October 6, 1999
Dear Shareholder:
You are cordially invited to attend the 1999 Annual Meeting of
Shareholders (the "Annual Meeting") of AF Bankshares, Inc. (the "Company"),
which will be held on November 1, 1999 at 6:00 p.m., local time, at the
Executive Offices of AF Bankshares, Inc., 206 South Jefferson Avenue, West
Jefferson, North Carolina 28694.
The attached Notice of the 1999 Annual Meeting of Shareholders and
Proxy Statement describe the formal business to be transacted at the Annual
Meeting. Directors and officers of the Company, as well as a representative of
McGladrey & Pullen, LLP, the accounting firm appointed by the Board of Directors
to be the Company's independent auditors for the fiscal year ending June 30,
2000, will be present at the Annual Meeting to respond to appropriate questions.
The Board of Directors of the Company has determined that an
affirmative vote on each matter to be considered at the Annual Meeting is in the
best interests of the Company and its shareholders and unanimously recommends a
vote "FOR" each of these matters.
Please complete, sign and return the enclosed proxy card promptly
whether or not you plan to attend the Annual Meeting. YOUR VOTE IS IMPORTANT
REGARDLESS OF THE NUMBER OF SHARES YOU OWN. VOTING BY PROXY WILL NOT PREVENT YOU
FROM VOTING IN PERSON AT THE ANNUAL MEETING, BUT WILL ASSURE THAT YOUR VOTE IS
COUNTED IF YOU ARE UNABLE TO ATTEND.
On behalf of the Board of Directors and the employees of AF Bank, AF
Insurance Services, Inc., AF Brokerage, Inc. and the Company, we thank you for
your continued support.
Sincerely yours,
/s/ James A. Todd
-----------------------
James A. Todd
President and Chief Executive Officer
<PAGE>
AF BANKSHARES, INC.
206 SOUTH JEFFERSON AVENUE
WEST JEFFERSON, NORTH CAROLINA 28694
(336) 246-4344
NOTICE OF THE 1999 ANNUAL MEETING OF SHAREHOLDERS
DATE: MONDAY, NOVEMBER 1, 1999
TIME: 6:00 P.M.
PLACE: 206 SOUTH JEFFERSON AVENUE
WEST JEFFERSON, NORTH CAROLINA 28694
At our Annual Meeting we will ask you to:
o Elect three directors to serve for a three-year term;
o Ratify the appointment of McGladrey & Pullen, LLP as independent
auditors for the fiscal year ending June 30, 2000; and
o Transact any other business as may properly come before the Annual
Meeting.
You may vote at the Annual Meeting if you were a shareholder of the
Company at the close of business on September 30, 1999, the record date.
By Order of the Board of Directors
/s/ Melanie Paisley Miller
--------------------------
Melanie Paisley Miller
Secretary
West Jefferson, North Carolina
October 6, 1999
================================================================================
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT
THAT YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER OF SHARES YOU OWN. THE
BOARD OF DIRECTORS URGES YOU TO SIGN, DATE AND MARK THE ENCLOSED PROXY CARD
PROMPTLY AND RETURN IT IN THE ENCLOSED ENVELOPE. RETURNING THE PROXY CARD WILL
NOT PREVENT YOU FROM VOTING IN PERSON IF YOU ATTEND THE ANNUAL MEETING.
================================================================================
<PAGE>
GENERAL INFORMATION
GENERAL
We have sent you this Proxy Statement and enclosed proxy card because
the Board of Directors is soliciting your proxy to vote at the Annual Meeting.
This Proxy Statement summarizes the information you will need to know to cast an
informed vote at the Annual Meeting. You do not need to attend the Annual
Meeting to vote your shares. You may simply complete, sign and return the
enclosed proxy card and your votes will be cast for you at the Annual Meeting.
We began mailing this Proxy Statement, the Notice of Annual Meeting and
the enclosed proxy card on or about October 6, 1999 to all shareholders entitled
to vote. If you owned the Company's common stock ("Common Stock") at the close
of business on September 30, 1999, the record date, you are entitled to vote at
the Annual Meeting. On the record date, there were 1,049,378 shares of Common
Stock outstanding.
On October 4, 1996, AF Bank (the "Bank") completed its reorganization
into mutual holding company form and its initial public offering of shares of
its Common Stock. On June 16, 1998, the Bank reorganized into a two-tier mutual
holding company structure pursuant to a plan of reorganization. As a result of
the reorganization, the Bank became the wholly-owned subsidiary of the Company
and shareholders of the Bank became shareholders of the Company in a share for
share exchange.
AsheCo, M.H.C. is the majority owner of the Company, and, as of
September 30, 1999, the record date, owns 538,221 shares of Common Stock of the
Company which constitutes approximately 51.3% of the total issued and
outstanding Common Stock of the Company.
QUORUM
A quorum of shareholders is necessary to hold a valid meeting. If the
holders of at least a majority of the total number of the outstanding shares of
Common Stock of the Company entitled to vote are represented in person or by
proxy at the Annual Meeting, a quorum will exist. Shares underlying broker
non-votes will not be counted as having been voted in person or by proxy.
VOTING RIGHTS
You are entitled to one vote at the Annual Meeting for each share of
the Company's Common Stock that you owned as of record at the close of business
on September 30, 1999. As provided in the Company's Federal Stock Charter, if
you beneficially own in excess of 10% of the outstanding shares of Common Stock,
you will not be entitled to a vote for each of the excess shares. A person or
entity beneficially owns shares if an affiliate or associate owns the shares or
if a person acting in concert with that person or entity owns the shares. The
number of shares you own (and may vote) is listed on the proxy card.
You may vote your shares at the Annual Meeting in person or by proxy.
To vote in person, you must attend the Annual Meeting and obtain and submit a
ballot, which we will provide to you at the Annual Meeting. To vote by proxy,
you must complete, sign and return the enclosed proxy card. If you properly
complete your proxy card and send it to us in time to vote, your "proxy" (one of
the individuals named on your proxy card) will vote your shares as you have
directed. IF YOU SIGN THE PROXY CARD BUT DO NOT MAKE SPECIFIC CHOICES, YOUR
PROXY WILL VOTE YOUR SHARES FOR EACH OF THE PROPOSALS IDENTIFIED IN THE NOTICE
OF THE ANNUAL MEETING.
If any other matter is presented, your proxy will vote the shares
represented by all properly executed proxies on such matters as a majority of
the Board of Directors determines. As of the date of this Proxy
-2-
<PAGE>
Statement, we know of no other matters that may be presented at the Annual
Meeting, other than those listed in the Notice of the Annual Meeting.
If you are a shareholder whose shares are not registered in your own
name, you will need appropriate documentation from your shareholder of record to
vote personally at the Annual Meeting. Examples of such documentation would
include a broker's statement, letter or other document that will confirm your
ownership of shares of the Company.
VOTE REQUIRED
PROPOSAL 1: The three nominees for director who receive the most votes
Elect Three will be elected. So, if you do not vote for a nominee, or
Directors you indicate "withhold authority" for any nominee on your
proxy card, your vote will not count "for" or "against" the
nominee. You may not vote your shares cumulatively for the
election of directors.
PROPOSAL 2: The affirmative vote of a majority of the shares present
Ratify Appointment in person or by proxy at the Annual Meeting and entitled
of Independent to vote on this proposal is required to ratify the
Public Accountants appointment of McGladrey & Pullen, LLP, as the Company's
independent certified public accountants. So, if you
"abstain" from voting, it has the same effect as if you
voted "against" this proposal.
EFFECT OF BROKER NON-VOTES
If your broker holds shares that you own in "street name," the broker
may vote your shares on the two proposals listed above even if the broker does
not receive instructions from you. If your broker does not vote on any of the
proposals, this will constitute a "broker non-vote." Here is the effect of a
"broker non-vote":
o PROPOSAL 1: Elect Three Directors. A broker non-vote would have no
effect on the outcome of this proposal because only a plurality of
votes cast is required to elect a director.
o PROPOSAL 2: Ratify Appointment of Independent Public Accountants.
A broker non-vote would have no effect on the outcome of this proposal.
VOTE BY MHC
As indicated above and under "Security Ownership of Certain Beneficial
Owners" AsheCo, M.H.C. owns approximately 51.3% of the shares of Common Stock
entitled to vote at the Annual Meeting. AsheCo, M.H.C. has indicated to the
Company that it intends to vote its shares of Common Stock FOR the election of
the Company's nominees for director and FOR the ratification of the appointment
of the independent auditors, thereby ensuring a quorum at the Annual Meeting,
and the likelihood of the election of such nominees and the ratification of the
appointment of the independent auditors.
REVOKING YOUR PROXY
You may revoke your proxy at any time before it is exercised by:
o Filing with the Secretary of the Company a letter revoking the proxy;
o Submitting another signed proxy with a later date; or
-3-
<PAGE>
o Attending the Annual Meeting and voting in person, provided you file
a written revocation with the Secretary of the Annual Meeting prior
to the voting of such proxy.
SOLICITATION OF PROXIES
The Company will pay the costs of soliciting proxies from its
shareholders. Directors, officers or employees of the Company may solicit
proxies by:
o mail;
o telephone; and
o other forms of communication.
We will also reimburse persons, firms and corporations holding shares
in their names or in the name of their nominees, which are beneficially owned by
others, for the expenses they incur in forwarding the proxy materials to and
obtaining proxies from such beneficial owners.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table contains Common Stock ownership information for
persons known to the Company to "beneficially own" 5% or more of the Company's
Common Stock as of June 30, 1999. In general, beneficial ownership includes
those shares that a person has the power to vote, sell, or otherwise dispose.
Beneficial ownership also includes that number of shares which an individual has
the right to acquire within 60 days (such as stock options) of the date this
table was prepared. Two or more persons may be considered the beneficial owner
of the same share. We obtained the information provided in the following table
from filings with the SEC and with the Company. In this proxy statement, "voting
power" is the power to vote or direct the voting of shares, and "investment
power" includes the power to dispose or direct the disposition of shares.
<TABLE>
<CAPTION>
AMOUNT OF PERCENT OF SHARES
NAME AND ADDRESS BENEFICIAL OF COMMON STOCK
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OUTSTANDING
- ----------------------- ------------------------------- -------------------------- -----------------------
<S> <C> <C> <C>
Common Stock AsheCo, M.H.C. 538,221 51.3%
206 South Jefferson Avenue
West Jefferson, North Carolina
28694
</TABLE>
-4-
<PAGE>
SECURITY OWNERSHIP OF MANAGEMENT
The following table shows the number of shares of the Company's Common
Stock beneficially owned by each director and executive officer, and all
directors and executive officers of the Company as a group, as of June 30, 1999.
Except as otherwise indicated, each person and each group shown in the table has
sole voting and investment power with respect to the shares of Common Stock
listed next to their name.
<TABLE>
<CAPTION>
AMOUNT AND NATURE PERCENT OF
NAME POSITION OF BENEFICIAL COMMON STOCK
OWNERSHIP(1)(2)(3)(4) OUTSTANDING(5)
- ----------------------------- ------------------------------ ----------------------------- -------------------
<S> <C> <C> <C>
James A. Todd Director, President and
Chief Executive Officer 24,176 2.5%
Jan R. Caddell Director, Chairman of the
Board of Directors 7,688 *
Kenneth R. Greene Director 7,228 *
William O. Ashley, Jr. Director 7,688 *
Wayne R. Burgess Director 7,688 *
Frank E. Roland Director 7,688 *
Jerry L. Roten Director 7,228 *
John D. Weaver Director 7,688 *
------- -----
All directors and executive officers
as a group (10 persons) 139,949 13.3%
</TABLE>
- ---------------------
* Less than one percent of Outstanding Common Stock.
(1) All persons shown in the above table have sole voting and investment
power, except as otherwise indicated.
(2) The figures shown for Mr. Todd include 1,363 shares held in trust by
the Bank, as trustee, pursuant to the Employee Stock Ownership Plan of
Ashe Federal Bank ("ESOP"), which shares have been allocated to Mr.
Todd's account under the ESOP and as to which he has sole voting power,
but no investment power, except in limited circumstances. The figure
shown for all directors and executive officers as a group includes the
shares allocated to Mr. Todd's account under the ESOP and 1,721 shares
allocated to the accounts of the other executive officers, as to which
such executive officers have sole voting power, but no investment
power, except in limited circumstances. Such figure also includes (a)
11,400 shares allocated to the accounts of other participants in the
ESOP, as to which the Bank, as the ESOP trustee, and the Bank's
Compensation Committee (consisting of Messrs. Greene and Burgess),
which serves as the ESOP Committee, has no voting power and shared
investment power, and (b) 25,542 shares that have not been allocated to
participants' accounts under the ESOP, as to which the executive
officers have shared voting power, but no investment power, except in
limited circumstances, the ESOP trustee has shared voting and
investment power and the ESOP Committee has no voting power and shared
investment power. Except for the shares allocated to their individual
accounts, each executive officer disclaims beneficial ownership of the
shares held in the ESOP, and each member of the Board of Directors
disclaims beneficial ownership of the shares held in the ESOP.
(3) Includes 1,380 shares of unvested restricted stock granted to each
outside director and 10,775 shares of unvested restricted stock granted
to Mr. Todd pursuant to the Ashe Federal Bank 1997 Recognition and
Retention Plan (the "RRP"). Each recipient of a restricted stock award
has sole voting power but no investment power over the unvesed shares
of Common Stock covered by the award.
(4) Includes 388 shares of Common Stock which may be acquired by each
outside director pursuant to vested options granted to them under the
Ashe Federal Bank 1997 Stock Option Plan (the "Stock Option Plan").
Also includes 2,854 shares of Common Stock which Mr. Todd may acquire
pursuant to vested options granted to him under the Stock Option Plan.
(5) Percentages with respect to each person or group of persons have been
calculated on the basis of 1,053,678 shares of Common Stock, the total
number of shares of the Company's common stock outstanding as of June
30, 1999, plus the number of shares of Common Stock which such person
or group has the right to acquire within 60 days after July 31, 1999.
-5-
<PAGE>
DISCUSSION OF PROPOSALS RECOMMENDED BY BOARD
--------------------------------------------
PROPOSAL 1
ELECTION OF DIRECTORS
--------------------------------------------
GENERAL
The Board has nominated three persons for election as directors at the
Annual Meeting. Each nominee is currently serving on the Company's Board of
Directors. If you elect the nominees, they will hold office until the Annual
Meeting in 2002, or until their successors have been elected.
We know of no reason why any nominee may be unable to serve as a
director. If any nominee is unable to serve, your proxy may vote for another
nominee proposed by the Board. If for any reason these nominees prove unable or
unwilling to stand for election, the Board will nominate alternates or reduce
the size of the Board of Directors to eliminate the vacancy. The Board has no
reason to believe that its nominees would prove unable to serve if elected.
NOMINEES AND CONTINUING DIRECTORS
<TABLE>
<CAPTION>
DIRECTOR TERM POSITION(S) HELD WITH THE
NOMINEES AGE(1) SINCE(2) EXPIRES COMPANY
- -------- ------ -------- ------- -------------------------
<S> <C> <C> <C> <C>
William O. Ashley, Jr...... 70 1965 1999 Director
Wayne R. Burgess........... 59 1989 1999 Director
John D. Weaver............. 76 1990 1999 Director
CONTINUING DIRECTORS
James A. Todd.............. 55 1994 2000 Director, President and Chief
Executive Officer
Kenneth R. Greene.......... 52 1988 2000 Director
Jan R. Caddell............. 59 1981 2000 Director, Chairman of the Board
Frank E. Roland............ 76 1989 2001 Director
Jerry L. Roten............. 53 1992 2001 Director
</TABLE>
------------------------------
(1) As of June 30, 1999.
(2) Includes term as a director of the Bank.
The principal occupation and business experience of each nominee for
election as director and each Continuing Director are set forth below. Unless
otherwise indicated, each of the following persons has held his present position
for the last five years.
NOMINEES FOR ELECTION AS DIRECTOR
William O. Ashley, Jr. served as Managing Officer, Secretary and
Treasurer of the Bank from 1964 to 1994, and as a consultant to the Bank in
1994.
-6-
<PAGE>
Wayne R. Burgess is a part-owner, Vice President and Manager of Burgess
Furniture of West Jefferson, North Carolina.
John D. Weaver is Vice-President of Weaver Tree Farm, Inc., a retail
and wholesale Christmas tree farm.
CONTINUING DIRECTORS
James A. Todd was a Senior Examination Officer at the OTS before
joining the Bank in 1994.
Kenneth R. Greene has over 20 years experience in the concrete sales
and building-supply business, and he is currently the manager at East Jefferson
Builders Mart.
Jan R. Caddell is President and General Manager of Caddell
Broadcasting, Inc. and its commercial radio station, WKSK.
Frank E. Roland retired from the U.S. Postal Service in 1985 and has
since served as a director of Ashe Memorial Hospital, Riverview Community Center
and Skyline Telephone Membership Corporation. He has also served on the Ashe
County Bond Authority.
Jerry L. Roten has served as the Clerk of the Superior Court of Ashe
County for the past 13 years.
================================================================================
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR"
ALL OF THE NOMINEES FOR ELECTION AS DIRECTORS.
================================================================================
------------------------------
PROPOSAL 2
RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS
------------------------------
The Board of Directors has appointed McGladrey & Pullen, LLP as our
independent public auditors for the Company for the fiscal year ending June 30,
2000, and we are asking shareholders to ratify the appointment. A representative
of McGladrey & Pullen, LLP is expected to attend the Annual Meeting and will be
available to respond to appropriate questions.
================================================================================
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE
RATIFICATION OF THE APPOINTMENT OF MCGLADREY & PULLEN, LLP
AS INDEPENDENT AUDITORS FOR THE COMPANY.
================================================================================
-7-
<PAGE>
INFORMATION ABOUT BOARD OF DIRECTORS AND MANAGEMENT
BOARD OF DIRECTORS
The Company's Board of Directors currently consists of eight members.
The Company's Federal Stock Charter and Bylaws provide that the Board of
Directors shall be divided into three classes, as nearly equal in number as
possible. The terms of three directors expire at the Annual Meeting.
The Board of Directors oversees our business and monitors the
performance of our management. In accordance with our corporate governance
procedures, the Board of Directors does not involve itself in the day-to-day
operations of the Company. The Company's executive officers and management
oversee the day-to-day operations of the Company. Our directors fulfill their
duties and responsibilities by attending regular meetings of the Board which are
held on a monthly basis. Our directors also discuss business and other matters
with the Chairman and the President, other key executives, and our principal
external advisers (legal counsel, auditors, financial advisors and other
consultants).
The Board of Directors of the Company held 12 regular meetings during
the fiscal year ended June 30, 1999. Each incumbent director attended at least
75% of the meetings of the Board of Directors plus committee meetings on which
that particular director served during this period.
COMMITTEES OF THE BOARD
The Board of Directors of the Company has established the following
committees:
NOMINATING The Nominating Committee nominates candidates for Board
COMMITTEE membership.
Directors Greene and Roten serve as members of the
committee. Membership changes annually.
The Nominating Committee met once in the 1999 fiscal year.
COMPENSATION The Compensation Committee establishes the compensation of
COMMITTEE the Chief Executive Officer, approves the compensation of
other officers and determines the compensation and benefits
to be paid to employees of the Company and the Bank. The
Compensation Committee also establishes directors' fees and
bonuses.
Directors Greene, Burgess and Ashley serve as members of
the committee.
The Compensation Committee met three times in the 1999
fiscal year.
AUDIT The Audit Committee meets when the Bank's regulatory
COMMITTEE examiners and the Company's auditors begin their review
process and when the examiners and auditors present their
reports to the Company and the Bank.
Directors Roland and Weaver serve as members of the
committee.
The Audit Committee met twice in the 1999 fiscal year.
The Board of Directors, acting as the nominating committee, met in
August, 1999 to select the nominees for election as directors at the Annual
Meeting. See page 14 for a discussion of the procedures for shareholder
nominations for director.
-8-
<PAGE>
DIRECTORS' COMPENSATION
Director's Fees. Currently, each non-employee director of the Company
receives the following fees:
o fees of $400 per month with no extra fees received for committee
meetings attended; and
o fees of $5,000 per year if a director has attended a minimum of 75% of
the aggregate number of Board and committee meetings called during the
fiscal year.
The Chairman of the Board also receives a fee of $500 per month.
Directors of both the Company and the Bank will not be compensated for their
services on the Board of the Company.
Recognition and Retention Plan and Stock Option Plan. In addition, our
directors are eligible to participate in the Stock Option Plan and Recognition
and Retention Plan. These stock benefit plans are discussed under "--Benefits,"
"Stock Option Plan" and "Recognition and Retention Plan."
EXECUTIVE OFFICERS
The following individuals are executive officers of the Company and
hold the offices set forth opposite their names.
<TABLE>
<CAPTION>
NAME AGE POSITION HELD WITH THE COMPANY
----------------------------- ---------------- -----------------------------------------
<S> <C> <C>
James A. Todd 55 President and Chief Executive
Officer
Melanie Paisley Miller 28 Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
Stephen R. Hooks 52 Executive Vice President
Martin G. Little 36 Senior Vice President and
Chief Lending Officer
</TABLE>
The Board of Directors elects the executive officers of the Company and
the Bank, annually. The elected officers hold office until their respective
successors have been elected and qualified, or until death, resignation or
removal by the Board of Directors. The Company has entered into Employment
Agreements with its executive officers which set forth the terms of their
employment. See "--Employment Agreements."
Biographical information of executive officers of the Company or the
Bank who are not directors is set forth below.
Melanie Paisley Miller served as Secretary and Treasurer of the Bank
from August 1995 to April 1996, at which time her title was changed to Senior
Vice President, Secretary, Treasurer and Chief Financial Officer of the Bank. On
July 1, 1998, Ms. Miller's title was changed to Executive Vice-President,
Secretary, Treasurer and Chief Financial Officer of the Company. Ms. Miller
served as corporate secretary of the Bank from July 1994 to August 1995, and as
an administrative assistant from March 1994 to July 1994. Ms.Paisley Miller is
also a Certified Public Accountant.
Stephen R. Hooks joined AF Bankshares, Inc. as an Executive Vice
President in September, 1998. Mr. Hooke is also the President, Chief Executive
Officer of AF Brokerage, Inc. Mr. Hooke is the President of the Phoenix Group,
Ltd., a company which provides financial and development services to companies
in the real estate industry.
-9-
<PAGE>
Martin G. Little served as Vice President/Branch Manager of the Bank
from 1994 to April 1996, at which time his title was changed to Senior Vice
President and Retail Banking Manager of the Bank. In 1997, his title was changed
to Senior Vice President and Chief Lending Officer. Mr. Little also served as
Loan Officer of the Bank from 1987 to 1994.
EXECUTIVE COMPENSATION
The following table sets forth the cash compensation paid by the
Company and the Bank for services rendered in all capacities during the fiscal
years ended June 30, 1999, 1998 and 1997 to the President and Chief Executive
Officer of Company and the Bank. No other executive officer of the Company or
the Bank had salary and bonus during the fiscal years ended June 30, 1999, 1998
and 1997 aggregating in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
LONG TERM COMPENSATION
------------------------------------------------
ANNUAL COMPENSATION (1) AWARDS PAYOUTS
---------------------------------------------- --------------------- ----------
OTHER RESTRICTED
ANNUAL STOCK LTIP ALL OTHER
SALARY COMPENSATION AWARDS OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITIONS YEAR ($)(1) BONUS ($) ($)(2) (#)(3) ($) ($)(4)
- ------------------------------------ -------- ----------- ---------- -------------- ----------- --------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
James A. Todd 1999 $ 115,000 $ 10,000 -- -- -- -- $ 13,630
President and Chief Executive 1998 $ 82,400 $ 12,000 -- $ 332,242 7,134 -- $ 8,614
Officer 1997 $ 80,000 $ 10,000 -- -- -- -- $ 6,278
</TABLE>
(1) Includes amounts, if any, deferred pursuant to Section 401(k) of the
Code under the Bank's 401(k) Plan.
(2) Pursuant to the RRP, Mr. Todd was awarded 17,959 shares of restricted
stock, as of December 8, 1997, which vest in 20% increments on an
annual basis, beginning on December 8, 1997. Dividends attributable to
such shares are held in the trust fund and are held for distribution in
accordance with the terms of the restricted stock award. The value of
the 17,959 restricted share award shown in the table above for the
fiscal year ending June 30, 1998 is based on the closing price of a
share of Common Stock on December 8, 1997, the date of grant, which was
$18.50. At June 30, 1999, the aggregate fair market value of the
restricted stock award made to Mr. Todd was $179,590, based on a
closing price of $10.00 per share. During the fiscal year ended June
30, 1997, neither the Bank, nor the Company maintained any restricted
stock plans. In the case of death, disability, retirement or a change
in control, as defined in the RRP, all restricted stock awards become
immediately exercisable.
(3) Includes 7,134 shares of Common Stock subject to options granted to Mr.
Todd, pursuant to the Stock Option Plan on December 8, 1997. The
options granted under the Stock Option Plan are intended to qualify as
"incentive stock options" under Section 422 of the Internal Revenue
Code, as amended (the "Code") to the maximum extent possible, and any
options that do not qualify will constitute non-qualified stock
options. The Stock Option Plan provides for options to become
exercisable in five equal installments, beginning on December 8, 1997,
and generally remain exercisable until the tenth anniversary of the
grant date. In the case of death, disability, retirement or a change in
control, as defined in the Stock Option Plan, all options granted
become immediately exercisable.
(4) Includes (i) the dollar value of premiums, if any, paid by the Bank
with respect to term life insurance (other than group term insurance
coverage under a plan available to substantially all salaried
employees) for the benefit of the executive officer; and (ii) an
allocation of 412, 478 and 473 shares to Mr. Todd's account under the
ESOP for the fiscal years ended June 30, 1999, 1998 and 1997,
respectively, with a total market value of $13,630, $8,248.50 and
$5,912.50 as of June 30, 1999, 1998 and 1997, respectively. See
"--Benefits--Employee Stock Ownership Plan and Trust."
-10-
<PAGE>
CERTAIN EMPLOYEE BENEFIT PLANS AND EMPLOYMENT AGREEMENTS
Employment Agreements. The Bank is a party to an Employment Agreement
with each of Mr. Todd, Ms. Miller and Mr. Little ("Senior Executive(s)"). These
Employment Agreements establish the respective duties and compensation of the
Senior Executives and are intended to ensure that the Bank will be able to
maintain a stable and competent management base. The continued success of the
Bank depends to a significant degree on the skills and competence of the Senior
Executives.
The Employment Agreements provide for three-year terms. The Employment
Agreements provide that, prior to the first anniversary of the Agreement's
effective date and each anniversary of such date thereafter, the Board of
Directors may, with the Senior Executive's concurrence, extend the Employment
Agreements for an additional year, so that the remaining terms shall be three
years, after conducting a performance evaluation of the Senior Executive. The
Employment Agreements provide that the Senior Executive's base salary will be
reviewed annually. This review is performed by the Compensation Committee of the
Board in the case of the President and Chief Executive Officer and by the
President and Chief Executive Officer in the case of the other Senior
Executives. The Senior Executive's base salary may be increased on the basis of
her or his job performance and the overall performance of the Bank. Each Senior
Executive may receive a bonus based upon achievement of prescribed performance
criteria. In addition to base salary, the Employment Agreements provide for,
among other things, entitlement to participation in stock, retirement and
welfare benefit plans and eligibility for fringe benefits applicable to
executive personnel such as fees for club and organization memberships deemed
appropriate by the Bank and the Senior Executive. The Employment Agreements
provide for termination by the Bank at any time for cause as defined in the
Employment Agreements. In the event the Bank chooses to terminate the Senior
Executive's employment for reasons other than for cause, or in the event of the
Senior Executive's resignation from the Bank upon:
o the Board's or the shareholder's failure to re-appoint, elect or
re-elect the Senior Executive to her or his current offices;
o a material change in the Senior Executive's compensation, functions,
duties or responsibilities;
o a "change of control" as defined in the Employment Agreements; or
o a material breach of the Employment Agreement by the Bank, the Senior
Executive; or
o in the event of death, her or his beneficiary is entitled to a lump sum
cash payment in an amount equal to the remaining base salary and bonus
payments due to the Senior Executive and the additional contributions
or benefits that would have been earned under any employee benefit
plans of the Bank, the Company, or the MHC during the remaining terms
of the Employment Agreements.
The Bank would also continue the Senior Executive's life, health and
disability insurance coverage for the remaining terms of the Employment
Agreements. The Bank's Employment Agreements have restrictions on the dollar
amount of compensation and benefits payable to a Senior Executive in the event
of termination following a "change in control." In general, for purposes of the
Employment Agreements and the plans maintained by the Bank, a "change in
control" will generally be deemed to occur when a person or group of persons
acting in concert acquires beneficial ownership of 25% or more of any class of
equity security, such as Common Stock of the Company, or in the event of a
tender offer, exchange offer, merger or other form of business combination, sale
of assets or contested election of directors which results in a change in
control of the majority of the Board of Directors of the Bank. Cash and benefits
paid to a Senior Executive under the Employment Agreements together with
payments under other benefit plans following a "change in control" of the
Company or the Bank may constitute an "excess parachute" payment under Section
280G of the Code, resulting in the imposition of a 20% excise tax on the
recipient and the denial of the deduction for such excess amounts to the Company
or the Bank. As a result, no payments or benefits will
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<PAGE>
be paid to an Executive following a "change in control" to the extent such
payments would constitute an "excess parachute payment" under Section 280G of
the Code.
Retirement Plans. The Bank has adopted a nonqualified Retirement Plan
for Board Members of the Bank (the "Directors' Retirement Plan"), which will
provide benefits to each eligible outside director commencing on his termination
of Board service at or after age 65. Each outside director automatically becomes
a participant in the Directors' Retirement Plan. An eligible outside director
retiring at or after age 65 will be paid an annual retirement benefit equal to
the annual rate of retainer paid to outside directors immediately prior to his
termination of Board service, multiplied by a fraction, the numerator of which
is the number of his years of service as an outside director (including service
as a director or trustee of the Bank or any predecessor) not in excess of 10
years and the denominator of which is 10. An individual who terminates Board
service after having served as an outside director for 10 years may elect to
begin collecting benefits under the Directors' Retirement Plan at or after
attainment of age 55, but the annual retirement benefits payable to him will be
reduced pursuant to the Directors' Retirement Plan's early retirement reduction
formula to reflect the commencement of benefit payments prior to age 65.
Benefits are generally paid for a fixed period of 10 years, but a director may
elect to convert such benefit to a single life or joint and survivor annuity
based on actuarial factors specified in the Directors Retirement Plan. Upon a
change in control, participants will receive an immediate lump sum distribution
of a benefit that is the actuarial equivalent of a single life annuity providing
an annual payment equal to the annual rate of retainer paid to outside directors
immediately prior to the change of control multiplied by a fraction, the
numerator of which is the director's year of service not in excess of 10 and the
denominator of which is 10.
Employee Stock Ownership Plan and Trust. The Company has established
and adopted, for the benefit of eligible employees, an ESOP and related trust.
All salaried employees of the Bank and the Company are eligible to become
participants in the ESOP. The ESOP purchased 36,942 shares of Common Stock
issued in connection with the MHC Reorganization and Offering. In order to fund
the ESOP's purchase of such Common Stock, the ESOP borrowed funds from an
unaffiliated lender equal to the balance of the aggregate purchase price of the
Common Stock. Although contributions to the ESOP are discretionary, the Company
intends to make annual contributions to the ESOP in an aggregate amount at least
equal to the principal and interest requirement on the debt. This loan is for a
term of six years, bears interest at the prime rate minus one-half of one
percent, and calls for level annual payments of principal plus accrued interest
designed to amortize the loan over its term. Prepayments are also permitted.
Shares purchased by the ESOP were pledged as collateral for the loan,
and are held in a suspense account until released for allocation among
participants in the ESOP as the loan is repaid. The pledged shares will be
released annually from the suspense account in an amount proportional to the
repayment of the ESOP loan for each plan year. The released shares will be
allocated among the accounts of participants on the basis of the participants'
compensation for the year of allocation. Benefits provided to participants under
the ESOP generally become 100% vested after three years of service; prior to
such time, benefits are 0% vested. Participants will become immediately vested
upon termination of employment due to death, retirement at age 65, permanent
disability or upon the occurrence of a change in control. Forfeitures will be
reallocated among remaining participating employees, in the same proportion as
contributions. Vested benefits may be paid in a single sum or installment
payments and are payable upon death, retirement at age 65, disability or
separation from service.
The ESOP Committee, which is currently comprised of members of the
Compensation Committee, may instruct the trustee regarding investment of funds
contributed to the ESOP. The ESOP trustee, subject to its fiduciary duty, must
vote all allocated shares held in the ESOP in accordance with the instructions
of the participating employees. Under the ESOP, unallocated shares will be voted
in a manner calculated to most accurately reflect the instructions it has
received from participants regarding the allocated stock as long
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<PAGE>
as such vote is in accordance with the provisions of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"). The ESOP may purchase
additional shares of Common Stock in the future.
STOCK OPTION PLAN
The Stock Option Plan was adopted by the Board of Directors of the Bank
and approved by the Bank's shareholders at the 1997 Annual Meeting. The Company
assumed sponsorship of the Stock Option Plan pursuant to the Plan of
Reorganization on the effective date of the Reorganization. The purpose of the
Stock Option Plan continues to be to promote the growth of the Company, the Bank
and other affiliates by linking the incentive compensation of officers, key
executives and directors with the profitability of the Company. The Stock Option
Plan is not subject to ERISA and is not a tax-qualified plan. The Company has
reserved an aggregate of 21,322 shares of Common Stock for issuance upon the
exercise of stock options granted under the Plan.
The Stock Option Plan is administered by the members of the Board's
Compensation Committee who are disinterested directors ("Option Committee"). In
general, both "incentive stock options" and non-qualified stock options to
purchase Common Stock of the Company ("Options") may be granted to eligible
officers and outside directors, subject to the restrictions of the Code. The
Option Committee has discretion under the Stock Option Plan to establish certain
material terms of the Options granted to officers and employees provided such
grants are made in accordance with the Plan's requirements. All Options granted
to outside directors are by automatic formula grant and the Option Committee has
no discretion over the material terms of these grants. As of the effective date
of the Stock Option Plan, each outside director of the Company was granted a
non-qualified stock option to purchase an aggregate of 914 shares of Common
Stock at an exercise price of $18.50 per share.
All stock options granted under the Plan generally vest in 20%
increments over a five year period subject to automatic full vesting upon the
optionee's death, disability or retirement or upon a change in control of the
Company, as defined in the Stock Option Plan, beginning December 8, 1997. The
Company believes the use of a vesting schedule will encourage each option
recipient to remain in the service of the Company (or an affiliate) and
contribute to its profitability in order to enjoy the full economic benefit of
the Option. All costs of the Stock Option Plan are borne by the Company. The
Company has reserved the right to amend or terminate the Plan, in whole or in
part, subject to the requirements of all applicable laws.
The following table provides the value of Mr. Todd's options at June
30, 1999 as well as the total options currently granted to him under the Stock
Option Plan. Mr. Todd did not exercise any vested options during the fiscal year
ended June 30, 1999.
AGGREGATED OPTIONS IN 1999 FISCAL YEAR AND 1999 FISCAL YEAR END OPTIONS
<TABLE>
<CAPTION>
- --------------------------------------------- ------------------------------------ ---------------------------------
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS/SARS AT FISCAL OPTIONS/SARS AT FISCAL
YEAR-END YEAR-END(1)
(#) ($)
- --------------------------------------------- ------------------------------------ ---------------------------------
NAME EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- --------------------------------------------- ------------------------------------ ---------------------------------
<S> <C> <C>
James A. Todd
President and Chief Executive Officer.... 2,854 /4,280 N/A
</TABLE>
- ----------
(1) The closing price per share of common stock on June 30, 1999 was
$10.00, and all options have an exercise price of $18.50 per share,
and, as such, all options are "out-of-the-money."
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<PAGE>
RECOGNITION AND RETENTION PLAN
The RRP was adopted by the Board of Directors of the Bank and approved
by the Bank's shareholders at the 1997 Annual Meeting. The Company assumed
sponsorship of the RRP pursuant to the Plan of Reorganization on the effective
date of the Reorganization. Similar to the Stock Option Plan, the RRP functions
as a long-term incentive compensation program for eligible officers and outside
directors of the Company, the Bank and other affiliates. The RRP is administered
by the members of the Board's Compensation Committee who are disinterested
directors ("RRP Committee"). All costs and expenses of administering the RRP are
paid by the Company.
As required by the terms of the RRP, the Company has established a
trust ("Trust") and has issued 53,678 shares of Common Stock, the maximum number
of restricted stock awards ("Restricted Stock Awards") that may be granted under
the RRP, to the Trust from previously authorized, but unissued shares. Shares of
Common Stock subject to a Restricted Stock Award are held in the Trust until the
Award vests at which time the shares of Common Stock attributable to the portion
of the Award that have vested are distributed to the Award holder. An Award
recipient is entitled to exercise voting rights and receive cash dividends with
respect to the shares of Common Stock subject to his Award, whether or not the
underlying shares have vested. If an individual award recipient terminates
service prior to full vesting of the Restricted Stock Awards granted pursuant to
the RRP, the shares subject to the award will be forfeited and returned to the
Company.
Restricted Stock Awards are granted under the RRP on a discretionary
basis to eligible officers and executives selected by the RRP Committee and are
awarded to outside directors pursuant to the terms of the RRP. As of July 1,
1999, each outside director has been granted a Restricted Stock Award with
respect to 2,300 shares of Common Stock. All outstanding Restricted Stock Awards
will vest and become distributable at the rate of 20% per year, over a five year
period, commencing on December 8, 1997, subject to automatic full vesting on the
date of the Award holder's death, disability or retirement or upon a change in
control of the Company.
The Company may amend or terminate the RRP, in whole or in part, at any
time, subject to the requirements of all applicable laws.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
The Financial Institutions Reform, Recovery and Enforcement Act of 1989
("FIRREA") requires that all loans or extensions of credit to executive officers
and directors must be made on substantially the same terms, including interest
rates and collateral, as those prevailing at the time for comparable
transactions with the general public and must not involve more than the normal
risk of repayment or present other unfavorable features. The Bank makes loans to
executive officers, directors and their affiliates that are no more favorable
and in the ordinary course of business and that do not involve more than the
normal risk of collectibility or present unfavorable features. The Bank intends
that any transactions in the future between the Bank and its executive officers,
directors, holders of 10% or more of the shares of any class of its common stock
and affiliates thereof, will contain terms no less favorable to the Bank than
could have been obtained by it in arm's-length negotiations with unaffiliated
persons and will be approved by a majority of independent outside directors of
the Bank not having any interest in the transaction.
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<PAGE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires that the Company's
directors, executive officers, and any person holding more than ten percent of
the Company's Common Stock file with the SEC reports of ownership changes, and
that such individuals furnish the Company with copies of the reports.
Based solely on its review of the copies of such forms received by it,
or written representations from certain reporting persons, the Company believes
that all of our executive officers and directors complied with all Section 16(a)
filing requirements applicable to them.
ADDITIONAL INFORMATION
INFORMATION ABOUT SHAREHOLDER PROPOSALS
If you wish to submit proposals to be included in our proxy statement
for the 2000 Annual Meeting of Shareholders, we must receive them by June 2,
2000, pursuant to the proxy soliciting regulations of the SEC. SEC rules contain
standards as to what shareholder proposals are required to be in the proxy
statement. Any such proposal will be subject to 17 C.F.R. ss.240.14a-8 of the
rules and regulations promulgated by the SEC.
In addition, under the Company's Bylaws, if you wish to nominate a
director or bring other business before an annual meeting:
o You must be a shareholder of record and have given timely notice in
writing to the Secretary of the Company. To be timely, a shareholder's
notice must be delivered to or received by the Secretary not later than
five days prior to the date of the annual meeting.
o Your notice must contain specific information required in our Bylaws.
By Order of the Board of Directors,
Melanie Paisley Miller
Executive Vice President, Secretary,
Treasurer and Chief Financial Officer
West Jefferson, North Carolina
October 6, 1999
================================================================================
TO ASSURE THAT YOUR SHARES ARE REPRESENTED AT THE ANNUAL MEETING, PLEASE
COMPLETE, SIGN, DATE AND PROMPTLY RETURN THE ACCOMPANYING PROXY CARD IN THE
POSTAGE-PAID ENVELOPE PROVIDED.
================================================================================
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<PAGE>
AF BANKSHARES, INC. REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF AF BANKSHARES,
INC. FOR THE ANNUAL MEETING OF SHAREHOLDERS TO BE HELD ON NOVEMBER 1, 1999.
The undersigned shareholder of AF Bankshares, Inc. hereby appoints
James A. Todd, Kenneth R. Greene and Jan R. Caddell, each of them, with full
powers of substitution, to represent and to vote as proxy, as designated, all
shares of common stock of AF Bankshares, Inc. held of record by the undersigned
on September 30, 1999, at the 1999 Annual Meeting of Shareholders (the "Annual
Meeting") to be held at 6:00 p.m., local time, on November 1, 1999, or at any
adjournment or postponement thereof, upon the matters described in the
accompanying Notice of the 1999 Annual Meeting of Shareholders and Proxy
Statement, dated October 6, 1999, and upon such other matters as may properly
come before the Annual Meeting. The undersigned hereby revokes all prior
proxies.
This Proxy, when properly executed, will be voted in the manner
directed herein by the undersigned stockholder. IF NO DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE ELECTION OF ALL NOMINEES LISTED IN ITEM 1 AND FOR
THE PROPOSAL LISTED IN ITEM 2.
PLEASE MARK, SIGN AND DATE THIS PROXY ON THE REVERSE SIDE AND RETURN IT
PROMPTLY IN THE ENCLOSED ENVELOPE.
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
The Board of Directors unanimously recommends a vote "FOR" all of the nominees Please mark your vote as [X]
named in Item 1 and a vote "FOR" the proposal in Item 2. indicated in this example
-------------------------------------------------------------------------------
I will attend the [ ]
Annual Meeting
1. Election of three Directors. FOR WITHHOLD 2. Ratification of the
NOMINEES: William O. Ashley, Jr., All nominees for all appointment of McGladrey FOR AGAINST ABSTAIN
Wayne R. Burgess and John D. Weaver (except as nominees & Pullen, LLP as
for terms of three years each; otherwise independent auditors for [ ] [ ] [ ]
indicated) fiscal year ending June 30,
[ ] [ ] 2000.
INSTRUCTION: TO WITHHOLD AUTHORITY
to vote for any individual nominee,
write that nominee's name in the
space provided:
The undersigned hereby acknowledges receipt of the
Notice of the 1999 Annual Meeting of Shareholders
and the Proxy Statement, dated October 6, 1999 for
----------------------------------- the 1999 Annual Meeting.
----------------------------------------------------
----------------------------------------------------
(Signature(s)
Dated: , 1999
----------------------------------------
Please sign exactly as your name appears on this
proxy. Joint owners should each sign personally. If
signing as attorney, executor, administrator,
trustee or guardian, please include your full title.
Corporate or partnership proxies should be signed by
an authorized officer.
</TABLE>
