SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant x
Filed by a Party other than the Registrant _
Check the appropriate box:
_ Preliminary Proxy Statement _ Confidential, For Use of the Commission Only
(as permitted by Rule 14a-6(e)(2))
x Definitive Proxy Statement
_ Definitive Additional Materials
_ Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
First United Corporation
------------------------
(Name of Registrant as Specified in Its Charter)
N/A
---
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
X No fee required.
-
_ Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the filing fee
is calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
_ Fee paid previously with preliminary materials: N/A
_ Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
FIRST UNITED CORPORATION
March 26, 2004
To Our Shareholders:
On behalf of the Board of Directors and the whole First United Team, I
cordially invite you to attend the Annual Shareholders' Meeting to be held on
Tuesday, April 27, 2004, at 3:00 p.m. at the Wisp at Deep Creek Mountain Resort,
McHenry, Maryland 21541. The notice of meeting and proxy statement accompanying
this letter describe the specific business to be acted upon.
In addition to the specific matters to be acted upon, there will be a
report on the progress of your Company and an opportunity to ask questions on
matters of general interest to shareholders.
It is important that your shares be represented at the meeting. Whether or
not you plan to attend in person, we would ask that you mark, sign, date and
promptly return the enclosed proxy in the envelope provided.
There will be a reception with light refreshments immediately following the
shareholders' meeting for all registered shareholders. I look forward to seeing
you there.
Sincerely yours,
WILLIAM B. GRANT
Chairman of the Board &
Chief Executive Officer
P.O. Box 9 Oakland, MD 21550-0009 Telephone 888-692-2654
FIRST UNITED CORPORATION
19 South Second Street
P.O. Box 9
Oakland, Maryland 21550-0009
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
March 26, 2004
To Shareholders of First United Corporation:
Notice is hereby given that the Annual Meeting of the Shareholders of First
United Corporation (the "Company") will be held at the Wisp at Deep Creek
Mountain Resort, McHenry, Maryland 21541. The meeting is scheduled for:
TUESDAY, APRIL 27, 2004, at 3:00 p.m.
The purposes of the meeting are:
1. To elect five (5) Directors to serve for a three-year term and until
the election and qualification of their successors.
2. To transact such other business as may be properly brought before the
meeting or any adjournment thereof.
IT IS HOPED THAT YOU WILL ATTEND, BUT WHETHER OR NOT YOU CONTEMPLATE
ATTENDING THE MEETING, YOU ARE REQUESTED TO EXECUTE THE ENCLOSED PROXY CARD AND
RETURN IT PROMPTLY. IF YOU ATTEND THE MEETING, YOU MAY WITHDRAW YOUR PROXY AND
VOTE IN PERSON, IF YOU SO DESIRE. ALL SHAREHOLDERS OF RECORD AT THE CLOSE OF
BUSINESS ON FEBRUARY 13, 2004, ARE ENTITLED TO VOTE AT THIS MEETING.
Anyone acting as proxy agent for a shareholder must present a proxy
properly executed by the shareholder authorizing the agent in form and substance
satisfactory to the judges of election, and otherwise in accordance with the
Company's Bylaws.
By order of the Board of Directors
ROBERT W. KURTZ
Secretary
[THIS PAGE INTENTIONALLY LEFT BLANK]
FIRST UNITED CORPORATION
19 South Second Street
P.O. Box 9
Oakland, Maryland 21550-0009
March 26, 2004
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of First United
Corporation (the "Company") in connection with the Annual Meeting of
Shareholders to be held on April 27, 2004 at 3:00 p.m. at the Wisp at Deep Creek
Mountain Resort, McHenry, Maryland 21541, and any adjournment or postponements
thereof. The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by mail, proxies may be solicited by officers,
Directors and regular employees of the Company personally or by telephone,
telegraph or facsimile. No additional remuneration will be paid to officers,
Directors or regular employees who solicit proxies. The Company may reimburse
brokers, banks, custodians, nominees and other fiduciaries for their reasonable
out-of-pocket expenses in forwarding proxy materials to their principals. The
Company has also engaged Mellon Investor Services LLC ("Mellon") to assist in
the solicitation of proxies, at an estimated cost of $7,000 plus reasonable
expenses.
Please complete and sign the enclosed proxy and return it to our transfer
agent, Mellon, promptly. Should you attend the meeting and desire to vote in
person, you may withdraw your proxy by written request delivered to the
Secretary of the Company, prior to its exercise by the named proxies. Also, your
proxy may be revoked before it is exercised, whether or not you attend the
meeting, by notifying Robert W. Kurtz, Secretary, First United Corporation, P.O.
Box 9, Oakland, Maryland 21550-0009, in writing prior to the Annual Meeting of
Shareholders. Your proxy may also be revoked by using a subsequently signed
proxy. Your proxy will be voted in accordance with the instructions on the proxy
card. If no instructions are given, your proxy will be voted FOR the Director
nominees listed below, and in the discretion of the persons named in the proxy
with respect to any other matter properly brought before the meeting. The proxy
materials are first being mailed to shareholders on or about March 26, 2004.
OUTSTANDING VOTING SECURITIES; VOTING RIGHTS
Only shareholders of record of the Company's common stock, par value $.01
per share ("Common Stock"), at the close of business on February 13, 2004 (the
"Record Date") will be entitled to receive notice of and vote at the Annual
Meeting of Shareholders. As of the Record Date, there were 6,087,287 shares of
Common Stock outstanding and entitled to be voted at the Annual Meeting of
Shareholders. Each share of Common Stock is entitled to one vote. Directors are
elected by a plurality of the votes cast by the holders of shares of Common
Stock present in person or represented by proxy at the meeting, in which there
is a quorum present. Consequently, abstentions and broker non-votes will not
affect the outcome of the vote.
BENEFICIAL OWNERSHIP OF COMMON STOCK BY
PRINCIPAL SHAREHOLDERS AND MANAGEMENT
The following table sets forth information as of the Record Date relating
to the beneficial ownership of the Common Stock by (i) each person or group
known by the Company to own beneficially more than five percent (5%) of the
outstanding Common Stock; (ii) each of the Company's Directors and Director
nominees; and (iii) all Directors and executive officers of the Company as a
group. Generally, a person "beneficially owns" shares if he or she has or shares
with others the right to vote those shares or to invest (or dispose of) those
shares, or if he or she has the right to acquire such voting or investment
rights, within 60 days of the Record Date (such as by exercising stock options
or similar rights). Except as otherwise indicated and except for shares held by
members of an individual's family or in trust for the individual's benefit, the
persons named in the table have sole investment powers with respect to each of
the shares reported as beneficially owned by such person. Except as otherwise
noted, the address of each person named below is the address of the Company.
Common Stock Percent of
Beneficially Outstanding
Owned Common Stock
Directors, Nominees and Named Executive Officers:
David J. Beachy ............................................................ 6,627 .11%
Rex W. Burton .............................................................. 9,119 .15%
Paul Cox, Jr................................................................ 1,705 .03%
Jeannette R. Fitzwater...................................................... 10,743 .18%
Philip D. Frantz............................................................ 1,954 .03%
William B. Grant ........................................................... 8,733 .14%
Eugene D. Helbig, Jr........................................................ 2,799 .05%
Raymond F. Hinkle .......................................................... 5,684 .09%
Robert W. Kurtz ............................................................ 3,554 .06%
Steven M. Lantz............................................................. 1,504 .02%
Elaine L. McDonald.......................................................... 4,015 .07%
Donald E. Moran............................................................. 136,164 2.24%
Robin E. Murray............................................................. 662 .01%
Karen F. Myers ............................................................. 7,704 .13%
I. Robert Rudy.............................................................. 32,117 .53%
James F. Scarpelli, Sr. .................................................... 16,091 (1) .26%
Richard G. Stanton.......................................................... 13,488 .22%
Robert G. Stuck............................................................. 3,034 .05%
Frederick A. Thayer, III.................................................... 50,053 .82%
Frederick A. Thayer, IV..................................................... 4,155 .07%
Directors & Executive Officers as a Group (20 persons) ..................... 319,905 5.26%
5% Beneficial Owners:
Firstoak & Company.......................................................... 553,692 (2) 9.10%
P.O. Box 557
Oakland, Maryland 21550
(1) Includes 1616 shares held in the James and Margaret Scarpelli
Foundation Trust which Mr. Scarpelli has a 1/4 interest.
(2) Shares held in the name of Firstoak & Company, a nominee, are
administered by the Trust Department of First United Bank & Trust
in a fiduciary capacity. Firstoak & Company disclaims beneficial
ownership of such shares.
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ELECTION OF DIRECTORS (PROPOSAL NO. 1)
The Company's Directors are divided into three classes, as nearly equal in
number as possible, with respect to the time for which the Directors may hold
office. Directors are elected to hold office for term of three years, and one
class of Director expires each year. The terms of Directors of Class III expire
this year and these Directors are up for re-election. Directors of Class I will
hold office until the 2005 Annual Meeting of Shareholders and Directors of Class
II will hold office until the 2006 Annual Meeting of Shareholders. In each case,
Directors are elected until their successors are duly elected and qualify.
The number of Directors is currently set at 15. Frederick A. Thayer, III,
who is a Class III Director, is retiring from the Board and, therefore, will not
stand for re-election in 2004. Additionally, Donald M. Browning, who is a Class
II Director, passed away in June of 2003. By resolution as provided in the
Bylaws, the Board of Directors has eliminated these vacancies by reducing the
number of Directors who shall serve on the Board after the Annual Meeting to 13.
The Company's Chairman of the Board and CEO is a member of Class I, and the
Company's President and CFO is a member of Class II. No Director or nominee
holds any directorships in any other public company.
Five Directors have been nominated for re-election to Class III. The
following table provides information about these nominees, including their ages
as of the Record Date, their principal occupations and business experience, and
certain other information. In the event a nominee declines or is unable to serve
as a Director, which is not anticipated, the proxies will vote in their
discretion with respect to a substitute nominee named by the Board.
NOMINEES FOR CLASS III (Terms Expire in 2007)
Occupation Director
Name Age During Past Five Years Since
Karen F. Myers 52 President, Mountaineer Log & 1991
Siding Co., Inc. and Recreational
Industries Inc.;
Member, DC Development LLC; Broker, Deep
Creek Mountain Resort
I. Robert Rudy 51 President, Rudy's Inc., 1992
Retail Apparel and Sporting Goods
Member, DC Development LLC
James F. Scarpelli, Sr. 89 Funeral Director, Scarpelli Funeral Home 1985
Richard G. Stanton 64 Banker, Retired 1985
Robert G. Stuck 57 Vice President, Oakview Motors, Inc. 1995
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR SUCH NOMINEES.
The election of Directors requires the affirmative vote of holders of a
majority of the shares of Common Stock present and voting at the Annual
Shareholders' Meeting. A quorum for the Annual Meeting consists of a majority of
the issued and outstanding shares of Common Stock present in person or by proxy
and entitled to vote, and Directors are elected by a plurality of the votes of
the shares present in person or by proxy and entitled to vote. Consequently, the
withholding of votes, abstentions and broker non-votes with respect to shares
otherwise present at the Annual Meeting in person or by proxy will have no
effect on the outcome of this vote.
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Information about the Directors of Class I and Class II whose terms do not
expire in 2004, including their ages as of the Record Date, and their principal
occupations and business experience, is listed in the tables below.
CLASS I DIRECTORS (Terms Expire in 2005)
Occupation Director
Name Age During Past Five Years Since
David J. Beachy 63 Fred E. Beachy Lumber Co., Inc. 1985
Building Supplies - Retired
Rex W. Burton 69 Owner & President 1992
Burtons, Inc., Men's Wear; Retail and
Wholesale Used Office Furniture and
Store Fixtures
Paul Cox, Jr. 64 Owner, Professional Tax Service 1993
Tax Consulting Firm
William B. Grant 50 Chairman of the Board 1995
Chief Executive Officer
First United Corporation and
First United Bank & Trust
CLASS II DIRECTORS (Terms Expire in 2006)
Occupation Director
Name Age During Past Five Years Since
Raymond F. Hinkle 67 Tax Consultant 1996
Robert W. Kurtz 57 President, Chief Financial Officer 1990
Secretary and Treasurer
First United Corporation; President and
Chief Financial Officer First United
Bank & Trust
Elaine L. McDonald 55 Owner, Philanthropos LLC 1995
Donald E. Moran 73 Secretary/Treasurer, Moran Coal Company 1988
Family Relationships
As defined by Securities and Exchange Commission ("SEC") rules and
regulations, family relationships exist among Directors, nominees and executive
officers. Director Frederick A. Thayer, III is the father of Senior Vice
President Frederick A. Thayer IV. Director I. Robert Rudy and Senior Vice
President Jeannette R. Fitzwater are siblings. Director Karen F. Myers and
Senior Vice President Philip D. Frantz are first cousins. No other family
relationships exist.
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Committees of the Board of Directors
The Board of Directors has an Audit Committee, an Asset and Liability
Management Committee, an Executive Committee, a Strategic Planning Committee, a
Compensation Committee, and a Nominating and Governance Committee (the
"Nominating Committee"). These committees are discussed below.
Audit Committee - The Audit Committee is established pursuant to Section
3(a)(58)(A) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") and consists of David J. Beachy, Paul Cox, Jr., Raymond F. Hinkle, Richard
G. Stanton, and Robert G. Stuck. The committee is solely responsible for the
hiring, compensation and oversight of the Company's independent auditors, and it
also assists the Board in monitoring the integrity of the financial statements,
in monitoring the performance of the Company's internal audit function, in
monitoring the Company's compliance with legal and regulatory requirements, and
in monitoring the performance of the Loan Review function. This committee met
five times in 2003. Raymond F. Hinkle was appointed to the Committee on February
12, 2004. The Board has determined that all audit committee members are
financially literate and that Richard G. Stanton qualifies as an "audit
committee financial expert" as that term is defined by Item 401(h) of the SEC's
Regulation S-K. The Board of Directors has adopted a written charter for the
Audit Committee, a copy of which is attached to this Proxy Statement as Appendix
A
Asset and Liability Management Committee - The Asset and Liability
Management Committee consists of David J. Beachy, Paul Cox, Jr., William B.
Grant, Raymond F. Hinkle, Robert W. Kurtz, Elaine L. McDonald, Karen F. Myers,
I. Robert Rudy, Richard G. Stanton, Robert G. Stuck, and Frederick A. Thayer,
III. The committee reviews and recommends changes to the Company's Asset and
Liability, Investment, Liquidity, and Capital Plans. This committee met four
times in 2003.
Executive Committee - The Executive Committee consists of Rex W. Burton,
Paul Cox, Jr., William B. Grant, Robert W. Kurtz, Donald E. Moran, I. Robert
Rudy, James F. Scarpelli, Sr., Richard G. Stanton, Robert G. Stuck and Frederick
A. Thayer, III. The committee is responsible for reviewing and recommending
changes to the Company's Insurance Program, overseeing compliance with the
Company's Bylaws and Articles of Incorporation, supervising the Company's CEO,
monitoring the performance of the Company and its subsidiaries, and recommending
changes to the personnel policies of the Company and of its subsidiaries. The
Executive Committee is empowered to act on behalf of the full Board between
meetings of the Board. This committee met two times in 2003.
Strategic Planning Committee - The Strategic Planning Committee consists of
Rex W. Burton, Paul Cox, Jr., William B. Grant, Raymond F. Hinkle, Robert W.
Kurtz, Elaine L. McDonald, Donald E. Moran, I. Robert Rudy, Richard G. Stanton,
Frederick A. Thayer, III. Roger Fairbourn, Susan P. Kelley, John W. McCullough,
Gary R. Ruddell, Renick C. Williams and L. Hunter Wilson serve as members from
the Advisory Council and assist the committee. The committee focuses on
long-term planning to insure that management's decisions take into account the
future operating environment, the development of corporate statements of policy,
review of overall management internal control procedures, and review of
management's internal and external information and communications systems. This
committee met one time in 2003.
Compensation Committee - The Compensation Committee consists of Rex W.
Burton, Raymond F. Hinkle, Elaine L. McDonald, James F. Scarpelli, Sr., Richard
G. Stanton, and Robert G. Stuck, and is responsible for recommending to the
Board a compensation policy for the CEO and other executive officers of the
Company and its subsidiaries, recommending changes to the CEO's compensation
package based on performance reviews, and produces an annual report on executive
compensation for inclusion in the Company's proxy statement in accordance with
applicable rules and regulations. This Committee was formed on January 15, 2003.
This committee met one time in 2003.
Nominating and Governance Committee - The Nominating Committee consists of
David J. Beachy, Rex W. Burton, Paul Cox, Jr., Elaine L. McDonald, Donald E.
Moran, and James F. Scarpelli, Sr. The committee is responsible for developing
qualification criteria for Directors, reviewing Director candidates recommended
by shareholders (see "Director Recommendations and Nominations" below), actively
seeking, interviewing and screening individuals qualified to become Directors,
recommending to the Board those candidates who should be nominated to serve as
Directors, and developing and recommending to the Board the Corporate Governance
Guidelines applicable to the Company and its subsidiaries. This Committee was
formed on January 15, 2003, but it did not meet in 2003. Until this year, it was
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the Board's policy that, where the only Director candidates were current
Directors standing for re-election, such candidates were to be approved by a
majority of the Board's independent Directors. Neither the Nominating Committee
nor the Board received any stockholder recommendations with respect to this
year's Annual Shareholders' Meeting. Each nominee proposed for election at this
year's Annual Shareholders' Meeting is a current Director standing for
re-election, and each was approved by every independent Director. The
independent Directors do not have a written charter, as all future nominees,
whether or not current Directors, will be reviewed and recommended to the Board
by the Nominating Committee. The Board has adopted a written charter for the
Nominating Committee, a copy of which is not available on the Company's web site
but is instead attached to this proxy statement as Appendix B.
Director Independence
Pursuant to Rule 4350(c) of The Nasdaq Stock Market's listing standards
(the "Nasdaq Listing Standards"), a majority of the Company's Directors must be
"independent directors" as that term is defined by Nasdaq Listing Standards Rule
4200(a)(15). The Company's Board of Directors has determined that each of David
J. Beachy, Rex W. Burton, Paul Cox, Jr., Raymond F. Hinkle, Elaine L. McDonald,
Donald E. Moran, James F. Scarpelli, Sr., Richard G. Stanton, and Robert G.
Stuck is an "independent director", and these independent Directors constitute a
majority of the Company's Board of Directors. The Compensation Committee and the
Nominating Committee are each made up entirely of "independent directors". Each
member of the Audit Committee satisfies the independence requirements of Rule
4350(d)(2) of the Nasdaq Listing Standards.
Attendance at Board Meetings
During 2003, the Board of Directors held ten meetings. All incumbent
Directors attended at least 75% of the aggregate number of (i) Board Meetings
and (ii) meetings of each committee of the Board on which such Director served.
Director Recommendations and Nominations
The Nominating Committee will from time to time review and consider
candidates recommended by shareholders. Shareholder recommendations should be
labeled "Recommendation of Director Candidate" and be submitted in writing to:
Robert W. Kurtz, Corporate Secretary, First United Corporation, P.O. Box 9,
Oakland, Maryland 21550; and must specify (i) the recommending shareholder's
contact information, (ii) the class and number of shares of the Company's
capital stock beneficially owned by the recommending stockholder, (iii) the
name, address and credentials of the candidate for nomination, (v) the number of
shares of the Company's capital stock beneficially owned by the candidate; and
(iv) the candidate's written consent to be considered as a candidate. Such
recommendation must be received by the Corporate Secretary no less than 150 days
nor more than 180 days before the date of the Annual Shareholders' Meeting for
which the candidate is being recommended. For purposes of this requirement, the
date of the meeting shall be deemed to be on the same day and month as the
Annual Shareholders' Meeting for the preceding year.
Candidates may come to the attention of the Nominating Committee from
current Board members, shareholders, officers or other persons. The Nominating
Committee periodically reviews its list of candidates available to fill Board
vacancies and researches the talent, skills, expertise, and general background
of these candidates. In evaluating candidates for nomination, the Nominating
Committee uses a variety of methods and regularly assesses the size of the
Board, whether any vacancies are expected due to retirement or otherwise, and
the need for particular expertise on the Board.
Whether recommended by a shareholder or another third party, or chosen
independently by the Nominating Committee, a candidate will be selected for
nomination based on his or her talents and the needs of the Board. The
Nominating Committee's goal in selecting nominees is to identify persons that
possess complimentary skills and that can work well together with existing Board
members at the highest level of integrity and effectiveness. A candidate,
whether recommended by a Company shareholder or otherwise, will not be
considered for nomination unless he or she maintains strong professional and
personal ethics and values, has relevant management experience, and is committed
to enhancing shareholder value. Certain Board positions, such as Audit Committee
membership, may require other special skills or expertise.
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It should be noted that a shareholder recommendation is not a nomination,
and there is no guarantee that a candidate recommended by a shareholder will be
approved by the Nominating Committee or nominated by the Board of Directors. A
shareholder who is entitled to vote for the election of Directors and who
desires to nominate a candidate for election to be voted on at a Shareholders'
Meeting may do so only in accordance with Article II, Section 4, which provides
that a shareholder may nominate a Director candidate by written notice to the
Chairman of the Board or to the President of the Company not less than 150 days
nor more than 180 days prior to the date of the meeting of shareholders called
for the election of Directors which, for purposes of this provision, shall be
deemed to be on the same day and month as the Annual Meeting of Shareholders for
the preceding year. Such notice shall contain the following information to the
extent known by the notifying shareholder: (a) the name and address of each
proposed nominee; (b) the principal occupation of each proposed nominee; (c) the
number of shares of capital stock of the Company owned by each proposed nominee;
(d) the name and residence address of the notifying shareholder; (e) the number
of shares of capital stock of the Company owned by the notifying shareholder;
(f) the consent in writing of the proposed nominee as to the proposed nominee's
name being placed in nomination for Director; and (g) all information relating
to such proposed nominee that would be required to be disclosed by Regulation
14A under the Exchange Act and Rule 14a-11 promulgated thereunder, assuming such
provisions would be applicable to the solicitation of proxies for such proposed
nominee.
Shareholder Communications with the Board of Directors
Shareholders may communicate with the Board of Directors, including the
non-management Directors, by sending a letter to First United Board of
Directors, c/o Robert W. Kurtz, Corporate Secretary, First United Corporation,
P.O. Box 9, Oakland, Maryland, 21550. The Corporate Secretary has the authority
to disregard any inappropriate communications or to take other appropriate
actions with respect to any such inappropriate communications. If deemed an
appropriate communication, the Corporate Secretary will submit correspondence to
the Chairman of the Board or to any specific Director to whom the correspondence
is directed.
The Company believes that the Annual Shareholders' Meeting is an
opportunity for shareholders to communicate directly with Directors and,
accordingly, expects that all Directors will attend each Annual Shareholders'
Meeting. If you would like an opportunity to discuss issues directly with our
Directors, please consider attending this year's Annual Shareholders' Meeting.
At the 2003 Annual Shareholders' Meeting, fourteen members of the Board of
Directors were in attendance.
AUDIT COMMITTEE REPORT
The Audit Committee has (i) reviewed and discussed the Company's
consolidated audited financial statements for the year ended December 31, 2003
with Company management; (ii) discussed with Ernst & Young, LLP, the Company's
independent auditors, all matters required to be discussed by SAS 61
(Codification of Statements on Auditing Standards, AU ss. 380), as modified or
supplemented; and (iii) received the written disclosures and the letter from
Ernst & Young, LLP required by Independence Standards Board Standard No. 1
(Independence Standards Board Standard No. 1, Independence Discussions with
Audit Committees), as modified or supplemented, and has discussed with the
auditors the auditors' independence. The Committee meets with the internal and
independent auditors, with and without management present, to discuss the
overall scope and plans for their respective audits, the results of their
examinations, their evaluations of the Company's internal controls, and the
overall quality of the Company's financial reporting. Based on these reviews and
discussions, the Audit Committee recommended to the Board of Directors that the
consolidated audited financial statements for the year ended December 31, 2003,
be included in the Company's Annual Report on Form 10-K for the year ended
December 31, 2003.
AUDIT COMMITTEE
David J. Beachy Richard G. Stanton
Paul Cox, Jr. Robert G. Stuck
Raymond F. Hinkle
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REMUNERATION OF DIRECTORS AND EXECUTIVE OFFICERS
Summary Compensation Table
The following table sets forth the total remuneration for services in all
capacities paid during each of the last three fiscal years to the Chief
Executive Officer and each other executive officer of the Company during the
fiscal year ended December 31, 2003.
Annual Compensation
Name and ------------------- All Other
Principal Position Year Salary Bonus (1) Other Compensation(2)(3)
------------------ ---- ------ ----- ------------
William B. Grant 2003 $176,159 $43,814 $ 4,347
Chairman of the Board and 2002 $176,309 $55,439 $6,124 $ 3,861
Chief Executive Officer 2001 $151,031 $79,701 $ 5,250
Robert W. Kurtz 2003 $132,922 $48,876 $ 438
President, Chief Financial 2002 $133,031 $51,288 $7,737 $ 424
Officer and Secretary/Treasurer 2001 $117,837 $65,500
Jeannette R. Fitzwater 2003 $ 70,646 $60,194 $ 4,028
Senior Vice President and 2002 $ 70,569 $32,799 $2,103 $ 3,551
Director of Human Resources 2001 $ 70,521 $41,242 $ 3,124
Philip D. Frantz 2003 $ 70,523 $34,313 $ 3,257
Senior Vice President and 2002 $ 70,512 $32,799 $1,984 $ 3,117
Director of Operations and 2001 $ 70,521 $29,920 $ 3,108
Support
Eugene D. Helbig, Jr. 2003 $ 85,679 $52,912 $ 4,357
Senior Vice President and 2002 $ 85,696 $52,249 $4,105 $ 4,456
Senior Trust Officer 2001 $ 70,556 $47,543 $ 3,333
Steven M. Lantz 2003 $ 95,877 $87,017 $ 5,507
Senior Vice President and 2002 $ 95,818 $62,719 $3,116 $ 3,397
Senior Lending Officer 2001 $ 70,602 $44,855 $ 3,613
Robin E. Murray 2003 $ 70,356 $34,313 $2,706 $ 2,350
Senior Vice President and 2002 $ 58,978 $ 4,299 $ 738 $ 1,726
Director of Marketing 2001 $ 54,530 $ 4,055 $ 1,753
Frederick A. Thayer, IV 2003 $ 80,746 $71,207 $ 4,670
Senior Vice President and 2002 $ 80,810 $74,345 $2,334 $ 4,975
Director of Retail Banking 2001 $ 70,516 $42,827 $ 3,033
(1) The amounts specified as bonus are made up of pay for performance and,
in certain cases, additional incentive payments. The amounts paid
pursuant to the pay for performance program (explained in further
detail on page 11, paragraph entitled "Compensation Committee Report on
Compensation") for 2001, 2002 and 2003 were distributed in 2002, 2003
and 2004, respectively. The additional incentive payments were granted
based on predetermined business production goals as follows: Jeannette
Fitzwater, $25,881; Eugene Helbig, $11,246; Steven Lantz, $40,450; and
Frederick Thayer, $31,992. These amounts were paid in 2003. Mrs.
Fitzwater elected to defer $30,688 of her 2003 pay for performance into
the Company's Deferred Compensation Plan.
(2) Amounts shown include income imputed to the named executive in
connection with the bank-owned life insurance ("BOLI") plan established
by the Bank for certain Bank officers (see "BOLI Plan", below) as
follows for 2003 and 2002, respectively: William B. Grant, $395, $533;
Robert W. Kurtz, $438, $424; Jeannette Fitzwater, $150, $135; Phillip
D. Frantz, $132, $119; Eugene D. Helbig, Jr., $283, $281; Steven M.
Lantz, $247, $224; Robin E. Murray, $16, $15; and Frederick A. Thayer,
IV, $215, $199. No income was imputed for 2001. All other amounts shown
-8-
are matching contributions made by the Company for each respective
executive officer under the Company's 401(k) Profit Sharing Plan. (3)
Each executive officer has in excess of six years of credited service
under the 401(k) Profit Sharing Plan and are therefore 100% vested.
Directors' Fees
Directors' fees are paid only to Directors who are not executive officers
of the Company. A Director of the Company receives $400 for a Board meeting and
$200 for each committee meeting of the Board of which the Director is a member.
Directors who are not executive officers of the Company are also paid an annual
retainer fee of $8,500. Mr. Rudy received an additional $150 for chairing the
2003 Annual Shareholders' Meeting.
COMPENSATION PLANS
Pension Plan
The Company maintains a Defined Benefit Pension Plan (the "Pension Plan")
for the purpose of providing post-retirement benefits to vested employees. The
following table shows the maximum annual retirement benefits payable under the
Pension Plan for various levels of compensation during the year of service:
APPROXIMATE ANNUAL BENEFIT UPON RETIREMENT AT AGE 65 BASED ON YEARS OF CREDITED SERVICE
YEARS OF SERVICE
FINAL
AVERAGE 15 20 25 30 35 40 45
COMPENSATION YEARS YEARS YEARS YEARS YEARS YEARS YEARS
--------------------------------------------------------------------------------------------
$ 30,000 $ 6,000 $ 8,000 $ 10,000 $12,000 $ 14,000 $ 16,000 $ 18,000
70,000 15,000 20,000 25,000 30,000 35,000 40,000 45,000
110,000 24,000 32,000 40,000 48,000 56,000 64,000 72,000
150,000 33,000 44,000 55,000 66,000 77,000 88,000 99,000
190,000 42,000 56,000 70,000 84,000 98,000 112,000 126,000
230,000 45,375 60,500 75,625 90,750 105,875 121,000 136,125
For purposes of this table, final average compensation shown is twelve
times the average of the highest salary during sixty consecutive months in the
last one hundred twenty months preceding normal retirement. Also, for purposes
of the table, benefits are payable for life with a minimum guarantee of ten
years. Benefits are computed on an actuarial basis. To convert the benefits at
normal retirement to a lifetime only benefit, the amounts would be increased by
a factor of 1.0677%. Social Security benefits are not shown on the table and
would not reduce retirement benefits under the plan.
A table showing current compensation covered by the Pension Plan and the
estimated credited years of service for the Highly Compensated Employees
immediately follows the Supplemental Executive Retirement Plan discussion.
Supplemental Executive Retirement Plan
Effective November 1, 2001, the Bank's Board of Directors adopted the First
United Bank and Trust Supplemental Executive Retirement Plan (the "SERP"). The
SERP provides supplemental retirement income to certain senior executives of the
Bank designated by the Bank's Board. The executives listed in the Summary
Compensation Table are also executives of the Bank and have been designated for
coverage under the SERP. The SERP benefit vests upon the executive reaching
Normal Retirement Age (as defined in the SERP), upon completion of 10 years of
service, or upon death. The normal retirement benefit will be 2.5% of final pay
for each year of service up to 24 years of service, plus 1% of final pay for
each year of service above 24 up to a maximum of 29 years of service, less 50%
of the executive's Social Security benefits and 100% of the benefits payable to
the executive under the Company's Pension Plan. If the participant dies prior to
retirement, the SERP benefit will additionally be reduced by the amount of any
-9-
death benefit payable to the participant's designated beneficiaries under the
Bank's split-dollar arrangements offered in connection with the bank-owned life
insurance ("BOLI") plan. In no event will the sum of the pre-retirement SERP
benefit paid upon death and the benefits paid under the split-dollar arrangement
exceed the normal retirement SERP benefit earned to date of death. For purposes
of the SERP, a participant's Final Pay shall mean the average of the three (3)
highest annual pay periods over the five (5) years preceding the participant's
Normal Retirement. The following table shows the projected benefit payable by
the SERP as a single life annuity for various levels of compensation and years
of service.
YEARS OF SERVICE
FINAL AVERAGE
COMPENSATION 15 YEARS 20 YEARS 25 YEARS 29 YEARS
-------------------------------------------------------------------------------
$ 100,000 $ 5,790 $11,040 $14,790 $12,990
125,000 9,540 16,040 20,665 18,365
150,000 13,290 21,040 26,540 23,740
175,000 17,040 26,040 32,415 29,115
200,000 20,790 31,040 38,290 34,490
225,000 30,165 43,540 53,540 50,740
250,000 39,540 56,040 68,790 66,990
The SERP Benefit is based on the annual compensation listed in the Summary
Compensation Table. It is expected that the executives will have at least 29
years of service at retirement.
The executive may elect to receive benefits in a lump sum, calculated using
the same actuarial assumptions as used under the Pension Plan. Amounts to pay
the benefits may, at the Bank's discretion, be held in a rabbi trust. Upon a
change of control, the rabbi trust must be fully funded to pay accrued benefits.
In addition, upon certain terminations of employment following a change of
control, the eight executives designated for coverage become entitled to at
least the benefit they would receive based on 24 years of service.
The current compensation covered by the Pension Plan and by the SERP
(collectively, the "Plans") and the estimated credit years of service at
December 31, 2003, for each of the Highly Compensated Employees under the Plans
are as follows:
Estimated Credited
Current Compensation Years of Service at
Covered By the Plans 12/31/03
-----------------------------------------------------------------
William B. Grant $231,748 25 Years
Robert W. Kurtz $184,319 31 Years
Jeannette R. Fitzwater $129,249 18 Years
Philip D. Frantz $103,321 20 Years
Eugene D. Helbig, Jr. $135,791 18 Years
Steven M. Lantz $171,159 17 Years
Robin E. Murray $ 73,670 26 Years
Frederick A. Thayer, IV $146,594 12 Years
BOLI Plan
In 2001, the Bank made a one-time payment of $18 million to purchase BOLI
plan, which provides insurance on the lives of the Bank's executive and certain
other officers. The Bank is the sole owner of the BOLI policies, has all rights
with respect to the cash surrender values of the BOLI policies, and is the sole
death beneficiary under the BOLI policies. The Bank has agreed, however, to
endorse a portion of the death benefits payable under the BOLI policies to
beneficiaries named by each covered officer. Participation in this split-dollar
-10-
arrangement can be terminated for any reason, at any time, by either the Bank or
the covered officer. The Bank intends to terminate each covered officer's
participation at retirement. For tax purposes, a covered officer realizes
nominal income from the split-dollar arrangement each year equal to the value of
that officer's life protection. If the executive officers named above were to
die while employed by the Bank, the benefits payable under the split-dollar
arrangement to their respective beneficiaries would be as follows: William B.
Grant, $455,000; Robert W. Kurtz, $295,000; Jeannette R. Fitzwater, $255,000;
Phillip D. Frantz, $225,000; Eugene D. Helbig, Jr., $290,000; Steven M. Lantz,
$335,000; Robin M. Murray, $250,000; and Frederick A. Thayer, IV, $331,000.
401(k) Profit Sharing Plan
Company employees are permitted to contribute a portion of their salary to
the Company's 401(k) Profit Sharing Plan. The Company makes a matching
contribution equal to 50% of the amount deferred, up to 6% of an employee's
salary, provided that the employee has completed at least one year of service to
the Company. The Company may make additional discretionary contributions for
employees equal to a percentage of each employee's salary. In 2003, the Company
made $26,877 in total matching contributions for the benefit of executive
officers. No executive officer received a discretionary contribution in 2003.
Deferred Compensation Plan
Selected executives and Directors of the Company and its subsidiaries are
permitted to participate in the Company's Non-Tax Qualified Deferred
Compensation Plan. The plan permits each participant to defer all or a portion
of his or her bonus or Directors' fees (as applicable), which income is held in
a Rabbi Trust and invested in one or more investment options. Until December of
2003, these investment options included a deemed investment in shares of the
Company's common stock, but this investment option has been eliminated. Subject
to a hardship exemption and the instructions of the participant, the funds are
distributed to the participant at termination of employment or Director status.
The plan benefits are taxed to the participant at the time of distribution.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Board who performed the functions of the Compensation
Committee during the last completed fiscal year were: Rex W. Burton, Raymond F.
Hinkle, Elaine L. McDonald, James F. Scarpelli, Sr., Richard G. Stanton and
Robert G. Stuck. Mr. Stanton was formerly the Chairman of the Board, President
and CEO of the Company.
COMPENSATION COMMITTEE REPORT ON COMPENSATION
The basic philosophy of the Company's compensation program is to offer
competitive compensation for all executive employees, which takes into account
both individual contributions and corporate performance.
Executive compensation for the Chairman of the Board/CEO, the
President/CFO, and each other executive officer consists of two principal
elements: (i) base salary; and (ii) incentives that are variable, fluctuate
annually, and are linked to the Company's performance, and therefore at risk.
Base salaries are set at levels intended to foster a career development among
executives, consistent with the long-term nature of the Company's business
objectives. In setting base salary levels, consideration is given to
establishing salary levels that approximate the amounts paid for similar
executive positions at other comparable community banking organizations. Salary
adjustments and the pay for performance amounts are determined in accordance
with the Annual Incentive Program established for executive officers and other
members of senior management. The incentive program, which was developed in
consultation with the Company's independent accountants, utilizes a targeted
goal-oriented approach whereby each year the committee establishes performance
goals based on the recommendation of the Chairman and CEO. The performance goals
include strategic financial measures such as earnings per share, return on
equity, and efficiency ratio. Each of these elements is weighted approximately
the same. The measures are established annually at the start of each fiscal year
and are tied directly to the Company's business strategy, projected budgeted
results and competitive peer group performance.
Base salary levels for the executives in 2003 were recommended by the
Compensation Committee and were approved by the non-employee Directors of the
Board. Incentive compensation for the executives for 2003 was recommended in
2004 by the Compensation Committee and approved by the non-employee Directors of
the Board.
The targeted goals for incentive compensation are set at levels which only
reward continued exceptional Company performance. The incentive awards are
expressed as a percent of base pay and measured on a range around the targeted
goals with a fixed maximum incentive award.
-11-
Mr. Grant's incentive compensation was based on meeting certain financial
goals (earnings per share, return on equity and the efficiency ratios). The
incentive compensation for each other executive officer was based on a
combination of financial goals of the Company and certain subjective goals
related to the personal performance of each officer.
COMPENSATION COMMITTEE
Rex W. Burton Raymond F. Hinkle Elaine L. McDonald
James F. Scarpelli, Sr. Richard G. Stanton Robert G. Stuck
TRANSACTIONS WITH DIRECTORS AND EXECUTIVE OFFICERS
Some of the Directors and officers of the Company and their associates were
customers of and had banking transactions with the Bank subsidiary of the
Company in the ordinary course of business during 2003. All loans and loan
commitments included in such transactions were made on substantially the same
terms, including interest rate and collateral, as those prevailing at the same
time for comparable transactions with others, and in the opinion of the
Management of the Company, do not involve more than a normal risk of
collectability or present other unfavorable features.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Pursuant to Section 16(a) of the Exchange Act and the rules promulgated
thereunder, the Company's executive officers and Directors, and persons who
beneficially own more than 10% of the Company's Common Stock, are required to
file certain reports regarding their ownership of Common Stock with the SEC.
Based solely on a review of copies of such reports furnished to the Company, or
written representations that no reports were required, the Company believes
that, during the fiscal year ended December 31, 2003, such persons timely filed
all reports required to be filed by Section 16(a), except that 10 current
reports on Form 4 (each reporting the acquisition of phantom stock under the
Company's Deferred Compensation Plan) were filed late by Karen F. Myers and one
current report on Form 4 (reporting a sale of common stock) was filed late by
David J. Beachy.
-12-
PERFORMANCE GRAPH
The following graph compares the performance of the Company's Common Stock
for the last five years with the performance of a broad market index and a
nationally-recognized industry standard assuming in each case both an initial
$100 investment on December 31, 1998 and reinvestment of dividends as of the end
of the Company's fiscal years. The Company has selected the NASDAQ Total Index
because prices for the Company's Common Stock are quoted on Nasdaq National
Market, and the SNL $1 billion to $5 billion Asset-Size Index as the relevant
peer group index because of the Company's asset size. In the previous fiscal
year, the Company selected the SNL $500 million to $1 billion Asset-Size Index
as the relevant peer group index. The change is a result of the fact that the
Company's assets first exceeded $1 billion in 2003. The performance of the SNL
$500 million to $1 billion Asset-Size Index is presented for comparative
purposes as required by applicable securities regulations and will not be
provided in the future.
GRAPH
Period Ending
------------------------------------------------------------------
Index 12/31/98 12/31/99 12/31/00 12/31/01 12/31/02 12/31/03
-----------------------------------------------------------------------------------------------
First United Corporation 100.00 90.38 68.90 111.58 119.31 183.13
NASDAQ - Total US 100.00 185.95 113.19 89.65 61.67 92.90
SNL $500M-$1B Bank Index 100.00 92.57 88.60 114.95 146.76 211.62
SNL $1B-$5B Bank Index 100.00 91.91 104.29 126.72 146.28 198.92
INDEPENDENT AUDITORS
The accounting firm of Ernst & Young LLP has been engaged to audit the
books and accounts of the Company for the next fiscal year. Ernst & Young LLP
served as the Company's independent auditor in 2003. Ernst & Young LLP has
advised the Company that neither the accounting firm nor any of its members or
associates has any direct financial interest in or any connection with the
Company other than as independent public auditors. A representative of Ernst &
Young LLP is not expected to be present at this year's Annual Meeting.
-13-
AUDIT FEES AND SERVICES
The following table shows the fees paid or accrued by the Company for the
audit and other services provided by Ernst & Young LLP for fiscal years 2003 and
2002 :
FY 2003 FY 2002
---------------------------------------------------------
Audit Fees $ 250,900 $ 173,450
Audit-Related Fees 33,800 30,550
Tax Fees 142,715 176,245
All Other Fees -- 109,148
---------------------------------------------------------
Total $ 427,415 $ 489,393
---------------------------------------------------------
Fees for audit services include fees associated with the annual audit, the
reviews of the Company's quarterly reports on Form 10-Q, review of other
documents filed with the SEC in connection with the audit, and accounting
consultations billed as audit services. Audit-related fees for 2003 principally
included the audit of the Corporation's employee benefit plans and accounting
consultation in connection with corporate governance matters. Audit-related fees
for 2002 principally included the audit of the Corporation's employee benefit
plans. Tax fees included tax compliance such as tax return preparation, tax
advice and tax planning. For 2002, all other fees included a cash management
study that was conducted. In 2003, the SEC adopted a rule pursuant to the
federal Sarbanes-Oxley Act of 2002 that, except with respect to certain de
minimis services discussed below, requires Audit Committee pre-approval of audit
and non-audit services provided by the Company's independent auditors. All of
the 2003 services described above were pre-approved by the Audit Committee
pursuant to this SEC rule to the extent that rule was applicable during fiscal
year 2003.
It is the Audit Committee's policy to pre-approve all auditing services and
permitted non-audit services (including the fees and terms thereof) to be
performed for the Corporation by its independent auditors, subject to the de
minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of
the Exchange Act, which are approved by the Audit Committee prior to the
completion of the independent auditor's audit. The Audit Committee has reviewed
summaries of the services provided by Ernst & Young, LLP and the related fees
and has determined that the provision of non-audit services is compatible with
maintaining the independence of Ernst & Young, LLP.
SUBMISSION OF SHAREHOLDER PROPOSALS FOR 2005 ANNUAL MEETING
Any shareholder desiring to present a proposal pursuant to Rule 14a-8 of
the Exchange Act to be included in the proxy statement and voted on by the
shareholders at the 2005 Annual Meeting of Stockholders must submit a written
proposal, including all supporting information, to the Company at its principal
executive offices no later than November 29, 2004 (120 days before the date of
mailing based on this year's proxy statement date), and meet all other
requirements for inclusion in the proxy statement. All other shareholder
proposals must be received by the Company at its principal office by February
14, 2005 (45 days before the date of mailing based on this year's proxy
statement date). If notice of a shareholder proposal is not timely received, the
Company will be authorized to exercise discretionary authority with respect to
the proposal.
OTHER MATTERS
As of the date of this proxy statement, the Board is not aware of any
matters, other than those stated above, that may properly be brought before the
meeting. If other matters should properly come before the meeting or any
adjournment thereof, persons named in the enclosed proxy or their substitutes
will vote with respect to such matters in accordance with their best judgment.
By order of the Board of Directors
ROBERT W. KURTZ
Secretary
-14-
APPENDIX A
Audit Committee Charter
As Amended on February 10, 2004
First United Corporation
Audit Committee Charter
Purpose
The Audit Committee is appointed by the Board of Directors to assist the Board
in monitoring: (1) the integrity of the financial statements of First United
Corporation (the "Corporation"); (2) the independent auditor's qualifications
and independence; (3) the performance of the Corporation's internal audit
function and independent auditors; (4) the compliance by the Corporation with
legal and regulatory requirements; and (5) the performance of the Loan Review
function.
Committee Membership
The Audit Committee shall consist of no fewer than three members. The members of
the Audit Committee shall meet the independence and experience requirements of
Section 10A(m)(3) of the Securities Exchange Act of 1934 (the "Exchange Act"),
the rules of The Nasdaq Stock Market, Inc ("Nasdaq"), and the federal banking
laws and regulations applicable to the Corporation and its subsidiaries. Audit
Committee members must be able to read and understand financial statements at
the time of their appointment. At least one member of the Audit Committee shall
be an "audit committee financial expert" as defined by the Commission. Audit
committee members shall not simultaneously serve on the audit committees of more
than two other public companies. The members of the Audit Committee shall be
appointed by the Board. Audit Committee members may be removed and replaced by
the Board at any time.
Meetings
The Audit Committee shall meet as often as it determines, but not less
frequently than quarterly. The Audit Committee shall meet periodically with
management, the internal auditors and the independent auditor in separate
executive sessions. The Audit Committee may request any officer or employee of
the Corporation or the Corporation's outside counsel or independent auditor to
attend a meeting of the Committee or to meet with any members of, or consultants
to, the Committee. The Audit Committee shall regularly report on Audit Committee
activities to the full Board.
Committee Authority and Responsibilities
The Audit Committee shall have the sole authority to appoint and replace the
independent auditor. The Audit Committee shall be directly responsible for the
compensation and oversight of the work of the independent auditor (including
resolution of disagreements between management and the independent auditor
regarding financial reporting) for the purpose of preparing or issuing an audit
report or related work. The independent auditor shall report directly to the
Audit Committee.
A-1
The Audit Committee shall pre-approve all auditing services and permitted
non-audit services (including the fees and terms thereof) to be performed for
the Corporation by its independent auditor, subject to the de minimis exceptions
for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act (or
any amendment or successor thereto), which are approved by the Audit Committee
prior to the completion of the audit.
The Audit Committee shall have the authority, to the extent it deems necessary
or appropriate, to retain independent legal, accounting or other advisors. The
Corporation shall provide for appropriate funding, as determined by the Audit
Committee, for payment of compensation to the independent auditor for the
purpose of rendering or issuing an audit report and to any advisors employed by
the Audit Committee.
The Audit Committee shall review and reassess the adequacy of this Charter
annually and recommend any proposed changes to the Board for approval. The Audit
Committee shall perform an annual self-assessment of its performance with the
goal of continuing improvement and will report on such assessment, and any
recommendations with respect thereto, to the full Board.
The Audit Committee shall have the authority to, where appropriate, designate
one or more of its members to perform certain of its duties on its behalf,
subject to such reporting to or ratification by the Audit Committee as the Audit
Committee shall direct.
Without limiting the foregoing, the Audit Committee, to the extent it deems
necessary of appropriate, shall:
Financial Statement and Disclosure Matters
------------------------------------------
1. Review and discuss with management and the independent auditor
the annual audited financial statements, "Management's
Discussion and Analysis of Financial Condition and Results of
Operations" to be included in the Corporation's Annual Report
on Form 10-K, and, if deemed appropriate, recommend to the
Board that the audited financial statements be included in the
Corporation's Annual Report on Form 10-K.
2. Discuss with management and, on an exception basis, the
independent auditor the Corporation's quarterly financial
statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" to be included
in the Corporation's Quarterly Reports on Form 10-Q, prior to
the time such reports are filed, including the results of the
independent auditor's review of the quarterly financial
statements.
3. Discuss with management and, on an exception basis, the
independent auditor the Corporation's quarterly earnings press
releases, including the use of "pro forma" or "adjusted"
non-GAAP information, as well as financial information and
earnings guidance provided to analysts and rating agencies.
A-2
4. Discuss with management and the independent auditor
significant financial reporting issues and judgments made in
connection with the preparation of the Corporation's financial
statements, including the quality, not just the acceptability,
of the Corporation's accounting principles, any significant
changes thereto, any major issues related to the adequacy of
the Corporation's internal controls and procedures, and any
special steps adopted to address material control
deficiencies.
5. Review and discuss, as necessary, reports from the independent
auditors on:
(a) All critical accounting policies and practices to be
used;
(b) All alternative treatments of financial information
within generally accepted accounting principles that
have been discussed with management, ramifications of
the use of such alternative disclosures and
treatments, and the treatment preferred by the
independent auditor; and
(c) Other material written communications between the
independent auditor and management, such as any
management letter or schedule of unadjusted
differences.
6. Discuss with management and the independent auditor the effect
of regulatory and accounting initiatives as well as
off-balance sheet structures on the Corporation's financial
statements.
7. Discuss with management the Corporation's major financial risk
exposures and the steps management has taken to monitor and
control such exposures, including the Corporation's risk
assessment and risk management policies.
8. Discuss with the independent auditor the matters required to
be discussed by Statement on Auditing Standards No. 61
relating to the conduct of the audit, including any
difficulties encountered in the course of the audit work, any
restrictions on the scope of activities or access to requested
information, and any significant disagreements with
management.
9. Review disclosures made to the Audit Committee by the
Corporation's CEO and CFO during their certification process
for the Form 10-K and Form 10-Q about any significant
deficiencies in the design or operation of internal controls
and procedures or material weaknesses therein and any fraud
involving management or other employees who have a significant
role in the Corporation's internal control and procedures.
10. Review and approve all related-party transactions as defined
from time to time by Nasdaq and/or the SEC.
11. Prepare the report required by the rules of the Securities and
Exchange Commission (the "SEC") to be included in the
Corporation's annual proxy statements. Oversight of the
Corporation's Relationship with the Independent Auditor
A-3
12. Ensure the rotation of the lead (or coordinating) audit
partner having primary responsibility for the audit and the
audit partner responsible for reviewing the audit as required
by law.
13. Meet with the independent auditor prior to the audit to
discuss the planning and staffing of the audit.
14. Obtain and review annually a report from the independent
auditor describing the independent auditor's internal
quality-control procedures; and any material issues raised by
the most recent internal quality-control review or peer review
or by any inquiry or investigation by governmental or
professional authorities, within the preceding five years,
respecting one or more independent audits carried out by the
independent auditor, and any steps taken to address such
issues.
15. Recommend to the Board policies for the Corporation's hiring
of employees or former employees of the independent auditor
who participated in any capacity in the audit of the
Corporation.
16. Obtain and review annually a formal written statement from the
independent auditor delineating all relationships between the
independent auditor and the Corporation ("Statement as to
Independence"), addressing each non-audit service provided to
the Corporation and at least the matters set forth in
Independence Standards Board No. 1.
Oversight of the Corporation's Internal Audit Function
------------------------------------------------------
17. Review the appointment and replacement of the Corporation's
internal Audit Manager.
18. Review the significant reports to management prepared by the
internal audit department together with management's responses
and follow-up to these reports.
19. Discuss internal audit department responsibilities, budget,
qualifications and staffing and any recommended changes in the
planned scope of the internal audit department with management
and the independent auditor.
Compliance Oversight Responsibilities
-------------------------------------
20. Obtain from the independent auditor assurance that Section
10A(b) of the Exchange Act (communication of illegal acts) has
not been implicated.
A-4
21. Obtain reports from management, the Corporation's internal
audit director and the independent auditor that the
Corporation is in conformity with applicable legal
requirements and the Corporation's Code of Ethics. Review
reports and disclosures of insider and affiliated party
transactions.
22. Advise the Board with respect to the Corporation's policies
and procedures regarding compliance with applicable laws and
regulations and with the Corporation's Code of Ethics.
23. Discuss with management and the independent auditor any
correspondence with regulators or governmental agencies and
any published reports, which raise material issues regarding
the Corporation's financial statements or accounting policies.
24. Discuss with legal counsel to the Corporation any legal
matters that may have a material impact on the financial
statements or the Corporation's compliance policies.
25. Review the significant reports to management prepared by the
Compliance Department and management's response.
26. Establish 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.
Oversight of the Corporation's Loan Review Function
---------------------------------------------------
27. Review the reports provided by the loan review function which
detail (1) loan quality, (2) the adequacy of loan
documentation, (3) compliance with bank policy, and (4)
compliance with state and federal regulations.
28. Review any problem loans as well as review the bank's Watch
List.
29. Review the Provision for Loan Losses and the adequacy of the
Reserve for Probable Loan and Lease Losses.
Revised 02/10/04
A-5
Appendix B
First United Corporation
Nominating & Governance Committee Charter
A. Name
There shall be a committee of the Board which shall be called the Nominating &
Governance Committee.
B. Purpose
The Nominating & Governance Committee shall (1) identify individuals qualified
to become Board members, and recommend that the Board select the director
nominees; and (2) develop and recommend to the Board the Corporate Governance
Guidelines applicable to the Company.
C. Committee Membership and Procedure
The Nominating & Governance Committee shall consist of no fewer than three
members. Each member of the Nominating & Governance Committee shall satisfy the
independence requirements of NASDAQ. The Board shall appoint the members of the
Nominating & Governance Committee, considering the views of the Chairman of the
Board and the Chief Executive Officer, as appropriate. The members of the
Nominating & Governance Committee shall serve until their successors are
appointed and qualify, and shall designate the Chairman of the Nominating &
Governance Committee. The Board shall have the power at any time to change the
membership of the Nominating & Governance Committee and to fill vacancies in it,
subject to such new member(s) satisfying the independence requirements
established by NASDAQ. Except as expressly provided in this Charter, the by-laws
of the Company or the Corporate Governance Guidelines of the Company, the
Nominating & Governance Committee shall fix its own rules of procedure.
D. Committee Authority and Responsibilities
o The Nominating & Governance Committee shall develop qualification criteria
for Board members, and actively seek, interview and screen individuals
qualified to become Board members for recommendation to the Board in
accordance with the Corporate Governance Guidelines. In its discharge of this
duty, the Committee may evaluate candidates from the Advisory Council.
o The Nominating & Governance Committee shall have the sole authority to retain
and terminate any search firm to be used to identify director candidates and
shall have sole authority to approve the search firm's fees and other
retention terms. The Nominating & Governance Committee shall also have
authority to obtain advice and assistance from internal or external legal,
accounting or other advisors.
B-1
o The Nominating & Governance Committee shall review and reassess at least
annually the adequacy of the Corporate Governance Guidelines of the Company
and recommend any proposed changes to the Board for approval.
o The Nominating & Governance Committee shall make regular reports to the
Board.
o The Nominating & Governance Committee shall review and reassess the adequacy
of this Charter annually and recommend any proposed changes to the Board for
approval. The Nominating & Governance Committee shall annually review its own
performance.
o The Nominating & Governance Committee may form and delegate authority to
subcommittees when appropriate.
o The Nominating & Governance Committee shall develop and recommend to the
Board a Code of Business Conduct and Ethics, and shall consider any requests
for waivers from the Company's Code of Business Conduct and Ethics. The
Company shall make disclosure of such waivers to both NASDAQ and the
Securities and Exchange Commission.
o The Nominating & Governance Committee shall review periodically with the
Chairman and the Chief Executive Officer the succession plans relating to
positions held by elected corporate officers, and make recommendations to the
Board with respect to the selection and development of individuals to occupy
those positions.
B-2
PROXY
FIRST UNITED CORPORATION
P.O. Box 9
Oakland, MD 21550-0009
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Mr. Courtney R. Tusing and Mr. L. Hunter Wilson,
and each of them, as Proxies, with the powers the undersigned would possess if
personally present, and with full power of substitution, and hereby authorizes
them to represent and to vote as designated on the reverse side, all the shares
of Common Stock of First United Corporation held of record by the undersigned on
February 13, 2004, at the Annual Meeting of Shareholders to be held on April 27,
2004, or any adjournment thereof.
THIS PROXY WILL BE VOTED AS SPECIFIED. HOWEVER, IN THE ABSENCE OF DIRECTION TO
THE CONTRARY, THE ATTORNEYS NAMED HEREIN INTEND TO VOTE THIS PROXY "FOR ALL
NOMINEES" IN PROPOSAL 1, AND IN THEIR DISCRETION WITH RESPECT TO ALL OTHER
MATTERS WHICH MAY BE PRESENTED AT THE MEETING.
(Please sign on reverse side and return immediately)
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FIRST UNITED CORPORATION CAPABLE AND EAGER TO MEET THE FINANCIAL
NEEDS OF ITS SHAREHOLDERS
Dividend Reinvestment
---------------------
A convenient way to make your shares in First United GROW! Our plan also allows
you to purchase additional shares.
Trust Services
--------------
First United offers a complete array of trust services designed to meet the
individual needs of our clients. These services include personal trusts, estate
planning, employee benefit plans, estate administration and fully managed IRA's.
Relationship Banking Packages
-----------------------------
Relationship Banking Packages are special programs that reward you with
financial benefits for combining your deposit, loan and/or investment accounts
with us. These programs are designed specifically for your lifestyle needs.
Whether you are just getting started or you are protecting your financial
assets, My Bank/First United provides a variety of relationship package
solutions. We want to help you achieve financial success!
Brokerage Services
------------------
Full service brokerage is available through PRIMEVEST Financial Services located
at First United. PRIMEVEST offers a broad spectrum of investment products and
services, such as retirement planning, financial planning, portfolio management
and much more. Our PRIMEVEST Investment Executives devote a high level of
attention to your investment needs.
PRIMEVEST Financial Services, Inc. is an independent, registered broker/dealer.
Member of NASD/SIPC. Securities provided by PRIMEVEST: *Not FDIC Insured *No
Financial Institution Guarantee *May lose value.
President's Club
----------------
The President's Club is a truly unique club which brings together the special
customers of First United for informative seminars, delightful trips and special
promotions.
THIS LIST IS ONLY A SAMPLE OF THE SERVICES WHICH YOU, OUR OWNERS, CAN TAKE
ADVANTAGE OF. FOR MORE DETAILS ON THESE EXCITING SERVICES, CALL MY BANK'S
CUSTOMER SERVICE CENTER, TOLL FREE AT (888) 692-2654.
Please ______
Mark Here
for Address ______
Change or
Comments
SEE REVERSE SIDE
The Board of Directors recommends a vote "FOR ALL NOMINEES" in proposal 1
1. Proposal to elect 5 Directors to serve until the 2007 Annual Meeting of 2. In their discretion, the Proxies are authorized
Shareholders and until their successors are duly elected and qualify. to vote upon such other business as may properly
come before the meeting and any adjournments
thereof.
CLASS III (Term expires 2007) Nominees:
WITHHOLD
AUTHORITY FOR ALL EXCEPT
01 Karen F. Myers, FOR ALL NOMINEES FOR ALL NOMINEES (See instruction below)
02 I. Robert Rudy,
03 James F. Scarpelli, Sr., _____ _____ _____
04 Richard G. Stanton, _____ _____ _____
05 Robert G. Stuck,
INSTRUCTION: To withhold authority to vote for any individual nominee,
mark "FOR ALL EXCEPT" and strike a line through the nominee's name in
the list above. THE UNDERSIGNED ACKNOWLEDGES RECEIPT OF NOTICE OF THE
AFORESAID ANNUAL MEETING OF SHAREHOLDERS
_____
| Date_____________________________________________2004
|
Signature____________________________________________
Signature____________________________________________
NOTE: Please sign exactly as name appears hereon.
Joint holders should each sign. When signing as
attorney, executor, administrator, trustee or
guardian, please indicate the capacity in which you
are signing. If a corporation or other entity, please
sign in full corporate or entity name by authorized
person.
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