MARATHON FINANCIAL CORPORATION
4095 VALLEY PIKE
WINCHESTER, VIRGINIA 22602
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished in connection with the solicitation by
the management of Marathon Financial Corporation (hereinafter referred to as the
"Corporation"), on behalf of the Board of Directors, of proxies to be voted at
the Annual Meeting of Stockholders of the Corporation to be held on May 4, 1999
or any adjournment thereof. The cost of this solicitation will be borne by the
Corporation. Brokers will be reimbursed for their reasonable expenses in
soliciting proxies from beneficial owners. This proxy statement and the enclosed
form of proxy are first being sent to stockholders on or about April 5, 1999.
All properly executed proxies in the accompanying form received by the
Corporation prior to the meeting will be voted at the meeting in accordance with
any direction noted thereon. Any proxy may be revoked by delivering to the
Corporation a proxy bearing a later date, by giving notice of revocation to the
Corporation in writing prior to the Annual Meeting, or by giving the Corporation
oral or written notice of the revocation at the Annual Meeting.
VOTING SHARES AND VOTE REQUIRED
As of March 31, 1999, the record date for the determination of
stockholders entitled to notice of and to vote at the meeting (the "Record
Date"), there were 2,060,686 shares of Common Stock of the Corporation
outstanding. The presence at the Annual Meeting, in person or by Proxy, of the
holders of a majority of the issued and outstanding shares of Common Stock
entitled to vote at the Annual Meeting shall constitute a quorum. In the event
there are not sufficient votes for a quorum at the time of the Annual Meeting,
the meeting may be adjourned to permit further solicitation of proxies. For all
matters to be voted on at the Annual Meeting, each share of Common Stock is
entitled to one vote. Election of directors will be by a plurality of votes
cast. Abstentions and broker non-votes will not be considered votes cast, but
will be counted for purposes of determining the presence or absence of a quorum.
James T. Wilson, John M. Richman and Steve Ratcliffe will serve as
Inspectors of Elections.
PROPOSAL I. ELECTION OF DIRECTORS
The Corporation's Board of Directors contains eleven individuals. Four
individuals are to be elected as directors of the Corporation at the Annual
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Meeting to serve for a term of three years expiring in 2002, and seven directors
will continue to serve in accordance with their prior election. The four
nominees, Joseph W. Hollis, Gerald H. Kidwell, Lewis W. Spangler and Thomas W.
Grove, were last elected by the stockholders in 1996.
It is the intention of the persons named in the enclosed proxy, unless
otherwise instructed by the stockholders, to vote for the above-named nominees,
all of whom have consented to serve if elected. If, for any reason at the time
of the meeting, any of the nominees becomes unable or is unwilling to serve, the
persons named in the enclosed proxy will have discretionary authority to vote
for a substitute nominee or nominees. It is not anticipated that any nominee
will be unavailable for election.
DIRECTOR-NOMINEES FOR CLASS III DIRECTORS SERVING UNTIL 2002:
JOSEPH W. HOLLIS, 45, has served as a director of the Corporation
since 1989 and of the Bank since 1987. He is President of B. J. Sager (beer
distributor) in Winchester, Virginia.
GERALD H. KIDWELL, 77, has served as a director of the Corporation since
1989 and of the Bank since 1987. He is a farmer and former budget analyst with
the federal government in Washington, DC.
LEWIS W. SPANGLER, 56, has served as a director of the Corporation since
1989 and of the Bank since 1987. He is Vice President of Jones & Frank
Corporation (petroleum equipment sales & distribution) in Winchester, Virginia;
and Vice President and Manager of Oil Equipment Properties (real estate) in
Winchester, Virginia.
THOMAS W. GROVE, 58, has served as a director of the Corporation
since 1993 and of the Bank since 1993. He is President of T. W. Grove
Construction, Inc. in Front Royal, Virginia.
CONTINUING CLASS I DIRECTORS SERVING UNTIL 2000:
RALPH S. GREGORY, 60, has served as a director of the Corporation since
1989 and of the Bank since 1987. He is President of Gregory's, Incorporated
(commercial contractor) in Stephens City, Virginia.
GEORGE R. IRVIN, JR., 63, has served as a director of the Corporation
since 1989 and of the Bank since 1987. He is retired and the former chairman of
Irvin, Incorporated (wholesale candy and tobacco distributor) in Edinburg,
Virginia.
WALTER H. AIKENS, 49, has served as a director of the Corporation since
1998 and as a Director of the Bank since 1998. He is President of H & W
Construction Co., Inc., and President of Aikens Corporation, and develops Real
Estate for Rental Property.
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CONTINUING CLASS II DIRECTORS SERVING UNTIL 2001.
FRANK H. BRUMBACK, 74, has served as a director of the Corporation since
1989 and of the Bank since 1987. He is Chairman of the Bank and the Corporation;
Vice President of Woodbine Farms, Incorporated (orchardist) in Winchester,
Virginia; and President of BGW, Incorporated (real estate) in Winchester,
Virginia.
ROBERT W. CLAYTOR, 51, has served as a director of the Corporation
since 1989 and of the Bank since 1987. He is President and General Manager
of H. N. Funkhouser & Company (petroleum distributor) in Winchester, Virginia.
CLIFTON L. GOOD, 61, has served as a director of the Corporation
since 1989 and of the Bank since 1987. He is President of Clifton L. Good
Realty, Incorporated, in Front Royal, Virginia.
DONALD L. UNGER, 56, has served as a director of the Corporation since
1993 and of the Bank since 1993. He has served as President and Chief Executive
Officer of the Bank and the Corporation since April 1992.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held a total of 13 meetings in 1998. Each
incumbent director attended at least 75% of the aggregate of the number of
meetings of the board and the number of meetings held by all committees on which
he served.
The Board of Directors of the Bank has standing Audit, Loan,
Compensation, Nominating, and Stock Option Committees.
The Audit Committee is responsible for receiving the audit and
examination reports of the internal accounting staff, the independent public
accountants and the banking examiners. The Audit Committee held eight meetings
in 1998. The present members of the Audit Committee are Messrs. Hollis, Good,
Irvin, Kidwell, and Unger.
The Loan Committee considers new loan applications which are in excess
of individual officer limits and monitors (with management) the Bank's loan
portfolio. The Loan Committee held 40 meetings in 1998. The present members of
the Loan Committee are Messrs. Claytor, Aikens, Brumback, Good, Gregory, Grove,
Kidwell, Spangler, and Unger.
The Compensation Committee is responsible for supervising, hiring, and
setting compensation levels for the Bank's personnel. The Compensation Committee
met six times in 1998. The present members of the Compensation Committee are
Messrs. Irvin, Claytor, Hollis, Spangler, and Unger.
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The Nominating Committee nominates persons to serve on the Board of
Directors and is comprised of three members who change annually. The Nominating
Committee met one time in 1998. The present members of the Nominating Committee
are Messrs. Good, Aikens and Irvin.
The Stock Options Committee is comprised of Messrs. Irvin, Hollis,
Claytor and Spangler. The Committee is responsible for administering to
the 1996 Long-Term Incentive Plan. The Stock Options Committee did not meet
in 1998.
EXECUTIVE COMPENSATION
SUMMARY OF EXECUTIVE COMPENSATION TABLE
The following table presents an overview of executive compensation paid
during 1998, 1997 and 1996 to Donald L. Unger, the Corporation's President and
Chief Executive Officer. No other executive officer's compensation totaled over
$100,000 during 1998.
SUMMARY COMPENSATION TABLE
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LONG TERM
ANNUAL COMPENSATION COMPENSATION
SECURITIES
UNDERLYING ALL OTHER
NAME YEAR SALARY BONUS OPTIONS (#) COMPENSATION
<S> <C>
Donald L. Unger 1998 $115,000 $8,050 -0- $5,383 (1)
President & Chief 1997 $108,000 $6,040 2,203 (2) $8,000 (3)
Executive Officer 1996 $104,000 $7,000 22,500 (4) $8,000 (5)
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(1) Includes $5,383 in contributions to the Corporation's 401-K Plan on
behalf of Mr. Unger.
(2) These options were granted by the Board of Directors in lieu of
compensation.
(3) Includes a $5,155 contribution to the Corporation's 401-K Plan on
behalf of Mr. Unger and $2,845 accrued pursuant to Mr. Unger's previous
employment agreement.
(4) These options were granted pursuant to the Corporation's 1996 Long-Term
Incentive Plan.
(5) Eight percent of annual salary accrued in lieu of participation in a
pension plan, pursuant to Mr. Unger's previous employment agreement.
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FISCAL YEAR END OPTION VALUES
The following table presents, for Donald L. Unger, information regarding
(i) his exercise of stock options in 1998 and (ii) the number and value of all
his unexercised stock options at December 31, 1998.
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<CAPTION>
NUMBER OF VALUE OF
UNEXERCISED UNEXERCISED
OPTIONS AT IN-THE-MONEY
12/31/98 (#) OPTIONS AT
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ 12/31/98 ($)
NAME ON EXERCISE (#) UPON EXERCISE ($) UNEXERCISABLE (1)
---- --------------- ----------------- ------------- -------------------
<S> <C>
Donald L. Unger 2,203 $0 14,000/11,000 35,000/27,500
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(1) Based upon a market value of $ 7.50 per share as of the close of trading for
the year ended December 31, 1998.
EXECUTIVE OFFICER EMPLOYMENT AGREEMENT
The Corporation and Mr. Unger entered into an employment agreement on
April 1, 1998 (the "Agreement"). The Agreement was automatically renewed on
March 31, 1999 for a one year period, and will automatically renew for
successive one year periods thereafter unless expressly terminated by the
Corporation.
As compensation under the Agreement, Mr. Unger receives a base salary of
$108,000. As additional compensation under the Agreement and at the election and
in the discretion of the Board of Directors, Mr. Unger may receive a bonus in
the form of cash or options to purchase common stock of the Corporation. The
Agreement permits Mr. Unger to participate in any benefit plans adopted by the
Corporation under the same terms and conditions as other employees of the
Corporation.
In the event of a change in control of the Corporation, the Agreement
provides that Mr. Unger shall receive a cash payment equal to the greater of (i)
the amount of salary due to Mr. Unger for the remainder of the term of the
Agreement or (ii) the product of his annual salary and the multiple of the book
value per share of the Corporation's Common Stock received by the Corporation's
stockholders in connection with such change of control, provided such multiple
does not exceed 3.
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COMPENSATION OF DIRECTORS
In 1998, directors of the Corporation were paid an annual retainer fee
of $1,200 and directors' fees for meetings attended as follows:
Board of Directors Meetings $ 400
Loan, Audit and Compensation Committee Meetings $ 50
DEFINED CONTRIBUTION RETIREMENT PLAN
The Corporation has a defined contribution retirement plan under Section
401(k) of the Internal Revenue Code covering employees who have completed six
months of service and who are at least 21 years of age.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Corporation's officers, directors, their immediate families and
affiliated companies in which they are stockholders maintain normal business
relationships with the Bank. Loans made by the Bank are made in the ordinary
course of business on the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with others, and do
not involve more than normal risks of collectibility or present other
unfavorable features. The aggregate amount of such loans was $2,090,201 at
December 31, 1998.
The Bank also has a lease with Post Office Plaza, L.C. of which Donald
L. Unger, President, Chief Executive Officer and director of the Corporation,
and Thomas W. Grove, a director of the Corporation, each own 25%. The lease
arrangement was approved by the Bureau of Financial Institutions of the Virginia
State Corporation Commission and the Federal Reserve Board in regard to
establishing a branch at 300 Warren Avenue, Front Royal, Warren County,
Virginia. The land lease became effective in July 1993 and converted into a
lease for both the land and building thereon in June 1996. The lease expires on
June 30, 2016. The rent paid on the lease totaled $46,154 for the year 1998.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires directors, executive officers and persons who beneficially own more
than 10% of a registered class of equity securities of the Corporation to file
initial reports of ownership (Forms 3) and reports of changes in beneficial
ownership (Forms 4 and 5) with the SEC and NASDAQ. Such persons are also
required under the rules and regulations promulgated by the SEC to furnish the
Corporation with copies of all Section 16(a) forms they file. Based solely on a
review of the copies of such forms furnished to the Corporation, the Corporation
believes that all reporting requirements under Section 16(a) for 1998 were met
in a timely manner by its directors and executive officers.
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SECURITY OWNERSHIP OF MANAGEMENT
The following table sets forth information as of March 31, 1999,
relating to the beneficial ownership of the Corporation's Common Stock by (i)
each of the Corporation's directors and named executive officer who own Common
Stock and (ii) all of the Corporation's directors and executive officers as a
group. The Corporation is not aware of any person or group of affiliated persons
who owns more than 5% of the Common Stock of the Corporation. All of the
Corporation's directors and named executive officer receive mail at the
Corporation's principal executive offices at 4095 Valley Pike, Winchester,
Virginia 22602.
NUMBER OF SHARES PERCENT OF
NAME BENEFICIALLY OWNED OUTSTANDING SHARES
Walter H. Aikens 18,864(1) *
Frank H. Brumback 41,055(2) 1.99%
Robert W. Claytor 54,061(3) 2.62%
Clifton L. Good 62,943(4) 3.05%
Ralph S. Gregory 72,847(5) 3.52%
Thomas W. Grove 15,009(6) *
Joseph W. Hollis 64,701(7) 3.13%
George R. Irvin, Jr. 72,960(8) 3.53%
Gerald H. Kidwell 61,529(9) 2.98%
Lewis W. Spangler 43,031(10) 2.08%
Donald L. Unger 20,522(11) *
Directors and Executive
Officers as a Group 527,522 24.78%
(11 persons)
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* Less than 1% ownership
Unless otherwise indicated in the footnotes, the individuals named above
have sole voting and investment powers over the shares beneficially owned by
them.
(1) Includes (i) 11,806 shares held by Aikens Investments Limited Partnership,
LLP and (ii) 3,529 shares held by Harry W. Aikens Limited Partnership, LLP.
Mr. Aikens disclaims beneficial ownership of the 3,529 shares owned by Harry
W. Aikens Limited Partnership, LLP.
(2) Includes (i) 6,000 shares which Mr. Brumback has a right to acquire within
60 days through exercise of stock options granted under the 1996 Long-Term
Incentive Plan (the "Incentive Plan") and (ii) 16,802 shares owned jointly
by Mr. Brumback and his nephew, Harman Brumback.
(3) Includes (i) 6,000 shares which Mr. Claytor has a right to acquire within 60
days through exercise of stock options granted under the Incentive Plan,
(ii) 29,352 shares owned jointly by Mr. Claytor and his wife, (iii) 2,928
held in Mr. Claytor's IRA account, (iv) 2,928 shares held in Mr. Claytor's
wife's IRA account, (v) 353 shares held directly by Mr. Claytor's wife and
(vi) 5,618 shares held by Mr. Claytor's daughter. Mr. Claytor disclaims
beneficial ownership of the 353 shares owned directly by his wife, the 2,928
shares held in Mr. Claytor's wife's IRA account and the 5,618 shares held
directly by his daughter.
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(4) Includes (i) 6,000 shares which Mr. Good has a right to acquire within 60
days through exercise of stock options granted under the Incentive Plan,
(ii) 19,328 shares owned jointly by Mr. Good and his wife, (iii) 20,970
shares owned by Clifton L. Good Realty, Incorporated ("Good Realty") and
(iv) 5,556 shares held directly by Mr. Good's wife. Mr. Good owns 50% of
Good Realty, and he has shared voting and investment power with respect to
such shares. Mr. Good disclaims beneficial ownership of the 5,556 shares
owned directly by his wife.
(5) Includes (i) 6,000 shares which Mr. Gregory has a right to acquire within 60
days through exercise of stock options granted under the Incentive Plan,
(ii) 42,820 shares owned jointly by Mr. Gregory and his wife, (iii) 3,834
shares owned by Gregory's, Incorporated ("Gregory's"). Mr. Gregory is
President of Gregory's, and he has shared voting and investment power with
respect to such shares.
(6) Includes 6,000 shares which Mr. Grove has a right to acquire within 60 days
through exercise of stock options granted under the Incentive Plan.
(7) Includes (i) 6,000 shares which Mr. Hollis has a right to acquire within 60
days through exercise of stock options granted under the Incentive Plan,
(ii) 36,009 shares owned jointly by Mr. Hollis and his wife, (iii) 201
shares held by Mr. Hollis for the benefit of his daughter, (iv) 17,646
shares owned by B.J. Sager, Incorporated ("Sager"), (v) 1,615 shares held
directly by Mr. Hollis' wife and (vi) 201 shares held by Mrs. Hollis for the
benefit of her daughter. Mr. Hollis is President of Sager, and he has shared
voting and investment power with respect to such shares. Mr. Hollis
disclaims beneficial ownership of the 1,615 shares owned directly by his
wife.
(8) Includes (i) 6,000 shares which Mr. Irvin has a right to acquire within 60
days through exercise of stock options granted under the Incentive Plan and
(ii) 1,210 shares held directly by Mr. Irvin's wife. Mr. Irvin disclaims
beneficial ownership of the 1,210 shares owned directly by his wife.
(9) Includes (i) 6,000 shares which Mr. Kidwell has a right to acquire within 60
days through exercise of stock options granted under the Incentive Plan and
(ii) 54,520 shares owned jointly by Mr. Kidwell and his wife.
(10)Includes (i) 6,000 shares which Mr. Spangler has a right to acquire within
60 days through exercise of stock options granted under the Incentive Plan,
(ii) 4,442 shares held in Mr. Spangler's IRA account, (iii) 201 shares owned
by Mr. Spangler's wife, and (iv) 201 shares owned by Mr. Spangler's
daughter. Mr. Spangler disclaims beneficial ownership of the 201 shares
owned directly by his wife.
(11)Includes (i) 12,500 shares which Mr. Unger has a right to acquire within 60
days through exercise of stock options granted under the Incentive Plan,
(ii) 1,500 shares which Mr. Unger has a right to acquire within 60 days
through exercise of stock options granted under Mr. Unger's Employment
Agreement, and (iii) 4,522 shares owned jointly by Mr. Unger and his wife.
INDEPENDENT PUBLIC ACCOUNTANTS
Yount, Hyde & Barbour, P.C. served as the Corporation's independent
public accountant in 1998 and has been selected by the Corporation to audit the
books and accounts of the Corporation and its subsidiary in 1999. The Board of
Directors desires that such appointment be ratified by the Corporation's
stockholders. The Corporation does not expect that a representative of Yount,
Hyde & Barbour, P.C. will be present at the Annual Meeting. If such
representative is present, however, he or she will have an opportunity to make a
statement and will be available to respond to appropriate questions.
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SUBMISSION OF PROPOSALS FOR 2000
Proposals of stockholders intended to be presented at the next Annual
Meeting must be received by the Corporation no later than January 18, 2000, in
order to be considered for inclusion in the Corporation's proxy materials for
the 2000 Annual Meeting of Stockholders.
OTHER MATTERS
Management is not aware of any other business to come before the meeting
as of the date of the preparation of this Proxy Statement. If, however, any
matters not presently known to management should come before the meeting,
including matters incident to the conduct of the meeting, the proxy holders will
vote the shares represented by such proxies in accordance with their discretion.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY.
By order of the Board of Directors,
Donald L. Unger
President and Chief Executive Officer
Winchester, Virginia
April 5, 1999
