UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
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|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material under S240.14a-12
FIRST BANCORP
(Name of Registrant as Specified in Its Charter)
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First Bancorp
341 North Main Street
Troy, North Carolina 27371-0508
Telephone (910) 576-6171
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NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD THURSDAY, APRIL 29, 2004
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To Our Shareholders:
The annual meeting of shareholders of First Bancorp (the "Company") will
be held at Montgomery Community College - Building 200, 1011 Page Street, Troy,
North Carolina (see map on outside back cover) on Thursday, April 29, 2004 at
3:00 p.m. local time, for the purpose of considering and acting on the following
matters:
1. A proposal to elect eighteen (18) nominees to the Board of Directors
to serve until the 2005 annual meeting of shareholders, or until
their successors are elected and qualified.
2. A proposal to ratify the appointment of KPMG LLP as the independent
auditors of the Company for the current fiscal year.
3. A proposal to adopt a new stock option plan, entitled the "First
Bancorp 2004 Stock Option Plan."
4. Such other business as may properly come before the meeting, or any
adjournment or adjournments thereof.
Only shareholders of record as of the close of business on March 12, 2004
are entitled to notice of and to vote at the annual meeting and any adjournments
thereof.
Whether or not you expect to be present at the annual meeting, please
complete, date and sign the enclosed form of proxy and return it promptly in the
enclosed envelope. If you attend the meeting, your proxy will be returned to you
upon request.
Please note that the attached form of proxy includes a request from the
Company as to whether or not you plan to attend the annual meeting. For planning
purposes, management of the Company would appreciate you filling in the
appropriate box indicating whether or not you plan to attend the annual meeting.
If you initially indicate that you are not planning to attend and later want to,
or do not indicate one way or the other, you are still welcome and invited to
attend the meeting. See outside back cover for a map.
The proxy statement accompanying this notice sets forth further
information concerning the proposals to be considered at the annual meeting. You
are urged to study this information carefully.
Included in this package, in compliance with applicable regulations, is
the Company's 2003 Annual Report on Form 10-K, which includes the Company's
financial statements and other required disclosures. Also included in the
package is a 2003 Summary Annual Report, which includes a financial overview,
the president's letter, and other general information about the Company.
By Order of the Board of Directors
Anna G. Hollers
Secretary
First Bancorp
341 North Main Street
Troy, North Carolina 27371-0508
Telephone (910) 576-6171
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PROXY STATEMENT
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INTRODUCTION
This proxy statement is furnished to the shareholders of First Bancorp
(hereinafter sometimes referred to as the "Company") by the Board of Directors
in connection with the solicitation of proxies for use at the annual meeting of
shareholders of the Company to be held on Thursday, April 29, 2004 at 3:00 p.m.
local time, at Montgomery Community College - Building 200, 1011 Page Street,
Troy, North Carolina (see map on outside back cover), and at any adjournment or
adjournments thereof. Action will be taken at the annual meeting on the items
described in this proxy statement and on any other business that properly comes
before the meeting.
This proxy statement and accompanying form of proxy are first being mailed
to shareholders on or about March 31, 2004.
Whether or not you expect to attend the annual meeting, please complete,
date and sign the enclosed form of proxy and return it promptly to ensure that
your shares are voted at the meeting.
Any shareholder giving a proxy may revoke it at any time before a vote is
taken (i) by duly executing a proxy bearing a later date; (ii) by executing a
notice of revocation in a written instrument filed with the secretary of the
Company; or (iii) by appearing at the meeting and notifying the secretary of the
intention to vote in person. Unless a contrary choice is specified, all shares
represented by valid proxies received pursuant to this solicitation, and not
revoked before they are exercised, will be voted as set forth in this proxy
statement. In addition, the proxy confers discretionary authority upon the
persons named therein, or their substitutes, with respect to any other business
that may properly come before the meeting.
The presence, in person or by proxy, of the holders of a majority of the
outstanding shares of the Company's common stock entitled to vote is necessary
to constitute a quorum at the annual meeting. If a quorum is not present or
represented at the annual meeting, the shareholders present and entitled to vote
have the power to adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum is present or represented. At
any such adjourned meeting at which a quorum is present or represented, any
business may be transacted that might have been transacted at the meeting as
originally notified. A shareholder abstaining from the vote on a particular
proposal and broker non-votes will be counted as present for purposes of
determining if a quorum is present, but will be counted as not having voted on
the proposal in question.
The Company will bear the entire cost of preparing this proxy statement
and of soliciting proxies. Proxies may be solicited by employees of the Company,
either personally, by special letter, or by telephone. The Company also will
request brokers and others to send solicitation material to beneficial owners of
stock and will reimburse them for this purpose.
Page 1 of 38
PRINCIPAL HOLDERS OF VOTING SECURITIES
Only shareholders of record as of the close of business on March 12, 2004
will be entitled to vote at the annual meeting or any adjournment or
adjournments thereof. The number of outstanding shares entitled to vote at the
shareholders meeting is 9,481,934. Shareholders are entitled to one vote for
each share of the Company's common stock.
The Company knows of no persons who beneficially own more than five
percent of the outstanding common stock of First Bancorp. The Company's
directors, nominees for director, and executive officers as a group own
1,888,669 shares, or 19.92%, of the Company's common stock.
PROPOSAL 1 - ELECTION OF DIRECTORS
Section 3.02 of the Company's bylaws provides that the number of directors
on the Board of Directors of the Company will be not less than three nor more
than 18, as may be fixed by resolution duly adopted by the Board of Directors at
or prior to the annual meeting at which such directors are to be elected.
Effective as of the 2004 Annual Meeting of Shareholders to be held April 29,
2004, the size of the board has been fixed by the Board of Directors at 18
members.
In the absence of any specifications to the contrary, proxies will be
voted for the election of all 18 of the nominees listed in the table below by
casting an equal number of votes for each such nominee. If, at or before the
time of the meeting, any of the nominees listed below becomes unavailable for
any reason, the proxyholders have the discretion to vote for a substitute
nominee or nominees. The board currently knows of no reason why any nominee(s)
listed below is likely to become unavailable.
The Company's articles of incorporation provide that, if cumulative voting
applies, each shareholder is "entitled to multiply the number of votes he is
entitled to cast by the number of directors for whom he is entitled to vote and
cast the product for a single candidate or distribute the product among two or
more candidates." Cumulative voting procedures will not be followed at the
annual meeting unless a shareholder calls for cumulative voting as provided in
the Company's articles of incorporation, by announcing at the meeting before the
voting for directors starts, his or her intention to vote cumulatively. If
cumulative voting is properly invoked by a shareholder, the chair shall declare
that all shares entitled to vote have the right to vote cumulatively and shall
thereupon grant a recess of not less than two days, nor more than seven days, as
the chair shall determine, or of such other period of time as is unanimously
agreed upon. If cumulative voting applies, the proxyholders may, in their
discretion, vote the shares to which such proxies relate on a basis other than
equally for each of the nominees named below and for less than all such
nominees, but the proxyholders will cast such votes in a manner that would tend
to elect the greatest number of such nominees (or any substitutes therefor in
the case of unavailability) as the number of votes cast by them would permit.
NOMINATIONS FOR DIRECTOR
Nominees for election to the Board of Directors are selected by the
incumbent board prior to each annual meeting, based upon the recommendation of
the Nominating and Corporate Governance Committee of the Board of Directors, and
the nominees listed below were selected in that manner. Nominations from the
shareholders must be made in accordance with the Company's bylaws, which
generally require such nominations to be made in writing and not less than 60
nor more than 90 days prior to the meeting at which directors are to be elected
and to include certain information about the proposed nominee, in addition to
other requirements.
The Company's bylaws state that no individual may be elected to, or may
serve, on the Board of Directors any time after his or her 72nd birthday, except
that if a director is elected to the Board of Directors prior to his or her 72nd
birthday and reaches the age of 72 while serving as a director, such director's
term shall continue until the next annual meeting of shareholders, at which time
the director shall retire. The bylaws allow the Board of Directors to make
exceptions to this limitation in connection with mergers or acquisitions. Under
the terms of the Company's merger agreement with First Savings Bancorp, Inc.,
the applicable age for Mr. Samuels as it relates to the mandatory retirement
noted above is age 75. The bylaws also state that the foregoing provisions do
not apply to any individual during the time such individual is serving as chief
executive officer of the Company.
Page 2 of 38
A complete copy of the bylaw provision setting forth the complete
procedure for shareholder nominations of directors may be obtained upon written
request to First Bancorp, Post Office Box 508, 341 North Main Street, Troy,
North Carolina 27371-0508, Attention: Anna G. Hollers, Secretary.
Page 3 of 38
DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
The following table sets forth certain information as of December 31,
2003, with respect to the eighteen nominees for election to the Board of
Directors and the executive officers of the Company (all of these persons may be
contacted at Post Office Box 508, 341 North Main Street, Troy, North Carolina
27371). Each nominee is a current director that was nominated for re-election to
the Board of Directors by the Nominating and Corporate Governance Committee as
described in the section below entitled "Director Nomination Process."
TABLE OF DIRECTORS, NOMINEES AND EXECUTIVE OFFICERS
Common Stock
Beneficially Owned (1)
Current Director (D), Director ----------------------
Nominee (N), or of Company Number of Percent
Name (Age) Position with Company Since Shares of Class
----------------------------- ---------------------- ---------- --------- --------
Directors and Nominees
----------------------
James H. Garner (74) President and CEO (D) (N) 1995 47,300(2) 0.50%
Jack D. Briggs (64) (D) (N) 1983 63,824(3) 0.67%
R. Walton Brown (51) Executive Vice President (D) (N) 2003 21,509(4) 0.23%
H. David Bruton, M.D. (69) (D) (N) 2000 77,609(5) 0.82%
David L. Burns (65) (D) (N) 1988 46,632(6) 0.49%
John F. Burns (56) Executive Vice President (D) (N) 2000 47,396(7) 0.50%
Jesse S. Capel (71) (D) (N) 1983 117,654(8) 1.24%
Goldie H. Wallace-Gainey (57) (D) (N) 1997 177,007(9) 1.87%
James G. Hudson, Jr. (64) Executive Vice President (D) (N) 2001 42,156(10) 0.44%
George R. Perkins, Jr. (64) (D) (N) 1996 384,673(11) 4.06%
Thomas F. Phillips (58) (D) (N) 2000 57,575(12) 0.61%
William E. Samuels (73) (D) (N) 2000 98,989(13) 1.04%
Edward T. Taws (69) (D) (N) 1986 22,610(14) 0.24%
Frederick H. Taylor (64) (D) (N) 1983 126,997(15) 1.34%
Virginia C. Thomasson (52) (D) (N) 2000 15,210(16) 0.16%
A. Jordan Washburn (67) (D) (N) 1995 25,463(17) 0.27%
Dennis A. Wicker (51) (D) (N) 2001 8,454(18) 0.09%
John C. Willis (61) (D) (N) 1983 331,083(19) 3.49%
Executive Officers
------------------
James H. Garner (74) President and Chief 1995 47,300(2) 0.50%
Executive Officer
R. Walton Brown (51) Executive 2003 21,509(4) 0.23%
Vice President
John F. Burns (56) Executive 2000 47,396(7) 0.50%
Vice President
Anna G. Hollers (53) Executive Vice President n/a 54,988(20) 0.58%
and Secretary
James G. Hudson, Jr. (64) Executive 2001 42,156(10) 0.44%
Vice President
Teresa C. Nixon (46) Executive Vice President n/a 33,522(21) 0.35%
and Compliance Officer, First Bank
David G. Grigg (53) President of Montgomery n/a 27,455(22) 0.29%
Data Services, Inc.
Jerry M. Arnold (63) Senior Vice President n/a 10,687(23) 0.11%
of Operations, First Bank
Eric P. Credle (35) Senior Vice President and n/a 14,366(24) 0.15%
Chief Financial Officer
Timothy S. Maples (43) Senior Vice President and n/a 24,985(25) 0.26%
Investment Officer
Lee C. McLaurin (41) Senior Vice President n/a 10,525(26) 0.11%
and Controller
Page 4 of 38
----------
Notes to Table of Directors, Nominees and Executive Officers:
(1) Unless otherwise indicated, each individual has sole voting and investment
power with respect to all shares beneficially owned by such individual.
The above table includes executive officers' reported shares in the 401(k)
defined contribution plan, which are voted by the plan trustee and not by
the shareholder for whom such shares are listed. Also included are shares
subject to options (exercisable as of December 31, 2003 or within 60 days
after December 31, 2003) granted under the Company's stock option plan.
(2) Mr. Garner's number of shares includes 7,626 shares held in the Company's
401(k) defined contribution plan, 6,541 shares held jointly with his
spouse and exercisable options to purchase 12,000 shares.
(3) Mr. Briggs' number of shares includes 834 shares held as custodian for his
daughter, 37,600 shares held jointly with his spouse, 200 shares held by
his spouse and exercisable options to purchase 7,500 shares.
(4) Mr. Brown's number of shares includes 137 shares held in the Company's
401(k) defined contribution plan and exercisable options to purchase 2,000
shares.
(5) Dr. Bruton's number of shares includes 4,488 shares held by his spouse,
2,249 shares held as custodian in a trust for a minor, and exercisable
options to purchase 4,500 shares.
(6) Mr. D. Burns' number of shares includes 23,632 shares held by Mr. Burns'
business interests and exercisable options to purchase 9,000 shares.
(7) Mr. J. Burns' number of shares includes 1,276 shares held in the Company's
401(k) defined contribution plan and exercisable options to purchase 6,000
shares.
(8) Mr. Capel's number of shares includes 37,104 shares held by Capel,
Incorporated of which Mr. Capel is principal owner and director and
exercisable options to purchase 13,500 shares.
(9) Mrs. Wallace-Gainey's number of shares includes 409 shares held by her
spouse, 22 shares held as custodian by her spouse for a minor, and
exercisable options to purchase 10,500 shares.
(10) Mr. Hudson's number of shares includes 1,572 shares held by his spouse,
840 shares held in the Company's 401(k) defined contribution plan, and
exercisable options to purchase 1,666 shares.
(11) Mr. Perkins' number of shares includes exercisable options to purchase
12,000 shares.
(12) Mr. Phillips' number of shares includes 1,310 shares held by his spouse,
124 shares jointly owned with a relative, and exercisable options to
purchase 23,500 shares.
(13) Mr. Samuels' number of shares includes 22,442 shares held by his spouse
and exercisable options to purchase 4,500 shares.
(14) Mr. Taws' number of shares includes 5,785 shares held by his spouse and
exercisable options to purchase 12,400 shares.
(15) Mr. Taylor's number of shares includes 69,381 shares held in trusts,
42,798 shares held by his spouse and exercisable options to purchase
13,500 shares.
(16) Mrs. Thomasson's number of shares includes exercisable options to purchase
11,410 shares.
(17) Mr. Washburn's number of shares includes exercisable options to purchase
3,000 shares.
(18) Mr. Wicker's number of shares includes exercisable options to purchase
4,500 shares.
Page 5 of 38
(19) Mr. Willis' number of shares includes 191,178 shares held by his spouse
and exercisable options to purchase 15,000 shares.
(20) Ms. Hollers' number of shares includes 989 shares held jointly with her
daughters, 9,949 shares held in the Company's 401(k) defined contribution
plan, 2,050 shares held by her spouse and exercisable options to purchase
13,750 shares.
(21) Ms. Nixon's number of shares includes 7,438 shares held in the Company's
401(k) defined contribution plan, 885 shares held by Ms. Nixon's business
interests, 5 shares held in trust for a minor, and exercisable options to
purchase 15,600 shares.
(22) Mr. Grigg's number of shares includes 172 shares held jointly with his
daughters, 86 shares held jointly with his son, 5,770 shares held in the
Company's 401(k) defined contribution plan and exercisable options to
purchase 3,840 shares.
(23) Mr. Arnold's number of shares includes 3,680 shares held in the Company's
401(k) defined contribution plan and exercisable options to purchase 6,000
shares.
(24) Mr. Credle's number of shares includes 891 shares held in the Company's
401(k) defined contribution plan and exercisable options to purchase
11,500 shares.
(25) Mr. Maples' number of shares includes 814 shares held in the Company's
401(k) defined contribution plan, exercisable options to purchase 4,447
shares.
(26) Mr. McLaurin's number of shares includes 2,925 shares held in the
Company's 401(k) defined contribution plan and exercisable options to
purchase 3,600 shares.
----------
Directors and Nominees
James H. Garner became President and Chief Executive Officer and a
director of the Company and First Bank in 1995. Mr. Garner has been employed by
First Bank since 1969, serving as Executive Vice President from 1989 until 1995.
Jack D. Briggs is a funeral director and retail furniture merchant and is
president and owner of J. Briggs, Inc., Davidson Funeral Home, Inc., and Carter
Funeral Home, Inc., and secretary of Piedmont Funeral Home. Mr. Briggs has been
a director of the Company since 1983 and a director of First Bank since 1976.
R. Walton Brown was the chairman of the Board of Directors, President, and
Chief Executive Officer of Carolina Community Bancshares, Inc., a bank holding
company headquartered in Latta, South Carolina, from its inception in 1995 until
its acquisition by the Company in January 2003. He served as the president of
Carolina Community Bank, the bank subsidiary of Carolina Community Bancshares,
and its predecessors from 1979 until January 2003, and now serves as Executive
Vice President of First Bank.
H. David Bruton, M.D. is a retired physician and served as the Secretary
of North Carolina's Department of Health and Human Services from 1997 until
2001. Until December 31, 1996, he was a practicing physician with Sandhills
Pediatric, Inc. He served as a director of First Savings Bancorp, Inc. from 1979
until First Savings' 2000 merger with the Company and has served as a director
of the Company and First Bank since that time.
David L. Burns is president of Z. V. Pate, Inc., a Laurel Hill-based
holding company for agricultural, timber, restaurants and retail sales. Mr.
Burns has been a director of the Company since 1988 and a director of First Bank
since 1992.
John F. Burns served as a director and President and Chief Executive
Officer of First Savings Bancorp, Inc. at the time of the First Bancorp-First
Savings merger and had been employed by First Savings since 1972. Since the
merger, he has served as a director of the Company and First Bank. He is also
employed as an Executive Vice President of the Company and First Bank.
Page 6 of 38
Jesse S. Capel is the chairman of the Board of Directors. He serves as an
executive officer of Capel, Incorporated, a rug manufacturer, importer and
exporter located in Troy, North Carolina. Mr. Capel has been a director of the
Company since 1983 and a director of First Bank since 1959.
Goldie H. Wallace-Gainey is a private investor in the Company and other
business interests. Ms. Wallace-Gainey has been a director of the Company and
First Bank since 1997.
James G. Hudson, Jr. served as a director and President and Chief
Executive Officer of Century Bancorp, Inc., a bank holding company headquartered
in Thomasville, North Carolina, at the time of the May 2001 Century Bancorp
acquisition by the Company and had been employed with Century since 1972. Since
that time, he has served as a director of the Company and First Bank. He is also
employed as an Executive Vice President of First Bank.
George R. Perkins, Jr. is President and Chief Executive Officer of
Frontier Spinning Mills, Inc., a yarn manufacturer located in Sanford, North
Carolina, and has served in such capacity since 1996. Mr. Perkins has been a
director of the Company and First Bank since 1996.
Thomas F. Phillips is an automobile dealer and owner of Phillips Ford,
located in Carthage, North Carolina. He served as a director of First Savings
Bancorp, Inc. from 1985 until First Savings' 2000 merger with the Company and
has served as a director of the Company and First Bank since that time.
William E. Samuels is vice-chairman of the Board of Directors of the
Company and First Bank. He was the President and Chief Executive Officer of
First Savings Bancorp, Inc. until his retirement in 1998. He is the former
chairman of the Board of Directors of First Savings Bancorp, Inc. and served as
a director of First Savings from 1977 until First Savings' 2000 merger with the
Company. He has served as a director of the Company and First Bank since that
time.
Edward T. Taws, Jr. is Chairman of Fletcher Industries/Fletcher
International, a manufacturer of textile machinery located in Southern Pines,
North Carolina. Mr. Taws has been a director of the Company since 1986 and a
director of First Bank since 1992.
Frederick H. Taylor is President of Troy Lumber Company, located in Troy,
North Carolina. Mr. Taylor has been a director of the Company since 1983 and a
director of First Bank since 1978.
Virginia C. Thomasson is a Certified Public Accountant with the firm
Holden, Thomasson, & Longfellow, P.C., located in Southern Pines, North
Carolina. She served as a director of First Savings Bancorp, Inc. from 1997
until First Savings' 2000 merger with the Company and has served as a director
of the Company and First Bank since that time.
A. Jordan Washburn was a sales representative for Morrisette Paper Company
located in High Point, North Carolina until his retirement in 2001. Mr. Washburn
has been a director of the Company since 1995 and a director of First Bank since
1994.
Dennis A. Wicker is a partner with the law firm Helms Mulliss & Wicker,
LLP in Raleigh, North Carolina. Mr. Wicker served as Lieutenant Governor of
North Carolina from 1993 to 2000. Mr. Wicker has been a director of the Company
and First Bank since 2001.
John C. Willis is a private investor in restaurant and real estate
interests. Mr. Willis has been a director of the Company since 1983 and a
director of First Bank since 1980.
Executive Officers
In addition to Mr. Garner, Mr. Brown, Mr. J. Burns, and Mr. Hudson, the
executive officers of the Company are as follows:
Anna G. Hollers is Executive Vice President and Secretary of the Company
and Executive Vice President and Secretary of First Bank. She has been employed
by the Company since 1983 and by First Bank since 1972.
Page 7 of 38
Teresa C. Nixon is Executive Vice President - Loan Administration and
Compliance of First Bank. She has been employed by First Bank since 1989.
David G. Grigg has served as President of Montgomery Data Services, Inc.
since its formation in 1984. He was employed by First Bank from 1972 until 1984.
Jerry M. Arnold is Senior Vice President - Operations of First Bank. He
has been employed by First Bank since 1986.
Eric P. Credle is Senior Vice President and Chief Financial Officer of the
Company and First Bank. He has been employed by the Company and First Bank since
1997.
Timothy S. Maples is Senior Vice President and Investment Officer of First
Bank. He was the Chief Financial Officer and Treasurer of First Savings Bancorp,
Inc. from 1993 until First Savings' 2000 merger with the Company.
Lee C. McLaurin is Senior Vice President and Controller of the Company and
First Bank. He has been employed by the Company since 1987.
BOARD COMMITTEES, ATTENDANCE AND COMPENSATION
Executive Committee
The Executive Committee is authorized, between meetings of the Board of
Directors, to perform all duties and exercise all authority of the Board of
Directors, except those duties and authorities exclusively reserved to the Board
of Directors by the Company's bylaws or by statute. The 2003 members of the
Committee were Mr. Briggs, Mr. D. Burns, Mr. J. Burns, Mr. Capel-Chairman, Mr.
Garner, Mr. Perkins, Mr. Samuels, Mr. Taws, Mr. Taylor, Mr. Washburn and Mr.
Willis. The Executive committee held 12 meetings during 2003.
Audit Committee
The Audit Committee is responsible for the appointment, compensation and
oversight of the Company's independent auditors, and must approve in advance all
audit fees and the terms of all non-audit services provided by the independent
auditors. The Audit Committee also reviews and presents to the Board of
Directors information regarding the effectiveness of the Company's policies and
procedures with respect to auditing, accounting, and internal controls. The
Audit Committee also reviews the Company's financial reporting process on behalf
of the Board of Directors. The 2003 members of the Audit Committee were Mr.
Briggs, Dr. Bruton, Mr. D. Burns, Mr. Capel-Chairman, Ms. Wallace-Gainey, Ms.
Thomasson, and Mr. Willis, each of whom is independent, as defined by the
National Association of Securities Dealers ("NASD"). Mr. Wicker, also an
independent director, joined the Audit Committee in January 2004. The Audit
Committee held 5 meetings during 2003. The Board of Directors has determined
that Ms. Thomasson is an "audit committee financial expert" within the meaning
of SEC rules and regulations.
Compensation Committee
The Compensation Committee is responsible for reviewing the compensation
policies and benefit plans of the Company and for making recommendations
regarding the compensation of its executive officers. The Committee also
administers the Company's stock option plan. The 2003 members of the Committee
were Mr. Briggs, Mr. D. Burns, Mr. Capel-Chairman, Mr. Taws, Mr. Washburn, and
Mr. Willis, each of whom is independent, as defined by the NASD. The
Compensation Committee held one meeting during 2003.
Nominating and Corporate Governance Committee
The Nominating and Corporate Governance Committee is responsible for i)
identifying qualified individuals to become Board members, ii) determining the
composition of the Board and its committees, and iii) developing and
implementing the Company's corporate governance guidelines. The Committee will
consider shareholder nominees for board membership. Any shareholder wishing to
nominate a candidate for director must follow the procedures described in the
section "Nominations For Director" above. The section below entitled "Director
Nomination
Page 8 of 38
Process" describes the process utilized by the Nominating and Corporate
Governance Committee for identifying and evaluating candidates to be nominated
as directors. At its February 2004 meeting, the Nominating and Corporate
Governance Committee adopted a charter, which is available on the Company's
website at www.firstbancorp.com under the tab "Investor Relations." The 2003
members of the Committee were Mr. D. Burns, Mr. J. Capel-Chairman, Mr. Taws, Mr.
Washburn and Mr. Willis, each of whom is independent, as defined by the NASD.
The Nominating and Corporate Governance Committee held one meeting during 2003.
Attendance
The Board of Directors held 14 meetings during 2003. In 2003, all of the
directors and nominees, except for Mr. Perkins who attended 4 of 12 Executive
Committee meetings and 14 of 14 Board of Directors meetings, attended at least
75% of the aggregate of the meetings of the Board of Directors and the
committees described above on which they served during the period they were
directors and members of such committees.
CORPORATE GOVERNANCE POLICIES AND PRACTICES
The Company has developed, and operates under, corporate governance
principles and practices that are designed to maximize long-term shareholder
value, align the interests of the board and management with those of the
Company's shareholders, and promote the highest ethical conduct among the
Company's directors and employees. Highlights of the Company's corporate
governance policies, practices and procedures are described below.
Director Independence
The Board of Directors believes that a substantial majority of the board
should consist of directors who are independent under rules set forth by NASD.
The Board of Directors makes an annual determination regarding the independence
of each of the Company's directors. The board last made these determinations for
each member of the board in February 2004, based on the review of director
questionnaires designed to elicit information regarding independence. The Board
of Directors has determined that 13 of its 18 directors (assuming the Nominees
listed above are elected) will be independent as contemplated by NASD. The five
individuals who are not independent, Mr. Brown, Mr. J. Burns, Mr. Garner, Mr.
Hudson, and Mr. Samuels are all current or former employees of the Company.
Annual Director Re-Election
Since the Company's inception, its bylaws have required that all directors
must stand for re-election to the Board of Directors at each annual
shareholders' meeting. The Board of Directors believes that this policy makes it
easier for shareholders to hold directors more directly accountable for
corporate performance compared to the staggered-board structure in use at many
public companies, which permits directors to hold their positions for several
years.
Separation of the Offices of Chairman and Chief Executive Officer
The Board of Directors believes that one of its main purposes is to
protect shareholders' interests by providing independent oversight of
management, including the Chief Executive Officer. Although not required by the
Company's bylaws, the Board of Directors has historically believed, and
continues to believe, that this objective is facilitated by having an
independent director serve as Chairman, thereby separating the offices of
Chairman of the Board of Directors and Chief Executive Officer. The Chairman of
the Board is responsible for approving meeting schedules and agendas, as well as
acting as a liaison between the Chief Executive Officer and the independent
directors.
Executive Sessions
At its February 2004 meeting, the Board of Directors adopted a resolution
requiring that the independent directors of the Company meet at least twice a
year in executive session with no non-independent directors or employees of the
Company present. At these meetings, the independent directors will discuss
strategic or other key issues regarding the Company.
Page 9 of 38
Director Nomination Process
The Nominating and Corporate Governance Committee is responsible for
identifying individuals qualified to become board members and to recommend to
the board the individuals for nomination as members of the board. The goal of
the Nominating and Corporate Governance Committee is to create a board that will
demonstrate objectivity and the highest degree of integrity on an individual and
collective basis. In evaluating current members and new candidates, the
Nominating and Corporate Governance Committee considers the needs of the board
and the Company in light of the current mix of director skills and attributes.
In addition to requiring that each director possess the highest integrity and
character, the Nominating and Corporate Governance Committee's evaluation of
director candidates includes an assessment of issues and factors regarding an
individual's familiarity with the Company's geographic market area, independence
as defined by the various regulatory authorities, business experience,
accounting and financial expertise, diversity, and awareness of the Company's
responsibilities to its customers, employees, regulatory bodies, and the
communities in which it operates. The Nominating and Corporate Governance
Committee also takes into consideration the board's established policies
relating to the board's retirement policy and the ability of directors to devote
adequate time to board and committee matters. When the Nominating and Corporate
Governance Committee is considering current board members for nomination for
reelection, the Committee also considers prior board contributions and
performance, as well as meeting attendance records.
The Nominating and Corporate Governance Committee may seek the input of
the other members of the board and management in identifying and attracting
director candidates that are consistent with the criteria outlined above. In
addition, the Committee may use the services of consultants or a search firm,
although it has not done so in the past. The Nominating and Corporate Governance
Committee will consider recommendations by Company shareholders of qualified
director candidates for possible nomination to the board. Shareholders may
recommend qualified director candidates by writing to the Company's Corporate
Secretary, at 341 North Main Street, Troy, North Carolina 27371. Submissions
should include information regarding a candidate's background, qualifications,
experience, and willingness to serve as a director. Based on a preliminary
assessment of a candidate's qualifications, the Nominating and Corporate
Governance Committee may conduct interviews with the candidate and request
additional information from the candidate. The Committee uses the same process
for evaluating all nominees, including those recommended by shareholders.
In addition, the Company's bylaws contain specific conditions under which
persons may be nominated directly by shareholders as directors at an annual
meeting of shareholders. The provisions include the condition that shareholders
comply with the advance notice time-frame requirements described under the
section entitled "Nominations for Director" above.
Stock Ownership Requirements
The Company's Board of Directors has adopted a common stock ownership
policy for members of the board. This policy requires that any candidate for the
Board of Directors must either own, or commit to acquire, common stock of the
Company with a monetary value of at least $50,000. The Board believes that this
stock ownership policy substantially enhances shareholder value by materially
aligning the Board's interest with those of the shareholders.
Mandatory Retirement
The Company's bylaws state that no individual may be elected to, or may
serve, on the Board of Directors any time after his or her 72nd birthday, except
that if a director is elected to the Board of Directors prior to his or her 72nd
birthday and reaches the age of 72 while serving as a director, such director's
term shall continue until the next annual meeting of shareholders, at which time
the director shall retire. The bylaws allow for the Board to make exceptions to
this limitation in connection with mergers or acquisitions. The bylaws also
state that the foregoing provisions do not apply to any individual during the
time such individual is serving as chief executive officer of the Company.
Page 10 of 38
Communications with Directors
The Board of Directors believes that it is important that a direct and
open line of communication exist between the Board of Directors and its
shareholders and other interested parties. Any shareholder or other interested
party who desires to contact one or more of the Company's directors may send a
letter to the following address:
First Bancorp Board of Directors
PO Box 417
Troy, North Carolina 27371
In addition, any shareholder or other interested party who has any
concerns or complaints relating to accounting, internal controls or auditing
matters, may contact the Audit Committee by writing to the following address:
First Bancorp Audit Committee
PO Box 417
Troy, North Carolina 27371
All such communications will be forwarded to the appropriate party as soon
as practicable without being screened.
Annual Meeting Policy
Directors are expected to attend the Company's annual meeting of
shareholders. All members of the board, with the exception of one, attended the
Company's 2003 annual meeting of shareholders.
Cumulative Voting
The Company's bylaws provide for the availability of "cumulative voting"
in the election of directors. Under cumulative voting, each shareholder
calculates the number of votes available to such shareholder by multiplying the
number of votes to which his or her shares are normally entitled by the number
of directors for whom the shareholder is entitled to vote. The shareholder can
then cast the product of the multiplication for a single candidate or can
distribute it in any manner among any number of candidates. For example, if 18
directors are to be elected, a shareholder who owns 1,000 shares with one vote
per share will have 18,000 votes. This shareholder can cast all of these votes
for one candidate, or 1,000 for 18 candidates, or 6,000 for each of three
candidates, or any other mathematically possible combination.
The purpose of cumulative voting is to preserve the right of minority
shareholders, or a group of shareholders acting together, to obtain
representation on the board of directors that is roughly proportional to their
ownership interest in the corporation. The Company's board of directors believes
that the minority representation guaranteed by cumulative voting is an
appropriate feature of corporate democracy and is not likely to cause harmful
factionalism on the board.
Cumulative voting procedures will not be followed at the annual meeting
unless a shareholder calls for cumulative voting as provided in the Company's
articles of incorporation, by announcing at the meeting before the voting for
directors starts, his or her intention to vote cumulatively. See the third
paragraph under Proposal 1 above for more information regarding cumulative
voting.
Code of Conduct
The Company has had a written code of conduct for many years. In February
2004, the Board of Directors adopted a revised Code of Conduct that applies to
the Company's directors and employees, including the Chief Executive Officer,
Chief Financial Officer and Principal Accounting Officer. The Code includes
guidelines relating to ethical handling of actual or potential conflicts of
interest, compliance with laws, accurate financial reporting, and procedures for
promoting compliance with, and reporting violations of, the Code. The Code of
Conduct is available is available upon written request to the following address:
First Bancorp, Attention: Corporate Secretary, PO Box 508, Troy, North Carolina
27371.
Page 11 of 38
COMPENSATION OF DIRECTORS
In 2003, directors of the Company received a retainer of $400 per month
during their terms of office, plus $200 for each meeting attended. Normally,
meetings are held monthly. Such directors who served on the Executive Committee,
Nominating and Corporate Governance Committee, Audit Committee, or Compensation
Committee received $200 for each committee meeting attended.
In 2003, directors of the Company were also compensated $200 for each
meeting attended for their service as directors on the boards of the Company's
subsidiaries. As it relates to First Bank, the Company's most significant
subsidiary, all directors of the Company are members of the First Bank Board of
Directors. Various combinations of six to nine directors of the Company serve on
the boards of Montgomery Data Services and First Bancorp Financial Services,
subsidiaries of the Company, and First Bank Insurance Services, a subsidiary of
First Bank. The boards of First Bank and Montgomery Data Services normally meet
on a monthly basis, whereas the First Bancorp Financial Services and First Bank
Insurance Services boards normally meet on a quarterly basis.
In 2003, non-employee directors of the Company also participated in the
Company's stock option plan. The non-employee director portion of the stock
option plan in effect during 2003 provided that on June 1 of each year for a
five-year period that began June 1, 1998 and ended on June 1, 2003, each
non-employee director of the Company received an option to acquire 1,500 shares
of the Company's common stock over a 10 year term at an exercise price equal to
the fair market value of such stock on the date of grant. At December 31, 2003,
the fourteen directors who were not employees of the Company held aggregate
options to purchase 144,810 shares at exercise prices ranging from $6.67 to
$25.95.
In January 2004, the Company engaged an outside consultant to evaluate the
level of the Company's director compensation. The consultant's process of
assessing the appropriateness of compensation arrangements involved the use of
peer data to determine the extent to which the Company's director compensation
arrangements were competitive within both the Company's industry and
geographical area. As a part of this assessment, the consultant compared the
Company's arrangements, both in whole and in part, with those of other financial
institutions of similar size and performance both within the state and
nationally. This peer group was a subset of the broader peer group to which the
Company compares its total returns to shareholders. Based on this evaluation,
the Company increased its director fees for 2004. The monthly retainer was
increased to $500, and the fee for each board meeting attended was increased to
$250. The fee for attendance at subsidiary board meetings was also increased to
$250 per meeting. If the 2004 Stock Option Plan being voted on at this meeting
is approved by shareholders, it is expected that non-employee directors will
continue to receive options to acquire 1,500 shares of the Company's common
stock on June 1 of each year under the same terms as those discussed in the
paragraph above.
Page 12 of 38
COMPENSATION OF EXECUTIVE OFFICERS
Summary Compensation Table. The following table sets forth compensation
paid by the Company in the forms specified therein for the years ended December
31, 2003, 2002 and 2001 to (i) the chief executive officer of the Company and
(ii) the Company's four most highly compensated executive officers other than
the chief executive officer.
SUMMARY COMPENSATION TABLE
Long Term Compensation
-----------------------------------------
Annual Compensation Awards Payouts
---------------------------------------- -------------------------- -------
(a), (b) (c) (d) (e) (f) (g) (h) (i)
Other Securities All
Name, Annual Restricted Underlying Other
Principal Compen- Stock Options/ LTIP Compen-
Position Salary Bonus (1) sation Award (s) SARs Payouts sation (2)
and Year ($) ($) ($) ($) (# sh) ($) ($)
--------- ------ --------- ------- ---------- ---------- ------- -----------
James H. Garner, President and Chief Executive Officer
2003 $ 260,000 $ 195,310 $ -- $ -- -- $ -- $ 30,872
2002 240,000 172,300 -- -- -- -- 29,842
2001 225,000 136,160 -- -- -- -- 28,823
Anna G. Hollers, Executive Vice President and Secretary
2003 $ 186,000 $ 73,000 $ -- $ -- -- $ -- $ 18,879
2002 168,950 60,000 -- -- -- -- 19,427
2001 155,000 48,000 -- -- 5,000 -- 18,570
Teresa C. Nixon, Executive Vice President and Compliance Officer
2003 $ 180,000 $ 73,000 $ -- $ -- -- $ -- $ 10,700
2002 163,000 60,000 -- -- -- -- 9,950
2001 151,000 48,000 -- -- 4,000 -- 9,213
John F. Burns, Executive Vice President
2003 $ 167,754 $ 44,000 $ -- $ -- -- $ -- $ 23,316
2002 159,766 43,936 -- -- -- -- 24,368
2001 152,158 38,040 -- -- -- -- 21,101
Eric P. Credle, Senior Vice President and Chief Financial Officer
2003 $ 150,000 $ 60,000 $ -- $ -- -- $ -- $ 7,421
2002 130,000 50,000 -- -- -- -- 7,046
2001 120,000 40,000 -- -- 10,000 -- 6,111
----------
Notes:
(1) The amounts in this column represent actual incentive cash bonuses accrued
during the year indicated.
(2) The amounts in this column relate to three items: (1) Company
contributions to the Company's defined contribution plan under Section
401(k) of the Internal Revenue Code that covers all Company employees, (2)
the value of certain life insurance provided for the indicated executives,
based on the term insurance value of such payments as calculated under the
Internal Revenue Code P.S. 58 rates or those of the insurer, if higher,
and (3) fees earned for service as a director of the Company, or its
subsidiaries, and committees thereof. The following table presents the
amounts of those items:
Page 13 of 38
Defined Split-Dollar Director/
Contribution Insurance Committee
Plan Plan Fees
------------ --------- ---------
James H. Garner 2003 $ 9,000 $ 2,472 $ 19,400
2002 8,250 2,472 19,120
2001 7,536 2,507 18,780
Anna G. Hollers 2003 7,403 276 11,400
2002 7,151 276 12,000
2001 6,540 230 11,800
Teresa C. Nixon 2003 9,000 180 1,520
2002 8,250 180 1,520
2001 7,553 140 1,520
John F. Burns 2003 9,000 516 13,800
2002 8,250 1,918 14,200
2001 6,276 365 14,460
Eric P. Credle 2003 7,313 108 --
2002 6,950 96 --
2001 6,015 96 --
Option/SAR Grants in Last Fiscal Year
There were no options or stock appreciation rights granted to the
executive officers listed in the Summary Compensation Table during 2003.
Aggregated Option/SAR Exercises in Last Fiscal Year and Fiscal Year-End
Option/SAR Values
Set forth below is information concerning the exercise of stock options
during the year ended December 31, 2003 and year-end value of unexercised
options by the executive officers listed in the Summary Compensation Table. No
stock appreciation rights have been granted to the executive officers listed.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Securities Value of Unexercised
Underlying Unexercised In-the-Money
Shares Options/SARs at Options/SARs at
Acquired Fiscal Year End (# sh) Fiscal Year End ($)
on Exercise Value ---------------------------- -----------------------------
Name (# sh) Realized Exercisable Unexercisable Exercisable Unexercisable
--------------- ----------- -------- ----------- ------------- ----------- -------------
James H. Garner 6,560 $120,688 12,000 -- $166,439 $ --
Anna G. Hollers 4,250 83,500 16,750 3,000 222,955 24,630
Teresa C. Nixon 100 14,110 18,000 2,400 243,586 19,704
John F. Burns 2,228 34,044 6,000 4,000 99,480 66,320
Eric P. Credle -- -- 11,500 6,000 128,090 49,260
Page 14 of 38
Equity Compensation Plan Information
The following table presents information regarding shares of the Company's
stock that may be issued pursuant to the Company's stock options plans. The
Company has no warrants or stock appreciation rights outstanding.
As of December 31, 2003
---------------------------------------------------------------------------------------
(a) (b) (c)
Number of securities available for
Number of securities to Weighted-average future issuance under equity
be issued upon exercise exercise price of compensation plans (excluding
Plan category of outstanding options outstanding options securities reflected in column (a))
---------------------------- ---------------------- ------------------- -----------------------------------
Equity compensation plans 518,506 $17.78 106,150(1)
approved by security
holders
Equity compensation plans -- -- --
not approved by security
holders ------- ------ -------
Total 518,506 $17.78 106,150(1)
======= ====== =======
(1) Subsequent to December 31, 2003, the Board of Directors approved the grant
of 106,150 options to employees of the Company.
Defined Benefit Plans
Retirement Plan. The following table sets forth the estimated annual
pension benefits payable at normal retirement age of 65 to a participant in the
Company's noncontributory defined benefit retirement plan.
TABLE OF ANNUAL BENEFITS PAYABLE ON RETIREMENT
UNDER THE RETIREMENT PLAN
Final
Average Years of Service
Annual -----------------------------------------------------------------
Compensation 15 20 25 30 35
------------ -------- -------- --------- --------- ---------
$ 100,000 $ 16,700 $ 22,000 $ 27,500 $ 33,000 $ 38,500
150,000 27,000 36,000 45,000 54,000 63,000
200,000 37,500 50,000 62,500 75,000 87,500
250,000 38,500 51,400 62,500 77,100 89,900
300,000 38,500 51,400 62,500 77,100 89,900
350,000 38,500 51,400 62,500 77,100 89,900
400,000 38,500 51,400 62,500 77,100 89,900
450,000 38,500 51,400 62,500 77,100 89,900
Final Average Annual Compensation is the average of the five highest
consecutive calendar years earnings out of the 10 calendar years of employment
preceding retirement. Benefits shown are estimated on the basis of "life
annuity" amounts, although participants in the retirement plan may choose from a
variety of benefit payment options. For executive officers, current annual
compensation for the purposes of the retirement plan may be estimated as the sum
of the "Salary" and "Bonus" amounts in the Summary Compensation Table. The
benefits listed above are not subject to any deduction for Social Security or
other offset amounts. The Company's executive officers appearing in the Summary
Compensation Table who are participants in the retirement plan and their
respective credited years of service are: Mr. Garner, 35 years; Ms. Hollers, 31
years; Ms. Nixon, 15 years; Mr. Burns, 3 years; and Mr. Credle, 6 years.
Page 15 of 38
Supplemental Executive Retirement Plan. The following table sets forth the
estimated annual pension benefits payable at normal retirement age of 65 to
executive officers, other than the CEO, in the Company's SERP. Benefits shown in
the table are prior to deductions for 50% of social security benefits and
benefits paid under the retirement plan.
TABLE OF ANNUAL BENEFITS PAYABLE ON RETIREMENT
UNDER THE SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
Final
Average Years of Service
Annual --------------------------------------------
Compensation 10 15 20 or more
------------ ---------- --------- -----------
$ 100,000 $ 30,000 $ 45,000 $ 60,000
150,000 45,000 67,500 90,000
200,000 60,000 90,000 120,000
250,000 75,000 112,500 150,000
300,000 90,000 135,000 180,000
350,000 105,000 157,500 210,000
400,000 120,000 180,000 240,000
450,000 135,000 202,500 270,000
Final Average Annual Compensation is the average of the five highest
consecutive calendar years earnings out of the 10 calendar years of employment
preceding retirement. Benefits shown are estimated on the basis of "life
annuity" amounts, although participants in the SERP may choose from a variety of
benefit payment options. For executive officers, current annual compensation for
the purposes of the SERP may be estimated as the sum of the "Salary" and "Bonus"
amounts in the Summary Compensation Table. As noted above, benefits shown in the
table are prior to deductions for 50% of social security benefits and benefits
paid under the retirement plan. The Company's executive officers, other than the
CEO, appearing in the Summary Compensation Table who are participants in the
SERP and their respective credited years of service are: Ms. Hollers, 20 years
(the maximum for participants other than the CEO); Ms. Nixon, 15 years; Mr.
Burns, 3 years; and Mr. Credle, 6 years.
Mr. Garner, the Company's CEO, is also a participant in the SERP. The
provisions of the SERP applicable to him are the same as those described above,
except that his maximum benefit is 65% of Final Average Compensation compared to
60% for the other participants of the plan. Based on his years of service, Mr.
Garner has already reached the maximum benefit. Accordingly, his benefits under
the SERP, prior to deductions for 50% of social security benefits and benefits
paid under the retirement plan, will be determined by multiplying his Final
Average Compensation times 65%.
Employment Contracts and Change in Control Agreements
The Company has entered into employment agreements with 20 of its senior
officers, including each officer currently serving as an executive officer.
The employment agreements have two to three year terms that extend
automatically for an additional one year on each anniversary of the date of the
Agreement, unless either party gives the other written notice on or prior to
such anniversary date that such extension will not occur. The initial term for
each officer in the Summary Compensation Table is three years. The employment
agreements provide that the officers are guaranteed minimum annual salaries
equal to their current annualized base salaries, and will receive annual
increases that are at least as much as any percentage increase in the U.S.
Consumer Price Index during the preceding twelve months. The employment
agreements provide that each officer will be entitled to such insurance,
pension, profit-sharing and other benefit plans as are or may become available
generally to employees of the Company. The employment agreements provide that
each officer will be eligible for participation in the Company's Supplemental
Employee Retirement Plan, Split Dollar Life Insurance Plan (which is in the
process of being terminated), and Stock Option Plan. The employment agreements
also provide that each officer will be entitled to reasonable time off for
vacation, sick leave,
Page 16 of 38
bereavement leave, jury duty and military obligations as are or may become
available to employees of the Company in positions similar to those of the
officer.
The employment agreements provide the Company the right to terminate the
officer's employment "for cause" with no further accrual of compensation or
benefits if the Company finds that the officer (i) demonstrated gross negligence
or willful misconduct in the execution of the officer's duties, (ii) committed
an act of dishonesty or moral turpitude, or (iii) has been convicted of a felony
or other serious crime.
In the event that the Company terminates an officer for a reason other
than for cause, the Company is obligated to pay the officer's base salary for
the remainder of the agreement term. In addition, each officer may voluntarily
terminate employment by providing at least 45 days written notice to the
Company, in which case the officer's compensation, vested rights and employee
benefits will accrue through the date of termination of employment.
The employment agreements also contain noncompetition and confidentiality
covenants. The noncompetition covenants provide that upon termination of
employment with the Company, the officer may not engage directly, or indirectly,
in any activity or business that is in competition with the business of the
Company within the restricted territory, during the restricted period. The
restricted territory is a 50-mile radius of each officer's primary residence
and/or work location. The restricted period upon termination by the Company for
cause or voluntary employee termination is one year and for termination by the
Company other than for cause is the remainder of the agreement term. The
noncompetition covenant also prohibits solicitation or recruitment of any
employees of the Company during the restricted period, and prohibits sales
contacts or solicitation from any customer of the Company for any products or
services offered by the Company within the restricted territory during the
restricted period. The confidentiality covenants prohibit the officer from
disclosing any confidential business secrets or other confidential data both
during the term of the employment agreement and for a period of two years
following the termination of the agreement.
The employment agreements also provide that if there is a "change in
control" of the Company and the officer's employment is terminated by the
Company or the officer for any reason, or no reason (other than for cause), the
Company must pay the officer a severance payment equal to the officer's base
salary times a factor that ranges from 1 to 2.9. The multiple for each of the
officers listed in the Summary Compensation Table above is 2.9. Control means
the power, directly or indirectly, to direct the management or policies of the
Company or to vote 40% or more of any class of voting securities of the Company.
Change in control is defined as a change in control of the Company except that
any merger, consolidation or corporate reorganization in which the owners of the
capital stock entitled to vote in the election of directors of the Company prior
to the combination own 61% or more of the resulting entity's voting stock will
not be considered a change in control for the purpose of the employment
agreements; provided that a change in control will be deemed to have occurred if
(i) any "person" (as that term is used in Sections 13(d) and 14(d)(2) of the
Securities Exchange Act of 1934), other than a trustee or other fiduciary
holding securities under an employee benefit plan of the Company, is or becomes
the beneficial owner (as that term is used in Section 13(d) of the Securities
Exchange Act of 1934), directly or indirectly, of 33% or more of the voting
stock of the Company or its successors; (ii) during any period of two
consecutive years, individuals who at the beginning of such period constituted
the Board of Directors of the Company or its successors (the "Incumbent Board")
cease for any reason to constitute at least a majority of the board; provided,
that any person who becomes a director of the Company after the beginning of
such period whose election was approved by a vote of at least 3/4 of the
directors comprising the Incumbent Board will be considered a member of the
Incumbent Board; or (iii) there is a sale of all or substantially all of the
assets of the Company. Notwithstanding the foregoing, no change in control is
deemed to occur as a result of any transaction that results in the officer
subject to the employment agreement in question, or a group of persons including
such officer, acquiring, directly or indirectly, 33% or more of the combined
voting power of the Company's outstanding securities.
In addition to the employment agreement change in control provisions
discussed above, all memorandums of options granted under the Company's 1994
Stock Option Plan provide that in the event of a change in control of the
Company, which is defined the same as it is above, all options become fully
vested and immediately exercisable. Also, under the SERP, all participants
become fully vested in the event of a change in control, which is defined the
same as it is above.
Page 17 of 38
REPORT OF THE COMPENSATION COMMITTEE
The fundamental philosophy of the Company's compensation program is to
offer compensation arrangements that are (i) commensurate with individual
contributions to the performance of the Company and (ii) competitive with
publicly owned financial institutions of similar size and performance.
Compensation is designed to attract and retain individuals possessing the
specialized talents required by the Company to remain competitive in the
financial services industry.
In applying this philosophy, the Company's Compensation Committee,
comprised entirely of independent directors, develops compensation
recommendations to be considered by the entire Board of Directors. The
Compensation Committee directly determines the recommendation regarding the
compensation of the Chief Executive Officer. In addition, the Committee also
sets forth recommendations involving (i) compensation policies, (ii) incentive
compensation, (iii) long-term equity participation and (iv) benefit plans. In
2003, as in prior years, the Compensation Committee delegated to the Chief
Executive Officer the responsibility to determine appropriate levels of salaries
and incentive bonuses for the other executive officers of the Company. In 2004,
the Compensation Committee increased its role by reviewing and formally
approving the recommendations of the Company's Chief Executive Officer as they
relate to the compensation levels of the Company's other executive officers. In
determining appropriate compensation levels, both the Compensation Committee
(with regard to the Chief Executive Officer) and the Chief Executive Officer
(with regard to the other executive officers) consider the demonstration of the
leadership skills needed to enable the Company to achieve the business
objectives set forth by the Board of Directors. Periodically, including in 2004
as discussed below, the Compensation Committee engages outside compensation
consultants to evaluate and provide recommendations regarding executive officer
compensation.
In January 2004, the Compensation Committee engaged an outside consultant
to evaluate the compensation of the Chief Executive Officer and each executive
officer. The consultant met with the Compensation Committee in January 2004,
where he presented the Committee with his assessment of the compensation
arrangements for each of the Company's executive officers for 2003. The
consultant's process of assessing the appropriateness of compensation
arrangements involved the use of peer data to determine the extent to which the
Company's compensation arrangements were competitive within the Company's
industry and geographical area. As a part of this assessment, the consultant
compared the Company's arrangements, both in whole and in part, with those of
other financial institutions of similar size and performance both within the
state and nationally. This peer group was a subset of the broader peer group to
which the Company compares its total returns to shareholders. See "Shareholder
Return Performance." The results of this evaluation were used by the
Compensation Committee in recommending compensation levels for the Company's
executive officers for 2004.
Annual compensation for the Company's Chief Executive Officer and its
other executive officers primarily consists of four types of compensation, as
set forth below:
o base salary;
o annual incentive bonus (linked directly to corporate earnings and/or
individual performance);
o long-term equity participation (through the periodic issuance of
stock options under the Company's stock option plan), in an effort
to more closely align the interests of the executive officers with
those of the Company's shareholders; and
o benefit plans for executive officers.
Base Salary. For the Company's executive officers, including the Chief
Executive Officer, base salaries are targeted to approximate average salaries
for individuals in similar positions with similar levels of responsibilities who
are employed by other publicly owned banking organizations of similar size and
performance. The Company frequently participates in salary/compensation surveys
and has access to other published salary/compensation data. The results of such
surveys are used in developing the appropriate levels of base salaries for
executive officers. Also, as discussed above, the Company periodically,
including in January 2004, engages an outside consultant to evaluate executive
officer compensation.
Page 18 of 38
Annual Incentive Bonus. For the Company's executive officers, including
the Chief Executive Officer, annual incentive bonuses are directly and
indirectly linked to the Company's earnings and to the executive officer's
individual performance as it relates to enabling the Company to achieve its
performance goals.
For 2003, as in prior years, the Committee set the Chief Executive
Officer's annual incentive bonus as a percentage of the net income earned by the
Company. Such percentage for 2003, 2002 and 2001 was 1% of consolidated net
income.
For the other executive officers, the 2003 annual incentive bonus was
based on a combination of (i) a percentage, as determined by the Chief Executive
Officer, of base salary related to the Company's achievement of predetermined
earnings targets and (ii) additional amounts, at the discretion of the Chief
Executive Officer, related to the executive officer's individual contribution to
the overall achievement of Company-wide earnings targets. In 2003, the Company
met each of its earning targets set by the Board of Directors.
The salary-based portion of the 2003 incentive bonus for executive
officers other than the Chief Executive Officer ranged from 15% to 39% of the
respective base salary. Based on the 1% of net income formula discussed above,
the Chief Executive Officer's incentive bonus amounted to 75% of his base
salary.
Long-Term Equity Participation. For the Company's CEO, executive officers
and other key employees, stock options may be granted each year at the
discretion of the Board of Directors. Although no formal system is employed in
determining the number of options granted, both in the aggregate or to any one
individual, the Board considers the Company's current financial performance, the
individual's level of responsibility and the number of previously granted stock
options. Options are not intended to be an on-going component of annual
compensation, but instead are typically granted to attract and retain new
employees, to recognize changes in responsibilities of existing employees, and
to periodically reward exemplary performance. The Compensation Committee did not
believe that any of these conditions existed in 2003, and thus no options were
granted to the Company's executive officers.
Benefit Plans For Executive Officers. In addition to the aforementioned
methods of compensating executive officers, the Company provides executive
officers with the same benefits that are afforded to all Company employees,
including matching contributions under the Company's defined contribution plan,
retirement benefits under the Company's pension plan and group insurance
covering health, life and disability. Also, executive officers participate in
the Company's Supplemental Executive Retirement Plan and Split-Dollar Insurance
Plan. Due to recently passed congressional and IRS regulations, the Company is
in the process of terminating the Split-Dollar Insurance Plan.
Employment Agreements. Over the past several years, the Company has
entered into employment agreements with each executive officer, as well as nine
other senior officers. These agreements were determined to be in the best
interest of the Company, among other reasons, (i) to better compete in the
retention of executive and senior officers with peer banks that have similar
agreements, (ii) to provide certain protections to the Company, including
noncompetition and confidentiality covenants in the event that employment is
terminated, and (iii) to protect the Company, through change in control
provisions, from loss of executive and senior officers as a result of any change
in control possibilities that might arise. The provisions of the employment
agreements were previously described in more detail under the heading
"Employment Contracts and Change in Control Agreements."
The above is a summary of current practice regarding CEO and executive
officer compensation matters considered by the Committee. Because CEO and
executive officer salaries are not currently (or in the foreseeable future)
expected to exceed those limitations provided under Section 162(m) of the
Internal Revenue Code, the Committee has no specific policy that addresses the
deductibility for income tax purposes of "qualified compensation" under said
code section.
RESPECTFULLY SUBMITTED BY THE COMPENSATION COMMITTEE OF
THE BOARD OF DIRECTORS:
Jack D. Briggs Edward T. Taws, Jr.
David L. Burns A. Jordan Washburn
Jesse S. Capel, Chairman John C. Willis
Page 19 of 38
SHAREHOLDER RETURN PERFORMANCE
The performance graph shown below compares the Company's cumulative total
return to shareholders for the five-year period commencing December 31, 1998 and
ending December 31, 2003, with the cumulative total return of the Russell 2000
Index (reflecting overall stock market performance of small-capitalization
companies), and an index of banks with between $1 billion and $5 billion in
assets, as constructed by SNL Securities, LP (reflecting changes in banking
industry stocks). The graph and table assume that $100 was invested on December
31, 1998 in each of the Company's common stock, the Russell 2000 Index, and the
SNL Bank Index, and that all dividends were reinvested.
First Bancorp
Comparison of Five-Year Total Return Performances (1)
Five Years Ending December 31, 2003
[OBJECT OMITTED]
Total Return Index Values(1)
December 31,
------------------------------------------------------------------------
1998 1999 2000 2001 2002 2003
------- ------- ------- ------- ------- -------
First Bancorp $100.00 $ 87.56 $ 87.55 $130.23 $140.83 $193.30
Russell 2000 100.00 121.26 117.59 120.52 95.83 141.11
Index-Banks between $1
billion and $5 billion 100.00 91.91 104.29 126.72 146.28 198.92
Notes:
(1) Total return indices were provided from an independent source, SNL
Securities LP, Charlottesville, Virginia, and assume initial investment of
$100 on December 31, 1998, reinvestment of dividends, and changes in
market values. Total return index numerical values used in this example
are for illustrative purposes only.
Page 20 of 38
Shareholders should recognize that corporations often use a number of
other performance benchmarks (in addition to shareholder return) to set various
levels of executive officer compensation. Shareholders should thus consider
other relevant performance indicators in assessing performance, such as growth
in earnings per share, growth in book value per share, growth in cash dividends
per share, and other performance measures such as return on assets and return on
shareholders' equity.
Certain Transactions
Certain of the directors, nominees, principal shareholders and officers
(and their associates) of the Company have deposit accounts and other
transactions with First Bank, including loans in the ordinary course of
business. All loans or other extensions of credit made by First Bank to
directors, nominees, principal shareholders and officers of the Company and to
associates of such persons were made in the ordinary course of business on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with independent third
parties and did not involve more than the normal risk of collectibility or
present other unfavorable features. At December 31, 2003, the aggregate
principal amount of loans to directors, nominees, principal shareholders and
officers of the Company and to associates of such persons was approximately
$9,775,000.
The Company expects to continue to enter into transactions in the ordinary
course of business on similar terms with directors, nominees, principal
shareholders and officers (and their associates) of the Company.
Section 16(a) Beneficial Ownership Reporting Compliance
Under the securities laws of the United States, the Company's directors,
its executive officers, and any persons holding more than 10% of the Company's
common stock are required to report their ownership of the Company's common
stock and any changes in that ownership to the Securities and Exchange
Commission and the National Association of Securities Dealers Automated
Quotation System. Specific due dates for these reports have been established,
and the Company is required to report in this proxy statement any failure to
file by these dates during 2003. To the Company's knowledge, during 2003 all of
these filing requirements were satisfied by the Company's directors and officers
except for three transactions that were not timely filed with the Securities and
Exchange Commission, as follows: i) Ms. Wallace-Gainey's spouse purchased 22
shares as custodian for a minor on November 20, 2002, for which the filing
requirement was not made until December 17, 2003, ii) Mr. Perkins executed an
open market sale of 900 shares on October 28, 2003 that was filed two days late,
and iii) Mr. Perkins executed an open market sale of 7,700 shares on October 29,
2003 that was filed one day late.
Page 21 of 38
AUDIT COMMITTEE REPORT
Management has the primary responsibility for the financial statements and
the reporting process. The Company's independent auditor, which for the fiscal
year 2003 was KPMG LLP ("KPMG"), are responsible for expressing an opinion on
the conformity of our audited financial statements to accounting principles
generally accepted in the United States of America. The Audit Committee has
reviewed and discussed with management and KPMG the audited financial statements
as of and for the year ended December 31, 2003. The Audit Committee has
discussed with KPMG the matters required to be discussed by Statement on
Auditing Standards No. 61 (Communication with Audit Committees). In addition,
the Audit Committee has received from KPMG the written disclosures and letter
required by Independence Standards Board Standard No. 1 (Independence
Discussions with Audit Committees) and discussed with them their independence
from the Company and its management. The Audit Committee also has considered
whether KPMG's provision of any information technology services or other
non-audit services to the Company is compatible with the concept of auditor
independence.
Based on the reviews and discussions referred to above, the Audit
Committee recommended to the Board of Directors that the audited consolidated
financial statements be included in the Company's Annual Report on Form 10-K for
the year ended December 31, 2003 for filing with the Securities and Exchange
Commission.
The Board of Directors has determined that Ms. Thomasson is an "audit
committee financial expert" within the meaning of SEC rules and regulations.
The Board of Directors has adopted a written charter for the Audit
Committee, which is reviewed and reassessed for adequacy on an annual basis. The
Audit Committee charter was amended and restated in February 2004 to comply with
new SEC and Nasdaq rules. A copy of the Audit Committee's written charter is
included as Appendix A.
RESPECTFULLY SUBMITTED BY THE AUDIT COMMITTEE
OF THE BOARD OF DIRECTORS:
Jack D. Briggs Goldie H. Wallace-Gainey
H. David Bruton Virginia C. Thomasson
David L. Burns Dennis A. Wicker
Jesse S. Capel, Chairman John C. Willis
The nominees who receive the highest number of votes cast, up to the
number of directors to be elected, shall be elected as directors. The Board of
Directors recommends that shareholders vote "FOR" the proposal to elect the 18
nominees as directors. Unless indicated to the contrary, proxies will be voted
"FOR" the 18 nominees listed above.
Page 22 of 38
PROPOSAL 2 - RATIFICATION OF INDEPENDENT AUDITORS
Your directors and management recommend that the shareholders ratify the
appointment of KPMG LLP to serve as the independent auditors for the Company for
the year ending December 31, 2004. KPMG LLP has served as the independent
auditors for the Company since April 1991 and has audited the Company's
consolidated financial statements for each of the years in the three-year period
ended December 31, 2003. If the appointment of KPMG LLP is not ratified by the
shareholders, the Board of Directors will reconsider the appointment of auditors
for the current fiscal year.
The following table sets forth the professional fees paid to KPMG LLP by
the Company for professional services rendered for 2003:
2003 2002
-------- -------
Audit Fees $135,891 128,500
Audit-Related Fees 15,400 14,300
Tax Fees 79,700 158,200
All Other Fees -- 76,134
-------- -------
Total Fees $230,991 377,134
======== =======
Audit Fees includes fees for the audit of the consolidated financial
statements, quarterly reviews of the interim consolidated financial statements
and an internal control attestation engagement. Audit-related fees consisted of
audits of the financial statements of two employee benefit plans. Tax fees
consisted of tax compliance and tax consulting. The All Other Fees amount of
$76,134 in 2002 related to KPMG LLP acting as a facilitator at the Company's
strategic retreat.
Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services
The Company's Audit Committee pre-approves all audit services and
permitted non-audit services (including the fees and terms thereof) to be
performed by the independent auditors, subject to such exceptions for non-audit
services as permitted by applicable laws and regulations. The Committee may form
and delegate authority to subcommittees consisting of one or more members when
appropriate, including the authority to grant pre-approvals of audit and
permitted non-audit services, provided that decisions of such subcommittee to
grant pre-approvals shall be presented to the full Committee at its next
scheduled meeting. The Audit Committee pre-approved all services for which KPMG
was engaged after May 6, 2003 (the effective date of the Securities and Exchange
Commission's pre-approval requirements for audit and non-audit services).
Representatives of KPMG LLP are expected to be present at the annual
meeting to respond to appropriate questions and will be given an opportunity to
make any statement they consider appropriate.
The affirmative vote of the holders of a majority of shares of common
stock represented and voting at the meeting (either in person or by proxy) is
required for approval of this proposal. The Board of Directors recommends that
shareholders vote "FOR" this proposal. Unless indicated to the contrary, proxies
will be voted "FOR" this proposal.
Page 23 of 38
PROPOSAL 3 - APPROVAL OF A NEW STOCK OPTION PLAN,
ENTITLED THE "FIRST BANCORP 2004 STOCK OPTION PLAN"
The Board of Directors is submitting to the shareholders, for their
approval, a new stock option plan for the benefit of the Company's employees and
directors, entitled the "First Bancorp 2004 Stock Option Plan" ("2004 Option
Plan"). Under the terms of the Company's current stock option plan, the 1994
Stock Option Plan ("1994 Option Plan"), no options may be granted after April
28, 2004. The Board of Directors believes that the 1994 Option Plan has been an
important means of attracting, retaining and motivating key employees and
directors. Accordingly, the board believes that it is in the best interest of
the Company to adopt a new plan that will operate similarly to the current plan.
The 2004 Option Plan was adopted by the Company's Board of Directors on
February 24, 2004 and will become effective on the date it is approved by the
shareholders. Because it is anticipated that the Company's directors and
officers will receive options under the 2004 Option Plan, directors and officers
are deemed to have an interest in approval of the plan. The following is a
summary of the material terms of the 2004 Option Plan. This summary is qualified
in its entirety by the complete terms of the 2004 Option Plan, which is attached
hereto as Appendix B.
Summary of the 2004 Option Plan
General. The 2004 Option Plan provides that the Company may grant options
("Options") to purchase the Company's Common Stock, no par value ("Common
Stock") to employees and directors of the Company and its subsidiaries. The
purposes of the 2004 Option Plan are (1) to align the interests of participating
employees and directors with the shareholders by reinforcing the relationship
between shareholder gains and participant rewards, (2) to encourage equity
ownership in the Company by participants and (3) to provide an incentive to
employee participants to continue their employment with the Company.
The 2004 Option Plan provides for the grant of "Incentive Options" to
employees of the Company and for the grant of "Non-Qualified Options" to
employees and non-employee directors of the Company. It is intended that
Incentive Options may qualify as "incentive stock options" under Section 422 of
the Internal Revenue Code if certain conditions are met (see further discussion
below). An aggregate of 850,000 shares have been reserved for grants of Options
under the 2004 Option Plan. The numbers of shares that may be granted under the
2004 Option Plan and the number of shares and exercise prices of outstanding
Options will be adjusted to reflect any change in the capitalization of the
Company (such as a stock split or stock dividend) as contemplated in the 2004
Option Plan. On February 29, 2004, the closing sales price for the Company's
common stock as reported on the NASDAQ Stock Market was $33.39 per share.
Administration. The 2004 Option Plan is administered by the Board of
Directors, although any or all administrative functions otherwise exercisable by
the board may be, and are expected to be, delegated to the Compensation
Committee (the administrative body, whether the Board of Directors or the
Compensation Committee, is hereafter referred to as the "Administrator"). The
Administrator has complete authority to: (a) determine the eligible persons who
will receive Options, the timing of the grants of Options, and other terms of
such Options, subject to the terms of the 2004 Option Plan; (b) make and amend
rules governing the administration of the 2004 Option Plan; (c) construe and
interpret the 2004 Option Plan; (d) take actions necessary to keep the 2004
Option Plan in compliance with securities, tax and other laws; and (e) make
other necessary determinations in connection with the administration of the 2004
Option Plan.
The Administrator may designate selected Compensation Committee members or
certain employees of the Company to assist in the administration of the 2004
Option Plan and may grant authority to such persons to execute documents,
including Options, on behalf of the Administrator, subject to the requirements
of the applicable laws and regulations.
Eligibility and Criteria for Grants. The 2004 Option Plan provides that
Incentive Options may be granted to any of the employees of the Company or its
subsidiaries. As of December 31, 2003, the Company had approximately 505
full-time and 89 part-time employees. In making the determination as to the
employees who will be granted Incentive Options, the Administrator will consider
the duties of the employee, the employee's present and
Page 24 of 38
potential contributions to the success of the Company, and such other factors as
the Administrator deems relevant in connection with accomplishing the purposes
of the 2004 Option Plan.
Non-Qualified Options may be granted to employees and to non-employee
directors of the Company, in the discretion of the Administrator. It is expected
that, consistent with past practice under the 1994 Option Plan, each
non-employee director will receive on June 1, 2004, an Option to acquire 1,500
shares of Common Stock at an exercise price equal to the fair market value of
the Company's Common Stock on the option grant date. At December 31, 2003, there
were 14 directors who were not employees of the Company.
Terms and Conditions of Options. The price per share at which Options may
be exercised is determined by the Administrator at the time of grant, but the
exercise price per share may not be less than 100% of the fair market value of
the Company's Common Stock on the date of the grant. Payment of the exercise
price (and applicable taxes, if any) must be in cash, or if permitted by the
Administrator, payment may be in shares of Common Stock (or other unexercised
Options) having a fair market value on the date of exercise equal to the
exercise price. In addition, Options may be exercised pursuant to a "cashless
exercise" procedure through a brokerage firm, under which the brokerage firm
sells the shares of Common Stock received pursuant to the exercise and remits to
the Company from the proceeds of the sale funds to pay the exercise price (and
applicable taxes, if any). An Option granted under the 2004 Option Plan may be
exercised for any lesser number of shares than the full amount for which it
could be exercised, except that the minimum number of shares that may be subject
to a partial exercise is 100 shares. Such a partial exercise of an Option does
not affect the right to exercise the Option for the remaining shares subject to
the Option.
The 2004 Option Plan generally provides that Options are exercisable at
such time and upon such conditions as may be determined by the Administrator at
the time of grant, except that the term of such Options may not exceed ten years
from the date of grant. The maximum number of shares of Common Stock that may be
covered by an Option granted to any one individual shall be 50,000 shares during
any one calendar year period.
In general, Options granted under the 2004 Option Plan may not be
transferred other than by will or the laws of descent and distribution and
during the optionee's lifetime may be exercised only by the optionee. If an
optionee dies without having exercised an Option, the Option may be exercised by
the optionee's estate or by a person who acquired the right to exercise the
Option by bequest or inheritance, to the extent of the shares with respect to
which the Option could have been exercised on the date of the optionee's death,
for a period of 12 months following the optionee's death.
If Options are granted pursuant to a vesting schedule, the 2004 Option
Plan provides that all Options will become fully and immediately vested and
exercisable immediately prior to any event or transaction that results in a
change in control of the Company.
Amendment of Plan and Options. The 2004 Option Plan may be amended,
altered or discontinued by the Board of Directors at any time, but no such
termination or amendment is allowed to materially or adversely affect the rights
and obligations of a holder of an Option theretofore granted without such
holder's consent. The Administrator may also amend the terms and conditions of
any outstanding Option. However, no action may be taken that would alter or
impair any rights or obligations under any outstanding Option without the
consent of the holder of the Option.
Federal Income Tax Consequences. The grant of an Option under the 2004
Option Plan is not a taxable event; the recipient of the Option does not
recognize income for federal income tax purposes, and the Company does not get a
tax deduction.
Incentive Options are designed to qualify as "incentive stock options"
under Section 422 of the Internal Revenue Code. If the employee observes certain
rules applicable to the exercise of the Options and the sale of the shares
thereafter, then the exercise of the Option does not result in the recognition
of taxable income, and the Company is not entitled to a tax deduction as a
result of such exercise. However, if the employee does not follow the rules
applicable to incentive stock options (for example, if shares purchased pursuant
to the exercise of an Incentive Option are sold within two years from the date
of grant or within one year after the transfer of such shares to the
participant), then the difference between the fair market value of the shares at
the date of exercise and the exercise price will be considered ordinary income,
and the Company will be entitled to a tax deduction at the same time and in the
same amount. In addition, under certain circumstances the difference between the
fair market value of shares
Page 25 of 38
subject to an incentive stock option and the exercise price for such shares is
an adjustment to income for purposes of the alternative minimum tax (AMT) under
the Internal Revenue Code.
Non-Qualified Options cannot qualify for incentive stock option treatment.
When the holder of a Non-Qualified Option exercises the Option, the individual
will recognize taxable income in the amount by which the fair market value of
the shares at the date of exercise exceeds the exercise price, and the Company
will be entitled to a tax deduction at the same time and in the same amount.
Plan Benefits Table
The Company cannot determine the number of Options that will be granted to
any person during 2004, except that if this proposal is approved and if 14
persons are serving as non-employee directors of the Company on June 1, 2004, it
is expected that the Company's non-employee directors will each receive Options
to purchase 1,500 shares on June 1, 2004, for an aggregate of 21,000 shares.
The following table sets forth the name and position of each person named
in the Summary Compensation Table as well as other groups, and the number of
outstanding options that are expected to be granted under the 2004 Option Plan
to such person or group during 2004. The groups listed in the table are: the
Company's current executive officers, all current non-employee directors, and
all nonexecutive employees.
Number of
Name Position Options Granted
------------------------------------ -------------------------- ---------------
James H. Garner President and Chief --
Executive Officer
Anna G. Hollers Executive Vice President --
and Secretary
Teresa C. Nixon Executive Vice President --
and Compliance Officer
John F. Burns Executive Vice President --
Eric P. Credle Senior Vice President and --
Chief Financial Officer
Executive Group --
Non-Executive Director Group 21,000
Non-Executive Officer Employee Group --
The affirmative vote of the holders of a majority of shares of common
stock represented and voting at the meeting (either in person or by proxy) is
required for approval of the proposal to adopt the 2004 Option Plan. The Board
of Directors recommends that shareholders vote "FOR" this proposal. Proxies,
unless indicated to the contrary, will be voted "FOR" this proposal.
Page 26 of 38
SHAREHOLDERS PROPOSALS FOR 2005 MEETING
Shareholders may submit proposals appropriate for shareholder action at
the Company's 2005 annual meeting consistent with the regulations of the
Securities and Exchange Commission. For proposals to be considered for inclusion
in the proxy statement for the 2005 annual meeting, they must be received by the
Company no later than November 30, 2004. Such proposals should be directed to
First Bancorp, Attn. Anna G. Hollers, 341 North Main Street, Troy, North
Carolina 27371-0508.
The bylaws of the Company establish an advance notice procedure for
shareholder proposals to be brought before a meeting of shareholders of the
Company. Subject to any other applicable requirements, only such business may be
conducted at a meeting of the shareholders as has been brought before the
meeting by, or at the direction of, the Board of Directors or by a shareholder
who has given to the Secretary of the Company timely written notice, in proper
form, of the shareholder's intention to bring that business before the meeting.
The presiding officer at such meeting has the authority to make such
determinations. To be timely, notice of other business to be brought before any
meeting must generally be received by the Secretary of the Company not less than
60 nor more than 90 days in advance of the shareholders' meeting. The notice of
any shareholder proposal must set forth the various information required under
the bylaws. The person submitting the notice must provide, among other things,
the name and address under which such shareholder appears on the Company's books
and the class and number of shares of the Company's capital stock that are
beneficially owned by such shareholder. Any shareholder desiring a copy of the
Company's bylaws will be furnished one without charge upon written request to
the Secretary of the Company at the Company's address noted above.
OTHER MATTERS
As of the date of this proxy statement, the Board of Directors does not
know of any other business to be presented for consideration or action at the
annual meeting. If other matters properly come before the annual meeting, the
enclosed proxy will be deemed to confer discretionary authority to the
individuals named as proxies therein to vote the shares represented by such
proxy as to any such matters.
By Order of the Board of Directors,
Anna G. Hollers
Secretary
-----------------------------------
Page 27 of 38
Appendix A
FIRST BANCORP
AMENDED AND RESTATED
CHARTER OF THE
AUDIT COMMITTEE OF THE BOARD OF DIRECTORS
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of
Directors in fulfilling its oversight responsibilities by monitoring: (i) the
financial reports and other financial information provided by First Bancorp (the
"Corporation") to governmental bodies and the public; (ii) the Corporation's
systems of internal controls regarding finance, accounting and legal compliance
that management and the Board have established; and (iii) the Corporation's
auditing, accounting and financial reporting processes generally.
The Audit Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the
Corporation's financial reporting process and internal control system
regarding finance, accounting and legal compliance.
o Review and appraise the audit efforts and independence of the
Corporation's independent auditors and internal auditing department.
o Provide an open avenue of communication among the independent
auditors, financial and senior management, the internal auditing
department, and the Board of Directors.
The Audit Committee is not responsible for planning or conducting audits
or for determining that the Corporation's financial statements are complete,
accurate and in accordance with generally accepted accounting principles.
Management and the independent auditors have this responsibility.
The independent auditors are accountable to the Board and to the Audit
Committee, and the Audit Committee has the authority and duty to select,
evaluate, and if appropriate, replace, the independent auditors. In addition,
the Audit Committee has direct responsibility for the compensation and oversight
of the independent auditors.
The Audit Committee has the authority to conduct any investigation
appropriate to fulfilling its responsibilities and has direct access to the
independent auditors as well as anyone at the Corporation. The Audit Committee
has the authority to retain, at the Corporation's expense, special legal,
accounting or other consultants or experts it deems necessary in the performance
of its duties.
The Corporation shall provide appropriate funding for the payment of
compensation to the independent auditors for all services approved by the Audit
Committee and for the discharge of the Audit Committee's responsibilities.
The Audit Committee will primarily fulfill its responsibilities by
carrying out activities enumerated in Section IV of this Charter.
II. COMPOSITION
The Audit Committee shall be comprised of three or more directors as
determined by the Board upon the recommendation of the Nominating and Corporate
Governance Committee, each of whom shall be independent directors (as defined in
Nasdaq rules and SEC regulations), and free from any relationship that, in the
opinion of the Board, would interfere with the exercise of his or her
independent judgment as a member of the Committee. All members of the Committee
shall have a basic understanding of finance and accounting and be able to read
and understand fundamental financial statements. At least one director must have
past employment experience in finance or accounting, requisite professional
certification in accounting, or other comparable experience or background,
including a current or past position as chief executive or financial officer or
other senior officer with financial
Page 28 of 38
oversight responsibilities. The Committee members must not have participated in
the preparation of the financial statements of the Corporation or any current
subsidiary of the Corporation during the last three years. To the extent
feasible, at least one member of the Audit Committee must be an "audit committee
financial expert," as defined in applicable SEC regulations and Nasdaq rules.
The Audit Committee Chair is customarily the Chairman of the Board of
Directors, provided that the Board of Directors Chairman is an independent
director (as defined in the Nasdaq rules and SEC regulations). In the event the
Chairman of the Board of Directors is not an independent director, the Audit
Committee shall elect a Chairman, subject to ratification by the Board of
Directors.
III. MEETINGS
The Committee shall meet at least four times annually, or more frequently
as circumstances dictate. As part of its job to foster open communication, the
Committee should meet at least annually with management, the director of the
internal auditing department, the independent auditors and the Committee itself
in separate executive sessions to discuss any matters that the Committee or each
of these groups believe should be discussed privately. In addition, the
Committee or at least its Chair should discuss with the independent auditors and
management the Corporation's quarterly financial information and significant
findings based upon the auditors' limited review procedures, consistent with
Section IV below. In the event the independent auditors have any significant
findings, disagreements with management, review differences, or other matters
which are required to be reported to the Audit Committee pursuant to SAS 71, the
Chair will call a special meeting of the Audit Committee to discuss such
matters.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties the Audit Committee shall:
Review Procedures:
1. Review and update this Charter at least annually, prior to the publication
of the Corporation's proxy statement and annual report. Recommend
revisions to the Board and submit the Charter to the Board for approval.
Have the document published periodically in accordance with SEC
regulations.
2. Review the Corporation's annual financial statements and reports,
including any certification, report, opinion, or review rendered by the
independent auditors.
3. In consultation with management, the independent auditors and internal
auditors, consider the integrity of the Corporation's financial reporting
process and controls. Discuss significant financial risk exposures and the
steps management has taken to monitor, control and report such exposures.
Review significant findings prepared by the independent auditors and the
internal auditing department together with management's responses.
4. Review with management and the independent auditors the Corporation's
quarterly financial results prior to the filing of the Corporation's
quarterly financial statements with the SEC. The Chair of the Committee
may represent the entire Committee for this purpose.
5. Discuss any significant changes to the Corporation's accounting principals
and any items required to be communicated by the independent auditors in
accordance with SAS 61 and SAS 71. The Chair of the Committee may
represent the entire Audit Committee for purposes of this review. In the
event the independent auditors have any significant findings,
disagreements with management, review differences, or other matters which
are required to be reported to the Audit Committee pursuant to SAS 71, the
Chair may call a special meeting of the Audit Committee to discuss such
matters.
Independent Auditors:
6. On an annual basis, the Committee should review and discuss with the
independent auditors all significant relationships they have with the
Corporation to determine their independence. In connection with this
Page 29 of 38
discussion, the Committee should obtain from the independent auditors the
communication required by ISB No. 1.
7. Review the performance of the independent auditors and report to the Board
about any proposed discharge of the independent auditors when and if
circumstances warrant.
8. Review the independent auditors' audit plan - discuss scope, staffing,
locations, reliance upon management and internal audit and their general
audit approach.
9. Prior to filing the form 10-K, discuss the results of the audit with the
independent auditors. Discuss certain matters required to be communicated
to audit committees in accordance with AICPA SAS 61.
10. Periodically consult with the independent auditors out of the presence of
management about internal controls and the fullness and accuracy of the
organization's financial statements. This process should also remind the
independent auditors that the Audit Committee - not management - is the
independent auditors' client.
11. Select and retain the independent auditors, considering independence and
effectiveness. Approve the scope of the proposed audit for each fiscal
year and the fees and other compensation to be paid to the independent
auditors for the audit. At least annually, evaluate the qualifications,
performance and independence of the independent auditors, including
considering whether the provision of permitted non-audit services is
compatible with maintaining the accountants' independence, and taking into
account the opinions of management and the internal auditors.
12. Discuss with the independent auditors their judgments about the quality
and appropriateness, not just acceptability, of the Corporation's
accounting principles as applied in its financial reporting.
13. Pre-approve all audit services and permitted non-audit services (including
the fees and terms thereof) to be performed by the independent auditors,
subject to such exceptions for non-audit services as permitted by
applicable laws and regulations. The Committee may form and delegate
authority to subcommittees consisting of one or more members when
appropriate, including the authority to grant pre-approvals of audit and
permitted non-audit services, provided that decisions of such subcommittee
to grant pre-approvals shall be presented to the full Committee at its
next scheduled meeting.
Financial Reporting Processes:
14. Foster an understanding by management and the independent auditors of
their duty to report to the Audit Committee on significant financial
reporting issues and practices on a timely basis.
15. In consultation with the independent auditors and the internal auditors,
review the integrity of the organization's financial reporting processes,
both internal and external.
Process Improvement:
16. Establish regular systems of reporting to the Audit Committee by each of
management, the independent auditors and the internal auditors regarding
any significant judgments made in management's preparation of the
financial statements and the view of each as to appropriateness of such
judgments.
17. Review with the independent auditors, the internal auditing department and
management the extent to which changes or improvements in financial or
accounting practices, as approved by the Audit Committee, have been
implemented. (This review should be conducted at an appropriate time
subsequent to implementation of changes or improvements, as decided by the
Committee.)
Page 30 of 38
18. If applicable, after completion of the annual audit, review separately
with both management and the independent auditors any significant
difficulties encountered during the audit, including any restrictions on
the scope of work or access to required information.
Ethical and Legal Compliance.
19. Review and update periodically a Code of Ethical Conduct and ensure that
management has established an appropriate system to enforce this Code.
20. Review management's monitoring of the Corporation's compliance with the
organization's Ethical Code.
21. Establish and periodically review the adequacy of procedures for the
receipt, retention and treatment of complaints received by the Corporation
regarding accounting, internal accounting controls or auditing matters,
and the confidential, anonymous submission by employees of concerns
regarding questionable accounting or auditing matters.
22. Receive reports regarding, and review any "related party transactions," as
defined by applicable Nasdaq rules and determine whether to ratify or
approve such transactions.
23. Review activities, organizational structure, and qualifications of the
internal audit department.
24. On at least an annual basis, review with the Corporation's counsel, legal
compliance matters including corporate securities trading policies.
25. On at least an annual basis, review with the Corporation's counsel, any
legal matter that could have a significant impact on the Corporation's
financial statements.
Other Audit Committee Responsibilities
26. Annually prepare a report to shareholders as required by the SEC. The
report should be included in the Corporation's annual proxy statement, and
should state whether the Audit Committee has:
o reviewed and discussed the consolidated financial statements with
management;
o discussed with the independent auditors the matters required to be
discussed by SAS 61;
o received certain disclosures from the auditors regarding their
independence required by ISB No. 1;
o considered whether the independent auditors' provision of nonaudit
services is compatible with the concept of auditor independence; and
o concluded, based on a review of the audited financial statements
and discussions with the independent auditors, that the Audit Committee
should recommend to the Board of Directors that the consolidated financial
statements be included in the Corporation's Annual Report on Form 10-K for
filing with the SEC.
27. Approve any report to be included in the Corporation's annual report or
proxy statement that describes the Committee's composition and
responsibilities and how they were discharged.
28. Report to the Board periodically regarding Committee activities and
conduct and present to the Board an annual evaluation of the Committee's
performance.
29. Perform any other activities consistent with this Charter, the
Corporation's By-laws and governing law, as the Committee or the Board
deems necessary or appropriate.
Page 31 of 38
Appendix B
FIRST BANCORP
2004 STOCK OPTION PLAN
ARTICLE I
GENERAL PROVISIONS
1.1 Purpose of the Plan. This Plan is intended to promote the interests of
First Bancorp (the "Company") by giving eligible persons who provide services to
the Company the opportunity to acquire a proprietary interest, or otherwise
increase their proprietary interest, in the Company as an incentive to continue
their employment or service. Capitalized terms used in the Plan shall have the
meanings given to them in the Addendum attached hereto.
1.2 Administration of the Plan.
(a) The Plan shall be administered by the Board; provided, however, that
any or all administrative functions otherwise exercisable by the Board may be
delegated to the Committee. Members of the Committee shall serve for such period
of time as the Board may determine and shall be subject to removal by the Board
at any time. The Board also may, at any time, terminate the functions of the
Committee and reassume all powers and authority previously delegated to the
Committee. The Board or the Committee, as the Plan Administrator, shall have
full power and authority (subject to the provisions of the Plan) to establish
such rules and regulations as it may deem appropriate for the proper
administration of the Plan and to make such determinations under, and issue such
interpretations of, the Plan and any outstanding Options thereunder as it may
deem necessary or advisable. Decisions of the Plan Administrator shall be final
and binding on all parties who have an interest in the Plan or any Option issued
hereunder.
(b) Subject to the terms of the Plan, the Plan Administrator shall have
full power and authority to determine which eligible persons will receive Option
grants, the time or times when such grants will be made, the number of shares to
be covered by each grant, the status of each Option as either an Incentive
Option or a Non-Qualified Option, the time or times when each Option is
exercisable, the vesting schedule (if any) applicable to granted Options, the
maximum term for which an Option shall remain outstanding, and all other terms
and conditions of an Option granted under the Plan.
1.3 Eligibility. Only Employees are eligible to receive grants of
Incentive Options. The persons eligible to receive grants of Non-Qualified
Options are (a) Employees and (b) non-employee members of the Board or the board
of directors of any Parent or Subsidiary. Additionally, the maximum number of
shares of Common Stock that may be covered by an Option granted to any one
individual shall be 50,000 shares during any one calendar year period.
1.4 Stock Subject to the Plan. The stock issuable under the Plan shall be
shares of authorized but unissued Common Stock. The maximum number of shares of
Common Stock that may be issued under the Plan shall not exceed 850,000 shares,
and all such shares shall be available for issuance pursuant to the grant of
Incentive Options. Shares of Common Stock subject to outstanding Options shall
be available for subsequent issuance under the Plan to the extent any Options
expire or terminate for any reason prior to their exercise in full.
1.5 Adjustments in Common Stock. Should any change or exchange be made to
or for the Common Stock by reason of any stock split, stock dividend,
recapitalization, combination of shares, exchange of shares, reorganization,
merger or other similar change, the Plan Administrator shall cause appropriate
adjustments to be made to (a) the maximum number and/or class of securities
issuable under the Plan and (b) the number and/or class of securities and the
exercise price per share in effect under each outstanding Option, in order to
prevent the dilution or enlargement of benefits thereunder. The adjustments
determined by the Plan Administrator shall be final, binding and conclusive.
Page 32 of 38
ARTICLE II
OPTION GRANT PROGRAM
2.1 Grant of Options Generally. Each Option granted under this Plan shall
have such terms and conditions as approved by the Plan Administrator. Subject to
the provisions of this Plan, each Option shall be evidenced by one or more
documents in the form approved by the Plan Administrator, and no grant shall be
effective unless and until both the Company and the person to whom the Option is
being granted shall have executed such documents as required by the Plan
Administrator.
2.2 Exercise Price. The exercise price per share of each Option shall be
fixed by the Plan Administrator and, subject to the terms and conditions set
forth herein, may be equal to or greater than the Fair Market Value per share of
Common Stock on the Option grant date.
2.3 Vesting, Exercise and Term of Options. Each Option shall vest and be
exercisable at such time or times and for such number of shares as shall be
determined by the Plan Administrator and set forth in the documents evidencing
the Option grant. No Option, however, shall have a term in excess of ten (10)
years from the Option grant date.
2.4 Exercise Procedures.
(a) Subject to Section 2.7, an Option may be exercised only by the
Optionee to whom such Option was granted under the Plan. An Option shall be
exercisable at such time or times as set forth herein and in the documents
evidencing the grant of the Option. Notwithstanding anything in the Plan to the
contrary, the Plan Administrator, in its sole discretion, may at any time and
from time to time accelerate the date for exercising all or any part of an
Option. In no event, however, may an Option be exercised after the expiration of
its fixed term.
(b) Each Option granted under the Plan shall be deemed exercised when the
holder thereof (i) shall indicate the decision to do so in writing delivered to
the Company, (ii) shall at the same time tender to the Company payment in full
of the exercise price for the shares for which the Option is exercised in
accordance with Section 2.4(c), (iii) shall tender to the Company in accordance
with the Plan Administrator's instructions payment in full of all federal and
state withholding or other employment taxes applicable to the taxable income, if
any, of the holder resulting from such exercise, (iv) shall execute an option
exercise agreement in form and substance satisfactory to the Plan Administrator,
and (v) shall comply with such other requirements as the Plan Administrator may
establish.
(c) In connection with the exercise of any Option, the Optionee shall pay
the exercise price to the Company in cash, by check, or in such other manner as
permitted by the Plan Administrator, which may include the surrender of shares
of Common Stock or other unexercised Options held by the Optionee.
Notwithstanding the foregoing, should the Common Stock be registered under
Section 12 of the Exchange Act at the time an Option is exercised, then the
exercise price may also be paid as follows:
(i) in shares of Common Stock held for the requisite period
necessary to avoid a charge to the Company's earnings for financial
reporting purposes and valued at Fair Market Value on the exercise date,
or
(ii) through a special sale and remittance procedure pursuant to
which the Optionee shall concurrently provide irrevocable instructions (A)
to a Company-designated brokerage firm to effect the immediate sale of the
purchased shares and remit to the Company, out of the sale proceeds
available on the settlement date, sufficient funds to cover the aggregate
exercise price payable for the purchased shares and (B) to the Company to
deliver the certificates for the purchased shares directly to such
brokerage firm in order to complete the sale.
(d) An Option granted under the Plan may be exercised for any lesser
number of shares than the full amount for which it could be exercised, provided
that the minimum number of shares that may be subject to a partial exercise is
100 shares. Such a partial exercise shall not affect the right to exercise the
Option for the remaining shares from time to time in accordance with the Plan
and the documents evidencing the grant of the Option.
Page 33 of 38
2.5 Effect of Termination of Service. The following provisions shall
govern the exercise of Options held by an Optionee at the time of such
Optionee's cessation of Service or death:
(a) should the Optionee cease to remain in Service for any reason other
than death, Permanent Disability or Misconduct, then, to the extent an Option
was granted to the Optionee on account of employment with the Company (or any
Parent or Subsidiary) and during such Optionee's Service as an Employee, the
Optionee shall have a period of three (3) months following the date of cessation
of Service to exercise such outstanding Options held by such Optionee. The term
during which an Option may be exercised will not be affected by the cessation of
Service of the Optionee to the extent the Option was granted to the Optionee on
account of Service as a director of the Company (or any Parent or Subsidiary)
during such Optionee's Service as a non-employee director of the Company (or any
Parent or Subsidiary);
(b) should the Optionee's Service terminate by reason of Permanent
Disability, then the Optionee shall have a period of twelve (12) months
following the date of cessation of Service to exercise each outstanding Option
held by such Optionee;
(c) if the Optionee dies while holding an outstanding Option, then the
personal representative of his or her estate or the Person or Persons to whom
the Option is transferred pursuant to the Optionee's will or the laws of
inheritance shall have twelve (12) months following the date of cessation of
Service or such longer period determined by the Plan Administrator, in its sole
discretion, to exercise each outstanding Option held by the Optionee;
(d) should the Optionee's Service be terminated for Misconduct, then, at
the discretion of the Plan Administrator, all outstanding Options held by the
Optionee shall terminate immediately and cease to remain outstanding, regardless
of whether any Options have vested; and
(e) during the applicable post-Service exercise period, an Option may be
exercised only if it has vested and for no more than the aggregate number of
shares for which the vested Option is exercisable on the date of the Optionee's
cessation of Service. The Option shall, immediately upon the Optionee's
cessation of Service, terminate and cease to be outstanding with respect to any
and all Option shares for which the Option is not otherwise exercisable at that
time. Upon the expiration of the applicable exercise period or (if earlier) upon
the expiration of the Option term, the Option shall terminate and cease to be
outstanding.
2.6 Shareholder Rights. The holder of an Option shall have no shareholder
rights with respect to the shares subject to the Option until such Person shall
have exercised the Option in accordance with Section 2.4 and become the record
holder of the purchased shares. Each Person who validly exercises an Option and
is issued shares of Common Stock by the Company shall be subject to all of the
terms and conditions set forth in the applicable purchase agreement to be
executed by such person upon exercise.
2.7 Transferability of Options. Options may be transferred only by will or
the laws of inheritance upon the death of an Optionee. Otherwise, no Option may
be assigned, pledged, hypothecated or transferred in any manner. Upon any
attempt to assign, pledge, hypothecate or transfer an Option, such Option shall
immediately be cancelled and terminated.
2.8 Incentive Options. All Incentive Options shall be subject to the terms
set forth in this Section 2.8. Options that are not specifically designated as
Incentive Options in the documentation evidencing the grant of such Options, or
that are specifically designated as Non-Qualified Options, shall not be subject
to the terms of this Section 2.8.
(a) Eligibility. Incentive Options may be granted only to Employees.
(b) Exercise Price. An Incentive Option's exercise price per share of
Common Stock shall not be less than one hundred percent (100%) of the Fair
Market Value per share of Common Stock on the date such Option is granted.
(c) Dollar Limitation. The aggregate Fair Market Value of the shares of
Common Stock (determined as of the respective date or dates of grant) for which
one or more Incentive Options granted to any Employee under the Plan (or any
other option plan of the Company or any Parent or Subsidiary) may for the first
time become exercisable during any one calendar year shall not exceed One
Hundred Thousand Dollars ($100,000). To the extent
Page 34 of 38
an Employee holds two or more Incentive Options which become exercisable for the
first time in the same calendar year, the foregoing limitation on the
exercisability of such Incentive Options shall be applied on the basis of the
order in which such Options are granted.
(d) Ten Percent (10%) Shareholder. If an Employee to whom an Incentive
Option is granted is a Ten Percent (10%) Shareholder, then the Incentive
Option's exercise price per share of Common Stock shall not be less than one
hundred ten percent (110%) of the Fair Market Value per share of Common Stock on
the Option grant date, and the Incentive Option's term shall not exceed five
years from the date of grant.
2.9 Change of Control Transactions.
(a) All outstanding Options shall become fully and immediately vested and
exercisable immediately prior to a Change of Control.
(b) The Plan Administrator shall have the discretion at any time to
provide for the immediate termination of any consent, repurchase or first
refusal rights of the Company with respect to the shares subject to those
Options upon the occurrence of a Change of Control, whether or not the Options
are to be assumed by any successor corporation (or parent thereof).
(c) The portion of any Incentive Option accelerated in connection with a
Change of Control shall remain exercisable as an Incentive Option only to the
extent the applicable One Hundred Thousand Dollars ($100,000) limitation is not
exceeded. To the extent such dollar limitation is exceeded, the accelerated
portion of an Option shall be exercisable as a Non-Qualified Option and shall be
treated as such under the federal tax laws.
(d) The grant of Options under the Plan shall in no way affect the right
of the Company to adjust, reclassify, reorganize or otherwise change its capital
or business structure or to merge, enter into a share exchange, dissolve,
liquidate or sell or transfer all or any part of its business or assets.
ARTICLE III
MISCELLANEOUS
3.1 Compliance with Securities Laws. The Plan Administrator shall take
such action as may be necessary to cause the administration of this Plan,
including the grant of Options and the issuance of shares of Common Stock
pursuant to the exercise thereof, to be made in compliance with all federal and
state securities laws.
3.2 Effective Date and Term.
(a) The Plan shall become effective when adopted by the Board, but no
Option granted under the Plan may be exercised, and no shares shall be issued
pursuant to the exercise of any Options, until the Plan is approved by the
Company's shareholders. Additionally, no Incentive Option shall be deemed to
have been granted unless and until this Plan is approved by the Company's
shareholders. If such shareholder approval is not obtained within twelve (12)
months after the date of the Board's adoption of the Plan, then all Options
previously granted under the Plan shall terminate and cease to be outstanding,
and no further Options shall be granted and no shares shall be issued pursuant
to the exercise of any Options.
(b) No further Options may be granted under the Plan upon the earlier of
(a) the expiration of the ten (10)-year period from the date the Plan is adopted
by the Board, (b) the date on which all shares available for issuance under the
Plan shall have been issued or (c) the termination of all outstanding Options in
connection with an Change of Control in which the Company is not the surviving
entity or otherwise. All Options outstanding upon the expiration of the ten (10)
|_| year period referenced in subclause (a) above shall continue to have full
force and effect in accordance with the provisions of the documents evidencing
the grant of such Options.
3.3 Amendment of the Plan. The Board shall have complete and exclusive
power and authority to amend or modify the Plan in any or all respects. However,
no such amendment or modification shall adversely affect any rights and
obligations in respect of any outstanding Options unless the holder thereof
consents to such amendment or modification. In addition, certain amendments may
require shareholder approval pursuant to applicable laws or regulations.
Page 35 of 38
3.4 Governing Law. This Plan shall be governed and construed in accordance
with the laws of the State of North Carolina.
3.5 Severability. If any provision of this Plan or the application thereof
to any person or circumstance shall be invalid or unenforceable to any extent,
the remainder of this Plan and the application of such provision to other
persons or circumstances shall not be affected thereby and shall be enforced to
the greatest extent permitted by law.
3.6 Section Titles. The headings herein are inserted as a matter of
convenience only and do not define, limit or describe the scope of this Plan or
the intent of the provisions hereof.
3.7 No Employment or Service Rights. Nothing in the Plan shall confer upon
any Optionee the right to continue in Service for any period of specific
duration or interfere with or otherwise restrict in any way the rights of the
Company (or any Parent or Subsidiary employing or retaining such person) or of
the Optionee, which rights are hereby expressly reserved by each, to terminate
such person's Service at any time for any reason, with or without cause.
3.8 Notices. Any notice required to be given or delivered to the Company
under the Plan shall be in writing addressed to the Company at its principal
corporate offices. Any notice required to be given to an Optionee shall be in
writing and addressed to the address indicated on the option agreement executed
by the Optionee in connection with an Option grant. All notices shall be deemed
effective upon personal delivery or upon deposit in the U.S. mail, postage
prepaid and properly addressed to the party to be notified.
Page 36 of 38
Addendum
Defined Terms
The following terms shall have the following meanings under the Plan:
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended.
"Committee" means the Company's compensation committee or a committee of
one or more Board members appointed by the Board to exercise one or more
administrative functions under the Plan.
"Common Stock" means the common stock, no par value, of the Company.
"Company" means First Bancorp, a North Carolina corporation, and any
successor corporation to all or substantially all the assets or voting stock of
First Bancorp that shall by appropriate action adopt the Plan.
A "Change of Control" shall be deemed to have occurred on:
(a) the date on which any "person" or "group" (as such terms are
used in Sections 13(d) and 14(d) of the Exchange Act), other than the Company or
any entity owned, directly or indirectly, by the shareholders of the Company in
substantially the same proportions as their ownership of Common Stock, becomes
the beneficial owner (as defined in Rules 13d-3 and 13d-5 under the Exchange
Act) of shares representing more than 40% of the combined voting power of the
then-outstanding securities entitled to vote generally in the election of
directors of the Company; or
(b) the date on which (i) the Company merges with any other entity,
(ii) the Company enters into a statutory share exchange with another entity, or
(iii) the Company conveys, transfers or leases all or substantially all of its
assets to any person; provided, however, that in the case of subclauses (i) and
(ii), a Change of Control shall not be deemed to have occurred if the
shareholders of the Company immediately before such transaction own, directly or
indirectly immediately following such transaction, more than 60% of the combined
voting power of the outstanding securities of the corporation resulting from
such transaction in substantially the same proportions as their ownership of
securities immediately before such transaction.
"Employee" means an individual who is in the employ of the Company (or any
Parent or Subsidiary), subject to the control and direction of the employer
entity as to both the work to be performed and the manner and method of
performance.
"Exercise Date" means the date on which the Company shall have received
written notice of the exercise of an Option.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Fair Market Value" per share of Common Stock on any relevant date shall
be the average closing selling price per share of Common Stock for the ten (10)
business days preceding the date in question on the Stock Market determined by
the Plan Administrator to be the primary market for the Common Stock, as such
price is officially quoted in the composite tape of transactions on such market.
"Incentive Option" means an Option that satisfies the requirements of
Section 422 of the Code.
"Involuntary Termination" means the termination of the Service of any
individual by reason of:
(i) such individual's involuntary dismissal or discharge by the Company
(or any successor corporation or any Parent or Subsidiary, as applicable)
for reasons other than Misconduct, or
Page 37 of 38
(ii) such individual's voluntary resignation following (A) a change in his
or her position with the Company (or any successor corporation or any
Parent or Subsidiary, as applicable) which materially reduces his or her
duties and responsibilities or the level of management to which he or she
reports, (B) a reduction in his or her level of compensation (including
base salary, fringe benefits and target bonuses under any
corporate-performance based bonus or incentive programs) by more than
fifteen percent (15%) or (C) a relocation of such individual's place of
employment by more than fifty (50) miles, provided and only if such
change, reduction or relocation is effected without the individual's
consent; provided, however, that at the time of such resignation, the
Company (or any successor corporation or any Parent or Subsidiary, as
applicable) would not have reason to terminate such individual's
employment for Misconduct.
"Misconduct" means (i) the commission of any act of fraud, embezzlement or
dishonesty by a person against the Company (or any successor corporation or any
Parent or Subsidiary, as applicable), (ii) any unauthorized use or disclosure by
such person of confidential information or trade secrets of the Company (or any
successor corporation or any Parent or Subsidiary, as applicable), (iii)
intoxication with alcohol or drugs while conducting employer business during
regular business hours, (iv) a conviction of, or a plea of guilty or nolo
contendre by, such person for a criminal felony conviction, or (v) any other
misconduct by such person that causes or would reasonably be expected to cause
material harm to the business of the Company (or any successor corporation or
any Parent or Subsidiary, as applicable), as reasonably determined in good faith
by the Board.
"Non-Qualified Option" means an Option that does not satisfy the
requirements of Section 422 of the Code.
"Option" means an Incentive Stock Option or Non-Qualified Option granted
under the Plan.
"Optionee" means any person to whom an Option is granted under the Plan.
"Parent" means any corporation or limited liability company (other than
the Company) in an unbroken chain of entities ending with the Company, provided
each entity in the unbroken chain (other than the Company) owns, at the time of
the determination, stock or other equity interests possessing fifty percent
(50%) or more of the total combined voting power of all equity interests in one
of the other entities in such chain.
"Permanent Disability" means the inability of a person to perform the
essential functions of the person's duties as an Employee by reason of any
medically determinable physical or mental impairment that is expected to result
in such person's death or has lasted or can be expected to last for a period of
six (6) consecutive months or more, as reasonably determined by the Board.
"Plan" means the First Bancorp 2004 Stock Option Plan, as set forth
herein.
"Plan Administrator" means either the Board or the Committee acting in its
capacity as administrator of the Plan.
"Service" means the provision of services to the Company (or any Parent or
Subsidiary) by a person in the capacity of an Employee or a non-employee member
of the board of directors, except to the extent otherwise specifically provided
in the documents evidencing the Option grant or stock issuance.
"Stock Market" means the National Association of Securities Dealers
Automated Quotation (NASDAQ) System, or any other national stock market or stock
exchange.
"Subsidiary" means any corporation or limited liability company with
respect to which the company owns, directly or indirectly, stock or other equity
interests possessing fifty percent (50%) or more of the total combined voting
power of all classes of equity.
"Ten Percent (10%) Shareholder" means the owner of stock (as determined
under Section 424(d) of the Code) possessing more than ten percent (10%) of the
total combined voting power of all classes of stock of the Company (or any
Parent or Subsidiary).
Page 38 of 38
Directions to Montgomery Community College
Location of the 2004 First Bancorp Annual Meeting
Thursday, April 29, 2004 - 3:00 PM
[MAP]
First Bancorp
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned hereby appoints James H. Garner and Anna G. Hollers, and
each of them, attorneys and proxies with full power of substitution, to act and
vote as designated below the shares of common stock of First Bancorp held of
record by the undersigned on March 12, 2004, at the annual meeting of
shareholders to be held on April 29, 2004, or any adjournment or adjournments
thereof.
1. PROPOSAL to elect eighteen (18) nominees to the Board of Directors to
serve until the 2005 Annual Meeting of Shareholders, or until their
successors are elected and qualified.
|_| FOR the 18 nominees listed |_| WITHHOLD AUTHORITY
below (except as marked to to vote for the 18 nominees
the contrary below). below.
(Instruction: To withhold authority to vote for any individual nominee,
strike a line through the nominee's name in the list below).
Jack D. Briggs Goldie H. Wallace-Gainey Edward T. Taws, Jr.
R. Walton Brown James H. Garner Frederick H. Taylor
H. David Bruton, M.D. James G. Hudson, Jr. Virginia C. Thomasson
David L. Burns George R. Perkins, Jr. A. Jordan Washburn
John F. Burns Thomas F. Phillips Dennis A. Wicker
Jesse S. Capel William E. Samuels John C. Willis
2. PROPOSAL to ratify the appointment of KPMG LLP as the independent
auditors of the Company for the current fiscal year.
|_| FOR |_| AGAINST |_| ABSTAIN
3. PROPOSAL to adopt a new stock option plan, entitled the "First Bancorp
2004 Stock Option Plan."
|_| FOR |_| AGAINST |_| ABSTAIN
4. In their discretion, the proxies are authorized to vote on any other
business that may properly come before the meeting.
5. Do you plan to attend the April 29, 2004 annual meeting? |_| YES |_| NO
This proxy when properly executed will be voted as directed herein. If no
direction is made, this proxy will be voted for approval of Proposals 1, 2 and
3. If, at or before the time of the meeting, any of the nominees listed above
has become unavailable for any reason, the proxies have the discretion to vote
for a substitute nominee or nominees.
Dated , 2004
-------------------------------
------------------------------------------
Signature
------------------------------------------
Signature (if jointly held)
(Please sign exactly as the name appears
on this proxy. If signing as attorney,
administrator, executor, guardian, or
trustee, please give title as such. If a
corporation, please sign in full corporate
name by the President or other authorized
officers. If a partnership, please sign in
partnership name by authorized person.)
PLEASE MARK, SIGN, DATE AND RETURN PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU
ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND VOTE IN PERSON.