April 5,
2010
Dear
Shareholders:
You are
cordially invited to attend the Annual Meeting of the Shareholders of
Highlands Bankshares, Inc. on Tuesday, May 11, 2010, at 3:00 p.m., at The
Grant County Bank, 1 North Main Street (the "Old Bank Building"),
Petersburg, West Virginia.
Enclosed
in this mailing you will find formal notice of the meeting, a proxy and a proxy
statement detailing the matters upon which the shareholders will act at the
Annual Meeting. Our Company's Annual Report for 2009 is also
enclosed.
We urge you to complete, date and sign
the proxy and return it as soon as possible in the enclosed postage prepaid
envelope, even if you intend to attend the meeting. You may revoke
your proxy at any time prior to its exercise
.
Sincerely,
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/s/
John G. Van Meter
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John
G. Van Meter
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Chairman
of the Board
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NOTICE
OF ANNUAL MEETING OF SHAREHOLDERS
To the
Shareholders of Highlands Bankshares, Inc.
The
annual meeting of shareholders of Highlands Bankshares, Inc. will be held on
Tuesday, May 11, 2010, at 3:00 p.m., at The Grant County Bank, 1 North Main
Street (the "Old Bank Building"), Petersburg, West Virginia, for the following
purposes:
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1.
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Election
of three Class C directors to serve until the annual meeting of
shareholders in 2013.
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2.
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Ratification
of the appointment of Smith Elliott Kearns & Company, LLC as
independent registered public accountants for
2010.
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3.
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Transaction
of other business as may properly come before the meeting, or any
adjournments thereof.
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The Board
of Directors recommends a vote in favor of the nominees for director and a vote
in favor of the ratification of the appointment of the independent registered
public accountants. Only shareholders of record at the close of
business on March 29, 2010 are entitled to notice of and to vote at the annual
meeting or any adjournments thereof.
To
assure that your shares are represented at the annual meeting, please complete,
date and sign the enclosed proxy, and return it as soon as possible in the
enclosed postage prepaid envelope. You may revoke your proxy at any
time prior to its exercise.
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By
Order of the Board of Directors
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/s/
Alan L. Brill
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Alan
L. Brill
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Corporate
Secretary
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April 5,
2010
TABLE
OF CONTENTS
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Page
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Outstanding
Shares and Voting Rights
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1
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Security
Ownership of Certain Beneficial Owners and Management
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2
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*-Election
of Directors
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4
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Information
Concerning Directors and Nominees
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6
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Board
Meetings and Compensation
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9
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Board
Committees
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10
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Executive
Compensation
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11
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Audit
Committee Report
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14
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Compliance
with Section 16(a) of the Securities Exchange Act
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15
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Certain
Related Transactions
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15
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*-Ratification
of Appointment of Independent Registered Certified Public
Accountants
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16
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Fees
of Independent Registered Certified Public Accountants
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16
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Shareholder
Proposals
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16
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Exhibits
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17
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*-Matters
to be voted on
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HIGHLANDS
BANKSHARES, INC.
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P.O.
Box 929 * Petersburg WV 26847 * (304) 257-4111
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PROXY
STATEMENT
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This
Proxy Statement is furnished in connection with the solicitation of proxies for
use at the annual meeting of shareholders of Highlands Bankshares, Inc.
(“Highlands” or the “Company”) to be held Tuesday, May 11, 2010, at 3:00 p.m.,
at The Grant County Bank, 1 North Main Street (the "Old Bank Building"),
Petersburg, West Virginia, and at any adjournments thereof (“Annual
Meeting”). The accompanying proxy is solicited by the Board of
Directors of the Company (the “Board”). The principal executive
offices of the Company are located at 3 North Main Street, Petersburg,
West Virginia 26847. The approximate mailing date of the proxy
statement and the accompanying proxy is April 15, 2010.
The
Company will bear the cost of soliciting proxies and will only make
solicitations by the use of the mail, except that, if necessary, officers,
directors and regular employees of the Company, or its affiliates, may solicit
proxies by telephone or by personal calls. The Company may request
brokerage houses and nominees to forward proxy solicitation material to the
beneficial owners of the stock held of record by such persons, and the Company
may reimburse them for their charges and expenses in doing so.
All
properly executed proxies delivered pursuant to this solicitation will be voted
at the Annual Meeting in accordance with any instructions thereon. A
shareholder executing a proxy may revoke it at any time before it is voted
by:
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Notifying
Highlands in person,
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Giving
written notice to Highlands of the revocation of the
proxy,
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Submitting
to Highlands a subsequently dated proxy,
or
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Attending
the meeting and withdrawing the proxy before it is voted at the
meeting.
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OUTSTANDING
SHARES AND VOTING RIGHTS
Only
shareholders of record at the close of business on March 29, 2010, will be
entitled to vote at the Annual Meeting. As of that date, the Company
had outstanding 1,336,873 shares of its common stock, $5 par value, each of
which is entitled to one vote at the Annual Meeting. Cumulative
voting rights are available, in certain instances, for the election of
directors, as further described in this proxy statement.
Any
number of shareholders holding together a majority of the stock outstanding, who
are either present in person or represented by proxy at the Annual Meeting,
shall constitute a quorum. If a share is represented for any purpose
at the Annual Meeting, it is deemed to be present for purposes of establishing a
quorum. Abstentions and shares held of record by a broker or its
nominee, which are voted on any matter, are included in determining the number
of votes present or represented at the Annual Meeting. Conversely,
broker shares that are not voted on any matter will not be included in
determining whether a quorum is present.
If a
quorum is established, directors will be elected by a plurality of the votes
cast by shareholders in person or by proxy at the Annual Meeting. As
required by West Virginia law, each share is entitled to one vote per nominee,
unless a shareholder requests cumulative voting at least 48 hours before the
meeting. Ratification of the appointment of the independent public accountants
will be approved if the votes cast in favor exceed the votes cast
opposing. Votes that are withheld and broker shares that are not
voted will not be included in determining the number of votes cast.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The
following table sets forth the name and address of and the number and percentage
of shares of common stock held as of March 29, 2010 by each of the Company's
directors, director nominees and Highlands’ executive officers and by all of the
Company's directors, director nominees and executive officers as a
group. To the best of the Company's knowledge, no person is the
beneficial owner of more than 5% of the Company's common stock.
Name
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Position
with Company
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Amount
Beneficially
Owned
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Percent
of
Class
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Leslie
A. Barr
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Director
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6,876
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*
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Clarence
E. Porter
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Director;
President
& Chief
Executive
Officer;
Treasurer
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2,235
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*
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Morris
M. Homan, Jr.
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Director
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1,890
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*
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Gerald
W. Smith
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Director
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3,282
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*
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John
G. Van Meter
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Director
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56,313
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4.2%
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Jack
H. Walters
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Director
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10,824
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*
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L.
Keith Wolfe
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Director
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8,580
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*
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Kathy
G. Kimble
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Director
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4,596
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*
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Alan
L. Brill
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Director;
Secretary
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2,820
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*
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Steven
C. Judy
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Director
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5,205
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*
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All
of the directors, director nominees and executive
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officers
of the Company, as a group
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102,621
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7.7%
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An
asterisk denotes less than 1% of class.
Further
notes regarding ownership are on the following page.
NOTES
TO SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Mr.
Barr’s beneficial ownership includes 2,820 shares owned directly, 3,300
shares owned jointly with his wife and 756 shares held by his wife over
which he holds no voting or dispositive powers.
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Mr.
Porter’s beneficial ownership includes 300 shares owned directly, 50
shares held by his wife over which he holds no voting or dispositive
powers and 15 shares held by his wife as custodian for each of three minor
grandchildren and 1,840 shares held on Mr. Porter’s behalf through the
Company’s Employee Stock Ownership Program.
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Mr.
Homan’s beneficial ownership includes 1,890 shares owned
directly.
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Mr.
Smith’s beneficial ownership includes 540 shares owned directly and 2,742
shares owned jointly with his wife.
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Mr.
Van Meter’s beneficial ownership includes 29,183 shares owned directly and
27,130 shares held by his wife over which he holds no voting or
dispositive powers. Mr. Van Meter disclaims beneficial ownership of the
shares held by his wife.
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Mr.
Walters’ beneficial ownership includes 10,524 shares owned directly and
150 shares held as co-guardian for each of his two children. Mr. Walters
disclaims beneficial ownership of the shares held as co-guardian for each
of his children.
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Mr.
Wolfe’s beneficial ownership includes 7,830 shares owned directly, 300
shares held jointly with each of his two children and 150 shares held by
his wife over which he holds no voting or dispositive
powers.
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Ms.
Kimble’s beneficial ownership includes 3,651 shares owned directly and 945
shares held jointly with her husband.
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Mr.
Brill’s beneficial ownership includes 363 shares owned directly and 1,104
shares owned jointly with his wife and 1,353 shares held in Mr. Brill’s
behalf through the Company’s Employee Stock Ownership
Program.
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Mr.
Judy’s beneficial ownership includes 5,205 shares owned
directly.
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PROPOSAL
ONE
ELECTION
OF DIRECTORS
General
Highlands
Articles of Incorporation currently provide for a classified board of
directors. There are three classes. Each class is elected for a
three-year term. There are presently 10 directors on the Board, three
of whom are nominees for election at the 2010 Annual Meeting.
Directors
are elected by a plurality of the shares voted. As required by West
Virginia law, each share is entitled to one vote per nominee, unless a
shareholder requests cumulative voting for directors at least 48 hours before
the meeting. If a shareholder properly requests cumulative voting for
directors, then each shareholder will have the right to vote the number of
shares owned by that shareholder for as many persons as there are directors to
be elected, or to cumulate such shares and give one candidate as many votes as
the number of directors multiplied by the number of shares owned shall equal, or
to distribute them on the same principle among as many candidates as the
shareholder sees fit. If any shares are voted cumulatively for the
election of directors, the proxies, unless otherwise directed, shall have full
discretion and authority to cumulate their votes and vote for less than all such
nominees. For all other purposes, each share is entitled to one
vote.
Leadership
Currently
the roles of non-executive Chairman of the Board and CEO of the Company are
split. The Board retains the right to exercise its judgment to combine or
separate the roles of Chairman of the Board and CEO. The Company believes
that the Chairman of the Board, Mr. John G. Van Meter, has significant
leadership experience, including executive experience in both business and
banking, that positions him well to lead the Board.
Nominations
Highlands
does not have a separate nominating committee and the entire board of directors
serves this function. The reason the board has determined not to have a formal
Nominating Committee is that Highlands' Board is small and vacancies are
rare. The board of directors makes nominations based upon its belief that
candidates for director should have certain minimum qualifications as defined by
West Virginia state banking law. The Board of Directors of Highlands, in
addition to adherence to state banking law, has set forth the following as
criteria for the Company’s directors:
The board
of directors of Highlands makes nominations based upon its belief that
candidates for director should have certain minimum qualifications. These
qualifications include the following:
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Directors should be of the
highest ethical character.
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Directors should have
excellent personal and professional reputations in Highlands’ market
area.
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Directors should be
accomplished in their professions or
careers.
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Directors should be able to
read and understand financial statements and either have knowledge of, or
the ability and willingness to learn, financial institution
law.
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Directors should have relevant
experience and expertise to evaluate financial data and provide direction
and advice to the chief executive officer and the ability to exercise
sound business judgment.
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Directors must be willing and
able to expend the time to attend meetings of the Board of Directors of
Highlands and Highlands’ subsidiary banks and to serve on board
committees.
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The Board of Directors will
consider whether a nominee is independent, as legally
defined. In addition, directors should avoid the appearance of
any conflict and should be independent of any particular constituency and
be able to serve all shareholders of
Highlands.
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Because the directors of
Highlands also may serve as directors of either or both of the subsidiary
banks, a majority of directors must be residents of West Virginia, as
required by state banking
law.
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Directors must be acceptable
to Highlands and the subsidiary banks’ regulatory agencies, including the
Federal Deposit Insurance Corporation and the West Virginia Division of
Banking and must not be under any legal disability which prevents them
from serving on the Board of Directors or participating in the affairs of
a financial institution.
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Directors must own or acquire
sufficient capital stock to satisfy the requirements of West Virginia law
and the bylaws of each of the subsidiary
banks.
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Directors must be at least 21
years of age.
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The Board
of Directors of Highlands, reserves the right to modify these minimum
qualifications from time to time, except where the qualifications are required
by the laws relating to financial institutions.
The
process of the Board of Directors for identifying and evaluating nominees is as
follows. In the case of incumbent directors whose terms are set to
expire, the Board of Directors shall consider the directors’ overall service to
Highlands during their term, including such factors as the number of meetings
attended, the level of participation, quality of performance and any
transactions between such directors and Highlands, and the subsidiary
banks. The Board of Directors also reviews the payment history of
loans, if any, made to such directors by either subsidiary bank to ensure that
the directors are not chronically delinquent and in default. The
Board also considers whether any transactions between the directors and either
Bank have been criticized by any banking regulatory agency or either subsidiary
bank’s external auditors and whether corrective action, if required, has been
taken and was sufficient. The Board of Directors also confirms that
such directors remain eligible to serve on the Board of Directors of a financial
institution under federal and state law.
Pursuant
to the Company’s Amended and Restated Bylaws, a shareholder may nominate persons
for election to the Board of Directors and the Board will consider nominees
recommended by shareholders, if written notice is submitted to the Company’s
secretary at the principal executive offices of the Company not less than 90
days prior to the date of the meeting.
The
shareholder’s notice must include:
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·
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As
to each person whom the shareholder proposes to nominate for election as
director:
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§
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All
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest
or is otherwise required pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended;
and
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§
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Such
person’s written consent to be named in the proxy statement as a nominee
and to serving as such as a director if elected;
and
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·
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As
to the shareholder giving the notice and the beneficial owner, if any, on
whose behalf the nomination is
made:
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§
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The
name and address of such shareholder, as they appear on the Company’s
books and of such beneficial owner;
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§
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The
class and number of shares of the Company’s common stock that are owned
beneficially and of record by such shareholder and such beneficial
owner;
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§
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A
description of all arrangements or understandings between the shareholder
and each nominee and any other persons (naming them) pursuant to which the
nominations are to be made by the
shareholder;
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§
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A
representation that such shareholder is a holder of record of the
Company’s stock entitled to vote at such meeting and intends to appear in
person or by proxy at the meeting to propose such nomination;
and
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§
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Any
other information relating to such shareholder that would be required to
be disclosed in a proxy statement or other filings required to be made in
connection with solicitations of proxies for election of directors
pursuant to Regulation 14A under the Exchange
Act.
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No
candidates for director were nominated by any stockholder for election at the
2010 Annual Meeting of Shareholders.
INFORMATION
CONCERNING DIRECTORS AND NOMINEES
The
following information, including the principal occupation during the past five
years, is given with respect to the three director nominees and the seven
directors continuing in office.
Name
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Position
with the
Company
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Age
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Director
Since
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Principal
Occupation During the Last
Five
Years
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DIRECTOR
NOMINEES
Class
C Directors to serve until the 2010 Annual Meeting of
Shareholders
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Steven
C. Judy
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Director
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57
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June
2002
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Pharmacist
President
of JSG Foods, Inc.
President
of Judy’s Drug Store, Inc.
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Leslie
A. Barr
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Director
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72
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July
1987
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Retired
President & Chief Executive
Officer
of Highlands
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Jack
H. Walters
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Director
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62
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July
1987
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Attorney
at Law
Partner,
Walters, Krauskopf & Baker
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DIRECTORS
CONTINUING IN OFFICE
|
Class
A Directors to serve until the 2011 Annual Meeting of
Shareholders
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Alan
L. Brill
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Director;
Secretary
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55
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April
2001
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President
& Chief Executive Officer of
Capon
Valley Bank since 2001
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Kathy
G. Kimble
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Director
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64
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April
2001
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Retired
Retail Business Owner
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Morris
M. Homan, Jr.
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Director
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57
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May
2008
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Self
Employed Veterinarian
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John
G. Van Meter
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Director;
Chairman of the Board of Directors
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72
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May
1985
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Attorney
at Law
Van
Meter & Van Meter
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DIRECTORS
CONTINUING IN OFFICE
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Class
B Directors to serve until the 2012 Annual Meeting of
Shareholders
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Gerald
W. Smith
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Director
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66
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May
2009
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Self
employed
Envirco
Inc.
Specialty
Security Services, LLC
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Clarence
E. Porter
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Director;
President & Chief Executive Officer
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61
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April
1992
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President
& Chief Executive Officer of
Highlands since 2004; President &
Chief
Executive Officer of The Grant County
Bank since
1991
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L.
Keith Wolfe
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Director
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83
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May
1985
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Retired
owner of Petersburg Motor Company
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Qualifications of Directors and
Nominees
Each
director and director nominee brings a strong and unique background and set of
skills to the Board, providing the Board as a whole competence and experience in
a wide variety of areas. Set forth below is additional information
regarding the specific experience and skills of each director and director
nominee that are relevant to their service as a Highlands director.
John G. Van
Meter
Attorney at Law Van Meter & Van
Meter. Highlands board member since May 1985 and The Grant County
Bank board member since 1977. Mr. Van Meter graduated from West
Virginia University College of Law in 1961 and has been practicing law in
Petersburg WV since 1961. Mr. Van Meter was one of the founding board
members of the Company. Mr. Van Meter’s education, years of
experience practicing law, involvement in the community, and his substantial
legal insight lends diversity to the Board. Mr. Van Meter has also
previously served on the Petersburg City Council for eight years.
Clarence E.
Porter
President & Chief Executive Officer of Highlands
since 2004, President & Chief Executive Officer of The Grant County Bank
since 1991. Highlands board member and The Grant County Bank board
member since 1992. Mr. Porter graduated from Shepherd University in
1971 with a bachelors degree in education. Prior to becoming
President & CEO Mr. Porter was the VP and Senior Loan officer at The Grant
County Bank. Before joining The Grant County Bank, Mr. Porter held
the position of Vice President of Lending at the 2
nd
National Bank of Culpeper, VA_. Based on Mr. Porter’s
extensive experience in the banking industry, the board believes that he is well
qualified to hold his position at the bank, the holding company, and to sit on
the board.
Alan L.
Brill
President & Chief Executive Officer of Capon Valley Bank
since 2001. Highlands board member since April 2001 and Capon Valley Bank
board member since 1997. Mr. Brill graduated from Shepherd University in
1975 with a bachelors degree in secondary education. Mr. Brill began his
career in banking at Capon Valley Bank in 1975 as a Teller, in 1979 was promoted
to Assistant Cashier and in 1986 was promoted to Vice President of
Operations. In 1994 Mr. Brill was named Executive Vice President and Chief
Operating Officer, and in 2001, he was named President and Chief Executive
Officer of Capon Valley Bank. Mr. Brill is currently a board member of the
West Virginia Bankers Association and formally the President of the West
Virginia Association of Community Bankers. Mr. Brill currently serves as a
member of the Region 8 Planning and Development Council, the Wardensville
planning committee, the Hardy County Community Foundation, the Hardy County
Chamber of Commerce finance committee, and an active member and officer of the
Timber Ridge Christian Church. Mr. Brill has prior experience serving on
the Hampshire County Chamber of Commerce. Mr. Brill’s professional and
community service experience brings a diverse viewpoint to the
board.
Kathy G.
Kimble
Retired Retail Business Owner. Highlands
board member since April 2001 and The Grant County Bank board member since
1989. Ms. Kimble is the secretary of the Company’s Audit
Committee. Ms. Kimble graduated in 1967 with a bachelors degree from
West Virginia Wesleyan College. From 1981 through 1998, Ms. Kimble
was President of Kanos, Inc. which operated a large arts and crafts retail
store. From 1998 through 2001, Ms. Kimble worked for the Grant County
Board of Education and in 2001 she established Peddler’s Crossing Country Store,
an antique and country arts and crafts retail store. Through her
career, Ms. Kimble has displayed sharp business skill and
foresight. Her diversity as a well respected business woman in the
community brings an additional perspective to the board.
Jack H.
Walters
Partner, Walters, Krauskopf & Baker, Attorneys at
Law. Highlands board member since July 1987 and Capon Valley Bank
board member since 1983. Mr. Walters received his law degree from
West Virginia University College of Law in 1972. After receiving his
degree he began practicing law in Moorefield, WV with the firm of See &
Walters. In 2005, Mr. Walters established the law firm of
Walters, Krauskopf, & Baker. His firm practices
corporate, partnership, real estate, and family law, which gives the board yet
another diverse perspective on the discussion and decisions they face in their
leadership role. Mr. Walters also, for many years, served as a Board
Member of the Potomac Highlands Guild, as well as chairing the Zoning Committee
in Hardy County, WV,
Leslie A.
Barr
Retired President & Chief Executive Officer of
Highlands. Highlands board member since 1987 and Capon Valley Bank
board member since 1968. Mr. Barr is a member of the Company’s Audit
Committee. Mr. Barr graduated in 1957 with an associate’s degree in
business administration from the Potomac State College. Mr. Barr
started his career with Capon Valley Bank in 1962 as cashier, later becoming
Vice President and then becoming Capon’s CEO. Mr. Barr served Capon
for 38 years. Mr. Barr was selected as a director of Highlands in
1987 and became President and CEO of Highlands in 2002. Mr. Barr
began his banking career with South Branch Valley Bank in 1957 as teller and
bookkeeper. In 1960, he became CEO trainee at the Pendleton County
Bank. Additionally Mr. Barr has served for 25 years on the board of
directors and Chairman for the Hardy County Rural Development Authority, 16
years with the West Virginia Rail Authority as a board member, the West Virginia
Banking Board for six years in various offices, and previously served on the
West Virginia economic development board for eight years. Based on
Mr. Barr’s extensive experience in the banking industry qualifies him to sit on
the board.
Steven C.
Judy
Pharmacist and President of Judy’s Drug Store, Inc.; President of
JSG Foods, Inc.; Highlands board member since 2002; and The Grant
County Bank board member since 1992. Mr. Judy is the chair of the
Company’s Audit Committee. Mr. Judy graduated from West Virginia
University’s School of Pharmacy in 1975. Raised in the community, Mr.
Judy operates a pharmacy and drug store in Petersburg, WV. Recently
Mr. Judy expanded his business in the neighboring community of Moorefield, WV
where he competes with big box pharmacies. Mr. Judy’s caring and
compassion for the communities sets him and his businesses apart from his
competition based on the service and small town pharmacy
atmosphere. Caring for the health of the communities brings another
diverse perspective to the Highlands board. Mr. Judy is also the chair of the
Grant County Health Department, the Vice President of the Grace Lutheran Church,
is a founding member of Grant County Chamber of Commerce, a member of
Grant County Convention and Visitors Bureau, former member of the West Virginia
Board of Pharmacy, past President of the West Virginia Pharmacist Association,
member of the American Society for Automation in Pharmacy Board, a member of the
National Community Pharmacist Association, a member of the American Pharmacist
Association, a member West Virginia Drug Utilization Review Board for Medicaid,
and a member Board of EPIC Pharmacies Inc.
L. Keith
Wolfe
Retired owner of Petersburg Motor Company. Highlands
board member since 1985 and The Grant County Bank board member since
1979. Mr. Wolfe, being our most senior board member, was one of the
two founding members of the Board in 1985. Mr. Wolfe has been a well
respected businessman in the community since the 1950’s. He was the
owner-operator of Petersburg Motor Company, a business anchor in the
community. Mr. Wolfe established and maintained a personal
relationship with his customers through reliable and dedicated service that
established a high degree of customer loyalty. Mr. Wolfe’s extensive
career in business and finance has enabled him to actively participate and
perform as a valued board member in excess of 26 years.
Morris M. Homan,
Jr.
Self Employed Veterinarian. Highlands board
member since May 2008 and Capon Valley Bank board member since
1997. Mr. Homan is a member of the Company’s Audit
Committee. Mr. Homan is one of the newer members of the
board. He graduated from West Virginia University and continued his
education at The Ohio State University Medical School of Veterinarian Medicine
and graduated in 1977. He established his practice serving the same
communities as the Company serves. His years of experience in
business, his knowledge and involvement in the community, and his diverse
background provides the Board with a focused perspective on the needs of the
community while balancing the needs of the business. Mr. Homan is also an active
board member of Hardy County Board of Health, a member of the West Virginia
Medical Association, a member of the American Medical Association, and an active
member of the Moorefield Presbyterian Church where he serves on the stewardship
committee and is a member of the choir. Mr. Homan served for several
years as a member of the Moorefield Athletic Boosters. Mr. Homan’s
business experience and community involvement bring another valued perspective
to the Board.
Gerald W.
Smith
Self-employed Envirco Inc. Specialty Security Services,
LLC. Highlands board member since 2009 and Capon Valley Bank board
member since 1997. Mr. Smith is a member of the Company’s Audit
Committee. Mr. Smith began his career working as an electrical
contractor in 1962. In 1973, Mr. Smith established his electrical
contracting business known today as Broadway Electric. In 1992, Mr.
Smith purchased Envirco, a solid waste removal company, and acted as president
and CEO. In 1995, Mr. Smith established Borderline LLC recycling
business. In 2000, he started Special Security Services providing executive
personal protection and armed security and is licensed in WV, VA, and
MD. Mr. Smith, being the newest member of the board, brings a fresh
and aggressive perspective to the organization.
The
Company has no official policy regarding diversity in connection with
nominations to the Board of Directors. We believe that our directors
and nominees have an appropriate balance of knowledge, experience, attributes,
skills and expertise required for our board as a whole and that we have
sufficient independent directors to comply with applicable law and regulations.
We believe that our directors have a broad range of personal characteristics
including leadership, management, technological, business, marketing and
financial experience and abilities to act with integrity, with sound judgment
and collegiality, to consider strategic proposals, to assist with the
development of our strategic plan and oversee its implementation, to oversee our
risk management efforts and executive compensation and provide leadership, to
commit the requisite time for preparation and attendance at board and committee
meetings and to provide required expertise on board committees.
We
believe that each director or nominee brings a strong background and set of
skills to the Board, giving the Board, as a whole, competence and experience
from a wide variety of areas.
Board
Meetings and Compensation
The Board
met 13 times during 2009. As required by Company policy, each
director attended at least 75% of the aggregate of (i) the total number of
meetings held by the Board and (ii) the total number of meetings held by the
committee on which the director served. Directors received $525.00
for attending Board meetings and $300.00 for attending committee meetings.
Members of the Audit Committee received $350.00 for attending meetings of the
Audit Committee.
During
2010, directors will receive $525.00 for attending Board meetings and $300.00
for attending committee meetings. Members of the Audit Committee will receive
$350.00 for attending meetings of this Committee during 2010.
All
directors of Highlands also serve as directors of one or more of the Company’s
subsidiaries. Both Capon Valley Bank and The Grant County Bank have Directors
who serve on the boards of the respective subsidiary who do not serve on the
Board of Highlands. The Grant County Bank also employs an advisory
board for its Riverton location. The board fees for the subsidiary
banks are the same as those fees for Highlands.
The table
below sets forth the compensation received during the fiscal year ended December
31, 2009 by each of Highlands’ directors:
Name
|
Fees
Earned or
Paid in
Cash
|
All
Other
Compensation
|
Total
|
Leslie
A. Barr
|
$ 36,018
|
$
|
$
36,018
|
Jack
H. Walters
|
21,825
|
47,748
|
69,573
|
Alan
L. Brill
|
22,050
|
|
22,050
|
Morris
M. Homan, Jr.
|
27,200
|
|
27,200
|
C.
E. Porter
|
23,425
|
|
23,425
|
John
G. Van Meter
|
22,475
|
14,000
|
36,475
|
Kathy
G. Kimble
|
24,325
|
|
24,325
|
Steven
C. Judy
|
25,075
|
|
25,075
|
L.
Keith Wolfe
|
21,550
|
|
21,550
|
Gerald
W. Smith
|
9,713
|
|
9,713
|
All fees
paid to directors during the fiscal year ended December 31, 2009 were paid in
cash. Fees include Board and Committee fees earned by each of the directors for
serving on the Boards of Highlands and one or more of the subsidiary banks and
any Committees of the Board of Highlands or one or more of the subsidiary banks
on which the director might serve. In addition, directors, at their discretion,
receive reimbursement for mileage to and from Board or Committee
meetings.
The
amounts disclosed above as other compensation for Mr. Van Meter and Mr. Walters
relate to legal retainers and other legal fees paid by the Company and its
subsidiary banks to the law firms of Mr. Van Meter and Mr. Walters. In addition,
Mr. Van Meter and Mr. Walters may, from time to time, be remunerated for other
services rendered related to lending and other operations of the subsidiary
banks. Portions of the fees earned by Mr. Van Meter and Mr. Walters, or their
legal firms, for work in this capacity are ultimately borne by the customer(s)
of the subsidiary banks, and not by the Company or its subsidiary banks, and as
such are not shown within the table above.
Board
Committees
The Board
of Directors of Highlands has designated the following Committees: Compensation
Committee, Audit Committee and Asset/Liability Management Committee. Highlands
does not have a separate Nominating Committee as the full Board serves in this
capacity. The Audit Committee Charter is included in this Proxy
Statement as EXHIBIT A and the Compensation Committee Charter is included as
EXHIBIT B. The table on the following page illustrates which members served,
during the past year, on the Nominating, Compensation and Audit
Committees:
Director
|
Nominating
Committee
(Full
Board)
|
Compensation
Committee
|
Audit
Committee
|
Leslie
A. Barr
|
X*
|
X
|
X
|
Clarence
E. Porter
|
X
|
|
|
Morris
M. Homan, Jr.
|
X*
|
X
|
X
|
John
G. Van Meter
|
X
|
X
|
|
Jack
H. Walters
|
X
|
X
|
|
L.
Keith Wolfe
|
X*
|
X
|
|
Kathy
G. Kimble
|
X*
|
X
|
X
|
Alan
L. Brill
|
X
|
|
|
Steven
C. Judy
|
X*
|
X
|
X
|
Gerald
W. Smith
|
X*
|
X
|
X
|
*=Independent
Director.
|
|
|
|
Director
Independence
The Board
of Directors complies with the independence requirements for the Board and Board
Committees established by the Nasdaq Stock Market, Inc. and federal securities
and banking laws. The Board of Directors has affirmatively determined that all
directors other than Mr. Porter, Mr. Brill, Mr. Van Meter, and Mr. Walters are
independent under the listing standards of the Nasdaq Stock Market, Inc. Those
independent directors are: Mr. Steven C. Judy, Ms. Kathy G. Kimble, Mr. L. Keith
Wolfe, Mr. Leslie A. Barr, Mr. Morris Homan, Jr., and Mr. Gerald
Smith.
Attendance
at Annual Meeting
Although
there is no formal written policy, the Company expects all directors to attend
the Annual Meeting of Shareholders each year. All of the directors
except Mr. Porter, Mr. Smith and Mr. Walters attended the Annual Meeting of
Shareholders held on May 12, 2009. Absences were due to medical
issues and one was due to an unavoidable business trip.
EXECUTIVE
COMPENSATION
The table
below, and accompanying notes, sets forth the compensation totals for the
Company’s Principal Executive Officer, Principal Financial Officer and other
most highly compensated executives of the Company.
Name and Principal
Position
|
Year
|
Salary
($)
|
Non
Equity
Incentive
Plan
Compensation
($)(1)
|
Change
in
Pension
Value
and
Nonqualified
and
Deferred
Compensation
Earnings
(2)
|
All
Other
Compen-
sation
(3)
|
Total
|
|
|
|
|
|
|
|
C.E.
Porter
|
2009
|
$ 273,525
|
--
|
$
220,878
|
$
28,789
|
$
523,192
|
Principal
Executive Officer
|
2008
|
273,525
|
$
7,623
|
169,714
|
27,374
|
478,236
|
|
|
|
|
|
|
|
Alan
L. Brill
|
2009
|
$ 171,150
|
--
|
$ 55,111
|
$ 24,639
|
$
250,900
|
President,
Capon Valley Bank
|
2008
|
171,150
|
$
4,655
|
61,165
|
23,224
|
260,194
|
|
|
|
|
|
|
|
Gerald
Sites
|
2009
|
$
108,000
|
--
|
$ 11,092
|
--
|
$
119,092
|
Sr.
Vice President, The Grant County Bank
|
2008
|
108,000
|
--
|
79,132
|
--
|
187,132
|
Notes to Executive
Compensation Table
Note
One:
|
·
|
Mr.
Brill and Mr. Porter did not receive incentive pay under the Company’s
INCENTIVE BONUS PLAN FOR SUBSIDIARY BANK PRESIDENTS for 2009 results.
Under this Plan, Mr. Porter’s maximum incentive pay for reaching 2009
targets would have been $7,623 and Mr. Brill’s maximum incentive pay for
reaching 2009 targets would have been $6,846. Further details
relating to this Plan can be found on Page
15.
|
Note
Two:
|
·
|
Mr.
Porter’s Change in Pension Value and Nonqualified and Deferred
Compensation Earnings is comprised of the increase in value of Mr.
Porter’s defined benefit pension plan, Mr. Porter’s portion of
contributions by the Company and by The Grant County Bank to the bank’s
profit sharing plan, the dollar value of the economic benefit under The
Grant County Bank’s split dollar life insurance plan (BOLI), and
contributions to the Company’s employee stock ownership plan (ESOP) on
behalf of Mr. Porter.
|
|
·
|
Mr.
Brill’s Change in Pension Value and Nonqualified and Deferred Compensation
Earnings is comprised of contributions by Capon Valley Bank on Mr. Brill’s
behalf to the bank’s 401(k) plan, the dollar value of the economic benefit
under Capon Valley Bank’s split dollar life insurance plan (BOLI), and
contributions to the Company’s employee stock ownership plan (ESOP) on
behalf of Mr. Brill.
|
|
·
|
Mr.
Site’s Change in Pension Value and Nonqualified and Deferred Compensation
Earnings is comprised of the increase in value of Mr. Sites’ defined
benefit pension plan, Mr. Sites’s portion of contributions by The Grant
County Bank to the bank’s profit sharing plan, the dollar value of the
economic benefit under The Grant County Bank’s split dollar life insurance
plan (BOLI), and contributions to the Company’s employee stock ownership
plan (ESOP) on behalf of Mr. Sites.
|
Note
Three:
|
·
|
Mr.
Porter’s Other Compensation is comprised of directors fees paid to Mr.
Porter by the Company and by The Grant County Bank and the economic
benefit of use of an automobile.
|
|
·
|
Mr.
Brill’s Other Compensation is comprised of directors fees paid to Mr.
Brill by the Company and by Capon Valley Bank and the economic benefit of
use of an automobile.
|
The Grant
County Bank participates in a defined benefit pension plan offered through the
West Virginia Banker’s Association. Messrs. Porter and Sites
participate in this plan. The table below illustrates the years of credited
service and the present value of the accumulated benefit for these executives at
December 31, 2009. No payments from the plan were made to any of these
executives during the year ended December 31, 2009.
Name
|
Number
of Years of
Credited
Service
|
Present
Value of
Accumulated
Benefit
|
C.
E. Porter
|
21.33
|
$
718,015
|
Gerald
Sites
|
46.33
|
472,465
|
HIGHLANDS
BANKSHARES, INC. 2009 INCENTIVE BONUS PLAN FOR SUBSIDIARY BANK
PRESIDENTS
The
Compensation Committee approved the 2009 Incentive Bonus Plan (“2009 Incentive
Bonus Plan”) for subsidiary bank presidents. As President of The
Grant County Bank, Mr. Porter participates in this 2009 Incentive Bonus Plan,
and Mr. Brill participates as President of Capon Valley Bank. The
purpose of the 2009 Incentive Bonus Plan is to provide the presidents of these
subsidiary banking organizations with direct incentives for achieving specific
financial goals aimed at enhancing profitability. The Company’s
Compensation Committee administers the 2009 Incentive Bonus Plan and may, in its
sole and absolute discretion, increase or reduce (but not below zero) the amount
of any bonus earned under the 2009 Incentive Bonus Plan. Nothing in
the 2009 Incentive Bonus Plan precludes the Compensation Committee, in its
discretion, from awarding bonuses to these presidents in addition to any bonuses
which they may earn under the 2009 Incentive Bonus Plan. Also, the
Compensation Committee may terminate, amend or otherwise modify the 2009
Incentive Bonus Plan at any time.
Under the
2009 Incentive Bonus Plan, 90% of the bonus of a subsidiary bank’s president
will be based on the extent to which the applicable subsidiary bank achieves
certain corporate performance goals established for a plan year by the
Compensation Committee. The performance goals used under the 2009
Incentive Bonus Plan and the relative weighting of each are as
follows:
Growth
and Net Income
|
(25%)
|
Return
on Average Assets
|
(25%)
|
Return
on Average Equity
|
(25%)
|
Efficiency
Ratio
|
(25%)
|
Each of
the foregoing criteria is defined in detail in the 2009 Incentive Bonus
Plan.
Achievement
of 100% or greater than 100% of a performance goal will result in payment of
100% of the portion of the potential bonus based on that
goal. Achievement of 90% to 99% of a performance goal will result in
payment of 90% of the portion of the potential bonus based on that
goal. Achievement of 80% to 89% of a performance goal will result in
payment of 75% of the portion of the potential bonus based on that
goal. Achievement of 70% to 79% of a performance goal will result in
payment of 25% of the portion of the potential bonus based on that
goal. Achievement of less than 70% of a performance goal will result
in no payment of the portion of the potential bonus based on that
goal.
The
remaining 10% of the participant’s bonus shall be based on the Compensation
Committee’s assessment of the participant’s individual performance during a plan
year; provided, however, that if no payment of the potential bonus is to be made
based on the corporate performance goals (because
none of
the corporate performance goals are achieved at or above the 70% level), then no
payment of the potential bonus will be made based on individual performance
either, resulting in no bonus paid for a plan year, subject to the Compensation
Committee’s discretionary authority discussed above.
The
following example illustrates how the bonus amount is to be
determined. A participant’s gross annual base salary payable by the
applicable subsidiary bank effective January 1, 2009 is $180,000 and the
Compensation Committee has determined that he will be eligible to earn a cash
bonus for the 2009 calendar year of up to 15% of his gross annual base salary,
or $27,000, 90% of which, or $24,300, is based on the achievement of
corporate performance goals and 10% of which, or $2,700, is based on the
Compensation Committee’s assessment of his individual performance during
2009. After the end of 2009, the Compensation Committee determines
that the corporate performance goals have not been achieved to the following
extent: growth in net income: 85% of performance goal;
return on average assets: 77% of performance goal; return on average
equity: 107% of performance goal; and efficiency
ratio: 68% of performance goal. The Compensation Committee
also determines, based on the participant’s individual performance during 2009,
to award 95% of the portion of the bonus based on individual
performance. This results in a total bonus for a plan year of
$14,715, determined as follows:
Growth
in Net Income
|
$24,300
x 25% x 75%
|
equals
|
|
$
|
4,556
|
|
Return
on Average Assets
|
$24,300
x 25% x 25%
|
equals
|
|
|
1,519
|
|
Return
on Average Equity
|
$24,300
x 25% x 100%
|
equals
|
|
|
6,075
|
|
Efficiency
Ratio
|
$24,300
x 25% x 0%
|
equals
|
|
|
0
|
|
Total
Based on Corporate Performance
|
|
|
|
|
12,150
|
|
Individual
Performance
|
$ 2,700
x 95%
|
equals
|
|
|
2,565
|
|
Total
Bonus
|
|
|
|
$
|
14,715
|
|
AUDIT
COMMITTEE REPORT
The
Company has an Audit Committee, which consists of Steven C. Judy, Chairman,
Kathy G. Kimble, Secretary, Gerald W. Smith, Morris M. Homan Jr. and Leslie A.
Barr. The Audit Committee met seven times during the year ended
December 31, 2009. The Board of Directors has adopted a written charter for the
Audit Committee, which is reviewed annually and has been resolved by the
Committee to be sufficient. The Audit Committee’s charter is included in
this document as EXHIBIT A.
The Audit
Committee oversees Highlands’ financial reporting process on behalf of the Board
of Directors. The Audit Committee is responsible for communicating to
the board of directors its recommendation regarding the appointment,
replacement, compensation and oversight of the independent registered public
accounting firm engaged to prepare or issue audit reports on the Company’s
financial statements. The Audit Committee relies on the expertise and
knowledge of management, the Company’s internal auditors and the independent
registered public accounting firm in carrying out its oversight
responsibilities. Management has the primary responsibility for the
financial statements and the reporting process including the systems of internal
controls. In fulfilling its oversight responsibilities, the Committee
reviewed the audited financial statements in the annual report with management
including a discussion of the quality, not just the acceptability, of the
accounting principles, the reasonableness of significant judgments and the
clarity of disclosures in the financial statements.
The
Committee reviewed with the independent registered public accounting firm, who
is responsible for expressing an opinion on the conformity of those audited
financial statements with U.S. generally accepted accounting principles, their
judgments as to the quality, not just the acceptability, of Highlands’
accounting principles and such other matters as are required to be discussed
with the committee under generally accepted auditing standards. In
addition, the Committee has discussed with the independent registered public
accounting firm the firm’s independence from management and Highlands, including
the matters in the written disclosures required by the PCAOB Rule 3526
“Communication with Audit Committees Concerning Independence” and considered the
compatibility of non-audit services with auditors’ independence. The Committee
has discussed with the independent registered public accounting firm the matters
required to be discussed by the Public Company Accounting Oversight Board
Auditing Standard AU Section 380 “Communication with Audit Committees,” and Rule
2-07 of Regulation S-X promulgated by the Securities and Exchange
Commission.
The
committee discussed with Highlands’ internal auditor and with the independent
registered public accounting firm the overall scope and plans for their
respective audits. The committee meets with the internal auditor and
with the independent registered public accounting firm, with and without
management present, to discuss the results of the respective audits, their
evaluations of Highlands’ internal controls and the overall quality of
Highlands’ financial reporting.
The Audit
Committee charter requires that the audit committee approve all services
performed by the independent auditors.
All
members of the Audit Committee have been deemed by the Board of Directors to be
financially literate. All members of the Audit Committee are independent as that
term is defined under the listing standards of the Nasdaq Stock Market, Inc. The
Audit Committee does not have one of its members designated as
an “audit committee financial expert” as defined by SEC rules.
Because the Company operates in a substantially rural area, the availability of
potential directors and especially directors who may qualify as an audit
committee financial expert and still meet the independence requirements of a
member of the Audit Committee is limited. The Company believes that
each member of the Audit Committee has sufficient knowledge in financial and
auditing matters to serve on the Committee. As such, the Board does not believe
that it is necessary to actively search for an outside person to serve on the
Board to qualify as an audit committee financial expert. The Committee has
authority to engage legal counsel, other experts or consultants, as it deems
appropriate, to carry out its responsibilities. The Audit Committee is
responsible for the appointment, replacement, compensation and oversight of the
independent auditor engaged to prepare or issue audit reports on our financial
statements.
The Audit
Committee’s primary responsibilities fall into three broad
categories:
|
·
|
The Committee
is charged with monitoring the preparation of quarterly and annual
financial reports prepared by the Company’s management, including
discussion with management and the Company’s outside auditors about
financial statements, key accounting practices, and
reporting.
|
|
·
|
The Committee is responsible
for matters concerning the relationship between the Company and its
outside auditors, including recommending their appointment or removal,
reviewing the scope of their audit services and related fees, as well as
any other services being provided to the Company, also determining if the
outside auditors are independent (based in part on the annual letter
provided to the Company pursuant to Independence Standards Board Standard
No. 1).
|
|
·
|
The Committee oversees
management’s implementation of effective systems of internal controls,
including review of policies relating to legal and regulatory compliance,
ethics and conflicts of interest; and review of the activities and
recommendations of the Company’s internal auditing
program.
|
This
report shall not be deemed incorporated by reference by any general statement
incorporating by reference this proxy statement and to any filing under the
Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent that the Company specifically incorporates this report by reference, and
shall not otherwise be filed under such acts.
In
reliance on the reviews and discussions referred to above, the Audit Committee
recommended to the Board of Directors that the audited financial statements be
included in the Company’s Annual Report on Form 10-K for the fiscal year ended
December 31, 2009, for filing with the Securities and Exchange
Commission.
Steven
C. Judy, Chairman
Kathy
G. Kimble, Secretary
Leslie
A. Barr
Morris
M. Homan, Jr
Gerald
W. Smith.
April 5,
2010
COMPLIANCE
WITH SECTION 16(a) OF THE SECURITIES EXHANGE ACT
Section
16(a) of the Securities Exchange Act of 1934 requires our directors and
executive officers to file reports of holdings and transactions in Highlands
shares with the SEC. Based solely on our records and other known information, in
2009 all Directors and executive officers met all applicable SEC filing
requirements under Section 16(a), except for John G. Van Meter. Mr.
Van Meter filed a correction form 4 during the first quarter of 2010 deleting a
transaction reported on February 27, 2009 that did not take place and to correct
the total number of his beneficially owned shares.
CERTAIN
RELATED TRANSACTIONS
Loans
made by The Grant County Bank and Capon Valley Bank to directors, director
nominees and their affiliates were made in the ordinary course of business, were
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time the loans were made for comparable transactions
with other persons, and did not involve more than the normal risk of
collectibility or present other unfavorable features. In addition,
the Company or its subsidiaries, may, from time to time, obtain goods or
services from a director or their affiliates. Any such business transaction with
a related party did not, during 2009, exceed $120,000 nor was made under terms
unfavorable to the Company or its affiliates as compared to the obtaining of
similar goods or services from non related parties.
The
Company has adopted a Related Party Transaction Policy. This policy covers
substantially all material business transactions between related parties and the
Company or its subsidiaries. The policy requires that all loans or business
transactions above certain thresholds with insiders, as defined by the policy,
be approved by the Board of Directors of Highlands Bankshares, Inc. This policy
has been designed in an attempt to ensure the appropriateness of all related
party transactions and in an attempt to ensure that all required reporting of
related party transactions is achieved.
PROPOSAL
TWO
RATIFICATION
OF APPOINTMENT OF INDEPENDENT REGISTERED CERTIFIED PUBLIC
ACCOUNTANTS
Smith
Elliott Kearns & Company, LLC was the auditor for 2008 and 2009 and is being
recommended to the Company's shareholders for appointment as the auditor for
2010. A representative of Smith Elliott Kearns & Company, LLC is
expected to attend the Annual Meeting with the opportunity to make a statement
or to respond to appropriate questions from shareholders.
The
Board Recommends that Shareholders vote “FOR” Proposal Two
Fees of Independent
Registered Certified Public Accountants
The
following fees were paid to Smith Elliott Kearns & Company, LLC (“SEK”), the
Company’s Independent Registered Certified Public Accountants for services
provided to the Company for the fiscal year ending December 31, 2009 and
2008:
|
|
2009
|
|
|
2008
|
|
Audit
Fees
|
|
$
|
75,525
|
|
|
$
|
72,855
|
|
All Other
Fees
|
|
|
0
|
|
|
|
0
|
|
Total
|
|
$
|
75,525
|
|
|
$
|
72,855
|
|
Audit
fees are substantially all fees related to the audit of year-end financial
statements and corresponding regulatory filings.
Due to
the vacancy in the Chief Financial Officer position of the Company, the
accounting firm of Yount, Hyde & Barbour, P.C. located at 50 South Cameron
St. Winchester, VA 22604 was contracted during 2009 to assist the Company in the
required filings.
SHAREHOLDER
PROPOSALS
Under the
rules of the SEC, proposals by shareholders intended to be presented at the
Company's 2011 Annual Meeting pursuant to Rule 14a-8 of the SEC’s proxy rules,
must be received by the Secretary of the Company, at its principal executive
offices at 3 North Main Street, Petersburg, West Virginia 26847, for inclusion
in its Proxy Statement relating to the meeting, by January 10, 2011, in order
for the proposal to be considered for inclusion in the Company’s proxy statement
for the 2011 annual meeting of shareholders. SEC rules establish a
different deadline for submission of shareholder proposals that are not intended
to be included in the Company’s proxy statement with respect to discretionary
voting. The deadline for these proposals for the 2011 annual meeting
is February 26, 2011. If a shareholder gives notice of such a
proposal after this deadline, the proxies will be allowed to their discretionary
voting authority to vote against the shareholder proposal.
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By
Order of the Board of Directors
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/s/
Alan L. Brill
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Alan
L. Brill
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Corporate
Secretary
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April 5,
2010
HIGHLANDS
BANKSHARES, INC.
AUDIT
COMMITTEE CHARTER
I. PURPOSE
The
primary function of the Audit Committee is to assist the Board of Directors in
fulfilling its oversight responsibilities by reviewing: the financial reports
and other financial information provided by the Corporation to any governmental
body or the public; the Corporation’s systems of internal controls regarding,
finance, accounting, legal compliance and ethics that management and the Board
have established; and the Corporation’s auditing, accounting and financial
reporting processes generally. Consistent with this function, the
Audit Committee should encourage continuous improvement of, and should foster
adherence to, the Corporation’s policies, procedures and practices at all
levels. The Audit Committee’s primary duties and responsibilities are
to:
Serve as
an independent and objective party to monitor the Corporation’s financial
reporting process and internal control system.
Review
and appraise the audit efforts of the Corporation’s independent accountants and
internal auditing department.
Provide
an open avenue of communication among the independent accountants, financial and
senior management, the internal auditing department, and the Board of
Directors.
The Audit
Committee will primarily fulfill these responsibilities by carrying out the
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, each of whom shall be independent directors, 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. An independent director is one who: (1) is not and has not
been employed as an executive of the Corporation for at least three years prior
to election to the Audit Committee; (2) did not accept compensation from the
Corporation or any of its affiliates in excess of $60,000 during the previous
fiscal year, except for compensation for service on the Board for certain types
of non-discretionary compensation; (3) no member of the director’s immediate
family serves or has served as an executive officer of the Corporation or any of
its affiliates during the past three years; (4) is not a partner, controlling
shareholder or executive officer of a business organization to which the
Corporation makes or from which it receives significant payments during any of
the past three years; and (5) does not serve as an executive of another entity
where any of the Corporation’s executives serve on the other entities’
Compensation Committee.
All
members of the Committee shall have a working familiarity with basic finance and
accounting practices, and at least one member of the Committee shall have
accounting or related financial management expertise. Committee
members may enhance their familiarity with finance and accounting by
participating in educational programs conducted by the Corporation or an outside
consultant.
The
members of the Committee shall be appointed annually by the Board of
Directors. Unless a Chair is elected by the full Board, the members
of the Committee may designate a Chair by majority vote of the full Committee
membership.
III. MEETINGS
The
Committee shall meet at least quarterly, 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 and the independent accountants 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 meet with the independent accountants and
management quarterly to review the Corporation’s financials consistent with
IV.4. below.
IV. RESPONSIBILITIES
AND DUTIES
To
fulfill its responsibilities and duties the Audit Committee shall:
Documents/Reports
Review
1. Review
and assess the adequacy of this Charter periodically, at least annually, as
conditions dictate.
2. Review
the organization’s annual financial statements and any reports or other
financial information submitted to any governmental body, or the public,
including any certification report, opinion, or review rendered by the
independent accountants.
3. Review
the regular internal reports to management prepared by the internal auditing
department and management’s response.
4. Review
with financial management and the independent accountants the 10-Q prior to its
filing or prior to release of earnings. The Chair of the Committee
may represent the entire Committee for purposes of this review.
Independent
Accountants
5. Recommend
to the board of Directors the selection of the independent accountants,
considering independence and effectiveness, and approve the fees and other
compensation to be paid to the independent accountants. On an annual
basis, the Committee should review and discuss with the accountants all
significant relationships the accountants have with the Corporation to determine
the accountants’ independence.
6. Review
the performance of the independent accountants and approve any proposed
discharge of the independent accountants when circumstances
warrant.
7. Periodically
consult with the independent accountants out of the presence of management about
internal controls and the fullness and accuracy of the organization’s financial
statements.
8. Pre-approve
all non-audit services provided by the independent accountants.
Financial Reporting
Process
9. In
consultation with the independent accountants and the internal auditors, review
the integrity of the organization’s financial reporting processes, both internal
and external.
10. Consider
the independent accountants’ judgments about the quality and appropriateness of
the Corporation’s accounting principles as applied in its financial
reporting.
11. Consider
and approve, if appropriate, major changes to the Corporation’s auditing and
accounting principles as applied in its financial reporting.
Process
Improvement
12. Establish
regular and separate systems of reporting to the Audit Committee by management,
the independent accountants and the internal auditors regarding any significant
judgment made in management’s preparation of the financial statements and the
view of each as to appropriateness of such judgments.
13. Following
completion of the annual audit, review separately with management, the
independent accountants and the internal auditing department any significant
difficulties encountered during the course of the audit, including any
restrictions on the scope of work or access to required
information.
14. Review
any significant disagreement between management and the independent accountants
or the internal auditing department in connection with the preparation of the
financial statements.
15. Review
with the independent accountants, 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.)
Ethical and Legal
Compliance
16. Review
activities, organizational structure, and qualifications of the internal audit
department.
17. Review,
with the organization’s counsel, legal compliance matters including corporate
securities trading policies.
18. Review,
with the organization’s counsel, any legal matter that could have a significant
impact on the organization’s financial statements.
19. 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.
CHARTER
OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF HIGHLANDS BANKSHARES,
INC.
The
Compensation Committee (the “Committee”) of the Board of Directors (the “Board”)
of Highlands Bankshares, Inc. (the “Corporation”) shall discharge the Board’s
responsibilities relating to the compensation of the Corporation’s executive
officers and other key management personnel, and make recommendations to the
Board regarding director compensation.
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II.
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Committee
Composition and Meetings
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The
Committee shall be comprised of three or more directors (including a
chairperson) as appointed by the Board, each of whom shall be an independent
director as defined by the NASDAQ Stock Market listing standards and each of
whom shall be free from any relationship that would interfere with the exercise
of his or her independent judgment. The Board shall also consider whether it is
advisable for members of the Committee to also qualify as “non-employee
directors” within the meaning of Rule 16b-3 under the Securities Exchange Act of
1934, “outside directors” within the meaning of Section 162(m) of the Internal
Revenue Code of 1986, as amended, or any other standards of applicable law, rule
or regulation.
The
members of the Committee shall be selected annually by the Board. The
Board shall have the power at any time to change the membership of the Committee
and to fill vacancies, subject to the qualification requirements of this
Charter. The Committee shall meet at least two times annually or more
frequently as circumstances require.
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III.
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Committee
Duties, Responsibilities and
Process
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The
Committee will cause to be kept adequate minutes of all its proceedings, and
will report its actions at the next meeting of the Board. Committee
members will be furnished with copies of the minutes of each meeting and any
action taken by unanimous consent. The Committee is governed by the
same rules regarding meetings (including meetings by conference telephone or
similar communications equipment), action without meetings, notice, waiver of
notice, and quorum and voting requirements as are applicable to the
Board. The Committee is authorized and empowered to adopt its own
rules of procedure not inconsistent with (a) any provision of this Charter, (b)
any provision of the Bylaws of the Corporation, or (c) the laws of the State of
West Virginia.
The
Committee may request that any directors, officers or employees of the
Corporation, or other persons whose advice and counsel are sought by the
Committee, attend any meeting of the Committee to provide such pertinent
information as the Committee requests.
The
Committee shall have the following responsibilities:
(1) Review
from time to time the goals and objectives of the Corporation’s compensation
plans, and, if the Committee deems it appropriate, amend or recommend that the
Board amend these goals and objectives.
(2) Review
from time to time the Corporation’s compensation plans in light of the
Corporation’s goals and objectives with respect to such plans, and, if the
Committee deems it appropriate, adopt or recommend to the Board the adoption of
new incentive-compensation plans, equity-based plans, other compensation plans
or amendments to existing plans.
(3) Annually
review and approve corporate goals and objectives relevant to the compensation
of the Presidents of the Company’s subsidiary banks, evaluate their performance
in light of these goals and objectives, and determine and approve their
compensation levels based on this evaluation.
(4) Oversee
the evaluation of management of the Corporation, including the other executive
officers of the Corporation, and establish the compensation for the
Corporation’s other executive officers and approve the compensation for other
key members of management.
(5) Perform
such duties and responsibilities as may be assigned to the Committee under the
terms of any executive or employee compensation plan.
(6) If
required by the regulations of the Securities and Exchange Commission or if
otherwise desired by the Corporation, review and discuss with the Corporation’s
management a Compensation Discussion and Analysis (“CD&A”) section to appear
in the Company’s Annual Report on Form 10-K and/or annual proxy statement,
recommend whether the CD&A should be included in the Annual Report on Form
10-K and/or annual proxy statement and issue a report to appear in the Annual
Report on Form 10-K and/or annual proxy statement stating that the Committee has
conducted such review and made such recommendation.
(7) Review,
at least annually, on management development efforts to assure development of a
pool of candidates for adequate and orderly management succession.
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(8)
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Discharge
any other duties and responsibilities delegated to the Committee from time
to time.
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IV.
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Investigations
and Studies; Outside Advisers
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The
Committee may conduct or authorize studies of or investigations into matters
within the Committee’s scope of responsibilities, and may retain, at the
Corporation’s expense, such counsel or other advisers as it deems necessary
(which may, if the Committee deems it appropriate, be the Corporation’s regular
counsel or advisers). The Committee shall have the authority to retain or
terminate a compensation consultant to assist the Committee in carrying out its
responsibilities, including authority to approve the consultant’s fees and other
retention terms, which fees shall be borne by the Corporation.
REVOCABLE
PROXY
HIGHLANDS
BANKSHARES, INC.
Annual
Meeting of Shareholders, May 11, 2010
THIS
PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The
undersigned hereby appoints Kathy G. Kimble and Morris M. Homan, Jr., either of
whom may act with full power of substitution, as proxies to vote, as designated
below, at the Annual Meeting of Shareholders to be held on May 11, 2010, and at
any adjournment thereof, the shares of Highlands Bankshares, Inc. common stock
held of record by the undersigned as of March 29, 2010. Each share is
entitled to one vote per nominee unless a shareholder requests cumulative voting
at least 48 hours before the meeting. If cumulative voting for the election of
directors is requested, the proxies, unless otherwise directed, shall have full
discretion and authority to cumulate their votes and vote for less than all such
nominees.
The
shares to which this proxy relates will be voted as specified. If no
specification is made, such shares will be voted in favor of the proposals set
forth on this proxy.
1. PROPOSAL
ONE: ELECTION
OF DIRECTORS
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FOR
all nominees listed
below
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WITHHOLD AUTHORITY
to
vote
(except as
marked to the contrary
below) for
all nominees listed below
Class
C: Steven
C.
Judy Leslie
A. Barr
Jack H.
Walters
(INSTRUCTION: To
withhold authority to vote for any individual nominee, write that nominee’s name
in the space below.)
2.
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PROPOSAL
TWO:
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RATIFICATION
OF APPOINTMENT OF SMITH ELLIOTT KEARNS &
COMPANY,
LLC AS INDEPENDENT REGISTERED CERTIFIED PUBLIC
ACCOUNTANTS
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o
FOR
o
AGAINST
o
ABSTAIN
IN THEIR
DISCRETION, THE PROXIES ARE AUTHORIZED TO VOTE UPON SUCH OTHER BUSINESS AS MAY
PROPERLY COME BEFORE THE ANNUAL MEETING.
Please complete, date and sign the
proxy and return it as soon as possible in the enclosed postage prepaid
envelope. The proxy must be signed exactly as the name or names
appear on the label attached to this proxy. If signing as a trustee,
executor, etc., please so indicate.
Date signed:
________________________________
___________________________________________
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