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:
March
26, 2010
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 Thursday, May 13, 2010, at 10:00 a.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
matters to be acted upon. In addition, there will be a report on the
progress of your Corporation.
Your vote on the matters to be acted
upon at the Annual Meeting is important, regardless of the number of shares you
own. Whether or not you plan to attend the Annual Meeting in person,
it is important that your shares be represented. To ensure that your
shares are represented, I urge you to execute and return the enclosed Proxy Card
or to submit your Proxy by telephone or Internet promptly. If you
attend the meeting, you may withdraw your Proxy and vote in person, if you so
desire.
There will be a reception with light
refreshments immediately following the meeting for all registered
shareholders. I look forward to seeing you there.
We are taking advantage of the
Securities and Exchange Commission rules that allow companies to furnish proxy
materials to their shareholders on the Internet. We believe these
rules allow us to provide you with the information you need while lowering the
costs of delivery and reducing the environmental impact of the Annual
Meeting.
|
Sincerely
yours,
|
|
|
|
WILLIAM
B. GRANT
|
|
Chairman
of the Board &
|
|
Chief
Executive Officer
|
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 26, 2010
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:
THURSDAY,
MAY 13, 2010, at 10:00 a.m.
The purposes of the meeting
are:
|
1.
|
To
vote on the election of the five (5) Director nominees named in the
attached Proxy Statement and form of Proxy to serve on the Board of
Directors until the 2013 Annual Meeting of Shareholders and until the
election and qualification of their
successors.
|
|
2.
|
To
approve a Charter amendment declassifying the Board of
Directors;
|
|
3.
|
To
ratify the appointment of ParenteBeard, LLC (formerly Beard Miller Company
LLP) as the Corporation’s independent auditors for fiscal year
2010.
|
|
4.
|
To
consider and approve a non-binding advisory vote on the Corporation’s
executive compensation program and policies;
and
|
|
5.
|
To
transact such other business as may be properly brought before the meeting
or any adjournment thereof.
|
The Board of Directors has fixed
February 26, 2010 as the record date for purposes of determining shareholders
who are entitled to notice of and to vote at the Annual Meeting of
Shareholders.
Anyone acting as proxy agent for a
shareholder must present a Proxy that has been properly executed by the
shareholder, that authorizes the agent to so act, and that is in form and
substance satisfactory to the judges of election and consistent with the
Corporation’s Amended and Restated Bylaws, as amended.
By order
of the Board of Directors
CARISSA
L. RODEHEAVER
Secretary
[THIS
PAGE INTENTIONALLY LEFT BLANK]
FIRST
UNITED CORPORATION
19 South
Second Street
P.O. Box
9
Oakland,
Maryland 21550-0009
(800)
470-4356
PROXY
STATEMENT
This Proxy Statement is furnished in
connection with the solicitation by the Board of Directors of First United
Corporation (the “Corporation”) of the accompanying Proxy to be voted at the
Annual Meeting of Shareholders to be held on May 13, 2010, at 10:00 a.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 the related Proxy Card will be sent or given
to shareholders is March 26, 2010.
As used in this Proxy Statement the
terms “the Corporation”, “we”, “us”, and “our” refer to First United Corporation
and its consolidated subsidiaries unless the context clearly requires
otherwise.
OUTSTANDING
SHARES; VOTING RIGHTS; QUORUM AND REQUIRED VOTE
Shareholders of record at the close of
business on February 26, 2010 (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 outstanding shares of
Common Stock entitled to vote is 6,143,640, each of which is entitled to one
vote.
The presence, in person or by proxy, of
shareholders entitled to cast a majority of all votes entitled to be cast at the
Annual Meeting shall constitute a quorum. Withheld votes (in the case
of the election of directors), abstentions and broker non-votes will all be
counted for purposes of determining whether a quorum is present.
Directors are elected by a majority of
all votes cast at the Annual Meeting. Accordingly, the withholding of
a vote for a director nominee, as described in Proposal 1, will constitute a
vote against that nominee, but a broker non-vote with respect to the election of
directors will have no impact on the outcome of that vote. The approval of the
amendment to the Corporation’s Amended and Restated Articles of Incorporation
(the “Charter”), as described in Proposal 2, requires the affirmative vote of
shareholders holding at least two-thirds of all outstanding shares entitled to
be voted at the Annual Meeting. Thus, abstentions and broker
non-votes with respect to Proposal 2 will have the same effect as a vote against
Proposal 2. The ratification of the appointment of the Corporation’s
independent registered public accounting firm, as described in Proposal 3, and
the approval of the Corporation’s executive compensation as described in the
non-binding advisory Proposal 4 each require the affirmative vote of a majority
of all votes cast at the Annual Meeting. Accordingly, an abstention
or a broker non-vote with respect to Proposal 3 or Proposal 4 will have no
impact on the outcome of those proposals. The affirmative vote of a
majority of all votes cast at the Annual Meeting will be sufficient to approve
any other matter properly brought before the Annual Meeting, as described in
Proposal 5, unless otherwise provided by applicable law or the Corporation’s
governing documents. Thus, an abstention or a broker non-vote will
have no impact on the outcome of any vote pursuant to Proposal 5.
All properly executed Proxies received
pursuant to this solicitation will be voted as directed by the shareholders in
their Proxies. If no direction is given in your Proxy, your shares
will be voted FOR ALL NOMINEES named in Proposal 1, FOR the amendment of the
Charter described in Proposal 2, FOR ratification of the appointment of the
Corporation’s independent registered public accounting firm named in Proposal 3,
FOR approval of the Corporation’s executive compensation as described in the
non-binding advisory Proposal 4, and in the discretion of the proxies as to any
other matters that may properly come before the meeting, as described in
Proposal 5.
Proxies may be revoked at any time
before a vote is taken or the authority granted is otherwise
exercised. Revocation may be accomplished by: (i) the
execution of a later dated Proxy; (ii) the execution of a later casted Internet
or telephone vote with regard to the same shares; (iii) giving written notice to
Carissa L. Rodeheaver, Secretary, First United Corporation, P.O. Box 9, Oakland,
Maryland 21550-0009; or (iv) giving written notice to the Secretary in person at
the 2010 Annual Meeting. Any shareholder who attends the 2010 Annual
Meeting and revokes his/her proxy may vote in person. However,
attendance by a shareholder at the 2010 Annual Meeting alone will not have the
effect of revoking a shareholder’s validly executed Proxy.
Methods
of Voting
Shareholders may vote on matters that
are properly presented at the 2010 Annual Meeting in four ways:
|
·
|
By
completing the accompanying form of Proxy and returning it in the envelope
provided;
|
|
·
|
By
submitting your vote
telephonically;
|
|
·
|
By
submitting your vote electronically via the Internet;
or
|
|
·
|
By
attending the 2010 Annual Meeting and casting your vote in
person.
|
For the 2010 Annual Meeting, the
Corporation is offering registered shareholders the opportunity to vote their
shares electronically through the Internet or by telephone. Instead
of submitting the accompanying Proxy by mail, shareholders may vote by telephone
or via the Internet by following the procedures described on the enclosed Proxy
Card. To vote via telephone or the Internet, please have the
accompanying Proxy in hand, and call the number or go to the website listed on
the Proxy and follow the instructions. The telephone and Internet
voting procedures are designed to authenticate shareholders’ identities, to
allow shareholders to give their voting instructions, and to confirm that
shareholders’ instructions have been recorded properly. Shareholders
voting through the Internet should understand that they may bear certain costs
associated with Internet access, such as usage charges from their Internet
service providers.
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE
SHAREHOLDER
MEETING TO BE HELD ON MAY 13, 2010
This Proxy Statement, the accompanying
form of Proxy, and the Corporation’s Annual Report to Shareholders (including
its Annual Report on Form 10-K for the year ended December 31, 2009) are
available at http://www.stocktrans.com/eproxy/firstunited2010. Information
on this website, other than this Proxy Statement, is not a part of this Proxy
Statement.
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.
|
|
Common Stock
Beneficially
Owned
|
|
|
Percentage of
Outstanding
Common Stock
|
|
Directors,
Nominees and Named Executive Officers:
|
|
|
|
|
|
|
David
J. Beachy
|
|
|
7,308 |
|
|
|
.12 |
% |
M.
Kathryn Burkey
|
|
|
5,653 |
(1) |
|
|
.09 |
% |
Faye
E. Cannon
|
|
|
3,116 |
|
|
|
.05 |
% |
Paul
Cox, Jr.
|
|
|
2,993 |
|
|
|
.05 |
% |
William
B. Grant
|
|
|
10,513 |
(2) |
|
|
.17 |
% |
Eugene
D. Helbig, Jr.
|
|
|
3,090 |
(3) |
|
|
.05 |
% |
Robert
W. Kurtz
|
|
|
2,624 |
(4) |
|
|
.04 |
% |
Steven
M. Lantz
|
|
|
1,839 |
(5) |
|
|
.03 |
% |
John
W. McCullough
|
|
|
6,603 |
|
|
|
.11 |
% |
Elaine
L. McDonald
|
|
|
8,609 |
(6) |
|
|
.14 |
% |
Donald
E. Moran
|
|
|
53,837 |
(7) |
|
|
.88 |
% |
Robin
E. Murray.
|
|
|
724 |
(8) |
|
|
.01 |
% |
Carissa
L. Rodeheaver
|
|
|
1,214 |
(9) |
|
|
.02 |
% |
Gary
R. Ruddell
|
|
|
2,389 |
|
|
|
.04 |
% |
I.
Robert Rudy
|
|
|
34,992 |
(10) |
|
|
.57 |
% |
Richard
G. Stanton
|
|
|
15,625 |
(11) |
|
|
.25 |
% |
Robert
G. Stuck
|
|
|
4,737 |
|
|
|
.08 |
% |
H.
Andrew Walls, III
|
|
|
752 |
|
|
|
.01 |
% |
|
|
|
|
|
|
|
|
|
Directors
& Executive Officers as a Group (20 persons)
|
|
|
181,293 |
|
|
|
2.95 |
% |
|
|
|
|
|
|
|
|
|
5% Beneficial
Owners:
|
|
|
|
|
|
|
|
|
Firstoak
& Company
|
|
|
355,129 |
(12) |
|
|
5.78 |
% |
P.O.
Box 557
|
|
|
|
|
|
|
|
|
Oakland,
Maryland 21550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United
States Department of the Treasury
|
|
|
326,323 |
(13) |
|
|
5.31 |
% |
1500
Pennsylvania Avenue, NW
|
|
|
|
|
|
|
|
|
Washington,
D.C. 20220
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
862,745 |
|
|
|
14.04 |
% |
|
(1)
|
Includes
247 shares owned by spouse.
|
|
(2)
|
Includes
6,843 shares owned jointly with spouse, 6 shares owned jointly with
daughter, 231 shares owned by son, 5 shares owned by daughter, 2,425
shares held in a 401(k) plan account, 405 shares owned by spouse’s IRA,
and 218 shares owned by spouse and
daughter.
|
|
(3)
|
Includes
523 shares owned jointly with spouse and 2,213 held in a 401(k) plan
account.
|
|
(4)
|
Includes
2,295 shares held in a 401(k) plan account and 306 shares owned jointly
with spouse.
|
|
(5)
|
Includes
448 shares owned jointly with spouse, 6 shares owned by son and 1,130
shares held in a 401(k) plan
account.
|
|
(6)
|
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.
|
|
(7)
|
Includes
25,000 shares owned by spouse.
|
|
(8)
|
Includes
150 shares owned jointly with spouse and 574 shares held in a 401(k) plan
account.
|
|
(9)
|
Includes
406 shares held jointly with spouse, 16 shares held by spouse for benefit
of a minor child and 790 shares held in a 401(k) plan
account.
|
|
(10)
|
Includes
899 shares owned jointly with spouse, 6,771 shares owned by spouse, 4,215
shares owned by daughters, 15,575 shares owned by I.R. Rudy’s, Inc. of
which Mr. Rudy is owner.
|
|
(11)
|
Includes
9,008 shares owned jointly with spouse and 1,737 shares held in spouse’s
IRA.
|
|
(12)
|
Shares
held in the name of Firstoak & Company, as nominee, are administered
by the Trust Department of First United Bank & Trust in a fiduciary
capacity. Firstoak & Company disclaims beneficial ownership
of such shares.
|
|
(13)
|
Amount
represents shares subject to an immediately exercisable common stock
purchase warrant issued to Treasury in connection with the Corporation’s
participation in Treasury’s Capital Purchase Program. This
warrant is currently underwater, as the exercise price exceeds the current
market price of the Corporation’s common
stock.
|
ELECTION
OF DIRECTORS (PROPOSAL 1)
The number of Directors constituting
the Board of Directors is currently set at 15. 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 2011, and the terms of Class
II Directors expire in 2012. In all cases, Directors serve until
their successors are duly elected and qualify.
Shareholders are being asked to vote
for a total of five (5) Director nominees at this year’s Annual
Meeting. Each of the current Class III Directors is standing for
re-election. All Class III Directors were previously elected by
shareholders.
No Director or nominee holds any
directorship in any other public company. All current Directors serve
on the board of directors of First United Bank & Trust (the “Bank”), the
Corporation’s wholly-owned subsidiary.
The following table provides
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.
Class III Directors (term
expires in 2013):
|
|
|
|
Occupation
|
|
Director
|
Name
|
|
Age
|
|
During Past Five Years
|
|
Since
|
|
|
|
|
|
|
|
M.
Kathryn Burkey
|
|
59
|
|
Certified
Public Accountant, Owner,
|
|
2005
|
|
|
|
|
M.
Kathryn Burkey, CPA
|
|
|
|
|
|
|
|
|
|
I.
Robert Rudy
|
|
57
|
|
President,
Rudy’s Inc.,
|
|
1992
|
|
|
|
|
Retail
Apparel and Sporting Goods.
|
|
|
|
|
|
|
|
|
|
Richard
G. Stanton
|
|
70
|
|
Retired. Served
as Chairman, President
|
|
1985
|
|
|
|
|
and
Chief Executive Officer of First United
|
|
|
|
|
|
|
Corporation
and First United Bank & Trust
|
|
|
|
|
|
|
until
1996.
|
|
|
|
|
|
|
|
|
|
Robert
G. Stuck
|
|
63
|
|
Vice
President, Oakview Motors, Inc. - Retired.
|
|
1995
|
|
|
|
|
Realtor,
Long & Foster Real Estate, Inc.
|
|
|
|
|
|
|
|
|
|
H.
Andrew Walls, III
|
|
49
|
|
President,
Morgantown Printing & Binding;
|
|
2006
|
|
|
|
|
Member,
MEGBA, LLC.
|
|
|
The Board of Directors recommends that
shareholders vote FOR all Director
nominees named above.
Information about the Directors whose
terms do not expire in 2010, 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.
Nominees for Class I (term
expires in 2011):
|
|
|
|
Occupation
|
|
Director
|
Name
|
|
Age
|
|
During Past Five Years
|
|
Since
|
|
|
|
|
|
|
|
David
J. Beachy
|
|
69
|
|
Fred
E. Beachy Lumber Co., Inc.
|
|
1985
|
|
|
|
|
Building
Supplies – Retired.
|
|
|
|
|
|
|
|
|
|
Faye
E. Cannon
|
|
60
|
|
Former
Director, Dan Ryan Builders, Inc.,
|
|
2004
|
|
|
|
|
Frederick
Maryland; Former Chief Executive
|
|
|
|
|
|
|
Officer
and President of F & M Bancorp,
|
|
|
|
|
|
|
Frederick,
Maryland – Retired.
|
|
|
|
|
|
|
|
|
|
Paul
Cox, Jr.
|
|
70
|
|
Owner,
Professional Tax Service.
|
|
1993
|
|
|
|
|
|
|
|
William
B. Grant
|
|
56
|
|
Chairman
of the Board, Chief Executive
|
|
1995
|
|
|
|
|
Officer
(“CEO”), and President of
|
|
|
|
|
|
|
the
Corporation and the Bank.
|
|
|
|
|
|
|
|
|
|
John
W. McCullough
|
|
60
|
|
Certified
Public Accountant. Retired in 1999
|
|
2004
|
|
|
|
|
as
Partner of Ernst & Young, LLP.
|
|
|
Nominees for Class II (terms
expire in 2012):
|
|
|
|
Occupation
|
|
Director
|
Name
|
|
Age
|
|
During
Past Five Years
|
|
Since
|
|
|
|
|
|
|
|
Robert
W. Kurtz
|
|
63
|
|
Retired
President, Chief Risk Officer,
|
|
1990
|
|
|
|
|
Secretary
and Treasurer of the Corporation
|
|
|
|
|
|
|
and
the Bank; retired director, Secretary and
|
|
|
|
|
|
|
Treasurer
of OakFirst Loan Center, Inc. and
|
|
|
|
|
|
|
OakFirst
Loan Center, LLC, both subsidiaries
|
|
|
|
|
|
|
of
the Bank.
|
|
|
|
|
|
|
|
|
|
Elaine
L. McDonald
|
|
61
|
|
Realtor,
Long & Foster Realtors
|
|
1995
|
|
|
|
|
|
|
|
Donald
E. Moran
|
|
79
|
|
Acting
President, General Manager, Secretary
|
|
1988
|
|
|
|
|
and
Treasurer, Moran Coal Corporation.
|
|
|
|
|
|
|
|
|
|
Gary
R. Ruddell
|
|
62
|
|
President,
Total Biz Fulfillment, provides
|
|
2004
|
|
|
|
|
business
services; Member, Gary R. Ruddell LLC,
|
|
|
|
|
|
|
commercial
real estate; Member, MSG
|
|
|
|
|
|
|
Glendale
Properties LLC, residential real estate.
|
|
|
Qualifications
of Director Nominees and Current Directors
The following table lists the specific
experience, qualifications, other attributes and skills of each of the
Corporation’s Directors and the Director nominees that led the Nominating and
Governance Committee (the “Nominating Committee”) to determine that such persons
should serve on the Board of Directors.
Director
|
|
Qualifications/Skills
|
David
J. Beachy
|
|
Business
experience gained through his ownership and operation of a successful
building supply company.
|
M.
Kathryn Burkey
|
|
Accounting
and business experience gained through her education and CPA certification
and through owning and operating a successful accounting firm; director
experience gained through her service as past Chairman of the Board of
Western Maryland Health System, including service on its Compensation
Committee, Audit Committee, and Finance Committee; and her experience as
past president of Maryland Association of Certified Public
Accountants;
|
Faye
E. Cannon
|
|
Banking
and business experience gained through her service as past President, CEO
and Director of F&M Bancorp; 30 years of experience in the banking
industry; and experience gained through banking industry affiliations and
prior director service with profit and non-profit boards of
directors.
|
Paul
Cox, Jr.
|
|
Active
community involvement in Washington County, a market area served by the
Corporation; and business and tax experience gained through owning and
operating a tax preparation business.
|
William
B. Grant
|
|
Thirty-two
years of banking experience; legal expertise gained through the practice
of law; education gained as a graduate of Stonier Graduate School of
Banking and as a graduate of Northwestern Trust Graduate School; and his
experience as a Certified Financial Planner.
|
Robert
W. Kurtz
|
|
Thirty-seven
years of banking experience gained through his service as past President,
Chief Risk Officer, and Chief Financial Officer of First United
Corporation and its affiliates, and service as a director of the
Corporation and the Bank since 1990.
|
John
W. McCullough
|
|
Financial
institution accounting experience gained as a former partner of Ernst
& Young, LLP; education gained through his B.S. degree in Accounting
from University of Maryland; and CPA certification.
|
Elaine
L. McDonald
|
|
Real
estate experience gained as a Realtor with Long and Foster; business
experience gained through her ownership and operation of Alpine Village
Inc. for 21 years; and experience with fundraising activities for national
and community based non-profits.
|
Donald
E. Moran
|
|
Education
gained through his B.A. degree in pre-law, with a split minor in History
and Geography, from the University of Maryland; business experience gained
as president, secretary, treasurer of Moran Coal Company since 1955; and
banking business experience gained as past president of First National
Bank of Piedmont.
|
Gary
R. Ruddell
|
|
Education
gained through his B.A. degree in marketing from University of Maryland
and attendance at various Maryland Banking sessions; business experience
gained as president and chief executive officer of a successful logistical
and back-office support services business; and community involvement
through his positions as officer and director of various community
organizations.
|
I
Robert Rudy
|
|
Education
gained through his Bachelor of Business Administration degree from Ohio
University; business experience gained through his ownership and operation
of Rudy’s, Inc. and as managing member of D.C. Development, LLC and
subsidiaries from 1993 to 2008; director experience gained as chairman of
the board of Sports Specialists, Ltd, Fairport, NY and as trustee of The
Ohio University Foundation; experience gained from and involvement with
various societies, boards and commissions, including the Ohio University
College of Business Society of Alumni and Friends from 2003 to 2006, Ohio
University College of Business Executive Advisory Board since 2006, Ohio
University College of Business Global Competitive Program during 2008 and
2009, Ohio University President’s CEO Roundtable, Maryland Fire Prevention
Commission – Commissioner, and Oakland Planning and Zoning
Commission.
|
Richard
G. Stanton
|
|
Banking
and business experience gained through 38 years of service with financial
institutions, including as past Chief Executive Officer of the
Corporation; and active community involvement in Garrett County, a key
market for the Corporation.
|
Robert
G. Stuck
|
|
Business
experience gained through ownership and operation of an automobile
dealership; and real estate experience gained as a real estate
agent.
|
H.
Andrew Walls, III
|
|
Business
experience gained as owner and operator of a large printing company for 15
years; active community involvement in Monongalia County, one of the
Corporation’s market areas; and director experience gained through his
service on the Board of the United Way, the Public Theatre, and the
Salvation Army.
|
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. 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 M.
Kathryn Burkey, Faye E. Cannon, Paul Cox, Jr., John W. McCullough
(Chairperson), Elaine L. McDonald, Richard G. Stanton, and Robert G.
Stuck. 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 407 of
the SEC’s Regulation S-K. This committee met 11 times in
2009. The Board of Directors has adopted a written charter for the
Audit Committee, a copy of which is available on the Corporation’s website at
www.mybank4.com.
Asset and Liability Management
Committee – The Asset and Liability Management Committee consists of M.
Kathryn Burkey, William B. Grant, Robert W. Kurtz, John W. McCullough, Donald E.
Moran, 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 four times in 2009.
Executive Committee – The
Executive Committee consists of David J. Beachy, M. Kathryn Burkey, Faye E.
Cannon, William B. Grant, Robert W. Kurtz, Elaine L. McDonald, Gary R. Ruddell,
Robert G. Stuck, and H. Andrew Walls, III. The committee has the
authority to review and recommend changes to the Corporation’s Insurance
Program, review the Corporation’s compliance with the Charter and Bylaws,
monitor the performance of the Corporation and its subsidiaries, and recommend
changes to the personnel policies of the Corporation and its
subsidiaries. The Executive Committee is empowered to act on behalf
of the full Board between meetings of the Board. This committee met
one time in 2009.
Strategic Planning Committee
– The Strategic Planning Committee consists of David J. Beachy, M.
Kathryn Burkey, Faye E. Cannon, Paul Cox, Jr., William B. Grant, Robert W.
Kurtz, John W. McCullough, Elaine L. McDonald, Donald E. Moran, Gary R. Ruddell,
I. Robert Rudy, Richard G. Stanton, Robert G. Stuck and H. Andrew
Walls, III. 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 met two times in 2009.
Compensation Committee – The
Compensation Committee, which met seven times in 2009, consists of David J.
Beachy, M. Kathryn Burkey (Chairperson), Faye E. Cannon, Paul Cox, Jr., John W.
McCullough, Donald E. Moran, 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 available on the Corporation’s website at
www.mybank4.com.
Nominating and Governance Committee
– The Nominating Committee consists of David J. Beachy, Paul Cox,
Jr., William B. Grant, Robert W. Kurtz, Elaine L. McDonald, Donald E.
Moran, and Richard G. Stanton. 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
2009. The Nominating Committee has a written charter, a copy of
which is available on the Corporation’s website at www.mybank4.com.
Director
Independence
Pursuant to Rule 4350(c) of The NASDAQ
Stock Market Rules (the “NASDAQ Rules”), a majority of the Corporation’s
Directors must be “independent directors” as that term is defined by NASDAQ 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., John W.
McCullough, Elaine L. McDonald, Donald E. Moran, Gary R. Ruddell, Richard G.
Stanton, and Robert G. Stuck 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 NASDAQ Rule
4350(d)(2). In making these independence determinations, the Board,
in addition to the transactions described below under “CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS”, considered the Bank’s
purchase of goods from a retailer affiliated with Mrs. Burkey.
Board
Leadership and Role in Risk Oversight
The
Corporation is a one-bank holding company, and the parent of the Bank, a $1.7
billion community bank serving four counties in Maryland and four counties in
West Virginia. Since its inception in 1984, the Corporation has had three CEOs,
and each of these CEOs also served as Chairman of the Board. The
Corporation’s predecessor, First United Bank of Oakland, also employed this form
of governance for a number of years.
The Corporation has a well-developed
and well-seasoned Board of Directors, comprised of the Chairman/CEO and 13
additional Directors, 10 of whom are independent Directors.
The Board believes that the
Corporation, like scores of other financial institutions, has been well-served
by this form of leadership. By having one person serve as both
Chairman and CEO, the Board believes the Corporation demonstrates to
shareholders, customers, employees, vendors, regulators, and other stakeholders
that we are under strong leadership, with a single individual setting the tone
and having primary responsibility for managing and leading the
Corporation. The Board believes this structure reduces the potential
for confusion or duplication of efforts and assures clarity of
leadership.
Such a structure is viable when it is
reinforced with a strong, competent and independent board of directors as is the
case with the Corporation. As noted above, 10 of the 14 Directors are
“independent” as defined by the NASDAQ Rules. The Board believes that
this high percentage of independence, coupled with the fact that only one
Director – the Chairman/CEO – is employed by the Corporation, assures an
objective and shareholder-based view of the Corporation’s
operations.
Of these independent directors, five
members qualify as “audit committee financial experts” as defined by SEC rules
adopted under the Sarbanes-Oxley Act of 2002. While the credentials
of the entire Board are noted elsewhere, it is worth illustrating the
credentials of these five members that make them eligible for this
distinction:
|
1.
|
M.
Kathryn Burkey – Mrs. Burkey is a practicing Certified Public Accountant,
with significant experience in audit. She has also served as
chair of the board for Western Maryland Health System. She is
the past president of the Maryland Associates of CPA’s. Mrs. Burkey also
serves as chair of the Company’s Compensation
Committee.
|
|
2.
|
Faye
E. Cannon – Ms. Cannon is the former CEO of Farmers & Mechanics Bank,
which was headquartered in Frederick, Maryland. Prior to its merger with
Mercantile, Farmers & Mechanics had over $2 billion in
assets.
|
|
3.
|
Robert
W. Kurtz – Mr. Kurtz retired in December 2009 from First United, after
nearly four decades of service. For the last several years, Mr.
Kurtz had served as President & Chief Risk Officer of the
Company.
|
|
4.
|
John
W. McCullough – Mr. McCullough is a retired partner from the accounting
firm of Ernst & Young. During a significant portion of his
career, Mr. McCullough was heavily engaged in bank audits. Mr.
McCullough serves as chair of the Company’s Audit
Committee.
|
|
5.
|
Richard
G. Stanton – Prior to his retirement in 1996, Mr. Stanton served as
Chairman and CEO of the Company. Since that time, he has
remained on the Board of Directors, where he serves on numerous
committees.
|
In an effort to hone their skills, and
to assure their continued independence, members of the Board of Directors
undertake regular training. A number of methods are employed to provide for
in-depth training. On frequent occasions, internal training is
provided to familiarize the Board with regulatory requirements of financial
institutions in areas such as Bank Secrecy and Community Reinvestment.
Periodically, Directors attend seminars related to banking issues, which offer
them the additional benefit of meeting with other Directors of other financial
institutions. All Directors have direct access to the American Bankers
Association website which enables them to keep abreast of issues pertinent to
the banking industry and research banking materials. Finally, plans are underway
to incorporate specific board education under a program recently introduced by
the Federal Reserve System.
The strength of the Board, and a
valuable counter balance to management, is found in the risk management
practices employed by the Board, directly and through its various specialized
committees. The Board, as part of its oversight and governance functions,
regularly reviews risks and appropriate modeling of Asset Liability Management,
loan concentrations, liquidity, management succession and capital planning.
Consistent with this, the Corporation was one of the early institutions in its
market area to name a Chief Risk Officer, having done so in
2006. Further, in 2009, the Board created a special committee focused
on the Corporation’s risk elements. This committee, which meets monthly, reviews
classified credits and the appropriate plans for them, as well as examining
regulatory mandates and assuring that they are fulfilled.
To assist the Board with tracking and
reviewing Board and Committee activities, all Directors have 24/7 access to all
policies and reports, all committee and board minutes over the last two years,
and numerous reports and models.
To further maintain a level of
independence, the Board conducts regular executive sessions. These sessions are
lead by the independent chair of the Nominating Committee, Donald
Moran.
The governance of the Corporation
through a combination of the Chairman and CEO is appropriate also in light of
the strength and experience of the Chairman/CEO. Since its beginning, the
Corporation has had very experienced individuals in this combined
role. Courtney R. Tusing, the first to have the role, came to it with
over 20 years of banking experience, with the majority of them with the
Company. During his tenure, he also served as President of the
Maryland Bankers Association. Richard G. Stanton had the position from 1987 to
1996. He had nearly three decades of experience prior to the position, and had
served as Director for a number of years. During his tenure, he served on the
Government Relations Committee of the American Bankers Association, which
enabled him to help formulate banking policy. The Current Chairman and CEO has
held the position since 1996, having joined the Board the year
before. With now over 30 years of banking experience, he is past
Chairman of the Maryland Bankers Association and is currently on the Board of
Directors of the Baltimore Branch of the Federal Reserve Bank of Richmond as
well as the America’s Community Bankers Council of the American Bankers
Association.
In conclusion, the Board believes that
a single leader, serving as Chairman and CEO, together with an overwhelmingly
independent Board, is the most appropriate leadership structure for the
Corporation. The Board may, from time to time, review this structure under the
guidance of the Nominating Committee, reporting up to the Board of Directors.
The position is supported by academic research on board governance, which
endorses such a structure so long as there exists an independent and
well-seasoned board, which exists at First United.1
1 See The Harvard Law School
Forum on Corporate Governance and Financial Regulation “Drafting Disclosure
Relating to Board Leadership and Risk Oversight”, Posting by Jeffrey Stein, King
& Spaulding, January 3, 2010
Director
Compensation
The following table provides
information about compensation paid to or earned by the Corporation’s Directors
during 2009 that were not also “named executive officers” (as defined
below).
DIRECTOR COMPENSATION
|
|
Name
|
|
Fees earned or
paid in cash
($)
|
|
|
Stock Awards
($)(1)
|
|
|
Change in
pension
value and
nonqualified
deferred
compensation
earnings
($)
|
|
|
All other
compensation
($)(2)(3)
|
|
|
Total
($)
|
|
David
J. Beachy
|
|
|
26,400 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
174 |
|
|
|
31,560 |
|
M.
Kathryn Burkey
|
|
|
32,100 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
274 |
|
|
|
37,368 |
|
Faye
E. Cannon
|
|
|
30,500 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
974 |
|
|
|
36,468 |
|
Paul
Cox, Jr.
|
|
|
28,800 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
1,274 |
|
|
|
35,068 |
|
Raymond
F. Hinkle (4)
|
|
|
24,400 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
524 |
|
|
|
29,918 |
|
John
W. McCullough
|
|
|
33,900 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
174 |
|
|
|
39,068 |
|
Elaine
L. McDonald
|
|
|
24,500 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
174 |
|
|
|
29,668 |
|
Donald
E. Moran
|
|
|
31,900 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
699 |
|
|
|
37,593 |
|
Gary
R. Ruddell
|
|
|
24,400 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
174 |
|
|
|
29,568 |
|
I.
Robert Rudy
|
|
|
25,800 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
174 |
|
|
|
30,968 |
|
Richard
G. Stanton
|
|
|
26,900 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
174 |
|
|
|
32,068 |
|
Robert
G. Stuck
|
|
|
26,900 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
174 |
|
|
|
32,068 |
|
H.
Andrew Walls, III
|
|
|
28,000 |
|
|
|
4,994 |
|
|
|
- |
|
|
|
749 |
|
|
|
33,743 |
|
(1)
|
The
amounts shown in this column relate to the grant of 435 fully-vested
shares of common stock to each non-employee director in 2009 and reflect
the aggregate grant date fair value of that award computed in accordance
with FASB ASC Topic 718, “Accounting for Stock
Compensation”. See Note 1 to the consolidated audited financial
statements contained in the Corporation’s Annual Report on Form 10-K for
the year ended December 31, 2009 regarding assumptions underlying
valuation of equity awards.
|
(2)
|
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.
|
(3)
|
The
amounts shown also reflect $174 for each director, representing the cash
dividends paid in 2009 on the shares of common stock that were granted in
2009 and reflected in the "Stock Awards" column of this
table.
|
(4)
|
Mr.
Hinkle’s fees represent amounts paid for service as an honorary director
in 2009.
|
Directors
who are not employees of the Corporation or the Bank receive $400 for attending
each meeting of the Corporation’s Board and $400 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 (Mrs. Burkey) and
Nominating Committee (Mr. Moran) receives an additional annual retainer of
$2,500. 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 $300 for attending each meeting of a Bank Board
committee on which the director serves. All Directors are permitted
to participate in the Corporation’s non-qualified Executive and Director
Deferred Compensation Plan (the “Deferred Compensation Plan”). The
material terms of the Deferred Compensation Plan are discussed below under the
heading “COMPENSATION DISCUSSION AND ANALYSIS”.
Attendance
at Board Meetings
The Board
of Directors held 11 Board meetings in 2009. Each Director who served
as such during 2009 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: Carissa L. Rodeheaver, 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 does not
have a formal policy under which it considers the diversity of candidates for
directorship when making nomination recommendations. 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,
the need for particular expertise on the Board, and whether the Corporation’s
market areas are adequately represented by Board members. In
nominating director candidates, the Nominating Committee generally seeks to
choose individuals that have skills, education, experience and other attributes
that will compliment and/or broaden the strengths of the existing
directors.
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 Section 4 of Article II 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 Carissa L.
Rodeheaver, Secretary, First United Corporation, P.O. Box 9, Oakland, Maryland,
21550. The Secretary will deliver all shareholder communications
directly to the Board of Directors for consideration.
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 2009 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 audited consolidated financial statements for
the year ended December 31, 2009 with the Corporation’s management; (ii)
discussed with ParenteBeard LLC, the Corporation’s independent auditors, all
matters required to be discussed by Auditing Standards No. 61, as amended
(AICPA, Professional Standards, Vol. 1, AU § 380), as adopted by the Public
Company Accounting Oversight Board in Rule 3200T, and (iii) received the written
disclosures and the letter from ParenteBeard LLC required by applicable
requirements of the Public Company Accounting Oversight Board regarding
ParenteBeard LLC’s communications with the Audit Committee concerning its
independence, and discussed with ParenteBeard LLC its
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
audited consolidated financial statements for the year ended December 31, 2009
be included in the Corporation’s Annual Report on Form 10-K for the year ended
December 31, 2009.
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By:
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AUDIT
COMMITTEE
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M.
Kathryn Burkey
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Faye
E. Cannon
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Paul
Cox, Jr.
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John
W. McCullough
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Elaine
L. McDonald
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Richard
G. Stanton
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Robert
G. Stuck
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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 56, serves as
Chairman of the Board, CEO and President. Mr. Grant has been Chairman
of the Board and CEO since 1996, and as President since December 16,
2009. Prior to holding these positions, he served as Secretary and
Executive Vice President.
Robert W. Kurtz, age 63 serves as a
Director and served as the President, Chief Risk Officer, Secretary, and
Treasurer until his retirement on December 15, 2009. Mr. Kurtz has
been a Director since 1990 and served as President, Secretary, and Treasurer
since 1997. Mr. Kurtz served as Chief Financial Officer (the “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 49, serves
as Senior Vice President and Director of Corporate Services. 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 57, 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 52, 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 51, 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 43, serves
as Executive Vice President, CFO, Secretary and Treasurer. Ms.
Rodeheaver, who is a Certified Public Accountant, was appointed CFO on January
1, 2006, Executive Vice President on March 19, 2008, and Treasurer and Secretary
on December 16, 2009. Prior to these times, Ms. Rodeheaver served as
Trust Officer of the Bank from 1992 to 2000, as Vice President and Trust
Department Sales Manager of the Bank from 2000 to 2004, and as Vice President
and Assistant Chief Financial Officer of the Corporation from 2004 to December
31, 2005. In addition to her service with the Corporation, Ms.
Rodeheaver owns and operates Country Treasures, an unincorporated retail seller
of home furnishings and décor, Rodeheaver Rentals, an unincorporated entity that
owns and leases commercial and residential real property, and several
residential apartments that she leases to tenants.
Jason Rush, age 38, serves as a Senior
Vice President and Chief Risk Officer and Director of Operations &
Support. Mr. Rush has been employed by the First United organization
since October of 1993. Prior to his current position, Mr. Rush served
as Vice President, Director of Operations & Support since March 2006, and
before that as Vice President and Regional Manager/Community Office Manager from
January 2005 to February 2006; Vice President and Community Office
Manager/Manager of Cash Management from May 2004 to December 2004; Assistant
Vice President and Community Office Manager from April 2001 to April 2004;
Community Office Manager from August 1998 to April, 2001; Customer Service
Officer from March 1997 to July 1998; Assistant Compliance Officer from July
1995 to February 1997; and Management Trainee from October 1993 to July
1995. Mr. Rush also serves as the Treasurer of Rush Services, Inc., a
family-owned business in which he has no ownership interest. He also
participates with his brother in farming and land investment.
COMPENSATION
DISCUSSION 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.
Overview
of Compensation Philosophy and Objectives
The Compensation Committee recognizes
the importance of maintaining sound principles for the development and
administration of compensation and benefit programs, and has taken steps to
enhance the Compensation 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 Compensation Committee utilizes include:
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Incorporating
executive sessions (without management present) into all Compensation
Committee meetings;
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Using
an independent compensation consultant to advise on executive compensation
issues;
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Reviewing
and realigning from time to time compensation structures based on
targeting median competitive pay;
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Reviewing
peer group performance comparisons;
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Performing
annual reviews for all executive
officers;
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Reviewing
and revising from time to time short-term incentive plan for members of
executive management to insure payments are aligned with corporate
performance;
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Monitoring
established parameters for the long-term incentive plan for members of
executive management and insures the plan is aligned with shareholder
interests.
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Performing
a semi–annual review of all employee incentive compensation
plans
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Role
of the Compensation Committee and Management
Role of the Compensation
Committee
The
Compensation Committee of the Corporation’s Board of Directors is composed of a
minimum of three independent Directors and is appointed each year by the
Corporation’s Board, considering the recommendation of the Nominating and
Governance Committee and the views of the Chairman of the Board and CEO, as
appropriate. The duties of the Compensation Committee, which are
detailed in its charter, are to oversee executive compensation and benefit plans
and policies, administer cash-based incentive and equity-based plans, and
annually review and recommend for approval by the Board all compensation
decisions relating to the executive officers, including the Chairman and CEO,
the CFO, and the other “named executive officers” (as defined
below). The Compensation Committee submits its decisions regarding
compensation to the independent Directors of the Board for approval or
ratification.
Seven
members of the Corporation’s Board of Directors sit on the Compensation
Committee, each of whom is an independent director as defined by the NASDAQ
Stock Market Rules. The Compensation Committee meets throughout the
year (seven times in 2009) and also takes action by written consent when
necessary or appropriate. The Chair of the Compensation Committee
reports on committee actions at meetings of the Company’s Board.
The
Compensation Committee reviews all compensation components for the Company’s CEO
and other executive officers, including base salary, annual incentive awards,
equity grants, benefits and other perquisites. In addition to
reviewing competitive market values, the Compensation Committee also examines
the total compensation mix, pay-for-performance relationship, and how all
elements, in the aggregate, comprise each executive’s total compensation
package. The Compensation Committee also examines all incentive
compensation plans at least semi-annually to insure that such plans do not
encourage employees to take unnecessary or excessive risks that threaten the
Corporation’s value.
The
Compensation Committee reviews CEO performance and makes decisions regarding the
CEO’s compensation. The CEO makes recommendations on other executives
to the Compensation Committee who then reviews these recommendations and, if
approved, submits such recommendations to the Board for
ratification. Input and data from the CEO, CFO, members of our
Human Resources Department and outside consultants and advisors are provided as
a matter of practice and as requested.
The
Compensation Committee has the authority and resources to obtain, independent of
management, advice and assistance from internal and external legal, human
resource, accounting or other experts, advisors, or consultants as it deems
desirable or appropriate.
Role of
Management
The Compensation Committee occasionally
requests one or more members of top management to be present at Compensation
Committee meetings where executive compensation and corporate or individual
performance are discussed and evaluated. Executives are free to
provide insight, suggestions or recommendations regarding executive
compensation. However, only Compensation Committee members are
allowed to vote on decisions regarding executive compensation during the
executive sessions.
The Compensation Committee meets with
the CEO to discuss his own performance and compensation
package. Decisions regarding his package are made solely based upon
the Compensation Committee’s deliberations, as well as input from the
compensation consultant, as requested by the Committee. The
Compensation Committee considers recommendations from the CEO, as well as input
from the compensation consultant as requested, to make decisions regarding other
executives.
Elements
of Executive Compensation
In 2009, the elements of annual
compensation for named executive officers consisted of base salary,
performance-based annual cash incentive awards (Executive Pay for Performance
Plan, or “EPP Plan”), and both executive-specific and broad-based employee
benefits. The material terms and processes for determining each
compensation component are described below. The following discussion
summarizes the terms of these arrangements as originally adopted or
implemented. It should be
noted, however, that some of these plans, and the amounts or benefits payable
thereunder, are restricted because of our participation in the Troubled
Asset Relief Program Capital Purchase Program (“TARP”) of the U.S. Department of
the Treasury (the “Treasury”). These restrictions will
terminate if and when the Treasury disposes of all of the shares of our Fixed
Rate Cumulative Perpetual Preferred Stock, Series A (the “Series A Preferred
Stock”) that it holds. These restrictions, as they relate to each of
our affected plans and arrangements, are discussed in more detail
below. Additional details of these restrictions are discussed below
under “REMUNERATION OF EXECUTIVE OFFICERS - Impact of Recent Legislation on
Executive Compensation.”
Salary – Executive salaries
are evaluated periodically by the Compensation Committee and are based upon an
array of quantitative and qualitative factors including functional area
management, contribution to overall financial results, and leadership
development. In addition, a compensation study is completed
periodically to compare 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 salaries for those
executives reporting directly to him. Historical and prospective
breakdowns of the salary history for each executive officer are provided to the
Compensation Committee as requested. Consideration is also given to
the current economic environment and the overall performance of the
Corporation. 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
Plan –The EPP Plan is our annual cash incentive award program which is
intended to reward executives for our overall performance rather than the
individual performance of participants. The Compensation Committee
establishes annual performance metrics for the EPP Plan in conjunction with the
budgetary approval process by the Board of Directors that are intended to
reflect core financial objectives. In previous years, these goals
were functions of earnings per share, return on equity, operating income as a
percentage of net revenue, efficiency ratio and growth in Community Oriented
Business Owners (“COBO”) relationships. The EPP Plan divides
executive officers into targeted award tiers that reflect the executives’
management roles and a comparison of their total compensation with comparable
total compensation packages for similar positions within our peer
group. Each award tier contemplates a specific target award, which is
a percentage of salary, along with a threshold award and a stretch
award. Whether an award is actually paid, and its amount, depends on
whether and the extent to which the annual performance goals are
met. An award can be the target award if the performance goals are
met, can be more than the target award, or the stretch award, if the performance
goals are exceeded, in whole or in part, and can be less than the target award,
or the threshold award, if the performance goals are not met, in whole or in
part. If the performance goals fall below the levels set for the
threshold award, no award is paid. Additionally, actual results must
achieve the threshold level for at least one of the ROE or EPS goals or the Plan
will not pay out any awards, regardless of the performance of other
goals.
The EPP
provides for the claw-back of an award if the Corporation is required to prepare
an accounting restatement due to the material noncompliance of the Corporation
with any financial reporting requirement under applicable securities laws or
applicable accounting principles. In such case, each participant who
received an award under the EPP is required to return to the Corporation his or
her award to the extent the accounting restatement shows that a smaller award
should have been paid. Additionally, if it is found that a
participant willfully engaged or is willfully engaging in any activity that was
or is injurious to the Corporation or its affiliates, then the participant is
required to forfeit eligibility for an award for the plan year in which that
determination is made. If it is determined that the activity occurred
during a plan year for which the participant received an award under the EPP,
then, subject to any provision of
the Corporation’s deferred
compensation plan that does not permit the forfeiture of amounts deferred into
such plan, the participant must return the award to the Corporation.
At
year-end, the Compensation Committee reviews the Corporation’s performance for
the year and makes a determination as to whether awards under the EPP are
payable for the year. If so, awards are paid in the first quarter of
the following year.
Notwithstanding
the foregoing, our ability to pay or accrue bonuses under the EPP Plan with
respect to our five most highly compensated employees was prohibited as of
February 11, 2009 because of our participation in TARP except to the extent such
an employee had a legally binding right to receive payment under an award as of
February 11, 2009. Additionally, the Treasury regulations adopted under
TARP mandate that any bonus awards paid to our named executive officers and the
next 20 most highly-compensated employees be subject to an unrestricted,
unconditional claw-back in the event it is determined that the bonus payment was
based on materially inaccurate financial statements or any other materially
inaccurate performance metric criteria.
Equity-Incentive Compensation –
In 2008, the Compensation Committee adopted the Long-Term Incentive
Program (the “LTIP”) as a sub-plan of the Corporation’s Omnibus Equity
Compensation Plan that was adopted at the 2007 annual meeting of
shareholders.
The purposes of the LTIP are to reward
participants for increasing shareholder value of the Corporation, to align
interests with shareholders, and to serve as a retention tool for key
executives. More specifically, the objectives of the LTIP are
to:
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Motivate
and reward senior management for increasing long-term shareholder
value.
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Create
a strong focus on pay-for-performance by ensuring that a significant
portion of total compensation is subject to the risk of forfeiture if
performance goals are not
satisfied.
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Position
total compensation to be competitive with the market for meeting defined
performance goals.
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Enable
us to attract and retain talent needed to drive its
success.
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The
Compensation Committee believes that awards which vest based on our performance
align the interests of executive officers with shareholder
interests. Accordingly, under the LTIP, a participant will receive an
award of shares of performance-vesting stock (“Performance
Shares”). The value of the award is a specified percentage of the
participant’s salary as of the date of the grant and reflects the executive’s
management role.
For each
grant, the Compensation Committee will establish a performance goal for a
three-year performance period (the “Performance Period”), beginning January 1 of
the year in which the grant is made, and the minimum threshold (stated as a
percentage of the performance goal) that must be met for the award to
vest. The vesting is “all or nothing”, in that Performance Shares
will vest only if the Corporation achieves the threshold goal and then only if
the executive is employed by the Corporation on the vesting date, except for
termination due to death, disability or retirement. All Performance
Shares will lapse unless the specified threshold is met.
Achievement
of the threshold for a grant will be determined by the Compensation Committee
after the Corporation files its Annual Report on Form 10-K containing audited
financial statements for the last year of the Performance Period related to the
grant.
Any
unvested award will terminate and lapse in the event it is determined that a
participant (i) knowingly participated in the altering, inflating, and/or
inappropriate manipulation of performance or financial results of the
Corporation for any fiscal year or (ii) willfully engaged in any activity
injurious to the Corporation. In addition, in the event of item (i),
the participant must forfeit and return to the Corporation all Performance
Shares under an award to the extent the award vested based on the altered,
inflated, or manipulated financial results. Additionally, if an award
has vested and the Corporation is thereafter required to restate its financial
statements in respect of any period covered by the performance period for that
award due to the material noncompliance with any applicable financial reporting
requirements, including securities laws, then the award will be adjusted to give
retroactive effect to the restatement. In such case, a participant
who received a distribution under the award must forfeit and return to the
Corporation that
portion of the award that the
restatement shows should not have been earned; provided, however, that unless
required by law no participant or former participant will be required to return
any portion of any award to the extent it was paid more than three years prior
to the date the Corporation determines that a restatement is required.
Notwithstanding
the foregoing, our ability to grant equity compensation under the LTIP to our
five most highly compensated employees was prohibited as of February 11, 2009
because of our participation in TARP except to the extent one of these employees
had a legally binding right to receive an award as of February 11,
2009. Additionally, the Treasury regulations adopted under
TARP mandate that any awards under the LTIP granted to our named executive
officers and the next 20 most highly-compensated employees be subject to an
unrestricted, unconditional claw-back in the event it is determined that the
award vested based on materially inaccurate financial statements or any other
materially inaccurate performance metric criteria.
401(k) Profit Sharing Plan –
In furtherance of our belief that every employee should have the ability
to accrue valuable retirement benefits, we adopted the 401(k) Profit Sharing
Plan, which is available to all employees, including executive
officers. Employees are automatically entered in the plan on the
first of the month following completion of 30 days of service to the Corporation
and its subsidiaries. Employees have the opportunity to opt out of
participation or change their deferral amounts under the plan at any time. In
addition to contributions by participants, the plan contemplates employer
matching and the potential of discretionary contributions to the accounts of
participants. We believe that matching contributions encourage
employees to participate and thereby plan for their post-retirement financial
future. Beginning with the 2008 plan year, we have enhanced the match
formula to 100% on the first 1% of salary reduction and 50% on the next 5% of
salary reduction. This match is accrued for all Participants,
including executive officers, immediately upon entering the plan on the first
day of the month following the completion of 30 days of
employment. The employee must be a plan participant and be actively
employed on the last day of the plan year to share in the employer matching
contribution.
Pension Plan – All employees
are eligible to participate in the 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. Normal retirement age for the defined benefit pension
plan is 65 years of age with the availability of early retirement at age 55.
Pension benefits are fully vested after five years of service. A year
of service is defined as working at least 1,000 hours in a plan
year.
Supplemental Executive Retirement
Plan – The Bank adopted the Supplemental Executive Retirement Plan (the
“SERP”) to ensure that executives reach a targeted retirement
income. The SERP recognizes the value that our executives bring to
the organization and rewards them for their long-term service commitments. The
SERP is available only to a select group of management or highly compensated
employees, including the named executive officers. 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. In connection with the Change in Control
Severance Plan (the “Severance Plan”) that was adopted in February 2007, the
Compensation Committee decided to credit each of the current named executive
officers 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 (the “Code”) that could arise in connection with a
separation from 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 Compensation Committee excluded the SERP
benefits payable to Mr. Grant from the Code 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 SERP benefit is equal to 2.5% of
the executive’s 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. The Compensation Committee chose this plan design to provide
competitive retirement benefits and to encourage long and faithful
service. The SERP was designed 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. Accordingly,
the SERP benefits are offset by any accrued benefits payable under the Pension
Plan and 50% of the social security benefits received by the
participant. 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. However,
because of our participation in TARP, we have determined that the calculation of
“Final Pay” for any of our five most highly compensated employees cannot take
into account an award tier that is greater than the tier that was in effect as
of February 11, 2009.
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 60, 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 60. 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 (as defined in the
SERP). 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 twelve 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.
If the
participant dies prior to retirement, the SERP benefit will be reduced by the
amount of any death benefit payable to the participant’s designated
beneficiaries under the Supplemental Life Insurance benefit provided through the
Bank Owned Life Insurance (“BOLI”) policies. The SERP and
supplemental insurance were designed in tandem so that in no event will the sum
of the SERP benefit paid upon death and the insurance benefits paid under the
BOLI policy exceed the normal retirement SERP benefit earned to date of
death. (See description of BOLI policy below).
Split Dollar Life Insurance (through
BOLI) – The Bank purchased policies of BOLI, which are insurance policies
on the lives of 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 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 insurance benefit for each of the Bank’s
executive
officers 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 benefits and BOLI administration firm 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 Amended and Restated
Executive and Director Deferred Compensation Plan (the “Deferred Compensation
Plan”). The Deferred Compensation Plan 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 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. To date, the
Corporation has not made any discretionary contributions 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 ten 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.
Change in
Control Severance Plan—Each of the executive officers of
the Corporation participates in the Severance Plan and has entered into
individual Change in Control Severance Agreements. The Severance Plan
is administered by the Compensation Committee. 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 receive a lump sum cash
payment equal to two times (2.99 times for Mr. Grant) his or her Final Pay, the
immediate vesting of all equity-based compensation awards that have been granted
to the participant, 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 outplacement services for up to 12 months.
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 Reason” 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 Mr.
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.
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-month 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 affect 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.
Notwithstanding
the foregoing, the ability of our named executive officers to receive benefits
under the Severance Plan and his or her Severance Agreement was suspended
because of our participation in TARP. The Treasury regulations
adopted under TARP prohibit any “golden parachute payment” to the named
executive officers and the next five most highly compensated employees, and the
term “golden parachute payment” means any payment for the departure of the
employee from the Corporation for any reason, or any payment due to a change in
control of the Corporation.
Perquisites – Perquisites are
provided to executive officers at the discretion of the Compensation Committee
and are reviewed periodically. In 2009, perquisites provided to
executive officers, including the named executive officers, included the payment
of a long-term disability insurance policy premium which is paid for all
full-time employees. In addition, Mr. Grant was provided with the use
of a company-owned automobile.
2009
Compensation Decisions (Analysis and Actions)
2009 Base
Salaries
Base
compensation is targeted to recognize each executive officer’s value,
performance and historical contributions to our success in light of salary
standards in the marketplace. During 2008, the Compensation Committee
continued to work with PM&P to provide ongoing comprehensive market analysis
of executive compensation, as well as expert advice and counsel on the various
components of total compensation for executives. The Committee
reviewed the base salary of the CEO, considering market data provided by
PM&P, financial performance of the corporation and collective performance
reviews by the Board of Directors related to the CEO’s
performance. The Committee reviewed base salaries for the other
executive officers based on individual performance reviews conducted by the CEO,
market data provided by PM&P and salary increase recommendations made by the
CEO.
2009 Executive Pay for
Performance Plan Awards
The 2009 targeted performance goals
under the EPP Plan were as follows:
|
–
|
Return
on shareholder’s
equity: 11.87%
|
|
–
|
Earnings
per share: $2.12
|
|
–
|
Efficiency
ratio: 63.27%
|
|
–
|
Operating
Income as a Percentage of Net
Revenue: 26.2%
|
|
–
|
Growth
of COBO
Relationships: 6.5%
|
The
incentive award is allocable as follows: 30% to achievement of the goal for
return on shareholders’ equity, 30% to the goal for earnings per share, 15% to
the goal for efficiency ratio, 15% to the goal for operating income as a
percentage of net revenue and the remaining 10% to the goal for growth of COBO
relationships. Incentive awards are based on position and range of
responsibility with named executives receiving payments as outlined in the table
below. The threshold goal for all executives was 90% of target goal
performance, and the stretch performance goal was 120% of target goal
performance. The Compensation Committee conditioned all awards on the
Corporation’s attainment of the threshold goal for either return on equity or
earnings per share.
The
following table shows the potential threshold, target and stretch incentive
awards (as percentage of base salary) for meeting the incentive
goals:
|
|
Threshold %
|
|
|
Target %
|
|
|
Stretch %
|
|
William
B. Grant
|
|
|
20 |
% |
|
|
40 |
% |
|
|
50 |
% |
Carissa
L. Rodeheaver
|
|
|
15 |
% |
|
|
30 |
% |
|
|
37.5 |
% |
Steven
M. Lantz
|
|
|
10 |
% |
|
|
20 |
% |
|
|
25 |
% |
Robin
E. Murray
|
|
|
10 |
% |
|
|
20 |
% |
|
|
25 |
% |
Eugene
D. Helbig
|
|
|
10 |
% |
|
|
20 |
% |
|
|
25 |
% |
Robert
W. Kurtz
|
|
|
15 |
% |
|
|
30 |
% |
|
|
37.5 |
% |
The
actual financial results for 2009 were as follows:
|
–
|
Return
on shareholders’ equity
of -11.02%
|
|
–
|
Earnings
per common share
of -$2.08
|
|
–
|
Efficiency
ratio of 104.69%
|
|
–
|
Operating
Income as a % of Net Revenue, exclusive of securities losses
of 30.1%
|
|
–
|
Growth
of COBO Relationships
of 5.38%
|
At the
end of the year, the CEO provided the Compensation Committee with a summary of
performance relative to the key financial results for the incentive plan, as
well as other key financial measures related to performance.
As stated above, our ability to pay or
accrue bonuses under the EPP Plan with respect to our five most highly
compensated employees was prohibited as of February 11, 2009 because of our
participation in TARP except to the extent one of these employees had a legally
binding right to receive payment under an award as of February 11,
2009. Although
EPP Plan award levels were
established for 2009, no EPP Plan awards were paid because of this restriction
and because the 2009 performance goals were not satisfied.
Equity-Incentive
Compensation
No equity awards were made in 2009
under the LTIP. In the future, because of our participation in TARP,
no future equity awards may be made to any of our five most highly compensated
employees unless they meet the vesting and other requirements imposed under the
Treasury regulations adopted under TARP. Generally, these regulations
prohibit the full vesting of any equity award before the Treasury disposes of
all its shares of our Series A Preferred Stock.
At mid-year 2009, the Compensation
Committee reviewed our financial performance for 2008 and our projected
financial performance for 2009 and 2010 and determined that it was unlikely that
the LTIP awards made in 2008 would vest in 2010. Accordingly, the
2008 awards were canceled and the expense accrual associated with these awards
was reversed.
Other 2009
Decisions
The Compensation Committee chose not to
make any discretionary profit sharing contributions or payments in 2009 under
the 401(k) Profit Sharing Plan due to the increase in the 401(k) plan match
formula which was effective January 1, 2008.
Competitive Review and
Benchmarking
During 2009, PM&P continued to
provide updates to allow us to monitor how our compensation levels compare to
our competitors. The peer group used in 2009 included 20 institutions
with asset sizes ranging from approximately one-half to two times our size,
similar regional locations and similar business models. The objective
is to position our compensation programs at approximately the median. The 2009
peer group was as follows:
|
ACNB
Corporation
|
Franklin
Financial Services
|
|
American
National Bankshares
|
Harleysville
National Corporation
|
|
First
Chester County Corporation
|
VIST
Financial Corporation
|
|
City
Holding Company
|
Orrstown
Financial Services
|
|
Citizens
& Northern Corporation
|
Peoples
Bancorp Inc.
|
|
Camco
Financial Corporation
|
Sandy
Spring Bancorp
|
|
First
Mariner Bancorp
|
Severn
Bancorp, Inc.
|
|
First
Community Bancshares
|
Shore
Bancshares, Inc.
|
|
CNB
Financial Corporation
|
Summit
Financial Group
|
|
Cardinal
Financial Corporation
|
Univest
Corporation of Pennsylvania
|
Our peer
group will be reviewed periodically and may change slightly depending on changes
in the market place, acquisitions, divestitures and our business focus and/or
the makeup of our peers.
Relationship
Between Our Performance and Executive Compensation
The
Compensation 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. Overall, we believe that a performance-based compensation
program can assist us in attracting, motivating and retaining the quality
executives critical to long-term success. Accordingly, our goal is to
structure our total compensation programs to provide a significant focus on
enhancing overall financial performance. As in prior years, this was
accomplished in 2009 through the EPP Plan, although, as discussed above, our
ability to make cash-based performance awards under the EPP Plan was severely
limited because of our participation in TARP. In 2008, long-term
equity incentive awards were added to align the interests of executive officers
with the interests of shareholders and encourage a long-term perspective of
performance. As noted above, such long-term equity incentive awards
were not granted in 2009. Going forward, we expect to explore and
possibly alter our compensation practices in light of the restrictions we face
because of our participation in TARP to ensure that we remain
competitive.
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 of the Bank must own stock of the
Corporation equal to at least $500.
Accounting
and Tax Considerations
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.
Section 409A of the Code imposes
certain restrictions on the manner and timing of distributions to participants
who are “key employees” of the Corporation under non-qualified deferred
compensation plans and arrangements, including a prohibition against paying
benefits to a key executive for six months following his or her separation from
service. In June 2008 and November 2008, respectively, we amended the
Severance Plan and the Deferred Compensation Plan to ensure that they comply
with Section 409A of the Code. If an executive is entitled to
nonqualified deferred compensation that are subject to Section 409A and such
compensation does not comply with Section 409A, then the compensation is taxable
in the first year it is 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
compensation includible in income. In addition, with the exception of
Mr. Grant, we structured the Severance Plan and the related Severance Agreements
so as to minimize the risk that the total compensation paid to an executive in
connection with a change in control transaction would exceed the limit
established pursuant to Internal Revenue Code Section 280G.
COMPENSATION
COMMITTEE REPORT
The Compensation Committee has reviewed
and discussed the Compensation Discussion and Analysis. Based on such
review and discussion, the Compensation Committee recommended to the Board of
Directors that the Compensation Discussion and Analysis be included in this
proxy statement.
The Compensation Committee certifies
that:
|
1.
|
It
has reviewed, with our senior risk officers, the senior executive officer
(as defined in 12 C.F.R. Part 30, the “SEOs”) compensation plans and has
made all reasonable efforts to ensure that these plans do not encourage
SEOs to take unnecessary and excessive risks that threaten the value of
First United Corporation;
|
|
2.
|
It
has reviewed, with our senior risk officers, the employee compensation
plans and has made all reasonable efforts to limit any unnecessary risks
these plans pose to First United Corporation;
and
|
|
3.
|
It
has reviewed the employee compensation plans to eliminate any features of
these plans that would encourage the manipulation of reported earnings of
First United Corporation to enhance the compensation of any
employee.
|
A narrative description of each SEO
compensation plan that we maintain is contained in the Compensation Discussion
and Analysis, which is incorporated herein by reference. The
Compensation Committee also examines all incentive compensation plans at least
semi-annually to insure that such plans do not encourage employees to take
unnecessary or excessive risks that threaten the Corporation’s
value.
As with the compensation arrangements
with SEOs, each compensation arrangement with the general employee base that
contemplates the payment of performance-based compensation contains a claw-back
provision. Under the claw-back provision, an employee is required to
forfeit or repay any compensation to the extent it was earned or paid (i)
because the employee knowingly participated in the altering, inflating, and/or
inappropriate manipulation of performance or financial results of the
Corporation or willfully engaged in any activity injurious to the Corporation,
or (ii) as a result of materially inaccurate financial statements.
|
By:
|
COMPENSATION
COMMITTEE
|
|
|
|
|
|
M.
Kathryn Burkey, Chairman
|
|
|
David
J. Beachy
|
|
|
Faye
E. Cannon
|
|
|
Paul
Cox, Jr.
|
|
|
John
W. McCullough
|
|
|
Donald
E. Moran
|
|
|
Robert
G. Stuck
|
COMPENSATION
COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Persons who served as Directors and who
performed the functions of the Compensation Committee at any time during the
last completed fiscal year are: David J. Beachy, M. Kathryn Burkey,
Faye E. Cannon, Paul Cox, Jr., Raymond F. Hinkle, John W. McCullough, Elaine L.
McDonald, Donald E. Moran and Robert G. Stuck. None of these
Directors served as an officer or employee of the Corporation during 2009, had
any other relationship requiring disclosure pursuant to Item 407 of the SEC’s
Regulation S-K, or had any relationship subject to disclosure pursuant to Item
404 of the SEC’s Regulation S-K.
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 CEO, its CFO, and its three most
highly compensated executive officers other than the CEO and CFO who were
serving as executive officers as of December 31, 2009 and whose total
compensation (excluding changes in pension value and non-qualified deferred
compensation earnings) exceeded $100,000 during 2009 (the CEO, CFO and such
other officers are referred to as the “named executive
officers”). Additionally, the table includes compensation information
for Robert W. Kurtz, who served as President, Chief Risk Officer, Treasurer and
Secretary through December 15, 2009.
SUMMARY COMPENSATION TABLE
|
|
Name and principal
position
|
|
|
Year
|
|
Salary
($)
|
|
|
Stock
Awards
($)(2)
|
|
|
Non-equity
incentive plan
compensation
($)(3)
|
|
|
Change in
pension value
and non-
qualified
deferred
compensation
earnings
($)(4)
|
|
|
All other
compensation
($)(5)
|
|
|
Total
($)
|
|
William
B. Grant,
|
|
|
2009
|
|
|
257,500 |
|
|
|
- |
|
|
|
- |
|
|
|
29,017 |
|
|
|
8,404 |
|
|
|
294,921 |
|
Chairman/CEO/
|
|
|
2008
|
|
|
257,500 |
|
|
|
103,000 |
|
|
|
- |
|
|
|
160,266 |
|
|
|
10,937 |
|
|
|
531,703 |
|
President
(1)
|
|
|
2007
|
|
|
250,000 |
|
|
|
- |
|
|
|
100,000 |
|
|
|
- |
|
|
|
9,705 |
|
|
|
359,705 |
|
Carissa
L.
|
|
|
2009
|
|
|
182,000 |
|
|
|
|
|
|
|
- |
|
|
|
70,354 |
|
|
|
6,777 |
|
|
|
259,131 |
|
Rodeheaver,
EVP /
|
|
|
2008
|
|
|
182,000 |
|
|
|
54,600 |
|
|
|
- |
|
|
|
45,216 |
|
|
|
7,567 |
|
|
|
289,383 |
|
CFO
|
|
|
2007
|
|
|
145,796 |
|
|
|
- |
|
|
|
29,500 |
|
|
|
58,620 |
|
|
|
5,360 |
|
|
|
239,276 |
|
Steven
M. Lantz,
|
|
|
2009
|
|
|
170,000 |
|
|
|
|
|
|
|
- |
|
|
|
166,191 |
|
|
|
7,011 |
|
|
|
343,202 |
|
SVP
/ Chief Lending
|
|
|
2008
|
|
|
170,000 |
|
|
|
34,000 |
|
|
|
- |
|
|
|
73,749 |
|
|
|
8,057 |
|
|
|
285,806 |
|
Officer
|
|
|
2007
|
|
|
162,500 |
|
|
|
- |
|
|
|
32,500 |
|
|
|
- |
|
|
|
7,062 |
|
|
|
202,062 |
|
Eugene
D. Helbig
|
|
|
2009
|
|
|
140,000 |
|
|
|
- |
|
|
|
- |
|
|
|
99,636 |
|
|
|
6,835 |
|
|
|
246,471 |
|
SVP
/ Senior Trust
|
|
|
2008
|
|
|
140,000 |
|
|
|
28,000 |
|
|
|
- |
|
|
|
138,014 |
|
|
|
7,419 |
|
|
|
313,433 |
|
Officer
|
|
|
2007
|
|
|
125,000 |
|
|
|
- |
|
|
|
25,000 |
|
|
|
- |
|
|
|
6,736 |
|
|
|
156,736 |
|
Robin
E. Murray,
|
|
|
2009
|
|
|
148,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,866 |
|
|
|
153,066 |
|
SVP
/ Director of
|
|
|
2008
|
|
|
148,000 |
|
|
|
29,600 |
|
|
|
- |
|
|
|
39,342 |
|
|
|
6,736 |
|
|
|
223,678 |
|
Retail
Banking
|
|
|
2007
|
|
|
140,000 |
|
|
|
- |
|
|
|
25,833 |
|
|
|
140,573 |
|
|
|
5,006 |
|
|
|
311,412 |
|
Robert
W. Kurtz,
|
|
|
2009
|
|
|
181,267 |
|
|
|
- |
|
|
|
- |
|
|
|
288,180 |
|
|
|
3,517 |
|
|
|
472,964 |
|
President/CRO
(6)
|
|
|
2008
|
|
|
176,000 |
|
|
|
52,800 |
|
|
|
- |
|
|
|
- |
|
|
|
3,279 |
|
|
|
232,079 |
|
|
|
|
2007
|
|
|
170,000 |
|
|
|
- |
|
|
|
51,000 |
|
|
|
- |
|
|
|
3,583 |
|
|
|
224,583 |
|
(1)
|
Mr.
Grant also serves as a director of the Corporation and of the Bank but
receives no separate remuneration for such
service.
|
(2)
|
The
amounts relate to the grant of performance based equity awards granted
under the LTIP and reflect the aggregate grant date fair value of those
awards computed in accordance with FASB ASC Topic 718, “Accounting for
Stock Compensation”. See Note 1 to the consolidated audited
financial statements contained in the Corporation’s Annual Report on Form
10-K for the year ended December 31, 2009 regarding assumptions underlying
valuation of equity awards. These awards were terminated and
reversed effective June 30, 2009 because the Corporation deemed it
unlikely that they would vest in
2010.
|
(3)
|
Represents
amounts earned during the year under the
EPP.
|
(4)
|
Amounts
represent changes in the present value of the accumulated benefit (PVAB)
under the Pension Plan and the SERP from the previous year
end. Changes in value for the Pension Plan were: Mr.
Grant, $63,975 for 2009, $67,518 for 2008, $50,828 for 2007; Ms.
Rodeheaver, $26,370 for 2009, $19,126 for 2008, $11,338 for 2007; Mr.
Lantz, $38,883 for 2009, $35,537 for 2008, $53,695 for 2007, Mr. Helbig,
$46,903 for 2009, $41,660 for 2008, and $70,169 for 2007; Ms Murray,
$44,084 for 2009, $33,097 for 2008, and $35,260 for 2007; and Mr. Kurtz,
$110,596 for 2009, $96,252 for 2008, and $126,461 for
2007. Changes in value for the SERP were: Mr. Grant,
-$40,194 for 2009, $92,748 for 2008, and $-501,990 for 2007;Ms.
Rodeheaver, $43,984 for 2009, $26,090 for 2008, and $47,282 for 2007; Mr.
Lantz, $126,297 for 2009, $38,212 for 2008, and -$174,148 for 2007; Mr.
Helbig, $52,733 for 2009, $96,354 for 2008, and -$248,733 for 2007; Ms
Murray, -$48,645 for 2009, $6,245 for 2008, and $105,313 for 2007; Mr.
Kurtz, $177,584 for 2009, -$361,709 for 2008, and -$182,001 for
2007. Mr. Grant and Mr. Lantz had non-qualified deferred
compensation plan earnings in 2009 of $5,236 and $1,012, respectively, in
2008 of $10,697 and $951 and in 2007 of $10,070 and
$590.
|
(5)
|
Amounts
include premiums related to BOLI and group term life insurance available
to all employees and matching contributions to the 401(k)
plan. The dollar value of premiums related to the BOLI benefits
plan and the Corporation’s group life insurance program available to all
employees is as follows: Mr. Grant, $1,601 for 2009, $2,887 for
2008, and $882 for 2007; Ms. Rodeheaver, $396 for 2009, $309 for 2008, and
$248 for 2007; Mr. Lantz, $1,025 for 2009, $1,017 for 2008, and $1,328 for
2007; Mr. Helbig, $1,778 for 2009, $1,634 for 2008 and $2,200 for 2007;
Ms. Murray, $763 for 2009, $798 for 2008, and $573 for 2007; Mr. Kurtz,
$3,517 for 2009, $3,583 for 2008, and $3,583 for 2007. Matching
contributions made by the Corporation for the named executive officers
under the 401(k) Profit Sharing Plan are as follows: Mr. Grant,
$6,803 for 2009, $8,050 for 2008, and $8,823 for 2007; Ms. Rodeheaver,
$6,381 for 2009, $7,258 for 2008, and $5,112 for 2007; Mr. Lantz, $5,986
for 2009, $7,040 for 2008, and $7,446 for 2007; Mr. Helbig, $5,057 for
2009, $5,785 for 2008 and $3,888 for 2007; Ms. Murray, $5,103 for 2009,
$5,938 for 2008, and $4,433 for 2007; Mr. Kurtz, $0 for 2009, $0 for 2008,
and $0 for 2007.
|
(6)
|
Mr.
Kurtz retired from the Company and the Bank on December 15, 2009 but
continues to serve on the Boards of Directors of those entities. The
amount shown in the "Salary" column reflects the amount of salary actually
earned through his retirement date plus $5,267 earned in 2009 for service
to the Boards after December 15, 2009, which amount includes $1,100 in
director’s fees and a pro-rated director retainer of
$4,167.
|
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.
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 three principal
elements: (i) base salary; (ii) incentive compensation, consisting of
amounts payable under the EPP and (iii) a long-term equity element, consisting
of an award of performance-vesting stock under the
LTIP. Executive officers are also entitled to participate in
the SERP, the Split Dollar Life Insurance/BOLI arrangement, and the Deferred
Compensation Plan, as well as employee benefits that the Corporation makes
available to all eligible employees, including health, dental and vision
insurance, long-term disability insurance, and group term life
insurance. In addition, Mr. Grant was provided the use of a
company-owned automobile.
Salaries proposed to be paid in 2010 to
the named executive officers are as follows: Mr. Grant, $257,500; Ms.
Rodeheaver, $182,000; Mr. Lantz, $170,000; Ms. Murray, $148,000 and Mr. Helbig,
$140,000.
Performance
Awards – EPP Plan and LITP
As mentioned above, the Corporation
maintains an EPP Plan that pays cash awards to executives when the Corporation
attains certain performance goals, and it also maintains a LTIP that pays shares
of stock to executives when the Corporation attains certain performance
goals. The following table provides information about grants under
the EPP Plan for which award levels were established in 2009 and scheduled to be
paid in 2010 pursuant to those grants upon satisfaction of the performance goals
discussed above. As also noted above, however, our ability to pay
these awards was prohibited (as of and after February 11, 2009) because of our
participation in TARP and because the 2009 performance goals were not
satisfied. No equity awards were granted under the LTIP in 2009, and
the equity awards granted in 2008 were reversed in June 2009 because the
Corporation determined that it was unlikely that these awards would vest in
2010.
GRANTS OF PLAN-BASED AWARDS
|
|
|
|
|
|
|
Estimated Possible Payouts Under
Non-Equity Incentive Plan
Awards
|
|
Name
|
|
Grant
Date
|
|
|
Threshold
|
|
|
Target
|
|
|
Maximum
|
|
Mr.
Grant
|
|
1/1/2009
|
|
|
$ |
51,500
|
|
|
$ |
103,000
|
|
|
$ |
128,750
|
|
Ms.
Rodeheaver
|
|
1/1/2009
|
|
|
|
27,300
|
|
|
|
54,600
|
|
|
|
68,250
|
|
Mr.
Lantz
|
|
1/1/2009
|
|
|
|
17,000
|
|
|
|
34,000
|
|
|
|
42,500
|
|
Mr.
Helbig
|
|
1/1/2009
|
|
|
|
14,000 |
|
|
|
28,000 |
|
|
|
35,000 |
|
Ms.
Murray
|
|
1/1/2009
|
|
|
|
14,800
|
|
|
|
29,600
|
|
|
|
37,000
|
|
Mr.
Kurtz
|
|
1/1/2009
|
|
|
|
26,400
|
|
|
|
52,800
|
|
|
|
66,000
|
|
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 terminates each covered officer’s participation at
retirement. The current death benefits payable to the beneficiaries
of the named executive officers for split dollar insurance is as
follows: Mr. Grant, $455,000; Ms. Rodeheaver, $125,541; Mr. Lantz,
$335,000; Mr. Helbig, $290,000, and Ms Murray, $250,000. Mr. Kurtz’s
entitlement to BOLI benefits was terminated upon his retirement.
Pension
Benefits
All employees are eligible to
participate in the Pension Plan upon completion of one year of service and the
attainment of the age 21. A year of service is defined as the
completion of 12 consecutive months of employment during which the employee
worked at least 1,000 hours. Full vesting occurs after five years of
service.
Information
about the benefits payable to each of the named executive officers under the
Pension Plan and the SERP is provided in the following table.
PENSION
BENEFITS
|
|
Name
|
|
Plan
Name
|
|
Number
of
years
credited
service
(#)
(1)
|
|
|
Present
value of
accumulated
benefit
($)
(2) (3)
|
|
|
Payments
during
last
fiscal
year
($)
|
|
Mr.
Grant
|
|
Pension
Plan
|
|
|
31 |
|
|
|
553,905 |
|
|
|
- |
|
|
|
SERP
|
|
|
24 |
|
|
|
694,605 |
|
|
|
- |
|
Ms.
Rodeheaver
|
|
Pension
Plan
|
|
|
18 |
|
|
|
103,328 |
|
|
|
- |
|
|
|
SERP
|
|
|
24 |
|
|
|
154,290 |
|
|
|
- |
|
Mr.
Lantz
|
|
Pension
Plan
|
|
|
23 |
|
|
|
309,924 |
|
|
|
- |
|
|
|
SERP
|
|
|
24 |
|
|
|
382,834 |
|
|
|
- |
|
Mr.
Helbig
|
|
Pension
Plan
|
|
|
24 |
|
|
|
397,083 |
|
|
|
- |
|
|
|
SERP
|
|
|
24 |
|
|
|
437,136 |
|
|
|
- |
|
Ms.
Murray
|
|
Pension
Plan
|
|
|
27 |
|
|
|
185,012 |
|
|
|
- |
|
|
|
SERP
|
|
|
24 |
|
|
|
277,983 |
|
|
|
- |
|
Mr.
Kurtz
|
|
Pension
Plan
|
|
|
37 |
|
|
|
1,090,453 |
|
|
|
- |
|
|
|
SERP
|
|
|
27 |
|
|
|
177,587 |
|
|
|
- |
|
|
(1)
|
The
maximum number of credited years of services under the SERP is capped at
24 years until age 60, after which the participant may be credited with
additional years of service for each year worked thereafter, up to 29
years. The credited years of service under the SERP for Ms.
Rodeheaver and Mr. Lantz exceed their actual years of service by six years
and one year, respectively. The differences between the
credited years SERP value and the actual years SERP value for these
officers are: $145,122 for Ms. Rodeheaver; and $43,048 for Mr.
Lantz.
|
|
(2)
|
The
amounts listed as the present accumulated benefits for 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 and are based on actual years of service. In
calculating the present value of accumulated benefits for SERP, the
following assumptions were used: Mortality – 1994 GAR; discount rate of
6.0%; assumed retirement age of 60 or attained age if later; annuity
factor at retirement based on 5%
discount.
|
|
(3)
|
All
employees are eligible to participate in the pension plan upon completion
of one year of service and the attainment of the age 21. A year
of service is defined as the completion of twelve consecutive months of
employment during which the employee worked at least 1,000
hours. In calculating the present value of the accumulated
benefits for the pension plan, the following assumptions were used:
Mortality – RP-2000; discount rate of 6.00%; assumed retirement age of 65;
normal form of benefit – 10 year certain and continuous annuity.
Compensation limits under 401(a) (17) are taken into account for these
calculations.
|
For information about benefits that
would be paid to each of the named executive officers (other than Mr. Kurtz, who
retired on December 15, 2009) under the SERP upon a separation from service as
of December 31, 2008, see the table that is included below under “Benefits Upon
a Separation From Service” and the discussion below entitled “Impact of Recent
Legislation on Executive Compensation”.
Deferred
Compensation Plan
Each of the named executive officers is
eligible to participate in the Deferred Compensation Plan. The
following table provides information relating to amounts deferred by or for the
benefit of the named executive officers in 2009 under the Deferred Compensation
Plan. The named executive officers are 100% vested in their plan
accounts.
NON-QUALIFIED DEFERRED COMPENSATION
|
|
Name
|
|
Executive
contributions
in last FY
($)
|
|
|
Registrant
contributions
in last FY
($)
|
|
|
Aggregate
earnings in
last FY (1)
($)
|
|
|
Aggregate
withdrawals/
distributions
($)
|
|
|
Aggregate
balance at
last FYE
($)
|
|
Mr.
Grant
|
|
|
- |
|
|
|
- |
|
|
|
5,326 |
|
|
|
- |
|
|
|
282,254 |
|
Ms.
Rodeheaver
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mr.
Lantz
|
|
|
12,500 |
|
|
|
- |
|
|
|
1,012 |
|
|
|
- |
|
|
|
50,691 |
|
Mr.
Helbig
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Ms.
Murray
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Mr.
Kurtz
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
(1)
|
This
column represents the investment income on the aggregate account balance
in the named officer’s account for the last fiscal
year. Balances are invested in various managed asset portfolio
[MAP] accounts, selected by the named officer, in the Trust department of
First United Bank & Trust.
|
Benefits
Upon a Separation from Service
The table
that follows shows the estimated present value of benefits (as of December 31,
2009) that could be payable to the named executive officers (other than Mr.
Kurtz) under the Severance Plan, the SERP, and the BOLI benefits program upon a
separation from service (without regard to the limitations on severance payments
discussed below under “Impact of Recent Legislation on Executive
Compensation”). The Severance Plan contemplates a cash benefit and
employee benefit continuation, although the Corporation is currently prohibited
from paying any benefits under the Severance Plan because of its participation
in TARP. 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.
Name
|
Reason
for Termination
|
|
Severance
Plan
Cash
Benefit
($)
|
|
|
Severance
Plan
Benefit
Continuation
($)
(3)
|
|
|
Estimated
SERP
Benefit
($)
(1) (2)
|
|
|
Estimated
BOLI
Benefit
($)
|
|
|
Total
($)
|
|
Mr.
Grant
|
Change
in control,
disability,
involuntary termination other than for cause, or voluntary termination for
good reason
|
|
|
1,077,895 |
|
|
|
8,404 |
|
|
|
694,605 |
|
|
|
- |
|
|
|
1,780,904 |
|
Death
|
|
|
- |
|
|
|
- |
|
|
|
239,605 |
|
|
|
455,000 |
|
|
|
734,799 |
|
Voluntary
termination without good reason
|
|
|
- |
|
|
|
- |
|
|
|
694,605 |
|
|
|
- |
|
|
|
694,605 |
|
Ms.
Rodeheaver
|
Change
in control, disability, involuntary termination other than for cause, or
voluntary termination for good reason
|
|
|
473,200 |
|
|
|
11,916 |
|
|
|
299,412 |
|
|
|
- |
|
|
|
784,528 |
|
Death
|
|
|
- |
|
|
|
- |
|
|
|
173,871 |
|
|
|
125,541 |
|
|
|
299,412 |
|
Voluntary
termination without good reason
|
|
|
- |
|
|
|
- |
|
|
|
154,290 |
|
|
|
- |
|
|
|
154,290 |
|
Mr.
Lantz
|
Change
in control, disability, involuntary termination other than for cause, or
voluntary termination for good reason
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
reason
|
|
|
408,000 |
|
|
|
11,916 |
|
|
|
425,882 |
|
|
|
- |
|
|
|
845,798 |
|
Death
|
|
|
- |
|
|
|
- |
|
|
|
90,882 |
|
|
|
335,000 |
|
|
|
425,882 |
|
Voluntary
termination without good reason
|
|
|
- |
|
|
|
- |
|
|
|
382,834 |
|
|
|
- |
|
|
|
382,834 |
|
Mr.
Helbig
|
Change
in control, disability, involuntary termination other than for cause, or
voluntary termination for good reason
|
|
|
336,000 |
|
|
|
8,404 |
|
|
|
451,766 |
|
|
|
- |
|
|
|
796,170 |
|
Death
|
|
|
- |
|
|
|
- |
|
|
|
161,766 |
|
|
|
290,000 |
|
|
|
451,766 |
|
Voluntary
termination without good reason
|
|
|
- |
|
|
|
- |
|
|
|
437,136 |
|
|
|
- |
|
|
|
437,136 |
|
Ms.
Murray
|
Change
in control, disability, involuntary termination other than for cause, or
voluntary termination for good reason
|
|
|
355,200 |
|
|
|
8,404 |
|
|
|
277,983 |
|
|
|
- |
|
|
|
641,587 |
|
Death
|
|
|
- |
|
|
|
- |
|
|
|
27,983 |
|
|
|
250,000 |
|
|
|
277,983 |
|
Voluntary
termination without good reason
|
|
|
- |
|
|
|
- |
|
|
|
277,983 |
|
|
|
- |
|
|
|
277,983 |
|
(1)
|
SERP
benefits payable upon a separation from service due to death are reduced
dollar for dollar by the BOLI benefits payable at
death. Accordingly, the amounts shown as the Estimated SERP
Benefit have been reduced to reflect the amounts shown in the column
entitled “Estimated BOLI Benefit
($)”.
|
(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 Mr. Lantz in
|
|
connection
with a voluntary termination without good reason are based on actual years
of service of 18 and 23 respectively. Messrs. Grant and Helbig
and Ms. Murray have over 24 years of service. |
(3)
|
Change
of Control agreements provide for two years of continued coverage under
the corporations health, dental & vision plans under the same
provisions as if they were still employees. Benefits are
calculated at current rates and current cost sharing formulas, as futures
costs are unknown. Amounts reflect the value of two years of
coverage.
|
Role
of Compensation Consultants
The Compensation Committee engages
independent consultants throughout the year to provide services so that it can
monitor, assess and establish executive compensation. In 2009, the
Compensation Committee engaged, directly, Pearl Meyer & Partners
(“PM&P”), an executive and board compensation consulting
firm. This consultant reported directly to the Compensation
Committee. The Compensation Committee may independently engage any
advisors it needs for issues related to executive compensation and
benefits.
During 2009, PM&P provided the
Compensation Committee with updated information with respect to the
comprehensive total compensation review for executives and directors that was
provided in 2007. The Compensation Committee also requested ongoing
advice, data and perspectives from PM&P regarding market and best practices
on issues related to executive and director compensation during
2009. This advice was requested and utilized as needed to support the
Compensation Committee’s decisions and review processes.
Impact
of Recent Legislation on Executive Compensation
On January 30, 2009, the Corporation
participated in TARP by selling shares of our Series A Preferred Stock”) to
Treasury and issuing a 10-year common stock purchase warrant (the “Warrant”) to
Treasury. As part of these transactions, we adopted Treasury’s
standards for executive compensation and corporate governance for the period
during which Treasury holds any shares of the Series A Preferred Stock and/or
any shares of common stock that may be acquired upon exercise of the
Warrant. On February 17, 2009, the American Recovery and Reinvestment
Act of 2009 (the “Recovery Act”) was signed into law, which, among other things,
imposed additional restrictions on the payment of executive compensation by
institutions that participate in TARP. The Recovery Act’s
restrictions apply to the Corporation for as long as Treasury holds any of the
Series A Preferred Stock (the “Covered Period”).
Treasury’s standards under EESA for
executive compensation apply to the Corporation’s named executive officers and
include: (i) a prohibition on incentive compensation plans and
arrangements for named executive officers that encourage unnecessary and
excessive risks that threaten the value of the Corporation; (ii) a clawback of
any bonus or incentive compensation paid (or under a legally binding obligation
to be paid) to a named executive officer on materially inaccurate financial
statements or other materially inaccurate performance metric criteria; (iii) a
prohibition on making “golden parachute payments” to named executive officers;
and (4) an agreement not to claim a deduction, for federal income tax purposes,
for compensation paid to any of the named executive officers in excess of
$500,000 per year.
The Recovery Act continued all of the
same compensation and governance restrictions imposed under EESA, and added
substantially to these restrictions in several areas. The new
standards include (but are not limited to): (i) prohibitions on
bonuses, retention awards and other incentive compensation to certain of the
Corporation’s five most highly compensated employees, other than restricted
stock grants, in an amount not more than one-third of the employee’s total
annual compensation which do not fully vest during the Covered Period; (ii)
prohibitions on making severance payments to any named executive officer or any
of the Corporation’s next five most highly compensated employees; (iii) an
expanded clawback of bonuses, retention awards, and incentive compensation if
payment is based on materially inaccurate statements of earnings, revenues,
gains or other criteria; (iv) prohibitions on compensation plans that encourage
manipulation of reported earnings; (v) retroactive review of bonuses, retention
awards and other compensation previously provided by Capital Purchase Program
participants if found by the Treasury to be inconsistent with the purposes of
such program or otherwise contrary to public interest, (vi) required
establishment of a company-wide policy regarding “excessive or luxury
expenditures”; and (vii) inclusion in a CPP participant’s proxy statements for
annual shareholder meetings of a non-binding “Say-on-Pay” proposal to allow a
shareholder vote to approve the compensation of executives.
Accordingly, for so long as Treasury
holds any shares of the Series A Preferred Stock, the Corporation may not (i)
pay any Severance Plan benefits to the named executive officers or (ii) make
payments under the EPP or, unless future awards comply with the above
requirements, the LTIP to our five most highly compensated
employees. Each of the named executive officers other than Ms. Murray
is among the Corporations’ five most highly compensated employees.
In addition, the rules adopted in
furtherance of TARP require our Compensation Committee to periodically review
our executive compensation programs to determine and address, if necessary, the
risks inherent in those programs and to include certifications regarding the
same in its report that appear in our proxy statements. The CEO and
the CFO are required to make certain certifications in our Annual Reports on
Form 10-K relating to the foregoing reviews and to the Corporation’s general
compliance with the rules adopted in furtherance of TARP.
It is impossible to predict when, if at
all, Treasury will dispose of the Series A Preferred Stock. At the
time of our participation in TARP, Treasury’s stated intention was to sell the
Series A Preferred Stock as it is able to do so, and we have filed a
Registration Statement on Form S-3 with the SEC (File No. 333-157562) to
register the Series A Preferred Stock and the Warrant for resale, and this
registration statement is currently effective. The Recovery Act
permits the Corporation to repay TARP assistance at any time after consulting
with the Federal Reserve Bank of Richmond.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Party Transactions since January 1, 2009
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. Except as discussed in the following paragraph, all
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, Morgantown Printing & Binding (“MP&B”), a
corporation owned by director H. Andrew Walls, III, and a trust established for
the benefit of his minor children, provides various printing, fulfillment, and
related services to the Corporation. Total fees paid by the
Corporation to MP&B in 2009 were $432,799. These fees relate to
the printing of marketing materials, account statements, and other routine items
as well as providing a fulfillment service to the Corporation. The
Corporation has again retained MP&B in 2010 to provide these and other
services, for which it expects to pay approximately
$500,000. Management believes that all of the foregoing transactions
with MP&B 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 Rule 4350(h) requires the
Corporation 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 Corporation’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 Corporation
is a participant and the amount involved exceeds $120,000, and in which any
Director, Director nominee, or executive officer of the Corporation, any holder
of more than 5% of the outstanding voting securities of the Corporation, 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
Corporation.
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 Bank’s board of directors
semi-annually reviews the total indebtedness of each Director and executive
officer of the Corporation.
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, 2009, such persons timely filed all reports required to
be filed by Section 16(a) except that David J. Beachy filed
one late Form 4 (covering the sale of stock).
At the Annual Meeting, shareholders
will be asked to adopt a resolution approving an amendment to the Charter to
declassify the Board of Directors, a copy of which is attached to this proxy
statement as Appendix A and incorporated herein by reference. Article
FIFTH of the Charter currently provides that directors are divided into three
classes with respect to the time for which they are to hold
office. Directors of each class serve for staggered three-year terms,
such that only one class of directors stands for re-election each
year. The term of the Class III directors is scheduled to expire at
this Annual Meeting. The term of the Class I directors is scheduled
to expire at the 2011 Annual Meeting and the term of the Class II directors is
scheduled to expire at the 2012 Annual Meeting. Because of the
classified Board structure, shareholders have the opportunity to vote on only
roughly one-third of the directors each year.
The Corporation’s Board of Directors
has unanimously advised and approved, and is proposing to the shareholders for
approval, an amendment to Article FIFTH of the Charter to eliminate the
classified Board structure. The text of the proposed amendment is
attached to this Proxy Statement as Appendix A. If
approved by the shareholders, the amendment will become effective upon the
filing of Articles of Amendment with the State Department of Assessments and
Taxation of Maryland (“SDAT”) containing the proposed amendment, which the
Corporation intends to file promptly after shareholder approval is
obtained. Directors elected prior to the effectiveness of the
amendment (which include all of our current directors) will stand for election
for one-year terms once their then-current terms expire. In addition,
the Board of Directors will adopt a corresponding amendment to Section 3 of
Article II of the Corporation’s Bylaws. As discussed below, because the
transition to annual election of directors will be phased-in over time, the
Board will not be fully declassified until after the 2013 Annual
Meeting.
Reasons
for the Proposal
The Board of Directors is committed to
good corporate governance. Accordingly, in determining whether to
propose the declassification of the Board as described above, the Board
carefully reviewed the various arguments for and against a classified Board
structure.
The Board recognizes that a classified
structure may offer several advantages, such as promoting Board continuity and
stability, encouraging directors to take a long-term perspective, and reducing a
company’s vulnerability to coercive
takeover tactics. The Board also recognizes, however, that a
classified structure may appear to reduce directors’ accountability to
shareholders, as such a structure does not enable shareholders to express a view
on each director’s performance by means of an annual vote. In
addition, the Board recognizes that some investors consider adoption of a
declassified board structure an emerging corporate governance “best practice”
trend. The Board noted that many U.S. public companies have
eliminated their classified board structures in recent years.
In view
of the considerations described above, the Board of Directors determined that it
is in the best interests of the Corporation and its shareholders to eliminate
the classified Board structure as proposed. The Board also determined that the
declassification should be implemented in stages so as not to shorten the terms
of the directors elected prior to the effectiveness of the amendment, including
at the 2010 Annual Meeting, and to ensure a smooth
transition. Accordingly, the Board adopted and declared advisable the
proposed Charter amendment that is the subject of this Proposal
2. The Board has also approved a conforming amendment to the
Bylaws.
If shareholders do not approve the
proposed amendment, then the Board will remain classified.
Required
Vote
As discussed above, the adoption of the
Charter amendment requires the affirmative vote of shareholders holding at least
two-thirds of all outstanding shares of common stock entitled to be voted at the
Annual Meeting. Brokers and other fiduciaries who hold your shares do
not have discretion to vote on this proposal without your
instruction. If you do not instruct your broker or other fiduciary as
to how to vote on this Proposal 2, then your broker or other fiduciary will
deliver a non-vote. Broker non-votes and abstentions, if any, will be
counted for purposes of determining the presence of a quorum but will be treated
as a vote against Proposal 2. Accordingly, it is very important for
every shareholder to vote his or her shares.
Dissenters’
Rights.
Under the Maryland General Corporation
Law, shareholders will not have any dissenters’ or appraisal rights in
connection with this amendment to the Charter.
The Board of Directors unanimously
recommends that shareholders vote FOR the amendment to the Charter to declassify
the Board.
RATIFICATION
OF APPOINTMENT OF PARENTEBEARD LLC AS THE CORPORATION’S
INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM (Proposal 3)
Shareholders are being asked to ratify
the Audit Committee’s appointment of ParenteBeard LLC to audit the books and
accounts of the Corporation for the fiscal year ended December 31,
2010. ParenteBeard LLC has served as the Corporation’s independent
registered public accounting firm since October 1, 2009, when the Corporation’s
prior auditing firm, Beard Miller Company LLP (“BMC”), merged into ParenteBeard
LLC. BMC served as the Corporation’s independent registered public
accounting firm between 2006 and October 1, 2009. ParenteBeard LLC
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 ParenteBeard LLC is not expected to be present at this year’s
Annual Meeting of Shareholders.
The Board of Directors recommends that
shareholders vote FOR the ratification of the appointment of ParenteBeard LLC as
the Corporation’s independent registered public accounting firm for
2010.
Because your vote is advisory, it will
not be binding upon the Audit Committee, overrule any decision made by the Audit
Committee, or create or imply any additional fiduciary duty by the Audit
Committee. The Audit Committee may, however, take into account the
outcome of the vote when considering future auditor appointments.
AUDIT
FEES AND SERVICES
On October 1, 2009, the Corporation was
notified that the audit practice of BMC was combined with ParenteBeard
LLC. As a consequence, on that same date, BMC resigned as the
Corporation’s independent registered public accounting firm. BMC’s
report of independent registered public accounting firm regarding the
Corporation’s consolidated financial statements for the fiscal years ended
December 31, 2008 and 2007 did not contain any adverse opinion or disclaimer of
opinion and was not qualified or modified as to uncertainty, audit scope or
accounting principles. During the years ended December 31, 2008 and
2007, and during the interim period from the end of the most recently completed
fiscal year through October 1, 2009, the Corporation did not have any
disagreements with BMC on any matter of accounting principles or practices,
financial statement disclosure or auditing scope or procedures, which
disagreements, if not resolved to the satisfaction of BMC, would have caused it
to make reference to such disagreement in its reports. During the
years ended December 31, 2008 and 2007 and the subsequent period through October
1, 2009, the Corporation did not have any “reportable events” as described in
Item 304(a)(1)(v) of the SEC’s Regulation S-K.
Prior to engaging ParenteBeard LLC, the
Corporation did not consult with ParenteBeard LLC regarding the application of
accounting principles to a specific completed or contemplated transaction or
regarding the type of audit opinions that might be rendered by ParenteBeard LLC
on the Corporation’s consolidated financial statements, and ParenteBeard LLC did
not provide any written or oral advice that was an important factor considered
by the Corporation in reaching a decision as to any such accounting, auditing or
financial reporting issue.
The following table shows the fees paid
or accrued by the Corporation in 2009 and 2008 for the audit and other services
provided by ParenteBeard LLC and its predecessor, BMC, for those
years:
|
|
FY
2009
|
|
|
FY
2008
|
|
Audit
Fees
|
|
$ |
269,558 |
|
|
$ |
285,471 |
|
Audit
Related Fees
|
|
|
7,600 |
|
|
|
5,800 |
|
Tax
Fees
|
|
|
- |
|
|
|
4,139 |
|
All
Other Fees
|
|
|
- |
|
|
|
- |
|
Total
|
|
$ |
277,158 |
|
|
$ |
293,410 |
|
Audit Fees for 2009 and 2008 include
fees associated with the annual audits, the reviews of the Corporation’s
quarterly reports on Form 10-Q, and the attestation of management’s reports on
internal control over financial reporting contained in the Annual Reports on
Form 10-K for those years. Audit-Related Fees for 2009
and 2008 include fees associated with the filing of a Registration
Statement on Form S-3. Tax Fees relate to tax planning.
The Audit Committee has reviewed
summaries of the services provided by ParenteBeard LLC and BMC and the related
fees and has determined that the provision of non-audit services was compatible
with maintaining the independence of ParenteBeard, LLC and, during the time it
served as the Corporation’s independent registered public accounting firm,
BMC.
It is the Audit Committee’s policy to
pre-approve all audit services and permitted non-audit services (including the
fees and terms thereof) to be performed for the Corporation by its independent
registered public accounting firm, 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
Corporation’s independent registered public accounting firm’s
audit. All of the 2009 and 2008 services described above were
pre-approved by the Audit Committee.
NON-BINDING
ADVISORY VOTE ON EXECUTIVE COMPENSATION (Proposal 4)
As stated above, the Recovery Act was
signed into law on February 17, 2009. In addition to a wide variety
of programs intended to stimulate the economy, the Recovery Act imposes
significant new requirements for and restrictions relating to the compensation
arrangements of financial institutions that received government funds through
TARP, including institutions like the Corporation that participated in the CPP
prior to the enactment of the Recovery Act. These restrictions apply
until a participant repays the financial assistance received through TARP (the
“TARP Period”).
One of the requirements is that any
proxy for a meeting of shareholders at which directors are to be elected which
is held during the TARP Period permit a non-binding advisory vote on the
compensation of the executive officers of the TARP participant, as described in
the participant’s proxy statement. This advisory vote is commonly
referred to as a “Say on Pay” proposal.
As a shareholder, you are being
provided with the opportunity to endorse or not endorse the Corporation’s
executive compensation program and policies through the following
resolution:
“Resolved,
that the shareholders approve the compensation of the Corporation’s executive
officers, as described in the sections of this Proxy Statement entitled
“COMPENSATION DISCUSSION AND ANALYSIS” AND “REMUNERATION OF EXECUTIVE
OFFICERS”.
Because your vote is advisory, it will
not be binding upon the Board of Directors, overrule any decision made by the
Board of Directors, or create or imply any additional fiduciary duty by the
Board of Directors. The Compensation Committee may, however, take
into account the outcome of the vote when considering future executive
compensation arrangements.
The Board of Directors and its
Compensation Committee believe that the Corporation’s compensation policies and
procedures are reasonable in comparison both to the Corporation’s peer group and
to the Corporation’s relatively strong performance during 2009. The
Board of Directors and its Compensation Committee also believe that the
Corporation’s compensation program strongly aligns with the interests of
shareholders in the long-term value of the Corporation as well as the components
that drive long-term value.
The Board of Directors unanimously
recommends that shareholders vote FOR approval of the
Corporation’s executive compensation program and policies.
SUBMISSION
OF SHAREHOLDER PROPOSALS FOR 2011 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 2011 Annual Meeting of Shareholders must submit such
proposal in writing, including all supporting materials, to the Corporation at
its principal office no later than November 26, 2010 (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 2011 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 10, 2011 (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
|
|
|
|
CARISSA
L. RODEHEAVER
|
|
Secretary
|
APPENDIX
A
SHAREHOLDER
RESOLUTION APPROVING CHARTER AMENDMENT
RESOLVED, that the Amended and
Restated Articles of Incorporation of First United Corporation be, and they
hereby are, amended by deleting Article FIFTH in its entirety and substituting
the following in lieu thereof:
“FIFTH: The
number of Directors of the Corporation shall be not less than three (3)
nor more than twenty-five (25). The number of Directors may be increased
or decreased in accordance with the Bylaws of the
Corporation. At each annual meeting of shareholders, the
shareholders shall elect directors to hold office until the next annual
meeting and until their successors are elected and qualify; provided, however, that
directors who were serving as such at the adjournment of the 2010 Annual
Meeting of Shareholders shall continue to serve as directors until the
expiration of their then current terms and until their successors are duly
elected and
qualify.”
|
APPENDIX
B
Notice
of Internet Availability of Proxy Materials for
2010
Annual Meeting of Shareholders
First
United Corporation hereby notifies you that the proxy materials for the 2010
Annual Meeting of Shareholders are available on the Internet. We have
chosen to furnish proxy materials through the Internet, rather than by sending
paper copies to you, because we believe this method allows us to provide you
with the information needed to vote your shares while lowering the costs of
delivery and reducing the environmental impact of the Annual
Meeting. Follow the instructions below to view the proxy materials
and vote through the Internet or by telephone, to request copies of the proxy
materials, and/or to vote in person. The matters to be voted on and
the location of the Annual Meeting are stated on the reverse side of this
notice. Your vote is important.
Important
Notice Regarding the Availability of Proxy Materials for the Shareholder
Meeting
to
be Held on May 13, 2010
1. This
communication is not a form for voting and presents only an overview of the more
complete proxy materials available to you on the Internet, which contain
important information about the Annual Meeting. We encourage you to
access and review all of the important information contained in the proxy
materials before voting.
2. The Proxy Statement
for the 2010 Annual Meeting of Shareholders, the related Proxy Card, and the
2009 Annual Report to Shareholders (including First United Corporation’s Annual
Report on Form 10-K for the year ended December 31, 2009) are available
at: http://www.stocktrans.com/eproxy/firstunited2010.
3. If
you want to receive paper or e-mail copies of the proxy materials identified
above in Item 2, you must request them. There is no charge to you for
requesting copies of these proxy materials. Please make your request
for a copy as instructed below on or before April 5, 2010 to facilitate timely
delivery.
You may
vote through the Internet, by phone, by mail or in person.
If you
wish to vote through the Internet, you must go to the website provided on the
Proxy Card, enter your “Proxy
Control Number” (which can be found at the bottom right corner of the
reverse side of this notice) and follow the online instructions to cast your
vote.
If you
wish to vote by telephone, you must call the toll-free number listed on the
Proxy Card, enter your Proxy
Control Number and follow the prompts to cast your vote.
If you
wish to vote by mail, you should either print out the Proxy Card available at
the Internet website identified above or request a copy of the proxy materials,
including the Proxy Card, and then mark the Proxy Card accordingly, date and
sign the Proxy Card, and return the Proxy Card to us at the address indicated on
the Proxy Card.
If you
wish to vote in person, you should attend the Annual Meeting and cast your
vote. To help us plan for the Annual Meeting, if you plan to attend
in person we ask that you print the Proxy Card available at the Internet website
stated above, check the box that you plan to attend, and return it to us at the
address indicated on the Proxy Card (your failure to do this, however, will not
prevent you from voting in person).
To
request a paper copy or an e-mail copy of the proxy materials or directions to
the 2010 Annual Meeting, either:
|
·
|
Call our toll-free number –
(866) 360-7311; or
|
|
·
|
Visit our website at
http://www.stocktrans.com/eproxy/firstunited2010;
or
|
If you
request documents by e-mail, please clearly identify the documents you are
requesting, reference “First United Corporation”, provide your name and your
Proxy Control Number, and the name and physical address or electronic address
(if you are requesting an e-mail copy) to which the documents should be
mailed.
First
United Corporation – 2010 Annual Meeting
The
2010 Annual Meeting of Shareholders will be held at 10:00 a.m., Eastern Standard
Time, on May 13, 2010 at the Wisp at Deep Creek Mountain Resort, McHenry,
Maryland 21541.
Proposals
to be voted on at the meeting are listed below along with the recommendations of
the Board of Directors.
|
1.
|
Election
of the following five (5) Class III
Directors:
|
|
The
Board of Directors recommends that you vote FOR
all nominees
|
|
2.
|
Approval
of a Charter amendment declassifying the Board of
Directors
|
|
The
Board of Directors recommends that you vote FOR
amendment.
|
|
3.
|
Ratification
of appointment of ParenteBeard LLC (formerly Beard Miller Company LLP) to
serve as the Corporation’s independent registered public accounting firm
for fiscal year 2010.
|
|
The
Board of Directors recommends that you vote FOR
ratification.
|
|
4.
|
Approval
of the Corporation’s executive compensation program and policies
(non-binding advisory vote).
|
|
The
Board of Directors recommends that you vote FOR
approval of executive compensation.
|
|
5.
|
Such
other matters as may properly come before the
meeting.
|
PLEASE
NOTE – YOU CANNOT VOTE BY RETURNING THIS NOTICE. To vote your shares,
you must vote through the Internet, by telephone, by returning a signed and
dated Proxy Card to the Corporation, or by attending the Annual Meeting in
person and casting your vote.
|
By
Order of the Board of Directors,
|
|
|
|
William
B. Grant
|
|
Chairman
and CEO
|
Your
Proxy Control Number _______________
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 Helen M. Bittinger and Heather M. Broadwater, 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 below all the shares of Common Stock of First
United Corporation held of record by the undersigned on February 26, 2010 at the
Annual Meeting of Shareholders to be held on May 13, 2010 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,
“FOR” PROPOSAL 3, “FOR” PROPOSAL 4, AND IN THEIR
DISCRETION WITH RESPECT TO ANY OTHER MATTER THAT MAY PROPERLY COME BEFORE THE
MEETING PURSUANT TO PROPOSAL 5.
Important
Notice Regarding the Availability of Proxy Materials For the Shareholder Meeting
to be Held on May 13, 2010:
This
form of Proxy, the related Proxy Statement, and First United Corporation’s
Annual Report to Shareholders (including its Annual Report on Form 10-K) are
available at www.stocktrans.com/eproxy/firstunited2010.
The
Board of Directors recommends a vote “FOR ALL NOMINEES” in Proposal
1.
|
|
The
Board of Directors recommends a vote “FOR” Proposal 4.
|
1. Election of the following
five (5) Class III Directors to serve until the 2013
Annual
|
|
|
Meeting of Shareholders and until their successors are duly elected and
qualify.
|
|
4.
Approve the Corporation’s executive compensation
program
and policies (non-binding advisory vote).
|
|
|
|
Class
III (term expires 2013)
|
|
FOR o AGAINST o ABSTAIN
o
|
|
o
|
FOR
ALL NOMINEES
|
|
|
01 M.
Kathryn Burkey
|
|
|
|
|
02 I.
Robert Rudy
|
o
|
WITHHOLD
AUTHORITY
|
|
|
03 Richard
G. Stanton
|
|
FOR
ALL NOMINEES
|
|
|
04 Robert
G. Stuck
|
|
|
|
|
05 H.
Andrew Walls, III
|
o
|
FOR
ALL EXCEPT
|
|
5.
In their discretion, the Proxies are authorized to
|
|
|
(see
instruction below)
|
|
vote
upon such other business as may properly come
before
the meeting and any adjournments or
|
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 that nominee’s
name in the list above.
|
|
postponements
thereof.
|
The
Board of Directors recommends a vote “FOR” Proposal 2.
2.
To approve a Charter amendment declassifying the Board of
Directors
FOR o AGAINST o ABSTAIN
o
|
|
THE
UNDERSIGNED ACKNOWLEDGES RECEIPT OF NOTICE OF THE AFORESAID ANNUAL MEETING
OF SHAREHOLDERS
Date: _______________________,
2010
_________________________________
Signature
_________________________________
Signature
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.
Address
Change/Comments:
|
The
Board of Directors recommends a vote “FOR” Proposal 3.
3.
Ratification of the appointment of ParenteBeard, LLC (formerly Beard
Miller Company LLP) as the Corporation’s independent registered public
accounting firm for 2010.
FOR o AGAINST o ABSTAIN
o
|
![](chart.jpg)
VOTE BY INTERNET: Log-on to
www.votestock.com; Enter your control number
printed above; Vote your proxy by checking the appropriate boxes; Click on
“Accept Vote”.
VOTE BY
TELEPHONE: After you call the phone number below, you will be
asked to enter your control number printed above. You will need to
respond to only a few simple prompts. Your vote will be confirmed and cast as
directed.
Call
toll-free in the U.S. or Canada at 1-866-626-4508 on a touch-tone
telephone.
VOTE BY MAIL: If
you do not wish to vote over the Internet or by telephone, please complete, sign
and date the accompanying proxy card and return it in the pre-paid envelope
provided.
You
may vote by Internet or telephone 24 hours a day, 7 days a
week.
Internet
and telephone voting is available through 11:59 p.m.,
prevailing
time, on May 12,
2010.
Your
Internet or telephone vote authorizes the named proxies to vote
in
the
same manner as if you marked, signed and returned your proxy
card.
|