an Executive Committee, a Strategic Planning Committee, a
Compensation Committee, and a Nominating and Governance Committee (the
“Nominating Committee”). These
committees are discussed below.
Audit
Committee -
The
Audit Committee is established pursuant to Section 3(a)(58)(A) of the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), and consists of David J.
Beachy, M. Kathryn Burkey, Faye E. Cannon, Paul Cox, Jr., Raymond F. Hinkle,
John W. McCullough, Richard G. Stanton, and Robert G. Stuck. Ms. Faye E. Cannon
was appointed to the Committee in June 2006. The committee is responsible for
the hiring, compensation and oversight of the Corporation’s independent
auditors, and it also assists the Board in monitoring the integrity of the
financial statements, in monitoring the performance of the Corporation’s
internal audit function, and in monitoring the Corporation’s compliance with
legal and regulatory requirements. The Board has determined that all audit
committee members are financially literate and that Ms. Burkey, Ms. Cannon,
and
Messrs. McCullough and Stanton each qualify as an “audit committee financial
expert” as that term is defined by Item 401(h) of the SEC’s Regulation S-K. This
committee met nine times in 2006, with three meetings called for the purpose
of
reviewing and approving loans from the Bank to insiders in fulfillment of the
Audit Committee’s duties under Nasdaq Rule 4350(h). The Board of Directors has
adopted a written charter for the Audit Committee, a copy of which was attached
as Appendix A to the definitive proxy statement filed in respect of the 2005
Annual Meeting of Shareholders. A copy of the charter is also available on
the
Corporation’s website at www.mybankfirstunited.com.
Asset
and Liability Management Committee -
The
Asset and Liability Management Committee consists of David J. Beachy, Paul
Cox,
Jr., William B. Grant, Raymond F. Hinkle, Robert W. Kurtz, John W. McCullough,
Elaine L. McDonald, Gary R. Ruddell, I. Robert Rudy, Richard G. Stanton, and
Robert G. Stuck. The committee reviews and recommends changes to the
Corporation’s Asset and Liability, Investment, Liquidity, and Capital Plans.
This committee met three times in 2006.
Executive
Committee -
The
Executive Committee consists of Paul Cox, Jr., William B. Grant, Robert W.
Kurtz, Donald E. Moran, I. Robert Rudy, Richard G. Stanton, and Robert G. Stuck.
The committee is responsible for reviewing and recommending changes to the
Corporation’s Insurance Program, overseeing compliance with the Corporation’s
Bylaws and Articles of Incorporation, monitoring the performance of the
Corporation and its subsidiaries, and recommending changes to the personnel
policies of the Corporation and of its subsidiaries. The Executive Committee
is
empowered to act on behalf of the full Board between meetings of the Board.
This
committee met two times in 2006.
Strategic
Planning Committee -
The
Strategic Planning Committee consists of Faye E. Cannon, Paul Cox, Jr., William
B. Grant, Raymond F. Hinkle, Robert W. Kurtz, Elaine L. McDonald, Donald E.
Moran, Gary R. Ruddell, I. Robert Rudy, and Richard G. Stanton. The committee
focuses on long-term planning to insure that management’s decisions take into
account the future operating environment, the development of corporate
statements of policy, and review of management’s internal and external
information and communications systems. This committee did not meet in
2006.
Compensation
Committee -
The
Compensation Committee, which met six times in 2006, consists of M. Kathryn
Burkey, Faye E. Cannon, Raymond F. Hinkle, Elaine L. McDonald, Richard G.
Stanton, and Robert G. Stuck. The committee is responsible for recommending
to
the Board a compensation policy for the executive officers and directors of
the
Corporation and its subsidiaries, overseeing the Corporation’s various
compensation plans, and recommending changes for executive and director
compensation. The committee determines executive compensation pursuant to the
principles discussed below under “Compensation Disclosure and Analysis” and
determines director compensation by reviewing peer group comparison reports
prepared by compensation consultants. The Board passes on and, where
appropriate, approves or ratifies all committee recommendations. The
Compensation Committee has adopted a written charter, a copy of which is
attached as Appendix A to this definitive proxy statement. A copy of the charter
is also available on the Corporation’s website at
www.mybankfirstunited.com.
Nominating
and Governance Committee -
The
Nominating Committee consists of David J. Beachy, M. Kathryn Burkey, Faye E.
Cannon, Paul Cox, Jr., John W. McCullough, Elaine L. McDonald, Donald E. Moran,
and Richard G. Stanton. Ms. Faye E. Cannon was appointed to the Committee in
May
2006. The committee is responsible for developing qualification criteria for
Directors, reviewing Director candidates recommended by shareholders (see
“Director Recommendations and Nominations” below), actively seeking,
interviewing and screening individuals qualified to become Directors,
recommending to the Board those candidates who should be nominated to serve
as
Directors, and developing and recommending to the Board the Corporate Governance
Guidelines applicable to the Corporation and its subsidiaries. This Committee
met one time in 2006. The Nominating Committee has a written charter, a copy
of
which was attached as Appendix B to the definitive proxy statement filed in
respect of the 2005 Annual Meeting of Shareholders. A copy of the charter is
also available on the Corporation’s website at
www.mybankfirstunited.com.
Director
Independence
Pursuant
to Rule 4350(c) of The Nasdaq Stock Market’s listing standards (the “Nasdaq
Listing Standards”), a majority of the Corporation’s Directors must be
“independent directors” as that term is defined by Nasdaq Listing Standards Rule
4200(a)(15). The Corporation’s Board of Directors has determined that David J.
Beachy, M. Kathryn Burkey, Faye E. Cannon, Paul Cox, Jr., Raymond F. Hinkle,
John W. McCullough, Elaine L. McDonald, Donald E. Moran, Karen F. Myers, Gary
R.
Ruddell, Richard G. Stanton, Robert G. Stuck, and H. Andrew Walls, III, are
“independent directors”, and these independent Directors constitute a majority
of the Corporation’s Board of Directors. The members of the Compensation
Committee and of the Nominating Committee are each an “independent director”.
Each member of the Audit Committee satisfies the independence requirements
of
Rule 4350(d)(2) of the Nasdaq Listing Standards. In making these independence
determinations, the Board, in addition to the transactions described below
under
“CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS”, considered
the following categories of transactions : for Ms. Burkey, the Bank’s purchase
of goods from an affiliated retailer; and for Ms. Myers, the Corporation’s
rental of meeting space and purchase of food products in connection with
training seminars, the 2006 Annual Meeting of Shareholders, and the
Corporation’s annual holiday party from an affiliated facility, and the purchase
of phone services from an affiliated provider.
Director
Compensation
The
following table provides information about compensation paid to or earned by
the
Corporation’s Directors during 2006 who were not named executive officers (as
defined below). Messrs. Grant and Kurtz do not receive director compensation.
|
DIRECTOR
COMPENSATION
|
|
|
Name
|
|
Fees
earned or paid in cash
($)
|
|
Change
in pension
value
and nonqualified deferred
compensation
earnings
($)
|
|
All
other compensation
($)(1)
|
|
Total
($)
|
|
|
David
J. Beachy
|
|
$
|
25,800
|
|
|
--
|
|
|
--
|
|
$
|
25,800
|
|
|
M.
Kathryn Burkey
|
|
|
23,800
|
|
|
--
|
|
$
|
400
|
|
|
24,200
|
|
|
Faye
E. Cannon
|
|
|
25,000
|
|
|
--
|
|
|
600
|
|
|
25,600
|
|
|
Paul
Cox, Jr.
|
|
|
26,400
|
|
|
--
|
|
|
750
|
|
|
27,150
|
|
|
Raymond
F. Hinkle
|
|
|
23,800
|
|
|
--
|
|
|
550
|
|
|
24,350
|
|
|
John
W. McCullough
|
|
|
27,500
|
|
|
--
|
|
|
--
|
|
|
27,500
|
|
|
Elaine
L. McDonald
|
|
|
29,038
|
|
|
--
|
|
|
--
|
|
|
29,038
|
|
|
Donald
E. Moran
|
|
|
19,138
|
|
|
--
|
|
|
225
|
|
|
19,363
|
|
|
Karen
F. Myers
|
|
|
19,800
|
|
|
--
|
|
|
--
|
|
|
19,800
|
|
|
Gary
R. Ruddell
|
|
|
22,800
|
|
|
--
|
|
|
--
|
|
|
22,800
|
|
|
I.
Robert Rudy
|
|
|
22,200
|
|
|
--
|
|
|
--
|
|
|
22,200
|
|
|
Richard
G. Stanton
|
|
|
27,138
|
|
|
--
|
|
|
--
|
|
|
27,138
|
|
|
Robert
G. Stuck
|
|
|
26,200
|
|
|
--
|
|
|
--
|
|
|
26,200
|
|
|
H.
Andrew Walls, III
|
|
|
9,383
|
|
|
--
|
|
|
50
|
|
|
9,433
|
|
(1)
Certain Directors are required to travel significantly greater distances than
others to attend Board and committee meetings. The amounts shown include a
travel allowance paid to these Directors.
Corporation
Director Compensation
Directors
who are not employees of the Corporation or the Bank receive $400 for attending
each meeting of the Corporation’s Board and $200 for attending each meeting of a
committee on which the director serves. Outside Directors also receive an annual
retainer fee of $10,000. The Chairperson of each of the Audit Committee (Mr.
McCullough), Compensation Committee (Ms. McDonald) and Nominating Committee
(Mr.
Moran) receives an additional annual retainer of $2,500. Effective May 1, 2007,
the annual retainer fee will increase to $11,000, the fee for attending an
Audit
or Compensation Committee meeting will increase to $400, and $300 will be paid
for attendance at all other committee meetings.
All
directors of the Corporation and its subsidiaries are permitted to participate
in the Corporation’s non-qualified Executive and Director Deferred Compensation
Plan (the “Deferred Compensation Plan”). A discussion of the material terms of
the Deferred Compensation Plan follows the table entitled “Non-Qualified
Deferred Compensation” that appears below in the section entitled “REMUNERATION
OF EXECUTIVE OFFICERS”.
Bank
Director Compensation
All
Directors also serve on the Board of Directors of the Bank. Outside Directors
of
the Bank receive $400 for attending each meeting of the Bank’s Board and $200
for attending each meeting of a Board committee on which the Director serves.
Effective May 1, 2007, the fee for attending a committee meeting will increase
to $300.
Attendance
at Board Meetings
The
Board
of Directors held ten Board meetings in 2006. Each Director who served as such
during 2006 attended at least 75% of the aggregate of (i) the total number
of meetings of the Board of Directors (held during the period served) and
(ii) the total number of meetings held by all committees of the Board on
which that person served (held during the period served).
Director
Recommendations and Nominations
The
Nominating Committee will from time to time review and consider candidates
recommended by shareholders. Shareholder recommendations should be labeled
“Recommendation of Director Candidate” and be submitted in writing to: Robert W.
Kurtz, Corporate Secretary, First United Corporation, P.O. Box 9, Oakland,
Maryland 21550; and must specify (i) the recommending shareholder’s contact
information, (ii) the class and number of shares of the Corporation’s capital
stock beneficially owned by the recommending shareholder, (iii) the name,
address and credentials of the candidate for nomination, (v) the number of
shares of the Corporation’s capital stock beneficially owned by the candidate;
and (iv) the candidate’s written consent to be considered as a candidate. Such
recommendation must be received by the Corporate Secretary no less than 150
days
nor more than 180 days before the date of the Annual Meeting of Shareholders
for
which the candidate is being recommended. For purposes of this requirement,
the
date of the meeting shall be deemed to be on the same day and month as the
Annual Meeting of Shareholders for the preceding year.
Candidates
may come to the attention of the Nominating Committee from current Directors,
executive officers, shareholders, or other persons. The Nominating Committee
periodically reviews its list of candidates available to fill Board vacancies
and researches the talent, skills, expertise, and general background of these
candidates. In evaluating candidates for nomination, the Nominating Committee
uses a variety of methods and regularly assesses the size of the Board, whether
any vacancies are expected due to retirement or otherwise, and the need for
particular expertise on the Board.
In
2003,
the Corporation created an “advisory council” consisting of local business
owners in each of the geographic regions that we serve. The primary purpose
of
the advisory council is to tap the knowledge and experience of the advisory
council members to better market in, expand into and serve our market areas.
From time to time, promising Director candidates come to the attention of the
Nominating Committee through their service on the advisory council, although
such service is not a requirement of being considered for nomination. A person
is typically appointed to the advisory council by the Board after being
nominated by a Director, a member of our management team, or another advisory
council member.
Whether
recommended by a shareholder or another third party, or recommended
independently by the Nominating Committee, a candidate will be selected for
nomination based on his or her talents and the needs of the Board. The
Nominating Committee’s goal in selecting nominees is to identify persons that
possess complimentary skills and that can work well together with existing
Board
members at the highest level of integrity and effectiveness. A candidate,
whether recommended by a Corporation shareholder or otherwise, will not be
considered for nomination unless he or she maintains strong professional and
personal ethics and values, has relevant management experience, and is committed
to enhancing financial performance. Certain Board positions, such as Audit
Committee membership, may require other special skills, expertise or
independence from the Corporation.
It
should
be noted that a shareholder recommendation is not a nomination, and there is
no
guarantee that a candidate recommended by a shareholder will be approved by
the
Nominating Committee or nominated by the Board of Directors. A shareholder
who
is entitled to vote for the election of Directors and who desires to nominate
a
candidate for election to be voted on at a Meeting of Shareholders may do so
only in accordance with Article II, Section 4, of the Corporation’s Amended and
Restated Bylaws, which provides that a shareholder may nominate a Director
candidate by written notice to the Chairman of the Board or the President not
less than 150 days nor more than 180 days prior to the date of the meeting
of
shareholders called for the election of Directors which, for purposes of this
requirement, shall be deemed to be on the same day and month as the Annual
Meeting of Shareholders for the preceding year. Such notice shall contain the
following information to the extent known by the notifying shareholder: (a)
the
name and address of each proposed nominee; (b) the principal occupation of
each
proposed nominee; (c) the number of shares of capital stock of the Corporation
owned by each proposed nominee; (d) the name and residence address of the
notifying shareholder; (e) the number of shares of capital stock of the
Corporation owned by the notifying shareholder; (f) the consent in writing
of
the proposed nominee as to the proposed nominee’s name being placed in
nomination for Director; and (g) all information relating to such proposed
nominee that would be required to be disclosed by Regulation 14A under the
Exchange Act and Rule 14a-11 promulgated thereunder, assuming such provisions
would be applicable to the solicitation of proxies for such proposed nominee.
Shareholder
Communications with the Board of Directors
Shareholders
may communicate with the Board of Directors, including
the outside Directors,
by
sending a letter to First United Corporation Board of Directors, c/o Robert
W.
Kurtz, Corporate Secretary, First United Corporation, P.O. Box 9, Oakland,
Maryland, 21550. The Corporate Secretary will deliver all shareholder
communications directly to the Board of Directors.
The
Corporation believes that the Annual Meeting of Shareholders is an opportunity
for shareholders to communicate directly with Directors and, accordingly,
expects that all Directors will attend each Annual Meeting of Shareholders.
If
you would like an opportunity to discuss issues directly with our Directors,
please consider attending this year’s Annual Meeting of Shareholders. The 2006
Annual Meeting of Shareholders was attended by 13 persons who served on the
Board of Directors as of the date of that meeting.
AUDIT
COMMITTEE REPORT
The
Audit
Committee has (i) reviewed and discussed the Corporation’s consolidated audited
financial statements for the year ended December 31, 2006, with Corporation
management; (ii) discussed with bmc,
the
Corporation’s independent auditors, all matters required to be discussed by SAS
61 (Codification of Statements on Auditing Standards, AU § 380), as modified or
supplemented; and (iii) received the written disclosures and the letter from
bmc
required by Independence Standards Board Standard No. 1 (Independence Standards
Board Standard No. 1, Independence Discussions with Audit Committees), as
modified or supplemented, and has discussed with the auditors the auditors’
independence. The Committee meets with the internal and independent auditors,
with and without management present, to discuss the overall scope and plans
for
their respective audits, the results of their examinations, their evaluations
of
the Corporation’s internal controls, and the overall quality of the
Corporation’s financial reporting. Based on these reviews and discussions, the
Audit Committee recommended to the Board of Directors that the consolidated
audited financial statements for the year ended December 31, 2006, be included
in the Corporation’s Annual Report on Form 10-K for the year ended December 31,
2006.
| |
By:
|
AUDIT
COMMITTEE
|
| |
|
|
| |
|
David
J. Beachy
|
| |
|
M.
Kathryn Burkey
|
| |
|
Faye
E. Cannon
|
| |
|
Paul
Cox, Jr.
|
| |
|
Raymond
F. Hinkle
|
| |
|
John
W. McCullough
|
| |
|
Richard
G. Stanton
|
| |
|
Robert
G. Stuck
|
EXECUTIVE
OFFICERS
Information
about the Corporation’s executive officers is set forth below. All officers are
elected annually by the Board of Directors and hold office at its pleasure.
Unless indicated otherwise, officers serve in the same capacities for the
Corporation and the Bank.
William
B. Grant, age 53, serves as Chairman of the Board and CEO. Mr. Grant has been
Chairman of the Board and CEO since 1996. Prior to holding these positions,
he
served as Secretary and Executive Vice President.
Robert
W.
Kurtz, age 60, serves as a Director and as the President, CRO, Secretary, and
Treasurer. Mr. Kurtz has been a Director since 1990 and has served as President,
Secretary, and Treasurer since 1997. Mr. Kurtz served as Chief Financial Officer
(“CFO”) from 1997 to December 31, 2005. Prior to holding these positions, he
served as Chief Operating Officer and Executive Vice President.
Jeannette
R. Fitzwater, age 46, serves as Senior Vice President and Director of Human
Resources. Ms. Fitzwater was appointed to these positions in 1997. Prior to
this
time, she served as First Vice President, Director of Marketing, and Regional
Sales Manager of the Bank.
Eugene
D.
Helbig, Jr., age 54, serves as Senior Vice President and Senior Trust Officer.
Mr. Helbig was appointed Senior Vice President in 1997 and Senior Trust Officer
in 1993. Prior to serving in these capacities, he served as First Vice President
of the Bank.
Steven
M.
Lantz, age 50, serves as Senior Vice President and Director of Lending. Mr.
Lantz was appointed to these positions in 1997. Prior to this time, he served
as
First Vice President and Commercial Services Manager of the Bank.
Robin
M.
Murray, age 48, serves as Senior Vice President and Director of Retail Banking.
Ms. Murray was appointed to this position in 2006. From 1997 until 2006, she
served as the Bank’s Vice President & Director of Marketing and Retail Sales
and Marketing Retail Service Manager.
Carissa
L. Rodeheaver, age 40, serves as Senior Vice President and CFO. Ms. Rodeheaver,
who is a Certified Public Accountant and Certified Financial Planner, was
appointed to these positions on January 1, 2006. Prior to this time, Ms.
Rodeheaver served as Vice President and Trust Department Sales Manager of the
Bank from 2000 to 2004 and Vice President and Assistant Chief Financial Officer
of the Corporation from 2004 to December 31, 2005.
Frederick
A. Thayer, IV, age 48, serves as Senior Vice President and Director of Marketing
and Strategic Planning.
Mr.
Thayer was appointed to this position in 2006. Prior to this time, as Senior
Vice President, Director of Sales, and CRA Officer, First Vice President,
Regional Executive Officer and Regional Sales Manager of the Bank.
COMPENSATION
DISCLOSURE AND ANALYSIS
Both
the
Corporation and the Bank maintain various compensation plans and arrangements
for their respective employees. All of the Corporation’s executive officers are
also executive officers of the Bank. Where appropriate, these plans and
arrangements are structured to apply to employees of the consolidated group.
As
used in the discussion that follows, the terms “we”, “us”, and “our” refer to
First United Corporation and its consolidated subsidiaries unless the context
clearly requires otherwise.
Overview
of Compensation Philosophy and Objectives
The
Compensation Committee of the Corporation’s Board of Directors, composed of a
minimum of three independent Directors, administers our executive compensation
program. The Compensation Committee is appointed each year by the Corporation’s
Board, considering the recommendation of the Nominating and Governance
Committee, and further considering the views of the Chairman of the Board and
the CEO, as appropriate. The role of the Compensation Committee is to oversee
our compensation and benefit plans and policies, administer our cash-based
incentive and equity-based plans, and annually review and recommend for approval
by the Board all compensation decisions relating to appointed officers,
including those relating to the Chairman and CEO, the CFO, and the other named
executive officers. The Compensation Committee submits its decisions regarding
compensation to the independent Directors of the Board for approval or
ratification.
The
Committee recognizes the importance of maintaining sound principles for the
development and administration of compensation and benefit programs, and has
taken steps to significantly enhance the Committee’s ability to effectively
carry out its responsibilities as well as ensure that the Company maintains
strong links between executive pay and performance. Examples of procedures
and
actions that the Committee has recently implemented or taken
include:
| |
·
|
Initiated
a practice of holding executive sessions (without Company management
present) at Compensation Committee
meetings;
|
| |
·
|
Hired
an independent compensation consultant to advise on executive compensation
issues;
|
| |
·
|
Realigned
compensation structures based on targeting median competitive
pay;
|
| |
·
|
Established
a peer group for performance
comparisons;
|
| |
·
|
Established
annual reviews for the named executive
officers;
|
| |
·
|
Approved
the Omnibus Equity Compensation Plan (the “Omnibus Plan”) to be submitted
to shareholders for approval at the 2007 annual meeting;
|
| |
·
|
Established
change-in-control agreements with members of executive management;
and
|
| |
·
|
Initiated
a review of the Supplemental Executive Retirement Plan to ensure
compatibility with the change-in-control
agreements.
|
Compensation
Committee Charter
The
Compensation Committee’s charter dictates the authority and responsibility of
the Compensation Committee. The charter requires the Compensation Committee
to
annually review and assess the adequacy of the charter and recommend any
proposed changes to the Board for approval.
Relationship
Between Our Performance and Executive Compensation
The
Committee believes that the compensation paid to executive officers should
be
closely tied to our performance on both a short-term and long-term basis, and
that such compensation should assist us in attracting and retaining key
executives critical to our long-term success. Accordingly, compensation is
structured to ensure that a significant portion of compensation opportunity
will
be directly related to enhancing our overall financial performance.
Elements
of 2006 Executive Compensation
In
2006,
annual compensation for our named executive officers consisted of base salary,
cash bonus (Executive Pay for Performance Plan), matching and discretionary
payments under the Bank’s 401(k) Profit Sharing Plan, participation in the
Bank’s Supplemental Executive Retirement Plan (“SERP”), benefits related to
bank-owned life insurance (“BOLI”) polices, group term life insurance coverage,
and health and disability insurance. We also maintain a Deferred Compensation
Plan. The material terms of each form of compensation (other than group term
life insurance and health and disability coverage) paid to our named executive
officers are discussed in detail below under “REMUNERATION OF EXECUTIVE
OFFICERS”.
Salary
- Executive
salaries are evaluated periodically by the Compensation Committee and are based
upon an array of qualitative factors including functional area management,
management of regulatory and legal challenges, adherence to compliance and
internal controls, contribution to our overall financial results, and leadership
development In addition, a compensation study is completed each year to compare
our executive salaries to the median salaries of a peer group consisting of
financial institutions of similar size and within a designated geographic area.
The Compensation Committee also considers recommendations from the Chairman
and
CEO regarding total compensation for those executives reporting directly to
him.
Management provides to the Compensation Committee historical and prospective
breakdowns of the total compensation components for each executive officer.
It
is the Compensation Committee’s intention to set executive salaries at levels
sufficient to attract and retain a strong motivated leadership
team.
Executive
Pay for Performance - Cash
bonus awards to executives, payable under the Executive Pay for Performance
Plan, are based solely on our financial performance. The Executive Pay for
Performance award is structured as a percentage of base salary and is awarded
upon our achievement of the financial goals related to return on shareholder’s
equity, earnings per share, and the efficiency ratio. These goals are
established at the start of each year by the Compensation Committee, and
approved by the Board of Directors. Both a target and a maximum payout are
established. Executive officers are not entitled to any minimum payout. The
target payout is awarded if we meet the target goal. The maximum benefit is
awarded if we meet or exceed 102% of the target goal. Each November, the
Compensation Committee reviews our projected performance for the year and makes
a determination, after meeting with management, as to whether awards under
the
Executive Pay for Performance Plan are payable for the year. If so, payments
are
made during the first quarter of the following year.
401(k)
Profit Sharing Plan - In
furtherance of our belief that every employee should have the ability to accrue
valuable retirement benefits, the Bank adopted the 401(k) Profit Sharing Plan,
which is available to all employees, including executive officers, so long
as
they were employed
on December 31st
of each
plan year and have completed at least one year of service to the
Corporation.
In
addition to contributions by participants, the plan contemplates employer
matching and discretionary contributions to the accounts of participants. We
believe that matching contributions encourages employees to participate and
thereby plan for their
post-retirement financial future. The Bank will make a matching contribution
equal to 50% of the amount of the salary reduction elected by the employee,
up
to 6%. This match is available to all employees immediately upon entering the
plan on the first day of the month following the completion of 30 days of
employment. An employer discretionary basic contribution of 0.5% of total annual
gross pay can be contributed annually by the Bank to non-highly compensated
employees (as defined in the plan). The employee must be a plan participant
and
be actively employed on the last day of the plan year to share in this basic
plan contribution. A discretionary taxable cash payment of 0.5% of total annual
gross pay is paid to the highly compensated employees (as defined in the plan)
if the basic contribution is awarded to the non-highly compensated employees.
This cash payment is not made pursuant to the 401(k) Profit Sharing Plan, but
it
is tied to the plan in that it is made only if the basic contribution is made.
Each of the named executive officers was a highly compensated employee in
2006.
Pension
Plan - We
believe that every employee should share in the Bank’s success and have the
ability to accrue valuable retirement benefits. All
employees are eligible to participate in the Bank’s Pension Plan, which is a
qualified defined benefit plan upon completion of one year of service and the
attainment of the age of 21. Retirement benefits are determined using
an
actuarial formula that takes into account years of service and average
compensation.
SERP
- The
Bank
adopted the SERP to
help
our executives reach reasonable retirement goals. The SERP recognizes the value
that our executives bring to the organization and rewards them for their
long-term service commitments. The participant’s normal retirement SERP benefit
is equal to 2.5%
of
his or her Final Pay for each year of service through age 60 (up to a maximum
of
24 years) plus 1% of Final Pay for each year of service after age 60 (up to
a
maximum of 5 years, for a total benefit equal to 65% of Final Pay). Each of
the
named executive officers has been credited with 24 years of service, regardless
of actual years of service, to minimize certain income taxes imposed under
Section 280G of the Internal Revenue Code of 1986, as amended (the “Code”) that
could arise in connection with the Change in Control Severance Plan (the
“Severance Plan”) that was adopted by the Corporation in February 2007. For
purposes of the SERP, “Final Pay” means a participant’s annual salary for the
year in which a Separation from Service (as defined in the SERP) occurs plus
the
greater of (i) the maximum targeted cash bonus for that year or (ii) the actual
cash bonus paid for the year immediately preceding the year in which the
Separation from Service occurred. SERP
benefits are paid only to the extent the accrued benefit exceeds the accrued
benefit payable under the Pension Plan and are offset by 50% of any social
security benefits received by the participant. If
the
participant dies prior to retirement, the SERP benefit will additionally be
reduced by the amount of any death benefit payable to the participant’s
designated beneficiaries under the Bank’s BOLI benefits plan. The SERP and BOLI
benefits program were drafted such that in no event will the sum of the SERP
benefit paid upon death and the benefits paid under the BOLI benefits program
exceed the normal retirement SERP benefit earned to date of death. We
believe that the SERP is an essential piece of a competitive and attractive
executive benefits package.
BOLI
-
The Bank
purchased policies of BOLI, which are insurance policies on the lives of our
officers, to help offset the costs of providing benefits under all benefit
plans
and arrangements. The Bank is the sole owner of these BOLI policies, has all
rights with respect to the cash surrender values of these BOLI policies, and
is
the sole death beneficiary under these BOLI policies. Because we believe that
it
is important to reward our officers for their loyalty and service, we have
agreed to assign a portion of the cash benefits payable under these BOLI
policies to their estates in the event they die while employed. The BOLI benefit
for each of the Bank’s executive officer, all of whom are executive officers of
the Corporation, is the present value of the projected SERP benefit at normal
retirement age (as defined in the plan) reduced by the participant’s projected
income tax on that benefit. For non-executive officers, the benefit is $25,000.
The
BOLI
benefits program and the SERP were adopted several years ago after consultation
with Charon Planning, a compensation consultant hired by the Board of Directors.
Although management was involved in the consultative process, major decisions
with respect to these plans, including the decision to adopt and implement
them,
were made by the Board of Directors.
Deferred
Compensation Plan-Each
of
our Directors and those executives selected by the Compensation Committee are
permitted to participate in the Deferred Compensation Plan. In addition to
director and employee deferrals, the Deferred Compensation Plan contemplates
discretionary employer contributions to a participant’s account. We have never
used this feature of the plan by making discretionary contributions.
Selection
of Amounts and/or Formulas for Components of 2006 Compensation
Each
executive’s current and prior compensation was considered in setting
compensation for 2006. Base compensation is generally targeted to recognize
each
executive officer’s value, performance and historical contributions to our
success in light of salary standards in the marketplace. In addition, we
reviewed the compensation practices of our competitors, and to some extent,
our
compensation plan was based on the marketplace and the entities with which
we
compete for executives. The elements of our plan are very similar to the
elements used by many financial institutions.
For
2006,
the Corporation made the basic contribution to non-highly compensated employees
under the 401(k) Profit Sharing Plan, so it also made the discretionary cash
bonus awards to each of the named executive officers. The 2006 targeted
financial goals under our Executive Pay for Performance Plan were as follows:
return on shareholder’s equity of 13.18%; earnings per share of $2.11; and an
efficiency ratio of 63.05%; These goals were chosen based upon growth levels
determined in our strategic planning process, taking into considering that
we
are currently in an expansion mode. The Compensation Committee chose 102% of
target as the maximum award payout threshold because it believed this figure
would encourage strong annual performance without significantly sacrificing
future earnings. The following table shows the percentage of base salary payable
in 2006 as a bonus to each of the named executive officers for achievement
of
the target and maximum goals:
| |
Target
%
|
Maximum
%
|
|
William
B. Grant
|
40%
|
50%
|
|
Robert
W. Kurtz
|
30%
|
37.5%
|
|
Carissa
L. Rodeheaver
|
20%
|
25%
|
|
Steven
M. Lantz
|
20%
|
25%
|
|
Eugene
D. Helbig
|
20%
|
25%
|
These
percentages of salary were chosen based on the position held by each executive
and comparable total compensation packages for similar positions within our
peer
group. Forty percent of the bonus is allocable to achievement of the goal for
return on stockholders’ equity, 40% is allocable to achievement of the goal for
earnings per share, and the remaining 20% is allocable to achievement of the
goal for efficiency ratio, and the bonus can be paid in part or in whole,
depending upon which and to what extent goals are achieved.
We
chose
not to make any discretionary profit sharing contributions or payments in 2006
under the 401(k) Profit Sharing Plan because the 2006 financial goals
established through our strategic planning process were not
achieved.
We
chose
to calculate SERP benefits at the rate of 2.5% of Final Pay, set a target SERP
benefit of 60% and set a maximum SERP benefit of 65% of Final Pay to provide
competitive retirement benefits and to encourage long and faithful service.
We
designed the SERP primarily to supplement benefits payable under the Pension
Plan and, as such, we felt that it would be most appropriate to measure SERP
benefits using an actuarial formula (i.e.,
years
of service and final pay) similar to that used under the Pension Plan. We
excluded the SERP benefits payable to Mr. Grant from the Section 280G limitation
in recognition of his importance to our organization and the fact that the
risk
that he would be terminated following a change in control is likely greater
than
for other executives.
The
manner of determining the death benefits payable under the BOLI program to
our
named executive officers was intended to provide the named beneficiary with
the
after tax present value of the benefits payable under the SERP, and the
difference between the amounts payable to them and the $25,000 payable to other
members of management was intended to recognize the importance of these
executives and the value they bring to the Corporation.
Equity/Security
Ownership Requirements
We
encourage our directors and officers to maintain an ownership stake in the
Corporation, but we do not require our officers to satisfy any minimum stock
ownership level. Under Maryland banking law, however, each Director must own
stock of the Corporation equal to at least $500.
Compensation
Consultants
From
time
to time, we engage the services of compensation consultants to assist us in
the
review and establishment of our compensation objectives. Generally, these
consultants are engaged directly by the Compensation Committee or the entire
Board, although management is typically involved in the consultative process.
All major decisions with respect to these engagements, including the decision
to
adopt and implement a particular plan or arrangement, are made by the
Compensation Committee and approved or ratified by the Board of
Directors.
Accounting
and Tax Considerations
We
have
structured our non-qualified deferred compensation arrangements so that they
comply with Section 409A of the Code. If an executive is entitled to
nonqualified deferred compensation benefits that are subject to Section 409A
and
such benefits do not comply with Section 409A, then the benefits are taxable
in
the first year they are not subject to a substantial risk of forfeiture. In
such
case, the executive is subject to regular federal income tax, interest and
an
additional federal income tax of 20% of the benefit includible in income.
With
respect to the BOLI and group term life insurance benefits, a covered officer
realizes nominal taxable income annually equal to the value of that officer’s
life protection.
COMPENSATION
COMMITTEE REPORT
The
Compensation Committee has reviewed and discussed the foregoing Compensation
Discussion and Analysis with management. Based on this review and these
discussions, the Compensation Committee recommended to the Board of Directors
that the Compensation Discussion and Analysis be included in this definitive
proxy statement and incorporated by reference into the Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2006.
| |
By:
|
COMPENSATION
COMMITTEE
|
| |
|
|
| |
|
M.
Kathryn Burkey
|
| |
|
Faye
E. Cannon
|
| |
|
Raymond
F. Hinkle
|
| |
|
Elaine
L. McDonald
|
| |
|
Richard
G. Stanton
|
| |
|
Robert
G. Stuck
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The
members of the Board who performed the functions of the Compensation Committee
at any time during the last completed fiscal year were: M. Kathryn Burkey,
Faye
E. Cannon, Raymond F. Hinkle, Elaine L. McDonald, Richard G. Stanton and Robert
G. Stuck. Mr. Stanton served as the Chairman of the Board, President and CEO
of
the Corporation until June 1, 1996.
REMUNERATION
OF EXECUTIVE OFFICERS
The
following table sets forth for the last fiscal year the total remuneration
for
services in all capacities awarded to, earned by, or paid to the Corporation’s
Chairman and Chief Executive Officer, its Chief Financial Officer, and its
three
most highly compensated executive officers other than the CEO and CFO who were
serving as executive officers as of December 31, 2006 and whose total
compensation (excluding changes in pension value and non-qualified deferred
compensation earnings) exceeded $100,000 during 2006 (the CEO, CFO and such
other officers are referred to as the “named executive officers”).
|
SUMMARY
COMPENSATION TABLE
|
|
Name
and
principal
position
|
Year
|
Salary
($)
|
Bonus
($)
(2)
|
Non-equity
incentive plan compensation
($)
(2)
|
Change
in pension value and non-qualified deferred compensation
earnings
($)
(3)
|
All
other compensation
($)
(4)
|
Total
($)
|
|
William
B. Grant,
Chairman/CEO
(1)
|
2006
|
$
250,000
|
N/A
|
$
0
|
$
723,863
|
$
11,550
|
$
985,413
|
| |
|
|
|
|
|
|
|
|
Robert
W. Kurtz,
President/CRO
(1)
|
2006
|
163,269
|
N/A
|
0
|
102,517
|
3,825
|
269,611
|
| |
|
|
|
|
|
|
|
|
Carissa
L. Rodeheaver,
Senior
Vice President / CFO
|
2006
|
115,579
|
N/A
|
0
|
68,079
|
4,581
|
188,239
|
| |
|
|
|
|
|
|
|
|
Steven
M. Lantz,
Senior
Vice President and
Chief
Lending Officer
|
2006
|
162,500
|
N/A
|
0
|
37,904
|
9,193
|
209,597
|
| |
|
|
|
|
|
|
|
|
Eugene
D. Helbig,
Senior
Vice President and
Senior
Trust Officer
|
2006
|
125,000
|
N/A
|
0
|
59,307
|
10,118
|
194,425
|
|
(1)
|
Messrs.
Grant and Kurtz also serve as directors of the Corporation and of
the Bank
but receive no separate remuneration for such service.
|
|
(2)
|
The
Corporation’s only bonus plan for the named executive officers is the
Executive Pay for Performance Plan, which, for purposes of the Summary
Compensation Table, is reflected in the column entitled “Non-equity
incentive plan compensation”.
|
|
(3)
|
Amounts
relate to the Pension Plan and the SERP. Changes in value for the
Pension
Plan alone were: Mr. Grant, $35,289; Mr. Kurtz, $66,409; Ms. Rodeheaver,
$8,783; Mr. Lantz, $34,050; and Mr. Helbig, $37,865. Changes in value
for
the SERP alone were: Mr. Grant, $688,574; Mr. Kurtz, $36,108; Ms.
Rodeheaver, $59,296; Mr. Lantz, $3,854; and Mr. Helbig, $21,442.
Details
regarding the large increase in Pension value recognized by Mr. Grant
in
2006 are discussed below under the section entitled
“Pension Benefits”.
|
|
(4)
|
Amounts
include (i) the dollar value to the named executive officers of premiums
related to the BOLI benefits plan and the Corporation’s group life
insurance program available to all employees as follows: Mr. Grant,
$653;
Mr. Kurtz, $3,039; Ms. Rodeheaver, $297; Mr. Lantz, $836; and Mr.
Helbig,
$984; (ii) matching contributions made by the Corporation for each
executive officer under the Corporation’s 401(k) Profit Sharing Plan as
follows: Mr. Grant, $10,000; Mr. Kurtz, $0; Ms. Rodeheaver, $3,716;
Mr.
Lantz, $7,446; and Mr. Helbig, $6,026; (iii) the following discretionary
cash payments made because the
basic contribution was awarded to non-highly compensated employees
under
the 401(k) Profit Sharing Plan: Mr. Grant, $897; Mr. Kurtz, $786;
Ms.
Rodeheaver, $568; Mr. Lantz, $911; and Mr. Helbig, $704; and (iv)
$2,404
received by Mr. Helbig upon waiver of a week’s vacation pursuant to the
Corporation’s Buy/Sell Vacation Plan.
|
The
various elements of executive compensation are summarized below and, where
an
element involves a written plan or agreement, are qualified in their entireties
by such plan or agreement. It should be noted that the Severance Plan was
adopted in February 2007, which is also summarized below. If the Omnibus Plan
is
adopted by shareholders at this Annual Meeting (Proposal 2), then awards under
that plan may be granted to key employees, including the named executive
officers, in future years.
Employment
Arrangements
All
executive officers are employed on an at-will basis and are not parties to
any
written employment agreement. Executive compensation consists of two principal
elements: (i) base salary; and (ii) incentive compensation, consisting of
amounts payable under the Pay for Performance program.
Salaries
for the named executive officers in 2006 were determined based on the principals
discussed above in the Compensation Disclosure and Analysis.
Executive
Pay for Performance Plan
As
mentioned above, the Corporation maintains an Executive Pay for Performance
Plan
that rewards executives when the Corporation attains certain performance goals.
The following table provides information about grants made in 2006 under the
Executive Pay for Performance program and the amounts that could have been
earned in 2006 and paid in 2007 pursuant to those grants. The named executive
officers did not earn any amounts pursuant to these awards because the 2006
performance goals were not met.
|
GRANTS
OF PLAN-BASED AWARDS
|
|
Name
|
Estimated
Future Payouts Under
Non-Equity
Incentive Plan Awards
|
|
Grant
Year
|
Threshold
($)
|
Target
($)
|
Maximum
($)
|
|
William
B. Grant
|
2006
|
$
0
|
$
100,000
|
$
125,000
|
| |
|
|
|
|
|
Robert
W. Kurtz
|
2006
|
0
|
48,981
|
61,226
|
| |
|
|
|
|
|
Carissa
L. Rodeheaver
|
2006
|
0
|
23,583
|
29,479
|
| |
|
|
|
|
|
Steven
M. Lantz
|
2006
|
0
|
32,500
|
40,625
|
| |
|
|
|
|
|
Eugene
D. Helbig
|
2006
|
0
|
25,000
|
31,250
|
Bank-Owned
Life Insurance
BOLI
is
insurance on the lives of the Bank’s executive and certain other officers. The
Bank purchased BOLI policies in the aggregate amounts of $18
million in 2001, $2.3 million in 2004, and $2.8 million in 2006. Participation
in the BOLI benefits program can be terminated for any reason, at any time,
by
either the Bank or the covered officer. The Bank intends to terminate each
covered officer’s participation at retirement. The current death benefits
payable to the beneficiaries of the named executive officers are as follows:
Mr.
Grant, $455,000; Mr. Kurtz, $295,000; Ms. Rodeheaver, $125,541; Mr. Lantz,
$335,000; and Mr. Helbig, $290,000.
Pension
Benefits
All
employees are eligible to participate in the Pension Plan upon completion of
one
year of service and the attainment of the age of 21. The SERP is available
only
to a select group of management or highly compensated employees. The SERP was
created to overcome qualified plan regulatory limits or the “reverse
discrimination” imposed on highly compensated executives due to IRS contribution
and compensation limits. Certain information about the benefits payable to
each
of the named executive officers under the Pension Plan and the SERP is provided
in the following table.
|
Name
|
Plan
Name
|
Number
of years
credited
service
|
Present
value of
accumulated
benefit
|
Payments
during
last
fiscal year
|
| |
|
(#)
|
($)
(1)
|
($)
|
|
William
B. Grant
|
Pension
Plan
|
28
|
$
371,584
|
$
0
|
| |
SERP
|
28
|
1,131,258
|
0
|
| |
|
|
|
|
|
Robert
W. Kurtz
|
Pension
Plan
|
34
|
757,144
|
0
|
| |
SERP
|
34
|
518,453
|
0
|
| |
|
|
|
|
|
Carissa
L. Rodeheaver
|
Pension
Plan
|
15
|
46,494
|
0
|
| |
SERP
|
24
|
59,296
|
0
|
| |
|
|
|
|
|
Steven
M. Lantz
|
Pension
Plan
|
20
|
181,809
|
0
|
| |
SERP
|
24
|
236,444
|
0
|
| |
|
|
|
|
|
Eugene
D. Helbig
|
Pension
Plan
|
21
|
238,351
|
0
|
| |
SERP
|
24
|
306,429
|
0
|
|
(1)
|
The
amounts listed as the present accumulated benefits for the SERP reflect
the dollar for dollar offset for the accumulated benefits payable
under
the Pension Plan and 50%
of the estimated social security benefits to be received by the
participant.
|
As
can be
seen from the Summary Compensation Table and footnote 3 thereto, the value
of
Mr. Grant’s SERP benefit experienced a significant increase in 2006. The
valuation of benefits under the Pension Plan and SERP are a function of
compensation. The large increase can, in large part, be attributed to two events
that occurred in 2005. First, the Compensation Committee decided in 2005 to
increase Mr. Grant’s base salary from $175,000 to $250,000 to align Mr. Grant
with CEOs at our peer institutions. Second, Mr. Grant earned a bonus of $105,078
in 2005, which was paid to him in 2006.
Pension
Plan
All
employees are eligible to participate in the plan upon completion of one year
of
service and the attainment of the age of 21. A year of service is defined as
the
completion of 12 consecutive months of employment during which the employee
worked at least 1,000 hours. In calculating the present value of the accumulated
benefits, the following assumptions were used: Mortality - UP84, -3 setback;
discount rate of 6.15%; assumed retirement age of 65; normal form of benefit
-
10 year certain and continuous annuity.
SERP
The
SERP
provides supplemental retirement income to certain senior executives of the
Bank
designated by the Bank’s Board of Directors. The named executive officers are
also executives of the Bank and have been designated for coverage under the
SERP. As discussed above, each of the named executive officers has been credited
with 24 years of service. In the event a named executive officer voluntarily
terminates employment without good reason, his or her credited years of service
will revert to actual years of service as of the date of termination. Future
participants in the plan will be credited with actual years of service.
The
normal retirement SERP benefit is paid following Normal Retirement, which is
defined as a Separation from Service (as defined in the SERP) after attaining
age 60 and providing at least 10 years of service. Each participant is entitled
to elect, upon initial participation, whether to receive the benefit in a single
lump sum or in the form of a lifetime annuity, a 10-year guaranteed payment
lifetime annuity, a 50% joint and survivor annuity, a 75% joint and survivor
annuity, or a 100% joint and survivor annuity. Annuity payments will be made
on
a monthly basis and are subject to actuarial adjustments. Payments under a
lifetime annuity will be determined based on the expected remaining number
of
years of life for the annuitant and actuarial tables as of the time the annuity
begins. Payments under any form of annuity other than a lifetime annuity will
be
determined using the same actuarial equivalent
assumptions used for the Pension Plan. If
a
participant fails to make an election, then he or she will receive the benefit
as a lifetime annuity.
A
participant vests in his or her accrued normal retirement SERP benefit upon
10
years of service, upon Normal Retirement, upon a Separation from Service due
to
Disability (as defined in the SERP), and upon the participant’s death. Upon a
Separation from Service following a Change in Control (as defined in the SERP)
and a subsequent Triggering Event (as defined in the SERP), a participant will
vest in the greater of (i) 60% of Final Pay or (ii) his or her accrued normal
retirement SERP benefit through the date of the Separation from Service.
Generally,
the distribution of a participant’s SERP benefit will begin following the
participant’s Normal Retirement. If the participant suffers a Separation from
Service due to death or following a Disability, then the participant or his
or
her designated beneficiaries will receive a lump sum payment equal to the
actuarial equivalent of his or her accrued SERP benefit. If the participant
suffers a Separation from Service other than due to “Cause” (as defined in the
SERP) after 10 years of service but prior to Normal Retirement, then he or
she
will receive the normal retirement SERP benefit that has accrued through the
date of the Separation from Service at age 65, in the form elected. If the
participant suffers a Separation from Service following a Change in Control
and
subsequent Triggering Event, then the distribution of his or her normal
retirement SERP benefit that has accrued through the date of the Separation
from
Service will begin, in the form elected, once the participant reaches age 65.
If
the participant dies following the commencement of distributions but prior
to
the complete distribution of his or her vested and accrued SERP benefit, then
distributions will be paid to his or her beneficiaries only if he or she chose
a
joint and survivor annuity form of distribution or a 10-year guaranteed payment
lifetime annuity (and then only until the guaranteed payments have been made).
A
participant will lose all SERP benefits if he or she is terminated for Cause.
In
addition, each participant has agreed that the receipt of any SERP benefits
is
conditioned upon his or her (i) refraining from competing with the Corporation
and its subsidiaries in their market areas for a period of three years following
his or her Separation from Service, (ii) refraining from disclosing the
Corporation’s confidential information following a Separation from Service, and
(iii) remaining available to provide up to six hours of consultative services
for 12 months after his or her Separation from Service. Items (i) and (iii)
do
not apply, however, if the Separation from Service results from a Change in
Control and subsequent Triggering Event. If a participant breaches any of these
conditions, then he or she is obligated to return all SERP benefits paid to
date
plus interest on such benefits at the rate of 10% per year.
In
calculating the present value of accumulated benefits, the following assumptions
were used: Mortality - 1994 GAR; discount rate of 5.5%; assumed retirement
age
of 60 or attained age if later; annuity factor at retirement based on 5%
discount.
Non-Qualified
Deferred Compensation
Executives
selected by the Compensation Committee and directors of the Corporation and
its
subsidiaries are permitted to participate in the Deferred Compensation Plan,
which permits directors and executives to elect, each year, to defer receipt
of
up to 100% of their directors’ fees, salaries and bonuses, as applicable, to be
earned in the following year. The deferred amounts are credited to an account
maintained on behalf of the participant (a “Deferral Account”) and are deemed to
be invested in certain deemed investment options established from time to time
by the Compensation Committee. Additionally, the Corporation may make
discretionary contributions for the benefit of a participant to an Employer
Contribution Credit Account (the “Employer Account”), which will be deemed to be
invested in the same manner as funds credited to the Deferral Account. Each
Deferral Account and Employer Account is credited with the gain or loss
generated on the investments in which the funds in those accounts are deemed
to
be invested, less any applicable expenses and taxes. All funds are held in
a
Rabbi Trust. There have been no discretionary contributions made to the Employer
Account.
A
participant is at all times 100% vested in his or her Deferral Account. The
Corporation is permitted to set a vesting date or event for the Employer
Account, and such date may be based on the performance by the participant of
a
specified number of completed years of service with the Corporation, may be
based on the participant’s performance of specified service goals with respect
to the Corporation, may be limited to only certain termination of employment
events (e.g.,
involuntary termination, those following a change of control, etc.), or may
be
based on any other standard, at the Corporation’s sole and absolute discretion.
Notwithstanding the foregoing, a participant will become 100% vested in his
or
her Employer Account if
he or
she terminates employment (or, in the case of a participant who is a
non-employee director, terminates membership on the board of directors) because
of death or Total and Permanent Disability (as defined in the Deferred
Compensation Plan). Each
participant will also become 100% vested in his or her Employer Account in
the
event of a Change in Control (as defined in the Plan). To date, the Corporation
has not made any contributions to the Employer Account of any participant.
Generally,
a participant is entitled to choose, pursuant to an election form, the date
on
which his or her account balances are to be distributed, subject to any
restrictions imposed by the Corporation and the trustee under the Rabbi Trust
in
their sole and absolute discretion and applicable law. If a participant fails
to
select a distribution date, then distributions will begin on or about the date
of the participant’s termination of employment or director status with the
Corporation. The participant may choose whether his or her account balances
are
to be distributed in one lump sum or in 10 equal annual installments. If a
participant fails to elect a payment date or the method of payment, then the
account balances will be distributed in one lump sum following termination
of
employment. If distributions are made in installments, then the undistributed
balance will continue to be deemed invested in the chosen investment options,
and the accounts will be credited or debited accordingly, until all amounts
are
distributed.
If
a
participant dies or experiences a Total and Permanent Disability before
terminating his or her employment or director status with the Corporation and
before the commencement of payments, then the entire balance of the
participant’s accounts will be paid to the participant or to his or her named
beneficiaries, as applicable, as soon as practicable following death or Total
and Permanent Disability.
If
a
participant dies after the commencement of payments but before he or she has
received all payments to which he or she is entitled, then the remaining
payments will be paid to his or her designated beneficiaries in the manner
in
which such benefits were payable to the participant. Upon
a
Change in Control, the entire balance of a participant’s accounts will be paid
in a single lump sum payment.
The
Deferred Compensation Plan provides for limited distributions in the event
of
certain financial hardships.
Section
409A of the Code imposes certain restrictions on the timing of distributions
to
participants who are “key employees” of the Corporation, and these restrictions
could impact the timing of distributions under the Deferred Compensation Plan.
The
following table provides information relating to amounts deferred by or for
the
benefit of the named executive officers in 2006 under the Deferred Compensation
Plan.
|
NON-QUALIFIED
DEFERRED COMPENSATION
|
|
Name
|
Executive
contributions
in
last FY
($)
|
Registrant
contributions
in
last FY
($)
|
Aggregate
earnings
in
last
FY
($)
|
Aggregate
withdrawals/
distributions
($)
|
Aggregate
balance
at
last
FYE
($)
|
|
William
B. Grant
|
$
10,508
|
$
0
|
$
9,144
|
$
0
|
$
340,569
|
|
Robert
W. Kurtz
|
0
|
0
|
0
|
0
|
0
|
|
Carissa
L. Rodeheaver
|
0
|
0
|
0
|
0
|
0
|
|
Steven
M. Lantz
|
11,500
|
0
|
175
|
0
|
12,111
|
|
Eugene
D. Helbig
|
0
|
0
|
0
|
0
|
0
|
Benefits
Upon Termination of Employment
The
Severance Plan is administered by the Compensation Committee. The Corporation
has entered into agreements under the Severance Plan with certain officers,
including each of the named executive officers. Each Severance Agreement
generally provides that, if the participant’s employment is terminated by the
Corporation without “Cause” (as defined in the Severance Agreement) or by the
participant for “Good Reason” during the period commencing on the date that is
90 days before a “Change in Control” (as defined in the Severance Plan) and
ending on the first anniversary of a Change in Control (the “Protection
Period”), he or she will be entitled to (i) receive a lump sum cash payment
equal to two times (2.99 times for Mr. Grant) his or her Final Pay, (ii) the
immediate vesting of all equity-based compensation awards that have been granted
to the participant (that have not been exercised or paid or expired or lapsed
pursuant to their terms), (iii) continued coverage for 24 months under the
Corporation’s group health and dental plan (or, if the participant is not
eligible for such coverage, a monthly cash payment equal to the monthly premium
for a similar policy), and (iv) outplacement services for up to 12 months.
For
purposes of the foregoing, the term “Final Pay” means the participant’s annual
base salary for the year in which the termination occurs, plus the greater
of
(x) his or her targeted cash bonus for that year or (y) the actual cash bonus
earned for the year immediately preceding the year of termination. The term
“Good Reason” is defined in each Severance Agreement, but generally includes a
material and adverse change to the participant’s employment status, position or
duties, a 10% or greater reduction to his or her base salary or targeted bonus,
the failure by the Corporation to maintain an employee benefit plan in which
the
participant was participating at the time of the Change in Control (other than
because of the expiration of its normal term) or the taking of any other action
by the Corporation that has a material and adverse impact on the participant’s
participation in or benefits under any such plan, a requirement that the
participant relocate more than 50 miles from his or her office immediately
prior
to the Change in Control, and the failure by any successor to the Corporation
to
assume the Severance Plan. In addition, Mr. Grant’s Severance Agreement provides
that “Good Cause” also includes the termination of his status as the Chief
Executive Officer of a company whose stock is traded on a national securities
exchange.
For
all
participants other than William B. Grant, the Severance Agreement provides
that
the amount of all severance benefits described above, plus the amount of all
benefits under any other plan or arrangement, the payment of which is deemed
to
be contingent upon a change in the ownership or effective control of the
Corporation (as determined under Section 280G of the Code), may not exceed
2.99
times the participant’s “annualized includable compensation for the base period”
(i.e.,
the
average annual compensation that was includable in his or her gross income
for
the last five taxable years ending before the date on which the Change in
Control occurs). In the event the amount of the benefits payable to Mr. Grant
under his Severance Agreement and all other arrangements the payment of which
is
deemed to be contingent on a Change in Control exceeds 2.99 times his annualized
includable compensation for the base period, he will be entitled to a tax
gross-up payment from the Corporation to cover any excise tax imposed by Section
4999 of the Code or any similar state or local tax law, and any interest or
penalties payable with respect to such taxes, on the amount of such benefits
and
the gross-up tax payment.
The
timing of the distribution of some or all of these severance benefits may be
subject to a six-month waiting period under Section 409A of the Code to the
extent the participant is considered to be a “key employee” of the Corporation.
Each
Severance Agreement has an initial three-year term and automatically renews
for
additional one-year terms unless the Corporation provides the participant with
six-months prior notice of its intention to not renew the Severance Agreement,
except that the Severance Agreement will automatically terminate at the
expiration of the Protection Period. Additionally, if a participant’s employment
is terminated other than for Cause during the Protection Period, the Severance
Agreement will continue until the end of the Protection Period notwithstanding
the then current term. The Severance Plan and the Severance Agreements may
be
amended by the Board of Directors at any time, except that an amendment
generally may not be made without a participating participant’s written consent
if such amendment would adversely effect the participant’s interests. Any
amendment may be made without a participant’s consent, however, if the amendment
is required to comply with applicable law.
The
following table shows the estimated present value of benefits that could be
payable under the Severance Plan to each of the named executive officers if
they
were to suffer a separation from service other than for cause following a change
in control:
|
Name
|
Estimated
Severance Plan Benefit
($)
|
|
William
B. Grant
|
$
1,046,500
|
|
Robert
W. Kurtz
|
442,000
|
|
Carissa
L. Rodeheaver
|
300,000
|
|
Steven
M. Lantz
|
390,000
|
|
Eugene
D. Helbig
|
300,000
|
As
discussed above, subject to certain conditions, participants in the SERP are
entitled to receive their vested benefits (offset by Pension Plan benefits,
50%
of social security benefits and, in the case of death, benefits paid under
the
BOLI benefits program described above) if they suffer a separation from service
other than for cause. No SERP benefits are payable if a participant’s separation
from service was for cause. Except in the cases of a separation from service
due
to death or disability, the payment of SERP benefits does not commence until
the
later of normal retirement or attainment of age 60. The following table shows
the estimated present value of benefits that could be payable under the SERP
in
connection with a separation from service:
|
Name
|
Reason
for Termination
|
Estimated
SERP Benefit
($)
(1) (2)
|
|
William
B. Grant
|
Change
in control, disability, involuntary termination other than for cause,
or
voluntary termination for good reason
|
$
1,131,258
|
| |
Death
|
676,258
|
| |
Voluntary
termination without good reason
|
1,131,258
|
| |
|
|
|
Robert
W. Kurtz
|
Change
in control, disability, involuntary termination other than for cause,
or
voluntary termination for good reason
|
518,453
|
| |
Death
|
223,453
|
| |
Voluntary
termination without good reason
|
518,453
|
| |
|
|
|
Carissa
L. Rodeheaver
|
Change
in control, disability, involuntary termination other than for cause,
or
voluntary termination for good reason
|
59,296
|
| |
Death
|
0
|
| |
Voluntary
termination without good reason
|
8,355
|
| |
|
|
|
Steven
M. Lantz
|
Change
in control, disability, involuntary termination other than for cause,
or
voluntary termination for good reason
|
236,444
|
| |
Death
|
0
|
| |
Voluntary
termination without good reason
|
221,461
|
| |
|
|
|
Eugene
D. Helbig
|
Change
in control, disability, involuntary termination other than for cause,
or
voluntary termination for good reason
|
306,429
|
| |
Death
|
16,429
|
| |
Voluntary
termination without good reason
|
288,047
|
|
(1)
|
SERP
benefits payable upon death reflect the following death benefits
currently
payable to the beneficiaries of the named executive officers: Mr.
Grant,
$455,000; Mr. Kurtz, $295,000; Ms. Rodeheaver, $125,541; Mr. Lantz,
$335,000; and Mr. Helbig, $290,000.
|
|
(2)
|
The
SERP benefit payable to any named executive officer who terminates
his or
her employment without good reason is based on actual years of
service
rather than 24 years of credited service. Accordingly, benefits
shown for
Ms. Rodeheaver and Messrs. Lantz and Helbig in connection with
a voluntary
termination without good reason are based on actual years of service
of
15, 20 and 21, respectively. Messrs. Grant and Kurtz have over
24 years of
service.
|
Compensation
Consultants
During
2006, management, at the request of the Compensation Committee, engaged the
services of Ben
S.
Cole Financial, Inc. and Dolmat-Connell
& Partners, Inc. to assist it with the creation and implementation of the
Omnibus Plan and the Severance Plan. As part of this process, Dolmat-Connell
& Partners, Inc. was also directed to review the SERP to ensure
compatibility with the Omnibus Plan and the Severance Plan. Although management
was involved in the consultative process, major decisions with respect to these
plans, including the decision to adopt and implement them, were made by the
Board of Directors.
APPROVAL
OF THE OMNIBUS EQUITY COMPENSATION PLAN (PROPOSAL 2)
At
the
Annual Meeting, shareholders will be asked to approve the First United
Corporation Omnibus Equity Compensation Plan, a copy of which is attached to
this definitive proxy statement as Appendix B and incorporated herein by
reference. The following summary of key provisions of the Omnibus Plan is
qualified in its entirety by reference to the attached Omnibus Plan document.
Based upon the recommendation of the Board’s Compensation Committee, the Board
of Directors approved the form of the Omnibus Plan on November 15, 2006 and
recommended that it be submitted to the shareholders for approval at this year’s
Annual Meeting.
Purpose.
The
Corporation has not previously granted equity-based compensation to directors
and key employees. During 2006, the Compensation Committee engaged a benefits
consultant to review and discuss the Corporation’s compensation and benefits
packages and to help the Compensation Committee determine, among other things,
whether those packages were in line with the packages offered by the
Corporation’s peers and tailored to attract, motivate and retain key employees
and directors. The Omnibus Plan has been designed to advance the interests
of
the Corporation and its shareholders by providing key management employees,
non-employee directors and other eligible participants with innovative financial
incentives, through stock and performance based awards, to: (i) align
participants’ interests with the interests of the Corporation’s shareholders in
the long-term success of the Corporation; (ii) provide management with an equity
ownership in the Corporation tied to Corporation performance; (iii) attract,
motivate and retain key employees and non-employee directors; and (iv) provide
incentives to management for continuous employment with the
Corporation.
Effective
Date and Term. The
Omnibus Plan will be effective on April 24, 2007 if approved by the
Corporation’s shareholders at the Annual Meeting. Unless sooner terminated by
the Board, the Omnibus Plan will terminate on the earlier of the date that
all
shares reserved for issuance have been awarded or April 23, 2017.
Administration.
The
Board’s Compensation Committee will administer the Omnibus Plan. Among other
powers, the Compensation Committee will have full and exclusive power to: (i)
determine the employees and non-employee directors to whom awards may be made
under the Omnibus Plan; (ii) determine the type, size and terms of the awards
to
be made to each participant; (iii) determine the time when the awards will
be
made and the duration of any applicable exercise or restriction period,
including the criteria for exercisability and the acceleration of
exercisability; (iv) amend the terms of any previously issued award, subject
to
certain limitations contained in the Omnibus Plan; (v) adopt guidelines separate
from the Omnibus Plan that set forth the specific terms and conditions for
awards; and (vi) deal with any other matters arising under the Omnibus
Plan.
Eligibility
for Participation.
The
Omnibus Plan is available to all non-employee Directors of the Corporation
and
its subsidiaries and all employees, including employees who are officers or
directors, of the Corporation and its subsidiaries who, in the opinion of the
Compensation Committee, can contribute significantly to the growth and
profitability of, or perform services of major importance to, the Corporation
and its subsidiaries. Subject to the provisions of the Omnibus Plan, the
Compensation Committee has the authority to select from all eligible individuals
those to whom awards are granted and to determine the nature and amount of
each
award. As of December 31, 2006, there were 14 non-employee directors, nine
executive officers, and approximately 455 other employees (including officers
who are not executive officers) who would have been eligible to participate
in
the Omnibus Plan.
Types
of Awards.
The
Omnibus Plan permits the Compensation Committee, in its sole discretion, to
grant various forms of incentive awards. The Compensation Committee has the
power to grant stock options, stock appreciation rights (“SARs”), stock awards,
stock units, performance units, dividend equivalents, and other stock-based
awards. Each award will be reflected in an agreement between the Corporation
and
the participant, will be subject to the applicable terms and conditions of
the
Omnibus Plan and any guidelines adopted under the Omnibus Plan, and may also
be
subject to other terms and conditions contained in the award agreement
consistent with the Omnibus Plan that the Compensation Committee deems
appropriate, including restrictions on vesting and exercise and provisions
related to settlement in the event of a participant’s death, disability or
termination of employment. The provisions of the various agreements entered
into
under the Omnibus Plan do not need to be identical.
Stock
Options. Stock
options allow the participant to buy a certain number of shares of common stock
of the Corporation at an exercise price equal to at least the fair market value
(as determined by the Compensation Committee) on the date the option is granted.
The Compensation Committee may grant stock options intended to qualify as
incentive stock options (“ISOs”) within the meaning of Section 422 of the Code,
so-called “nonqualified stock options” that are not intended to qualify as
incentive stock options (“NQSOs”), or any combination of ISOs and NQSOs. All
persons eligible to participate in the Omnibus Plan may receive a grant of
NQSOs. Only employees of the Corporation and its subsidiaries may receive a
grant of ISOs.
The
Compensation Committee fixes the exercise price per share for options on the
date of grant, provided that the exercise price of any option granted under
the
Omnibus Plan can never be less than the fair market value of the underlying
shares of common stock on the date of grant and provided further that, if a
participant who will be granted an ISO is a person who holds more than 10%
of
the total combined voting power of all classes of outstanding voting securities
of the Corporation, the exercise price per share of an ISO granted to such
person must be at least 110% of the fair market value of a share of common
stock
on the date of grant. To the extent that the aggregate fair market value of
shares of common stock, determined on the date of grant, with respect to which
ISOs (under all of the Corporation’s equity compensation plans) become
exercisable for the first time by a participant during any calendar year exceeds
$100,000, such ISOs will be treated as NQSOs.
The
Compensation Committee determines the term of each option, provided that no
option may have a term greater than 10 years from the date of grant and provided
further that, if the recipient of an ISO is a person who holds more than 10%
of
the combined voting power of all classes of outstanding stock of the
Corporation, the term of that person’s ISO may not exceed five years from the
date of grant. The vesting period for options commences on the date of grant
and
ends on a date that is determined by the Compensation Committee, in its sole
discretion, which is specified in the award agreement. Options may be exercised
at such times and be subject to such restrictions as the Compensation Committee
determines; provided that ISOs may be exercised only while the participant
is
employed by or providing service to the Corporation or within a specified period
of time after termination of such employment or service, as determined by the
Compensation Committee. A participant may exercise an option by delivering
notice of exercise to the Corporation or its designated agent. Payment of the
exercise price and any withholding taxes for an option may be made (i) in cash
or by check, (ii) by delivering shares of common stock already owned by the
participant and having a fair market value on the date of exercise equal to
the
exercise price, or (iii) such other method to the extent permitted by law and
approved by the Compensation Committee. The Compensation Committee may impose
in
an award agreement such restrictions on the shares deliverable upon exercise
of
a stock option as it deems appropriate, including that such shares will
constitute “restricted shares” subject to restrictions on transfer.
Stock
Appreciation Rights. The
Compensation Committee may grant SARs to anyone eligible to participate in
the
Omnibus Plan. Awards may involve freestanding SARs, SARs granted with, but
exercisable in lieu of, stock options (“Tandem SARs”), SARs granted with, and in
addition to, stock options (“Additive SARs”), or any combination of the
foregoing. The Compensation Committee will determine the period when SARs vest
and become exercisable, the fair market value of the shares of common stock
underlying the SARs on the date of grant, and whether SARs will be freestanding
SARs, Tandem SARs, or Additive SARs. SARs may be exercised only while the
participant is alive. The exercise of a SAR does not require the payment of
any
money to the Corporation. Upon exercise of a freestanding SAR, the participant
will receive an amount equal to the excess of the fair market value of the
common stock on the date of exercise over the fair market value on the date
of
grant. Upon exercise of a Tandem SAR or an Additive SAR, the participant will
receive an amount equal to the excess of the fair market value of the common
stock on the date of exercise over exercise price of the related stock option.
The exercise of a Tandem SAR will reduce the number of shares available under
the related stock option by the amount of shares exercised, and vice versa.
The
exercise of an Additive SAR will have no effect on the related stock option.
Payment to the participant of the SAR value will be in cash, in shares of common
stock, or in a combination of cash and shares of common stock, as determined
by
the Compensation Committee. Each award agreement will state the circumstances
under which a participant may retain a SAR award after termination of employment
or service and the circumstances under which a SAR may be forfeited.
Stock
Awards. The
Compensation Committee may grant a stock award to anyone eligible to participate
in the Omnibus Plan. A stock award involves the immediate transfer by the
Corporation to the participant of a specific number of shares of common stock.
These shares may be “restricted stock” subject to a risk of forfeiture and a
restriction on transferability or they may be free and clear of such
restrictions. If the shares are restricted, the restrictions will lapse
following a stated period of time, upon attainment of specified performance
targets or some combination of the foregoing. The award agreement may require
the participant to pay for the shares to be issued under the award. A
participant has all of the rights of a holder of a share of common stock of
the
Corporation (except for any restriction on transferability), including the
right
to vote and receive dividends unless otherwise determined by the Compensation
Committee and set forth in the award agreement. Each award agreement will state
the circumstances under which a participant may retain a stock award after
termination of employment or service and the circumstances under which a stock
award may be forfeited.
Stock
Units.
The
Compensation Committee may grant stock units to anyone eligible to participate
in the Omnibus Plan. An award of a stock unit is similar to a stock award,
except that no shares of common stock are immediately transferred to the
participant. In addition, holders of stock units will have no voting rights.
Upon the lapse of any restrictions or the satisfaction of performance or other
conditions related to a stock unit, or under any other circumstance provided
in
the award agreement, the participant is entitled to receive, without any payment
to the Corporation, an amount equal to the fair market value of the shares
of
common stock represented by the stock unit on the date of exercise. Payment
to
the participant of the stock unit value will be in cash, in shares of common
stock, or in combination of cash and shares of common stock, as determined
by
the Compensation Committee, which payment may be made at the expiration of
a
specified period or deferred to a date authorized by the Compensation Committee.
Each award agreement will state the circumstances under which a participant
may
retain a stock unit after termination of employment or service and the
circumstances under which a stock unit may be forfeited.
Performance
Units. The
Compensation Committee may grant performance units to anyone eligible to
participate in the Omnibus Plan. Performance units are intended to constitute
performance-based compensation awards and will entitle the participant to
receive, after the performance period for that unit has ended, an amount based
on the realization of certain performance goals and the satisfaction of certain
other conditions. The terms and conditions of each award, including the
performance period, performance goals, any other terms and conditions of the
award, will be established by the Compensation Committee in the award agreement.
Payment to the participant of the performance unit value will be in cash, in
shares of common stock, or in a combination of cash and shares of common stock,
as determined by the Compensation Committee, which payment may be made at the
expiration of a specified period or deferred to a date authorized by the
Compensation Committee. Each award agreement will state the circumstances under
which a participant may retain a performance unit after termination of
employment or service and the circumstances under which a performance unit
may
be forfeited.
Dividend
Equivalents.
When
the Compensation Committee grants any award under the Omnibus Plan, it may
also
grant dividend equivalents in connection with the award under such terms and
conditions as it deems appropriate. A dividend equivalent entitles the
participant to receive or be credited with an amount equal to all cash dividends
and other distributions paid on the shares of common stock underlying the award
while the award is outstanding. Dividend equivalents may be paid currently,
may
be paid on a deferred basis, or may be paid subject to the achievement of
performance goals or other conditions, as specified in the award agreement.
Dividend equivalents may be accrued as a cash obligation or may be converted
into stock units. In either case, dividend equivalents will not accrue interest.
Payment of a dividend equivalent may be made in cash or in shares of common
stock, as determined in the award agreement.
Other
Stock-Based Awards.
The
Compensation Committee may grant any other cash-based award or any other award
that is based on, measured by or payable in shares of common stock to anyone
eligible to participate in the Omnibus Plan, on such terms and conditions as
it
deems appropriate. These awards may be subject to achievement of performance
goals or other conditions and may be payable in cash or in shares of common
stock, or a combination of the cash and stock.
Performance
Measures. The
Omnibus Plan provides that the Compensation Committee may make the degree of
payout and/or vesting of any award dependent upon the attainment of certain
performance goals, measured over certain performance periods. Performance goals
may be specific to a participant, specific to the performance of the Company
generally, or specific to the performance of a subsidiary of the Company, a
division, a business unit, or a line of business served by a participant.
Performance goals may be based on stock value (and/or increases therein),
earnings per share or growth in earnings per share, net income, earnings or
earnings growth, operating profit, operating cash flow, operating or other
expenses, operating efficiency, return on equity, assets, capital or
investments, deposits, loan volume or growth, the efficiency ratio, customer
satisfaction, regulatory compliance, operating or other margins, non-performing
assets, productivity, and any other number of qualitative or quantitative
benchmarks prescribed by the Compensation Committee.
Shares
Available for Awards; Maximum Awards. Up
to
185,000 shares of the common stock of the Corporation will be available for
issuance to participants under the Omnibus Plan, except that no more than 37,000
shares may be issued pursuant to ISOs. Shares of common stock related to any
unexercised or unvested award granted under the Omnibus Plan that terminates,
expires, or lapses for any reason, and shares of common stock issued pursuant
to
the exercise of an award that are subsequently forfeited for any reason, will
become available for re-grant under the Omnibus Plan. Awards paid in cash will
not be counted against these limits.
All
awards, other than dividend equivalents, will be expressed in shares of common
stock. The maximum number of shares for which awards may be granted to any
one
participant in any calendar year is 20,000, without regard to whether an award
is paid in cash or shares.
Deferrals.
To the
extent permitted by law, the Compensation Committee may permit or require a
participant to defer receipt of the payment of an award.
Tax
Withholding. To
the
extent that a participant incurs any tax liability in connection with the
exercise or receipt of an award under the Omnibus Plan, the Corporation has
the
right to deduct or withhold, or to require the participant to pay to the
Corporation, the minimum statutory amount to satisfy federal, state and local
tax withholding obligations. In addition, the Compensation Committee may allow
the participant to satisfy the withholding obligation either by delivering
shares that have been held by the participant for at least six months or by
allowing the Corporation to withhold a portion of the shares to be issued to
the
participant. Shares that are withheld would be available for future awards
under
the Omnibus Plan.
Transferability.
Generally,
awards granted under the Omnibus Plan may not be transferred other than by
will
or the laws of descent and distribution, except that an award agreement may
permit a participant to transfer (subject to compliance with applicable
securities laws) his or her NQSOs to his or her spouse, lineal ascendants and
descendants, or to a trust for the benefit of such persons. Unless otherwise
provided in an award agreement, awards granted under the Omnibus Plan may be
exercised only by the participant during the participant’s
lifetime.
Adjustments
for Changes in Capitalization and Other Corporate Changes.
If
there
is any change in the number or kind of shares of common stock outstanding (i)
by
reason of a stock dividend, spinoff, recapitalization, stock split, or
combination or exchange of shares, (ii) by reason of a merger, reorganization
or
consolidation, (iii) by reason of a reclassification or change in par value,
or
(iv) by reason of any other extraordinary or unusual event affecting the
outstanding shares of common stock as a class without the receipt of
consideration by the Corporation, or if the value of outstanding shares is
substantially reduced as a result of a spinoff or the Corporation’s payment of
an extraordinary dividend or distribution, then the maximum number of shares
available for issuance under the Omnibus Plan, the maximum number of shares
for
which any individual may receive pursuant to awards in any year, the number
of
shares covered by outstanding awards, the kind of shares to be issued or
transferred under the Omnibus Plan, and the price per share or the applicable
market value of such awards shall be appropriately adjusted by the Compensation
Committee to reflect any increase or decrease in the number of, or change in
the
kind or value of, issued shares to preclude, to the extent practicable, the
enlargement or dilution of rights and benefits under such awards.
Repricings
and Substitutions of Awards.
Without
the prior approval of the Corporation’s shareholders, no award may be repriced,
replaced, regranted through cancellation or otherwise modified if the effect
would be to reduce the exercise price for the shares underlying the award,
except for modifications that occur because of the capitalization or other
corporate changes discussed in the preceding paragraph. In addition, no award
that is “under water” may be canceled for the purpose of granting a replacement
award of a different type without shareholder approval An
award
is considered “under water” if the value of the share underlying the award does
not exceed the current fair market value of such share.
Amendment
and Termination. The
Corporation’s Board of Directors may, at any time and from time to time and in
any respect, amend or modify the Omnibus Plan, including to ensure that the
Omnibus Plan and each award granted under the Omnibus Plan comply with
applicable law, regulations and stock exchange rules. Without shareholder
approval, however, the Board may not adopt any amendment that would require
the
vote of shareholders of the Corporation under the Code or NASDAQ’s approval
rules or any amendment affecting “covered employees” that requires the vote of
the Corporation’s shareholders under Section 162(m) of the Internal Revenue
Code. The Corporation’s CEO and its four most highly compensated executive
officers other than the CEO are “covered employees”. No amendment or
modification of the Omnibus Plan or any award agreement may adversely affect
any
outstanding award without the written consent of the participant holding the
award, except to the extent such amendment or modification is required to comply
with any applicable law, regulation or rule to which the Corporation is subject.
The
Board
may also terminate the Omnibus Plan at any time. The termination of the Omnibus
Plan will have no effect on awards that were outstanding at the time of
termination.
Change
in Control.
Upon a
Change in Control, unless the Committee determines otherwise, (i) the
Corporation will provide each participant with outstanding awards written notice
of such Change in Control, (ii) all outstanding options and SARs will
automatically accelerate and become fully exercisable, (iii) the restrictions
and conditions on all outstanding stock awards will immediately lapse, (iv)
participants holding outstanding performance units will receive payment in
settlement of such performance units, in an amount determined by the
Compensation Committee, based on the participant’s target payment for the
performance period and the portion of the performance period that precedes
the
Change in Control, (v) all outstanding stock units shall become payable in
cash
or shares in an amount not less than their target amounts, as determined by
the
Compensation Committee, and (vi) dividend equivalents and other stock-based
awards will become fully payable in cash or shares, in amounts determined by
the
Compensation Committee. Where the Corporation is not the surviving corporation
(or survives only as a subsidiary of another corporation), unless the
Compensation Committee determines otherwise, all outstanding options and SARs
that are not exercised will be assumed by, or replaced with comparable options
and rights by, the surviving corporation (or a parent or subsidiary of the
surviving corporation), and other awards that remain outstanding will be
converted to similar grants of the surviving corporation (or a parent or
subsidiary of the surviving corporation).
Notwithstanding
the foregoing, however, and except where the Compensation Committee following
a
Change in Control is not comprised of the same members as those of the
Compensation Committee immediately before the Change in Control, the
Compensation Committee may take any of the following actions with respect to
any
or all outstanding options and SARs, without the consent of any participant:
(i)
it may require that participants surrender their outstanding options and SARs
in
exchange for a payment by the Corporation, in cash or shares as determined
by
the Compensation Committee, in an amount equal to the amount by which the then
fair market value subject to the participant’s unexercised options and sSARs
exceeds the exercise price of the options or the base amount of the SARs,
respectively, or (ii) after giving participants an opportunity to exercise
their
outstanding options and SARs, the Compensation Committee may terminate any
or
all unexercised options and SARs at such time as it deems appropriate. Any
such
surrender, termination or settlement will take place as of the date of the
Change in Control or such other date as the Compensation Committee may specify.
Under
the
Omnibus Plan, a “Change in Control” will occur upon any of the following events:
| |
·
|
Any
person becomes, within the 12-month period ending on the date of
such
person’s most recent acquisition, a “beneficial owner” (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities
of
the Corporation representing more than 35% of the voting power of
the then
outstanding securities of the Company (except in any transaction
in which
the Corporation becomes a subsidiary of another corporation and in
which
the shareholders of the Corporation, immediately prior to the transaction,
will beneficially own, immediately after the transaction, shares
entitling
such shareholders to more than 50% of all votes to which all shareholders
of the parent corporation would be entitled in the election of directors;
|
| |
·
|
The
consummation of (A) a merger, consolidation, or similar extraordinary
event involving the Corporation and another entity where the shareholders
of the Corporation, immediately prior to the merger, consolidation
or
similar extraordinary event, will not beneficially own, immediately
after
the merger, consolidation or similar extraordinary event, shares
entitling
such shareholders to more than 50% of all votes to which all shareholders
of the surviving corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock
to
elect directors by a separate class vote), or (B) a sale or other
disposition of all or substantially all of the assets of the Corporation;
or
|
| |
·
|
During
any 12-month period after the effective date of the Omnibus Plan,
individuals who at the beginning of such period constituted the Board
cease for any reason to constitute a majority thereof, unless the
election, or the nomination for election by the Corporation’s
shareholders, of at least a majority of the directors who were not
directors at the beginning of such period, was approved by a vote
of at
least two-thirds of the directors then in office at the time of such
election or nomination who either (A) were directors at the beginning
of
such period or (B) whose appointment, election or nomination for
election
was previously so approved.
|
The
Compensation Committee may modify this definition of a Change in Control for
a
particular award as it deems appropriate to comply with Section 409A of the
Code
and
any
related regulations or other guidance promulgated with respect to such Section
by the U.S. Department of the Treasury or the Internal Revenue
Service.
Although
the foregoing provisions are included in the Omnibus Plan primarily for the
protection of a participant in the event of a Change in Control of the
Corporation, they may also be regarded as having an anti-takeover effect, which
may reduce the Corporation’s vulnerability to hostile takeover attempts and
certain other transactions which have not been negotiated with and approved
by
the Board.
Registration
of Shares.
As soon
as is practicable after the Omnibus Plan is approved by shareholders, the
Corporation intends to register the shares of its common stock necessary to
fund
the Omnibus Plan on a Registration Statement on Form S-8 under the Securities
Act of 1933, as amended.
Certain
Federal Income Tax Consequences. The
federal income tax consequences arising with respect to awards granted under
the
Omnibus Plan will depend on the type of the award. The following provides only
a
general description of the application of federal income tax laws to certain
awards under the Omnibus Plan, based on current federal income tax laws. This
discussion is intended for the information of shareholders considering how
to
vote at the meeting and not as tax guidance to participants in the Plan, as
the
consequences may vary with the types of awards made, the identity of the
recipients, and the method of payment or settlement. This summary is not
intended to be exhaustive and, among other things, does not address the effects
of other federal taxes (including possible “golden parachute” excise taxes) or
taxes imposed under state, local, or foreign tax laws. Participants should
not
rely on this discussion for individual tax advice, as each participant’s
situation and the tax consequences of exercising awards and disposing of the
underlying shares of common stock will vary depending upon the specific facts
and circumstances involved. Each participant is advised to consult with his
or
her own tax advisor.
Incentive
Stock Options. A
participant will not recognize income upon the grant or exercise of an award
that qualifies as an ISO under the Omnibus Plan. However, the difference between
the fair market value of the stock on the date of exercise and the exercise
price is an item of tax preference which may cause the participant to be subject
to the alternative minimum tax in the year in which the ISO is
exercised.
If
a
participant exercises an ISO and does not dispose of the underlying shares
within (i) two years from the date of grant of the ISO, and (ii) one
year from the date of exercise, the participant will generally recognize capital
gain or loss on a subsequent sale of the stock equal to the difference between
the sales price and the exercise price. If a participant disposes of common
stock acquired upon exercise of an ISO before the expiration of either the
two-year or the one-year holding periods described in the preceding sentence
(each a “disqualifying disposition”), the participant will generally realize
ordinary income in an amount equal to the lesser of (a) the excess of the
fair market value of the shares on the date of exercise over the exercise price,
or (b) the excess of the fair market value of the shares on the date of
disposition over the exercise price. The remaining gain, if any, will be taxed
to the participant as long-term or short-term capital gain depending on the
holding period for such shares. The Corporation will not be allowed any
deduction for federal income tax purposes at either the time of grant or the
time of exercise of an ISO. Upon any disqualifying disposition by a participant,
the Corporation will generally be allowed a deduction to the extent the
participant realizes ordinary income.
Nonqualified
Stock Options. A
participant who is granted an option under the Omnibus Plan which does not
qualify as an ISO shall be treated as having been granted a nonqualified stock
option. Generally, the grant of an NQSO does not result in a participant
recognizing income. Upon the exercise of an NQSO, the participant will recognize
ordinary income in an amount equal to the excess of the fair market value of
the
shares of the common stock at the time of exercise over the exercise price
of
the NQSO. The Corporation will generally be entitled to a deduction for federal
income tax purposes in an amount equal to the amount included in income by
the
participant, provided the Corporation satisfies its information reporting
obligations with respect to such income.
On
a
subsequent sale of the shares of the common stock, the participant will
recognize capital gain or loss equal to the difference between the amount
realized from the sale of stock and the participant’s adjusted basis in those
shares, which will generally be the sum of the amount paid and the amount of
income previously recognized by the participant in connection with the exercise
of the NQSO. Such capital gain will be long or short term depending upon the
holding period for such shares.
Stock
Appreciation Rights. In
general, a participant will not recognize ordinary income for federal income
tax
purposes upon the grant of a SAR and the Corporation will not be entitled to
a
deduction at that time. Upon the exercise of a SAR, the participant will
recognize ordinary income equal to the amount by which the fair market value
of
a share on the exercise date exceeds either (i) the fair market value of a
share
on the date of grant in the case of a freestanding SAR or (ii) the exercise
price of the related stock option in the case of a Tandem SAR or an Additive
SAR, multiplied by the number of shares with respect to which the participant
exercises his or her SAR. If, however, a SAR agreement permits the participant
to defer the receipt of the award amount until some date after exercise, then
the recipient will generally recognize ordinary income at the expiration of
the
deferral period rather than on the date of exercise. In either case, the
Corporation will be entitled to a federal income tax deduction equal to the
amount of ordinary income the recipient is required to
recognize in connection with the exercise. The participant’s basis in any shares
of common stock acquired upon the exercise of a SAR will equal their fair market
value on the date of their acquisition.
Stock
Awards. A
participant who receives an award of stock that is not restricted will recognize
ordinary income equal to the fair market value of the shares delivered to him
or
her under the stock award, and the Corporation will generally be allowed a
federal income tax deduction in an amount equal to the amount included in income
by the participant, provided such amount constitutes an ordinary and necessary
business expense, and provided further that the Corporation satisfies its
information reporting obligations with respect to such income. Such deduction
will be allowed in the tax year in which the participant recognizes such
income.
In
general, the grant of a restricted stock has no tax effect on the Corporation
or
the participant. When the shares become vested pursuant to the restricted stock
award, the participant will recognize ordinary income equal to the fair market
value of the shares delivered to him or her under the restricted stock award
and
the Corporation will generally be allowed a federal income tax deduction in
an
amount equal to the amount included in income by the participant, provided
such
amount constitutes an ordinary and necessary business expense, and provided
further that the Corporation satisfies its information reporting obligations
with respect to such income. Such deduction will be allowed in the tax year
in
which the participant recognizes such income.
Within
thirty (30) days after the date restricted stock is transferred pursuant to
an
award, a participant may elect under Section 83(b) of the Code to be taxed
on
the fair market value of the restricted stock at the time of the award, rather
than at the time the restricted stock is no longer subject to a substantial
risk
of forfeiture or becomes transferable. In such case, the Corporation would
be
allowed a federal income tax deduction in the year of the award. If such an
election is made, the participant will not recognize any income at the time
the
restricted stock becomes unrestricted. If the participant subsequently forfeits
the restricted stock, the participant will not be allowed a deduction in respect
of such forfeiture, and no refund will be available to the participant for
the
taxes previously paid, nor shall the Corporation have any obligation to
reimburse the participant.
Regardless
of whether a participant makes a Code Section 83(b) election, upon a subsequent
sale or exchange of the restricted stock, the participant will recognize capital
gain or loss based on the difference between the amount realized from the sale
of stock and the participant’s adjusted basis in those shares, which will
generally be the sum of the amount paid (if any) and the amount of income
previously recognized by the participant. The capital gain or loss will be
long-term gain or loss if the shares are held by the participant for at least
one year after the restrictions lapse or the shares become transferable,
whichever occurs first. If a Code Section 83(b) election is made, the
participant’s holding period in the shares will begin to run from the date of
the transfer.
Stock
Units and Performance Units.
A
participant who is granted a stock unit or a performance unit under the Omnibus
Plan will not recognize taxable income at the time of grant so long as the
award
is nontransferable and is subject to a substantial risk of forfeiture as a
result of performance-based vesting targets, continued services requirements
or
other conditions that must be satisfied before delivery of the cash and/or
shares of common stock payable pursuant to the award. The recipient will
generally recognize ordinary income immediately if there is no substantial
risk
of forfeiture at the time of grant and otherwise at the time the substantial
risk of forfeiture expires or is removed. If, however, an award agreement
relating to a stock unit permits the participant to defer the receipt of the
award amount until some date after the substantial risk of forfeiture expires
or
is removed, then the recipient will generally recognize ordinary income at
the
expiration of the deferral period rather than on date the substantial risk
of
forfeiture expires or is removed. In either case, the Corporation will generally
be entitled to a corresponding deduction equal to the amount of income the
recipient recognizes. Upon a subsequent sale of shares of common stock received
as payment of an award , the recipient will recognize capital gain or loss
equal
to the difference between the sales price and the participant’s adjusted basis
in those shares, which will generally be the amount of income previously
recognized by the participant.
Dividend
Equivalent and Other Stock-Based Awards. As
to
other awards that are payable in either cash or shares of our common stock
that
are either transferable or not subject to substantial risk of forfeiture, the
holder of the award must recognize ordinary income equal to (a) the amount
of
cash received or, as applicable, (b) the excess of (i) the fair market value
of
the shares received (determined as of the date of receipt) over (ii) the amount
(if any) paid for the shares by the holder of the award. We will generally
be
entitled at that time to an income tax deduction for the same amount. As to
an
award that is payable in shares of our common stock that are restricted from
transfer and subject to substantial risk of forfeiture, unless a special
election is made by the holder of the award under the Internal Revenue Code,
the
holder must recognize ordinary income equal to the excess of (i) the fair market
value of the shares received (determined as of the first time the shares become
transferable or not subject to substantial risk of forfeiture, whichever occurs
earlier) over (ii) the amount (if any) paid for the shares by the holder of
the
award. We will generally be entitled at that time to an income tax deduction
for
the same amount.
Limitation
on Income Tax Deduction. Under
Section 162(m) of the Code, the Corporation’s federal income tax deductions may
be limited to the extent that total compensation paid to a “covered employee”
exceeds $1,000,000 in any one year. The Corporation can, however, preserve
the
deductibility of certain compensation in excess of $1,000,000 if it complies
with the conditions imposed by Section 162(m), including the payment of
performance-based compensation pursuant to a plan approved by shareholders.
The
Omnibus Plan has been designed to enable any award granted by the Compensation
Committee to a “covered employee” to qualify as performance-based compensation
under Section 162(m).
Miscellaneous
Tax Issues.
Compensation to a participant who is an employee which results from awards
under
the Omnibus Plan will constitute wages for purposes of the Federal Insurance
Contributions Act and the Federal Unemployment Tax Act and thus will result
in
additional tax liability to the Corporation, generally with respect to each
award at the time that such award is no longer subject to a substantial risk
of
forfeiture or becomes transferable.
Compliance
with Section 409A of the Code.
Section
409A of the Code governs certain types of non-qualified deferred compensation.
The Omnibus Plan contemplates both deferred compensation that is subject to
Section 409A and deferred compensation that is not subject to Section 409A.
The
Omnibus Plan requires that it be administered so that neither it nor any award
granted under it violates Section 409A of the Code. Accordingly, the Committee
is required to structure all awards so that they are either exempt from or
comply with Section 409A of the Code, and the Board and the Committee are
permitted, within the bounds of the Omnibus Plan and applicable law, including
Section 409A of the Code, to interpret the Omnibus Plan and/or any award
agreement, and to make any and all amendments to the Omnibus Plan or any award
agreement, to ensure that all awards are either exempt from or comply with
Section 409A.
Interest
of Certain Persons in the Adoption of the Omnibus Plan; Future Omnibus Plan
Benefits. The
Corporation’s current Directors, Director nominees and executive officers have
an interest in the proposal to adopt the Omnibus Plan, as each is eligible
to
receive awards under the Omnibus Plan. The benefits that will be received by
or
allocated to eligible persons under the Omnibus Plan, including each of the
current Directors, each of the Director nominees, and each of the named
executive officers, the current executive officers as a group, the current
directors who are not executive officers as a group, and all employees,
including all current officers who are not executive officers, as a group,
are
discretionary and are not presently determinable.
Consideration
to be Received by the Corporation for Awards.
The
Corporation may receive monetary consideration upon the issuance of stock under
a stock award, if and in the amount determined by the Compensation Committee
at
the time of grant and set forth in the award agreement. The Corporation will
receive no monetary consideration other than the option price for shares of
common stock delivered to participants upon the exercise of stock options.
The
Corporation will receive no monetary consideration upon the exercise of SARs
or
the vesting of stock units, performance units, dividend equivalents or other
stock-based awards.
Current
Stock Price.
On
March 7, 2007, the closing price of the shares of the common stock of the
Corporation as reported on the NASDAQ Global Market (NASDAQ: FUNC) was $22.80
per share.
Vote
Required; Manner of Approval.
If a
quorum is present, the affirmative vote of a majority of the votes cast at
the
meeting is required to approve the Omnibus Plan. Brokers do not have discretion
to vote on the Omnibus Plan without your instruction. If you do not instruct
your broker as to how to vote on this proposal, then your broker will deliver
a
non-vote on this proposal. Broker non-votes and abstentions, if any, will be
counted for purposes of determining the presence of a quorum but will have
no
effect on the outcome of the vote on this proposal.
Board
Recommendation.
The
Board of Directors believes that the Omnibus Plan will provide a valuable
benefit to the Corporation by enhancing its ability to attract and retain key
management employees, non-employee directors and other eligible participants.
The Board believes that the approval of the Omnibus Plan is in the Corporation’s
and the shareholders’ best interests.
The
Board of Directors recommends a vote FOR
the approval of the Omnibus Equity Compensation Plan.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Party Transactions since January 1, 2006
During
the past year, the Bank has had banking transactions in the ordinary course
of
its business with certain Directors and officers of the Corporation and with
their associates. These transactions were on substantially the same terms,
including interest rates, collateral, and repayment terms on loans, as those
prevailing at the same time for comparable transactions with others. The
extensions of credit by the Bank to these persons have not and do not currently
involve more than the normal risk of collectability or present other unfavorable
features.
In
addition to the foregoing, Walls Printing Company, Inc. (“WPC”), a corporation
owned by H. Andrew Walls, III, and a trust established for the benefit of his
minor children, provides various printing and related services to the
Corporation. Total fees paid by the Corporation to WPC in 2006 were $182,129.
These
fees relate to the printing of marketing materials, account statements, and
other routine items. The Corporation has again retained WPC in 2007 to provide
these and other services, for which it expects to pay approximately $195,000.
Management believes that all of the foregoing transactions with WPC are or
will
be on terms that are substantially similar to those that would be available
if
an unrelated third-party were involved.
Review,
Approval and Ratification of Related Party Transactions
NASDAQ
Listing Standards Rule 4350(h) requires the Company to conduct an appropriate
review of all related party transactions for potential conflict of interest
situations on an ongoing basis and further requires all such transactions to
be
approved by the Company’s Audit Committee or another “independent body” of the
Board of Directors. The term “related party transaction” is generally defined as
any transaction (or series of related transactions) in which the Company is
a
participant and the amount involved exceeds $120,000, and in which any director,
director nominee, or executive officer of the Company, any holder of more than
5% of the outstanding voting securities of the Company, or any immediate family
member of the foregoing persons will have a direct or indirect interest. The
term includes most financial transactions and arrangements, such as loans,
guarantees and sales of property, and remuneration for services rendered (as
an
employee, consultant or otherwise) to the Company.
In
addition, federal and state banking laws impose review and approval requirements
with respect to loans made by the Bank to its directors and executive officers
and their related interests. The paragraphs that follow contain only a summary
of these laws and are qualified in their entirety by the statutory text and
the
text of any related regulations.
Under
the
Federal Reserve Board’s Regulation O, the Bank is prohibited from making any
loan to any of its directors or executive officers or the directors or executive
officers of the Corporation in amounts that exceed (i) the excess of the greater
of $25,000 or 5% of the Bank’s capital and unimpaired surplus or (ii) $500,000
(taking into account all loans to the insider and his or her related interests),
unless the loan is approved by the Bank’s board of directors (with the
interested party abstaining). Loans to the directors and executive officers
of
the Corporation’s other subsidiaries are not subject to these approval
requirements as long as the Bank’s Bylaws or its board of directors exempts such
person from participating in policymaking functions of the lending institution
and such person does not in fact participate, the subsidiary does not control
the lending institution, and the assets of the subsidiary do not constitute
more
than 10% of the consolidated assets of the Corporation (determined annually).
Section
5-512 of the Financial Institutions Article of the Maryland Code requires the
Board of Directors of the Bank to review and approve all non-commercial loans
to
Directors of the Bank and their partnerships and corporations, all loans to
Executive Officers of the Bank and their partnerships and corporations, and
all
non-consumer loans to employees of the Bank and their partnerships and
corporations. In addition, the Board of Directors semi-annually reviews the
total indebtedness of each Director and Executive Officer of the Company.
The
Corporation and the Bank have adopted written policies and procedures to ensure
compliance with the foregoing restrictions.
SECTION
16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant
to Section 16(a) of the Exchange Act and the rules promulgated thereunder,
the
Corporation’s executive officers and Directors, and persons who beneficially own
more than 10% of the Corporation’s Common Stock, are required to file certain
reports regarding their ownership of Common Stock with the SEC. Based solely
on
a review of copies of such reports furnished to the Corporation, or written
representations that no reports were required, the Corporation believes that,
during the fiscal year ended December 31, 2006, such persons timely filed all
reports required to be filed by Section 16(a) except that I.
Robert
Rudy filed one late Form 4 (covering the purchase of stock) and one late Form
5
(covering a gift of stock).
The
Audit
Committee has engaged Beard Miller Company LLP (“bmc”) as the Corporation’s
independent registered public accounting firm for fiscal year 2007. bmc has
advised the Corporation that neither the accounting firm nor any of its members
or associates has any direct financial interest in or any connection with the
Corporation other than as independent public auditors. A representative of
bmc
is not expected
to be present at this year’s Annual Meeting of Shareholders.
On
May 8,
2006, the Audit Committee replaced Ernst & Young LLP (“E&Y”), which had
previously served as independent auditors for the Corporation, with bmc. The
reports of E&Y on the consolidated financial statements of the Corporation
as of and for the years ended December 31, 2004 and 2005 did not contain any
adverse opinion or disclaimer of opinion and were not qualified or modified
as
to uncertainty, audit scope or accounting principle. During the years ended
December 31, 2004 and 2005 and the subsequent period through May 8, 2006, the
Corporation did not have any disagreements with E&Y on any matter of
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 E&Y to make reference thereto in its reports on
the consolidated financial statements of the Corporation for such years. During
the years ended December 31, 2004 and 2005 and the subsequent period through
May
8, 2006, the Corporation did not have any “reportable events” as described in
Item 304 (a)(1)(v) of the SEC’s Regulation S-K.
During
the years ended December 31, 2004 and 2005 and the subsequent period through
May
8, 2006, neither the Corporation nor anyone acting on the Corporation’s behalf
consulted bmc regarding (1) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit
opinion that might be rendered on the Corporation’s financial statements; or (2)
any matter that was either the subject of a disagreement as defined in Item
304(a)(1)(iv) of the SEC’s Regulation S-K or a “reportable event” described in
Item 304(a)(1)(v) of Regulation S-K.
AUDIT
FEES AND SERVICES
The
following table shows the fees paid or accrued by the Corporation for the audit
and other services provided by bmc for fiscal year 2006:
| |
FY
2006
|
|
Audit
Fees
|
$
218,267
|
|
Tax
Fees
|
2,000
|
|
All
Other Fees
|
|
|
Total
|
$
220,267
|
The
following table shows the fees paid or accrued by the Corporation for the audit
and other services provided by E&Y for fiscal years 2006 and
2005:
| |
FY
2006
|
FY
2005
|
|
Audit
Fees
|
$
53,485
|
$
447,185
|
|
Tax
Fees
|
2,762
|
75,887
|
|
All
Other Fees
|
15,400
|
1,315
|
|
Total
|
$
71,647
|
$
524,387
|
Fees
for
audit services include fees associated with the annual audit, the reviews of
the
Corporation’s quarterly reports on Form 10-Q, the attestation of management’s
report on internal control over financial reporting, and accounting
consultations billed as audit services. Tax fees relate to tax compliance
services, such as tax return preparation, tax advice, tax planning and education
related to low income housing tax credit investments. For 2006, all other fees
include fees paid for services rendered in connection with the transition to
successor auditors for the annual audit, reviews of Form 10-Q and the
attestation of management’s report on internal control. All other fees for 2006
also include a subscription to the E&Y Accounting & Auditing Research
Tool. For 2005, all other fees include a subscription to the E&Y Accounting
& Auditing Research Tool. The Audit Committee has reviewed summaries of the
services provided by bmc and E&Y and the related fees and has determined
that the provision of non-audit services is compatible with maintaining the
independence of bmc and E&Y.
It
is the
Audit Committee’s policy to pre-approve all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Corporation by its independent auditors, subject to the de
minimis
exceptions for non-audit services described in Section 10A(i)(l)(B) of the
Exchange Act, which, when needed, are approved by the Audit Committee prior
to
the completion of the independent auditor’s audit. All of the 2006 and 2005
services described above were pre-approved by the Audit Committee.
SUBMISSION
OF SHAREHOLDER PROPOSALS FOR 2007 ANNUAL MEETING
A
shareholder who desires to present a proposal pursuant to Rule 14a-8 under
the
Exchange Act to be included in the proxy statement and voted on by the
shareholders at the 2008Annual Meeting of Shareholders must submit such proposal
in writing, including all supporting materials, to the Corporation at its
principal office no later than November 23, 2007 (120 days before the date
of
mailing based on this year’s proxy statement date) and meet all other
requirements for inclusion in the proxy statement. Additionally, pursuant to
Rule 14a-4(c)(1) under the Exchange Act, if a shareholder intends to present
a
proposal for business to be considered at the 2008 Annual Meeting of
Shareholders but does not seek inclusion of the proposal in the Corporation’s
proxy statement for such meeting, then the Corporation must receive the proposal
by February 8, 2008 (45 days before the date of mailing based on this year’s
proxy statement date) for it to be considered timely received. If notice of
a
shareholder proposal is not timely received, then the proxies will be authorized
to exercise discretionary authority with respect to the proposal.
OTHER
MATTERS
As
of the
date of this proxy statement, the Board is not aware of any matters, other
than
those stated above, that may properly be brought before the meeting. If other
matters should properly come before the meeting or any adjournment thereof,
persons named in the enclosed proxy or their substitutes will vote with respect
to such matters in accordance with their best judgment.
| |
By
order of the Board of Directors
|
| |
|
| |
|
| |
ROBERT
W. KURTZ
|
| |
Secretary
|
APPENDIX
A
COMPENSATION
COMMITTEE CHARTER
There
shall be a committee of the Board which shall be called the Compensation
Committee.
The
Compensation Committee shall (1) discharge the Board's responsibilities relating
to compensation of the Company's executives and (2) produce an annual report
on
executive compensation for inclusion in the Company's proxy statement in
accordance with applicable rules and regulations.
|
C.
|
Committee
Membership and Procedure
|
The
Compensation Committee shall consist of no fewer than three members. Each member
of the Compensation Committee shall satisfy the independence requirements of
NASDAQ and, if deemed appropriate from time to time, meet the definition of
"non-employee director" under Rule 16b-3 under the Securities Exchange Act
of
1934, and "outside director" for purposes of Section 162(m) of the Internal
Revenue Code of 1986. The Board shall appoint the members of the Compensation
Committee annually, considering the recommendation of the Nominating &
Governance Committee, and further considering the views of the Chairman of
the
Board and the Chief Executive Officer, as appropriate. The members of the
Compensation Committee shall serve until their successors are appointed and
qualify, and shall designate the Chairman of the Compensation Committee. The
Board shall have the power at any time to change the membership of the
Compensation Committee and to fill vacancies in it, subject to such new
member(s) satisfying the above requirements. Except as expressly provided in
this Charter or the by-laws of the Company or the Corporate Governance
Guidelines of the Company, the Compensation Committee shall fix its own rules
of
procedure.
|
D.
|
Committee
Authority and
Responsibilities
|
|
v
|
The
Compensation Committee shall review and approve corporate goals and
objectives relevant to CEO compensation, evaluate the CEO's performance
in
light of those goals and objectives, and set the CEO's compensation
level
based on this evaluation. The corporate goals and objectives would
be
those set forth in the Corporate Strategic Plan and articulated in
the
Executive Pay for Performance goals, together with any other objectives
deemed relevant by the Committee.
|
|
v
|
In
determining any long-term incentive component of CEO compensation,
the
Compensation Committee should consider the Company's performance
and
relative shareholder return, the value of similar incentive awards
to CEOs
at comparable companies, and the awards given to the Company's CEO
in past
years.
|
|
v
|
The
Compensation Committee shall oversee the evaluation and pay of the
executive management of the Company and make recommendations to the
Board
as appropriate. Executives are defined as those participating in
the
Executive Pay for Performance
Program.
|
|
v
|
The
Compensation Committee shall make recommendations to the Board with
respect to any cash-based incentive compensation plans and equity-based
incentive plans.
|
|
v
|
The
Compensation Committee shall have the sole authority to retain and
terminate any compensation consultant to be used to assist in the
evaluation of director, CEO or senior executive compensation and
shall
have sole authority to approve the consultant's fees and other retention
terms. The Compensation Committee shall also have authority to obtain
advice and assistance from internal or external legal, accounting
or other
advisors.
|
|
v
|
The
Compensation Committee shall adopt, administer, review and approve
and
ratify awards under cash-based incentive compensation plans and
equity-based incentive stock plans, including amendments to the awards
made under any such plans, and review and monitor awards under such
plans.
|
|
v
|
The
Compensation Committee shall make regular reports to the
Board.
|
|
v
|
The
Compensation Committee shall review and reassess the adequacy of
this
Charter annually and recommend any proposed changes to the Board
for
approval. The Compensation Committee shall annually review its own
performance.
|
|
v
|
The
Compensation Committee may form and delegate authority to subcommittees
when appropriate.
|
|
v
|
The
Compensation Committee shall meet annually with the CEO to receive
the
CEO's recommendations concerning performance goals and the CEO's
evaluation of the Company's progress toward meeting those
goals.
|
09/14/06
APPENDIX
B
FIRST
UNITED CORPORATION OMNIBUS EQUITY COMPENSATION PLAN
1. Purpose.
The
purpose of the Plan is to provide designated (a) Employees of the Company and
its Affiliates and (b) Non-Employee Directors of the Company and its Affiliates
with the opportunity to receive grants of Options, SARs, Stock Units,
Performance Units, Stock Awards, Dividend Equivalents and Other Stock-Based
Awards. The Company believes that the Plan will encourage the Participants
to
contribute materially to the growth of the Company, thereby benefiting the
Company’s shareholders, and will align the economic interests of the
Participants with those of the shareholders.
All
capitalized terms shall be as defined in Section 2
hereof.
2. Definitions.
Whenever used in this Plan, the following terms will have the respective
meanings set forth below:
(a) “Additive
SAR”
has
the
meaning given that term in Section
8(b)(ii)
hereof.
(b) “Affiliate”
means
any
“parent corporation” and any “subsidiary corporation” of the Company, as such
terms are defined in Section 424 of the Code.
(c) “Board”
means
the
Board of Directors of the Company.
(d) “Change
in Control” means
the
occurrence of any of the following events:
(i) Any
“person” (as such term is used in Sections 13(d) and 14(d) of the Exchange Act)
becomes, within the 12-month period ending on the date of such person’s most
recent acquisition, a “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities of the Company representing
more than 35% of the voting power of the then outstanding securities of the
Company; provided that a Change in Control shall not be deemed to occur as
a
result of a transaction in which the Company becomes a subsidiary of another
corporation and in which the shareholders of the Company, immediately prior
to
the transaction, will beneficially own, immediately after the transaction,
shares entitling such shareholders to more than 50% of all votes to which all
shareholders of the parent corporation would be entitled in the election of
directors (without consideration of the rights of any class of stock to elect
directors by a separate class vote); and provided further that ownership
or control of the Company’s voting securities, individually or collectively, by
any Affiliate that is a bank or any benefit plan sponsored by the Company or
any
Affiliate shall not constitute a Change in Control.
(ii) The
consummation of (A) a merger, consolidation, or similar extraordinary event
involving the Company and another entity where the shareholders of the Company,
immediately prior to the merger, consolidation or similar extraordinary event,
will not beneficially own, immediately after the merger, consolidation or
similar extraordinary event, shares entitling such shareholders to more than
50%
of all votes to which all shareholders of the surviving corporation would be
entitled in the election of directors (without consideration of the rights
of
any class of stock to elect directors by a separate class vote), or (B) a sale
or other disposition of all or substantially all of the assets of the Company;
or
(iii) During
any 12-month period after the Effective Date, individuals who at the beginning
of such period constituted the Board cease for any reason to constitute a
majority thereof, unless the election, or the nomination for election by the
Company’s shareholders, of at least a majority of the directors who were not
directors at the beginning of such period, was approved by a vote of at least
two-thirds of the directors then in office at the time of such election or
nomination who either (i) were directors at the beginning of such period or
(ii)
whose appointment, election or nomination for election was previously so
approved.
Notwithstanding
the foregoing, the Committee may modify the definition of a Change in Control
for a particular Grant as the Committee deems appropriate to comply with Section
409A of the Code and
any
related regulations or other guidance promulgated with respect to such Section
by the U.S. Department of the Treasury or the Internal Revenue
Service.
(e) “Code”
means
the
Internal Revenue Code of 1986, as amended.
(f) “Committee”
means
(i)
with respect to Grants to Employees, the Compensation Committee of the Board
or
its delegate or successor, or such other committee appointed by the Board to
administer the Plan or its delegate or successor and (ii) with respect to Grants
made to Non-Employee Directors, the Board or its delegate. Notwithstanding
the
foregoing, with respect to Grants to Employees that are intended as “qualified
performance-based compensation” (as defined under Section 162(m) of the Code),
as well as to Employees who are officers of the Company, the Committee shall
consist of two or more persons appointed by the Board, all of whom shall be
“outside directors” (as defined under Section 162(m) of the Code and related
U.S.
Department of the Treasury regulations)
and “non-employee directors” as defined under Rule 16b-3 promulgated under the
Exchange Act.
(g) “Company”
means
First United Corporation, a Maryland corporation, and any successor
thereto.
(h) [Intentionally
omitted]
(i) “Date
of Grant” means
the
date a Grant is effective.
(j) “Dividend
Equivalent” means
an
amount determined by multiplying the number of Shares, Performance Units or
Stock Units subject to a Grant by the per-Share cash dividend, or the per-Share
fair market value (as determined by the Committee) of any dividend in
consideration other than cash, paid by the Company on its Stock on a dividend
payment date.
(k) “Effective
Date” means
April 24, 2007, subject to approval by the shareholders of the
Company.
(l) “Employee”
means
an
employee of the Company or any Affiliate (including an officer or director
who
is also an employee).
(m) “Exchange
Act” means
the
Securities Exchange Act of 1934, as amended.
(n) “Fair
Market Value” means,
as
of any date, unless otherwise required by any applicable provision of the Code
or any regulations thereunder, the
mean
between the high and low sales price of a Share on the trading day immediately
preceding such date, as reported on any established securities exchange or
national market system on which the Shares are then listed or admitted to
trading (or the closing bid, if no sales were reported), or, if not so reported,
the fair market value as determined pursuant to a reasonable method adopted
by
the Committee in good faith for such purpose in accordance with applicable
law.
(o) “Freestanding
SAR” has
the
meaning given that term in Section
8(b)(iii)
hereof.
(p) “Grant”
means
an
Option, SAR, Stock Unit, Performance Unit, Stock Award, Dividend Equivalent
or
Other Stock-Based Award granted under the Plan.
(q) “Grant
Agreement” means
the
written agreement that sets forth the terms and conditions of a Grant, including
all amendments thereto.
(r) “Incentive
Stock Option” means
a
stock option that is intended to meet the requirements of Section 422 of the
Code, as described in Section
7.
(s) “Non-Employee
Director” means
a
member of the Board, or a member of the board of directors of an Affiliate,
who
is not an employee of the Company.
(t) “Nonqualified
Stock Option” means
a
stock option that is not intended to meet the requirements of Section 422 of
the
Code, as described in Section
7.
(u) “Option”
means
an
Incentive Stock Option or a Nonqualified Stock Option to purchase Shares at
an
Option Price for a specified period of time.
(v) “Option
Price” means
the
amount per Share, as designated by the Committee, that shall be paid by a
Participant upon the exercise of an Option.
(w) “Other
Stock-Based Award” means
any
Grant based on, measured by or payable in Shares (other than Grants described
in
Sections
7,
8,
9,
10, 11
and
12),
as
described in Section
13.
(x) “Participant”
means
an
Employee or a Non-Employee Director designated by the Committee to receive
a
Grant under the Plan.
(y) “Performance
Units” means
an
award of phantom units, representing one or more Shares, as described in
Section
10
hereof.
(z) “Person”
means as
such term is defined in Section 3(a)(9) of the Exchange Act, as modified and
used in Sections 13(d) and 14(d) thereof, except that such term shall not
include (i) the Company or any of its affiliates (as defined under Rule 12b-2
of
the Exchange Act), (ii) a trustee or other fiduciary holding securities under
an
employee benefit plan of the Company or any of its affiliates, (iii) an
underwriter temporarily holding securities pursuant to an offering of such
securities, or (iv) a corporation owned, directly or indirectly, by the
shareholders of the Company in substantially the same proportions as their
ownership of the Stock.
(aa) “Plan”
means
this First United Corporation Omnibus Equity Compensation Plan, as in effect
from time to time.
(bb) “Related
Option”
means
an Option with respect to which a SAR has been granted
(cc) “Share”
means
a
share of Stock.
(dd) “Stock”
means
the
common stock, par value $.01 per Share, of the Company or such other securities
of the Company as may be substituted for Stock pursuant to Sections
5(d)
or
18
hereof.
(ee) “SAR”
means
an
award of a stock appreciation right, as described in Section
8
hereof.
(ff) “Stock
Award” means
an
award of Shares, as described in Section
11
hereof.
(gg) “Stock
Unit” means
an
award of a phantom unit, representing one or more Shares, as described in
Section
9
hereof.
(hh) “Successor
Participant” means
the
personal representative or other person entitled to succeed to the rights of
the
Participant in accordance with Section
17
hereof.
(ii) “Tandem
SAR” has
the
meaning given that term in Section
8(b)(i)
hereof.
3. Administration.
(a) Committee.
The
Plan shall be administered and interpreted by the Committee. Day to day
administrative functions may be performed by employees of the Company, as
approved by the Committee.
(b) Committee
Authority.
The
Committee shall have the sole authority to (i) determine the Employees and
Non-Employee Directors to whom Grants shall be made under the Plan, (ii)
determine the type, size and terms of the Grants to be made to each Participant,
(iii) determine the time when the Grants will be made and the duration of any
applicable exercise or restriction period, including the criteria for
exercisability and the acceleration of exercisability, (iv) amend the terms
of
any previously issued Grant, subject to the provisions of Section
20
hereof,
(v) adopt guidelines separate from the Plan that set forth the specific terms
and conditions for Grants under the Plan, and (vi) deal with any other matters
arising under the Plan.
(c) Committee
Determinations.
The
Committee shall have full power and express discretionary authority to
administer and interpret the Plan, to make factual determinations and to adopt
or amend such rules, regulations, agreements and instruments for implementing
the Plan and for the conduct of its business as it deems necessary or advisable,
in its sole discretion. The Committee’s interpretations of the Plan and all
determinations made by the Committee pursuant to the powers vested in it
hereunder shall be conclusive and binding on all persons having any interest
in
the Plan or in any Grants awarded hereunder. All powers of the Committee shall
be executed in its sole discretion, in the best interest of the Company, not
as
a fiduciary, and in keeping with the objectives of the Plan and need not be
uniform as to similarly situated individuals.
4. Grants.
Grants
under the Plan may consist of Options, SARs, Stock Units, Performance Units,
Stock Awards, Dividend Equivalents and Other Stock-Based Awards. All Grants
shall be subject to the terms and conditions set forth herein and to such other
terms and conditions consistent with the Plan as the Committee deems appropriate
and as are specified in writing by the Committee in separate guidelines or
to
the individual in the Grant Agreement or an amendment to the guidelines or
Grant
Agreement. The Committee shall approve the form and provisions of each Grant
Agreement. Grants under a particular Section of the Plan need not be uniform
as
among the Participants. All Grants shall be made conditional upon the
Participant’s acknowledgement, in writing or by acceptance of the Grant, that
all decisions and determinations of the Committee shall be final and binding
on
the Participant, his or her beneficiaries, and any other person having or
claiming an interest under such Grant. Notwithstanding any provision of the
Plan
to the contrary, the Committee may make Grants that are contingent on, and
subject to, shareholder approval of the Plan or an amendment to the Plan.
5. Shares
of Stock Subject to the Plan.
(a) Shares
Authorized.
Subject
to adjustment as described below, the aggregate number of Shares that may be
issued or transferred under the Plan is 185,000; provided, however, that no
more
than 148,000 Shares, in the aggregate, may be issued pursuant to Stock Awards,
Stock Units, Performance Units or Other Stock-Based Awards, and no more than
37,000 Shares may be issued as Incentive Stock Options. The Shares may be
authorized but unissued Shares or reacquired Shares of Stock, including shares
purchased by the Company on the open market for purposes of the Plan. Grants
paid in cash shall not count against the foregoing Share limits.
(b) Share
Counting.
For
administrative purposes, when the Committee makes a Grant payable in Shares,
the
Committee shall reserve Shares equal to the maximum number of Shares that may
be
payable under the Grant. If and to the extent Options or SARs granted under
the
Plan terminate, expire, or are canceled, forfeited, exchanged or surrendered
after the Effective Date without having been exercised or if any Stock Awards,
Stock Units, Performance Units, Dividend Equivalents or Other Stock-Based Awards
(or granted under the Prior Plans prior to the Effective Date) are forfeited
or
terminated, or otherwise not paid in full after the Effective Date, the Shares
subject to such Grants shall again be available for purposes of the Plan. To
the
extent Grants are paid in cash, and not in Shares, any Shares previously
reserved for issuance or transfer pursuant to such Grants shall again be
available for issuance or transfer under the Plan. To the extent SARs are
exercised under the Plan, the total number of Shares subject to the exercised
portion of the SAR shall count against the number of Shares reserved for
issuance under the Plan if Shares are paid out upon exercise of the SAR.
(c) Individual
Limits.
All
Grants under the Plan, other than Dividend Equivalents, shall be expressed
in
Shares. The maximum aggregate number of Shares with respect to which all Grants,
other than Dividend Equivalents, may be made under the Plan to any individual
during any fiscal year shall be 20,000 Shares, subject to adjustment as
described below. The individual limits described in this subsection (c)
shall
apply without regard to whether the Grants are to be paid in Shares or in cash.
All cash payments (other than Dividend Equivalents) shall equal the Fair Market
Value of the Shares to which the cash payment relates.
(d) Adjustments.
If
there is any change in the number or kind of Shares outstanding (i) by reason
of
a stock dividend, spinoff, recapitalization, stock split, or combination or
exchange of shares, (ii) by reason of a merger, reorganization or consolidation,
(iii) by reason of a reclassification or change in par value, or (iv) by reason
of any other extraordinary or unusual event affecting the outstanding Stock
as a
class without the Company’s receipt of consideration, or if the value of
outstanding Shares is substantially reduced as a result of a spinoff or the
Company’s payment of an extraordinary dividend or distribution, the maximum
number of Shares available for issuance under the Plan, the maximum number
of
Shares for which any individual may receive pursuant to Grants in any year,
the
number of Shares covered by outstanding Grants, the kind of Shares to be issued
or transferred under the Plan, and the price per Share or the applicable market
value of such Grants shall be appropriately adjusted by the Committee to reflect
any increase or decrease in the number of, or change in the kind or value of,
issued Shares to preclude, to the extent practicable, the enlargement or
dilution of rights and benefits under such Grants; provided, however, that
any
fractional Shares resulting from such adjustment shall be eliminated. Any
adjustments determined by the Committee shall be final, binding and conclusive.
6. Eligibility
for Participation.
(a) Eligible
Persons.
All
Employees, including Employees who are officers or members of the Board, and
all
Non-Employee Directors shall be eligible to participate in the Plan.
(b) Selection
of Participants.
The
Committee shall select the Employees and Non-Employee Directors to receive
Grants and shall determine the terms and conditions of the Grant and the number
of Shares subject to each Grant.
7. Options.
(a) General
Requirements.
The
Committee may grant Options to an Employee or a Non-Employee Director upon
such
terms and conditions as the Committee deems appropriate under this Section
7 hereof.
(b) Number
of Shares.
The
Committee shall determine the number of Shares that will be subject to each
Grant of Options to Employees and Non-Employee Directors.
(c) Type
of Option and Price.
(i) The
Committee may grant Incentive Stock Options or Nonqualified Stock Options or
any
combination of Incentive Stock Options and Nonqualified Stock Options. Incentive
Stock Options may be granted only to Employees. Nonqualified Stock Options
may
be granted to Employees and Non-Employee Directors.
(ii) The
Option Price shall be determined by the Committee and may be equal to or greater
than the Fair Market Value of the Shares subject to the Grant on the Date of
Grant; provided, however, that an Incentive Stock Option may not be granted
to
an Employee who, at the Date of Grant, owns securities possessing more than
10%
of the total combined voting power of all classes of securities of the Company
or any Affiliate, unless the Option Price is not less than 110% of the Fair
Market Value on the Date of Grant.
(d) Option
Term.
The
Committee shall determine the term of each Option. The term of an Option shall
not exceed 10 years from the Date of Grant. However, an Incentive Stock Option
that is granted to an Employee who, at the Date of Grant, owns securities
possessing more than 10% of the total combined voting power of all classes
of
securities of the Company or any Affiliate may not have a term that exceeds
five
years from the Date of Grant.
(e) Exercisability
of Options.
Options
shall become exercisable in accordance with such terms and conditions as may
be
determined by the Committee and specified in the Grant Agreement. Subject to
applicable law, regulations and rules to which the Company is then subject,
the
Committee may accelerate the exercisability of any or all outstanding Options
at
any time for any reason.
(f) Termination
of Employment or Service.
Except
as provided in the Grant Agreement, an Option may only be exercised while the
Participant is employed by, or providing service to, the Company. The Committee
shall specify in the Grant Agreement under what circumstances and during what
time periods a Participant may exercise an Option after termination of
employment or service.
(g) Exercise
of Options.
A
Participant may exercise an Option that has become exercisable, in whole or
in
part, by delivering a notice of exercise to the Company or its designated agent.
The Participant shall pay the Option Price and any withholding taxes for the
Option (i) in cash or by check on the date of exercise, (ii) by delivering
on
the date of exercise Shares owned by the Participant that have a Fair Market
Value on the date of exercise equal to the Option Price or by attestation (on
a
form prescribed by the Committee) on the date of exercise to ownership of Shares
owned by the Participant that have an aggregate Fair Market Value on the date
of
exercise equal to the Option Price, (iii) in cash, on the T+3 settlement date
that occurs after the exercise date specified in the notice of exercise,
provided that the Participant exercises the Option through an irrevocable
agreement with a registered broker and the payment is made in accordance with
procedures permitted by Regulation T of the Federal Reserve Board and such
procedures do not violate applicable law; or (iv) by such other method as the
Committee may approve, to the extent permitted by applicable law. Shares of
Stock used to exercise an Option pursuant to item
(ii)
of this
subsection
(g)
shall
have been held by the Participant for at least six (6) months. Payment for
the
shares pursuant to the Option, and any required withholding taxes, must be
received by the time specified by the Committee depending on the type of payment
being made.
(h) Limits
on Incentive Stock Options.
If the
aggregate Fair Market Value on the Date of Grant with respect to which Incentive
Stock Options are exercisable for the first time by a Participant during any
calendar year, under the Plan or any other stock option plan of the Company
or
an Affiliate, exceeds $100,000, then the Incentive Stock Option, as to the
excess, shall be treated as a Nonqualified Stock Option.
8. SARs.
(a) General
Requirements.
The
Committee may grant SARs to any Employee or Non-Employee Director, upon such
terms and conditions as the Committee deems appropriate under this Section
8
hereof.
Each SAR shall represent the right, upon settlement of the SAR, to receive
an
amount
equal to the product obtained by multiplying (i) the number of Shares with
respect to which the SAR is exercised by (ii) an amount equal to the excess
of
(A) the Fair Market Value per Share on the date of exercise of the SAR over
(B)
either (x) the Fair Market Value per Share on the Award Date in the case of
a
Freestanding SAR or (y) the Option Price of the Related Option in the case
of
either a Tandem SAR or an Additive SAR.
(b) Terms
of SARs.
The
Committee shall determine the terms and conditions of SARs and may grant SARs
in
the following forms:
(i) in
connection with the grant, and exercisable in lieu of, Options (a “Tandem SAR”);
(ii) in
connection with and exercisable in addition to the grant of Options (a “Additive
SAR”);
(iii) independent
of the grant of the Options (a “Freestanding SAR”); or
(iv) in
any
combination of the foregoing.
The
Committee will determine the number and form of SARs to be granted, the base
amount, the vesting and other restrictions applicable to SARs and the period
during which SARs will remain exercisable.
(c) Payment
With Respect to SARs.
The
Committee shall determine whether the amount to be paid upon settlement of
the
SAR shall be paid in the form of cash, in Shares, or in a combination of the
two, in such proportion as the Committee deems appropriate. For purposes of
calculating the number of Shares to be received, Shares shall be valued at
its
Fair Market Value on the date of exercise of the SAR. If Shares are to be
received upon exercise of an SAR, cash shall be delivered in lieu of any
fractional share.
(d) Requirement
of Employment or Service.
The
Committee shall determine in the Grant Agreement under what circumstances a
Participant may retain SARs after termination of the Participant’s employment or
service, and the circumstances under which SARs may be forfeited.
9. Stock
Units.
(a) General
Requirements.
The
Committee may grant Stock Units to any Employee or Non-Employee Director, upon
such terms and conditions as the Committee deems appropriate under this
Section
9
hereof.
Each Stock Unit shall represent the right of the Participant to receive a Share
or an amount based on the value of a Share. All Stock Units shall be credited
to
accounts on the Company’s records for purposes of the Plan.
(b) Terms
of Stock Units.
The
Committee may grant Stock Units that are payable if specified performance goals
or other conditions are met, or under other circumstances. Stock Units may
be
paid at the end of a specified period, or payment may be deferred to a date
authorized by the Committee. The Committee shall determine the number of Stock
Units to be granted and the requirements applicable to such Stock Units.
(c) Payment
With Respect to Stock Units.
Payment
with respect to Stock Units shall be made in cash, in Shares, or in a
combination of the two, as determined by the Committee. The Grant Agreement
shall specify the maximum number of Shares that shall be paid under the Stock
Units.
(d) Requirement
of Employment or Service.
The
Committee shall determine in the Grant Agreement under what circumstances a
Participant may retain Stock Units after termination of the Participant’s
employment or service, and the circumstances under which Stock Units may be
forfeited.
10. Performance
Units.
(a) General
Requirements.
The
Committee may grant Performance Units to an Employee or a Non-Employee Director,
upon such terms and conditions as the Committee deems appropriate under this
Section
10
hereof.
Each Performance Unit shall represent the right of the Participant to receive
a
Share or an amount based on the value of a Share, if specified performance
goals
are met. All Performance Units shall be credited to accounts on the Company’s
records for purposes of the Plan.
(b) Terms
of Performance Units.
The
Committee shall establish the performance goals and other conditions for payment
of Performance Units. Performance Units may be paid at the end of a specified
performance or other period, or payment may be deferred to a date authorized
by
the Committee. The Committee shall determine the number of Performance Units
to
be granted and the requirements applicable to such Performance Units.
(c) Payment
With Respect to Performance Units.
Payment
with respect to Performance Units shall be made in cash, in Shares, or in a
combination of the two, as determined by the Committee. The Committee shall
establish in the Grant Agreement a target amount to be paid under a Performance
Unit based on achievement of the performance goals.
(d) Requirement
of Employment or Service.
The
Committee shall determine in the Grant Agreement under what circumstances a
Participant may retain Performance Units after termination of the Participant’s
employment or service, and the circumstances under which Performance Units
may
be forfeited.
11. Stock
Awards
(a) General
Requirements.
The
Committee may issue or transfer Shares to an Employee or a Non-Employee Director
under a Stock Award, upon such terms and conditions as the Committee deems
appropriate under this Section
11
hereof.
Shares issued or transferred pursuant to Stock Awards may be issued or
transferred for cash consideration or for no cash consideration, and subject
to
restrictions or no restrictions, as determined by the Committee. The Committee
may establish conditions under which restrictions on Stock Awards shall lapse
over a period of time or according to such other criteria as the Committee
deems
appropriate, including restrictions based upon the achievement of specific
performance goals.
(b) Number
of Shares.
The
Committee shall determine the number of Shares to be issued or transferred
pursuant to a Stock Award and any restrictions applicable to such shares.
(c) Requirement
of Employment or Service.
The
Committee shall determine in the Grant Agreement under what circumstances a
Participant may retain Stock Awards after termination of the Participant’s
employment or service, and the circumstances under which Stock Awards may be
forfeited.
(d) Restrictions
on Transfer.
For so
long as Stock Awards are subject to restrictions, a Participant may not sell,
assign, transfer, pledge or otherwise dispose of the Shares granted thereby
except upon death as described in Section
17
hereof.
Each certificate, or electronic book entry equivalent, for a Share granted
pursuant to a Stock Award shall contain a legend giving appropriate notice
of
the restrictions in the Grant. The Participant shall be entitled to have the
legend removed when all restrictions on such Shares have lapsed. The Committee
may retain possession of any stock certificates for Stock Awards until all
restrictions on such Shares have lapsed.
(e) Right
to Vote and to Receive Dividends.
The
Committee shall determine to what extent, and under what conditions, the
Participant shall have the right to vote Shares awarded pursuant to a Stock
Award and to receive any dividends or other distributions paid on such Shares
during the restriction period. The Committee may determine that a Participant’s
entitlement to dividends or other distributions with respect to a Stock Award
shall be subject to achievement of performance goals or other conditions.
12. Dividend
Equivalents.
(a) General
Requirements.
When
the Committee makes a Grant under the Plan, the Committee may grant Dividend
Equivalents in connection with such Grants, under such terms and conditions
as
the Committee deems appropriate under this Section
12.
Dividend Equivalents may be paid to Participants currently or may be deferred,
as determined by the Committee and subject to Section
15
hereof.
All Dividend Equivalents that are not paid currently shall be credited to
accounts on the Company’s records for purposes of the Plan. Dividend Equivalents
may be accrued as a cash obligation, or may be converted to Stock Units for
the
Participant, as determined by the Committee. Unless otherwise specified in
the
Grant Agreement, deferred Dividend Equivalents will not accrue interest. The
Committee may provide that Dividend Equivalents shall be payable based on the
achievement of specific performance goals or other conditions.
(b) Payment
with Respect to Dividend Equivalents.
Dividend Equivalents may be payable in cash or Shares or in a combination of
the
two, as determined by the Committee.
13. Other
Stock-Based Awards.
The
Committee may grant other awards that are cash-based or based on, measured
by or
payable in Shares to Employees or Non-Employee Directors, on such terms and
conditions as the Committee deems appropriate under this Section
13.
Other
Stock-Based Awards may be granted subject to achievement of performance goals
or
other conditions and may be payable in Shares or cash, or in a combination
of
the two, as determined by the Committee in the Grant Agreement.
14. Qualified
Performance-Based Compensation
(a) Designation
as Qualified Performance-Based Compensation.
The
Committee may determine that Stock Units, Performance Units, Stock Awards,
Dividend Equivalents or Other Stock-Based Awards granted to an Employee shall
be
considered “qualified performance-based compensation” under Section 162(m) of
the Code. The provisions of this Section
14
shall
apply to any such Grants that are to be considered “qualified performance-based
compensation” under Section 162(m) of the Code. To the extent that Grants of
Stock Units, Performance Units, Stock Awards, Dividend Equivalents or Other
Stock-Based Awards designated as “qualified performance-based compensation”
under Section 162(m) of the Code are made, no such Grant may be made as an
alternative to another Grant that is not designated as “qualified performance
based compensation” but instead must be separate and apart from all other Grants
made.
(b) Performance
Goals.
When
Stock Units, Performance Units, Stock Awards, Dividend Equivalents or Other
Stock-Based Awards that are to be considered “qualified performance-based
compensation” are granted, the Committee shall establish in writing (i) the
objective performance goals that must be met, (ii) the period during which
performance will be measured, (iii) the maximum amounts that may be paid if
the
performance goals are met, and (iv) any other conditions that the Committee
deems appropriate and consistent with the Plan and the requirements of Section
162(m) of the Code for “qualified performance-based compensation.” The
performance goals shall satisfy the requirements for “qualified
performance-based compensation,” including the requirement that the achievement
of the goals be substantially uncertain at the time they are established and
that the performance goals be established in such a way that a third party
with
knowledge of the relevant facts could determine whether and to what extent
the
performance goals have been met. The Committee shall not have discretion to
increase the amount of compensation that is payable upon achievement of the
designated performance goals, but the Committee may reduce the amount of
compensation that is payable upon achievement of the designated performance
goals.
(c) Criteria
Used for Objective Performance Goals.
The
Committee shall use objectively determinable performance goals based on one
or
more of the following criteria: Stock price, earnings per Share, net earnings
or
profits, operating earnings, return on assets, shareholder return, return on
equity, growth in assets, unit volume, sales, market share, or strategic
business criteria consisting of one or more objectives based on meeting specific
revenue goals, market penetration goals, geographic business expansion goals,
cost targets, cash position or goals relating to acquisitions or divestitures.
The performance goals may relate to the Participant’s business unit or the
performance of the Company, an Affiliate, or the Company and its Affiliates
as a
whole, or any combination of the foregoing. Performance goals need not be
uniform as among Participants.
(d) Timing
of Establishment of Goals.
The
Committee shall establish the performance goals in writing either before the
beginning of the performance period or during a period ending no later than
the
earlier of (i) 90 days after the beginning of the performance period or (ii)
the
date on which 25% of the performance period has been completed, or such other
date as may be required or permitted under applicable regulations under Section
162(m) of the Code.
(e) Certification
of Results.
The
Committee shall certify and announce the results for the performance period
to
all Participants after the Company announces the Company’s financial results for
the performance period. The Committee shall determine the amount, if any, to
be
paid pursuant to each Grant based on the achievement of the performance goals
and the terms of each Grant Agreement.
(f) Death,
Disability or Other Circumstances.
The
Committee may provide in the Grant Agreement that Grants shall be payable,
in
whole or in part, in the event of the Participant’s death or disability, a
Change in Control or under other circumstances consistent with the U.S.
Department of the Treasury regulations
and rulings under Section 162(m) of the Code.
15. Deferrals.
To the
extent permitted by applicable law, including Section 409A of the Code and
the
corresponding U.S.
Department of the Treasury
regulations and rulings, the Committee may permit or require a Participant
to
defer receipt of the payment of cash or the delivery of Shares that would
otherwise be due to the Participant in connection with any Grant.
16. Withholding
of Taxes.
(a) Required
Withholding.
All
Grants under the Plan shall be subject to applicable federal (including FICA),
state and local tax withholding requirements. The Company may (i) require that
the Participant or other person receiving or exercising Grants pay to the
Company the amount of any federal, state or local taxes that the Company is
required to withhold with respect to such Grants, or (ii) deduct from other
wages paid by the Company the amount of any withholding taxes due with respect
to such Grants.
(b) Election
to Withhold Shares.
Unless
the Committee determines otherwise, a Participant may elect to satisfy the
Company’s tax withholding obligation with respect to Grants paid in Shares by
having Shares withheld, at the time such Grants become taxable, up to an amount
that does not exceed the minimum applicable withholding tax rate for federal
(including FICA), state and local tax liabilities. In addition, with respect
to
any required tax withholding amount that exceeds the minimum applicable
withholding tax rate, the Committee may permit a Participant to satisfy such
tax
withholding obligation with respect to such excess amount by providing that
the
Participant may elect to deliver to the Company Shares that have been held
by
the Participant for at least six (6) months. The elections described in this
subsection
(b)
must be
in a form and manner prescribed by the Committee and may be subject to the
prior
approval of the Committee.
17. Transferability
of Grants.
(a) In
General.
Except
as provided in this Section,
only
the Participant may exercise rights under a Grant during the Participant’s
lifetime. A Participant may not transfer those rights except by will or by
the
laws of descent and distribution, or, with respect to Grants other than
Incentive Stock Options, if permitted in any specific case by the Committee,
pursuant to a domestic relations order. When a Participant dies, the Successor
Participant may exercise such rights in accordance with the terms of the Plan.
A
Successor Participant must furnish proof satisfactory to the Company of his
or
her right to receive the Grant under the Participant’s will or under the
applicable laws of descent and distribution.
(b) Transfer
of Nonqualified Stock Options.
Notwithstanding the foregoing, the Committee may provide in a Grant Agreement
that a Participant may transfer Nonqualified Stock Options to family members
or
other persons or entities, consistent with applicable securities laws, according
to such terms as the Committee may determine; provided that the Participant
receives no consideration for the transfer of a Nonqualified Stock Option and
the transferred Nonqualified Stock Option shall continue to be subject to the
same terms and conditions as were applicable to the Nonqualified Stock Option
immediately before the transfer.
18. Consequences
of a Change in Control.
(a) Notice
and Acceleration.
Upon a
Change in Control, unless the Committee determines otherwise, (i) the Company
shall provide each Participant with outstanding Grants written notice of such
Change in Control, (ii) all outstanding Options and SARs shall automatically
accelerate and become fully exercisable, (iii) the restrictions and conditions
on all outstanding Stock Awards shall immediately lapse, (iv) Participants
holding outstanding Performance Units shall receive payment in settlement of
such Performance Units, in an amount determined by the Committee, based on
the
Participant’s target payment for the performance period and the portion of the
performance period that precedes the Change in Control, (v) all outstanding
Stock Units shall become payable in cash or Shares in an amount not less than
their target amounts, as determined by the Committee, and (vi) Dividend
Equivalents and Other Stock-Based Awards shall become fully payable in cash
or
Shares, in amounts determined by the Committee.
(b) Assumption
of Grants.
Upon a
Change in Control where the Company is not the surviving corporation (or
survives only as a subsidiary of another corporation), unless the Committee
determines otherwise, all outstanding Options and SARs that are not exercised
shall be assumed by, or replaced with comparable options and rights by, the
surviving corporation (or a parent or subsidiary of the surviving corporation),
and other Grants that remain outstanding shall be converted to similar grants
of
the surviving corporation (or a parent or subsidiary of the surviving
corporation).
(c) Other
Alternatives.
Notwithstanding the foregoing, subject to subsection
(d)
below,
in the event of a Change in Control, the Committee may take any of the following
actions with respect to any or all outstanding Options and SARs, without the
consent of any Participant: (i) the Committee may require that Participants
surrender their outstanding Options and SARs in exchange for a payment by the
Company, in cash or Stock as determined by the Committee, in an amount equal
to
the amount by which the then Fair Market Value subject to the Participant’s
unexercised Options and SARs exceeds the Option Price of the Options or the
base
amount of the SARs, respectively, or (ii) after giving Participants an
opportunity to exercise their outstanding Options and SARs, the Committee may
terminate any or all unexercised Options and SARs at such time as the Committee
deems appropriate. Such surrender, termination or settlement shall take place
as
of the date of the Change in Control or such other date as the Committee may
specify.
(d) Committee.
The
Committee making the determinations under this Section
18
following a Change in Control must be comprised of the same members as those
of
the Committee immediately before the Change in Control. If the Committee members
do not meet this requirement, the automatic provisions of subsections
(a)
and
(b)
of this
Section
shall
apply, and the Committee shall not have discretion to vary them.
19. Requirements
for Issuance of Shares.
No
Shares shall be issued or transferred in connection with any Grant hereunder
unless and until all legal requirements applicable to the issuance of such
shares have been complied with to the satisfaction of the Committee. The
Committee shall have the right to condition any Grant made to any Participant
hereunder on such Participant’s undertaking in writing to comply with such
restrictions on his or her subsequent disposition of such Shares as the
Committee shall deem necessary or advisable, and certificates representing
such
shares may be legended to reflect any such restrictions. Certificates
representing Shares issued or transferred under the Plan will be subject to
such
stop-transfer orders and other restrictions as may be required by applicable
laws, regulations and interpretations, including any requirement that a
restrictive or other legend be placed thereon.
20. Amendment
and Termination of the Plan.
(a) Amendment.
The
Board may amend or terminate the Plan at any time; provided, however, that
the
Board shall not amend the Plan without approval of the shareholders of the
Company if such approval is required to comply with the Code or applicable
laws,
or to comply with applicable stock exchange requirements. In addition, the
Committee may at any time, in its sole discretion, alter or amend any or all
of
the outstanding Grant Agreements to the extent not prohibited by law.
Notwithstanding the foregoing, however, no amendment, alteration, or termination
of this Plan or of any Grant Agreement shall, without the consent of the
Participant, impair any rights or obligations under any Grant previously made
to
the Participant, unless such right has been reserved in the Plan or the Grant
Agreement, or except as provided in Section
21(b)
hereof.
(b) No
Repricing Without Shareholder Approval.
Notwithstanding anything in the Plan to the contrary, without the prior approval
of the Company’s shareholders, no Grant under the Plan may be repriced,
replaced, regranted through cancellation or modified if the effect would be
to
reduce the exercise price for the shares underlying such Grant; provided,
however, that the foregoing shall not apply to any adjustment made to a Grant
pursuant to Section
5(d)
hereof.
In addition, without the prior approval of the Company’s shareholders, the
Committee may not cancel an outstanding Grant that is underwater for the purpose
of granting a replacement Grant of a different type.
(c) Shareholder
Approval for “Qualified Performance-Based Compensation”.
If
Stock Units, Performance Units, Stock Awards, Dividend Equivalents or Other
Stock-Based Awards are granted as “qualified performance-based compensation”
under Section
14
hereof,
the Plan must be reapproved by the Company’s shareholders no later than the
first shareholders meeting that occurs in the fifth year following the year
in
which the shareholders previously approved the provisions of Section
14
hereof,
if additional Grants are to be made under Section
14
hereof
and if required by Section 162(m) of the Code or the regulations thereunder.
(d) Termination
of Plan.
The
Plan shall terminate on the day immediately preceding the 10th
anniversary of its Effective Date, unless the Plan is terminated earlier by
the
Board or is extended by the Board with the approval of the shareholders. The
termination of the Plan shall not impair the power and authority of the
Committee with respect to an outstanding Grant.
21. Miscellaneous.
(a) Grants
in Connection with Corporate Transactions and Otherwise. Nothing
contained in this Plan shall be construed to (i) limit the right of the
Committee to make Grants under this Plan in connection with the acquisition,
by
purchase, lease, merger, consolidation or otherwise, of the business or assets
of any corporation, firm or association, including Grants to employees thereof
who become Employees, or for other proper corporate purposes, or (ii) limit
the
right of the Company to grant stock options or make other awards outside of
this
Plan. Without limiting the foregoing, the Committee may make a Grant to an
employee of another corporation who becomes an Employee by reason of a corporate
merger, consolidation, acquisition of stock or property, reorganization or
liquidation involving the Company in substitution for a grant made by such
corporation. The terms and conditions of the substitute Grants may vary from
the
terms and conditions required by the Plan and from those of the substituted
stock incentives. The Committee shall prescribe the provisions of the substitute
Grants.
(b) Compliance
with Law.
The
Plan, the exercise of Options and the obligations of the Company to issue or
transfer Shares under Grants shall be subject to all applicable laws and to
approvals by any governmental or regulatory agency as may be required. With
respect to persons subject to Section 16 of the Exchange Act, it is the intent
of the Company that the Plan and all transactions under the Plan comply with
all
applicable provisions of Rule 16b-3 or its successors under the Exchange Act.
In
addition, it is the intent of the Company that the Plan and applicable Grants
comply with the applicable provisions of Sections 162(m), 409A and 422 of the
Code. To the extent that any legal requirement of Section 16 of the Exchange
Act
or Sections 162(m), 409A or 422 of the Code as set forth in the Plan ceases
to
be required under Section 16 of the Exchange Act or Sections 162(m), 409A or
422
of the Code, that Plan provision shall cease to apply. Notwithstanding anything
to the contrary contained in this Plan, the Board may amend the Plan and the
Committee may revoke or modify any Grant, to take effect retroactively or
otherwise, as deemed necessary or advisable for the purpose of conforming the
Plan or a Grant to any present or future law relating to plans of this or
similar nature (including, but not limited to, Code Section 409A), and to the
administrative regulations and rulings promulgated thereunder. The Committee
may
also adopt rules regarding the withholding of taxes on payments to Participants.
The Committee may, in its sole discretion, agree to limit its authority under
this Section.
(c) Enforceability.
The
Plan shall be binding upon and enforceable against the Company and its
successors and assigns.
(d) Funding
of the Plan; Limitation on Rights.
This
Plan shall be unfunded. Neither the Company nor any other company shall be
required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Grants under this Plan.
Nothing contained in the Plan and no action taken pursuant hereto shall create
or be construed to create a fiduciary relationship between the Company or any
other company and any Participant or any other person. No Participant or any
other person shall under any circumstances acquire any property interest in
any
specific assets of the Company or any other company. To the extent that any
person acquires a right to receive payment from the Company hereunder, such
right shall be no greater than the right of any unsecured general creditor
of
the Company.
(e) Rights
of Participants.
Nothing
in this Plan shall entitle any Employee or Non-Employee Director or other person
to any claim or right to receive a Grant under this Plan. Neither this Plan
nor
any action taken hereunder shall be construed as giving any individual any
rights to be retained by or in the employment or service of the Company.
(f) No
Fractional Shares.
No
fractional Shares shall be issued or delivered pursuant to the Plan or any
Grant. The Committee shall determine whether cash, other awards or other
property shall be issued or paid in lieu of such fractional shares or whether
such fractional shares or any rights thereto shall be forfeited or otherwise
eliminated.
(g) Employees
Subject to Taxation Outside the United States.
With
respect to Participants who are subject to taxation in countries other than
the
United States, the Committee may make Grants on such terms and conditions as
the
Committee deems appropriate to comply with the laws of the applicable countries,
and the Committee may create such procedures, addenda and subplans and make
such
modifications as may be necessary or advisable to comply with such laws.
(h) Governing
Law.
The
validity, construction, interpretation and effect of the Plan and Grant
Agreements issued under the Plan shall be governed and construed by and
determined in accordance with the laws of the State of Maryland, without giving
effect to the conflict of laws provisions thereof that would apply the law
of a
another state.
APPENDIX
C
FORM
OF PROXY
FIRST
UNITED CORPORATION
P.O.
Box
9, Oakland, MD 21550-0009
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The
undersigned hereby appoints Susan P. Kelley and William P. Ewing, and each
of
them, as Proxies, with the powers the undersigned would possess if personally
present, and with full power of substitution, and hereby authorizes them to
represent and to vote as designated on the reverse side, all the shares of
Common Stock of First United Corporation held of record by the undersigned
on
February 9, 2007 at the Annual Meeting of Shareholders to be held on April
24,
2007 and any adjournment or
postponement thereof, for the purposes identified on this proxy and with
discretionary authority as to any other matters that may properly come before
the Annual Meeting, including substitute nominees if any of the named nominees
for director should be unavailable to serve for election in accordance with
and
as described in the Notice of Annual Meeting of Shareholders and Proxy
Statement.
.
THIS
PROXY WILL BE VOTED AS SPECIFIED. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS,
THE
PROXIES NAMED HEREIN INTEND TO VOTE THIS PROXY “FOR ALL NOMINEES” IN PROPOSAL 1,
“FOR” PROPOSAL 2 TO APPROVE THE OMNIBUS EQUITY COMPENSATION PLAN, AND IN THEIR
DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT MAY BE PRESENTED AT THE
MEETING.
(Please
sign on reverse side and return immediately)
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Address
Change/Comments (Mark the corresponding box on the reverse
side)
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FOLD
AND
DETACH HERE
You
can now access your First United Corporation account
online.
Access
your First United Corporation shareholder account online via Investor
ServiceDirect® (ISD).
Mellon
Investor Services LLC, Transfer Agent for First United Corporation, now makes
it
easy and convenient to get current information on your shareholder
account.
|
·
View
account status
|
·
View
payment history for dividends
|
|
·
View
certificate history
|
·
Make
address changes
|
|
·
View
book-entry information
|
·
Obtain
a duplicate 1099 tax form
|
| |
·
Establish/change
your PIN
|
Visit
us on the web at http://www.melloninvestor.com
For
Technical Assistance Call 1-877-978-7778 between
9am-7pm
Monday-Friday
Eastern Time
Investor
ServiceDirect® is a registered trademark of Mellon Investor Services
LLC
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Please
Mark
Here
for
Address o
Change
or
Comments
SEE
REVERSE SIDE
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The
Board of Directors recommends a vote “FOR ALL NOMINEES” in Proposal
1.
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3.
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In
their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting and any adjournments
or
postponements thereof.
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1.
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Board
of Directors proposal to elect six (6) Class III Directors to serve
until
the 2010 Annual Meeting of Shareholders and until their successors
are
duly elected and qualify.
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Class
III (term expires 2010)
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01
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M.
Kathryn Burkey
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o
FOR ALL
NOMINEES
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02
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Karen
F. Myers
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03
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I.
Robert Rudy
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04
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Richard
G. Stanton
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o
WITHHOLD AUTHORITY
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05
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Robert
G. Stuck
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FOR ALL NOMINEES
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06
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H.
Andrew Walls, III
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o
FOR ALL EXCEPT
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(see instruction below)
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INSTRUCTION:
The withholding of a vote will be counted as a vote against a nominee.
To
withhold authority to vote for any individual nominee, mark “FOR ALL
EXCEPT” and strike a line through the nominee’s name in the list
above.
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The
Board of Directors recommends a vote “FOR” Proposal
2.
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THE
UNDERSIGNED ACKNOWLEDGES RECEIPT OF NOTICE OF THE
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AFORESAID
ANNUAL MEETING OF SHAREHOLDERS |
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2.
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Approval
of the First United Corporation Omnibus Equity
Compensation
Plan.
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Date:
_______________________, 2007
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o FOR
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o AGAINST
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o ABSTAIN
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_________________________________
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Signature
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_________________________________
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Signature
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NOTE:
Please sign exactly as name appears hereon. Joint holders should
each
sign. When signing as attorney, executor, administrator, trustee
or
guardian, please indicate the capacity in which you are signing.
If a
corporation or other entity, please sign in full corporate or entity
name
by authorized person.
|
Vote
by Internet or Telephone or Mail
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.
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Internet
http://www.proxyvoting.com/func1
Use
the internet to vote your proxy. Have your proxy card in hand when
you
access the web site.
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OR
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Telephone
1-866-540-5760
Use
any touch-tone telephone to vote your proxy. Have your proxy card
in hand
when you call.
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OR
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Mail
Mark,
sign and date
your
proxy card and
return
it in the
enclosed
postage-paid
envelope.
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If
you vote your proxy by Internet or by telephone,
you
do NOT need to mail back your proxy card.