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:
<TABLE>
<CAPTION>
<S> <C>
[ ] Preliminary Proxy Statement [ ] Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
[ X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to Rule 14a-11(c)
or Rule 14a-12
</TABLE>
SOUTHERN FINANCIAL BANCORP, INC.
- -------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- -------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ X] No fee required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies:
...............................................................
(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:
...............................................................
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of Southern Financial Bancorp, Inc. (the "Company"), which will be held on April
24, 1997 at 3:00 p.m., at the Fauquier Springs Country Club, Springs Road,
Warrenton, Virginia 20186.
At the Meeting, three directors of the Company will be elected for a
term of three years. Shareholders also will vote on a proposal to amend the
Company's 1993 Stock Option and Incentive Plan. Whether or not you plan to
attend in person, it is important that your shares be represented at the
Meeting. Please complete, sign, date and return promptly the enclosed form of
proxy. If you later decide to attend the Meeting and vote in person, or if you
wish to revoke your proxy for any reason prior to the vote at the Meeting, you
may do so and your proxy will have no further effect.
The Board of Directors and management of the Company appreciate your
continued support and look forward to seeing you at the Annual Meeting.
Sincerely yours,
GEORGIA S. DERRICO
Chairman and
Chief Executive Officer
Warrenton, Virginia
March 17, 1997
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
37 E. Main Street
Warrenton, Virginia 20186
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
NOTICE IS HEREBY GIVEN that the Annual Meeting of the holders of shares
of Common Stock, par value $0.01 per share (the "Common Stock") of Southern
Financial Bancorp, Inc. (the "Company") will be held at the Fauquier Springs
Country Club, Springs Road, Warrenton, Virginia, on April 24, 1997 at 3:00 p.m.,
for the following purposes:
1. To elect three directors to serve on the Company's Board of
Directors for a term of three years, or until their successors
are elected and qualify;
2. To approve the designation by the Board of Directors of
Arthur Anderson, LLP as auditors for the fiscal year ending
December 31, 1997;
3. To approve an amendment to the Company's 1993 Stock Option and
Incentive Plan; and
4. To transact such other business as may properly come before
the meeting.
The Board of Directors has fixed the close of business on February 28,
1997 as the record date for the determination of shareholders entitled to notice
of, and to vote at, the Annual Meeting.
By Order of the Board of Directors
Lynette D. Ridgley,
Secretary
Warrenton, Virginia
March 17, 1997
- --------------------------------------------------------------------------------
YOU ARE CORDIALLY INVITED TO ATTEND THIS MEETING. IT IS IMPORTANT THAT YOUR
SHARES BE REPRESENTED REGARDLESS OF THE NUMBER THAT YOU OWN. EVEN IF YOU PLAN TO
BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY
PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING, YOU MAY VOTE
EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU IN
WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
- --------------------------------------------------------------------------------
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
-------------------
PROXY STATEMENT
-------------------
ANNUAL MEETING OF SHAREHOLDERS
April 24, 1997
GENERAL INFORMATION
This Proxy Statement is furnished to holders of common stock, $.01 par
value per share ("Common Stock"), of Southern Financial Bancorp, Inc. (the
"Company"), in connection with the solicitation of proxies by the Board of
Directors (the "Board") of the Company to be used at the Annual Meeting of
Shareholders to be held on April 24, 1997 at 3:00 p.m. at the Fauquier Springs
Country Club, Springs Road, Warrenton, Virginia and any adjournment thereof (the
"Annual Meeting").
The principal executive offices of the Company are located at 37 E.
Main Street, Warrenton, Virginia 20186, telephone (540) 349-3900. The
approximate date on which this Proxy Statement, the accompanying proxy card and
Annual Report to Shareholders (which is not part of the Company's soliciting
materials) are being mailed to the Company's shareholders is March 17, 1997. The
cost of soliciting proxies will be borne by the Company.
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained thereon. If no contrary instructions are given, each
proxy received will be voted "for" the proposals described herein. Any
shareholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing written notice thereof with Lynette D. Ridgley,
Secretary, Southern Financial Bancorp, Inc., 37 E. Main Street, Warrenton,
Virginia 20186; (ii) submitting a duly executed proxy bearing a later date; or
(iii) appearing at the Annual Meeting or at any adjournment thereof and giving
the Secretary notice of his or her intention to vote in person. Proxies
solicited hereby may be exercised only at the Annual Meeting and any adjournment
thereof and will not be used for any other meeting.
Only shareholders of record at the close of business on February 28,
1997 (the "Record Date") will be entitled to vote at the Annual Meeting. On the
Record Date, there were 1,594,122 shares of Common Stock issued and outstanding
and 274 record holders. Each share of Common Stock is entitled to one vote at
the Annual Meeting. The Company had 15,634 shares of preferred stock issued and
outstanding at the Record Date. Holders of preferred stock are not entitled to
notice of, or to vote at, the Annual Meeting.
As of the Record Date, directors and executive officers of the Company
and their affiliates, persons and entities as a group, owned beneficially a
total of 448,705 shares of Common Stock or approximately 25.69% of the shares of
Common Stock outstanding on such date. Directors and executive officers of the
Company have indicated an intention to vote their shares of Common Stock FOR the
election of the nominees set forth on the enclosed proxy.
<PAGE>
A shareholder may abstain or (only with respect to the election of
directors) withhold his or her vote (collectively, "abstentions") with respect
to each item submitted for shareholder approval. Abstentions will be counted for
purposes of determining the existence of a quorum. Abstentions will be counted
as not voting in favor of the relevant item. Since the election of directors is
determined by a plurality vote, abstentions will not affect such election.
A broker who holds shares in street name has the authority to vote on
certain items when it has not received instructions from the beneficial owner.
Except for certain items for which brokers are prohibited from exercising their
discretion, a broker is entitled to vote on matters put to shareholders without
instructions from the beneficial owner. Where brokers do not have or do not
exercise such discretion, the inability or failure to vote is referred to as a
broker non-vote. Under the circumstances where the broker is not permitted to or
does not exercise its discretion, assuming proper disclosure to the Company of
such inability to vote, broker non-votes will be counted for purposes of
determining the existence of a quorum, but also will be counted as not voting in
favor of the particular matter.
ELECTION OF DIRECTORS
The Articles of Incorporation of the Company provide that the Board
shall be divided into three classes as nearly equal in number as possible. The
members of each class are to be elected for a term of three years and until
their successors are elected and qualify. One class of directors is elected
annually. Three directors are to be elected at the 1997 Annual Meeting to serve
for a term of three years. The Board acts as a nominating committee for
selecting the nominees for election as directors. The nominating committee
delivers written nominations to the secretary of the Company at least twenty
days prior to the date of the Annual Meeting. The Board has no reason to believe
that any of the nominees will be unavailable. Four other directors have been
elected to terms that end either in 1998 or 1999, as indicated below.
The Company's Bylaws provide, however, that shareholders entitled to
vote for the election of directors may name nominees for election to the Board.
Under the Company's Bylaws, notice of a proposed nomination meeting
certain specified requirements must be received by the Company not less than 60
nor more than 90 days prior to any meeting of shareholders called for the
election of directors, provided in each case that, if fewer than 70 days' notice
of the meeting is given to shareholders, such written notice shall be received
not later than the close of the tenth day following the day on which notice of
the meeting was mailed to shareholders.
The Bylaws of the Company require that the shareholder's notice set
forth as to each nominee (i) the name, age, business address and residence
address of such nominee, (ii) the principal occupation or employment of such
nominee, (iii) the class and number of shares of the Company that are
beneficially owned by such nominee, and (iv) any other information relating to
such nominee that is required under federal securities laws to be disclosed in
solicitations of proxies for the election of directors, or is otherwise required
(including, without limitation, such nominee's written consent to being named in
a proxy statement as nominee and to serving as a director if elected). The
Bylaws of the Company further require that the shareholder's notice set forth as
to the shareholder giving the notice (i) the name and address of such
shareholder and (ii) the class and amount of such shareholder's beneficial
ownership of the Company's capital stock. If the information supplied by the
shareholder is deficient in any material aspect or if the foregoing procedure is
not followed, the chairman of the annual meeting may determine that such
shareholder's nomination should not be brought before the annual meeting and
that such nominee shall not be eligible for election as a director of the
Company.
-2-
<PAGE>
Unless authority is withheld in the proxy, each proxy executed and
returned by a shareholder will be voted for the election of the nominees listed
below. Proxies distributed in conjunction herewith may not be voted for persons
other than the nominees named thereon. If any person named as nominee should be
unable or unwilling to stand for election at the time of the Annual Meeting, the
proxy holders will nominate and vote for a replacement nominee or nominees
recommended by the Board. At this time, the Board knows no reason why any of the
nominees listed above may not be able to serve as a director if elected. The
proxy also confers discretionary authority upon the persons named therein, or
their substitutes, with respect to any other matter that may properly come
before the meeting.
In the election of directors, those receiving the greatest number of
votes will be elected even if they do not receive a majority. Abstentions and
broker non-votes will not be considered a vote for, or a vote against, a
director.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE NOMINEES BE ELECTED AS DIRECTORS.
<TABLE>
<CAPTION>
NOMINEES FOR ELECTION FOR TERM EXPIRING IN 2000
Year first
Name; Age; Principal Occupation for Past Five Years; elected as
and Directorships in Public Corporations Director
---------------------------------------- --------
<S> <C> <C>
Neil J. Call 63, Executive Vice President, MacKenzie Partners, Inc., a New 1986
York financial consulting company, since 1990; having served as
Executive Vice President, D.F. King & Co., Inc. from 1986 to
1990; and Executive Vice President, Finance, of Gulf and Western
Industries prior thereto.
David de Give 54, Senior Vice President of the Company since 1992; having been 1986
a cattle breeder and private investor from 1989 to 1992; having
served as President of Newmarket Capital Corp., a mortgage
company, from 1986 to 1989; and Vice President in charge of U.S.
Funding, Chemical Company, prior thereto.
R. Roderick Porter 51, Executive Vice President, FX Concepts, Ltd., an international 1986
money management firm, since January, 1994; having served as
Managing Director, West Capital, Inc., a real estate advising
firm from 1992 to 1994; Chairman, Newmarket Capital Corp., a
mortgage company; and Principal of Morgan Stanley prior thereto.
</TABLE>
-3-
<PAGE>
<TABLE>
<CAPTION>
INCUMBENT DIRECTORS SERVING FOR TERM EXPIRING IN 1999
Year first
elected as
Name; Age; Principal Occupation for Past Five Years; Director
and Directorships in Public Corporations
----------------------------------------
<S> <C> <C>
Virginia Jenkins 49, Owner, V. Jenkins Interiors and Antiques. 1988
Michael P. Rucker 56, Executive with Caterpillar, Inc., a manufacturing company; 1991
Chairman of the Board, George H. Rucker Realty Corp., a real
estate development company.
</TABLE>
<TABLE>
<CAPTION>
INCUMBENT DIRECTORS SERVING FOR TERM EXPIRING IN 1998
Year first
elected as
Name; Age; Principal Occupation for Past Five Years; Director
and Directorships in Public Corporations
----------------------------------------
<S> <C> <C>
Georgia S. Derrico 52, Chairman of the Board and Chief Executive Officer of the 1986
Company since 1986; having served as Senior Vice President, Chief
Administrative and Credit Officer, Multinational Division,
District Head of Chemical Bank.
John L. Marcellus, Jr. 74, Retired President and Chairman of the Board, Oneida, Ltd., a 1986
silverware manufacturing company. Other directorship: Kuhlman
Corporation.
</TABLE>
In 1996, each director attended at least 75% of the aggregate of (i)
the total number of meetings of the Board held and (ii) the total number of
meetings of all committees of the Board on which the director then served. Eight
meetings of the Board of the Company were held during 1996.
Committees of the Board
The Asset/Liability Management Committee has authority for policy
formulation and administration of the Company's asset liability/management
policies. The Asset/Liability Management Committee, which consists of Ms.
Derrico and Messrs. Porter (Chairman) and de Give, reports monthly to the Board
on the interest sensitivity of the Company, including an analysis of the
duration of the Company's assets, liabilities and contingent liabilities as well
as the mortgage pipeline and a calculation of the duration of the Company's
equity. The Asset/Liability Management Committee met six times during 1996.
The Credit Committee has authority and responsibility to oversee the
prudent operation of the Company's lending function, including the ongoing
qualitative review of the loan portfolio. The Credit Committee, which consists
of Ms. Derrico and Messrs. Call (Chairman) and Rucker, is responsible for
reviewing all loans and approving loans above a certain minimum amount, and for
insuring the
-4-
<PAGE>
development and maintenance of sound credit policies and procedures. The Credit
Committee met in person three times during 1996. The Credit Committee frequently
discusses credit issues by teleconference (see "Compensation of Directors").
The role of the Audit Committee is to assist the Board in fulfilling
its fiduciary responsibilities relating to corporate accounting and reporting
practices of the Company. The Audit Committee consists of Messrs. Call and
Marcellus (Chairman) and Ms. Jenkins and met two times during 1996.
The role of the Compensation Committee is to review the performance of,
and to establish the compensation for, the executive officers of the Company.
The Company's executive compensation programs are designed to retain and reward
executives based upon (i) their individual performance and ability to lead the
Company to achieving its goals and (ii) the Company's performance. The
Compensation Committee consists of Messrs. Call and Marcellus (Chairman) and Ms.
Jenkins and met one time during 1996.
Certain Relationships and Related Transactions
Georgia S. Derrico, Chairman and Chief Executive Officer and a director
of the Company, and R. Roderick Porter, a director of the Company, are married
to each other.
It is currently the Company's policy not to make loans to members of
its executive management. However, the following residential mortgage loan from
the Company to William H. Lagos, the Company's Senior Vice President and
Controller, currently is outstanding:
<TABLE>
<CAPTION>
Balance as of Interest Rate at
Name and Type Year Original Highest Balance December 31, December 31,
of Loan Made Loan Balance During 1996 1996 1996
------- ---- ------------ ----------- ---- ----
<S> <C> <C> <C> <C> <C>
One Year
Adjustable 1987 $138,000 $120,205 $117,242 5.625%
</TABLE>
STOCK OWNERSHIP
The following table lists any person (including any "group" as that
term is used in Section 13(d)(3) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")) who, to the knowledge of the Company, was the
beneficial owner of more than 5% of the outstanding voting shares of the
Company, as of January 31, 1996.
<TABLE>
<CAPTION>
Name and Address of Percent
Title of Class Beneficial Owners Number of Shares(1) of Class
- -------------- ----------------- ------------------- --------
<S> <C> <C> <C>
Common Stock Georgia S. Derrico(2) 179,110 (3) 10.61%
R. Roderick Porter
2954 Burrland Lane
The Plains, Virginia 20171
-5-
<PAGE>
Max C. Chapman 127,118 7.97%
Nomura Holding America
2 World Financial Center
Building B
New York, N.Y. 10281-1198
The Torray Fund 148,101 (4) 9.29%
Robert E. Torray
Robert E. Torray & Co.
6610 Rockledge Drive
Suite 450
Bethesda, Maryland 20817
Value Partners, Ltd. 117,289 (5) 7.36%
Fisher Ewing Partners
Richard W. Fisher
Timothy G. Ewing
2200 Ross Avenue
Suite 4600
West Dallas, Texas 75201
Rucker Realty Corp.(6) 110,878 (7) 6.94%
David S. Dodrill
Michael P. Rucker
Derek Rucker
Lucy Jones
Susan Jones Cooper(8)
Carleton R. Cooper
1355 Beverly Road
Suite 215
McLean, Virginia 22101
David Booth(9) 92,006 (10) 5.77%
Jane Garnett
24 Monroe Place #9A
Brooklyn, New York 11201
</TABLE>
- --------------------
(1) Except as otherwise indicated, includes shares held directly, as well
as shares held in retirement accounts or by certain family members or
corporations, over which the named individuals may be deemed to have
voting or investment powers.
(2) Georgia S. Derrico and R. Roderick Porter are married to each other.
(3) Includes (a) 65,167 shares owned individually by Ms. Derrico over
which she has sole voting and investment power and 89,763 shares that
Ms. Derrico may acquire pursuant to the exercise of stock options; and
(b) 20,141 shares of Common Stock and 4,039 shares of convertible
preferred stock owned individually by Mr. Porter over which he has
sole investment power. Ms. Derrico and Mr. Porter disclaim beneficial
ownership of each other's shares.
-6-
<PAGE>
(4) The Torray Fund, as managed by The Torray Corporation, beneficially
owns 103,736 shares. The Torray Corporation may be deemed to have sole
voting and investment power over all such shares. Robert E. Torray,
President of The Torray Corporation, may be deemed to have shared
voting and investment power over these shares. Robert E. Torray & Co.,
Inc. beneficially owns, on behalf of its clients, 44,365 shares. Mr.
Torray may be deemed to have sole voting and investment power over
33,880 of such shares.
(5) Value Partners, Ltd., as managed by Fisher Capital Management,
beneficially owns 117,289 shares. Fisher Ewing Partners may be deemed
to have sole voting and investment power over all such shares.
(6) David Dodrill and Susan Jones Cooper are officers of George H. Rucker
Realty Corp. ("Rucker Realty"); Michael Rucker, Derek Rucker and Lucy
Jones are shareholders of Rucker Realty; Michael Rucker is the
Chairman of Rucker Realty.
(7) Includes 5,773 shares of Common Stock and 991 shares of convertible
preferred stock owned by Michael Rucker, 3,933 shares of Common Stock
and 2,402 shares of convertible preferred stock owned by Derek Rucker,
8,378 shares owned by Lucy Jones, 5,025 shares owned by Susan Jones
Cooper, 7,257 shares owned by David Dodrill, 2,096 shares owned by or
in trust for Mr. Dodrill's children and 75,023 shares owned by Rucker
Realty and persons associated with Rucker Realty. The Company makes no
representation as to whether any of these persons, individually or in
any combination, share voting or investment power with any other or
with Rucker Realty with respect to their shares.
(8) Susan Jones Cooper and Carleton R. Cooper are married to each other.
(9) David Booth and Jane Garnett are married to each other.
(10) Includes 87,398 shares owned by Mr. Booth and 4,607 shares owned by
Ms. Garnett. The Company makes no representation as to whether Mr.
Booth and Ms. Garnett share voting or investment power with respect to
their shares.
-7-
<PAGE>
The following table sets forth as of January 31, 1997 the beneficial
ownership of Common Stock by all directors and nominees, each of the named
executive officers, and directors and executive officers of the Company as a
group. Unless otherwise indicated, each person listed below has sole voting and
investment power over all shares beneficially owned by such person.
<TABLE>
<CAPTION>
Number of Number of
Shares with Shares with
Sole Voting Shared Voting
and and
Investment Investment Total Number Percent of
Name of Beneficial Owner Power (6) Power of Shares Class
- ------------------------ --------- ----- --------- -----
<S> <C> <C> <C> <C>
R. Roderick Porter 24,180 154,930 179,110 (2) 10.61
Neil J. Call 39,662 -0- 39,662 (3) 2.49
David de Give 68,061 2,259 70,320 4.31
Georgia S. Derrico 154,930 24,180 179,110 (2) 10.61
John L. Marcellus 15,008 640 15,648 (4) --- (1)
Virginia Jenkins 2,263 -0- 2,263 --- (1)
Michael P. Rucker 6,764 104,114 110,878 (5) 6.94
William H. Lagos 30,290 534 30,824 1.92
Directors and Officers as a 341,158 286,657 448,705 25.69
Group (8 persons)
- --------------------
<FN>
(1) Mrs. Jenkins and Mr. Marcellus own less than 1% of Common Stock.
(2) Includes (a) 65,167 shares owned individually by Ms. Derrico over
which she has sole voting and investment power and 89,763 shares that
Ms. Derrico may acquire pursuant to the exercise of stock options; and
(b) 20,141 shares of Common Stock and 4,039 shares of convertible
preferred stock owned individually by Mr. Porter over which he has
sole investment power. Ms. Derrico and Mr. Porter disclaim beneficial
ownership of each other's shares.
(3) Includes 32,653 shares of Common Stock and 7,009 shares of convertible
preferred stock.
(4) Includes 13,427 shares of Common Stock and 2,221 shares of convertible
preferred stock.
(5) Includes 5,773 shares of Common Stock and 991 shares of convertible
preferred stock owned by Michael Rucker, 3,933 shares of Common Stock
and 2,402 shares of convertible preferred stock owned by Derek Rucker,
8,378 shares owned by Lucy Jones, 5,025 shares owned by Susan Jones
Cooper, 7,257 shares owned by David Dodrill, 2,096 shares owned by or
in trust for Mr. Dodrill's children and 75,023 shares owned by Rucker
Realty and persons associated with Rucker Realty. The Company makes no
-8-
<PAGE>
representation as to whether any of these persons, individually or in
any combination, share voting or investment power with any other or
with Rucker Realty with respect to their shares.
(6) The amounts in this column include shares of Common Stock with respect
to which certain persons have the right to acquire beneficial
ownership within sixty days after December 31, 1996, pursuant to the
Company's 1986 Stock Option and Incentive Plan, as amended in 1987,
and as superseded by the Company's 1993 Stock Option and Incentive
Plan: Mr. de Give: 37,403 shares; Ms. Derrico: 89,763 shares; Mr.
Lagos: 8,802 shares; and the directors and officers as a group:
135,968 shares.
</FN>
</TABLE>
COMPENSATION OF EXECUTIVE OFFICERS AND DIRECTORS
Summary Compensation
The following table presents information relating to total compensation
of the Chief Executive Officer and the other named executive officers of the
Company for the years ended December 31, 1996, 1995 and 1994.
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
Long-Term
Compen-
Annual Compensation sation
------------------- ------
Securities
Underlying
Name and Other Annual Options All Other
Principal Position Year Salary Bonus Compensation(1) (#) Compensation(2)
- ------------------ ---- ------ ----- --------------- --- ---------------
<S> <C> <C> <C> <C> <C> <C>
Georgia S. Derrico 1996 $175,000 $132,500 -- 22,003 $4,500
Chairman of the Board 1995 175,000 100,000 -- 14,667 4,500
and Chief Executive 1994 170,000 85,000 -- 14,667 4,492
Officer
David de Give 1996 $84,240 $25,000 -- 13,203 $3,240
Senior Vice President 1995 78,000 25,000 -- 8,800 2,641
1994 72,500 15,000 -- 8,800 1,850
William H. Lagos 1996(3) $51,875 $12,500 -- 8,802 $ 500
Senior Vice President 1995 105,000 25,000 -- 8,800 4,500
and Controller 1994 100,075 25,000 -- 8,800 3,235
</TABLE>
- --------------------
1 None of the named executive officers received Other Annual Compensation
in excess of the lesser of $50,000 or 10% of combined salary and bonus
for 1996.
2 The amounts set forth in this column constitute contributions to the
Company's 401(k) Plan.
3 Mr. Lagos did not work for the Company from June 1, 1996 through
November 30, 1996.
-9-
<PAGE>
Option Grants in Last Fiscal Year
The following table sets forth for the year ended December 31, 1996,
the grants of stock options to the named Executive Officers:
<TABLE>
<CAPTION>
OPTION GRANTS IN YEAR ENDED DECEMBER 31, 1996
Potential Realizable
Value at Assumed
Annual Rates of
Stock Price
Appreciation for
Individual Grants (a) Option Term
------------------------------------------------------------------- -----------
Percent of
Number of Total Options
Securities Granted to
Underlying Employees in Exercise of
Options Fiscal Year Base Price Expiration
Name Granted (#) (%) (b) ($/Share) Date 5% ($) 10% ($)
- ---- ----------- ------- --------- ---- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Georgia S. Derrico 16,502 33.32 13.64 1/25/06 141,587 358,754
5,501 12.73 7/25/06 44,063 111,615
David de Give 8,802 20.00 13.64 1/25/06 75,521 191,356
4,401 12.73 7/25/06 35,252 89,296
William H. Lagos 8,802 13.33 13.64 1/25/06 75,521 191,356
</TABLE>
- --------------------
(a) Stock options were awarded at the fair market value of the shares of
Common Stock at the date of award and are exercisable after January 25,
1998 and July 25, 1998.
(b) Options to purchase 56,111 shares of Common Stock were granted to
executive officers during the year ended December 31, 1996.
-10-
<PAGE>
Option Exercises in Last Fiscal Year
Set forth in the table below is information concerning each exercise of
stock option during the fiscal year ended December 31, 1996 by each of the named
executive officers and the year end value of unexercised options.
<TABLE>
<CAPTION>
AGGREGATED OPTION EXERCISES IN YEAR ENDED DECEMBER 31, 1996
AND FISCAL YEAR END OPTION VALUES
Number of
Securities Underlying Value of Unexercised
Unexercised Options In-The-Money Options
at December 31, 1996 (#)1 at December 31, 1996 ($)2
------------------------- -------------------------
Shares
Acquired on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
- ---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Georgia S. Derrico 22,026 218,939 67,760 22,003 276,704 4,236
David de Give -- -- 24,200 13,203 78,747 3,389
William H. Lagos 37,404 234,057 -- 8,802 -- --
</TABLE>
- --------------------
1 Each of these Options relates to Common Stock.
2 These values are based on $13.50, the closing price of Common Stock on
December 31, 1996.
Employment Agreements
The Company entered into an employment agreement with Ms. Derrico in
1985 for a term of three years with automatic one-year extensions commencing on
the first anniversary of the agreement. Annual salary reviews are performed by
the Compensation Committee. Mr. Porter, Ms. Derrico and Mr. de Give abstain from
voting on any compensation issue affecting Ms. Derrico.
If, during the term of the agreement, there is a change in control of
the Company and within six months thereafter Ms. Derrico's employment is (i)
involuntarily terminated or (ii) voluntarily terminated and such change of
control was at any time opposed by the Board, Ms. Derrico shall be entitled to
receive severance pay equal to 50% of her current compensation for each full
year of employment with the Company up to a maximum of 299% of the average of
such year's compensation and that of the four preceding calendar years. The term
"change in control" as used in the agreement shall refer to the acquisition of
25% or more of the voting securities of the Company by any person, or persons
acting as a group within the definition of Section 13(d) of the Exchange Act, or
to such acquisition of a percentage between 10% and 25% if the Board has made a
determination that such acquisition constitutes or will constitute control of
the Company.
-11-
<PAGE>
Compensation of Directors
Until July 1, 1995, each member of the Board who was not an employee of
the Company or any of its subsidiaries was paid (i) $400 for attendance at each
Board meeting and (ii) $100 for attendance at each meeting of a committee of the
Board of which he or she was a member. Directors are not compensated for
meetings conducted by teleconference. In addition, each director was paid an
annual fee of $1,000. Employee members of the Board are not paid separately for
their service on the Board or its committees.
Effective July 1, 1995, each nonemployee director was paid a fee of (i)
$500 for attendance at each Board meeting and (ii) $100 for attendance at each
meeting of a committee of the Board of which he or she is a member. In addition,
each director was paid an annual fee of $2,000.
Beginning in calendar year 1996, each such director is paid (i) $500
for attendance at each Board meeting and (ii) $150 for attendance at each
meeting of a committee of the Board of which he or she is a member. Effective
January 1, 1997, each such director shall be paid an annual fee of $3,000.
-12-
<PAGE>
APPROVAL OF AN AMENDMENT TO
1993 STOCK OPTION AND INCENTIVE PLAN
Introduction
On August 18, 1993, the Board of the Company approved the 1993 Stock
Option and Incentive Plan (the "Stock Option Plan"), which was submitted to and
approved by the shareholders on September 29, 1993.
The Stock Option Plan is intended to provide a means for selected key
employees of the Company to increase their personal financial interest in the
Company, thereby stimulating the efforts of these employees and strengthening
their desire to remain with the Company. References to the "Company" in this
section will include any subsidiary corporation.
The principal features of the Stock Option Plan, as amended, are
summarized below. The summary is qualified by reference to the complete text of
the Stock Option Plan, as amended, which is attached as Exhibit A.
General
The Stock Option Plan initially authorized the issuance of up to
100,000 shares of Common Stock to assist the Company in recruiting and retaining
key management personnel. On January 30, 1995, the Company effected a
four-for-three stock split, and on August 16, 1995 and August 16, 1996, the
Company effected 10% stock dividends. Accounting for these adjustments, of the
161,000 shares authorized under the Stock Option Plan, options to purchase
158,113 shares have been granted and 2,887 shares remain available for grants
and awards under the Stock Option Plan. The Stock Option Plan, as amended,
reserves 261,000 shares. At January 31, 1997 the market value of the 100,000
additional shares that will be issuable under the Stock Option Plan, as amended,
was $1,375,000. Except for increasing the number of shares issuable, the Stock
Option Plan has not been amended. The benefits receivable by employees of the
Company under the Stock Option Plan, as amended, are not determinable. For the
year ended December 31, 1996, 66,029 Options were granted under the Stock Option
Plan. Individual grants to the named executive officers are shown in the Summary
Compensation Table.
The Stock Option Plan will permit the award of shares of Restricted
Stock, Incentive Stock Options and Non-Qualified Stock Options to eligible
officers and key employees upon such terms as the Stock Option Committee (the
"Committee") of the Board may determine, consistent with the terms of the Stock
Option Plan.
Administration
The Stock Option Plan is administered by the Committee, which shall be
composed of three or more disinterested directors. The members of the Committee
are ineligible to receive awards under the Stock Option Plan. The Committee has
the sole discretion, subject to certain limitations, to interpret the Stock
Option Plan; to select Stock Option Plan participants; to determine the type,
size, terms and conditions of awards under the Stock Option Plan; to authorize
the grant of such awards; and to adopt, amend and rescind rules relating to the
Stock Option Plan. All determinations of the Committee are conclusive. All
expenses of administering the Stock Option Plan will be borne by the Company.
-13-
<PAGE>
Eligibility
Any officer or employee of the Company or its subsidiaries who, in the
judgment of the Committee, has contributed significantly or can be expected to
contribute significantly to the profits or growth of the Company or a subsidiary
is eligible to participate in the Stock Option Plan. Directors of the Company
who are employees may also participate in the Stock Option Plan.
Individual Agreements
The Committee has broad authority to fix the terms and conditions of
the individual agreements with participants. All awards granted under the Plan
are intended to comply with the applicable requirements of Rule 16b-3
promulgated under the Exchange Act, which exempts grants and awards under
qualifying employee benefit plans from certain "short-swing" profit recovery
provisions of the Exchange Act.
Shares Available
Subject to the provisions of the Stock Option Plan providing for
proportional adjustments in the event of various changes in the capitalization
of the Company, no more than 261,000 shares of authorized but unissued Common
Stock may be issued pursuant to the Stock Option Plan. Under the Stock Option
Plan, options to purchase 158,113 shares of Common Stock have been granted. Any
shares of Common Stock subject to an Incentive Stock Option or Non-Qualified
Stock Option that are not issued prior to the expiration of such awards, or any
Restricted Stock award that is forfeited, will again be available for award
under the Stock Option Plan.
Incentive Stock Options and Non-Qualified Stock Options ("Options")
The Committee may authorize the grant of either Incentive Stock Options
("ISOs"), as defined under Section 422 of the Internal Revenue Code of 1986, as
amended, or Non-Qualified Stock Options ("NQSOs"), which are subject to certain
terms and conditions including the following: (1) the option price per share
will be determined by the Committee but for ISOs will not, in any event, be less
than 100 percent of the fair market value of Common Stock on the date that the
Option is granted; (2) the term of the Option will be fixed by the Committee,
but the maximum period in which an ISO may be exercised shall not, in any event,
exceed ten years from the date the ISO is granted; (3) Options will not be
transferable other than by will or the laws of descent and distribution; (4) the
purchase price of Common Stock issued upon exercise of an Option will be paid in
full to the Company at the time of the exercise of the Option in cash, or at the
discretion of the Committee, by surrender to the Company of previously acquired
shares of Common Stock, which will be valued at the fair market value of such
shares on the date preceding the date the Option is exercised; (5) an Option may
expire upon termination of employment or within a specified period of time after
termination of employment as provided by the Committee; (6) the aggregate fair
market value (determined on the date of grant) of the shares of Common Stock
with respect to which ISOs are exercisable for the first time by any individual
during any calendar year shall not exceed $100,000; and (7) the Committee may
elect to cash out all or part of the portion of any Option to be exercised by a
participant by payment in cash or Common Stock of an amount determined in
accordance with the Plan.
Restricted Stock
The Committee may authorize the award of Restricted Stock to a
participant. In the case of Restricted Stock, the Committee may prescribe that
the participant's rights in the Restricted Stock shall be forfeited or otherwise
restricted for a period of time set by the Committee and/or until certain
financial
-14-
<PAGE>
performance objectives are satisfied as determined by the Committee in its sole
discretion. During the period of restriction, a participant will be entitled to
beneficial ownership of the Restricted Stock, including the right to receive
dividends, warrants and rights and the right to vote the shares, but will not be
entitled to certificates representing the Restricted Stock or to sell, transfer,
assign, pledge or otherwise dispose of the shares.
Change of Control
At the discretion of the Committee, in the event of a Change in
Control, any outstanding Option may become fully exercisable and vested to the
full extent of the original grant and any restrictions applicable to Restricted
Stock outstanding on the date of a Change in Control shall lapse, such that the
Restricted Stock becomes free of all restrictions and fully vested, nonforfeited
and transferable to the full extent of the original grant. The Committee may
also provide that under such circumstances a participant may elect to receive,
in exchange for shares that were Restricted Stock, a cash payment equal to the
fair market value of the shares surrendered. Under the Stock Option Plan, a
"Change of Control" shall be deemed to have taken place if: (i) a third person,
including a "group" as defined in Section 13(d)(3) of the Exchange Act becomes
the beneficial owner of shares of Common Stock having 20% or more of the total
number of votes that may be cast for the election of directors of the Company,
or (ii) as the result of, or in connection with, any cash or exchange offer,
merger or other business combination, sale of assets or contested election, or
any combination of the foregoing transactions (a "Transaction"), the persons who
were Directors of the Company before the Transaction shall cease to constitute a
majority of the Board of the Company or any successor to the Company.
Amendment or Termination
The Board may amend or terminate the Stock Option Plan; however, no
amendment may become effective until shareholder approval is obtained if the
amendment (i) materially increases the aggregate number of shares that may be
issued pursuant to Options and Restricted Stock awards, (ii) materially
increases the benefits to participants under the Stock Option Plan, or (iii)
materially changes the requirements as to eligibility for participation in the
Stock Option Plan. No amendment shall, without a participant's consent,
adversely affect any rights of such participant under any Option or Restricted
Stock award outstanding at the time that such amendment is made. No amendment
shall be made if it would disqualify the Stock Option Plan from the exemption
provided by Rule 16b-3.
Duration of Plan
No Option or Restricted Stock award may be granted under this Plan
after September 29, 2003. Options and Restricted Stock awards granted before
September 29, 2003, shall remain valid in accordance with their terms.
Tax Status
Under current Federal income tax laws, the principal Federal tax
consequences to participants and to the Company of the grant and exercise of
Incentive Stock Options and Non-Qualified Stock Options or the award of
Restricted Stock and the lapse of restriction thereon, pursuant to the
provisions of the Stock Option Plan, are summarized below.
1. Incentive Stock Options. No income results to a participant upon the
grant or exercise of an Incentive Stock Option, provided that (1) there is no
disqualifying disposition of option stock within two years after grant of the
Option or one year after the transfer of such option stock to the participant;
and (2)
-15-
<PAGE>
the participant is an employee of the Company or a subsidiary at all times
during the period commencing on the date of grant and ending on the date three
months (or 12 months in the case of a participant who is totally and permanently
disabled) prior to the date of exercise. In the event of a disposition of option
stock following the expiration of two years after the grant of the Option and
one year after the transfer of such stock to the participant, any gain or loss,
equal to the difference between the amount realized upon such disposition and
the option price, generally will be taxable as long-term capital gain or loss.
In the event of a disqualifying disposition of option stock prior to the
expiration of the two or one year holding periods, the participant will
recognize ordinary income equal to the excess of the lesser of (i) the fair
market value of the option stock at the time of exercise or (ii) the amount
realized upon the disqualifying disposition, over the option price. If the
amount realized upon the disqualifying disposition exceeds the fair market value
of the option stock at the time of exercise, the excess will be taxable as
short-term capital gain. If the amount realized upon the disqualifying
disposition is less than the option price, the participant will not recognize
ordinary income but will recognize a short-term capital loss equal to the excess
of the option price over the amount realized. Gain realized upon the exercise of
an Incentive Stock Option will also be taken into account in computing the
participant's liability for the alternative minimum tax.
No deduction is allowable to the Company upon the grant or exercise of
an Incentive Stock Option. In the event that a participant recognizes ordinary
income as a result of a disqualifying disposition of the option stock, the
Company generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the participant.
2. Non-Qualified Stock Options. No income is recognized upon the grant
of a Non-Qualified Stock Option to a participant assuming that the Option does
not have a readily ascertainable fair market value at the time of the grant. The
participant recognizes ordinary income upon exercise of the Non-Qualified Stock
Option equal to the excess of the fair market value of the option stock on the
date of exercise over the option price. If the participant is subject to the
provisions of Section 16(b) of the Exchange Act, recognition of income upon
exercise and receipt of Common Stock may be postponed until any applicable
Section 16(b) holding periods or restrictions have lapsed, unless the
participant elects to be taxed at the date of exercise. The Company is allowed a
corresponding tax deduction at the time that ordinary income is recognized by
the participant.
3. Restricted Stock. A participant generally will not recognize taxable
income upon the award of Restricted Stock. Instead, ordinary income is
recognized at the time the restrictions lapse equal to the fair market value of
the Restricted Stock on that date. If the participant is also subject to the
provisions of Section 16(b) of the Exchange Act, recognition of income upon the
lapse of restrictions on the Restricted Stock may be further postponed until any
applicable Section 16(b) holdings periods or restrictions have lapsed. A
participant, however, may elect to be taxed at the time of the award of
Restricted Stock and, if this election is made, the participant will recognize
ordinary income equal to the fair market value of such stock at the time of the
award determined without regard to any of the restrictions thereon.
The Company will generally be entitled to a corresponding tax deduction
at the time that the participant recognizes ordinary income with respect to the
Restricted Stock.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF THE
AMENDMENT TO THE 1993 STOCK OPTION AND INCENTIVE PLAN. AN AFFIRMATIVE VOTE OF A
MAJORITY OF THE SHARES PRESENT IN PERSON OR REPRESENTED BY PROXY AT THE ANNUAL
MEETING IS REQUIRED FOR APPROVAL OF THIS PROPOSAL.
-16-
<PAGE>
DESIGNATION OF AUDITORS
The Board has designated Arthur Anderson LLP, Certified Public
Accountants, as the Company's independent auditors for the fiscal year ending
December 31, 1997, subject to shareholder approval. This firm audited the
Company's financial statements for the fiscal year ended June 30, 1995, the six
month period ended December 31, 1995, and the year ended December 31, 1996. A
representative of Arthur Anderson is expected to be present at the Annual
Meeting, will have the opportunity to make a statement if he or she desires to
do so, and is expected to be available to respond to appropriate questions.
The principal function of Arthur Anderson LLP is to audit the
consolidated financial statements of the Company and its subsidiaries and, in
connection with that audit, to review certain related filings with the
Securities and Exchange Commission and to conduct limited reviews of the
financial statements included in each of the Company's quarterly reports.
The Company's financial statements have previously been audited by
Price Waterhouse, Certified Public Accountants, for the fiscal years ending June
30, 1986 through 1994. On October 27, 1994, Price Waterhouse resigned as
independent auditors for the Company. Price Waterhouse's reports on the
Company's financial statements for the last two years of Price Waterhouse's
engagement contained no adverse opinion or a disclaimer of opinion, and were not
qualified or modified as to uncertainty, audit scope, or accounting principles.
For the Company's last two fiscal years and any interim periods preceding Price
Waterhouse's resignation, there were no disagreements with Price Waterhouse on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of Price Waterhouse, would have caused it to make a
reference to the subject matter of the disagreement in connection with its
report.
The Company engaged the services of Arthur Anderson LLP as its new
independent accountants as of January 19, 1995. During the two most recent
fiscal years and the interim period prior to January 19, 1995, the Company did
not consult with Arthur Anderson LLP on items which (i) were or should have been
subject to SAS 50 or (ii) concern the subject matter of a disagreement or
reportable event with the former auditor as described in Item 304(a)(2) of
Regulation S-K under the Exchange Act.
FINANCIAL STATEMENTS
A copy of the Company's Annual Report on Form 10-K for the period ended
December 31, 1996, to be filed with the Securities and Exchange Commission, will
be provided on written request without charge to any shareholder whose proxy is
being solicited by the Board. The written request should be directed to:
Lynette D. Ridgley
Shareholder Relations
Southern Financial Bancorp, Inc.
37 E. Main Street
Warrenton, Virginia 20186
-17-
<PAGE>
PROPOSALS FOR 1998 ANNUAL MEETING
Any shareholder desiring to make a proposal to be acted upon at the
1998 annual meeting of shareholders must present such proposal to the Company at
its principal office at 37 E. Main Street, Warrenton, Virginia, not later than
November 17, 1997, in order for the proposal to be considered for inclusion in
the Company's proxy statement. The Company anticipates holding the 1998 annual
meeting on April 23, 1998.
OTHER MATTERS
The Board is not aware of any matters to be presented for action at the
meeting other than as set forth herein. However, if any other matters properly
come before the meeting, or any adjournment thereof, the person or persons
voting the proxies will vote them in accordance with their best judgment.
By Order of the Board of Directors
Lynette D. Ridgley, Secretary
-18-
<PAGE>
Exhibit A
SOUTHERN FINANCIAL BANCORP, INC.
1993 STOCK OPTION AND INCENTIVE PLAN
(as amended)
1. Plan Purpose. The purpose of the Plan is to promote the
long-term interests of the Institution and its stockholders by providing a means
for attracting and retaining officers and key employees of the Institution and
its Affiliates. It is intended that designated Options granted pursuant to the
provisions of this Plan to persons employed on a full-time basis will qualify as
Incentive Stock Options. Options granted to persons who are not full-time
employees will be Non-Qualified Stock Options.
2. Definitions. The following definitions are applicable to the
Plan:
(a) "Affiliate" -- means any "parent corporation"
or "subsidiary corporation" of the Institution as such terms are defined in
Section 424(e) and (f), respectively, of the Code.
(b) "Award" -- means the grant by the Committee
of an Incentive Stock Option, a Non-Qualified Stock Option, or Restricted Stock,
or any combination thereof, as provided in the Plan.
(c) "Code" -- means the Internal Revenue Code of 1986, as
amended.
(d) "Committee" -- means the Committee referred to in
Section 3 hereof.
(e) "Continuous Service" -- means the absence of
any interruption or termination of service as an officer or employee of the
Institution or an Affiliate, except that when used with respect to persons
granted an Incentive Stock Option shall mean the absence of any interruption or
termination of service as a full-time employee of the Institution or an
Affiliate. Service shall not be considered interrupted in the case of sick
leave, military leave or any other leave of absence approved by the Institution
or in the case of transfers between payroll locations of the Institution or
between payroll locations of the Institution, its parent, its subsidiaries or
its successor.
(f) "Disinterested Person" -- means any person who, at
the time discretion under the Plan is exercised, is not eligible, and who has
not at any time within one year prior thereto been eligible, for selection as a
Participant in the Plan or as a person to whom stock may be allocated or to whom
stock options or stock appreciation rights may be granted pursuant to any other
A-1
<PAGE>
plan of the Institution or any of its affiliates (as that term is used in the
Securities Exchange Act of 1934) entitling the participants therein to acquire
stock, stock options or stock appreciation rights of the Institution or of any
such affiliates.
(g) "Employee" -- means any person, including an
Officer, who is employed by the Institution or any Affiliate.
(h) "Exercise Price" -- means the price per Share at
which the Shares subject to an Option may be purchased upon exercise of such
Option.
(i) "Incentive Stock Option" -- means an option to
purchase Shares granted by the Committee pursuant to Section 6 hereof which is
subject to the limitations and restrictions of Section 8 hereof and is intended
to qualify under Section 422 of the Code.
(j) "Institution" -- means Southern Financial Bancorp,
Inc., a Virginia corporation.
(k) "Market Value" -- means the average of the high and
low quoted sales price on the date in question (or, if there is no reported sale
on such date, on the last preceding date on which any reported sale occurred) of
a Share on the Composite Tape for the New York Stock Exchange-Listed Stocks, or,
if on such date the Shares are not quoted on the Composite Tape, on the New York
Stock Exchange, or, if the Shares are not listed or admitted to trading on such
Exchange, on the principal United States securities exchange registered under
the Securities Exchange Act of 1934 on which the Shares are listed or admitted
to trading, or, if the Shares are not listed or admitted to trading on any such
exchange, the mean between the closing high bid and low asked quotations with
respect to a Share on such date on the National Association of Securities
Dealers, Inc., Automated Quotations System, or any similar system then in use,
or, if no such quotations are available, the fair market value on such date of a
Share as the Committee shall determine.
(l) "Non-Qualified Stock Option" -- means an option
to purchase Shares granted by the Committee pursuant to Section 6 hereof, which
option is not intended to qualify under Section 422 of the Code.
(m) "Option" -- means an Incentive Stock Option or a
Non-Qualified Stock Option.
(n) "Participant" -- means any officer or key employee
of the Institution or any Affiliate who is selected by the Committee to receive
an Award.
(o) "Plan" -- means the 1993 Stock Option and Incentive
Plan of the Institution.
A-2
<PAGE>
(p) "Restricted Period" -- means the period of time
selected by the Committee for the purpose of determining when restrictions are
in effect under Section 9 hereof with respect to Restricted Stock awarded under
the Plan.
(q) "Restricted Stock" -- means Shares which have
been contingently awarded to a Participant by the Committee subject to the
restrictions referred to in Section 9 hereof, so long as such restrictions are
in effect.
(r) "Shares" -- means the shares of capital stock,
par value $0.01 per share, of the Institution.
3. Administration. The Plan shall be administered by a
Committee consisting of three or more members, each of whom shall be a
Disinterested Person. The members of the Committee shall be appointed by the
Board of Directors of the Institution. Except as limited by the express
provisions of the Plan, the Committee shall have sole and complete authority and
discretion to (i) select Participants and grant Awards; (ii) determine the
number of Shares to be subject to types of Awards generally, as well as to
individual Awards granted under the Plan; (iii) determine the terms and
conditions upon which Awards shall be granted under the Plan; (iv) prescribe the
form and terms of instruments evidencing such grants; and (v) establish from
time to time regulations for the administration of the Plan; interpret the Plan,
and make all determinations deemed necessary or advisable or the administration
of the Plan. The Committee may maintain, and update from time to time as
appropriate, a list designating selected directors, officers and employees as
Disinterested Persons. The purpose of such list shall be to evidence the status
of such individuals as Disinterested Persons, and the Board of Directors may
appoint to the Committee any individual actually qualifying as a Disinterested
Person, regardless of whether identified as such on said list.
A majority of the Committee shall constitute a quorum, and the acts of
a majority of the members present at any meeting at which a quorum is present,
or acts approved in writing by a majority of the Committee without a meeting,
shall be acts of the Committee.
4. Participants. The Committee may select from time to
time Participants in the Plan from those officers and key employees (other than
Disinterested Persons), of the Institution or its Affiliates who, in the opinion
of the Committee, have the capacity for contributing in a substantial measure to
the successful performance of the Institution or its Affiliates.
5. Shares Subject to Plan. Subject to adjustment by the
operation of Section 10 hereof, the maximum number of Shares with respect to
which Awards may be made under the Plan is 261,000. The Shares with respect to
which Awards may be made under the Plan may either be authorized and unissued
shares or unissued
A-3
<PAGE>
shares heretofore or hereafter reacquired and held as treasury shares. An Award
shall not be considered to have been made under the Plan with respect to any
Option which terminates or with respect to Restricted Stock which is forfeited,
and new Awards may be granted under the Plan with respect to the number of
Shares as to which such termination or forfeiture has occurred.
6. General Terms and Conditions of Options. The Committee shall
have full and complete authority and discretion, except as expressly limited by
the Plan, to grant Options and to provide the terms and conditions (which need
not be identical among Participants) thereof. In particular, the Committee shall
prescribe the following terms and conditions: (i) the Exercise Price of any
Option, which shall not be less than the Market Value per Share at the date of
grant of such Option, (ii) the number of Shares subject to, and the expiration
date of, any Option, which expiration date shall not exceed ten years from the
date of grant, (iii) the manner, time and rate (cumulative or otherwise) of
exercise of such Option, provided, however, that except as otherwise specified
in the Plan, no Option shall be exercisable prior to the expiration of one year
from the date of grant, and (iv) the restrictions, if any, to be placed upon
such Option or upon Shares which may be issued upon exercise of such Option. The
Committee may, as a condition of granting any Option, require that a Participant
agree not to thereafter exercise one or more Options previously granted to such
Participant.
7. Exercise of Options.
(a) An Option granted under the Plan shall be
exercisable during the lifetime of the Participant to whom such Option was
granted only by such Participant, and except as provided in paragraphs (c) and
(d) of this Section 7, no such Option may be exercised unless at the time such
Participant exercises such Option, such Participant has maintained Continuous
Service since the date of grant of such Option.
(b) To exercise an Option under the Plan, the Participant
to whom such Option was granted shall give written notice to the Institution in
form satisfactory to the Committee (and, if partial exercises have been
permitted by the Committee, by specifying the number of Shares with respect to
which such Participant elects to exercise such Option) together with full
payment of the Exercise Price, if any and to the extent required. The date of
exercise shall be the date on which such notice is received by the Institution.
Payment, if any is required, shall be made either (i) in cash (including check,
bank draft or money order) or (ii) if permitted by the Committee, by delivering
(A) Shares already owned by the Participant and having a fair market value equal
to the applicable exercise price, such fair market value to be determined in
such appropriate manner as may be provided by the Committee or as may be
required in order to
A-4
<PAGE>
comply with or to conform to requirements of any applicable laws or regulations,
or (B) a combination of cash and such Shares.
(c) If a Participant to whom an Option was granted shall
cease to maintain Continuous Service for any reason (including total and partial
disability and normal and early retirement, but excluding death and termination
of employment by the Institution or any Affiliate for cause) such Participant
may but only within the period of three months immediately succeeding such
cessation of Continuous Service and in no event after expiration date of such
Option, exercise such Option to the extent that such Participant was entitled to
exercise such Option at the date of such cessation, provided, however, that such
right of exercise after cessation of Continuous Service shall not be available
to a Participant if the Committee otherwise determines and so provides in the
applicable instrument or instruments evidencing the grant of such Option. If the
Continuous Service of a Participant to whom an Option was granted by the
Institution is terminated for cause, all rights under any Option of such
Participant shall expire immediately upon the giving to the Participant of
notice of such termination.
(d) In the event of the death of a Participant while in
the Continuous Service of the Institution or an Affiliate or within the three
month period referred to in paragraph (c) of this Section 7, the person to whom
any Option held by the Participant at the time of his death is transferred by
will or by the laws of descent and distribution may exercise such Option or
right at any time within a period of one year succeeding the date of death of
such Participant, but only to the extent such Participant was entitled to
exercise such Option immediately prior to his death and in no event later than
ten years from the date of grant of such Option. Following the death of any
Participant to whom an Option was granted under the Plan, the Committee may, as
an alternative means of settlement of such Option, elect to pay to the person to
whom such Option is transferred by will or by the laws of descent and
distribution the amount by which the Market Value per Share on the date of
exercise of such Option shall exceed the Exercise Price of such Option,
multiplied by the number of Shares with respect to which such Option is properly
exercised. Any such settlement of an Option shall be considered an exercise of
such Option for all purposes of the Plan.
8. Incentive Stock Options. Incentive Stock Options may be
granted only to Participants who are Employees. Any provision of the Plan to the
contrary notwithstanding, (i) no Incentive Stock Option shall be granted more
than ten years from the date the Plan is adopted by the Board of Directors of
the Institution and no Incentive Stock Option shall be exercisable more than ten
years from the date such Incentive Stock Option is granted, (ii) the Exercise
Price of any Incentive Stock Option shall not be less than the Market Value per
Share on the date such Incentive Stock Option is granted, (iii) any Incentive
Stock Option shall
A-5
<PAGE>
not be transferable by the Participant to whom such Incentive Stock Option is
granted other than by will or the laws of descent and distribution and shall be
exercisable during such Participant's lifetime only by such Participant, (iv) no
Incentive Stock Option shall be granted to any individual who, at the time such
Incentive Stock Option is granted, owns stock possessing more than ten percent
of the total combined voting power of all classes of stock of the Institution or
Affiliate unless the Exercise Price of such Incentive Stock Option is at least
110 percent of the Market Value per Share at the date of grant and such
Incentive Stock Option is not exercisable after the expiration of five years
from the date such Incentive Stock Option is granted, and (v) the aggregate
Market Value (determined as of the time any Incentive Stock Option is granted)
of the Shares with respect to which Incentive Stock Options are exercisable for
the first time by a Participant in any calendar year shall not exceed $100,000.
9. Terms and Conditions of Restricted Stock. The Committee
shall have full and complete authority, subject to the limitations of the Plan,
to grant awards of Restricted Stock and, in addition to the terms and conditions
contained in paragraphs (a) through (f) of this Section 9, to provide such other
terms and conditions (which need not be identical among Participants) in respect
of such Awards, and the vesting thereof, as the Committee shall determine and
provide in the agreement referred to in paragraph (d) of this Section 9.
(a) At the time of an award of Restricted Stock, the
Committee shall establish for each Participant a Restricted Period during which
or at the expiration of which, as the Committee shall determine and provide, in
the agreement referred to in paragraph (d) of this Section 9, the shares awarded
and Restricted Stock shall vest and subject to any other terms and conditions as
the Committee shall provide shares of Restricted Stock may not be sold,
assigned, transferred, pledged or otherwise encumbered by the Participant,
except as hereinafter provided, during the Restricted Period. Except for such
restrictions, and subject to paragraphs (c), (d) and (e) of this Section 9 and
Section 10 hereof, the Participant as owner of such shares shall have all the
rights of a stockholder including but not limited to the right to receive all
dividends paid on such shares and the right to vote such shares. The Committee
shall have the authority, in its discretion, to accelerate the time at which any
or all of the restrictions shall lapse with respect to any shares of Restricted
Stock prior to the expiration of the Restricted Period with respect thereto, or
to remove any or all of such restrictions, whenever it may determine that such
action is appropriate by reason of changes in applicable tax or other laws or
other changes in circumstances occurring after the commencement of such
Restricted Period.
(b) Except as provided in Section 12 hereof, if a
Participant ceases to maintain Continuous Service for any reason
A-6
<PAGE>
(other than death, total or partial disability or normal or early retirement)
unless the Committee shall otherwise determine and provide in the agreement
referred to in paragraph (d) of this Section 9, all shares of Restricted Stock
theretofore awarded to such Participant and which at the time of such
termination of Continuous Service are subject to the restrictions imposed by
paragraph (a) of this Section 9 shall upon such termination of Continuous
Service be forfeited and returned to the Institution. Unless the Committee shall
have provided in the agreement referred to in paragraph (d) of this Section 9
for a ratable lapse of restrictions with respect to an award of shares of
Restricted Stock during the Restricted Period, if a Participant ceases to
maintain Continuous Service by reason of death, total or partial disability or
normal or early retirement, such portion of such shares of Restricted Stock
awarded to such Participant which at the time of such termination of Continuous
Service are subject to the restrictions imposed by paragraph (a) of this Section
9 as shall be equal to the portion of the Restricted Period with respect to such
shares which shall have elapsed at the time of such termination of Continuous
Service shall be free of restrictions and shall not be forfeited.
(c) Each certificate issued in respect of shares of
Restricted Stock awarded under the Plan shall be registered in the name of the
Participant and deposited by the Participant, together with a stock power
endorsed in blank, with the Institution and shall bear the following (or a
similar) legend:
"The transferability of this certificate and the
shares of stock represented hereby are subject to the
terms and conditions (including forfeiture) contained
in the 1993 Stock Option and Incentive Plan, as amended,
of Southern Financial Bancorp, Inc. and an Agreement
entered into between the registered owner and Southern
Financial Bancorp, Inc. Copies of such Plan and Agreement
are on file in the Office of the Secretary of Southern
Financial Bancorp, Inc., 37 E. Main Street, Warrenton,
Virginia 20186."
(d) At the time of an award of shares of Restricted
Stock, the Participant shall enter into an Agreement with the Institution in a
form specified by the Committee, agreeing to the terms and conditions of the
award and such other matters as the Committee shall in its sole discretion
determine.
(e) At the time of an award of shares of Restricted
Stock, the Committee may, in its discretion, determine that the payment to the
Participant of dividends declared or paid on such shares by the Institution or
specified portion thereof, shall be deferred until the earlier to occur of (i)
the lapsing of the restrictions imposed under paragraph (a) of this Section 9 or
(ii) the forfeiture of such shares under paragraph (b) of this Section 9, and
shall be held by the Institution for the account of the Participant until such
time. In the event of such
A-7
<PAGE>
deferral, there shall be credited at the end of each year (or portion thereof)
interest on the amount of the account at the beginning of the year at a rate per
annum as the Committee, in its discretion, may determine. Payment of deferred
dividends, together with interest accrued thereon as aforesaid, shall be made
upon the earlier to occur of the events specified in (i) and (ii) of the
immediately preceding sentence.
(f) At the expiration of the restrictions imposed by
paragraph (a) of this Section 9, the Institution shall redeliver to the
Participant (or where the relevant provision of paragraph (b) of this Section 9
applies in the case of a deceased Participant, to his legal representative,
beneficiary or heir) the certificate(s) of stock power deposited with it
pursuant to paragraph (c) of this Section 9 and the Shares represented by such
certificate(s) shall be free of the restrictions referred to in paragraph (a) of
this Section 9.
10. Adjustments Upon Changes in Capitalization. In the event of
any change in the outstanding Shares subsequent to the effective date of the
Plan by reason of any reorganization, recapitalization, stock split, stock
dividend, combination or exchange of shares, merger, consolidation or any change
in the corporate structure or Shares of the Institution, the maximum aggregate
number of class of shares as to which Awards may be granted under the Plan and
the number and class of shares with respect to which Awards theretofore have
been granted under the Plan shall be appropriately adjusted by the Committee,
whose determination shall be conclusive. Any shares of stock or other securities
received, as a result of any of the foregoing, by a Participant with respect to
Restricted Stock shall be subject to the same restrictions and the
certificate(s) or other instruments representing or evidencing such shares or
securities shall be legended and deposited with the Institution in the manner
provided in Section 9 hereof.
11. Effect of Merger on Options. In the case of any merger,
consolidation or combination of the Institution (other than a merger,
consolidation or combination in which the Institution is the continuing entity
and which does not result in the outstanding Shares being converted into or
exchanged for different securities, cash or other property, or any combination
thereof), any Participant to whom an Option has been granted under the Plan
shall have the right to (subject to the provisions of the Plan and any
limitation applicable to such Option), thereafter and during the term of each
such Option to receive different securities, cash or other property, or any
combination thereof, any Participant to whom an Option has been granted under
the Plan shall have the right (subject to the provisions of the Plan and any
limitation applicable to such Option), thereafter and during the term of each
such Option, to receive upon exercise of any Option an amount equal to the
excess of the fair market value on the date of such exercise of the securities,
cash or other property, or combination thereof, receivable upon such
A-8
<PAGE>
merger, consolidation or combination in respect of a Share over the Exercise
Price of such Option, multiplied by the number of Shares with respect to which
such Option shall have been exercised. Such amount may be payable fully in cash,
fully in one or more of the kind or kinds of property payable in such merger,
consolidation or combination, or partly in cash and partly in one or more such
kind or kinds of property, all in the discretion of the Committee.
12. Effect of Change in Control. Each of the events specified in
the following clauses (i) through (iii) of this Section 12 shall be deemed a
"change in control": (i) any third person, including a "group" as defined in
Section 13(d)(3) of the Securities Exchange Act of 1934, shall become the
beneficial owner of shares of the Institution with respect to which 25% or more
of the total number of votes for the election of the Board of Directors of the
Institution may be cast, (ii) as a result of, or in connection with, any cash
tender offer, exchange offer, merger or other business combination, sale of
assets or contested election, or combination of the foregoing, the persons who
were directors of the Institution shall cease to constitute a majority of the
Board of Directors of the Institution or (iii) the shareholders of the
Institution shall approve an agreement providing either for a transaction in
which the Institution will cease to be an independent publicly owned entity or
for a sale or other disposition of all or substantially all the assets of the
Institution; provided, however, that the occurrence of any such events shall not
be deemed a "change in control" if, prior to such occurrence, a resolution
specifically approving such occurrence shall have been adopted by at least a
majority of the Board of Directors of the Institution. If the Continuous Service
of any Participant of the Institution or any Affiliate is involuntarily
terminated, for whatever reason, at any time within eighteen months after a
change in control, unless the Committee shall have otherwise provided in the
agreement referred to in paragraph (d) of Section 9 hereof, any Restricted
Period with respect to Restricted Stock theretofore awarded to such Participant
shall lapse upon such termination and all Shares awarded as Restricted Stock
shall become fully vested in the Participant to whom such Shares were awarded.
If a tender offer or exchange offer for Shares (other than such an offer by the
Institution) is commenced, or if the event specified in clause (iii) above shall
occur, unless the Committee shall have otherwise provided in the instrument
evidencing the grant of an Option, all Options theretofore granted and not fully
exercisable shall become exercisable in full upon the happening of such event
and shall remain so exercisable in accordance with their terms; provided,
however, that no Option shall be exercisable by a director or officer of the
Institution within six months of the date of grant of such Option and no Option
which has previously been exercised or otherwise terminated shall become
exercisable.
13. Assignment and Transfers. No Award nor any right or
interest of a Participant under the Plan in any instrument
A-9
<PAGE>
evidencing any Award under the Plan may be assigned, encumbered or transferred
except, in the event of the death of a Participant, by will or the laws of
descent and distribution.
14. Employee Rights Under the Plan. No officer or key employee
shall have a right to be selected as a Participant nor, having been so selected,
to be selected again as a Participant and no officer, employee or other person
shall have any claim or right to be granted an Award under the Plan or under any
other incentive or similar plan of the Institution or any Affiliate. Neither the
Plan nor any action taken thereunder shall be construed as giving any employee
any right to be retained in the employ of the Institution or any Affiliate.
15. Delivery and Registration of Stock. The Institution's
obligation to deliver Shares with respect to an Award shall, if the Committee so
requests, be conditioned upon the receipt of a representation as to the
investment intention of the Participant to whom such Shares are to be delivered,
in such form as the Committee shall determine to be necessary or advisable to
comply with the provision of the Securities Act of 1933 or any other Federal,
state or local securities legislation. It may be provided that any
representation requirement shall become inoperative upon a registration of the
Shares or other action eliminating the necessity of such representation under
such Securities Act or other securities legislation. The Institution shall not
be required to deliver any Shares under the Plan prior to (i) the admission of
such shares to listing on any stock exchange or system on which Shares may then
be listed, and (ii) the completion of such registration or other qualification
of such Shares under any state or Federal law, rule or regulation, as the
Committee shall determine to be necessary or advisable.
This Plan is intended to comply with Rule 16b-3 under the Securities
Exchange Act of 1934. Any provision of the Plan which is inconsistent with said
Rule shall, to the extent of such inconsistency, be inoperative and shall not
affect the validity of the remaining provisions of the Plan.
16. Withholding Tax. Upon the termination of the Restricted Period
with respect to any shares of Restricted Stock (or at any such earlier time, if
any, that an election is made by the Participant under Section 83(b) of the
Code, or any successor provision thereto, to include the value of such shares in
taxable income), the Institution shall have the right to require the Participant
or other person receiving such shares to pay the Institution the amount of any
taxes which the Institution is required to withhold with respect to such shares
or, in lieu thereof, to retain, or sell without notice, a sufficient number of
shares held by it to cover the amount required to be withheld. The Institution
shall have the right to deduct from all dividends paid with respect to shares of
Restricted Stock the amount of any taxes which the Institution is required to
withhold with respect to such dividend payments.
A-10
<PAGE>
Where a Participant or other person is entitled to receive Shares
pursuant to the exercise of an Option pursuant to the Plan, the Institution
shall have the right to require the Participant or such other person to pay the
Institution the amount of any taxes which the Institution is required to
withhold with respect to such Shares, or, in lieu thereof, to retain, or sell
without notice, a number of such Shares sufficient to cover the amount required
to be withheld.
17. Amendment or Termination. The Board of Directors of the
Institution may amend, suspend or terminate the Plan or any portion thereof at
any time, but (except as provided in Section 10 hereof) no amendment shall be
made without approval of the stockholders of the Institution which shall (i)
materially increase the aggregate number of Shares with respect to which Awards
may be made under the Plan, (ii) materially increase the benefits accruing to
Participants under the Plan or (iii) change the class of persons eligible to
participate in the Plan; provided, however, that no such amendment, suspension
or termination shall impair the rights of any Participant, without his consent,
in any Award theretofore made pursuant to the Plan.
18. Effective Date and Term of Plan. The Plan shall become
effective upon its adoption by the Board of Directors of the Institution,
subject to ratification by vote of the holders of a majority of the outstanding
shares of the Institution entitled to vote on the adoption of the Plan. It shall
continue in effect for a term of ten years unless sooner terminated under
Section 17 hereof.
<PAGE>
SOUTHERN FINANCIAL BANCORP, INC.
37 E. Main Street
Warrenton, Virginia 20186
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
Proxy is Solicited by the Board of Directors
The undersigned hereby appoints Virginia M. Carter, Georgia S. Derrico
and William H. Lagos, as proxies (and if the undersigned is a proxy, as
substitute proxies), each with the power to appoint his or her substitute, and
hereby authorizes each of them to represent and to vote, as designated below,
all of the shares of Common Stock of Southern Financial Bancorp, Inc. (the
"Company") held of record by the undersigned on February 28, 1997 at the Annual
Meeting of Shareholders to be held on April 24, 1997, or any adjournment
thereof.
The Board of Directors recommends a vote FOR each of the following
Proposals:
1. Election of three directors for a three-year term.
[ ] FOR all nominees [ ] WITHHOLD AUTHORITY
listed below to vote for all nominees
(except as marked to the contrary)
(INSTRUCTION: to withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the list
below)
Neil J. Call
David de Give
R. Roderick Porter
2. To approve the designation of Arthur Anderson LLP as independent
certified public accountants for fiscal year 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve an amendment to the Company's 1993 Stock Option and
Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion the proxies are authorized to vote upon such
other business as may properly come before the meeting.
<PAGE>
This proxy, when properly executed, will be voted in the manner
directed herein by the undersigned shareholder. If no direction is made, this
proxy will be voted FOR each of Proposals 1, 2 and 3.
Please sign exactly as the name appears on the label. When shares are
held by joint tenants, both should sign. When signing as attorney, executor,
administrator, trustee, guardian or agent, please give full title as such. If a
corporation, please sign in full corporate name by president or other authorized
officer. If a partnership, please sign in partnership name by authorized person.
Date: , 1997
--------------- ------------------------------------------
Signature
Printed Name:
- --------------------------------- ------------------------------------------
Signature, if held jointly
Number of Shares:
I plan to attend the meeting in person [ ] Yes
- ---------------- [ ] No
Please detach and mail this form in the enclosed envelope.
