prelimproxy051409.htm
SUMMIT
FINANCIAL GROUP, INC.
P. O. Box
179
300 N.
Main Street
Moorefield,
West Virginia 26836
April 7,
2009
Dear
Shareholder:
You are
cordially invited to attend the Annual Meeting of Shareholders of Summit
Financial Group, Inc. (the “Company”), a West Virginia corporation, which will
be held on Thursday, May 14, 2009, at 1:00 p.m., EDT, at the Company’s Corporate
Office, 300 N. Main Street, Moorefield, West Virginia.
It is
important that your shares be represented at the Meeting. Whether or
not you plan to attend the Meeting, you are requested to complete, date, sign
and return the enclosed proxy in the enclosed envelope for which postage has
been paid. If you have any questions regarding the information in the
attached proxy materials, please do not hesitate to call Teresa Ely, Director of
Shareholder Relations, (304) 530-1000.
At the
Annual Meeting, in addition to the election of five (5) directors to serve until
2012 and the ratification of the selection of Arnett & Foster, PLLC as the
Company’s independent registered public accounting firm for the year ending
December 31, 2009, we will seek stockholder approval of the 2009 Officer Stock
Option Plan, providing for the issuance of 350,000 shares of our common
stock. The 2009 Officer Stock Option Plan would replace the 1998
Officer Stock Option Plan which expired on May 5, 2008.
You are
urged to read the accompanying Proxy Statement carefully, as it contains
detailed information regarding the nominees for directors of the Company, the
independent registered public accounting firm of the Company, and the 2009
Officer Stock Option Plan.
Very truly
yours,
Oscar M. Bean
Chairman of the
Board
IMPORTANT
NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS FOR THE ANNUAL MEETING OF
SHAREHOLDERS TO BE HELD ON MAY 14, 2009
This proxy statement, along with our
Annual Report on Form 10-K for the fiscal year ended December 31, 2008, and
our 2008 Annual Report, are available free of charge on the following
website: www.summitfgi.com.
NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
TIME
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1:00
p.m., EDT, on May 14, 2009
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PLACE
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Summit
Financial Group, Inc.
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Corporate
Office
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300
N. Main Street
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Moorefield,
West Virginia 26836
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ITEMS
OF BUSINESS
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(1) To
elect five (5) directors to serve until
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2012;
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(2) To
approve the adoption of the 2009
Officer
Stock Option Plan;
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(3)
To ratify the selection of Arnett
& Foster,
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PLLC
as the Company’s independent
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registered
public accounting firm for the
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year
ending December 31, 2009; and
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(4)
To transact such other business as may
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properly
come before the Meeting. The
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Board
of Directors at present knows of no
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other
business to come before the Annual
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Meeting.
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RECORD
DATE
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Only
those shareholders of record at the close of business on March 31, 2009,
shall be entitled to notice and to vote at the Meeting.
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ANNUAL
REPORT
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Our
2008 Annual Report, which is not part of the proxy materials, is
enclosed.
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PROXY
VOTING
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It
is important that your shares be represented and voted at the
Meeting. Please MARK, SIGN, DATE and PROMPTLY RETURN the
enclosed proxy card in the postage-paid envelope. Any proxy may
be revoked prior to its exercise at the Meeting.
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April
7, 2009
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TABLE
OF CONTENTS
Page
PROXY
STATEMENT
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1
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Principal
Executive Office of the Company
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1
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Shareholders
Entitled to Vote
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1
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Multiple
Shareholders Sharing the Same Address
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1
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Proxies
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1
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Vote
By Mail
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2
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Voting
at the Annual Meeting
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2
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Voting
on Other Matters
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2
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Required
Vote
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2
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Cost
of Proxy Solicitation
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3
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Shareholder
Account Maintenance
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3
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Section
16(a) Beneficial Ownership Reporting Compliance
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3
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GOVERNANCE
OF THE COMPANY
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5
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Board
and Committee Membership
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5
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Executive
Committee
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5
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Audit
and Compliance Committee
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5
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Compensation
and Nominating Committee
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6
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Policies
and Procedures Relating to Nomination of Directors
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7
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Processes
and Procedures Relating to Executive Compensation
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7
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Independence
of Directors and Nominees
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9
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Review
and Approval of and Description of Transactions with Related
Persons
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10
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Policies
and Procedures
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10
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Transactions
with Related Persons
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10
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Shareholder
Communication with Directors
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11
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Board
Member Attendance at Annual Meeting
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11
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Corporate
Policies
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11
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ITEM
1 - ELECTION OF DIRECTORS
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12
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Security
Ownership of Directors and Officers
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12
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Family
Relationships
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13
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NOMINEES
FOR DIRECTOR WHOSE TERMS EXPIRE IN 2012
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14
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DIRECTORS
WHOSE TERMS EXPIRE IN 2011
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15
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DIRECTORS
WHOSE TERMS EXPIRE IN 2010
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16
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ITEM
2 – PROPOSAL TO APPROVE 2009 OFFICER STOCK OPTION PLAN
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17
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Purpose
of the Officer Plan
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17
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Common
Stock Available
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17
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Types
of Awards
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18
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Eligibility
for Participation
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18
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Option
Agreement
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18
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Option
Price
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18
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Stock
Holding Period Upon Exercise of Qualified Options
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19
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Restrictions
on Issuing Shares
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19
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Adjustments
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19
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Option
Expiration
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20
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Option
Termination
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20
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Administration
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20
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Officer
Plan Effective Date
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21
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Officer
Plan Expiration
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21
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Amendment
and Termination of the Officer Plan
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21
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Registration
of Common Stock
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21
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Initial
Option Grants
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21
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Federal
Income Tax Consequences
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22
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Resale
of Company Stock by Officer Plan Participants
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23
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Change
in Control Provisions
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23
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Considerations
For and Against the Proposal
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24
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Vote
Required
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24
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ITEM
3 - RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM
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25
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AUDIT
AND COMPLIANCE COMMITTEE REPORT
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26
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Fees
To Arnett & Foster, PLLC
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26
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Audit
and Compliance Committee
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27
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COMPENSATION
DISCUSSION AND ANALYSIS
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28
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Introduction
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28
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Overview
of Compensation Philosophy
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28
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Setting
Executive Compensation
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29
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Plans
Covering All Employees
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33
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Potential
Payments Upon Termination or Change of Control
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33
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Compensation
of Named Executive Officers
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39
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EXECUTIVE
COMPENSATION
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40
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Summary
Compensation Table
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40
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Grants
of Plan-Based Awards
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42
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Outstanding
Equity Awards at December 31, 2008
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44
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Options
Exercises and Stock Vested During 2008
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47
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Pension
Benefits
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48
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Estimated
Payments Upon Termination
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50
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Director
Compensation 2008
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53
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COMPENSATION
AND NOMINATING COMMITTEE REPORT
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55
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Compensation
and Nominating Committee
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55
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EXECUTIVE
OFFICERS
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56
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PRINCIPAL
SHAREHOLDER
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57
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REQUIREMENTS,
INCLUDING DEADLINE FOR SUBMISSION OF PROXY PROPOSALS, NOMINATION OF
DIRECTORS AND OTHER BUSINESS OF SHAREHOLDERS
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58
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Stock
Transfers
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58
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ANNUAL
REPORT
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59
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FORM
10-K
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59
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Appendix
A - 2009 Officer Stock Officer
Plan
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PROXY
STATEMENT
These
proxy materials are delivered in connection with the solicitation by the Board
of Directors of Summit Financial Group, Inc. (“Summit,” the “Company,” “we,” or
“us”), a West Virginia corporation, of proxies to be voted at our 2009 Annual
Meeting of Shareholders and at any adjournment or postponement.
You are
invited to attend our Annual Meeting of Shareholders on May 14, 2009, beginning
at 1:00 p.m. The meeting will be held at Summit’s Corporate Office, 300 N.
Main Street, Moorefield, West Virginia.
This
Proxy Statement, form of proxy and voting instructions are being mailed starting
on or about April 7, 2009.
Principal
Executive Office of the Company
The
principal executive office of the Company is 300 North Main Street, Moorefield,
West Virginia 26836.
Shareholders
Entitled to Vote
Holders
of record of Summit common shares at the close of business on March 31, 2009,
are entitled to receive this notice and to vote their shares at the Annual
Meeting. As of that date, there were 7,415,310 common shares outstanding.
Each common share is entitled to one vote on each matter properly brought
before the Annual Meeting.
Multiple
Shareholders Sharing the Same Address
Owners of
common stock in street name may receive a notice from their broker or bank
stating that only one proxy statement will be delivered to multiple security
holders sharing an address. This practice, known as “householding,” is
designed to reduce printing and postage costs. However, if any shareholder
residing at such an address wishes to receive a separate proxy statement, he or
she may contact Teresa Ely, Director of Shareholder Relations, Summit Financial
Group, Inc., P. O. Box 179, Moorefield, West Virginia 26836, or by telephone at
(304) 530-1000, or by e-mail at [email protected].
Proxies
Your vote
is important. Shareholders of record may vote their proxies by mail.
If you choose to vote by mail, a postage-paid envelope is
provided.
Proxies
may be revoked at any time before they are exercised by (1) written notice to
the Secretary of the Company, (2) timely delivery of a valid, later-dated proxy
or (3) voting in person at the Annual Meeting.
You may save us the expense of a
second mailing by voting promptly. Choose one of the
following voting methods to cast your vote.
If you
choose to vote by mail, simply mark your proxy, date and sign it, and return it
in the postage-paid envelope provided.
Voting
at the Annual Meeting
The
method by which you vote now will in no way limit your right to vote at the
Annual Meeting if you later decide to attend in person. If your shares are
held in the name of a bank, broker or other holder of record, you must obtain a
proxy, executed in your favor, from the holder of record to be able to vote at
the Meeting.
All
shares that have been properly voted and not revoked will be voted at the Annual
Meeting in accordance with your instructions. If you sign your proxy card
but do not give voting instructions, the shares represented by that proxy will
be voted as recommended by the Board of Directors.
Voting
on Other Matters
If any
other matters are properly presented at the Annual Meeting for consideration,
the persons named in the enclosed form of proxy will have the discretion to vote
on those matters for you. As of the date this proxy statement went to
press, we did not know of any other matter to be raised at the Annual
Meeting.
Required
Vote
The
presence, in person or by proxy, of the holders of a majority of the votes
entitled to be cast by the shareholders entitled to vote at the Annual Meeting
is necessary to constitute a quorum. Abstentions and broker “non-votes”
are counted as present and entitled to vote for purposes of determining a
quorum. A broker “non-vote” occurs when a nominee holding shares for a
beneficial owner does not vote on a particular proposal because the nominee does
not have discretionary voting power for that particular item and has not
received instructions from the beneficial owner.
On the
record date, there were 7,415,310 shares of common stock outstanding which are
held by approximately 1,290 shareholders of record. A majority of the
outstanding shares of Summit Financial Group, Inc. will constitute a quorum at
the meeting.
A
plurality of the votes cast is required for the election of directors.
Abstentions and broker “non-votes” will be disregarded and will have no
effect on the outcome of the vote for the election of directors.
In the
election of directors, shareholders cast one (1) vote for each nominee for each
share held. However, every shareholder has the right of cumulative voting,
in person or by proxy, in the election of directors. Cumulative voting
gives each shareholder the right to aggregate all votes which he or she is
entitled to cast in the election of directors and to cast all such votes for one
candidate or distribute them among as many candidates and in such a manner as
the shareholder desires.
At our
2009 Annual Meeting, the total number of directors to be elected is five (5) in
the class expiring in 2012. Each shareholder has the right to cast five
(5) votes for each share of stock held on the record date.
If you
wish to exercise, by proxy, your right to cumulative voting in the election of
directors, you must provide a proxy showing how your votes are to be distributed
among one or more candidates. Unless contrary instructions are given by a
shareholder who signs and returns a proxy, all votes for the election of
directors represented by such proxy will be divided equally among the nominees
for each class. If cumulative voting is invoked by any shareholder, the
vote represented by the proxies delivered pursuant to this solicitation, which
do not contain contrary instructions, may be cumulated at the discretion of the
Board of Directors of Summit Financial Group, Inc. in order to elect to the
Board of Directors the maximum nominees named in this proxy
statement.
For
purposes of adopting the 2009 Officer Stock Option Plan and ratification of
Arnett & Foster, PLLC as the Company’s independent registered public
accounting firm for the year ended December 31, 2009, an affirmative vote of a
majority of the votes cast on these proposals is required. In
determining whether the proposal has received the requisite number of
affirmative votes, abstentions and broker “non-votes” will be disregarded and
will have no effect on the outcome of the vote.
Cost
of Proxy Solicitation
We will
pay the expenses of soliciting proxies. Proxies may be solicited on our
behalf by Directors, officers or employees in person or by telephone, electronic
transmission, or by facsimile transmission. Brokers, fiduciaries,
custodians and other nominees have been requested to forward solicitation
materials to the beneficial owners of the Company’s common stock. Upon
request we will reimburse these entities for their reasonable
expenses.
Shareholder
Account Maintenance
Registrar
and Transfer Company is our transfer agent. All communications concerning
accounts of shareholders of record, including address changes, name changes,
inquiries as to requirements to transfer common shares and similar issues can be
handled by contacting:
Registrar
and Transfer Company
10
Commerce Drive
Cranford,
New Jersey 07016-3572
www.rtco.com
(800)
368-5948
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Securities Exchange Act of 1934 requires our Directors, officers,
and shareholders owning 10% or more of the common stock of the Company to file
reports of holdings and transactions in Summit shares with the SEC. Based
on our records and other information, in 2008, all directors, officers, and
shareholders owning 10% or more of the common stock of the Company met all
applicable SEC filing requirements under Section 16(a), except as follows: James
M. Cookman had one (1) late report(s) relating to three (3)
transactions.
In March,
2003, an investment option was added to the Directors’ Deferral Plan to permit
directors to defer fees as an investment in phantom stock representing the
economic equivalent of shares of Summit common stock. During our
review of our compensation plans in connection with amendments to Internal
Revenue Code Section 409A, we became aware that acquisition of phantom stock
should be reported under Section 16(a). Based on the Section 16(a)
reports and amendments furnished to us by our insiders, we believe that certain
directors inadvertently failed to file required reports with respect to this
plan since the investment option was added. For transactions in
2008,
the
following directors had the following late reports: Frank A. Baer, III (8 late
reports relating to 8 transactions), Oscar M. Bean (7 late reports relating to 7
transactions), Dewey F. Bensenhaver (9 late reports relating to 9 transactions),
James M. Cookman (10 late reports relating to 10 transactions), John W. Crites
(11 late reports relating to 11 transactions), Thomas J. Hawse, III (11 late
reports relating to 11 transactions), Gary L. Hinkle (11 late reports relating
to 11 transactions), Gerald W. Huffman (11 late reports relating to 11
transactions), and Charles S. Piccirillo (12 late reports relating to 12
transactions). These transactions related to the acquisition of
shares of phantom stock representing the economic equivalent of shares of Summit
common stock through the Company’s Directors’ Deferral Plan in 2008. All of
the transactions involving the acquisition of phantom shares under the Director
Deferral Plan were exempt from the short swing profit liability provisions of
Section 16(b) of the Securities Exchange Act of 1934.
GOVERNANCE
OF THE COMPANY
Board
and Committee Membership
During
2008, the Board of Directors met nine (9) times. All of our Directors
attended 75% or more of the meetings of the Board and the meetings held by
committees of the Board on which the directors served in 2008, with the
exception of Frank A. Baer, III.
The
Company has a standing Executive Committee, Audit and Compliance Committee, and
a Compensation and Nominating Committee.
Executive
Committee
The
Executive Committee, on an as needed basis, approves loans above specified
limits and performs such duties and exercises such powers as delegated to it by
the Company’s Board of Directors. The members of the Company’s Executive
Committee are Oscar M. Bean, Chairman, John W. Crites, Patrick N. Frye, Thomas
J. Hawse, III, Gary L. Hinkle, H. Charles Maddy, III, Duke A. McDaniel, Ronald
F. Miller, G. R. Ours, Jr., and Charles S. Piccirillo. C. David Robertson
is a non-voting member of the Executive Committee. The Executive Committee
met two (2) times in 2008. Phoebe F. Heishman served as an
alternate.
Audit
and Compliance Committee
The Audit
and Compliance Committee’s primary function is to assist the Board of Directors
in fulfilling its oversight responsibilities to ensure the quality and integrity
of Summit’s financial reports. This entails:
· Serving
as an independent and objective party to monitor the Company’s financial
reporting process and internal control system.
· Providing
direction to and oversight of the Company’s internal audit
function.
· Reviewing
and appraising the efforts of the Company’s independent auditors.
· Maintaining
a free and open means of communication between directors, internal audit staff,
independent auditors, and management.
The Audit
and Compliance Committee has adopted a written charter, a copy of which is
available on the Company’s web site at www.summitfgi.com.
Current
members of this committee are Thomas J. Hawse, III, Chairman, John W. Crites,
Gary L. Hinkle, Gerald W. Huffman, Charles S. Piccirillo, and James P. Geary,
II. The Audit and Compliance Committee charter requires that the committee
be comprised of five (5) or more directors. The Audit and Compliance
Committee met four (4) times in 2008.
Pursuant
to the provisions of the Sarbanes-Oxley Act, which was enacted in 2002, the SEC
adopted rules requiring companies to disclose whether or not at least one member
of the Audit and Compliance Committee is an “audit committee financial expert”
as defined in such rules.
Under the
SEC rules, an “audit committee financial expert” has the following
attributes:
· An
understanding of generally accepted accounting principles and financial
statements;
· An
ability to assess the general application of accounting principles generally
accepted in the United States of America in connection with the accounting for
estimates, accruals and reserves;
· Experience
preparing, auditing, analyzing, or evaluating financial statements that present
a breadth and level of complexity of accounting issues that are generally
comparable to the breadth and complexity of issues that can be expected to be
raised by the Company’s financial statements, or experience actively supervising
one or more persons engaged in such activities;
· An
understanding of internal controls and procedures for financial reporting;
and
· An
understanding of audit committee functions.
A person
must possess all of the above attributes to qualify as an audit committee
financial expert.
Based on
Director Questionnaires, the Board of Directors has determined that John W.
Crites, Thomas J. Hawse, III and James P. Geary, II of the Audit and Compliance
Committee possess all of the above five attributes so as to be deemed “audit
committee financial experts” under the SEC rules. Each of these
individuals is independent, as independence for audit committee members is
defined in the NASDAQ listing standards
Also,
John W. Crites, Thomas J. Hawse, III, and James P. Geary II each qualify as a
“financial expert” under the NASDAQ Marketplace Rules, which standards are
different from the SEC rules. Under the NASDAQ Marketplace Rules, a
“financial expert” must have past employment experience in finance or
accounting, requisite professional certification in accounting or other
comparable experience or background which results in the individual’s financial
sophistication, including being a chief executive officer, chief financial
officer or other senior officer with financial oversight responsibilities.
Mr. Crites, Mr. Hawse and Mr. Geary have the necessary experience to
qualify them as “financial experts” under the NASDAQ Marketplace
Rules.
For
information concerning the audit fees paid by the Company in 2008 and for
information about the Company’s independent auditors generally, see the Audit
and Compliance Committee Report on page 26 of these Annual Meeting
materials.
Compensation
and Nominating Committee
The
Compensation and Nominating Committee consists of a minimum of four (4)
independent, outside directors. The members of the Compensation and
Nominating Committee during 2008 were Oscar M. Bean, Chairman, Dewey
Bensenhaver, John W. Crites, Thomas J. Hawse, III, Phoebe F. Heishman, Gary L.
Hinkle, and Charles S. Piccirillo.
The
Compensation and Nominating Committee has adopted a written charter, a copy of
which is available on the Company’s website at www.summitfgi.com.
The
Committee meets at scheduled times during the year as required, generally one to
two times. The Committee reports on Committee actions at Board meetings.
The Committee has the authority to
retain
outside counsel and any other advisors as the Company may deem appropriate in
its sole discretion. The Compensation and Nominating Committee met three
(3) times in 2008.
Policies
and Procedures Relating to the Nomination of Directors
One
purpose of the Committee is to assist the Board in (i) identifying qualified
individuals to become board members, (ii) determining the composition of the
board of directors and its committees, (iii) monitoring a process to assess
board effectiveness, and (iv) developing and implementing the Company’s
corporate governance guidelines.
In
determining nominees for the Board of Directors, the Compensation and Nominating
Committee selects individuals who have the highest personal and professional
integrity and who have demonstrated exceptional ability and judgment. The
Committee also selects individuals who are most effective, in conjunction with
the other nominees to the Board, in collectively serving the long-term interests
of the shareholders. In identifying first-time nominees for director, or
evaluating individuals recommended by shareholders, the Compensation and
Nominating Committee determines, in its sole discretion, whether an individual
meets the minimum qualifications approved by the Board of Directors and may
consider the current composition of the Board of Directors in light of the
diverse communities served by the Company and the interplay of the candidate’s
experience with the experience of other Board members.
The
Compensation and Nominating Committee does not have a specific policy with
regard to the consideration of persons nominated for Directors by shareholders.
The Articles of Incorporation of the Company describe the procedures that
a shareholder must follow to nominate persons for election as Directors.
For more information regarding these procedures, see Requirements,
Including Deadline for Submission of Proxy Proposals, Nomination of Directors
and Other Business of Shareholders on page 58 of these Annual Meeting materials.
The Compensation and Nominating Committee will consider nominees for
Director recommended by shareholders provided the procedures set forth in the
Articles of Incorporation of the Company are followed by shareholders in
submitting recommendations. The Committee does not intend to alter the
manner in which it evaluates nominees, including the minimum criteria set forth
above, based on whether the candidate was recommended by a shareholder or
not.
With
regard to the Compensation and Nominating Committee’s specific nominating
responsibilities, see a copy of its current charter on the Company’s website at
www.summitfgi.com.
Processes
and Procedures Relating to Executive Compensation
Another
purpose of the Compensation and Nominating Committee is to review, approve and
report to the Board of Directors the compensation of all executive officers of
the Company who are subject to the requirements of Section 16 of the Securities
Exchange Act of 1934 (the “Executive Officers”), including salaries and bonuses,
and to approve and report to the Board of Directors all grants of stock options.
The Compensation and Nominating Committee also annually reviews the Board
Attendance and Compensation Policy which includes the compensation paid to the
Board of Directors. The Compensation and Nominating Committee
recommends any revisions to the Board Attendance and Compensation Policy to the
full Board of Directors for approval. The Committee’s primary
processes and procedures for carrying out these purposes include:
• Scope of Authority. The
Committee has the following duties and responsibilities:
• Annually
review and approve corporate goals and objectives relevant to compensation of
the Chief Executive Officer (the “CEO”) established by the Board of Directors,
evaluate
the CEO’s
performance in light of these goals and objectives, and review, approve and
report to the Board of Directors all compensation arrangements, including
base salary, incentive compensation and long-term compensation for the
CEO.
• Annually
review, approve and report to the Board of Directors all compensation
arrangements, including base salary, incentive compensation and long-term
compensation, for all other Executive Officers.
• Review,
approve and report to the Board of Directors compensation packages for new
Executive Officers and termination packages for Executive Officers.
• Review
and make recommendations to the Board of Directors for ratification decisions
relating to long-term incentive compensation plans, including the use of
equity-based plans. Except as otherwise delegated by the Board of
Directors, the Committee will act on behalf of the Board of Directors as the
“committee” established to administer equity-based and employee benefit plans,
and as such, will discharge any responsibilities imposed on the committee under
those plans, including making and authorizing grants in accordance with the
terms of those plans. All such grants must be ratified by the Board of
Directors.
• Make
recommendations to the Board of Directors with respect to matters relating to
incentive compensation and equity-based plans which are appropriate for action
by the Board of Directors under applicable NASDAQ and SEC rules.
• Produce
an annual report of the committee on executive compensation for the Company’s
annual proxy statement in compliance with applicable NASDAQ and SEC
rules.
• Delegation of Authority. The
Committee has the authority to delegate any of its responsibilities to
subcommittees as the Committee may deem appropriate.
• Role of Executive
Officers. The Chief Executive
Officer provides the Committee with a verbal performance assessment and
compensation recommendation for each of the other Executive Officers. In
addition to the following items, these performance assessments and
recommendations are considered by the Committee in reviewing, approving and
reporting to the Board the compensation arrangements of each Executive Officer
other than the CEO: (i) an assessment of the Company’s performance, (ii)
the perquisites provided to the Executive Officers, (iii) the salaries paid by a
peer group to executive officers holding equivalent positions, (iv) tally sheets
showing the aggregate amount of all components of compensation paid to the
Executive Officers, and (v) the complexity of the job duties of each Executive
Officer.
• Role of Independent Consultant.
The
Committee has the authority to retain any advisors as the Committee deems
appropriate in carrying out its duties. The Committee has not retained the
services of an independent consultant in reviewing and approving the form and
amount of executive and director compensation.
For more
information regarding the Committee’s philosophy and evaluation of executive
performance, see the Compensation Discussion and Analysis beginning on page 28
of these Annual Meeting materials.
Independence
of Directors and Nominees
The Board
of Directors annually reviews the relationships of each member of the Board with
the Company to determine whether each director is independent. This
determination is based on both subjective and objective criteria developed by
the NASDAQ listing standards and the SEC rules.
The Board
of Directors met on February 12, 2009, to determine the independence of the
current members of the Board of Directors and the nominees for election as a
director of the Company. At the meeting, the Board of Directors reviewed
the directors’ responses to a questionnaire asking about their relationships
with the Company (and those of their immediate family members) and other
potential conflicts of interest, as well as information provided by management
related to transactions, relationships, or arrangements between the Company and
the directors or parties related to the directors.
Based on
the subjective and objective criteria developed by the NASDAQ listing standards
and the SEC rules, the Board of Directors determined that the following nominees
and current members of the Board of Directors are independent: Frank A. Baer,
III , Oscar M. Bean, Dewey F. Bensenhaver, James M. Cookman, John W. Crites,
James P. Geary, II, Thomas J. Hawse, III, Phoebe F. Heishman, Gary L. Hinkle,
Gerald W. Huffman, Duke A. McDaniel, G. R. Ours, Jr. and Charles S.
Piccirillo.
H.
Charles Maddy, III, Patrick N. Frye and Ronald F. Miller are not independent
because these individuals are executive officers of the Company.
The
NASDAQ listing standards contain additional requirements for members of the
Compensation and Nominating Committee and the Audit and Compliance Committee.
All of the directors serving on each of these committees is independent
under the additional requirements applicable to such committees.
The Board
also considered the following relationships in evaluating the independence of
the Company’s independent directors and determined that none of the
relationships constitute a material relationship with the Company and each of
the relationships satisfied the standards for independence:
• Summit
Community Bank, Inc., a subsidiary of the Company, provided lending and/or other
financial services to each member of the Company’s Board of Directors, their
immediate family members, and/or their affiliated organizations during 2008 in
the ordinary course of business and on substantially the same terms as those
available to unrelated parties;
• Frank
A. Baer, III is affiliated with an entity that received commissions on the
placement of property and casualty insurance by the Company;
• Oscar
M. Bean, James P. Geary, II, and Charles S. Piccirillo are partners of law firms
that received payments for legal services provided to the Company or its
subsidiaries during 2008;
• Oscar
M. Bean is a member of the Board of Directors of an organization that conducts
business with a subsidiary of the Company and is the campaign chair of a
non-profit entity that received a donation from the Company;
• A
subsidiary of the Company purchases grocery items from a supermarket owned by
Thomas J. Hawse, III; and
• The
Company and its subsidiary advertise in a weekly newspaper owned by Phoebe F.
Heishman.
Review
and Approval of and Description of Transactions with Related
Persons
Policies and Procedures
The
Company has a written policy and procedure for review, approval and monitoring
of transactions involving the Company and “related persons” (directors, nominees
for director, and executive officers or their immediate families, or
shareholders owning five percent or greater of the Company’s outstanding stock).
The policy covers any related person transaction that meets the minimum
threshold for disclosure in the proxy statement under the relevant SEC rules
(generally, transactions involving amounts exceeding $120,000 in which a related
person has a direct or indirect material interest).
Related
party transactions must be approved by the Board of Directors. At each
calendar year’s first regularly scheduled meeting of the Board of Directors,
management recommends Related Person Transactions to be entered into by the
Company for that calendar year, including the proposed aggregate value of such
transactions if applicable. After review, the Board of Directors approves
or disapproves such transactions. The Board of Directors will review any
new transactions at each subsequently scheduled meeting. Management will update
the Board of Directors as to any material change to proposed
transactions.
The Board
of Directors will consider all of the relevant facts and circumstances
available, including (if applicable) but not limited to: the benefits to the
Company; the impact on a director’s independence in the event the Related Person
is a director, an immediate family member of a director or an entity in which a
director is a partner, shareholder or executive officer; the availability of
other sources for comparable products or services; the terms of the transaction;
and the terms available to unrelated third parties or to employees generally.
No member of the Board of Directors will participate in any review,
consideration or approval of any Related Person Transaction with respect to
which such member or any of his or her immediate family members is the Related
Person. The Board of Directors will approve only those Related Person
Transactions that are in, or are not inconsistent with, the best interests of
the Company and its shareholders, as the Board of Directors determines in good
faith.
In the
event management recommends any further Related Person Transactions subsequent
to the first calendar year meeting, such transactions may be presented to the
Board of Directors for approval or preliminarily entered into by management
subject to ratification by the Board of Directors, provided that if ratification
shall not be forthcoming, management will make all reasonable efforts to cancel
or annul such transaction.
The
policy was adopted by the Executive Committee of the Board of Directors in
March, 2007. The Board of Directors met on February 12, 2009, and reviewed
all transactions with related parties since January 1, 2008, to determine if
such transactions were required to be reported in this Proxy Statement.
The Board of Directors determined that no transaction met the minimum
threshold for disclosure in this Proxy Statement under the relevant SEC rules
and no transaction was required to be approved by the Board of
Directors.
Transactions
with Related Persons
Directors
and executive officers of the Company and its subsidiaries, members of their
immediate families, and business organizations and individuals associated with
them have been customers of, and have had normal banking transactions with
Summit Community Bank. All such transactions were made in the ordinary
course of business, were made on substantially the same terms, including
interest rates and collateral, as those prevailing at the time for comparable
transactions with persons not related to Summit and did not involve more than
the normal risk of collectibility or present other unfavorable
features.
Loans
made to directors and executive officers are in compliance with federal
banking regulations and are thereby exempt from insider loan prohibitions
included in the Sarbanes-Oxley Act of 2002.
Except
for the transactions described in the above paragraph, the Company has not
entered into any transactions with related persons since January 1, 2007, nor
has the Company entered into a current transaction, in which the amount of the
transaction exceeds $120,000 and in which a related person had or will have a
direct or indirect material interest.
Shareholder
Communication with Directors
The Board
of Directors of the Company provides a process for shareholders to send
communications to the Board of Directors or to any of the individual Directors.
Shareholders may send written communications to the Board of Directors or
to any of the individual Directors c/o Assistant Corporate Secretary at the
following address: Summit Financial Group, Inc., P. O. Box 179, 300
N. Main Street, Moorefield, West Virginia 26836. All
communications will be compiled by the Assistant Corporate Secretary of the
Company and submitted to the Board of Directors or to the individual Directors
on a periodic basis.
Board
Member Attendance at Annual Meeting
The
Company does not have a policy with regard to directors’ attendance at annual
meetings. Eleven (11) of sixteen (16) members of the Board of Directors in 2008
attended the 2008 Annual Meeting of Shareholders.
Corporate
Policies
The
Company operates within a comprehensive plan of corporate governance for the
purpose of defining responsibilities, setting high standards of professional and
personal conduct and assuring compliance with such responsibilities and
standards. The Sarbanes-Oxley Act of 2002, among other things, establishes
a number of new corporate governance standards and disclosure requirements. In
addition, the Company is subject to the corporate governance and Marketplace
Rules promulgated by NASDAQ. In light of the requirements of the
Sarbanes-Oxley Act of 2002 and the NASDAQ corporate governance and Marketplace
Rules, Summit has a Compensation and Nominating Committee Charter and a Code of
Ethics that applies to all directors, executive officers and employees of Summit
Financial Group, Inc. and its subsidiaries. The Code of Ethics also
contains supplemental provisions that apply to the Company’s Chief Executive
Officer, the Chief Financial Officer, and the Chief Accounting Officer (the
“Senior Financial Officers”). In addition, the Code of Ethics contains
procedures for reporting violations of the Code of Ethics involving the
Company’s financial statements and disclosures, accounting practices, internal
control over financial reporting, disclosure controls and auditing matters.
A copy of the Code of Ethics is available on the Company’s website at
www.summitfgi.com.
ITEM
1 – ELECTION OF DIRECTORS
The Board
of Directors is divided into three (3) classes. The terms of the
Directors in each class expire at successive annual meetings. Five (5)
Directors will be elected at our 2009 Annual Meeting to serve for a three-year
term expiring at our Annual Meeting in the year 2012. If the proposed
nominees are elected, the Company will have a Board of Directors consisting of
one class of six (6) directors and two classes of five (5) directors
each.
The
persons named in the enclosed proxy intend to vote the proxy for the election of
each of the five nominees, unless you indicate on the proxy card that your vote
should be withheld from any or all of such nominees. Each nominee elected
as a Director will continue in office until his or her successor has been
elected, or until his or her death, resignation or retirement.
The Board
of Directors has proposed the following nominees for election as Directors, with
terms expiring in 2012, at the Annual Meeting: James M. Cookman,
Thomas J. Hawse, III, Gary L. Hinkle, Gerald W. Huffman, and H. Charles Maddy,
III. All of the nominees were recommended by the Compensation and
Nominating Committee and approved by the Board of Directors of the Company.
All of the nominees are directors standing for re-election.
The
Board of Directors recommends a vote FOR the election of these nominees for
election as Directors.
We expect
each nominee for election as a Director to be able to serve if elected. To
the extent permitted by applicable law, if any nominee is not able to serve,
proxies will be voted in favor of the remainder of those nominated and may be
voted for substitute nominees, unless the Board chooses to reduce the number of
Directors serving on the Board. The principal occupation and certain other
information about the nominees and other Directors whose terms of office
continue after the Annual Meeting are set forth on the following
pages.
Security
Ownership of Directors and Officers
As of
March 6, 2009, the nominees and other Directors of the Company owned
beneficially, directly or indirectly, the number of shares of common stock
indicated on the following pages. The number of shares shown as
beneficially owned by each director and executive officer is determined under
the rules of the Securities and Exchange Commission and the information is not
necessarily indicative of beneficial ownership for any other
purposes.
All
Directors and executive officers as a group owned 1,873,532 shares or 24.45% of
the Company’s common stock as of March 6, 2009. Each director of the
Company is required to own a minimum of 2,000 shares of the Company’s common
stock. Ownership is defined as shares held solely in the director’s name,
shares held through the Company’s employee stock ownership plan, a
profit-sharing plan, individual retirement account, retirement plan or similar
arrangement, and shares owned by a company where the director owns a controlling
interest. Shares held jointly by a director and the director’s spouse are
counted when determining whether a director owns 2,000 shares of the Company’s
common stock as long as the director owns stock in his or her own name with a
minimum value of at least $500, which is the minimum imposed by West Virginia
law. Directors who are also employees of the Company or its subsidiaries
are exempt from this requirement.
The
Company requires that all directors retire at the end of the term during which
the director attains the age of 70. However, pursuant to the Merger
Agreement with Potomac Valley Bank, the Company agreed that Messrs. McDaniel and
Ours, Jr. would be exempt from the Company’s mandatory retirement requirement.
These individuals must retire at the end of the term during which they
attain the age of 80.
Family
Relationships
Dewey S.
Bensenhaver is married to G. R. Ours, Jr.’s niece.
Name
and Age as of the May 14, 2009,
Meeting
Date
|
Position,
Principal Occupation
Business
Experience and Directorships
|
Amount
of Beneficial Ownership of Shares of Common Stock as of March 6,
2009
|
NOMINEES
FOR DIRECTOR WHOSE TERMS EXPIRE IN 2012
|
|
Shares
|
%
|
James
M. Cookman …(55)
|
Director
of Summit Financial Group since 1994. President of Cookman
Insurance Group, Inc.; President of Cookman Realty Group, Inc.;
Secretary/Treasurer of Apex Developers, Inc.; Member of BeaconNet, LLC;
Member of Orchard View Estates, LLC; Member of Highland Estates, LLC; Vice
President of Project Development of U.S. WindForce, LLC; Manager of West
Virginia Land Sales, LLC.
|
20,784(1)
|
*
|
Thomas
J. Hawse, III ..(64)
|
Director
of Summit Financial Group since 1988. President of Hawse Food
Market, Inc.
|
40,259(2)
|
*
|
Gary
L. Hinkle ………(59)
|
Director
of Summit Financial Group since 1993. President of Hinkle
Trucking, Inc., Dettinburn Transport, Inc., Mt. Storm Fuel Corporation and
H. T. Services, Inc.
|
284,430(3)
|
3.71%
|
Gerald
W. Huffman …(64)
|
Director
of Summit Financial Group since 2000. President of Potomac
Trucking & Excavation, Inc., Huffman Logging, Inc. and G&T Repair,
Inc.
|
60,000
|
*
|
H.
Charles Maddy, III (46)
|
Director
of Summit Financial Group since 1993. President and CEO of
Summit Financial Group since 1994. Co-Chairman of Board of
Directors of Summit Community Bank, a subsidiary of the Company, since
June 2007. Chairman of Board of Directors of Summit Community
Bank from 2002 to 2007. Director of the Federal Home Loan Bank
of Pittsburgh (“FHLB”) since 2002. Vice Chairman of the FHLB
Board.
|
106,008(4)
|
1.38%
|
(1) Includes
17,784 shares owned by self-directed 401(k) Retirement Plan.
|
(2)
|
Includes
1,500 shares owned by spouse, 4,109 shares owned by self-directed IRA FBO
spouse, and 500 shares owned by
children.
|
|
(3)
|
Includes
54,745 shares owned by Hinkle Trucking, Inc., 4,800 shares owned by
spouse, and 500 shares owned as Custodian for
grandchild.
|
|
(4)
|
Includes
8,009 shares owned by spouse, 20,767 fully vested shares held in Company’s
ESOP and exercisable stock options for 71,200 shares; 2,768 shares are
pledged as collateral.
|
*
Indicates director owns less than 1% of the Company’s Common Stock.
Name
and Age as of the May 14, 2009,
Meeting
Date
|
Position,
Principal Occupation
Business
Experience and Directorships
|
Amount
of Beneficial Ownership of Shares of Common Stock as of March 6,
2009
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2011
|
|
Shares
|
%
|
Frank
A. Baer, III …..(48)
|
Director
of Summit Financial Group since 1998. CEO of Commercial
Insurance Services, an insurance brokerage firm.
|
25,519(1)
|
*
|
Patrick
N. Frye ……..(50)
|
Director
of Summit Financial Group since 2000. Senior Vice President and
Chief Credit Officer of Summit Financial Group since December
2003. President and CEO of Summit Community Bank, a subsidiary
of the Company, from 1998 to 2004.
|
41,466(2)
|
*
|
Duke
A. McDaniel ….(70)
|
Director
of Summit Financial Group since 2000. Attorney at
Law.
|
39,524(3)
|
*
|
Ronald
F. Miller ……(65)
|
Director
of Summit Financial Group since 1998. President and CEO of
Summit Community Bank, a subsidiary of the Company, since
1998.
|
49,647(4)
|
*
|
G.
R. Ours, Jr. (77)
|
Director
of Summit Financial Group and Vice Chairman of the Board since
2000. Retired President of Petersburg Oil
Co. Director of Summit Community Bank, subsidiary of the
Company, since 1974 and Chairman of the Board from 1995 to
2002.
|
231,500(5)
|
3.02%
|
(1)
|
Includes
592 shares owned by minor children.
|
(2)
|
Includes
5,074 fully vested shares held in Company’s ESOP and exercisable stock
options for 28,400 shares.
|
(3)
|
Includes
30,176 shares that are pledged as
collateral.
|
(4)
|
Includes
6,777 fully vested shares held in Company’s ESOP and exercisable stock
options for 34,400 shares.
|
(5)
|
Includes
21,000 shares owned by spouse and 80,000 shares owned by children for whom
director has continuous voting authority until
rescinded.
|
*
Indicates director owns less than 1% of the Company’s Common Stock.
Name
and Age as of the May 14, 2009,
Meeting
Date
|
Position,
Principal Occupation
Business
Experience and Directorships
|
Amount
of Beneficial Ownership of Shares of Common Stock as of March 6,
2009
|
DIRECTORS
WHOSE TERMS EXPIRE IN 2010
|
|
Shares
|
%
|
Oscar
M. Bean ……..…(58)
|
Director
of Summit Financial Group since 1987, Chairman of the Board since
1995. Managing partner of Bean & Bean, Attorneys at
Law.
|
71,093(1)
|
*
|
Dewey
F. Bensenhaver. (62)
|
Director
of Summit Financial Group since 2000. Physician in private
practice; Owner of farming operation.
|
49,040(2)
|
*
|
John
W. Crites ……..…(68)
|
Director
of Summit Financial Group since 1989. Chairman of Allegheny
Wood Products, Inc.; partner in Allegheny Dimension, LLC; and principal
stockholder of KJV Aviation, Inc.
|
548,816
|
7.16%
|
James
P. Geary, II ..…..(53)
|
Director
of Summit Financial Group since 2007. Partner of the law firm
of Geary & Geary.
|
12,628(3)
|
*
|
Phoebe
F. Heishman ....(68)
|
Director
of Summit Financial Group since 1987, Secretary since
1995. Publisher and Editor of The Moorefield
Examiner.
|
93,520(4)
|
1.22%
|
Charles
S. Piccirillo …..(54)
|
Director
of Summit Financial Group since 1998. Member in the law firm of
Shaffer & Shaffer, PLLC; Partner, Lawoff Associates; President, Auggus
Enterprises, Inc.
|
21,978(5)
|
*
|
(1)
|
Includes
4,850 shares owned by spouse, 2,340 shares owned by
children.
|
(2)
|
Includes
4,769 shares owned by spouse, 13,544 shares owned by minor children, and
1,876 shares owned as a custodian for minor
children.
|
(3)
|
Includes
136 shares owned as custodian for minor
child.
|
(4)
|
Includes
1,760 shares owned by spouse and 20,135 shares owned by children for whom
she has a power of attorney; 10,392 shares are pledged as
collateral.
|
(5)
|
Includes
409 shares owned by spouse.
|
|
*
Indicates director owns less than 1% of the Company’s Common
Stock.
|
ITEM
2 – PROPOSAL TO APPROVE 2009 OFFICER STOCK OPTION PLAN
At a
meeting held on February 12, 2009, the Summit Board of Directors unanimously
approved the adoption of the Summit Financial Group, Inc. 2009 Officer Stock
Option Plan (the “Officer Plan”) and directed that the Officer Plan be submitted
to shareholders for approval. The Officer Plan is intended to replace
the 1998 Officer Stock Option Plan (the “1998 Plan”) which expired on May 5,
2008. As of March 31, 2009, options to purchase __________ shares of
common stock are currently outstanding under the 1998 Plan and options to
purchase 556,100 shares of common stock were available for issuance under the
1998 Plan, but are now expired and cannot be issued. If the Officer
Plan is not approved, all outstanding options granted under the 1998 Plan would
remain in effect, but no additional option grants would be made under the 1998
Plan.
The
Officer Plan provides for the granting of options (individually referred to as
“Stock Option”) for up to 350,000 shares of Summit Common Stock, of which up to
100,000 shares may be issued under the Officer Plan for Qualified Stock
Options. The Officer Plan will become effective upon approval of the
shareholders of Summit at this Annual Meeting. The Summit Board
believes that it is in the best interest of Summit and its shareholders to
attract and retain qualified and motivated management and that the Officer Plan
will help the Company achieve this goal. Options issued under the
Officer Plan shall consist of non-qualified stock options and stock options
qualified under Section 422(b) of the Internal Revenue Code of 1986, as amended
(the “Code”). The NASDAQ listing standards require shareholder
approval of the Officer Plan. The Officer Plan is not subject to the
Employee Retirement Income Security Act of 1974 (“ERISA”).
THIS
SECTION CONTAINS A SUMMARY OF KEY TERMS OF THE OFFICER PLAN. THE
COMPLETE OFFICER PLAN IS ATTACHED HERETO AS EXHIBIT A. THE SUMMARY
DESCRIPTION OF THE OFFICER PLAN DOES NOT PURPORT TO BE COMPLETE AND IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE COMPLETE DOCUMENT ATTACHED HERETO AS EXHIBIT
A.
Purpose
of the Officer Plan
The
Officer Plan permits officers of Summit and it subsidiaries to acquire and hold
Common Stock (“Common Stock”) of the Company and share in the growth of the
value of the Company, thereby reinforcing a mutuality of interest with
shareholders. In the opinion of the Board of Directors, the long-term
success of Summit is dependent upon the ability of Summit to attract and retain
outstanding individuals and to motivate their best efforts on behalf of Summit’s
interest. The Board of Directors believes that the Officer Plan will
be effective in providing its officers with a proprietary interest in the
business and consequently a greater incentive to promote the long-term interests
of Summit.
Common
Stock Available
The total
number of shares of Common Stock that may be issued under the Officer Plan shall
not exceed in the aggregate three hundred fifty thousand (350,000) shares, which
shares may be in whole or in part, as the Board shall from time to time
determine, authorized but unissued shares of Common Stock, or issued shares of
Common Stock which have been reacquired by the Company. The maximum
number of shares of Common Stock that may be issued under the Officer Plan
through a qualified stock option is one hundred thousand (100,000).
The
Officer Plan provides for the grant of incentive stock options intended to
qualify under Section 422 of the Code and non-qualified stock
options. No tandem options will be issued under the Officer
Plan. A tandem option would occur if both options were to be granted
at the same time and where the exercise of one option affects the right to
exercise the other option.
Eligibility
for Participation
Only
officers of Summit and its subsidiaries may be granted non-qualified stock
options under the Officer Plan. Approximately ___ officers of Summit
would be eligible to be granted non-qualified stock options under the Officer
Plan.
Qualified
stock options may be granted to key employees of the Company or its
subsidiaries. For purposes of the Officer Plan, the term key
employees is defined pursuant to Code Section 3401(c) and the regulations issued
thereunder and excludes independent contractors and directors of the
Company. Approximately ___ key employees of Summit would be eligible
to be granted qualified stock options under the Officer Plan
Any
participant at the time a qualified stock option is granted cannot own stock
having more than ten percent (10%) of the total combined voting power of all
classes of stock of the Company or any subsidiary. This ten percent
(10%) stock ownership limit does not apply if, at the time the qualified stock
option is granted:
(1) the
qualified stock option price is at least one hundred and ten percent (110%) of
the stock's Fair Market Value (as defined below) on the date of grant;
and
(2) the
qualified stock option, by its terms, is not exercisable more than five years
after the date granted.
Option
Agreement
Each
Stock Option granted under the Officer Plan will be evidenced by an Option
Agreement between the Company and the officer. These agreements will
contain the terms on which the option can be exercised.
Option
Price
The
option price for purchasing a share of Common Stock will not be less than the
Fair Market Value of the Common Stock on the date the option is
granted. In no event will an option be granted under the Officer Plan
if the Option per share price is less than the par value of a share of Common
Stock.
“Fair Market Value” means (i) if the
Common Stock is listed on an established securities exchange, the value per
share shall be based on the arithmetic mean of its closing prices reported on
such exchange at the close of business for the last five (5) most recent
Business Days on which the Common Stock traded prior to the date of grant;
provided however, if the Common Stock did not trade for five (5) Business Days
during the continuous thirty (30) day period immediately prior to the date of
grant, then the Fair Market Value shall be the arithmetic mean of the closing
prices reported on such exchange at the close of business for the Business Days
on which the common stock traded during said thirty (30) day period or if the
Common Stock did not trade during said thirty (30) day period, then the Fair
Market Value shall equal the closing price reported on such exchange at the
close of business on the last trading
day
before the date of the grant; (ii) if the Common Stock is not listed on any
United States securities exchange but is traded on any formal over-the-counter
quotation system which reports quotations from more than one broker or dealer in
the United States, the value per share shall be based on the simple average of
the closing prices reported on the last five (5) Business Days on which the
Common Stock traded prior to the date of grant provided however, if the Common
Stock did not trade for five (5) Business Days during a continuous thirty (30)
day period immediately prior to the date of grant, then the Fair Market Value
shall be the arithmetic mean of the closing prices reported on such exchange at
the close of business for the Business Days on which the common stock traded
during said thirty (30) day period or if the Common Stock did not trade during
said thirty (30) day period, then the Fair Market Value shall equal the closing
price reported on such exchange at the close of business on the last trading day
before the date of the grant; or (iii) if the Common Stock is not readily
tradable on an established securities exchange, the value per share shall be
based on a reasonable valuation method that conforms to the requirements of
Internal Revenue Code Section 409A. As of April __, 2009, the market
value of Summit’s Common Stock, as quoted on the NASDAQ SmallCap Market under
the symbol “SMMF,” was $______ per common share.
The
option price can be paid by cash, certified check, or by surrender of previously
acquired shares of Common Stock valued at Fair Market Value on the business date
the option is exercised.
Stock
Holding Period Upon Exercise of Qualified Options
Upon the
transfer of stock pursuant to the exercise of a qualified stock option, the
participating Officer shall not make a disposition of the share of stock so
transferred before the later of the expiration of: (1) the
two (2) year period from the date of grant of the qualified stock option under
which the stock was transferred; or (2) the one (1) year period from
the date of transfer of the share of stock to the participating
Officer. An impermissible disposition by an Officer will be
considered a disqualifying disposition under Code Sections 422 and 421 and the
regulations issued thereunder. This limitation will not apply if
during the required holding period an insolvent Officer transfers stock acquired
through the exercise of a qualified stock option (i) to a trustee, receiver or
other fiduciary, or (ii) for the benefit of creditors, in a bankruptcy or
insolvency proceeding, subject to the limitations of Code Section
422.
Restrictions
on Issuing Shares
The
transfer of a share of Summit Common Stock upon the exercise of an Option will
be subject to the condition that if at any time the Company determines that the
satisfaction of withholding tax or other withholding liabilities, or that the
listing, registration or qualification of any shares otherwise deliverable upon
any securities exchange or under any state or federal law, or that the consent
or approval of such regulatory body, is necessary or desirable to transfer the
shares, in any such event, the transfer will not be effective unless the
withholding, listing, registration, qualification, consent, or approval has been
effected or obtained under conditions acceptable to the Company.
Adjustments
Subject
to any applicable federal law limitations and requirements, the Committee will
make appropriate adjustment in the number and kind of shares for which options
may be granted under the Officer Plan as well as appropriate adjustment to
outstanding options under the Officer Plan if the outstanding shares of Summit
Common Stock are increased or decreased or changed into or exchanged for a
different number or kind of shares or other securities of Summit or of another
corporation, by reason of a recapitalization, reclassification, stock split-up,
combination of shares or dividend or other distribution payable in capital
stock. Any adjustments to outstanding options will be made to the end
that the proportionate interest of the holder of the option will, to the extent
practicable, be maintained as
before
the occurrence of such event and will be made without change in the total price
applicable to the unexercised portion of the option but with a corresponding
adjustment in the option price per share. Any adjustments to a
qualified stock option will be made so that the option continues to be an
incentive stock option within the meaning of Code Section 422.
Option
Expiration
Each
stock option will automatically expire after ten (10) years, unless a shorter
expiration term is granted by the Board. No Stock Option may be
exercised by any person after expiration.
Any
qualified stock option granted under the Officer Plan must be exercised prior to
the expiration of (i) ten (10) years from the date the option is granted or (ii)
five (5) years from the date the option is granted to an employee who owns at
least ten percent (10%) of the Company.
Option
Termination
In the
event of a participating officer’s termination of employment by either the
participating officer or the Company, other than a termination by reason of
retirement, permanent disability, or death, all as more fully described in the
Officer Plan, an officer may exercise the stock option until the shorter of (i)
the expiration of the stated term of the Option; (ii) in the case of
non-qualified stock options for a period of one (1) year from his or her
termination date; or (iii) in the case of qualified stock options for a period
of ninety (90) days from the date of such termination.
In the
event of Retirement, as defined in the Officer Plan, a participating
officer will become one hundred percent (100%) vested in any Stock Option he or
she has been granted under the Officer Plan. Such Officer may
exercise the Stock Option until the shorter of (i) the expiration of the stated
term of the Option; (ii) in the case of non-qualified stock options, for a
period of one (1) year from the date of retirement; or (iii) in the case of
qualified stock options, for a period of ninety (90) days from the date of
retirement.
In the
event of permanent disability, as defined in the Officer
Plan, to the extent that the Officer would have been entitled to
exercise the Stock Option immediately prior to the disability, such option may
be exercised with respect to the number of shares that were vested during the
period the Stock Option could have been exercised if the director had not been
disabled. A qualified stock option must be exercised within one (1)
year after termination of employment by reason of a permanent
disability.
In the
event of death, to the extent the Officer would have been entitled to exercise
the Stock Option immediately prior to his or her death, such Stock Option may be
exercised during the period the option would have been exercisable if the
deceased Officer had not died, by the person or persons(including his or her
estate) to whom his or her rights shall have passed by will or by
laws of descent and distribution. In the case of qualified stock
options, an Officer must be an employee of the corporation or its subsidiaries
(i) at the time of the Officer’s death; or (ii) within three months of the
Officer’s death.
Administration
The
Officer Plan is administered by a Committee of the Board appointed by the Board,
however, the Board reserves the right to administer the Officer Plan in its
discretion. The Committee has discretion, subject to the express
provisions of the Officer Plan to: (i) determine the officers to whom
options may be granted; (ii) determine the time or times when options may
be granted; (iii) determine the purchase price of the Common Stock covered by
each option; (iv) determine the number of shares to be
subject
to each option; (v) determine when an option may be exercised and whether
in whole or in installments as the result of a vesting schedule triggered by the
passage of time or the attainment of performance goals set by the Committee and
approved by the Board; (vi) prescribe, amend, or rescind rules and regulations
relating to the Officer Plan; (vii) determine any other terms and provisions and
any related amendments of the individual Option Agreements, which need not be
identical for each participating officer, including such terms and provisions
and amendments as shall be required in the judgment of the Committee to conform
to any change in any law or regulation applicable thereto, and with particular
regard to any changes in or effect of the Internal Revenue Code and the
regulations thereunder; and (viii) to make all other determinations deemed
necessary or advisable for the administration of the Officer
Plan. The Officer Plan provides for indemnification of Committee
members as described more fully in the Officer Plan and in addition to any other
rights of indemnity otherwise applicable.
Officer
Plan Effective Date
The
Officer Plan is effective on the date of its approval by the shareholders of
Summit.
Officer
Plan Expiration
The
Officer Plan will automatically terminate at the tenth anniversary of the date
of shareholder approval of the Officer Plan. The term of Stock
Options granted before such tenth anniversary may continue beyond that
date.
Amendment
and Termination of the Officer Plan
The Board
of Directors may at any time amend or terminate the Officer
Plan. Among other things, the Board may (a) increase the maximum
number of shares to which options may be granted, subject to approval by the
shareholders and the limitations applicable to issuance of qualified stock
options or non-qualified stock options; (b) change the class of employees
eligible to be granted non-qualified stock options, subject to shareholder
approval; (c) increase the period during which non-qualified options may be
granted, subject to the limitations applicable to the issuance of non-qualified
stock options; or (d) provide for the administration of the Officer Plan in a
manner which may avoid, without the consent of the officer to whom any option
theretofore shall have been granted, adversely affecting the rights of such
officer under such grant. Notwithstanding the foregoing, no amendment
will be effective if it would cause the Officer Plan to violate Code Sections
409A and 422 and the regulations and guidance thereunder and consequently cause
this Plan to be subject to 409A or cause any qualified stock option issued
hereunder to be treated as a non-qualified stock option.
Registration
of Common Stock
Summit
will register the shares issued under the Officer Plan under applicable federal
and state securities law, unless an exemption is available.
Initial
Option Grants
The
Committee will award options to eligible officers of the Company. The
options will be nonassignable and nontransferable. All options are
subject to all terms of the Officer Plan, including but not limited to, those
related to employment status, change in corporate structure, restrictions on
exercise, and a vesting schedule for options granted.
Federal
IncomeTax Consequences
The
following is a summary of the United States federal income tax consequences that
generally will arise with respect to options granted under the Officer
Plan. This summary is based on the federal tax laws in effect as of
the date of this Proxy Statement. In addition, this summary assumes
that all options awarded under the Officer Plan are exempt from, or comply with,
the rules under Section 409A of the Internal Revenue Code regarding nonqualified
deferred compensation. Changes to these laws could alter the tax
consequences described below.
Qualified
Stock Options
An
officer will not have income upon the grant of a qualified stock
option. Also, except as described below, an officer will not have
income upon exercise of a qualified stock option if the officer has been
employed by the Company or 50% or more-owned corporate subsidiary at all times
beginning with the option grant date and ending three months before the date the
officer exercises the option. If the officer has not been so employed
during that time, then the officer will be taxed as described below under
“Nonqualified Stock Options.” The exercise of a qualified stock
option may subject the officer to the alternative minimum tax.
An
officer will have income upon the sale of the stock acquired under a qualified
stock option at a profit (if sales proceeds exceed the exercise
price). The type of income will depend on when the officer sells the
stock. If an officer sells the stock more than two years after the
option was granted and more than one year after the option was exercised, then
all of the profit will be long-term capital gain. If an officer sells
the stock prior to satisfying these waiting periods, then the officer will have
engaged in a disqualifying disposition and a portion of the profit will be
ordinary income and a portion may be capital gain. This capital gain
will be long-term if the officer has held the stock for more than one year and
otherwise will be short-term. If an officer sells the stock at a loss
(sales proceeds are less than the exercise price), then the loss will be a
capital loss. This capital loss will be long-term if the officer held
the stock for more than one year and otherwise will be short-term.
Nonqualified
Stock Options
An
officer will not have income upon the grant of a nonqualified stock
option. An officer will have compensation income upon the exercise of
a nonqualified stock option equal to the value of the stock on the day the
officer exercised the option less the exercise price. Upon sale of
the stock, the officer will have capital gain or loss equal to the difference
between the sales proceeds and the value of the stock on the day the option was
exercised. This capital gain or loss will be long-term if the officer
has held the stock for more than one year and otherwise will be
short-term.
Tax
Consequences to the Company
There
will be no tax consequences to the Company except that the Company will be
entitled to a deduction when an officer has compensation income. Any
such deduction will be subject to the limitations of Section 162(m) of the
Internal Revenue Code.
THE
FEDERAL INCOME TAX DISCUSSION SET FORTH IN THIS SECTION IS INCLUDED FOR GENERAL
INFORMATION ONLY AND DOES NOT PURPORT TO BE A COMPLETE ANALYSIS OR LISTING OF
ALL POTENTIAL TAX CONSEQUENCES. THE DISCUSSION DOES NOT ADDRESS THE
TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY STATE, LOCALITY, OR FOREIGN
JURISDICTION. THE DISCUSSION IS BASED UPON THE INTERNAL REVENUE CODE
OF 1986, AS AMENDED, TREASURY REGULATIONS
THEREUNDER,
AND ADMINISTRATIVE RULINGS AND COURT DECISIONS AS OF THE DATE
HEREOF. ALL OF THE FOREGOING ARE SUBJECT TO CHANGE AND ANY SUCH
CHANGE COULD AFFECT THE CONTINUING VALIDITY OF THE DISCUSSION. PLAN
PARTICIPANTS SHOULD CONSULT THEIR OWN TAX ADVISORS AS TO THE PARTICULAR TAX
CONSEQUENCES TO THEM, INCLUDING THE EFFECT OF FOREIGN, STATE, AND LOCAL
TAXES.
Resale
of Common Stock by Officer Plan Participants
Participants
who exercise options and receive Summit Common Stock under the Officer Plan may
resell the Common Stock received without restriction if they are not affiliates
of Summit. Those participants who are affiliates will be subject to
the resale provisions of Rule 144 under the Securities Act of 1933, as
amended.
Participants
who exercise qualified stock options and receive Summit Common Stock under the
Officer Plan are prohibiting from disposing the shares before the later of the
expiration of:
(1) the
two (2) year period from the date of grant of the qualified stock option under
which the stock was transferred; or
(2) the
one (1) year period from the date of transfer of the share of stock to the
participant.
If a
participant does not comply with the above stock holding period any such
disposition will be considered a disqualifying disposition pursuant to Code
Section 422 and 421 and the regulations issued thereunder.
The
holding periods described above are not applicable if during the required
holding period an insolvent participant transfers stock acquired through the
exercise of a qualified stock option (i) to a trustee, receiver or other
fiduciary, or (ii) for the benefit of creditors, in a bankruptcy or insolvency
proceeding, subject to the limitations of Code Section 422.
Change
of Control Provisions
If there
is a change of control of Summit (as defined in the Officer Plan), all options
granted shall become immediately vested and exercisable regardless of the number
of years that have passed since the date of grant. . In
addition, upon a change of control, all options granted will terminate as of a
date to be fixed by the Committee as long as at least ninety (90) days’ written
notice of the termination date is given to each participating Officer, in which
event, each such Officer will have the right during that period to exercise any
of his or her options, except that no extension of the term of an option will be
granted.
Generally,
a “Change of Control” occurs if (i) any individual, firm, corporation or other
entity (other than the Company or its employee benefit plans) is or has become a
beneficial owner, directly or indirectly, of securities of the Company
representing twenty-five percent (25%) or more of the combined voting power of
the Company’s then outstanding securities; (ii) the Company files a report or
proxy statement with the Securities and Exchange Commission disclosing that a
Change of Control of the Company has or may have occurred or will or may occur
in the future pursuant to any then-existing contract or transaction; (iii) the
Company is merged or consolidated with another corporation and, as a result
thereof, securities representing less than fifty percent (50%) of the combined
voting power of the surviving or resulting corporation’s securities are owned in
the aggregate by holders of the Company’s securities immediately prior to such
merger or consolidation; (iv) all or substantially all of the assets of the
Company are sold in a single transaction or a series of related transactions to
a single purchaser or
group of
affiliated purchasers; or (v) during any period of twenty-four (24) consecutive
months, individuals who were Directors of the Company at the beginning of such
period cease to constitute at least a majority of the Company’s board unless the
election, or nomination for election by the Company’s shareholders, of more than
one-half of any new Directors of the Company was approved by a vote of at least
two-thirds of the Directors of the Company then still in office who were
Directors of the Company at the beginning of such twenty-four (24) month period,
either actually or by prior operation of this clause (v). Under
the Officer Plan, Change of Control does not include any transaction described
in the definition of Change of Control in connection with which the Corporation
executes a letter of intent or similar agreement with another company within one
year from the effective date of the Officer Plan.
Considerations
For and Against the Proposal
In the
opinion of the Board of Directors of Summit, the long-term success of Summit is
dependent upon its ability to attract and retain outstanding individuals and to
motivate their best efforts on behalf of Summit’s
interests. Consequently, the Board of Directors believes that both
Summit and its shareholders benefit by providing officers of Summit the option
to acquire shares of Summit Common Stock.
Under the
Officer Plan, shares may be purchased by participants at an option price fixed
on the date the options are awarded. Generally, the options would
later be exercised by the participant only if the market price at the time of
the exercise exceeds the option price. Thus the participant may
acquire Summit Common Stock at a price below its market value. At the
time of its exercise, Summit will experience slight dilution in its earnings per
share to the extent that the book value of Summit Common Stock exceeds the
option price.
Vote
Required
The
affirmative vote of a majority of votes cast on this proposal is required for
the ratification of this proposal. In determining whether the proposal has
received the requisite number of affirmative votes, abstentions and broker
non-votes will be disregarded and will have no effect on the outcome of the
vote.
Summit’s
Board of Directors recommend that the Shareholders vote FOR the adoption of the
Officer Stock Option Plan discussed above.
ITEM
3 – RATIFICATION OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors has appointed Arnett & Foster, PLLC to serve as our independent
registered public accounting firm for 2009 subject to the ratification of our
shareholders. For information concerning the audit fees paid by the
Company in 2007 and 2008 and for information about the Company’s auditors
generally, see the Audit and Compliance Committee Report on page 26 of this
Proxy Statement.
Representatives
of Arnett & Foster, PLLC will be present at the Annual Meeting to answer
questions. They will also have the opportunity to make a statement if they
desire to do so.
The
affirmative vote of a majority of votes cast on this proposal is required for
the ratification of this proposal. In determining whether the proposal has
received the requisite number of affirmative votes, abstentions and broker
non-votes will be disregarded and will have no effect on the outcome of the
vote.
Shareholder
ratification of the selection of Arnett & Foster, PLLC as our independent
registered public accounting firm is not required by our Bylaws or otherwise.
However, the Board of Directors is submitting the selection of Arnett
& Foster, PLLC to the shareholders for ratification as a matter of good
corporate practice. If the shareholders fail to ratify the selection, the
Audit and Compliance Committee and the Board of Directors will reconsider
whether or not to retain that firm. Even if the selection is ratified, the
Audit and Compliance Committee and the Board of Directors in their discretion
may direct the appointment of different independent auditors at any time during
the year if they determine that such a change would be in the best interests of
us and our shareholders.
The
Board of Directors recommends a vote FOR the ratification of Arnett &
Foster, PLLC as our independent registered public accounting firm for the year
2009.
AUDIT
AND COMPLIANCE COMMITTEE REPORT
The Audit
and Compliance Committee of the Board of Directors of the Company is composed of
six independent directors. The members of the Audit and Compliance
Committee are Thomas J. Hawse, III, Chairman, John W. Crites, James P. Geary,
II, Gary L. Hinkle, Gerald W. Huffman and Charles S. Piccirillo.
The Audit
and Compliance Committee operates under a written charter adopted by the
Company’s Board of Directors. A copy of the Audit and Compliance Committee
Charter is available on the Company’s website at www.summitfgi.com.
The Audit
and Compliance Committee has reviewed the audited financial statements of the
Company for the fiscal year ended December 31, 2008, and discussed them with
Management and the Company’s independent auditors, Arnett & Foster, PLLC.
The Audit and Compliance Committee also has discussed with the independent
auditors the matters required to be discussed by the Auditing Standards Board
Statement of Auditing Standards No. 61, as amended.
The Audit
and Compliance Committee has received from the independent auditors the written
disclosures and letter required by the Independence Standards Board Standard No.
1, as adopted by the Public Company Accounting Oversight Board in Rule 3600T,
and the Audit and Compliance Committee has discussed with the auditors their
independence from the Company and Management.
Based on
the review and discussions described above, the Audit and Compliance Committee
recommended to the Board of Directors that the Company’s audited financial
statements for the year ended December 31, 2008, be included in the Company’s
Annual Report on Form 10-K for 2008.
Fees
To Arnett & Foster, PLLC
The
following table presents fees for professional services rendered by Arnett &
Foster, PLLC to perform an audit of the Company’s annual financial statements
for the years ended December 31, 2008, and 2007, and fees for other services
rendered by Arnett & Foster, PLLC during those periods:
|
2008
|
2007
|
Audit
Fees(1)
|
$199,000
|
$173,670
|
Audit-Related
Fees(2)
|
$ 36,000
|
36,000
|
Tax
Fees(3)
|
$ 20,143
|
15,445
|
All
Other Fees(4)
|
$ 23,300
|
4,650
|
Total
Fees
|
$278,443
|
$229,765
|
(1) Audit
Fees — These are fees for professional services performed by Arnett &
Foster, PLLC associated with the annual audit of the Company’s consolidated
financial statements, the audit of the effectiveness of the Company’s internal
control over financial reporting.
(2) Audit-Related
Fees — These are for assurance and related services performed by Arnett &
Foster, PLLC that are reasonably related to the performance of the audit or
review of the Company’s financial statements. This includes a review
of the Company’s quarterly reports on Form 10-Q filed with the Securities and
Exchange Commission.
(3) Tax
Fees — These are fees for professional services performed by Arnett &
Foster, PLLC with respect to tax compliance, tax advice and tax
planning. This includes review of original and amended tax returns
for the Company and its consolidated subsidiaries; refund claims; payment
planning; tax audit assistance; and tax work stemming from “Audit-Related”
items.
(4) All
Other Fees — These are fees for other permissible work performed by Arnett &
Foster, PLLC that does not meet the above category descriptions. This
includes: employee benefit and compensation plan audits and consulting on
financial accounting/reporting standards.
All
services rendered by Arnett & Foster, PLLC are permissible under applicable
laws and regulations, and pre-approved by the Audit and Compliance
Committee.
The Audit
and Compliance Committee’s pre-approval policies for audit and non-audit
services provided to the Company by Arnett & Foster, PLLC are as
follows:
|
•
|
Any
proposed services that would result in fees exceeding 5% of the total
audit fees require specific pre-approval by the Audit and Compliance
Committee.
|
|
•
|
Any
proposed services that would result in fees of less than 5% of the total
audit fees may be commenced prior to obtaining pre-approval of the Audit
and Compliance Committee. However, before any substantial work is
completed, Arnett & Foster, PLLC must obtain the approval of such
services from the Chairman of the Audit and Compliance
Committee.
|
The
spending level and work content of these services are actively monitored by the
Audit and Compliance Committee to maintain the appropriate objectivity and
independence in auditor’s core work, which are the audits of the Company’s
consolidated financial statements and the effectiveness of the Company’s
internal control over financial reporting.
The Audit
and Compliance Committee has considered and determined that the provision of
these additional services is compatible with maintaining Arnett & Foster,
PLLC’s independence. For more information concerning the Company’s Audit
and Compliance Committee, see page 5 of these annual meeting
materials.
AUDIT
AND COMPLIANCE COMMITTEE
Thomas
J. Hawse, III, Chairman
|
John
W. Crites
|
James
P. Geary, II
|
Gary
L. Hinkle
|
Gerald
W. Huffman
|
Charles
S. Piccirillo
|
COMPENSATION
DISCUSSION AND ANALYSIS
Introduction
This
section explains Summit’s executive compensation program as it relates to the
following “named executive officers”:
H.
Charles Maddy, III
|
President
and Chief Executive Officer
|
|
|
Robert
S. Tissue
|
Senior
Vice President and Chief Financial Officer
|
|
|
Patrick
N. Frye
|
Senior
Vice President and Chief Credit Officer
|
|
|
C.
David Robertson
|
Co-Chairman
of the Board of Summit Community Bank
|
|
|
Ronald
F. Miller
|
President
of Summit Community
Bank
|
Overview
of Compensation Philosophy
We have a
straightforward compensation program that focuses on a team approach. Each of
our named executive officers must demonstrate exceptional personal performance
to remain part of our executive team. As a member of that team, each officer
must contribute to the overall success of Summit rather than simply attain goals
within that officer’s specific area of responsibility.
Our
executive compensation program is designed to:
• retain
executive officers by paying them competitively, motivate them to contribute to
the Company’s success, and reward them for their performance;
• link
a substantial part of each executive officer’s compensation to the performance
of the Company and its subsidiaries, and the individual executive officer;
and
• encourage
ownership of Company common stock by executive officers.
Our
fundamental philosophy is to link closely executive compensation with the
achievement of annual financial and non-financial performance goals. It is the
Company’s practice to provide a mix of cash and equity-based compensation that
the Company believes balances the best interests of the Company’s executives and
the Company’s shareholders. The Company believes compensation should be
structured to ensure that a significant portion of the compensation opportunity
will be directly related to shareholder value.
As
discussed below, the program consists of, and is intended to balance, three
elements:
• Salaries. Salaries are based
on the Company’s evaluation of individual job performance and an assessment of
the salaries and total compensation mix paid by the Company’s Peer Group to
executive officers holding equivalent positions. The Company’s Peer Group is a
group consisting of all public banks and thrifts in the United States with
assets of $1 billion - $5 billion. The Company does not “benchmark” to the Peer
Group, but rather uses the Peer Group as a general reference for purposes
of
comparing
our executive officer salaries to other companies in the industry to determine
whether the salaries are reasonable and competitive.
• Incentive compensation.
Executive Incentive Compensation is based on an evaluation of both
individual and Company performance against quantitative measures.
• Long-term Incentive Compensation.
Long-term incentive awards, which consist of stock options, are designed
to ensure that incentive compensation is linked to the long-term performance of
the Company and its common stock and shareholder return.
Setting
Executive Compensation
In
setting the annual base salary and the performance goals that must be satisfied
for executives to receive incentive compensation, the Company reviews executive
compensation information from the Peer Group gathered from SEC filings and the
SNL Executive Compensation Review, a compensation survey. The Company does not
use a specific formula to set pay in relation to this market data. This market
data is used as a tool to assess whether the Company’s executive compensation is
reasonable and competitive within the industry. The Company does not, however,
attempt to set compensation to meet specific benchmarks, such as salaries “above
the median” or equity compensation “at the 75th
percentile”. The Company strongly believes in retaining the best talent for all
critical Company functions and this may or may not result in compensation
packages that align at the median of the Peer Group. The Company also believes
that excessive reliance on benchmarking is detrimental to shareholder interest
because it can result in compensation that is unrelated to the value delivered
by the named executive officers.
Salaries
The first
element of the executive compensation program is salaries. The Board and the
Company have directed a mix of the Company’s executive compensation that
provides an opportunity for significant variation in total compensation based on
performance with a proportionately lesser emphasis on salaries. This strategy is
intended to increase the performance orientation of the Company’s executive
compensation, and the Board intends to continue this emphasis in
2009.
In
setting the base salary for the President and CEO and in reviewing and approving
the salaries for the other named executive officers, the Company first reviews
the history of and the proposals for the compensation for each individual,
including cash and equity-based components. In setting salaries, the Company and
the Committee do not use a predetermined formula. Instead, the salaries of the
President and CEO and the other executive officers are based on:
• the
Board’s review of the CEO’s evaluation of each officer’s individual job
performance, and the Committee’s evaluation of the CEO’s job
performance;
• an
assessment of the Company’s performance;
• the
perquisites provided to the CEO and other named executive officers;
• a
consideration of salaries paid by the Peer Group to executive officers holding
equivalent positions;
• a
consideration of aggregate amount of all components of compensation paid to the
President and CEO and other executive officers; and
• the
complexity of the job duties of the indicated executive as compared to the
perceived complexity of the duties of similar executives in other
companies.
We do not
have a pre-defined framework that determines which of these factors may be more
or less important and the emphasis placed on specific factors may vary among the
named executive officers. Ultimately it is the Committee’s judgment of these
factors along with the competitive data that form the basis for determining the
named executive officer’s compensation. Once the base salary is set, it does not
depend on the Company’s performance. In 2008, the Company made the
following decisions with respect to the base salaries of its named executive
officers:
• A
performance based increase of 9.04% in the salary of Mr. Tissue and a 9.04%
increase in the salary of Mr. Frye for their significant contribution to the
overall management of the Company.
• An
increase in salary of 3.32% for Messrs. Robertson and Miller to account for
inflation as required by the employment contracts.
• An
increase of 2.58% for Mr. Maddy to account for inflation as required by his
employment contract.
In 2009,
no increases were given to any executive officer because of the slowing economy,
the uncertain earnings outlook and the need to monitor expenses.
Incentive
Compensation
The
second element of the executive compensation program is the Incentive
Compensation Plan. The purpose of the Company’s Incentive Compensation
Plan is to motivate and reward eligible employees for their contributions to the
Company and its bank subsidiary by making a large portion of their cash
compensation variable and dependent upon the Company’s and its bank subsidiary’s
performance.
The
Company annually adopts an Incentive Compensation Plan for the Company and its
bank subsidiary. For 2008, all incentive compensation awarded under the
Incentive Compensation Plan was based on a formula which primarily considered
the return on average equity of the Company and its bank subsidiary. The
Company has selected this performance standard because it believes it is an
important indicator of increased shareholder value. Any items that qualify
as “extraordinary” under generally accepted accounting principles are not
considered when calculating incentive compensation payments regardless of
whether these items have a positive or negative effect.
The
Company sets a range of goals for return on average equity and also sets the
percentage to which each executive officer is entitled if the specific goals are
met. The percentage to which each named executive officer is entitled is
based on the individual’s contribution to the Company as determined by the
Committee in its judgment based on the recommendation of the Chief Executive
Officer. Among other things, the Committee considers the Company’s
compensation philosophy which focuses on a team based approach and the
individual’s relative contribution to the team.
Summit
does not disclose publicly annual return on average equity goals or individual
performance goals as its business plan is highly confidential. Disclosing
specific objectives would provide competitors and other third parties with
insights into the Company’s strategic planning process and would therefore cause
competitive harm.
With
respect to the targets established under the Incentive Compensation Plans, the
Company believes that it is moderately difficult for the executive and the
Company or its bank subsidiary to achieve the lower target levels and very
difficult for the executive and the Company or its bank subsidiary to achieve
the higher target levels. In 2006, 2007, and 2008, neither the executive
nor the Company met the higher targets.
Incentive
compensation is paid on a quarterly basis. The Company believes this
structure provides a stronger performance incentive than an annual payment
because the named executive officers are given a “clean slate” each quarter.
This encourages consistent and strong performance throughout the
year. In 2008, the performance targets were achieved in the first
quarter and the fourth quarter. Incentive compensation was awarded to
the named executive officers in the first quarter; however, the Board of
Directors determined not to award incentive compensation in the fourth quarter
due to the slowing economy, the uncertain earnings outlook and the need to
monitor expenses. In February, the Board of Directors decided to
suspend the Incentive Compensation Plans. Performance targets were not
achieved for the second and third quarters of 2008.
With
respect to Messrs. Miller and Robertson for 2008, the Company also established
incentive compensation plans which included specific performance goals and
business criteria based on their achievement of the net income budget for
Summit’s subsidiary banks (the “Alternative Incentive Plan”). However, if
the payments due to Messrs. Miller and Robertson under the Incentive
Compensation Plan exceeded those payments due under these plans, then Messrs.
Miller and Robertson were entitled to receive only the payments under the
Incentive Compensation Plan. Under the Alternative Incentive Plans,
targets were established that are difficult to achieve, although not as
difficult as the higher target levels of the Incentive Compensation Plan.
In 2008, the target levels were based on record earnings. In 2008,
Mr. Miller and Mr. Robertson received no incentive compensation.
Long-Term
Incentive Compensation
The third
element of the executive compensation program is long-term incentive
compensation.
Officer Stock Option
Plan. The main component of the long-term incentive
compensation program is the Officer Stock Option Plan. Our Officer
Stock Option Plan approved by the Shareholders in 1998 expired on May 5,
2008. We are presenting a new Officer Stock Option Plan to the
Shareholders at the Annual Meeting for approval. The purpose of the
Officer Stock Option Plan is to reward and retain officers in a manner that best
aligns officers’ interests with stockholders’ interests. Under this
Plan, the Company may award options for up to 350,000 shares of the Company’s
common stock to qualified officers of the Company and its
subsidiaries. Each option granted under the Plan must have an
exercise price of no less than the fair market value of Company’s common stock
as of the date of grant. Options granted under the plan vest
according to a schedule designated at the grant date. The Company
does not have a program, policy or practice of timing the grant of options in
coordination with the release of material nonpublic information. The
Officer Plan is administered by the Compensation and Nominating Committee of the
Board of Directors. The committee has discretion to determine the
officers to whom the options may be granted, when the options may be granted,
the vesting schedule applicable to any option grants and other terms relating to
the grant of the options. See the discussion under Item 2 – Proposal
to Approve the 2009 Officer Stock Option Plan at page 17.
Annual
stock option grants for executive officers are a key element of
market-competitive total compensation. In 2008, the Company did not
approve any annual stock option grants for the executive officers due to the
disappointing performance of the Company’s stock and the failure of the Company
to meet its performance targets.
Executive Salary Continuation
Agreements. In an effort to
attract, reward, motivate and retain the most qualified people available, and to
provide those people with a complete and reasonable compensation package, Summit
and its affiliate have entered into executive salary continuation agreements
with certain executives of the Company with an endorsement split dollar life
insurance plan. In this section, Company includes Summit’s bank
subsidiary.
The
Executive Salary Continuation Agreements (the Continuation Agreements) were
designed to provide an annual defined retirement benefit payable for the life of
the executive. These benefits, when added to the retirement benefits that
will be provided by the Company’s 401(k) Profit Sharing Plan, Employee Stock
Ownership Plan, and social security, will provide each executive with benefit
levels comparable to other Company employees when measured as a percentage of
salary at the time of retirement.
The
Continuation Agreements are designed to be a retention tool but they do
take into account the age of the Named Executive Officers. With respect to the
Company’s president and chief executive officer, Mr. Maddy, the benefits under
his Continuation Agreement vest at a rate of five percent per year in the first
ten years, zero percent in year eleven through eighteen, and in year nineteen,
the remaining fifty percent. With respect to the Company’s other
executive officers who are not close to retirement age, Messrs. Tissue and Frye,
the benefits under the Continuation Agreements vest at a rate of five percent
per year in the first ten years, zero percent in years eleven through nineteen,
and in year twenty, the remaining fifty percent. With respect to Messrs.
Miller and Robertson, who are closer to retirement age, the benefits under the
Continuation Agreements vest at a rate of zero percent the first four years,
fifty percent in year five, and ten percent a year for the remaining five
years. Vesting is measured for each executive from the effective date
of the Continuation Agreements, which vary by executive.
The
Company’s obligations under the retirement benefit portion of
these agreements are unfunded; however, the Company has purchased life
insurance policies on each insurable executive that are actuarially designed to
offset the annual expenses associated with the agreements and will, given
reasonable actuarial assumptions, offset all of the costs of the
agreements during the life of the executive and provide a complete recovery of
all costs at the executive’s death. The Company is the sole owner of all
policies.
The life
insurance benefit for each insurable officer is being provided by an Endorsement
Split Dollar Plan whereby the Company endorses a specified percentage of the
net-at-risk life insurance portion of a policy (total death benefit less cash
value of policy) on the life of each officer for payment to the designated
beneficiary of that officer. The Company owns the policy and its entire
surrender value.
For each
of the named executive officers (defined as the CEO, the CFO and the three most
highly compensated Executive Officers other than the CEO and CFO), the annual
lifetime benefits payable upon retirement at normal retirement age are as
follows: H. Charles Maddy, III - $175,000; Robert S. Tissue - $125,000;
Ronald F. Miller - $50,000; C. David Robertson - $50,000; and Patrick N. Frye -
$125,000.
Perquisites
Generally,
the Company provides modest perquisites or personal benefits, and only with
respect to benefits or services that are designed to assist a named executive
officer in being productive and focused on his or her duties, and which
management and the Committee believe are reasonable and consistent with the
Company’s overall compensation program. Management and the Committee
periodically review the levels of perquisites or personal benefits provided to
named executive officers.
Plans
Covering All Employees
Employee Stock Ownership
Plan. The Company also maintains an Employee Stock Ownership
Plan (ESOP) which covers substantially all employees. Any employee who is
at least 21 years of age and is credited with at least 1,000 hours of service
during the plan year is eligible to participate. Vesting occurs at the
rate of 0% for the first year of credited service and 20% for each year
thereafter. Under the provisions of the ESOP, employee participants in the
ESOP are not permitted to contribute to the ESOP, rather the cost of the ESOP is
borne by the Company through annual contributions in amounts determined by the
Company’s Board of Directors.
401(k) Profit Sharing
Plan. The Company has a defined contribution profit-sharing
plan with 401(k) provisions covering substantially all employees. Any
employee who is at least 21 years of age, completed one year of service, and is
employed in a position requiring at least 1,000 hours of service per year is
eligible to participate. Vesting of discretionary contributions occurs at
the rate of 0% for the first year of credited service, and 20% per year
thereafter. Under the provisions of the plan, the Company matches 100% of
the participant’s salary reduction contributions, up to 4% of such participant’s
compensation. These matching contributions shall be fully vested at all
times. The Company may also make optional contributions at the discretion
of the Company’s Board of Directors.
Potential
Payments Upon Termination or Change of Control
The
Company has entered into Employment Agreements with the named Executive Officers
in order to ensure continuity of management of the Company and to retain the
pool of talent the Company has developed in a competitive marketplace. The
Board of Directors determined that such arrangements were appropriate,
especially in view of the entry of large regional bank holding companies into
West Virginia. The Agreements were not undertaken in the belief that a
change of control of the Company was imminent.
Generally,
the Company chose particular events for triggering payments based on the
standard practice in the industry at the time the particular agreement was
negotiated, the overall reasonableness of the expense to the Company associated
with a particular triggering event, and whether the specific provision would
have a material impact on the marketability of the Company should the Board of
Directors believe a sale of the Company were in the best interest of its
shareholders. The following summaries and the tables on pages 50-52
set forth potential payments to our officers upon termination of employment or
change of control of the Company under their current employment agreements and
our other compensation programs.
Employment
Agreement — Mr. Maddy
On March
4, 2005, the Company entered into an Employment Agreement (the “Employment
Agreement”) and a new Change in Control Agreement (the “Change in Control
Agreement”) with H. Charles Maddy, III, Chief Executive Officer of
Summit. On December 31, 2008, the Employment Agreement and Change in
Control Agreement were amended and restated to comply with Internal Revenue Code
Section 409A. The term of the Employment Agreement extends to March
4, 2012. Under the terms of the Employment Agreement, Summit will
review the Employment Agreement annually and may, with the approval of Mr.
Maddy, extend the term of the Employment Agreement annually for additional one
year periods (so that the actual term of the Employment Agreement will always be
between two and three years).
The
Employment Agreement may be terminated based on one of the
following:
• By
mutual agreement of the parties
• Upon
the death of Mr. Maddy
• Upon
the disability of Mr. Maddy
• By
Summit, for cause (as defined in the Employment Agreement)
• Upon
a Change of Control (as provided in the Change in Control
Agreement)
• By
Mr. Maddy, upon material breach by Summit
• By
Mr. Maddy, based on insolvency not attributable to Mr. Maddy
Under the
Employment Agreement, Mr. Maddy is entitled to certain termination payments.
If Mr. Maddy is terminated by mutual agreement, then he is entitled to
receive a termination payment equal to an amount agreed to by the parties.
If Mr. Maddy is terminated for cause based generally on his gross
negligence, then Mr. Maddy will not receive a termination payment. In this
case, Mr. Maddy is entitled to his Base Salary in effect for the year in which
termination occurs, only for such period of his active full-time employment to
the date of the termination.
If Mr.
Maddy is terminated for cause based on his negligence, malfeasance, or
misfeasance, then Mr. Maddy is entitled to receive his Base Salary without
offset for compensation already paid prior to the effective date of termination.
If Mr. Maddy is terminated for death or disability, Mr. Maddy is entitled
to three times his Base Salary. If Mr. Maddy terminates his employment
based on a material breach by Summit, then Mr. Maddy is entitled to an amount
equal to two times his Base Salary in effect for the year in which termination
occurs without offset for compensation already paid prior to the effective date
of termination. If Mr. Maddy voluntarily terminates, and there is no
material breach by Summit, then Mr. Maddy does not receive a termination
payment. In this case, Mr. Maddy is entitled to his Base Salary in effect
for the year in which termination occurs, only for such period of his active
full-time employment to the date of the termination.
If Mr.
Maddy’s employment is terminated pursuant to the provisions of the Change in
Control Agreement, then Mr. Maddy would be entitled to the compensation set
forth in the Change in Control Agreement as described below.
Change
In Control Agreement – Mr. Maddy
Under the
Change in Control Agreement, after a Change of Control (as defined below),
Mr. Maddy is required to work for the acquiring company for a period of one
year in order to facilitate management continuity and to promote an orderly
transition of ownership (the “Transition Period”). Upon expiration of this
Transition Period, Mr. Maddy is entitled to receive a payment equal to three
times the greater of (a) his Salary (as defined in the Employment Agreement) in
effect immediately prior to the date of consummation of the Change of Control or
(b) his Salary in effect on the date of termination of his employment under the
Change in Control Agreement. Under the Change in Control Agreement,
Mr. Maddy has the option to terminate within six months of a Change of
Control. In this case, Mr. Maddy would be entitled to a lump sum
payment equal to seventy-five percent (75%) of the greater of (a) his
Salary in effect immediately prior to the date of consummation of the Change of
Control or (b) his Salary in effect on the date of termination of his
employment under the Change in Control Agreement.
If Mr.
Maddy terminates his employment after the first six months following the Change
of Control, but before completion of the Transition Period (unless such
termination is for Good Reason or due to his death or disability), Mr. Maddy is
not entitled to a severance payment under the Change in Control
Agreement.
If Mr.
Maddy terminates for Good Reason (as defined below) or is terminated under
circumstances constituting Wrongful Termination (as defined in the Change in
Control Agreement) during the Transition Period, then Mr. Maddy would be
entitled to a payment equal to three times the greater of (a) his Salary in
effect immediately prior to the date of consummation of a Change of Control or
(b) his Salary in effect on the date of termination of his Employment Agreement
under the Change in Control Agreement. Mr. Maddy is also entitled to
receive payment of cash incentive award, if any, under the Company’s Annual
Incentive Plan and continuing participation in employee benefit plans and
programs such as retirement, disability and medical insurance for the number of
months between the date of his termination and the date that is thirty-six (36)
months after the date of consummation of the Change of Control.
If Mr.
Maddy is terminated as a result of disability or death during the Transition
Period, Mr. Maddy would receive a payment equal to three times the greater
of (a) his Salary (as defined in the Agreement) in effect immediately prior to
the date of consummation of the Change of Control or (b) his Salary in effect on
the date of termination of his employment under the Change in Control
Agreement.
Under the
Change in Control Agreement, Mr. Maddy agrees not to engage, directly or
indirectly, in the business of banking in the Restricted Area (as defined in the
Change in Control Agreement) for a period of three years after expiration of the
Transition Period. If Mr. Maddy’s employment with Summit is terminated for
any reason other than Mr. Maddy’s disability, retirement, Good Reason, or
termination at Mr. Maddy’s option, Mr. Maddy agrees that for a period of one
year, he will not, directly or indirectly, engage in the business of banking in
the Restricted Area.
Under the
Change in Control Agreement, a “Change of Control” is defined in Internal
Revenue Code Section 409A and the regulations issued thereunder and
includes:
• a
change in the ownership of Summit which is defined to occur on the date that any
one person, or more than one person acting as a group, acquires ownership of
stock of Summit that, together with stock held by such person or group,
constitutes more than 50% of the total fair market value or total voting power
of the stock of Summit,
• a
change in the effective control of Summit, which is defined to occur on (1) the
date any one person, or more than one person acting as a group, acquires (or has
acquired during the 12-month period ending on the date of the most recent
acquisition by such person or persons) ownership of stock of Summit possessing
30% or more of the total voting power of Summit, and also to occur on
(2) the date a majority of members of Summit’s board of directors is replaced
during any 12-month period by directors whose appointment or election is not
endorsed by a majority of the members of Summit’s board of directors before the
date of the appointment or election, and
• a
change in the ownership of a substantial portion of Summit’s assets which is
defined to occur on the date that any one person, or more than one person acting
as a group acquires (or has acquired during the 12-month period ending on the
date of the most recent acquisition by such person or persons) assets from
Summit that have a total gross fair market value equal to or more than 40% of
the total gross fair market value of all of the assets of Summit immediately
before such acquisition or acquisitions. For this purpose,
gross fair market value means the value of the assets of Summit, or the value of
the assets being disposed of, determined without regard to any liabilities
associated with such assets.
Under the
Change in Control Agreement, Mr. Maddy may voluntarily terminate his employment
for Good Reason which arises if one of the following occurs in combination with
a Change of Control:
• a
decrease in the executive’s overall compensation below the level in effect
immediately prior to on the date of consummation of the change of control,
without the executive’s consent;
• a
material reduction in the importance of the executive’s job responsibilities
without his consent;
• geographical
relocation of the executive without his consent, which is deemed to mean
relocation to an office more than twenty (20) miles from his location at the
time of a change of control;
• failure
by the Company to obtain assumption of the Change in Control Agreement by its
successor; or
• any
removal of the executive from, or failure to reelect the executive to, any
position with the Company or Bank that he held immediately prior to the change
of control without his prior written consent (except for good cause, death,
disability or retirement).
The
Employment Agreement and the Change in Control Agreement provide for an
additional gross-up payment by Summit to Mr. Maddy in the event that a
payment or distribution pursuant to the Employment Agreement or the Change in
Control Agreement would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code. Any calculated gross-up payment amount is
equal to one hundred percent (100%) of the excise tax plus one hundred percent
(100%) of any federal, state and local income taxes plus the additional excise
tax on the gross-up amount.
The table
on page 50 summarizes the estimated payments to be made to Mr. Maddy under the
Employment Agreement and the Change in Control Agreement following or in
connection with any termination of employment or a “Change of Control” of the
Company.
Employment
Agreements - Messrs. Miller and Robertson
On
December 22, 2008, the Company entered into an Amended and Restated Employment
Agreement with C. David Robertson and on December 29, 2008, the Company entered
into an Amended and Restated Employment Agreement with Ronald F. Miller in order
to comply with Internal Revenue Code Section 409A. The Amended and
Restated Employment Agreements with Mr. Miller and Mr. Robertson are each
referred to as the “Employment Agreement”. The Employment Agreement
with C. David Robertson was further amended effective March 2, 2009, to
automatically extend the term of the agreement for nine (9) months following
expiration of the original five year term of the agreement.
Messrs.
Miller and Robertson are entitled to certain termination payments under the
Employment Agreements. If Messrs. Miller or Robertson are terminated not
for Cause (as defined by the Employment Agreement), then the terminated
executive officer is entitled to a payment from the Company equal to the base
salary compensation set forth in the Employment Agreement for the remaining term
of the Employment Agreement or severance pay equal to six (6) months of the
executive’s then current annual base salary, whichever is greater.
Messrs.
Miller and Robertson have change of control provisions included in their
Employment Agreements. Generally, the Employment Agreements provide
severance compensation to Messrs. Miller and Robertson, if their employment
should end under certain specified conditions after a change of control.
Compensation is paid upon an involuntary termination within 18 months following
a change of
control
unless the executive is terminated for cause. In addition, compensation will be
paid after a change of control if either of these persons voluntarily terminates
employment within 18 months of a change of control because of:
• a
material decrease in the total amount of the executive’s base salary below the
level in effect on the date of consummation of the change of control, without
the executive’s consent;
• a
material geographical relocation of the executive without his prior consent,
which is deemed to mean relocation to an office more than twenty (20) miles from
his location at the time of a change of control;
• failure
by the Company to obtain assumption of the Change in Control Agreement by its
successor; or
• any
material reduction in the executive’s authority, duties, or responsibilities
which are deemed to include removal of the executive from, or failure to reelect
the executive to, any position with the Company that he held immediately prior
to the change of control without his prior written consent (except for good
cause, death, disability or retirement).
Under the
Employment Agreements, a “Change of Control” is defined in Internal Revenue Code
Section 409A and the regulations issued thereunder. This definition
is set forth above under the description of Mr. Maddy’s Change in Control
Agreement.
Messrs.
Miller’s and Robertson’s severance benefits include:
• a
lump sum cash payment equal to their average monthly base salary for the full
two-year periods immediately prior to (i) the date of termination; or (ii) the
date immediately preceding the change of control, whichever is greater,
multiplied by the number of full months between the date of termination and the
date that is eighteen (18) months after the date of consummation of the change
of control; and
• payment
of cash incentive award, if any, under the Company’s Incentive Plans; continuing
participation in employee benefit plans and programs such as retirement,
disability and medical insurance for the number of months between the date of
his termination and the date that is eighteen (18) months after the date of
consummation of the Change of Control.
The
Change in Control Agreement provides for an additional gross-up payment by
Summit to Mr. Miller in the event that a distribution pursuant to the Change in
Control Agreement would be subject to the excise tax imposed by Section 4999 of
the Internal Revenue Code. Any calculated gross-up payment amount is
equal to one hundred percent (100%) of the excise tax plus one hundred percent
(100%) of any federal, state and local income taxes plus the additional excise
tax on the gross-up amount.
The
Change in Control Agreements do not affect the right of the Company to terminate
Messrs. Miller or Robertson or change their salary or benefits with or without
good cause, prior to any change of control. However, any termination
or change which takes place after discussions have commenced which result in a
change of control will be presumed to be a violation of the Change in Control
Agreements and will entitle the executive to the benefits under the Change in
Control Agreements, absent clear and convincing evidence to the
contrary.
The table
on page 50 summarizes the estimated payments to be made to Messrs. Miller and
Robertson under their Employment Agreements following or in connection with any
termination of employment or a “Change of Control” of the Company.
Employment
Agreements - Messrs. Frye and Tissue
On
December 24, 2008, the Company entered into an Amended and Restated Employment
Agreement with Robert S. Tissue and on December 31, 2008 the Company entered
into an Amended and Restated Employment Agreement with Patrick N. Frye in order
to comply with Internal Revenue Code Section 409A. Mr. Frye is the Chief
Credit Officer of the Company and Mr. Tissue is the Chief Financial Officer of
the Company. The Employment Agreements are substantially identical in all
material respects and each are referred to as the “Employment
Agreement”.
The
Employment Agreements may be terminated based on one of the
following:
• Termination
for Good Cause (as defined by the Employment Agreement)
• Termination
Not for Good Cause (as defined by the Employment Agreement)
• Termination
for Good Reason or Wrongful Termination, or at Employee’s Option upon a Change
of Control (as defined by the Employment Agreement).
Under the
Employment Agreements, a “Change of Control” is defined in Internal Revenue Code
Section 409A and the regulations issued thereunder. This definition
is set forth above under the description of Mr. Maddy’s Change in Control
Agreement:
Messrs.
Frye and Tissue are required to perform all of the duties and responsibilities
that may be assigned to each of them from time to time by the Chief Executive
Officer and/or the Board of Directors of the Company. Any material changes
to Messrs. Frye’s, and Tissue’s duties or obligations must have been determined
by the Board of Directors and/or the Chief Executive Officer, in their
reasonable discretion, to be commensurate with duties and obligations that might
be assigned to other similarly-situated executive officers of the Company.
No later than five (5) days after the Company materially changes Messrs.
Frye’s and Tissue’s duties or obligations, Messrs. Frye and Tissue must give the
Company written notice if he believes a breach of this provision has occurred,
and the Company has a reasonable opportunity to cure the cause of the possible
breach. Failure by Messrs. Frye and Tissue to give the required notice
constitutes a waiver of his rights to claim a breach of this provision arising
from the specific duties or obligations then at issue. If it is determined
through arbitration that the Company breached this provision, then any damages
received by Messrs. Frye and Tissue are limited to the amount Messrs. Frye and
Tissue would be entitled to had he been terminated Not for Good Cause (as
defined in the Employment Agreement).
Messrs.
Frye and Tissue are entitled to certain termination payments under the
Employment Agreements. If Messrs. Frye or Tissue are terminated Not for
Good Cause (as defined by the Employment Agreement), then the terminated
executive officer is entitled to a payment from the Company equal to the base
salary compensation set forth in the Employment Agreement for the remaining term
of the Employment Agreement or severance pay equal to 100% of his then current
annual base salary, whichever is greater. The termination payment is
paid in a lump sum on the date of termination.
If
Messrs. Frye’s or Tissue’s employment is terminated for Good Reason or Wrongful
Termination, or at Employee’s Option upon a Change of Control, then the
terminated executive officer would be entitled to compensation under certain
circumstances. If Messrs. Frye or Tissue terminates for Good Reason (as
defined in the Employment Agreement) or is terminated under circumstances
constituting Wrongful Termination (as defined in the Employment Agreement), then
the terminated executive officer would be entitled to a payment equal to his
Salary (as defined in the Employment
Agreement)
multiplied by the number of months between the effective date of termination and
the date that is twenty four (24) months after the date of consummation of
Change of Control, provided in no event shall the executive officer receive a
lump sum payment that is less than 100% of his Salary. The
termination payment is paid in a lump sum on the date of
termination.
Under the
Change of Control provisions, Messrs. Frye and Tissue have the option to
terminate within six months of a Change of Control in the Employment Agreement.
In this case, the executive officer would be entitled to a lump sum
payment equal to seventy-five percent (75%) of his Salary in effect immediately
prior to the date of consummation of the Change of Control (as defined in the
Employment Agreement), to be paid on the date of termination.
The
Employment Agreement provides for an additional gross-up payment by Summit to
Messrs. Frye and Tissue in the event that a payment or distribution pursuant to
the Employment Agreement, the Executive Salary Continuation Agreement or any
other agreement with Summit would be subject to the excise tax imposed by
Section 4999 of the Internal Revenue Code. Any calculated gross-up
payment amount is equal to one hundred percent (100%) of the excise tax plus one
hundred percent (100%) of any federal, state and local income taxes plus the
additional excise tax on the gross-up amount.
The table
on page 50 summarizes the estimated payments to be made to Messrs. Frye and
Tissue under their Employment Agreements following or in connection with any
termination of employment or a “Change of Control” of the Company.
Compensation
of Named Executive Officers
In
applying our compensation principles and philosophy, the Company analyzed the
compensation arrangements of its named executives, and believes that the total
compensation paid to its executive officers is appropriate and
reasonable.
We
believe our compensation decisions are in the best interests of our Company and
our shareholders for many reasons including:
• We
have a strong management team with a proven record of performance.
• We
have an experienced group of executives who we believe will provide the strong
management necessary to maximize shareholder return.
• We
believe that our incentive compensation plans effectively promote the Company’s
philosophy of pay for performance.
We will
continue to monitor our compensation arrangements to ensure that executive pay
directly correlates with the performance of the Company. The Company is
committed to the retention of strong management and will continue to focus
heavily on its compensation philosophy and principles as it evaluates the total
compensation of its executive officers.
EXECUTIVE
COMPENSATION
Summary
Compensation Table
The table
below sets forth the compensation of the Company’s Chief Executive Officer and
Chief Financial Officer and the three most highly compensated executive officers
other than the Chief Executive Officer and Chief Financial Officer who earned
$100,000 or more in salary and bonus for the years ended December 31, 2006, 2007
and 2008.
Name
and Principal Position
|
Year
|
Salary
($)
|
Bonus(1)
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation(2)
($)
|
Non-
qualified
Deferred
Compen-
sation
Earnings(3)
($)
|
All
Other
Compen-
sation(4)
($)
|
Total
($)
|
H. Charles Maddy,
III, President and Chief Executive Officer – Summit
Financial
Group
|
2008
2007
2006
|
$397,500
$387,500
$375,000
|
-
|
-
|
-
|
$
47,643
$
91,822
$
58,786
|
$
29,459
$
19,962
$
15,646
|
$
39,588
$
44,292
$
42,500
|
$
514,190
$543,576
$491,932
|
Robert
S. Tissue
Senior
Vice President
and
Chief Financial
Officer
– Summit
Financial
Group
|
2008
2007
2006
|
$181,000
$166,000
$155,000
|
-
|
-
|
-
|
$
32,397
$
62,439
$34,836
|
$
10,124
$
6,563
$
4,840
|
$
19,910
$
17,983
$
17,050
|
$243,431
$252,985
$211,726
|
|
Patrick
N. Frye
Senior
Vice President
and
Chief Credit
Officer
– Summit
Financial
Group
|
2008
2007
2006
|
$181,000
$166,000
$160,000
|
-
|
-
|
-
|
$
32,397
$
62,439
$
34,836
|
$
14,763
$
9,660
$
7,444
|
$
30,910
$
28,135
$
28,850
|
$259,070
$266,234
$231,130
|
C.
David Robertson
Co
Chairman of the
Board
of Directors –
Summit
Community
Bank
|
2008
2007
2006
|
$190,000
$183,900
$177,000
|
-
|
-
|
-
|
$ -
$105,847
$
75,000
|
$
94,241
$
54,663
$
41,878
|
$
37,815
$
37,005
$
37,401
|
$322,056
$381,415
$331,279
|
Ronald
F. Miller
President
and Chief
Executive
Officer –
Summit
Community
Bank
|
2008
2007
2006
|
$190,000
$183,900
$177,000
|
-
|
-
|
-
|
$ -
$105,847
$134,147
|
$
91,254
$
53,449
$
41,187
|
$
31,392
$
30,479
$
30,720
|
$312,646
$373,675
$383,054
|
|
(1)
|
Bonuses
for prior years were previously reported in this column. Under current
reporting rules, however, only purely discretionary or guaranteed bonuses
are disclosed in this column. We award bonuses solely based on our
achievement of certain performance targets. Accordingly, bonus amounts are
reported in the Non-Equity Incentive Plan Compensation
column.
|
(2)
|
The
amounts in this column relate to awards granted under the Company’s
Incentive Compensation Plans. The plans and awards are discussed in the
Compensation Discussion and Analysis section and in the footnotes to the
table on page 42 of this proxy statement entitled Grants of Plan-Based
Awards. The amounts awarded for 2008 reflect that incentive compensation
was only paid for the first quarter of 2008, and no awards were made for
the last three quarters of 2008.
|
|
(3)
|
The
amounts in this column represent the increase in the actuarial net present
value of all future retirement benefits under the Executive Salary
Continuation Agreements. The net present value of the retirement benefits
used to calculate the net change in benefits were determined using the
same assumptions used to determine our retirement obligations and expense
for financial statement purposes. Additional information about our
Executive Salary Continuation Agreements is included under the heading
“Pension Benefits.” We have not provided above-market or preferential
earnings on any nonqualified deferred compensation and, accordingly, no
such amounts are reflected above.
|
|
(4)
|
This
amount includes payments made to the Company’s 401(k) Profit Sharing Plan
and ESOP on behalf of Mr. Maddy ($28,338), Mr. Robertson
($20,900), Mr. Frye ($19,910), Mr. Miller ($20,267), and Mr. Tissue
($19,910). The amount also includes fees paid to Mr. Maddy
($11,250), Mr. Robertson ($5,750), Mr. Frye ($11,000), and
Mr. Miller ($11,125) as members of the Company’s and its subsidiary banks’
Boards of Directors. This amount also includes perquisites and
personal benefits of $11,165 for Mr. Robertson, which includes the
incremental cost of personal use of company provided automobile, country
club membership dues, premium value of split dollar life insurance under
executive salary continuation agreement, and personal executive and
spousal expenses while accompanying executive on business
travel. No other executives received perquisites in excess of
$10,000.
|
Total
cash compensation, as measured by salary and non-equity incentive plan
compensation, is based on the Company’s performance as well as employee
performance and certain other factors as described in the section entitled
“Compensation Discussion and Analysis.” For the named executive officers,
total cash compensation as a percentage of total compensation is as follows: Mr.
Maddy – 86.57%; Mr. Tissue – 87.66%, Mr. Frye – 82.37%, Mr. Robertson
– 59.00%; and Mr. Miller – 60.77%. The percentage of total cash
compensation to total compensation for the named executive officers reflects the
emphasis that is placed on cash compensation.
A
description of the employment agreements with the named Executive Officers is
set forth in the Section entitled “Compensation Discussion and
Analysis.”
Grants
of Plan-Based Awards
Name
|
Grant
Date(1)
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards(2)
|
Estimated
Future
Payouts
Under Equity
Incentive
Plan Awards
|
All
Other
Option
Awards:
Number
of
Shares
of
Stock
or
Units
(#)
|
All
Other Option Awards: Number
Of
Securities
Under-lying Options
(#)
|
Exercise
or Base Price of Option Awards ($/Sh)
|
Grant
Date Fair Value of Stock and Option Awards
|
Threshold
($)(3)
|
Target
($)(4)
|
Maxi-
mum
($)(5)
|
Threshold
($)
|
Target
($)
|
Maxi-
Mum
($)
|
H.
Charles Maddy, III
|
12/14/07
|
$94,000
|
$197,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Robert
S. Tissue
|
12/14/07
|
$64,000
|
$134,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Patrick
N. Frye
|
12/14/07
|
$64,000
|
$134,000
|
N/A
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
(1)
|
The
Company annually adopts an Incentive Compensation Plan for the Company and
the subsidiary bank and Alternative Incentive Plans for the subsidiary
banks. On December 14, 2007, the Company adopted the plans for
2008 and set the goals that will need to be achieved in order for the
Company’s named executive officers to be eligible for incentive
compensation for 2008.
|
|
(2)
|
For
2008, all bonuses under the Incentive Compensation Plans were based on a
formula which primarily considered the return on average equity of the
Company for each quarter. In estimating the future payouts
under the Incentive Compensation Plan for purposes of the disclosures in
the above table, the Company assumed that the average equity (used in the
calculation for determining return on average equity of the Company) for
2008 equals equity at December 31, 2007. With respect to the
targets established under the Incentive Compensation Plan applicable to
each named executive officer except Mr. Miller and Mr. Robertson, the
Company believes that it is moderately difficult for the executive and the
Company to achieve the lower target levels and very difficult for the
executive and the Company to achieve the higher target
levels.
|
|
(3)
|
The
amounts in the column labeled “threshold” are calculated using the minimum
return on equity for the Company that must be reached in order for each
named executive officer to receive compensation under the applicable
plan. The amounts in the column assume that the minimum return
on average equity is satisfied for each of the four quarters in the
year. Because the incentive compensation is paid on a quarterly
basis based on the return on average equity of the Company for each
quarter, if the Company does not meet the minimum return on average equity
for any quarter, then the threshold amount of incentive compensation will
be less than the amount disclosed in the
column.
|
|
(4)
|
The
amounts in the column labeled “target” are calculated using the budgeted
return on equity for the Company, as applicable to each named executive
officer.
|
|
(5)
|
The
Incentive Compensation Plans have no proscribed maximum. After
the Company reaches a minimum return on equity, the annual incentive
payment to each named executive officer is based on a percentage of
earnings over a certain amount.
|
|
With
respect to Messrs. Miller and Robertson, the Company has established an
incentive compensation plan which includes specific performance goals and
business criteria based on their achievement of the net income budgets for
the subsidiary bank (the “Alternative Incentive Plan”). Under
the Alternative Incentive Plan, targets are established that are difficult
to achieve. The estimated future payouts to Messrs. Miller and
Robertson under the Alternative Incentive Plan are as
follows:
|
|
|
Estimated
Future Payouts Under Alternative Incentive Plans
|
|
|
Threshold
($)
|
Target
($)
|
|
Name
|
Grant
Date
|
Maximum
($)
|
C.
David Robertson
|
12/14/07
|
$80,000
|
$80,000
|
$235,000
|
Ronald
F. Miller
|
12/14/07
|
$80,000
|
$80,000
|
$235,000
|
The above
tables contain the possible amounts that the named executive officers could have
received under the Incentive Compensation Plans in 2008. Please refer to
the column labeled “Non-Equity Incentive Plan Compensation” in the Summary
Compensation table to see the actual amount that each named executive officer
received under the Incentive Compensation Plans.
Outstanding
Equity Awards at December 31, 2008
The
following table shows outstanding stock option awards classified as exercisable
and unexercisable held as of December 31, 2008, by the Company’s named executive
officers.
|
Option
Awards
|
Stock
Awards
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number
of
Shares
Or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
H.
Charles Maddy, III
|
4,800
4,800
4,800
1,600
1,600
1,600
1,600
1,200
1,200
1,200
1,200
1,200
1,400
1,400
1,400
1,400
1,400
2,400
2,400
2,400
2,400
2,400
2,400
2,400
2,400
2,400
2,400
15,000
|
|
|
$
5.21
$
5.21
$
5.21
$
4.63
$
4.63
$
4.63
$
4.63
$
5.95
$
5.95
$
5.95
$
5.95
$
5.95
$
9.49
$
9.49
$
9.49
$
9.49
$
9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
02/26/2011
02/26/2012
02/26/2013
02/26/2011
02/26/2012
02/26/2013
02/26/2014
10/26/2012
10/26/2013
10/26/2014
10/26/2015
10/26/2016
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
Robert
S. Tissue
|
4,800
4,800
4,800
800
800
800
800
800
800
800
800
800
880
880
880
880
880
1,400
1,400
1,400
1,400
1,400
1,600
1,600
1,600
1,600
1,600
10,000
|
|
|
$
5.21
$
5.21
$
5.21
$
4.63
$
4.63
$
4.63
$
4.63
$
5.95
$
5.95
$
5.95
$
5.95
$
5.95
$
9.49
$
9.49
$
9.49
$
9.49
$
9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
02/26/2011
02/26/2012
02/26/2013
02/26/2011
02/26/2012
02/26/2013
02/26/2014
10/26/2012
10/26/2013
10/26/2014
10/26/2015
10/26/2016
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
|
Option
Awards
|
Stock
Awards
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number
of
Shares
Or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
Patrick
N. Frye
|
880
880
880
880
880
1,200
1,200
1,200
1,200
1,200
1,600
1,600
1,600
1,600
1,600
10,000
|
|
|
$
9.49
$
9.49
$
9.49
$
9.49
$
9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
C.
David Robertson
|
880
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
6,000
|
|
|
$
9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
|
Option
Awards
|
Stock
Awards
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Exercisable
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
Unexercisable
|
Equity
Incentive
Plan
Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
|
Option
Expiration
Date
|
Number
of
Shares
Or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
|
Ronald
F. Miller
|
1,600
1,600
1,600
1,600
1,600
800
800
800
800
800
880
880
880
880
880
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
1,200
6,000
|
|
|
$
5.21
$
5.21
$
5.21
$
5.21
$
5.21
$
5.95
$
5.95
$
5.95
$
5.95
$
5.95
$
9.49
$
9.49
$
9.49
$
9.49
$
9.49
$
17.79
$
17.79
$
17.79
$
17.79
$
17.79
$
25.93
$
25.93
$
25.93
$
25.93
$
25.93
$
24.44
|
02/26/2009
02/16/2010
02/26/2011
02/26/2012
02/26/2013
10/26/2012
10/26/2013
10/26/2014
10/26/2015
10/26/2016
12/06/2013
12/06/2014
12/06/2015
12/06/2016
12/06/2017
12/12/2014
12/12/2015
12/12/2016
12/12/2017
12/12/2018
12/07/2015
12/07/2016
12/07/2017
12/07/2018
12/07/2019
12/06/2015
|
|
|
|
|
Options
Exercises and Stock Vested During 2008
The
following table summarizes information with respect to stock option awards
exercised during 2008 for each of the named executive officers.
|
Option
Awards
|
Stock
Awards
|
Name
|
Number
of
Shares
Acquired
on
Exercise
(#)
|
Value
Realized
on
Exercise
($)(1)
|
Number
of
Shares
Acquired
on
Vesting
(#)
|
Value
Realized
on
Vesting
($)
|
H.
Charles Maddy, III
|
1,600
|
$
12,592
|
-
|
-
|
Robert
S. Tissue
|
-
|
-
|
-
|
-
|
Patrick
N. Frye
|
-
|
-
|
-
|
-
|
C.
David Robertson
|
-
|
-
|
-
|
-
|
Ronald
F. Miller
|
-
|
-
|
-
|
-
|
|
(1)
|
Value
determined by subtracting the exercise price per share from the market
value per share of our common stock on the date of
exercise.
|
Pension
Benefits
The
following table discloses the years of credited service of, present single-sum
value of the accrued benefits for, and payments during the last fiscal year to
the named executive officers under the Executive Salary Continuation Agreements
with the Company’s named executive officers (the “Continuation
Agreements”).
Name
|
Plan
Name
|
Number
of
Years
Credited
Service
(#)(1)
|
Present
Value
of Accumulated Benefit
($)(2)
|
Payments
During
Last
Fiscal Year
($)
|
H.
Charles Maddy, III
|
Executive
Salary Continuation Agreement
|
9
|
$218,000
|
|
Robert
S. Tissue
|
Executive
Salary Continuation Agreement
|
6
|
$95,000
|
|
Patrick
N. Frye
|
Executive
Salary Continuation Agreement
|
6
|
$148,000
|
|
C.
David Robertson
|
Executive
Salary Continuation Agreement
|
8
|
$334,000
|
|
Ronald
F. Miller
|
Executive
Salary Continuation Agreement
|
8
|
$332,000
|
|
(1) The
years of credited service under the Continuation Agreements begin on the
effective date of the individual agreement with each named executive
officer. Each individual agreement was executed after the date of
each named executive officer’s initial employment.
(2) The
material assumptions applied in quantifying the present value of the current
accrued benefits include the use of a 7% discount rate and an age of death of 85
using the 2000 U.S. Life Mortality Table.
The
Company and its affiliates have entered into Executive Salary Continuation
Agreements (Continuation Agreements) with certain executives of the Company and
its affiliates with an endorsement split dollar life insurance plan for.
The Continuation Agreements are designed to provide an annual defined
retirement benefit payable for the life of the executive. These benefits,
when added to the retirement benefits that will be provided by the Company’s
401(k) Profit Sharing Plan, Employee Stock Ownership Plan, and social security,
will provide each executive with benefit levels comparable to other Company
employees when measured as a percentage of salary at the time of
retirement.
The
Company’s obligations under the retirement benefit portion of
these agreements are unfunded; however, the Company has purchased life
insurance policies on each insurable executive that are actuarially designed to
offset the annual expenses associated with the agreements and will, given
reasonable actuarial assumptions, offset all of the costs of the Continuation
Agreements during the life of the executive and provide a complete recovery of
all costs at the executive’s death. The Company is the sole owner of all
policies.
The life
insurance benefit for each insurable officer is being provided by an Endorsement
Split Dollar Plan whereby the Company endorses a specified percentage of the
net-at-risk life insurance portion of a policy (total death benefit less cash
value of policy) on the life of each officer for payment to the designated
beneficiary of that officer. The Company owns the policy and its entire
surrender value.
For each
of the named executive officers, the annual lifetime benefits payable upon
retirement at normal retirement age are as follows: H. Charles Maddy, III
- $175,000; Robert S. Tissue - $125,000 Patrick N. Frye - $125,000; C. David
Robertson - $50,000; and. Ronald F. Miller - $50,000.
Estimated
Payments Upon Termination
The
following tables summarize potential estimated payments to our Named Executive
Officers under existing Summit contracts, agreements, plans or arrangements for
various scenarios involving termination of employment due to: voluntary
resignation, termination for good cause, termination without good cause, death,
disability, or change of control of the Company. The below information is
as of December 31, 2008, and does not include benefits other Company employees
would typically receive in the event of similar circumstances.
|
Estimated
Payments upon Termination Due to:
|
|
Voluntary
|
Termination
|
Termination
|
|
|
Change
in
|
|
Resignation
|
for
Good
|
Not
For Good
|
|
Disability
|
Company
|
Name
|
(a)
|
Cause
(b)
|
Cause
(c)
|
Death
(d)
|
(e)
|
Control
(f)
|
H.
Charles Maddy, III
|
$ 204,000
|
$ -
|
$
999,000
|
$2,461,000
|
$1,397,000
|
$1,471,000
|
Robert
S. Tissue
|
$ 81,000
|
$ -
|
$
290,000
|
$1,080,000
|
$ 81,000
|
$ 671,000
|
Patrick
N. Frye
|
$ 110,000
|
$ -
|
$
324,000
|
$1,223,000
|
$ 110,000
|
$ 940,000
|
C.
David Robertson
|
$ 329,000
|
$ -
|
$
614,000
|
$ 687,000
|
$ 329,000
|
$ 443,000
|
Ronald
F. Miller
|
$ 329,000
|
$ -
|
$
614,000
|
$ 737,000
|
$ 329,000
|
$ 453,000
|
|
(a)
|
Amounts
payable upon voluntary resignation consist of installment payments
commencing at normal retirement
age.
|
|
(b)
|
With
respect to Mr. Maddy, above illustration of termination for good cause
assumes an act of “gross negligence”. In the event of an act of
“simple negligence”, Mr. Maddy would receive 1 times his current annual
base salary ($397,500).
|
|
(c)
|
In
the event of termination not for good cause, each NEO receives a lump sum
payment equal to the current present value of their respective vested
benefit under the executive salary continuation agreements. In addition,
Mr. Maddy would receive a payment equal to 2 times his current base
salary. Mr. Tissue and Mr. Frye would receive a payment equal to the
greater of one year’s base salary or the total base salary for the
remainder of their respective employment agreements.
Mr. Robertson and Mr. Miller would receive a payment equal to
the greater of 6 months of their base salary or the total base salary for
the remainder of their respective employment agreements. Mr. Tissue
and Mr. Frye also receive their Company automobile. Conditions and
obligations to the receipt of payments not for good cause are described in
the Compensation Discussion and Analysis, which begins on page
28.
|
|
(d)
|
Upon
death, each NEO’s designated beneficiary would receive the NEO’s
respective split dollar life insurance death benefit and a lump sum
payment equal to the current present value of their vested benefit under
the executive salary continuation agreements. In addition, Mr.
Maddy’s designated beneficiary would receive 3 times his current annual
base salary and his family would receive continuation of their health
insurance coverage benefits on the same terms as they previously received
for 1 year.
|
|
(e)
|
With
respect to termination payments made in the event of disability, Mr. Maddy
would receive 3 times his current annual base salary plus a lump sum
payment equal to the current present value of his vested benefit under his
executive salary continuation agreement. Conditions and obligations to the
receipt of this payment are described in
the
|
|
Compensation
Discussion and Analysis, Employment Agreement - Mr. Maddy on page 28.
The other NEO’s would receive a lump sum payment equal to the
current present value of their respective vested benefit under their
executive salary continuation
agreements.
|
|
(f)
|
Illustration
of payments in the event of termination due to a change in Company control
assumes a scenario whereby the maximum estimated potential payments with
respect to each NEO are payable. Such payments would consist
of:
|
|
Estimated
Payments upon Termination in Event of a Change in Company
Control
|
Name
|
Severance
|
Value
of
Accelerated
Vesting
of
Stock
Options
|
Present
Value of
Accelerated
Benefits
under Salary Continuation Agreements
|
Continuation
of
Health
Insurance
Benefits
(1)
|
Value
of
Company
Automobile
|
Estimated
Tax
Gross
Up
(2)
|
Total
|
H.
Charles Maddy, III (3)
|
$
1,193,000
|
$
11,000
|
$
253,000
|
$
29,000
|
$
-
|
$
403,000
|
$
1,859,000
|
Robert
S. Tissue (4)
|
$
442,000
|
$
7,000
|
$
187,000
|
$
14,000
|
$
34,000
|
$
162,000
|
$
822,000
|
Patrick
N. Frye (4)
|
$
442,000
|
$
7,000
|
$
253,000
|
$
14,000
|
$
36,000
|
$
197,000
|
$
930,000
|
C.
David Robertson (5)
|
$ 360,000
|
$
7,000
|
$
114,000
|
$
-
|
$
-
|
$
-
|
$
527,000
|
Ronald
F. Miller (5)
|
$ 360,000
|
$
7,000
|
$
114,000
|
$
10,000
|
$
-
|
$
145,000
|
$
727,000
|
|
(1)
|
In
the event of termination in the event of a change in Company control, each
NEO would receive continuation of their health insurance coverage benefits
on the same terms as they previously received for the following terms:
Mr. Maddy – 3 years; Mr. Tissue and Mr. Frye -- 2 years; and, Mr.
Robertson and Mr. Miller – 18
months.
|
|
(2)
|
The
estimated tax gross up is based on the 20% excise tax, grossed up for
taxes, on the amount of severance and other benefits above each NEO’s
average five-year W-2 earnings multiplied by
2.99.
|
|
(3)
|
There
are five (5) scenarios under which Mr. Maddy may be terminated and paid
severance under his Change in Control Agreement. The amount
disclosed in the severance column in the above table represents the amount
of severance under scenarios one, four and five described below. The
five scenarios are as follows:
|
|
•
|
Under
the first scenario, if Mr. Maddy works for the acquiring company for a
period of one year (the “Transition Period”), then upon expiration of the
Transition Period, he is entitled to receive a payment equal to three
times the greater of (a) his Salary (as defined in the Agreement) in
effect immediately prior to the date of consummation of the change of
control or (b) his Salary in effect on the date of termination of his
employment under the Change in Control
Agreement.
|
|
•
|
Under
the second scenario, if Mr. Maddy terminates his employment within six
months of a change of control, then he is entitled to a lump sum payment
equal to seventy-five percent (75%) of the greater of (a) his Salary in
effect immediately prior to the date of consummation of the change of
control or (b) his Salary in effect on the date of termination of his
employment under the Change in Control Agreement. The amount of
severance under this scenario is
$298,000.
|
|
•
|
Under
the third scenario, if Mr. Maddy terminates his employment after the first
six months following the change of control, but before completion of the
Transition Period, then he is not entitled to a severance payment under
the Change in Control Agreement.
|
|
•
|
Under
the fourth scenario, if Mr. Maddy terminates for Good Reason (as defined
in the Compensation Discussion and Analysis, which begins on page 28) or
is terminated under circumstances constituting wrongful termination, then
he is entitled to a payment equal to three times the greater of (a) his
Salary in effect immediately prior to the date of consummation of
a
|
|
change
of control or (b) his Salary in effect on the date of termination of his
employment under the Change in Control
Agreement.
|
|
•
|
Under
the fifth scenario, if Mr. Maddy is terminated as a result of disability
or death, Mr. Maddy is entitled to a payment equal to three times the
greater of (a) his Salary in effect immediately prior to the date of
consummation of a change of control or (b) his Salary in effect on the
date of termination of his employment under the Change in Control
Agreement.
|
|
(4)
|
There
are two (2) scenarios under which Messrs. Tissue and Frye may be
terminated and paid severance under the change of control provisions in
each of their Employment Agreements. The two scenarios are as
follows:
|
|
•
|
If
Messrs. Frye or Tissue are terminated for Good Reason (as defined in the
Employment Agreement) or are terminated under circumstances constituting
Wrongful Termination (as defined in the Employment Agreement), then the
terminated executive officer is entitled to a payment equal to his Salary
(as defined in the Employment Agreement) multiplied by the number of
months between the effective date of termination and the date that is
twenty four (24) months after the date of consummation of change of
control, provided in no event shall the executive officer receive a lump
sum payment that is less than 100% of his Salary. The amount in the
severance column in the above table represents the severance amount under
this scenario.
|
|
•
|
If
Messrs. Frye and Tissue terminate within six months of a change of
control, the terminated executive officer is entitled to a lump sum
payment equal to seventy-five percent (75%) of his Salary in effect
immediately prior to the date of consummation of the Change of Control (as
defined in the Employment Agreement). The amount of severance under
this scenario is $166,000 for both Mr. Tissue and Mr.
Frye.
|
|
(5)
|
If
Messrs. Robertson and Miller employment are involuntarily terminated or
they voluntarily terminate their employment for the reasons described in
the Compensation Discussion and Analysis, which begins on page 28, then
they are entitled to severance equal to their monthly base salary in
effect on either (i) the date of termination; or (ii) the date immediately
preceding the change of control, whichever is higher, multiplied by the
number of full months between the date of termination and the date that is
eighteen (18) months after the date of consummation of the change of
control.
|
Director
Compensation 2008
Name
|
Fees
Earned or Paid in Cash ($)(1)
|
Stock
Awards ($)
|
Option
Awards ($)
|
Non-Equity
Incentive Plan Compensation ($)
|
Change
in Pension Value and Nonqualified Deferred Compensation
Earnings(2)
|
All
Other Compensation (see attachment) ($) (3)
|
Total
($)
|
Frank
A. Baer, III
|
$ 9,400
|
-
|
-
|
-
|
|
$ -
|
$ 9,400
|
Oscar
M. Bean
|
$ 37,875
|
-
|
-
|
-
|
|
$ -
|
$ 37,875
|
Dewey
F. Bensenhaver
|
$ 14,350
|
-
|
-
|
-
|
|
$ -
|
$ 14,350
|
James
M. Cookman
|
$ 12,250
|
-
|
-
|
-
|
|
$ -
|
$ 12,250
|
John
W. Crites
|
$ 18,625
|
-
|
-
|
-
|
|
$ -
|
$ 18,625
|
James
P. Geary, II
|
$ 16,575
|
-
|
-
|
-
|
|
$ -
|
$ 16,575
|
Thomas
J. Hawse, III
|
$ 18,025
|
-
|
-
|
-
|
|
$ -
|
$ 18,025
|
Phoebe
F. Heishman
|
$ 14,875
|
-
|
-
|
-
|
|
$ -
|
$ 14,875
|
Gary
L. Hinkle
|
$ 18,975
|
-
|
-
|
-
|
|
$ -
|
$ 18,975
|
Gerald
W. Huffman
|
$ 15,250
|
-
|
-
|
-
|
|
$ -
|
$ 15,250
|
Duke
A. McDaniel
|
$ 12,400
|
-
|
-
|
-
|
|
$ -
|
$ 12,400
|
G.
R. Ours, Jr.
|
$ 12,900
|
-
|
-
|
-
|
|
$ -
|
$ 12,900
|
Charles
S. Piccirillo
|
$ 16,800
|
-
|
-
|
-
|
|
$ -
|
$ 16,800
|
|
|
|
|
|
|
|
|
(1)
|
Directors
of the Company received $1,100 per board meeting attended in
2008. Non-employee Directors of the Company who serve on the
Company’s Audit and Compliance Committee and Compensation and Nominating
Committee received $750 for each meeting attended. Non-employee
Directors serving on other Company Committees received $150 per committee
meeting attended.
|
Members
of the
Board of Directors of the subsidiaries of the Company are paid an annual
retainer fee based on the asset size of each subsidiary bank as of December 31st
of the prior year and receive $125 for each meeting attended and $100 for each
committee meeting attended. All of the members of the Board of
Directors of the Company are also members of the Board of Directors of a bank
subsidiary of the Company except Mr. Baer, Mr. Bensenhaver, Mr. Cookman,
Mr. Geary, Mr. Huffman, Mr. McDaniel, and Mr.
Piccirillo. Accordingly, all of the Directors of the Company except
Mr. Geary receive fees from a bank subsidiary of the Company. In
addition, Mr. Maddy is a member of the Board of Directors of each subsidiary
bank of the Company and as such receives fees from each bank
subsidiary. The fees received by Mr. Maddy are included in the
Summary Compensation Table under “All Other Compensation”.
If an individual is a member of the Board of Directors of the Company
or any of its subsidiaries and is also an employee of the Company or any of its
subsidiaries, then such director will be paid the retainer fees and
the fees for each
board meeting attended as set forth above; however, such director will not be
paid the fees for each committee meeting attended.
Pursuant to the Summit
Directors’ Deferral Plan, the Company’s Directors may elect to defer their
retainer, meeting and committee fees earned. The Company invests amounts
equating to the deferrals of each participating director in phantom investments
in various mutual funds and Company stock. Benefits payable to
participant directors at retirement under the Plan will equate to the then
current value of the individual investments. The Company’s
subsidiaries have similar deferral plans for their directors.
On
December 30, 2005, the Company and its subsidiaries amended the Directors’
Deferral Plans (the “Plans”) to conform the Plans to administrative guidance and
the regulations issued by the Internal Revenue Service under Section 409A of the
Internal Revenue Code.
(2)
|
Pursuant
to the Summit Directors’ Deferral Plan, the Company’s Directors may elect
to defer their retainer, meeting and committee fees earned. The
Company invests amounts equating to the deferrals of each participating
director in phantom investments in various mutual funds and Company
stock. Benefits payable to participant directors at retirement
under the Plan will equate to the then current value of the individual
investments. The Company’s subsidiaries have similar deferral
plans for their directors.
|
On
December 30, 2005, the Company and its subsidiaries amended the Directors’
Deferral Plans (the “Plans”) to conform the Plans to administrative guidance and
the regulations issued by the Internal Revenue Service under Section 409A of the
Internal Revenue Code. The Company has not provided
above-market or preferential earnings on any non-qualified deferred compensation
and, accordingly, no such amounts are reflected in the above table.
(3)
|
Certain
members of the Company’s Board of Directors receive health insurance
coverage under the Company’s health insurance plan. This
benefit is only available for directors originally elected to the Board
prior to 1994. For those still receiving health insurance
coverage, such coverage will be eliminated upon their
retirement. The amount of the coverage provided did not exceed
$10,000 for any one director.
|
COMPENSATION
AND NOMINATING COMMITTEE REPORT
The
Compensation and Nominating Committee has reviewed and discussed the
Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K
with management, and based on such review and discussions, the Compensation and
Nominating Committee recommends to the Board of Directors that the Compensation
Discussion and Analysis be included in this Proxy Statement.
COMPENSATION
AND NOMINATING COMMITTEE
Oscar M.
Bean
Dewey F.
Bensenhaver
John W.
Crites
Phoebe F.
Heishman
Gary L.
Hinkle
Thomas J.
Hawse, III
Charles
S. Piccirillo
EXECUTIVE
OFFICERS
The names
of the Executive Officers of Summit Financial Group, Inc. as of March 6, 2009,
the present position and business position of such officers and the number of
shares of Common Stock of the Company beneficially owned by such Executive
Officers are as follows:
Name
and Age as of the May 14, 2009
Meeting
Date
|
Position,
Principal Occupation and
Business
Experience
|
Amount
of Beneficial Ownership of Shares of Common Stock as of March 6,
2009
|
|
Shares
|
%
|
H.
Charles Maddy III...(46)
|
Director
of Summit Financial Group since 1993. President and CEO of
Summit Financial Group since 1994. Co-Chairman of Board of
Directors of Summit Community Bank, a subsidiary of the Company, since
June 2007. Chairman of Board of Directors of Summit Community
Bank from 2002 to 2007. Director of the Federal Home Loan Bank
of Pittsburgh (“FHLB”) since 2002, Vice Chairman of the FHLB
Board.
|
106,008(1)
|
1.38%
|
Robert
S. Tissue …….(45)
|
Senior
Vice President and Chief Financial Officer of Summit Financial Group since
1998.
|
72,357(2)
|
*
|
Patrick
N. Frye ……..(50)
|
Director
of Summit Financial Group since 2000. Senior Vice President and
Chief Credit Officer of Summit Financial Group since December
2003. President and CEO of Summit Community Bank, a subsidiary
of the Company, from 1998 to 2004.
|
41,466(3)
|
*
|
C.
David Robertson …(65)
|
Co-Chairman
of Summit Community Bank Board of Directors since June
2007. President and CEO of Summit Community Bank, a subsidiary
of the Company, from February 1999 to June 2007.
|
46,364(4)
|
*
|
Ronald
F. Miller ……(65)
|
Director
of Summit Financial Group since 1998. President and CEO of
Summit Community Bank, a subsidiary of the Company, since
1998.
|
49,647(5)
|
*
|
Scott
C. Jennings ……(47)
|
Senior
Vice President and Chief Operating Officer of Summit Financial Group since
2000.
|
44,144(6)
|
*
|
Douglas
T. Mitchell …(45)
|
Senior
Vice President and Chief Banking Officer of Summit Financial Group since
September 2005. Senior Vice President of SunTrust Bank
2002-2005. Area Vice President of Chevy Chase Bank
2000-2002.
|
14,454(7)
|
*
|
|
(1)
|
Includes
8,009 shares owned by spouse, 20,767 fully vested shares held in Company’s
ESOP and exercisable stock options for 71,200 shares; 2,768 shares are
pledged as collateral.
|
|
(2)
|
Includes
4,939 fully vested shares held in Company’s ESOP and exercisable stock
options for 51,000 shares.
|
|
(3)
|
Includes
5,074 fully vested shares held in Company’s ESOP and exercisable stock
options for 28,400.
|
|
(4)
|
Includes
1,670 shares owned by spouse, 5,814 fully vested shares held in Company’s
ESOP and exercisable stock options for 18,880
shares.
|
|
(5)
|
Includes
6,777 fully vested shares held in Company’s ESOP and exercisable stock
options for 34,400 shares.
|
|
(6)
|
Includes
10,542 fully vested shares held in Company’s ESOP and exercisable stock
options for 33,400 shares.
|
|
(7)
|
Includes
454 fully vested Shares held in Company’s ESOP and exercisable stock
options for 10,000 shares.
|
PRINCIPAL
SHAREHOLDER
The
following table lists each shareholder of Summit who is the beneficial owner of
more than 5% of Summit’s common stock as of March 6, 2009.
Title of Class
|
Name
and Address
of Beneficial Owner
|
Amount
and Nature of Beneficial
Ownership
|
% of Class
|
Common
Stock
|
John
W. Crites
PO
Box 867
Petersburg,
WV 26847
|
548,816(1)
|
7.16%
|
(1) Includes
316,792 shares jointly owned with spouse.
REQUIREMENTS, INCLUDING
DEADLINE FOR SUBMISSION
OF
PROXY PROPOSALS, NOMINATION OF DIRECTORS AND
OTHER
BUSINESS OF SHAREHOLDERS
Under our
Articles of Incorporation, certain procedures are provided which a shareholder
must follow to nominate persons for election as Directors. These
procedures provide that nominations for Directors at an annual meeting of
shareholders must be submitted in writing to the President of the Company at P.
O. Box 179, 300 North Main Street, Moorefield, West Virginia 26836.
The nomination must be received no later than:
· thirty
(30) days in advance of an annual meeting if at least thirty (30) days prior
notice is provided; or
· five
(5) days following the day on which the notice of meeting is mailed if less than
thirty (30) days notice is given.
The
nomination must contain the following information about the nominee and
notifying shareholder:
· name
of the nominee;
· address
of the nominee;
· principal
occupation of the nominee;
· the
number of shares of common stock held by the notifying shareholder; and the name
and address of the notifying shareholder.
The
chairman of the meeting may refuse to acknowledge the nomination of any person,
if not in compliance with the foregoing procedures.
The Board
is not aware of any matters that are expected to come before the Annual Meeting
other than those referred to in this Proxy Statement. If any other matter
should come before the Annual Meeting, the persons named in the accompanying
proxy intend to vote the proxies in accordance with their best
judgment.
Under the
rules of the SEC, shareholder proposals intended to be presented at the
Company’s 2010 Annual Meeting of Shareholders must be received by us, Attention:
Secretary, at our principal executive offices by December 10, 2009, for
inclusion in the proxy statement and form of proxy relating to that
meeting. Shareholder proposals to be brought before our 2010 Annual
Meeting and submitted outside the processes of Rule 14a-8 will be
considered untimely if they are submitted after February 21, 2010.
Stock
Transfers
Current
market quotations for the common stock of Summit Financial Group, Inc. are
available on The NASDAQ SmallCap Market under the symbol “SMMF.”
ANNUAL
REPORT
The
annual report of the Company for the year ended December 31, 2008, is being
mailed concurrently with this Proxy Statement.
The
financial statements and other information to be delivered with this Proxy
Statement constitute the annual disclosure statement as required by 12 C.F.R.
18.
FORM
10-K
The
Company will furnish without charge to each person whose proxy is being
solicited, upon the request of any such person, a copy of the Company’s annual
report on Form 10-K for 2008. Requests for copies of such report should be
directed to Julie R. Cook, Vice President, Chief Accounting Officer, Summit
Financial Group, Inc., P. O. Box 179, Moorefield, West Virginia 26836, or
e-mail [email protected].
Whether
or not you plan to attend the Meeting, please mark, sign, date and promptly
return the enclosed proxy in the enclosed envelope. No postage is
required for mailing in the United States.
By Order of the Board
of Directors,
April 7,
2009
Appendix A
SUMMIT
FINANCIAL GROUP, INC.
2009
OFFICER STOCK OPTION PLAN
WITNESSETH
this 2009 OFFICER STOCK OPTION PLAN dated as of the _____ day of _______, 2009,
by SUMMIT FINANCIAL GROUP, INC. (“Corporation”), a West Virginia
corporation:
1.
|
PURPOSE OF
PLAN. The purpose of this 2009 Officer Stock Option Plan
(“Plan”) is to further the success of the Corporation and its subsidiaries
by making stock of the Corporation available for purchase by officers of
the Corporation or its subsidiaries through stock option
grants. The Plan provides an additional incentive to such
officers to continue in the Corporation’s service and give them a greater
interest as stockholders in the success of the
Corporation.
|
2.
|
REFERENCE, CONSTRUCTION, AND
DEFINITIONS. Unless otherwise indicated, all references
made in this Plan shall be to articles, sections and subsections of this
Plan. The provisions of the Plan are intended to satisfy the
requirements of Section 16(b) of the Securities Exchange Act of 1934, and
shall be interpreted in a manner consistent with the requirements thereof,
as now or hereafter construed, interpreted, and applied by regulations,
rulings, and cases. The Plan is also designated so that options
granted hereunder intended to comply with the requirements for
“performance-based” compensation under Section 162(m) of the Code may
comply with such requirements. The creation and implementation
of the Plan shall not diminish or prejudice other compensation plans or
programs approved from time to time by the Board. This Plan
shall be construed in accordance with the laws of the state of West
Virginia. The headings and subheadings in this Plan have been
inserted for convenience of reference only and are to be ignored in
construction of the provision of this Plan. In the construction
of this Plan, the masculine shall include the feminine and singular the
plural, wherever appropriate. The following terms shall have
the meanings set forth opposite such
terms:
|
(a) “Board”
means the Board of Directors of the Corporation.
|
(b)
|
“Business
Day” means each Monday, Tuesday, Wednesday, Thursday and Friday on which
the Corporation’s Common Stock is available for purchase or
sale.
|
|
(c)
|
“Change
of Control” means (a) a report is filed with the Securities and Exchange
Commission (the “SEC”) on Schedule 13D or Schedule 14D-1 (or any successor
schedule, form or report), each as promulgated pursuant to the Exchange
Act, disclosing that any “person”, as such term is used in Section 13(d)
and Section 14(d)(2) of the Exchange Act, other than the company or any
company employee benefit plan, is or has become a beneficial owner,
directly or indirectly, of securities of the Company representing
twenty-five percent (25%) or more of the combined voting power of the
Company’s then outstanding securities; (b) the Company files a report or
proxy statement with the SEC pursuant to the Exchange Act disclosing in
response to Item 1 of Form 8-K thereunder or Item 6(e) of Schedule 14A
thereunder that a Change of Control of the Company has or may have
occurred or will or may occur in the future pursuant to any then-existing
contract or transaction; (c) the Company is merged or consolidated with
another corporation and, as a result thereof, securities representing less
than fifty percent (50%) of the combined voting power of the surviving or
resulting corporation’s securities (or of the securities of a parent
corporation in case of a merger in which the surviving or resulting
corporation becomes a wholly owned subsidiary of the parent corporation)
are owned in the aggregate by holders of the Company’s securities
immediately prior to such merger or consolidation; (d) all or
substantially all of the assets of the Company are
sold
|
|
in
a single transaction or a series of related transactions to a single
purchaser or a group of affiliated purchasers; or (e) during any period of
twenty-four (24) consecutive months, individuals who were Directors of the
Company at the beginning of such period cease to constitute at least a
majority of the Company’s board unless the election, or nomination for
election by the Company’s shareholders, of more than one-half of any new
Directors of the Company was approved by a vote of at least two-thirds of
the Directors of the Company then still in office who were Directors of
the Company at the beginning of such twenty-four (24) month period, either
actually or by prior operation of this clause (e). A Change of
Control shall not include any transaction described in the definition of
Change of Control in connection with which the Corporation executes a
letter of intent or similar agreement with another company within one year
from the effective date of the Plan. The date of a Change of
Control shall be deemed to be the date of the earlier of the date of (i)
consummation of the transaction involving the Change of Control, or (ii)
the execution of a definitive agreement by the Corporation involving a
transaction deemed to be a Change of
Control
|
|
(d)
|
“Code”
means the Internal Revenue Code of 1986, as amended from time to
time.
|
|
(e)
|
“Committee”
means the Committee of the Board appointed by the Board to administer the
Plan as constituted from time to time in accordance with Section 4(a);
provided, however, that if the Committee shall not be in existence, the
term “Committee” shall mean the
Board.
|
|
(f)
|
“Common
Stock” means the common stock ($2.50 par value) of the
Corporation.
|
|
(g)
|
“Corporation”
means Summit Financial Group, Inc., a West Virginia banking
corporation.
|
|
(h)
|
“Date
of Grant” means the date on which an option is granted under the
Plan.
|
|
(i)
|
“Effective
Date” means the date on which the Plan is approved and adopted by the
shareholders of the Corporation.
|
|
(j)
|
“Fair
Market Value” means (i) if the Common Stock is listed on an established
securities exchange, the value per share shall be based on the arithmetic
mean of its closing prices reported on such exchange at the close of
business for the last five (5) most recent Business Days on which the
Common Stock traded prior to the date of grant; provided however, if the
Common Stock did not trade for five (5) Business Days during the
continuous thirty (30) day period immediately prior to the date of grant,
then the Fair Market Value shall be the arithmetic mean of the closing
prices reported on such exchange at the close of business for the Business
Days on which the common stock traded during said thirty (30) day period
or if the Common Stock did not trade during said thirty (30) day period,
then the Fair Market Value shall equal the closing price reported on such
exchange at the close of business on the last trading day before the date
of the grant; (ii) if the Common Stock is not listed on any United States
securities exchange but is traded on any formal over-the-counter quotation
system which reports quotations from more than one broker or dealer in the
United States, the value per share shall be based on the simple average of
the closing prices reported on the last five (5) Business Days on which
the Common Stock traded prior to the date of grant provided however, if
the Common Stock did not trade for five (5) Business Days during a
continuous thirty (30) day period immediately prior to the date of grant,
then the Fair Market Value shall be the arithmetic mean of the closing
prices reported on such exchange at the close of business for the Business
Days on which the common stock traded during said thirty (30) day period
or if the Common Stock did not trade during said thirty (30) day period,
then the
|
|
Fair
Market Value shall equal the closing price reported on such exchange at
the close of business on the last trading day before the date of the
grant; or (iii) if the Common Stock is not readily tradable on an
established securities exchange, the value per share shall be based on a
reasonable valuation method that conforms to the requirements of Internal
Revenue Code Section 409A.
|
|
(k)
|
“Non
Qualified Stock Option” means an Option which is not of the type described
in Section 422(b) or 423(b) of the
Code.
|
|
(l)
|
“Option”
means an option to purchase a share or shares of the Corporation’s par
value Common Stock.
|
|
(m)
|
“Option
Agreement” means the written agreement to be entered into by the
Corporation and the Participant, as provided in Section 6
hereof.
|
|
(n)
|
“Participant”
means any officer of the Corporation or its subsidiaries designated by the
Committee and approved by the Board to receive a stock option grant
pursuant to this Plan.
|
|
|
“Plan”
means this 2009 Officer Stock Option
Plan.
|
|
(p)
|
“Qualified
Stock Option” means an Option which is of the type described in Section
422(b) of the Code.
|
|
(q)
|
“Retirement”
shall mean termination of employment by the Participant (i) at the age of
65 or more, or (ii) after twenty-five years of service with the
Corporation.
|
|
(r)
|
“Term”
means the period during which a particular Option may be exercised in
accordance with Section 9(b)
hereof.
|
|
(s)
|
“Vest”
or “Vesting” means the date, event, or act prior to which an Option, in
whole or in part, is not exercisable, and as a consequence of which the
Option, in whole or in part, becomes exercisable for the first
time.
|
3.
|
STOCK SUBJECT TO
PLAN. Subject to the provisions of Sections 6, 7, 8 and
9, there shall be reserved for issuance or transfer upon the exercise of
Options to be granted from time to time under the Plan an aggregate of
three hundred and fifty thousand (350,000) shares of Common Stock, which
shares may be in whole or in part, as the Board shall from time to time
determine, authorized and unissued shares of Common Stock, or issued
shares of Common Stock which shall have been reacquired by the
Corporation. If any Option granted under the Plan shall expire,
terminate, or be canceled for any reason without having been exercised in
full, the unpurchased shares subject thereto shall again be available for
the purpose of the Plan. The maximum aggregate number of shares
that can be issued under the Plan through a Qualified Stock Option is one
hundred thousand (100,000).
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|
(a)
|
The
Plan shall be administered by the Committee. Actions by the
Committee for purposes of this Plan shall be by not less than a majority
of its members. Any decision or determination reduced to
writing and signed by all Committee members shall be fully as effective as
if it had been made by a majority vote at a meeting duly called and
held. The Committee shall report all action taken by it to the
Board.
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|
(b)
|
The
Committee may delegate to one or more of its members or to one or more
agents such administrative duties as it may deem advisable, and the
Committee or any person to
|
|
whom
it has delegated duties as aforesaid may employ one or more persons to
render advice with respect to any responsibility the Committee or such
person may have under the Plan. All decisions, determinations, and
interpretations of the Committee shall be final and binding on all
Participants under this Plan.
|
|
(c)
|
The
Board may authorize the Committee to administer the Plan. In
the event the Board elects to administer the Plan, the Board shall have
the power and authority otherwise delegated to the Committee in the Plan
documents and all acts performed by the Committee under the Plan shall be
performed by the Board.
|
|
(d)
|
The
Committee shall have authority in its discretion, but subject to the
express provisions of the Plan:
|
|
(1)
|
to
determine Participants to whom Option may be
granted;
|
|
(2)
|
to
determine the time or times when Option may be
granted;
|
|
(3)
|
to
determine the purchase price of the Common Stock covered by each Option
grant (notwithstanding anything in this Plan to the contrary, no Options
shall be granted with a option price of less than Fair Market
Value);
|
|
(4)
|
to
determine the number of shares of Common Stock to be subject to each
Option;
|
|
(5)
|
to
determine when an Option can be exercised and whether in whole or in
installments as the result of a Vesting schedule triggered by the passage
of time or the attainment of performance goals set by the Committee and
approved by the Board;
|
|
(6)
|
to
prescribe, amend, or rescind rules and regulations relating to the
Plan;
|
|
(7)
|
to
determine any other terms and provisions and any related amendments to the
individual Option Agreements, which need not be identical for each
Participant, including such terms and provisions and amendments as shall
be required in the judgment of the Committee to conform to any change in
any law or regulation applicable thereto, and with particular regard to
any changes in or effect of the Code and the regulations thereunder;
and
|
|
(8)
|
to
make all other determinations deemed necessary or advisable for the
administration of the Plan.
|
5.
|
PARTICIPATION. Options
may be granted to officers employed by the Corporation or its
subsidiaries. In determining the officers to whom Options may
be granted and the number of shares to be covered by each grant, the
Committee may take into account the nature of the services rendered by the
respective officers, their present and potential contributions to the
Corporation’s success, and such other factors as the Committee in its
discretion shall deem relevant. Non Qualified Stock Options may
be granted to officers who currently hold Corporate stock or who hold or
have held Options under this Plan. Qualified Stock Options may
be granted to key employees of the Corporation or its
subsidiaries. The term employees for purposes of participating
in a Qualified Stock Option is defined pursuant to Code Section 3401(c)
and the regulations issued thereunder and excludes independent contractors
and directors of the Corporation in their capacity as
such.
|
6.
|
OPTION GRANTS AND
LIMITS.
|
|
(a)
|
Nothing
contained in this Plan or in any resolution adopted or to be adopted by
the Board shall constitute the granting of any Option
hereunder. The granting of an Option pursuant to the Plan shall
take place only when a written Option Agreement shall have been duly
executed and delivered by or on behalf of the Corporation and the officer
(or his or her duly authorized attorney-in-fact) in whom such Option is to
be granted.
|
|
(b)
|
During
the Participant’s lifetime, any Option granted under this Plan shall be
exercisable only by the Participant or any legally appointed guardian or
legal representative of the Participant, subject to the limitations of
Code Section 422, and the Option shall not be transferable except, in case
of the death of the Participant, by will or the laws of descent and
distribution, nor shall the Option be subject to attachment, execution, or
other similar process. In the event of (i) any attempt by the
Participant to alienate, assign, pledge, hypothecate, or otherwise dispose
of the Option, except as provided in this Plan, or (ii) the levy of any
attachment, execution, or similar process upon the rights or interests
conferred by the Option, the Corporation may terminate the Option by
notice to the Participant and upon such notice the Option shall become
null and void.
|
|
(c)
|
Each
Option Agreement shall include a Vesting schedule describing the date,
event, or act upon which an Option shall Vest, in whole or in part, with
respect to all or a specified portion of the shares covered by such
Option. This condition shall not impose upon the Corporation
any obligation to retain the Participant in its employ for any
period.
|
|
(d)
|
Each
Option granted pursuant to the Plan shall be evidenced by an Option
Agreement between the Corporation and the Participant, in such form as the
Committee shall from time to time approve, nonetheless each Option
Agreement shall comply with and be subject to all of the terms and
conditions in Sections 6, 7, 8, 9 and
10.
|
|
(e)
|
Options
shall include Non Qualified Stock Options and Qualified Stock Options and
each Option Agreement shall specifically state the number of shares of
Common Stock to which the Option relates and what type of Option is being
granted whether a Non Qualified Stock Option or Qualified Stock
Option.
|
7.
|
QUALIFIED STOCK
OPTIONS. Notwithstanding
any provision of this Plan to the contrary the following requirements must
be met for the issuance and exercise of a Qualified Stock
Option:
|
(b)
|
Key
Employees: A Qualified Stock Option shall only be
granted to a key employee of the Corporation or its
subsidiaries. The term employees for purposes of participating
in a Qualified Stock Option is defined pursuant to Code Section 3401(c)
and the regulations issued thereunder and excludes independent contractors
and directors of the Corporation in their capacity as
such.
|
(c)
|
Employment
Requirement: A Participant must be an employee of the
corporation or its subsidiaries from the grant of a Qualified Stock Option
until three (3) months prior to the exercise of the Qualified Stock
Option. If a Participant is terminated due to a permanent and
total disability, said Participant must be an employee of the Corporation
or its subsidiaries from the grant of a Qualified Stock Option until one
(1) year prior to the exercise of the Qualified Stock
Option. An employment relationship will be treated as
continuing intact while the Participant is on military leave, sick leave
or other bona fide leave of absence if the period of leave does not exceed
ninety (90) days, or, if longer, the Participant’s right to re-employment
is guaranteed either by statute or by
contract.
|
(d)
|
Ten Year Granting
Limit: Any Qualified Stock Option granted under this Plan must be
granted within ten (10) years of the earlier of (i) the date the Plan is
adopted or (ii) the date the Plan is approved by the
stockholders.
|
|
(1)
|
the
Qualified Stock Option price is at least one hundred and ten percent
(110%) of the stock's Fair Market Value on the date of grant; and
,
|
|
(2)
|
the
Qualified Stock Option, by its terms, is not exercisable more than five
years after the date granted.
|
(g)
|
Aggregate $100,000
Limit: A stock option will not be treated as a Qualified Stock
Option if the aggregate Fair Market Value as of the date of grant of the
stock options exceed one hundred thousand dollars ($100,000) when first
exercisable. Any Option grant which exceeds this aggregate
limit will be considered a Non Qualified Stock
Option.
|
(h)
|
Stock Holding
Period: Upon the transfer of stock to the Participant pursuant to
the exercise of a Qualified Stock Option, the Participant shall not make a
disposition of the share of stock so transferred before the later of the
expiration of:
|
|
(1)
|
the
two (2) year period from the date of grant of the Qualified Stock Option
under which the stock was transferred;
or
|
|
(2)
|
the
one (1) year period from the date of transfer of the share of stock to the
Participant.
|
If a
Participant does not comply with the above stock holding period any such
disposition will be considered a disqualifying disposition pursuant to Code
Section 422 and 421 and the regulations issued thereunder.
The
limitation in this Section 7(h) shall not be applicable if during the required
holding period an insolvent Participant transfers stock acquired through the
exercise of a Qualified Stock Option (i) to a trustee, receiver or other
fiduciary, or (ii) for the benefit of creditors, in a bankruptcy or insolvency
proceeding, subject to the limitations of Code Section 422.
8.
|
OPTION
PRICES. The Option price to be paid by the Participants
to the Corporation for each share purchased upon the exercise of the
Option shall be not less than the Fair Market Value
of
|
|
the
share on the date the Option is granted. In no event may an
Option be granted under the Plan if the Option price per share is less
than the par value of a share.
|
|
(a)
|
A
Participant may exercise any Option granted under this Plan with respect
to all or any part of the number of shares then exercisable under the
terms of the written Option Agreement by giving the Committee written
notice of intent to exercise. The notice of exercise shall
specify the number of shares to be purchased under the Option and the date
of exercise.
|
|
(b)
|
Each
Option granted under the Plan shall be exercisable only during a Term
established by the Committee as set forth in the applicable Option
Agreement.
|
|
(c)
|
Full
payment of the option price for the shares purchased shall be made by the
Participant on or before the exercise date specified in the notice of
exercise. Payment of the purchase price of any shares with
respect to which the Option is being exercised shall be (i) cash, (ii)
certified check to the order of the Corporation, or (iii) shares of Common
Stock of the Corporation valued at the Fair Market Value on such Business
Day as the Option or portion thereof is
exercised.
|
|
(d)
|
The
Corporation shall not be required to deliver certificates for such shares
until full payment of the Option price has been made. On or as
soon as is practicable after the exercise date specified in the
Participant’s notice and upon full payment of the Option price, the
Corporation shall cause to be delivered to the Participant a certificate
or certificates for the shares then being purchased (out of previously
unissued Common Stock or reacquired Common Stock, as the Corporation may
elect). The exercise of the Option and the resulting obligation
of the Corporation to deliver Common Stock shall, however, be subject to
the condition that the listing, registration, or qualification of the
Option or the shares upon any securities exchange or under any state or
federal law, or the consent, or approval of any governmental regulatory
body shall have been effected or obtained free of any conditions not
acceptable to the Committee.
|
|
(e)
|
If
the Participant fails to pay for any of the shares specified in such
notice or fails to accept delivery of the shares, his or her right to
purchase such shares may be terminated by the Corporation. The
date specified in the Participant’s notice as the date of exercise shall
be deemed the date of exercise of the Option, provided that payment in
full for the shares to be purchased upon such exercise shall have been
received by such date.
|
|
(f)
|
The
holder of an Option shall not have any of the rights of a stockholder with
respect to the shares subject to the Option until such shares shall be
issued or transferred to him or her upon the exercise of his or her
Option.
|
10.
|
TERMINATION, DISABILITY, OR
DEATH OF OPTION HOLDER. The ability to exercise Options
under this Plan shall be conditioned as
follows:
|
|
(a)
|
Exercise During and
After Employment. Unless otherwise provided in the terms
of an Option, an Option may be exercised by the Participant while he or
she is an employee if it is vested and if he or she has maintained since
the date of the grant of the Option continuous status as an
employee.
|
In the
event of termination of the employment of a Participant by either the
Participant or the Corporation to whom an Option has been granted under the
Plan, other than a termination by reason of Retirement, permanent disability, or
death (all as more fully described below), the Participant may (unless otherwise
provided in his or her Option
Agreement)
exercise such Vested Options until the shorter of (i) the expiration of the
stated term of the Option; (ii) in the case of Non Qualified Stock Options
for a period of one (1) year from his or her termination date; or (iii) in the
case of Qualified Stock Options for a period of ninety (90) days from the date
of such termination.
|
(b)
|
Exercise Upon
Retirement. Unless otherwise provided in the terms of an
Option, if a Participant’s continuous employment shall terminate by reason
of his or her Retirement, at a retirement date authorized by the
Committee, from the Corporation or its subsidiaries, a retired Participant
shall be come one hundred percent (100%) Vested in any Option he or she
has been granted under the Plan as of that date. A Participant
may exercise such Vested Options until the shorter of (i) the expiration
of the stated term of the Option; (ii) in the case of Non Qualified
Stock Options for a period of one (1) year from his or her retirement
date; or (iii) in the case of Qualified Stock Options for a period of
ninety (90) days from the date of such
retirement.
|
|
(c)
|
Exercise Upon
Permanent Disability. Unless otherwise provided in the
terms of an Option, if a Participant’s continuous employment shall
terminate by reason of a permanent disability (as determined by the
Participant establishing to the Committee his or her disability as defined
in Code Section 22(e)(3) of the Code, as amended from time to time), then
such Option of the disabled Participant may be exercised with respect to
the number of shares covered by the Participant’s Option that were Vested
immediately prior to that disability. Such Option of the
permanently disabled Participant may be exercised during the period the
Option would have been exercisable if the permanently disabled Participant
had not been permanently disabled and had remained in
employment. Notwithstanding the previous sentence, a Qualified
Stock Option must be exercised within one (1) year after a Participant’s
continuous employment is terminated by reason of a permanent disability,
after the expiration of said one (1) year any unexercised Qualified Stock
Options will become null and void. Notwithstanding any
provision in this subsection to the contrary, no extension to the Term of
an Option shall be extended beyond the original Term of said
Option.
|
|
(d)
|
Exercise Upon
Death. Unless otherwise provided in the terms of an
Option, if a Participant’s continuous employment shall terminate by reason
of his or her death, then to the extent that the Participant would have
been entitled to exercise the Option immediately prior to his or her
death, such Option of the deceased Participant may be exercised during the
period the Option would have been exercisable if the deceased Participant
had not died and had remained in employment, by the person or persons
(including his or her estate) to whom his or her rights under such Option
shall have passed by will or by laws of descent and
distribution. Notwithstanding the previous sentence, a
Participant must be an employee of the Corporation or its subsidiaries (i)
at the time of the Participant’s death or (ii) within three (3) months of
the Participant’s death to entitle the person or persons (including his or
her estate) to whom his or her rights under such Qualified Stock Option
shall have passed by will or by laws of descent and distribution to
exercise said Qualified Stock Option. The stock holding
requirement as provided in Section 7(h) is not applicable upon the death
of a Participant.
|
|
(a)
|
In
the event that the outstanding shares of Common Stock are hereafter
increased or decreased or changed into or exchanged for a different number
or kind of shares or other securities of the Corporation or of another
corporation, by reason of a recapitalization, reclassification, stock
split-up, combination of shares or dividend or other distribution payable
in capital stock, appropriate adjustment shall be made by the Committee in
the number and kind of shares for which Options may be granted under the
Plan. In addition,
|
|
the
Committee shall make appropriate adjustment in the number and kind of
shares as to which outstanding Options, or portions thereof then
unexercised, shall be exercisable, to the end that the proportionate
interest of the holder of the Option shall, to the extent practicable, be
maintained as before the occurrence of such event. Such
adjustment in outstanding Options shall be made without change in the
total price applicable to the unexercised portion of the Option but with a
corresponding adjustment in the Option price per share. All
provided however, that all such adjustments made in respect of each
Qualified Stock Option shall be accomplished so that such Qualified Stock
Option shall continue to be an incentive stock option within the meaning
of Code Section 422. However, in no event shall this Subsection
11(a) be construed to permit a modification (including a replacement) of
an Option if such modification either: (i) would result in accelerated
recognition of income or imposition of additional tax under Code Section
409A; or (ii) would cause the Option subject to the modification (or cause
a replacement Option) to be subject to Code Section 409A; and provided,
further, that, with respect to Incentive Stock Options, such adjustment
shall be made in accordance with Code Section
424(h).
|
|
(b)
|
In
the event of a Change of Control, any Option under the Plan shall
terminate as of a date to be fixed by the Committee, provided that not
less than ninety (90) days’ written notice of the date so fixed shall be
given to each Participant, and each such Participant shall have the right
during such period to exercise any of his or her Options as to all or any
part of the shares covered thereby including shares as to which such
Options would not otherwise be exercisable by reason of any insufficient
lapse of time. Notwithstanding any provision in this Plan to
the contrary, no extension of the Term of an Option shall be granted under
any circumstances under this Plan; consequently if the prohibition on Term
extensions and the expiration date of the original Term of an Option would
cause the above required ninety (90) day written notice period to be
violated, said notice period will be shortened appropriately to ensure
that the original Term of any Option is not
extended.
|
|
(c)
|
Adjustment
and determinations under this Section 11 shall be made by the Committee,
whose decisions as to what adjustments or determinations shall be made,
and the extent thereof, shall be final, binding, and
conclusive.
|
12.
|
CHANGE OF
CONTROL. Notwithstanding any other Plan provisions or
grant term, in the event of a Change of Control, all Options granted
hereunder shall become Vested and exercisable regardless of the number of
years that have passed since the Date of Grant and regardless of any
vesting provisions in the Option Agreements. Notwithstanding
any provision in this Section to the contrary, no extension to the Term of
an Option shall be extended beyond the original Term of said
Option.
|
13.
|
AMENDMENT AND
TERMINATION. Unless the Plan shall theretofore have been
terminated as hereinafter provided, no Option shall be granted thereunder
after the tenth (10th) anniversary of the Effective Date. All
other Plan provisions shall remain in effect with respect to Options
granted prior to the tenth (10th) anniversary of the Effective
Date. The Board may terminate the Plan or make such
modifications or amendments thereof as it shall deem advisable, or to
conform to any change in any law or regulation applicable thereto,
including without limitation (a) increasing the maximum number of shares
to which Options may be granted under the Plan, subject to shareholder
approval and the limitations applicable to issuance of Qualified Stock
Options or Non Qualified Stock Options; (b) changing the class of
employees eligible to be granted Non Qualified Stock Options, subject to
shareholder approval and the limitations applicable to issuance of
Qualified Stock Options or Non Qualified Stock Options; (c) increasing the
periods during which Non Qualified Stock Options may be granted, subject
to the limitations applicable to issuance of Qualified Stock Options or
Non Qualified Stock Options; or (d) providing for the administration of
the Plan in a manner which may avoid, without the consent of the
Participant to whom any Option shall theretofore have been granted,
adversely affecting the
|
|
rights
of such Participant under such grant. All provided that (i) no
such amendment or modification shall be effective if it would cause this
Plan to violate Code Sections 409A and 422 and the regulations and
guidance thereunder and consequently cause this Plan to be subject to 409A
or cause any Qualified Stock Option issued hereunder to be treated as a
Non Qualified Stock Option.
|
14.
|
RESTRICTIONS ON ISSUING
SHARES. The transfer of a share of Common Stock upon the
exercise of each Option shall be subject to the condition that if at any
time the Corporation shall determine in its discretion that the
satisfaction of withholding tax or other withholding liabilities, or that
the listing, registration or qualification of any shares otherwise
deliverable upon any securities exchange or under any state or federal
law, or that the consent or approval of such regulatory body, is necessary
or desirable as a condition, of, or in connection with, such transfer of
shares pursuant thereto, then in any such event, such transfer shall not
be effective unless such withholding, listing, registration,
qualification, consent, or approval shall have been effected or obtained
under conditions acceptable to the
Corporation.
|
15.
|
USE OF
PROCEEDS. The proceeds received from the sale of Common
Stock pursuant to the exercise of Options granted under the Plan shall be
added to the Corporation’s general funds and used for general corporate
purposes.
|
16.
|
INDEMNIFICATION OF
COMMITTEE. In addition to such other rights of
indemnification as they may have as members of the Board or as members of
the Committee, the members of the Committee shall be indemnified by the
Corporation against all costs and expenses reasonably incurred by them in
connection with any action, suit, or proceeding to which they or any of
them may a be party by reason of any action taken or failure to act under
or in connection with the Plan, or any Option and against all amounts paid
by them in settlement thereof (provided such settlement is approved by
legal counsel selected by the Corporation) or paid by them in satisfaction
of a judgment in any such action, suit, or proceeding, except a judgment
based upon a finding of bad faith. Upon the institution of any
such action, suit, or proceeding, a Committee member shall notify the
Corporation in writing, giving an opportunity, at its own expense, to
handle and defend the same before such Committee member undertakes to
handle it on his or her own behalf.
|
17.
|
EFFECTIVENESS OF THE
PLAN. The Plan shall become effective as of the
Effective Date.
|
|
(a)
|
Employment Not
Affected. Neither the granting of an Option nor its
exercise shall be construed as granting to the Participant any right with
respect to continuance of his or her employment with the Corporation or
its subsidiaries. Except as may otherwise be limited by a
written agreement between the Corporation or its subsidiaries and the
Participant, the right of the Corporation or its subsidiaries to terminate
at will the Participant’s employment with it at any time (whether by
dismissal, discharge, retirement, or otherwise) is specifically reserved
by the Corporation or its subsidiaries as the employer or on behalf of the
employer (whichever the case may be) and acknowledged by the
Participant.
|
|
(b)
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Binding on Successors
and Assigns. This Plan shall be binding on the
Corporation, its successors and
assigns.
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(c)
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Notice. Any
notice to the Corporation provided for in this instrument shall be
addressed to it in care of its President at its principal office in West
Virginia, and any notice to the Participant shall be addressed to the
Participant at the current address shown on the payroll records of the
Corporation. Any notice shall be deemed to be duly given if and
when properly addressed and posed by registered or certified mail, postage
prepaid.
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(d)
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Construction. If
any provision of the Plan or any Option Agreement is held to be illegal or
void, such illegality or invalidity shall not affect the remaining
provisions of the Plan or Option Agreement, but shall be fully severable,
and the Plan or Option Agreement shall be construed and enforced as if
said illegal or invalid provisions had never been inserted
herein. For all purposes of the Plan, where the context
permits, the singular shall include the plural, and the plural shall
include the singular. Headings of Articles and Sections herein
are inserted only for convenience of reference and are not to be
considered in the construction of the Plan. The laws of the
State of West Virginia shall govern, control and determine all questions
of law arising with respect to the Plan and the interpretation and
validity of its respective
provisions.
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(a)
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The
terms of this Plan concerning the issue of Qualified Stock Options are
subject to all present and future regulations and rulings of the Secretary
of the Treasury or his or her delegate relating to the qualification of
incentive stock options under Code Section 422. If any
provision of the Plan applicable to Qualified Stock Options conflicts with
any such regulation or ruling, then that provision of the Plan shall be
void and of no effect and such regulation or ruling shall be deemed to be
a part of this Plan as if originally a part
hereof.
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(b)
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The
terms of this Plan concerning the issue of Non-qualified Stock Options are
subject to all present and future regulations and rulings of the Secretary
of the Treasury or his or her delegate relating thereto, including without
limitation, the provisions of § 409A of the Code. If any
provision of the Plan applicable to Non-qualified Stock Options conflicts
with any such regulation or ruling, then that provision of the Plan shall
be void and of no effect and such regulation or ruling shall be deemed to
be a part of this Plan as if originally a part
hereof.
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SUMMIT FINANCIAL
GROUP, INC.
By: _________________________________
H. Charles Maddy,
III
President
Attest: _______________________
Teresa Ely
Title: Assistant
Secretary