SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
SECOND NATIONAL FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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SECOND NATIONAL FINANCIAL CORPORATION
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held April 23, 1998
To Our Stockholders:
The Annual Meeting of Stockholders of Second National Financial
Corporation will be held at the Holiday Inn, Route 29 South, Culpeper,
Virginia, on Thursday, April 23, 1998 at 12:00 p.m. for the following purposes:
1. To elect four (4) directors to serve until the 2001 Annual Meeting of
Stockholders, or until their successors are elected and qualified;
2. To ratify the approval of the Second National Financial Corp. 1998
Incentive Stock Plan;
3. To ratify the appointment of Yount, Hyde & Barbour, P.C., as external
auditors for the fiscal year ending December 31, 1998; and
4. To transact such other business as may properly come before the meeting.
Stockholders of record at the close of business on February 17, 1998, will
be entitled to notice of, and to vote at, the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors,
/s/ Jeffrey W. Farrar
-----------------------------------
JEFFREY W. FARRAR, CPA
Secretary and Chief Financial
Officer
March 13, 1998
Please sign, date, and mail the enclosed proxy card promptly. No postage
is required if the return envelope is used and mailed in the United States. If
you attend the meeting, you may, if you desire, revoke your proxy and vote in
person.
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SECOND NATIONAL FINANCIAL CORPORATION
102 South Main Street
Post Office Box 71
Culpeper, Virginia 22701
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PROXY STATEMENT FOR
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD APRIL 23, 1998
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GENERAL INFORMATION
The enclosed proxy is solicited by the Board of Directors of Second
National Financial Corporation (the "Holding Company") for the Annual Meeting
of Stockholders of the Holding Company (the "Annual Meeting") to be held at the
Holiday Inn, Route 29 South, Culpeper, Virginia, on April 23, 1998, at 12:00
p.m., for the purposes set forth in the accompanying Notice of Annual Meeting.
The approximate mailing date of this Proxy Statement and accompanying proxy is
March 13, 1998.
Revocation and Voting of Proxies
Execution of a proxy will not affect a Stockholder's right to attend the
Annual Meeting and to vote in person. Any Stockholder who has executed and
returned a proxy may revoke it at any time before the proxy is exercised by
filing an instrument effecting such revocation or a duly exercised proxy
bearing a later date with the Holding Company at the above address.
Stockholders also may revoke their proxies by attending the Annual Meeting and
voting in person. Proxies will extend to, and will be voted at, any adjourned
session of the Annual Meeting.
Voting Rights of Stockholders
Only Stockholders of record at the close of business on February 17, 1998,
are entitled to notice of and to vote at the Annual Meeting or any adjournment
thereof. As of the close of business on the record date, 1,500,900 shares of
Holding Company common stock, par value of $2.50 per share, were outstanding
and entitled to vote at the meeting. The Holding Company has no other class of
stock outstanding.
Each share of Holding Company common stock is entitled to one vote for as
many persons as there are directors to be elected at the Annual Meeting and one
vote for all other matters voted on at the Annual Meeting. Shares of Holding
Company common stock are not entitled to cumulative voting rights. The
presence, in person or by proxy, of a majority of the votes entitled to be cast
will constitute a quorum for the transaction of business at the Annual Meeting.
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Solicitation of Proxies
The expenses of soliciting proxies will be borne by the Holding Company.
Proxies are being solicited by mail, and also may be solicited by directors,
officers, employees and agents of the Holding Company in person, by telephone,
or by mail. Officers, directors and employees of the Holding Company will not
receive special compensation for their solicitation activities. The Holding
Company may reimburse banks, brokerage firms, and other custodians, nominees,
and fiduciaries for their reasonable expenses in sending proxy materials to
beneficial owners of Holding Company common stock.
Principal Stockholders
As of February 17, 1998, no person was known to the Holding Company to
beneficially own 5% or more of the outstanding shares of Holding Company common
stock.
The Trust Division of Second Bank & Trust ("Bank"), a wholly-owned
subsidiary of the Holding Company, holds as trustee of various trust accounts a
total of 93,109 shares (or approximately 6.2%) of Holding Company common stock.
Section 13.1-662E of the Virginia Code prohibits the Trust Division of the Bank
from voting these shares at the Annual Meeting unless a co-fiduciary is
appointed for the sole purpose of voting such shares.
As of February 17, 1998, the directors and executive officers of the
Holding Company and the Bank as a group beneficially owned 111,146 shares (or
approximately 7.4%) of Holding Company common stock.
PROPOSAL ONE
ELECTION OF DIRECTORS
The Board of Directors of the Holding Company is comprised of nine
directors who are divided into three classes (Class I, Class II, and Class
III). The term of office for the four Class II directors will expire at the
Annual Meeting. The first four persons in the beneficial share table below, all
of whom currently serve as directors of the Holding Company, will be nominated
to serve as Class II directors. If elected, the Class II directors will serve
for terms of three years until the 2001 Annual Meeting, or until their
successors are duly elected and qualified.
The persons named in the proxy will vote for the election of the nominees
named below unless authority is withheld. If any of the persons named below is
unavailable to serve for any reason, an event which the Board of Directors does
not anticipate, proxies will be voted for the remaining nominees and such other
person or persons as the Board of Directors may reduce the size of Class II to
the number of remaining nominees, for whom the proxies will be voted.
The following table sets forth certain information concerning the nominees
for election at the Annual Meeting as Class II directors, as well as certain
information about the Class I and Class III directors, who will continue in
office after the Annual Meeting until the 2000 and 1999 Annual Meetings,
respectively. The directors of the Holding Company also serve as directors of
the Bank. The Board of Directors recommends that the stockholders vote FOR
election of the Class II Directors.
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NOMINEES FOR ELECTION
CLASS II DIRECTORS
(To Serve until 2001 Annual Meeting)
<TABLE>
<CAPTION>
Number & Percent
Served Principal of Share
as Director Occupation Beneficially
Name and Age Since Past 5 Years Owned(2)
- ------------------------------- ------------- ------------------------------- ---------------------------
<S> <C>
Lewis P. Armstrong, 45 1989(1) Dentist 1,704(3)*
Robert Y. Button, Jr., 64 1962(1) Partner, Armentrout Insurance 41,240(2.7%)(3)
Gregory L. Fisher, 48 1992 President, Eddins Ford, Inc. 439*
Charles K. Gyory, 54 1992 Vice President, Willow Run 2,959(3)*
Company, Inc.
CLASS I DIRECTORS
(Serving until 2000 Annual Meeting)
Marshall D. Gayheart, Jr., 67 1971(1) Retired, Proprietor of 28,466(1.9%)
Gayheart Drug Store
W. Robert Jebson, Jr., 64 1990(1) President, Environmental 3,349*
Systems Service, Ltd.
CLASS III DIRECTORS
(Serving Until 1999 Annual Meeting)
4,509*
O. R. Barham, Jr., 47 1996 President and Chief
Executive Officer of the
Holding Company; President
and Chief Executive Officer
of the Bank since January
1997; Senior Vice President
of the Bank prior to
January 1, 1997
Taylor E. Gore, 59 1975(1) Executive Vice President & 5,496(3)*
General Manager, Culpeper
Farmers' Co-op, Inc.
Harlean Smoot, 62 1994 Office Manager/Secretary, 1580(3)*
Cherry Street Building
Supply; Secretary-Treasurer
E. Russell Smoot & Son, Inc.
All Directors & Executive Officers of the Holding Company as a group (15) 111,146(7.4%)
</TABLE>
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* Represents less than 1% of the outstanding shares based upon 1,500,900 shares
outstanding as of February 17, 1998.
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<PAGE>
(1) Refers to the year in which the individual first became a director of the
Bank. Each person became a director of the Holding Company just prior to
consummation of the reorganization of the Bank on July 2, 1990.
(2) For purposes of this table, beneficial ownership has been determined in
accordance with the provisions of Rule 13d-3 of the Securities Exchange
Act of 1934 under which, in general, a person is deemed to be the
beneficial owner of a security if he or she has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he or she has the right to
acquire beneficial ownership of the security within sixty days.
(3) Includes shares held by spouses and minor children, shares held jointly or
with spouses, and shares held as custodian or trustee: Mr. Gore, 350
shares; Mr. Armstrong, 167 shares; Mr. Button, 27,920 shares; Mr. Gyory,
1,949 shares; and Mrs. Smoot, 878 shares.
There are no family relationships among any of the directors or executive
officers, and none of the directors serves as a director of any other company
with a class of securities registered under Section 12 of the Securities
Exchange Act of 1934.
Board Committees and Attendance
The Board of Directors of the Holding Company has a Nominating Committee,
and the Board of Directors of the Bank has, among other committees, Audit and
Personnel Committees.
The Nominating Committee is comprised of Messrs. Gayheart, Jebson, and
Mrs. Smoot. The Nominating Committee meets once a year to nominate directors
for the coming year. The committee recommends officers to serve the Holding
Company for the coming year.
The Audit Committee is comprised of Messrs. Fisher, Gore, and Jebson. The
Audit Committee meets periodically to examine audit reports to determine
whether audit exceptions are being addressed by management and whether internal
control of the Bank remains adequate. The committee met 3 times in 1997.
The Personnel Committee is comprised of Messrs. Gore, Gyory, Jebson, and
Mrs. Smoot. The committee meets periodically to review benefit plans and
authorizes the level of compensation for each officer and director of the Bank.
The committee met 5 times in 1997.
The Board of Directors of the Holding Company and the Board of Directors
of the Bank each met monthly in 1997. In 1997, all directors attended at least
75% of the regular, special, or committee meetings of the Board of Directors of
the Holding Company or the Bank which he (she) was required to attend.
EXECUTIVE COMPENSATION
Compensation of Directors
Directors of the Holding Company do not receive any fees or other
compensation for serving on the Board of Directors of the Holding Company, but
they do receive a monthly fee of $400.00 for serving as Board of Directors of
the Bank. Directors of the Bank and the Holding Company are paid $100.00 for
attending each meeting of a committee of the Board of Directors of the Bank or
Holding Company on which they serve, except directors of the Bank who serve on
the Finance Committee receive a monthly fee of $300.00.
Cash Compensation
The officers of the Holding Company do not receive any compensation from
the Holding Company, but are paid by the Bank for their service as executive
officers of the Bank. The following table sets forth
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the total cash compensation of O. R. Barham, Jr., the Chief Executive Officer
of the Holding Company and Bank, during 1997. During 1997, no other executive
officer of the Holding Company or Bank received in excess of $100,000 in cash
compensation.
Summary Compensation Table
Annual Compensation
------------------------------------
<TABLE>
<CAPTION>
Name of Officer All Other
Principal Position Year Salary(1) Bonus Compensation(2)
- ----------------------- ------ ----------- ---------- ----------------
<S> <C>
O. R. Barham, Jr. 1997 $139,800 $10,000 $28,702
President & Chief
Executive Officer of
the Holding Company
and the Bank effective
January 1, 1997
</TABLE>
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(1) Includes director's fees of $4,800.
(2) Includes profit sharing ($12,843), ESOP ($2,954), 401(k) Plan ($4,224),
split dollar life insurance ($1,931) and deferred compensation ($6,750).
Employment Agreement
Mr. Barham entered into a three year employment agreement with the Holding
Company effective January 1, 1997. The agreement is general in nature and has
few conditions relative to current or ongoing employment conditions. Mr.
Barham's base compensation under this agreement is determined at the sole
discretion of the Board of Directors, but does include minimum thresholds for
each year of the agreement. The agreement provides that in the event the
Holding Company, acting either through its stockholders or its Directors,
approves a change in control event as defined, Mr. Barham will be entitled to
receive from the Holding Company base compensation and accrued benefits for a
twenty-four month period, regardless of consideration of future employment. In
the event the Holding Company terminates Mr. Barham's employment without cause,
or Mr. Barham terminates his employment for good reason as defined, the Holding
Company will pay to Mr. Barham a lump sum within thirty days of employment
termination equal to base compensation for a period of eighteen months from the
date of termination.
As incentive for Mr. Barham to remain in the employ of the Holding Company
and as protection for the Holding Company from Mr. Barham leaving the Holding
Company's employ, absent a sale of the Holding Company as defined, the
agreement provides that if the officer voluntarily leaves the employ of the
Bank without there being any such change in control of the Holding Company, he
may not be employed with or work in any office of any company as an officer,
director, employee or partner within a 50 mile radius of any branch office of
the Holding Company without written consent of the Board of Directors for a
period of two years after Mr. Barham's employment. Failure to comply will
result in termination of all benefits remaining to be paid as part of the
agreement.
Employee Benefit Plans
The Bank has a split dollar life insurance plan that is offered to Bank
officers with the title of Vice President and above. The Bank advances a
portion of the premium which will be reimbursed by the insured officer upon the
termination of his employment or death. In 1997, $1,931 was advanced to Mr.
Barham under this plan.
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<PAGE>
The Bank established an Employee Stock Ownership Plan ("ESOP") under
section 401(e) of the Internal Revenue Code as of January 1, 1984. The plan's
primary purpose is to enable participating employees to share in the growth and
prosperity of the Bank and the Holding Company by allowing employees to acquire
Holding Company common stock. The Bank contributed $64,419 to the plan in 1997.
Funds contributed by the Bank to the plan are allocated to participants in the
plan in the ratio which the compensation of each participant bears to the total
compensation of all the participants. In 1997, $2,954 was accrued to Mr. Barham
under this plan.
Effective January 1, 1997, the Holding Company adopted a non-qualified
Executive Deferred Compensation Plan. Pursuant to the plan, Mr. Barham and any
other employees of the Bank selected by the Board of Directors may defer
receipt of a certain amount of pre-tax income and cash incentive compensation,
plus a Holding Company percentage matching contribution of the deferred amount,
for a period of no less than three years or until retirement, subject to
termination of employment or certain other events, including an imminient
"change of control." The Holding Company's contribution for Mr. Barham is 5% of
his base salary and as determined from time to time by the Board for other
executives. A change of control is determined in the Board of Director's sole
discretion and generally may include any plan to acquire voting control of the
Holding Company, a transaction which results in a change in a majority of the
then-incumbent Board or the Holding Company ceasing to be publicly owned. The
participants must pay taxes on the deferred payments when received.
The Bank has a noncontributory pension plan which conforms to the Employee
Retirement Income Security Act of 1974 (ERISA). The amount of benefits payable
under the plan is determined by an employee's period of credited service. The
amount of normal retirement benefit will be equal to 1% of a participating
employee's average compensation for each year of credited service plus 3/4% of
a participating employee's average compensation in excess of $10,000 for each
year of credited service. The plan provides for early retirement for
participants with 10 or more years of service to the Bank who retire after
attaining age 55. A participant who terminates employment after 3 or more years
of service is eligible for a deferred benefit.
The following table shows the estimated annual benefits payable upon
retirement based on specified remuneration and years of credited service
classifications, assuming continuation of the present plan and retirement on
January 1, 1997, at age 65 (normal retirement date):
ESTIMATED ANNUAL PENSION BASED ON AVERAGE COMPENSATION
<TABLE>
<CAPTION>
AVERAGE 10 YEARS 15 YEARS 20 YEARS 25 YEARS
COMPENSATION OF SERVICE OF SERVICE OF SERVICE OF SERVICE
- -------------- ------------ ------------ ------------ -----------
<S> <C>
$ 10,000 $ 1,000 $ 1,500 $ 2,000 $ 2,500
25,000 3,625 5,438 7,250 9,063
50,000 8,000 12,000 16,000 20,000
75,000 12,375 18,563 24,750 30,938
100,000 16,750 25,125 33,500 41,875
125,000 21,125 31,688 42,250 52,813
</TABLE>
Mr. Barham will have an estimated 23 years of credited service at normal
retirement age and his estimated annual benefit payable at retirement under
this plan is estimated to be $55,000.
The Bank established a 401(k) Savings Plan effective October 1, 1989. The
plan's primary purpose is to allow employees to save for retirement on a
pre-tax basis. The plan provides for matching contributions by the Bank equal
to 100% of the first 2% plus 25% of the next 4% of salary reduction
contributions made by the employee. The Bank made a matched contribution to the
plan of $45,980 in 1997.
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<PAGE>
The plan also provides for discretionary contributions to be made by the Bank
and allocated to participant accounts in proportion to the participant's
compensation. The Bank made no discretionary contribution to the plan in 1997.
In 1997, $4,224 was accrued to Mr. Barham under this plan.
The Bank has a profit sharing plan under which employees of the Bank
receive compensation directly related to the profitability of the Bank.
Compensation under the plan is calculated and approved by the Board of
Directors of the Bank. In 1997, the Bank contributed $201,000 to the plan. In
1997, $12,843 was earned by Mr. Barham under the plan.
Each employee of the Bank who has attained the age of 21 years and has
worked at least 1,000 hours for the Bank and has one year of service in a
calendar year is eligible to participate in the ESOP, the 401(k) Savings Plan,
and the pension plan. Directors who are not active employees of the Bank are
not entitled to participate in any employee benefit plans of the Bank.
All other benefits which might be considered of a personal nature would
not be considered significant in relation to the total compensation of O. R.
Barham, Jr. or any other executive officer.
Transactions with Directors and Officers
As of December 31, 1997, borrowing from the Bank by all policy-making
officers, directors, their immediate families, and affiliated companies in
which they are Stockholders amounted to approximately $4,032,963. This amount
represented 13.9% of the total equity capital of the Bank as of December 31,
1997, and 1.8% of the total assets of the Bank. These loans were made in the
ordinary course of the Bank's business, on the same terms, including interest
rates and collateral, as those prevailing at the same time for comparable
transactions with others, and do not involve greater than normal risks of
collectibility. The Bank expects to have similar banking transactions with
directors, officers, principal Stockholders and their associates in the future.
Personnel Committee Report on Executive Compensation
The Personnel Committee of the Board of Directors of the Bank has
furnished the following report on executive compensation.
The committee has developed and implemented compensation policies and
plans which seek to enhance the profitability of the Holding Company and
maximize stockholder value by aligning closely the financial interests of its
Senior Officers with those of its Stockholders. The policies are designed to
provide competitive levels of compensation to attract and retain corporate
officers and key employees with outstanding abilities and to motivate them to
perform to the full extent of their abilities. The policies provide for both
annual salaries and participation in an incentive compensation plan with all
other employees of the Holding Company.
The Board of Directors approve base salaries at levels competitive with
amounts paid to senior executives with comparable qualifications, experience
and responsibilities after comparing salary ranges of similar sized banks as
provided by several sources, including the VBA Salary Survey of Virginia Banks.
The annual and incentive compensation is also closely tied to the Company's
success in achieving significant financial performance goals.
The Board of Directors approves the Chief Executive's annual salary based
on the compensation data from selected peer banks, their assessment of past
performance and its expectation as to future contributions in leading the
Holding Company. In addition to the internal measures above, the Board of
Directors also reviews the financial performance of the Holding Company in
relation to peer group averages and predetermined goals set by the Board of
Directors. A subjective approach is used in its evaluation of these factors and
therefore does not rely on a formula or weights of specific factors.
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The incentive compensation plan, which includes all employees of the
Holding Company, stresses rewards for achievement of financial goals set each
year. This program rewards employees for producing higher income, reducing
costs and providing customers with excellent service. The formula for 1997 as
adopted by the Board of Directors calls for an incentive of an increasing
percentage based on achievement of specified levels of return on assets. The
formula defines the incentive fund available for distribution for the year. The
incentive funds are allocated prorata to all employees based on their salary.
The foregoing report has been furnished by Committee members consisting of
Messrs. Gore, Gyory, Jebson, and Mrs. Smoot.
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<PAGE>
STOCK PERFORMANCE GRAPH
The following graph compares the Holding Company's Stockholder return with
the return of certain indices for the period beginning December 31, 1992 and
for following five years ending December 31. The Holding Company's stock
performance is compared to the NASDAQ Stock Index and the Carson Medlin
Independent Bank Index.
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C>
SECOND NATIONAL FINANCIAL CORPORATION 100 111 113 118 129 220
INDEPENDENT BANK INDEX 100 125 153 208 248 358
NASDAQ INDEX 100 115 112 159 195 240
</TABLE>
During the years 1992-1996, and for the first six months of 1997, shares of
Holding Company Common Stock were not traded on any national or regional
exchange, and trading was generally as a result of private negotiation.
Accordingly, this graph is not necessarily indicative of how the Company's
stock would have performed if it had traded on an exchange for the entire
period. On July 14, 1997, the Holding Company's stock began trading on the
Nasdaq Small Cap Market under the trading symbol SEFC. The Nasdaq Stock Market
is a highly regulated electronic securities market whose listings are supported
by a communications network linking them to quotation dissemination, trade
reporting, and order execution. The Nasdaq is operated by The Nasdaq Stock
Market, Inc., a wholly-owned subsidiary of the National Association of
Securities Dealers, Inc.
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PROPOSAL TWO
APPROVAL OF THE 1998 INCENTIVE STOCK PLAN
General
The Holding Company's 1998 Incentive Stock Plan (the "Incentive Plan") was
adopted by the Board of Directors on February 12, 1998, subject to the approval
by the holders of a majority of the Holding Company's Common Stock represented
at the Annual Meeting. The Incentive Plan makes available up to 100,000 shares
of Common Stock for awards to key employees of the Holding Company and its
subsidiaries in the form of stock options, stock appreciation rights and
restricted stock (collectively, "Awards"), all as more fully described below.
The following description of the Incentive Plan is qualified in its
entirety by reference to the Incentive Plan, a copy of which may be obtained by
request delivered to the secretary of the Holding Company at the address set
forth on the Notice of this Proxy Statement.
Purpose
The purpose of the Incentive Plan is to promote the success of the Holding
Company and its subsidiaries by providing incentives to key employees that will
promote the identification of their personal interests with the long-term
financial success of the Holding Company and with growth in shareholder value.
The Plan is designed to provide flexibility to the Holding Company in its
ability to motivate, attract, and retain the services of key employees upon
whose judgment, interest, and special effort the successful conduct of its
operation is largely dependent.
Administration
Under the terms of the Incentive Plan, the Personnel Committee of the
Board of Directors of the Bank (the "Committee") will be appointed to
administer the plan. No director may serve as a member of the Committee if he
is eligible to participate in the Plan or was at any time within one year prior
to his appointment to the Committee eligible to participate in the Plan. The
Committee will have the power to determine the key employees to whom Awards
shall be made.
Each Award under the Incentive Plan will be made pursuant to a written
agreement between the Holding Company and the recipient of the Award (the
"Agreement"). In administering the Incentive Plan, the Committee will have the
authority to determine the terms and conditions upon which Awards may be made
and exercised, to determine terms and provisions of each Agreement, to construe
and interpret the Incentive Plan and the Agreements, to establish, amend or
waive rules or regulations for the Incentive Plan's administration, to
accelerate the exercisability of any Award, the end of any performance period
or termination of any period of restriction, and to make all other
determinations and take all other actions necessary or advisable for the
administration of the Incentive Plan.
Subject to the terms, conditions and limitations of the Incentive Plan,
the Committee may modify, extend or renew outstanding Awards, or, if authorized
by the Board of Directors, accept the surrender of outstanding Awards and
authorize new Awards in substitution therefor, including Awards with lower
exercise prices or longer terms than the surrendered Awards. The Board may
terminate, amend or modify the Incentive Plan from time to time in any respect
without shareholder approval, unless the particular amendment or modification
requires shareholder approval under the Internal Revenue Code of 1986, as
amended (the "Code"), the rules and regulations under Section 16 of the
Securities Exchange Act (the "Exchange Act") or pursuant to any other
applicable laws, rules or regulations.
The Incentive Plan will expire on February 12, 2008, unless sooner
terminated by the Board.
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<PAGE>
Eligibility
All employees of the Holding Company and its subsidiaries who are deemed
to be key employees ("Key Employees") by the Committee are eligible for Awards
under the Incentive Plan. Key Employees include officers or other employees of
the Holding Company and its subsidiaries who, in the opinion of the Committee,
can contribute significantly to the growth and profitability of, or perform
services of major importance to, the Holding Company and its subsidiaries.
Directors who are not also officers or employees of the Holding Company or its
subsidiaries are not eligible for Awards under the Plan.
Awards granted under the Incentive Plan may not be assigned, transferred,
pledged or otherwise encumbered by a participant, other than by will or the
laws of descent and distribution. Awards may be exercised during the
recipient's lifetime only by the recipient or, in the case of disability, by
the recipient's legal representative. Such Awards also are not exercisable
until at least six months after the grant of the Award. Subject to other
applicable restrictions, shares granted as Restricted Stock may not be
transferred or sold until at least six months after the grant of the Award.
Options
The Incentive Plan authorizes the grant of incentive stock options within
the meaning of Section 422 of the Code ("ISOs") and non-qualified stock options
("NQSOs") (collectively, "Options"). The Option terms applicable to such
Options will be determined by the Committee, but no Option will be exercisable
in any event until at least six months after its grant (except in cases of
death or disability) or after ten years from its grant. All Options granted as
ISOs shall comply with all applicable provisions of the Code and all other
applicable rules and regulations governing ISOs. All other Option terms will be
determined by the Committee in its sole discretion.
Tandem SARS
The Incentive Plan authorizes the grant of stock appreciation rights
granted in tandem with Options ("Tandem SARs").
A Tandem SAR may be exercised with respect to all or part of the shares
subject to the related Option, and entitles the holder, upon exercise, to
receive, without any payment to the Holding Company (other than required
withholding amounts), cash or Common Stock or a combination thereof equivalent
in value to the excess of the fair market value on the exercise date of the
shares of Common Stock represented by the Tandem SAR over the option exercise
price of the related Option.
A Tandem SAR may be exercised only when the current value of the Tandem
SAR exceeds the exercise price of the related Option. A Tandem SAR shall expire
no later than, and is exercisable and transferable subject to the conditions
of, the related Option. In no event may a Tandem SAR be exercised sooner than
six months from the date of grant (except in the case of death or disability).
If a Tandem SAR is exercised, it will reduce correspondingly the number of
shares of Common Stock represented by the related Option, and exercise of the
related Option will similarly reduce the number of shares represented by the
Tandem SAR. The Committee retains sole discretion to approve or disapprove an
optionee's election to receive cash to the extent required by Exchange Act Rule
16b-3 or the terms of the particular Agreement. When an optionee who is a
director or executive officer of the Holding Company subject to Section 16(a)
under the Exchange Act elects to receive cash upon exercise of a Tandem SAR and
the Committee consents thereto, such Tandem SAR will be deemed to have been
exercised on the date when the Common Stock has its highest fair market value
during the period specified in Rule 16b-3 in which the Tandem SAR is exercised.
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<PAGE>
Restricted Stock
The Incentive Plan permits the award of shares of restricted stock
("Restricted Stock"). However, no more than one-third of the shares authorized
to be issued under the Incentive Plan may be granted as Restricted Stock.
Restricted Stock may not be disposed of by the recipient until certain
restrictions established by the Committee lapse. Recipients of Restricted Stock
are not required to provide consideration other than the rendering of services.
The recipient shall have, with respect to the Restricted Stock, all the rights
of a stockholder of the Holding Company, including the right to vote the
shares, and the right to receive any cash dividends on the shares. Upon
termination of employment during the period of restriction for reasons other
than death, disability or retirement, all Restricted Stock will be forfeited
subject to such exceptions, if any, as are authorized by the Committee and set
forth in the Agreement. In all events other than death, or disability of the
recipient, the applicable period of restriction may not be less than six
months.
Shares Subject to the Incentive Plan
Up to 100,000 shares of Common Stock may be issued under the Incentive
Plan. Except as set forth below, shares of Common Stock issued in connection
with the exercise of, or as other payment for an Award will be charged against
the total number of shares issuable under the Incentive Plan. If any Award
granted (for which no material benefits of ownership have been received,
including dividends), with respect to a Tandem SAR, terminates, expires or
lapses for any reason other than as a result of being exercised (other than by
exercise of a related Option), or if shares issued (for which no material
benefits of ownership have been received, including dividends) pursuant to an
Award are forfeited, Common Stock subject to such Award will be available for
further Awards.
In order to reflect such events as stock dividends, stock splits,
recapitalizations, mergers, consolidations or reorganizations by the Holding
Company, the Committee will adjust the number of shares subject to each
outstanding Award, the exercise price and the aggregate number of shares from
which grants or awards may be made.
Change in Control
In order to maintain all the participants' rights in the event of a Change
in Control of the Holding Company (as that term is defined in the Incentive
Plan), the Committee, as constituted before such Change in Control, may take in
its sole discretion any one or more of the following actions either at the time
an Award is made or any time thereafter: (i) provide for the acceleration of
any time periods relating to the exercise or realization of any such Award so
that such Award may be exercised or realized in full on or before a date
initially fixed by the Committee; (ii) provide for the purchase or settlement
of any such Award by the Holding Company, upon the participant's request, for
an amount of cash equal to the amount which could have been obtained upon the
exercise of such Award or realization of such participant's rights had such
Award been currently exercisable or payable; (iii) make such adjustment to any
such Award then outstanding as the Committee deems appropriate to reflect such
Change in Control; or (iv) cause any such Award then outstanding to be assumed,
or new rights substituted therefor, by the acquiring or surviving corporation
in such Change in Control.
Certain Federal Income Tax Consequences
Incentive Stock Options. An optionee will not recognize income on the
grant of an ISO, and an optionee generally will not recognize income on the
exercise of an ISO, except as described in the following paragraph. Under these
circumstances, no deduction will be allowable to the Holding Company in
connection with either the grant of such Options or the issuance of shares upon
exercise thereof.
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<PAGE>
However, if the exercise of an ISO occurs more than three months after the
optionee ceased to be an employee for reasons other than death or disability
(or more than one year thereafter if the optionee ceased to be an employee by
reason of permanent and total disability), the exercise will not be treated as
the exercise of an ISO, and the optionee will be taxed in the same manner as on
the exercise of a NQSO, as described below. For the Option to qualify as an ISO
upon the optionee's death, the optionee must have been employed at the Holding
Company for at least three months before his or her death.
Gain or loss from the sale or exchange of shares acquired upon exercise of
an ISO generally will be treated as capital gain or loss. If, however, shares
acquired pursuant to the exercise of an ISO are disposed of within two years
after the Option was granted or within one year after the shares were
transferred pursuant to the exercise of the Option, the optionee generally will
recognize ordinary income at the time of the disposition equal to the excess
over the exercise price of the lesser of the amount realized or the fair market
value of the shares at the time of exercise (or, in certain circumstances, at
the time such shares became either transferable or not subject to a substantial
risk of forfeiture). The exercise of an ISO may result in a tax to the optionee
under the alternative minimum tax because as a general rule the excess of the
fair market value of stock received on the exercise of an ISO over the exercise
price is defined as an item of "tax preference" for purposes of determining
alternative minimum taxable income.
Non-qualified Options and Tandem SARs. A participant will not recognize
income on the grant of a NQSO or a Tandem SAR, but generally will recognize
income upon the exercise of a NQSO or a Tandem SAR. The amount of income
recognized upon the exercise of a NQSO will be measured by the excess, if any,
of the fair market value of the shares at the time of exercise over the
exercise price, provided that the shares issued are either transferable or not
subject to a substantial risk of forfeiture. The amount of income recognized
upon the exercise of a Tandem SAR will be equal to the amount of cash received
and the fair market value of any shares received at the time of exercise,
provided the shares issued are either transferable or not subject to a
substantial risk of forfeiture, plus the amount of any taxes withheld.
If shares received on the exercise of a NQSO or a Tandem SAR are
nontransferable and subject to a substantial risk of forfeiture then, unless
the optionee elects to recognize income at the time of receipt of such shares,
the optionee will not recognize ordinary income until the shares become either
transferable or are not subject to a substantial risk of forfeiture. For these
purposes, shares will be treated as nontransferable and subject to a
substantial risk of forfeiture for as long as the sale of the shares at a
profit could subject the optionee to suit under Section 16(b) of the Exchange
Act. In the circumstances described in this paragraph, the amount of income
recognized is measured with respect to the fair market value of the shares at
the time the income is recognized.
In the case of ordinary income recognized by an optionee as described
above in connection with the exercise of a NQSO or a Tandem SAR, the Holding
Company will be entitled to a deduction in the amount of ordinary income so
recognized by the optionee, provided the Holding Company satisfies certain
federal income tax withholding requirements.
Restricted Stock. A recipient of Restricted Stock is not required to
include the value of such shares in ordinary income until the first time his
rights in the shares are transferable or are not subject to a substantial risk
of forfeiture, whichever occurs earlier, unless he elects to be taxed on
receipt of the shares. With respect to Awards granted under the Incentive Plan
that are settled either in cash or in stock or other property that is either
transferable or not subject to substantial risk of forfeiture, the recipient
will recognize ordinary income at the time of receipt of the cash, stock or
other property. In the circumstances described in this paragraph, the amount of
such income will be equal to the amount of cash received, or
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<PAGE>
the excess of the fair market value of the shares or other property received at
the time the income is recognized over the amount (if any) paid for the shares
or other property. The Holding Company will be entitled to a deduction in the
amount of the ordinary income recognized by the recipient for the employer's
taxable year which includes the last day of the recipient's taxable year in
which he recognizes such income, provided the Holding Company satisfies certain
federal income tax withholding requirements.
General. The rules governing the tax treatment of Awards that may be
granted under the Incentive Plan are quite technical, so that the above
description of tax consequences is necessarily general in nature and does not
purport to be complete. Moreover, statutory provisions are, of course, subject
to change, as are their interpretations, and their application may vary in
individual circumstances.
Accounting Treatment
Under current accounting principles, neither the grant nor the exercise of
a stock option with an exercise price not less than the fair market value of
the Common Stock at the date of grant would require a charge against earnings.
The Tandem SARs will require a charge to earnings of the Holding Company
in an amount equal to the difference between the current market value of the
Common Stock and the exercise price. Depending upon the specific provisions of
any Restricted Stock granted, a charge to earnings representing the value of
the benefit conferred may be required. Under certain circumstances, this charge
may be spread over any period of restriction applicable to such an Award.
Effective Date
If approved by the shareholders, the Incentive Plan will be treated as
effective as of February 12, 1998.
Vote Required
The affirmative vote of the holders of a majority of the Common Stock
represented in person or by proxy voting at the Annual Meeting, assuming a
quorum is present, is required to ratify and approve the Incentive Plan.
The Board of Directors recommends that the stockholders vote FOR adoption
of the proposed Incentive Plan.
PROPOSAL THREE
RATIFICATION OF SELECTION OF ACCOUNTANTS
The Board of Directors has appointed Yount, Hyde & Barbour, P.C., as the
external auditors for the Holding Company and the Bank for the fiscal year
ending December 31, 1998. Yount, Hyde & Barbour, P.C. rendered audit services
to the Holding Company and Bank during 1997. These services consisted primarily
of the examination and audit of the financial statements of the Holding Company
and the Bank, tax reporting assistance, and other audit and accounting matters.
Representatives of Yount, Hyde & Barbour, P.C. will have the opportunity to
make a statement and to answer questions at the Annual Meeting if they desire
to do so. The Board of Directors recommends that the Stockholders vote FOR the
appointment of Yount, Hyde & Barbour, P.C.
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<PAGE>
1999 ANNUAL MEETING OF STOCKHOLDERS
The Board of Directors need not include an otherwise appropriate
Stockholder proposal in its proxy statement or form of proxy for that meeting
unless the proposal is received by the Holding Company at its main office on or
before December 15, 1998.
ANNUAL REPORTS TO STOCKHOLDERS
The Holding Company's Annual Report for the year ended December 31, 1997,
which includes audited financial statements of the Holding Company and the Bank
for the years 1997 and 1996 prepared in conformity with generally accepted
accounting principles, has been enclosed with this proxy. A copy of the Annual
Report will be sent to any Stockholder upon request. Requests for additional
copies of the Annual Report or a copy of the Holding Company's Annual Report on
Form 10-K (including exhibits) as filed with the Securities and Exchange
Commission for the year ended December 31, 1997, will be furnished without
change upon written request directed to Jeffrey W. Farrar, Secretary and Chief
Financial Officer, at 102 South Main Street, P. O. Box 71, Culpeper, Virginia
22701.
OTHER MATTERS
Management knows of no other business to be brought before the Annual
Meeting. Should any other business properly be presented for action at the
meeting, the shares represented by the enclosed proxy will be voted by the
persons named therein in accordance with their best judgment and in the best
interests of the Holding Company.
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<PAGE>
P R O X Y SECOND NATIONAL FINANCIAL CORPORATION
MANAGEMENT PROXY: Solicited on behalf of the Board of Directors
The undersigned Stockholder(s) of Second National Financial Corporation
(the "Holding Company") hereby appoints Harlean Smoot, W. Robert Jebson, Jr.,
and Marshall D. Gayheart, Jr., with full power to act alone and full power of
substitution to each, as proxies of the undersigned with authority to vote in
the name and on behalf of the undersigned at the Annual Meeting of Stockholders
of the Holding Company to be held at the Holiday Inn, Route 29 South, Culpeper,
Virginia, on Thursday, April 23, 1998, at 12:00 p.m., or at any adjournment
thereof, on the following matters:
1. To elect the 4 persons listed below to serve as directors of the Holding
Company. CUMULATIVE VOTING IS NOT PERMITTED.
INSTRUCTIONS: If you wish to grant authority to vote for all nominees or
against all nominees, place an "X" on the appropriate line. If you wish to
withhold your vote from one or more nominees, place a line through the
name(s).
[ ] For all Nominees ________ [ ] Against all Nominees ________
Lewis P. Armstrong Robert Y. Button, Jr.
Gregory L. Fisher Charles K. Gyory
2. To ratify the approval of the Second National Financial Corporation 1998
Incentive Stock Plan;
[ ] For ________ [ ] Against ________ [ ] Abstain _________
3. To ratify the selection of Yount, Hyde & Barbour, P.C. as external auditors
for the fiscal year ending December 31, 1998.
[ ] For ________ [ ] Against ________ [ ] Abstain _________
4. To transact such other business as may properly come before the meeting.
<PAGE>
When properly signed, this proxy will be voted in the manner directed by
the undersigned. If no direction is given, this proxy will be voted FOR items
(1) through (3).
By signing this proxy, the undersigned acknowledges that he or she has
received the Holding Company's Proxy Statement dated March 13, 1998.
Dated:_________________ Number of Shares_____________________
_____________________________________
Signature of Stockholder
_____________________________________
Signature of Stockholder
NOTE: Joint owners should each
sign. When signing as attorney,
executor, administrator, or
guardian, please give full
title as such. If signer is a
corporation, please sign with
the full corporate name by duly
authorized officers.
Number attending ___ the buffet
after the stockholders meeting
on April 23, 1998 at the
Holiday Inn.
