Blueprint
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
SCHEDULE 14A
(RULE 14a-101)
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed
by the Registrant
☒
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)).
☒
Definitive Proxy
Statement.
☐
Definitive
Additional Materials.
☐
Soliciting Material
Pursuant to §240.14a-12.
PARAGON COMMERCIAL 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):
☐
Fee computed on
table below per Exchange Act Rules 14a-6(i)(1) and
0-11.
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(1)
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Title
of each class of securities to which transaction
applies:
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(2)
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Aggregate number of
securities to which transaction applies:
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(3)
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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):
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(4)
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Proposed maximum
aggregate value of transaction:
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(5)
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Total
fee paid:
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☐
Fee paid previously
with preliminary materials.
☐
Check box if any
part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its
filing.
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(1)
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Amount
Previously Paid:
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(2)
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Form,
Schedule or Registration Statement No.:
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(3)
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Filing
Party:
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(4)
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Date
Filed:
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October
20, 2017
Dear
Paragon Shareholder:
I hope
this letter finds you well and excited about our upcoming merger
with TowneBank. We currently expect that the merger will close
early in the first quarter of 2018. We are delighted with our 2016
results as well as the progress we’ve achieved in
2017.
The
enclosed Notice of Annual Meeting and Proxy Statement is for our
November 28th annual shareholder
meeting. At the meeting, I will discuss the 2016 year in review,
our 2017 year-to-date results, and our anticipated timetable for
the merger. The enclosed proxy statement will ask for a vote on our
corporate directors who are proposed for re-election and to approve
our outside auditing firm.
We
anticipate holding a separate shareholder meeting in early 2018 for
the purpose of voting to approve the proposed merger with
TowneBank. We currently expect that proxy materials for that
meeting will be available in late 2017. Again, the purpose of that
meeting will be for the approval of our pending merger with
TowneBank.
I look
forward to seeing you on November 28th at our Raleigh
office if you can join us.
Sincerely,
Robert
C. Hatley
President
& CEO
Additional Information and Where to Find It
This
communication does not constitute an offer to sell or the
solicitation of an offer to buy any securities or a solicitation of
any vote or approval. In connection with the merger, Paragon will
file with the Securities and Exchange Commission
(“SEC”) a preliminary proxy statement. Paragon
will deliver a definitive proxy statement/prospectus to its
shareholders seeking approval of the merger and related matters. In
addition, each of TowneBank and Paragon may file other relevant
documents concerning the proposed merger with the Federal Deposit
Insurance Corporation (“FDIC”) and SEC.
Paragon shareholders are strongly urged to read the definitive
proxy statement/prospectus regarding the proposed merger when it
becomes available and other relevant documents filed with the FDIC
and SEC, as well as any amendments or supplements to those
documents, because they will contain important information about
TowneBank, Paragon and the proposed merger. Free copies
of the definitive proxy statement/prospectus, as well as other
filings containing information about Paragon, may be obtained after
their filing at the SEC’s website (http://www.sec.gov). In
addition, free copies of the definitive proxy statement/prospectus,
when available, also may be obtained by directing a request by
telephone or mail to Paragon Commercial Corporation, 3535 Glenwood
Avenue, Raleigh, North Carolina 27612, Attention: Investor
Relations (telephone: (919) 788-7770), or by accessing the
Paragon’s website at
https://www.paragonbank.com under “About Us-Investor
Relations.”
Paragon,
TowneBank and their respective directors and executive officers may
be deemed to be participants in the solicitation of proxies from
Paragon’s shareholders in connection with the proposed
merger. Information about the directors and executive officers of
Paragon and TowneBank and other persons who may be deemed
participants in the solicitation, including their interests in the
merger, will be included in the definitive proxy
statement/prospectus when it becomes available. Additional
information about Paragon’s executive officers and directors
can be found in Paragon’s final prospectus filed with the SEC
on June 17, 2016. Additional information regarding
TowneBank’s executive officers and directors can be found in
TowneBank’s definitive proxy statement in connection with its
2017 Annual Meeting of Stockholders filed with the FDIC on April
21, 2017. You may obtain free copies of each document from Paragon
as described in the preceding paragraph and from TowneBank
by directing a request by telephone or mail to TowneBank, 6001
Harbour View Boulevard, Suffolk, Virginia 23425, Attention:
Investor Relations (telephone: (757) 638-6794), or by accessing
TowneBank’s website at https://townebank.com under
“Investor Relations.” The information on
TowneBank’s and Paragon’s websites is not, and shall
not be deemed to be, a part of this release or incorporated into
other filings either company makes with the FDIC or
SEC.
Forward-Looking Statements
Statements
made in this communication may be considered forward-looking
statements, which speak only as of the date of this communication
and are based on current expectations and involve a number of
assumptions. These include statements as to the anticipated
benefits of the merger, including future financial and operating
results, cost savings and enhanced revenues that may be realized
from the merger as well as other statements of expectations
regarding the merger and any other statements regarding future
results or expectations. Each of TowneBank and Paragon intends such
forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private
Securities Litigation Reform Act of 1995 and is including this
statement for purposes of these safe harbor provisions. The
companies’ respective abilities to predict results, or the
actual effect of future plans or strategies, is inherently
uncertain. Factors which could have a material effect on the
operations and future prospects of each of TowneBank and Paragon,
and the resulting company, include but are not limited to: the
businesses of TowneBank and Paragon may not be integrated
successfully or such integration may be more difficult,
time-consuming or costly than expected; expected revenue synergies
and cost savings from the merger may not be fully realized or
realized within the expected timeframe; revenues following the
merger may be lower than expected; customer and employee
relationships and business operations may be disrupted by the
merger; the ability to obtain required regulatory and shareholder
approvals, and the ability to complete the merger on the expected
timeframe may be more difficult, time-consuming or costly than
expected; changes in interest rates, general economic and business
conditions; legislative/regulatory changes; the monetary and fiscal
policies of the U.S. government, including policies of the U.S.
Treasury and the Board of Governors of the Federal Reserve; the
quality and composition of the loan and securities portfolios;
demand for loan products; deposit flows; competition; demand for
financial services in the companies’ respective market areas;
the companies’ respective implementation of new technologies
and their ability to develop and maintain secure and reliable
electronic systems; changes in the securities markets; and changes
in accounting principles, policies and guidelines; and other risk
factors detailed from time to time in filings made by TowneBank
with the FDIC or Paragon with the SEC. TowneBank and Paragon
undertake no obligation to update or clarify these forward-looking
statements, whether as a result of new information, future events
or otherwise.
Notice
of 2017 Annual Meeting and
Proxy
Statement
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To Be Held November 28, 2017
NOTICE is hereby given that the annual
meeting of shareholders of Paragon Commercial Corporation (the
“Company”) will be held as follows:
Raleigh,
North Carolina 27612
The
purposes of the meeting are as follows:
1.
Election of
Directors. To elect two members of the Board of Directors (the
“Board”) for three-year terms;
2.
Ratification of Independent
Auditors. To ratify the appointment of Elliott Davis
Decosimo, PLLC as the Company’s independent auditors for
2017;
3.
Other Business. To
transact any other business properly presented for action at the
annual meeting.
YOU
ARE INVITED TO ATTEND THE ANNUAL MEETING IN PERSON. HOWEVER, IF YOU
ARE THE RECORD HOLDER OF YOUR SHARES OF OUR COMMON STOCK, WE ASK
THAT YOU APPOINT THE PROXIES NAMED IN THE ENCLOSED PROXY STATEMENT
TO VOTE YOUR SHARES FOR YOU BY SIGNING AND RETURNING THE ENCLOSED
PROXY CARD OR FOLLOWING THE INSTRUCTIONS IN THE PROXY STATEMENT TO
APPOINT THE PROXIES BY INTERNET, EVEN IF YOU PLAN TO ATTEND THE
ANNUAL MEETING. IF YOUR SHARES ARE HELD IN “STREET
NAME” BY A BROKER OR OTHER NOMINEE, ONLY THE RECORD HOLDER OF
YOUR SHARES MAY VOTE THEM FOR YOU, SO YOU SHOULD FOLLOW YOUR
BROKER’S OR NOMINEE’S DIRECTIONS AND GIVE IT
INSTRUCTIONS AS TO HOW IT SHOULD VOTE YOUR SHARES. DOING THAT WILL
HELP US ENSURE THAT YOUR SHARES ARE REPRESENTED AND THAT A QUORUM
IS PRESENT AT THE ANNUAL MEETING. THE GIVING OF AN APPOINTMENT OF
PROXY WILL NOT AFFECT YOUR RIGHT TO REVOKE IT OR TO ATTEND THE
MEETING AND VOTE IN PERSON.
THE
NOTICE OF ANNUAL MEETING, PROXY STATEMENT, AND ANNUAL REPORT ARE
AVAILABLE IN THE INVESTOR RELATIONS SECTION OF OUR WEBSITE,
WWW.PARAGONBANK.COM.
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By
Order of the Board of Directors
Robert
C. Hatley
President and Chief
Executive Officer
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October
20, 2017
PARAGON COMMERCIAL CORPORATION
Proxy Statement For The
Annual Meeting of Shareholders
To Be Held November 28, 2017
TABLE OF CONTENTS
Page
GENERAL
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1
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Proposals to be
Voted on at the Annual Meeting
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1
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How
You Can Vote at the Annual Meeting
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2
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Solicitation and
Voting of Proxy Cards
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2
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Revocation of
Proxy Cards; How You Can Change Your Vote
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3
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Expenses of
Solicitation
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4
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Record
Date
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4
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Voting
Securities
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4
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Voting
Procedures; Quorum; Votes Required for Approval
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4
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Beneficial
Ownership of Our Common Stock
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4
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Section 16(a)
Beneficial Ownership Reporting Compliance
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6
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PROPOSAL 1:
ELECTION OF DIRECTORS
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7
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Nominees
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7
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2017
Director Nominees
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8
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Other
Directors Not Up For Re-Election at this Meeting
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8
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Required
Vote
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9
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CORPORATE
GOVERNANCE
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10
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Board
Leadership Structure
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10
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Board’s Role
in Risk Management
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10
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Code
of Ethics
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10
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Director
Independence
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11
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Director
Relationships
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11
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Selection of
Nominees for the Board of Directors
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11
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Meetings of the
Board of Directors
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12
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Committees of the
Board of Directors
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12
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Compensation
Committee Interlocks and Insider Participation
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14
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Indebtedness of
and Transactions with Management
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14
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DIRECTOR
COMPENSATION
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15
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EXECUTIVE
OFFICERS
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16
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EXECUTIVE
COMPENSATION AND OTHER MATTERS
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17
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Employment
Agreement
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18
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Change
in Control Agreements
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19
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Salary
Continuation and Endorsement Split Dollar Agreements
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19
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Nonequity
Incentive Compensation
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20
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2006
Omnibus Stock Incentive Plan
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21
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2016
and 2015 Restricted Stock Grants
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23
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Outstanding Equity
Awards at Fiscal Year-End
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24
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Employee Stock
Purchase Plan
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24
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CERTAIN
RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
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26
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Ordinary Banking
Relationships
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26
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Policies and
Procedures Regarding Related Party Transactions
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26
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PROPOSAL 2:
RATIFICATION OF INDEPENDENT AUDITORS
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27
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Report
of the Audit Committee
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28
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OTHER
MATTERS
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29
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PROPOSALS FOR 2018
ANNUAL MEETING
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29
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INTERNET AND
ELECTRONIC AVAILABILITY OF PROXY MATERIALS
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29
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HOUSEHOLDING
MATTERS
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29
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SHAREHOLDER
COMMUNICATIONS
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30
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MISCELLANEOUS
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30
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PARAGON COMMERCIAL CORPORATION
3535 GLENWOOD AVENUE
RALEIGH, NORTH CAROLINA 27612
(919) 788-7770
_________________________
PROXY STATEMENT
_________________________
Mailing
Date: On or about October 20, 2017
ANNUAL MEETING OF SHAREHOLDERS
To
Be Held
November
28, 2017
GENERAL
This
Proxy Statement is being furnished in connection with the
solicitation by the Board of Directors of Paragon Commercial
Corporation (the “Company”) of appointments of proxy
for use at the annual meeting of the Company’s shareholders
(the “Annual Meeting”) to be held on November 28, 2017,
at 3:00 p.m., at the Company’s corporate offices located at
3535 Glenwood Avenue, Raleigh, North Carolina 27612, and at any
adjournments thereof. The Company’s proxy solicitation
materials are being mailed to our shareholders on or about October
20, 2017. Unless otherwise indicated or unless the context requires
otherwise, all references in this Proxy Statement to
“we,” “us,” “our,” the
“Company,” or similar references, mean Paragon
Commercial Corporation. References to “Paragon Bank” or
the “Bank” mean our wholly owned banking subsidiary,
Paragon Commercial Bank.
IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY
MATERIALS
FOR THE SHAREHOLDER MEETING TO BE HELD ON NOVEMBER 28,
2017:
Copies of this Proxy Statement are available in the
investor relations section of our website,
www.paragonbank.com.
Proposals to be Voted on at the Annual Meeting
At the
Annual Meeting, record holders of our common stock will consider
and vote on proposals to:
●
elect two members
of the Board of Directors for terms of three years;
●
ratify the
appointment of Elliott Davis Decosimo, PLLC as the Company’s
independent auditors for 2017; and
●
transact any other
business properly presented for action at the Annual
Meeting.
The
Board of Directors recommends that you vote “FOR” the
election of each of the two nominees for director named in this
Proxy Statement and “FOR” Proposal 2.
How You Can Vote at the Annual Meeting
Record
Holders. If your shares of our
common stock are held of record in your name, you can vote at the
Annual Meeting in one of the following ways:
●
you
can attend the Annual Meeting and vote in person;
●
you
can sign and return the proxy card enclosed with this Proxy
Statement by mail using the enclosed envelope or by fax to
202-521-3464 and appoint the “Proxies” named below to
vote your shares for you at the meeting, or you can validly appoint
another person to vote your shares for you;
●
you
can call 1-866-752-VOTE (8683); or
●
you can appoint the Proxies to vote your shares
for you by going to the internet website https://www.iproxydirect.com/PBNC.
When you are prompted for your “control number,” enter
the number printed on the enclosed proxy card and then follow the
instructions provided.
You
may appoint the Proxies by internet only until 11:59 p.m. Eastern
Time on November 27, 2017, which is the day before the Annual
Meeting date. If you appoint the Proxies by internet, you need not
sign and return a proxy card. You will be appointing the Proxies to
vote your shares on the same terms and with the same authority as
if you marked, signed and returned a proxy card. The authority you
will be giving the Proxies is described below and in the proxy card
enclosed with this Proxy Statement.
Shares Held
in “Street Name.” Only the record holders of shares of our common
stock or their appointed proxies may vote those shares. As a
result, if your shares of our common stock are held for you in
“street name” by a broker or other nominee, then only
your broker or nominee (i.e. the record holder) may vote them for
you, or appoint the Proxies to vote them for you, unless you make
arrangements for your broker or nominee to assign its voting rights
to you or for you to be recognized as the person entitled to vote
your shares. You will need to follow the directions your broker or
nominee provides you and give it instructions as to how it should
vote your shares by completing and returning to it the voting
instruction sheet you received with your copy of our Proxy
Statement (or by following any directions you received for giving
voting instructions electronically). Brokers and other nominees who
hold shares in street name for their clients typically have the
discretionary authority to vote those shares on
“routine” matters when they have not received
instructions from beneficial owners of the shares. However, they
may not vote those shares on non-routine matters (including the
election of directors) unless their clients give them voting
instructions. To ensure that shares you hold in street name are
represented at the Annual Meeting and voted in the manner you
desire, it is
important that you instruct your broker or nominee as to how it
should vote your shares.
Solicitation and Voting of Proxy Cards
If
you are the record holder of your shares of our common stock, a
proxy card is included with this Proxy Statement that provides for
you to name K. Wesley M. Jones, Curtis C. Brewer III and Thomas B.
Oxholm, members of our Board, or any substitutes appointed by them,
individually and as a group, to act as your “Proxies”
and vote your shares at the Annual Meeting. We ask that you sign
and date your proxy card and return it in the enclosed envelope, or
follow the instructions above for appointing the Proxies by
internet, so that your shares will be represented at the
meeting.
If you sign a proxy card and return it so that we
receive it before the Annual Meeting, or you appoint the Proxies by
internet, the shares of our common stock that you hold of record
will be voted by the Proxies according to your instructions. If you
sign and return a proxy card or appoint the Proxies by internet,
but you do not give any voting instructions, then the Proxies will
vote your shares “FOR”
the election of each of the two
nominees for director named in Proposal 1 below and
“FOR”
Proposal 2. If, before the Annual
Meeting, any nominee named in Proposal 1 becomes unable or
unwilling to serve as a director for any reason, your proxy card or
internet appointment will give the Proxies discretion to vote your
shares for a substitute nominee named by our Board. We are not
aware of any other business that will be brought before the Annual
Meeting other than the election of directors and Proposal 2
described in this Proxy Statement, but, if any other matter is
properly presented for action by our shareholders, your proxy card
or internet appointment will authorize the Proxies to vote your
shares according to their best judgment. The Proxies also will be
authorized to vote your shares according to their best judgment on
matters incident to the conduct of the meeting.
If
you are a record holder of your shares and you do not return a
proxy card or appoint the Proxies by internet, the Proxies will not
have authority to vote for you and your shares will not be
represented or voted at the Annual Meeting unless you attend the
meeting in person or validly appoint another person to vote your
shares for you.
Revocation of Proxy Cards; How You Can Change Your
Vote
Record
Holders. If you are the record
holder of your shares and you sign and return a proxy card or
appoint the Proxies by internet and later wish to change the voting
instructions or revoke the authority you gave the Proxies, you can
do so before the Annual Meeting by taking the appropriate action
described below.
To
change the voting instruction you gave the Proxies:
●
you
can sign a new proxy card, dated after the date of your original
proxy card, which contains your new instructions, and submit it to
us so that we receive it before the voting takes place at the
Annual Meeting;
●
if
you voted by telephone, you can call 1-866-752-VOTE (8683) and
change your voting instructions; or
●
if
you appointed the Proxies by internet, you can send an e-mail to
proxy@issuerdirect.com, including your control and request ID, and
change your voting instructions.
The
Proxies will follow the last voting instructions they receive from
you before the Annual Meeting.
To
revoke your proxy card or your appointment of the Proxies by
internet:
●
you
can give our Corporate Secretary a written notice, before the
voting takes place at the Annual Meeting, that you want to revoke
your proxy card or internet appointment; or
●
you
can attend the Annual Meeting and notify our Corporate Secretary
that you want to revoke your proxy card or internet appointment and
vote your shares in person. Simply attending the Annual Meeting
alone, without notifying our Corporate Secretary, will not revoke
your proxy card or internet appointment.
Shares Held
in “Street Name.” If your shares are held in “street
name” and you want to change the voting instructions you have
given to your broker or other nominee, you must follow your
broker’s or nominee’s directions.
Expenses of Solicitation
The
Company will pay the cost of preparing, assembling, and mailing
this Proxy Statement and other proxy solicitation expenses. In
addition to the use of the mails and the internet, appointments of
proxy may be solicited in person or by telephone by officers,
directors, and employees of the Company or its subsidiaries without
additional compensation. The Company will reimburse banks, brokers
and other custodians, nominees and fiduciaries for their costs in
sending the proxy materials to the beneficial owners of the
Company’s common stock.
Record Date
The
close of business on October 13, 2017, has been fixed as the record
date (the “Record Date”) for the determination of
shareholders entitled to notice of and to vote at the Annual
Meeting. Only those shareholders of record on that date will be
eligible to vote on the proposals described herein.
Voting Securities
The
voting securities of the Company are the shares of its common
stock, of which 20,000,000 shares are authorized and 5,460,447
shares were issued and outstanding on October 13, 2017. There were
236 holders of record of the Company’s common stock as of
such date.
Voting Procedures; Quorum; Votes Required for Approval
At
the Annual Meeting, each shareholder will be entitled to one vote
for each share of common stock held of record on the Record Date on
each matter submitted for voting.
A
majority of the shares of the Company’s common stock issued
and outstanding on the Record Date must be present in person or by
proxy to constitute a quorum for the conduct of business at the
Annual Meeting.
Assuming
a quorum is present; in the case of Proposal 1 below, the two
nominees receiving the greatest number of votes shall be elected.
In the case of Proposal 2 below, for such proposal to be approved,
the number of votes cast for approval must exceed the number of
votes cast against the proposal. Abstentions and broker non-votes
will have no effect.
Beneficial Ownership of Our Common Stock
The
following table sets forth certain information with respect to the
beneficial ownership of our common stock as of October 13, 2017
for:
●
each
of our named executive officers;
●
all
of our named executive officers and directors as a group;
and
●
each
person, or group of affiliated persons, known by us to be the
beneficial owner of more than 5% of our outstanding shares of
common stock.
Beneficial
ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting or
investment power with respect to the securities. Shares of common
stock that may be acquired by an individual or group within 60 days
of October 13, 2017 pursuant to the exercise of options, warrants
or other rights, are deemed to be outstanding for the purpose of
computing the percentage ownership of such individual or group, but
are not deemed to be outstanding for the purpose of computing the
percentage ownership of any other person shown in the table. The
table below calculates the percentage of beneficial ownership of
our common stock based on 5,460,447 shares of common stock
outstanding as of October 13, 2017.
Except
as indicated in footnotes to this table, we believe that the
shareholders named in this table have sole voting and investment
power with respect to all shares of common stock shown to be
beneficially owned by them, based on information provided to us by
such shareholders. The address for each director and executive
officer listed is: c/o Paragon Commercial Corporation, 3535
Glenwood Avenue, Raleigh, NC 27612.
Name
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Shares
Beneficially Owned
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Directors and named executive officers:
|
|
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Curtis C. Brewer
III
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45,019(1)
|
*
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Steven E.
Crouse
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14,100(2)
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*
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Matthew C.
Davis
|
22,517(3)
|
*
|
Roy L. Harmon,
Jr.
|
855,250(4)
|
15.66
|
Robert C.
Hatley
|
113,717(5)
|
2.08
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K. Wesley M.
Jones
|
54,125(6)
|
*
|
Howard
Jung
|
107,010(7)
|
1.96
|
Thomas B.
Oxholm
|
30,825(8)
|
*
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F. Alton
Russell
|
31,400(9)
|
*
|
All directors and
named executive officers as a group (9 persons)
|
1,273,963
|
23.29
|
|
|
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Greater than 5% shareholders
|
|
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BancTenn
Corp(10)
|
800,125
|
14.65
|
Banc Fund VI
L.P.(11)
|
363,911
|
6.66
|
_________________
*
Represents less than 1% of the shares outstanding.
(1)
|
Mr.
Brewer’s ownership
includes (i) 43,644 shares held by Mr. Brewer personally and (ii)
1,375 shares owned by Mr. Brewer’s spouse, as to which Mr. Brewer
disclaims beneficial ownership. Excludes 500 shares of restricted
stock with respect to which Mr. Brewer has no voting or investment
power and is not expected to acquire voting or investment power
within 60 days of October 13, 2017.
|
(2)
|
Mr.
Crouse’s ownership
includes (i) 11,225 shares held by Mr. Crouse personally and (ii)
2,875 shares that may be acquired within 60 days of October 13,
2017 by exercising stock options. Excludes 1,955 shares of
restricted stock with respect to which Mr. Crouse has no voting or
investment power and is not expected to acquire voting or
investment power within 60 days of October 13, 2017.
|
(3)
|
Mr.
Davis’s ownership
includes (i) 19,517 shares held by Mr. Davis personally; (ii) 250
shares held jointly with Mr. Davis’s spouse; and (iii) 2,750 shares
that may be acquired within 60 days of October 13, 2017 by
exercising stock options. Excludes 1,955 shares of restricted stock
with respect to which Mr. Davis has no voting or investment power
and is not expected to acquire voting or investment power within 60
days of October 13, 2017.
|
(4)
|
Mr.
Harmon’s ownership
includes (i) 42,875 shares held by Mr. Harmon personally; (ii)
12,250 shares owned by Mr. Harmon’s spouse, as to which Mr. Harmon
disclaims beneficial ownership; and (iii) 800,125 shares held by
BancTenn Corp. Mr. Harmon is an officer and member of the board of
directors of BancTenn Corp and disclaims beneficial ownership of
the shares owned by BancTenn Corp except to the extent of his
pecuniary interest therein. Excludes 500 shares of restricted stock
with respect to which Mr. Harmon has no voting or investment power
and is not expected to acquire voting or investment power within 60
days of October 13, 2017.
|
(5)
|
Mr.
Hatley’s ownership
includes (i) 104,217 shares held by Mr. Hatley personally; (ii) 250
shares held jointly with Mr. Hatley’s spouse; (iii) 4,500 shares owned
by Mr. Hatley’s spouse,
as to which Mr. Hatley disclaims beneficial ownership; (iv) 5,000
shares that may be acquired within 60 days of October 13, 2017 by
exercising stock options; and (v) 38,375 shares pledged as
collateral. Excludes 5,063 shares of restricted stock with respect
to which Mr. Hatley has no voting or investment power and is not
expected to acquire voting or investment power within 60 days of
October 13, 2017.
|
(6)
|
Mr.
Jones’s ownership
includes (i) 54,125 shares held by Mr. Jones personally and (ii)
47,875 shares pledged as collateral. Excludes 500 shares of
restricted stock with respect to which Mr. Jones has no voting or
investment power and is not expected to acquire voting or
investment power within 60 days of October 13, 2017.
|
(7)
|
Mr.
Jung’s ownership includes
(i) 66,425 shares held by Mr. Jung personally and (ii) 40,585
shares owned by Mr. Jung’s spouse, as to which Mr. Jung
disclaims beneficial ownership. Excludes 500 shares of restricted
stock with respect to which Mr. Jung has no voting or investment
power and is not expected to acquire voting or investment power
within 60 days of October 13, 2017.
|
(8)
|
Mr.
Oxholm’s ownership
includes (i) 26,825 shares held by Mr. Oxholm personally and (ii)
4,000 shares held jointly with Mr. Oxholm’s spouse. Excludes
500 shares of restricted stock with respect to which Mr. Oxholm has
no voting or investment power and is not expected to acquire voting
or investment power within 60 days of October 13,
2017.
|
(9)
|
Mr.
Russell’s ownership
includes (i) 5,675 shares held by Mr. Russell personally; (ii)
14,500 shares held jointly with Mr. Russell’s spouse; and (iii) 11,225 shares
owned by Mr. Russell’s
spouse, as to which Mr. Russell disclaims beneficial ownership.
Excludes 500 shares of restricted stock with respect to which Mr.
Russell has no voting or investment power and is not expected to
acquire voting or investment power within 60 days of October 13,
2017.
|
(10)
|
As
reported on a Schedule 13G filed on February 13, 2017. The mailing
address for BancTenn Corp is P.O. Box 4980, Johnson City, Tennessee
37602-4980.
|
(11)
|
As
reported on a Schedule 13G filed on February 15, 2017, includes
106,171 shares held by Banc Fund VII L.P.; 116,250 shares held by
Banc Fund VIII L.P.; and 141,490 shares held by Banc Fund IX L.P.
The mailing address for all of these entities is 20 North Wacker
Drive, Suite 3300, Chicago, IL 60606.
|
Section 16(a) Beneficial Ownership Reporting
Compliance
Directors
and executive officers of the Company are required by federal law
to file reports with the Securities and Exchange Commission (the
“SEC”) regarding the amount of, and changes in, their
beneficial ownership of the Company’s common stock. Based
upon a review of copies of reports received by the Company, all
required reports of directors and executive officers of the Company
during 2016 were filed on a timely basis. Through October 13, 2017,
one Form 4 reporting the February 22, 2017 purchase of 24 shares of
common stock by Triangle Market President Brian K. Reid was filed
late on February 28, 2017, and one Form 4 reporting the May 10,
2017 acquisition of shares pursuant to a stock option (net of
shares withheld to cover tax payments) by Director F. Alton Russell
was filed late on May 15, 2017.
PROPOSAL 1: ELECTION OF DIRECTORS
Nominees
Our
Board currently consists of seven members and is divided into three
classes of approximately equal size, the members of which each
serve for a staggered three-year term or until a successor has been
elected and qualified. The term of office of one class of directors
expires each year in rotation so that one class is elected at each
annual meeting for a full three-year term. Our directors,
Howard Jung
and Robert C. Hatley, have been nominated to fill a
three-year term expiring in 2020. The two other classes of
directors, who were elected or appointed for terms expiring at the
annual meetings in 2018 and 2019, respectively, will remain in
office.
If you
are a shareholder of record, unless you mark your proxy card to
withhold authority to vote, the proxy holder will vote the proxies
received by it for the two nominees named below, each of whom is
currently a director and each of whom has consented to be named in
this Proxy Statement and to serve if elected. In the event that any
nominee is unable or declines to serve as a director at the time of
the Annual Meeting, your proxy will be voted for any nominee
designated by the Board to fill the vacancy. We do not expect that
any nominee will be unable or will decline to serve as a director.
If you are a beneficial owner of shares held in street name and you
do not provide your broker with voting instructions, your broker
may not vote
your shares on the election of directors. Therefore, it is
important that you vote.
The
name of and certain information regarding each nominee as of
October 13, 2017 is set forth below, together with information
regarding our directors remaining in office. This information is
based on data furnished to us by the nominees and directors. There
is no family relationship between any director, executive officer
or person nominated to become a director or executive officer. The
business address for each nominee for matters regarding the Company
is 3535 Glenwood Avenue, Raleigh, North Carolina
27612.
Director Nominees with Terms Expiring in 2017
Name
|
|
Position(s) with the Company
|
|
Howard
Jung
|
70
|
Chairman of the
Board
|
2001
|
Robert C.
Hatley
|
66
|
President, Chief
Executive Officer, and Director
|
2001
|
Directors with Terms Expiring in 2018
Name
|
|
Position(s) with the Company
|
|
Curtis C. Brewer
III
|
74
|
Director
|
2001
|
F. Alton
Russell
|
77
|
Director
|
2012
|
Directors with Terms Expiring in 2019
Name
|
|
Position(s) with the Company
|
|
Roy L. Harmon,
Jr.
|
63
|
Director
|
2004
|
K. Wesley M.
Jones
|
60
|
Director
|
2010
|
Thomas B.
Oxholm
|
61
|
Director
|
2016
|
2017 Director Nominees
Below
each nominee’s biography is an assessment of the
nominee’s qualifications, attributes, skills and experience
that led us to believe that each nominee is well-qualified to serve
on the Board.
Howard Jung — Chairman of the Board
Mr.
Jung has served as Chairman of the Bank’s board of directors
since 1999 and as Chairman of the Company’s board of
directors since 2001. He serves on the Company’s audit,
compensation, and nominating and corporate governance committees.
Mr. Jung has extensive prior experience as a corporate director,
having served as a director of the Ace Hardware Corporation from
1987 to 1996 and as Chairman of the Board at Ace Hardware
Corporation from 1998 to 2003. Mr. Jung also has extensive
executive experience in business. He owned and served as Vice
President of Ace Hardware Stores, Inc. in Raleigh, North Carolina
from 1997 to 2016. Mr. Jung graduated with a Bachelor of Science
degree in Biology from the University of Illinois. We believe Mr.
Jung’s extensive experience in executive management and
business ownership brings to the Board important skills and qualify
him to serve as one of our directors.
Robert C. Hatley — President, Chief Executive Officer, and
Director
Mr.
Hatley founded Paragon Bank in August 1998 and has been the
President, Chief Executive Officer and a director since that time.
He also serves as the President, Chief Executive Officer and a
director of the Company. Mr. Hatley began his banking career at
Wachovia Bank. Over the course of his fourteen years with Wachovia,
Mr. Hatley served as a field representative, a credit manager, a
branch manager, and a city executive. From 1994 to 1998, Mr. Hatley
was Regional Market Manager for Wake County, RBC Centura (now PNC
Bank). Prior to this, during the period from 1989 to 1994, Mr.
Hatley was the City Executive for Cary, North Carolina, RBC
Centura. Mr. Hatley graduated with a Bachelor of Science in
Business Administration from Appalachian State University. We
believe Mr. Hatley’s extensive banking experience brings to
the Board important skills and qualify him to serve as one of our
directors.
Other Directors Not Up For Re-Election at this Meeting
Curtis C. Brewer III — Director
Mr.
Brewer has served on the Board since July 2001 and serves on the
Company’s audit committee. From January 2001 until June 2015,
Mr. Brewer was the owner of Curtis C. Brewer, III Commercial Real
Estate. Mr. Brewer was also a real estate broker with Spectrum
Properties Management Company from 1997 until 2002 and Capital
Associates Limited Partnership from 1995 until 1997. Prior to Mr.
Brewer’s career in real estate, he was employed in the
banking industry from 1965 to 1995. From 1972 until 1995 Mr. Brewer
was employed at United Carolina Bank, which merged into BB&T
Corporation in 1997, and last held the position of Senior Vice
President and Regional Executive. Mr. Brewer graduated with a
Bachelor of Science degree in business administration from the
University of North Carolina at Chapel Hill. We believe Mr.
Brewer’s experience as a real estate broker and prior
extensive experience in the banking industry make him uniquely
qualified to serve as one of our directors.
Roy L. Harmon, Jr. — Director
Mr.
Harmon has served as a member of the Board since May 2004. He has
also served as a member of the board of directors of Paragon Bank
since December 2000. Mr. Harmon has extensive prior experience as a
director of a financial institution, serving as a director of both
Bank of Tennessee and its parent company, BancTenn Corp. Mr. Harmon
also has extensive executive experience in banking. He is presently
the Chairman and Chief Executive Officer of Bank of Tennessee and
Vice Chairman and Executive Vice President of BancTenn Corp, where
he has been employed since September 1991. Mr. Harmon graduated
with an accounting degree from the University of Tennessee,
Knoxville. He has been a certified public accountant since 1976. We
believe Mr. Harmon’s extensive experience in the commercial
banking industry and as a CPA brings to the Board important skills
and qualify him to serve as one of our directors.
K. Wesley M. Jones — Director
Mr.
Jones has served as a member of the Board since 2010 and serves on
the Company’s compensation committee. He has also served as a
member of the board of directors of Paragon Bank since 2008.
Currently, Mr. Jones is the Managing Partner of FiveOaks Capital,
LLC, a private investment firm, in Charlotte, North Carolina, a
position he has held since September 2001. Since 2006, Mr. Jones
has been a director and the Chairman of Edison Nation Holdings,
LLC. Mr. Jones attended the University of Tennessee. We believe Mr.
Jones’s extensive experience in the capital markets and
private investment industry brings to the Board important skills
and qualify him to serve as one of our directors.
Thomas B. Oxholm — Director
Mr.
Oxholm has served as a member of the board of directors of Paragon
Bank since February 2004 and as a member of the Company’s
Board since January 2016. He serves on the Company’s audit
committee and the nominating and corporate governance committee.
Mr. Oxholm has extensive prior experience as a director, serving on
the board of directors for WakeMed Health and Hospitals from May
2003 until May 2013, where he was Chairman from 2011 until 2013. He
was elected to and served on the Wake County Board of Education
from 1999–2003, serving as finance committee chairman. He
currently serves on the governing body of WakeMed Key Community
Care, LLC and on the board of directors of the Public School Forum
of North Carolina, Inc. Mr. Oxholm also has extensive executive
experience in business. After nine years with KPMG, since 1986, Mr.
Oxholm has been with Wake Stone Corporation as its Vice President -
Finance and Administration. Mr. Oxholm graduated with a Bachelor of
Science degree in Business Administration from the University of
North Carolina at Chapel Hill in 1976. He has been a certified
public accountant since 1979. We believe Mr. Oxholm’s
extensive business experience, particularly in the areas of audit
and finance, and as a CPA, bring to the Board important skills and
qualify him to serve on our Board.
F. Alton Russell — Director
Mr.
Russell joined the Board in December 2012. He serves on the
Company’s compensation committee and the nominating and
corporate governance committee. Mr. Russell is retired. From
October 1983 to his retirement in June 2016, Mr. Russell served as
Chairman and Counsel for the Title Company of North Carolina
headquartered in Raleigh with offices in seven locations across the
state. Mr. Russell was also the Senior Vice President of Old
Republic National Title Insurance Company, a position he held from
1995 until his retirement in June 2016. Mr. Russell graduated with
a Bachelor of Science degree in Business Administration from the
Kenan-Flagler Business School at the University of North Carolina
and holds a Juris Doctor degree from the University of North
Carolina School of Law. We believe Mr. Russell’s extensive
legal experience in banking and title companies brings to the Board
important skills and qualify him to serve as one of our
directors.
Required Vote
The two
nominees for director receiving the greatest number of votes shall
be elected. Votes withheld from any nominee are counted only for
purposes of determining the presence or absence of a quorum for the
transaction of business at the Annual Meeting. While broker
non-votes will be counted for purposes of determining the presence
or absence of a quorum, they will not be counted for purposes of
determining the number of shares represented and voted with respect
to the particular proposal on which the broker has expressly not
voted and, accordingly, will not affect the election of
directors.
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
“FOR” EACH OF THE NOMINEES FOR DIRECTOR OF THE COMPANY
FOR A TERM OF THREE YEARS.
CORPORATE GOVERNANCE
Board Leadership Structure
Our
Board has a chairman whose duties are described in our Bylaws, and
it performs its oversight role through various committees. The
Board may select any of its members as its Chairman, and has no
formal policy as to whether our Chief Executive Officer will serve
as Chairman or whether any other director, including a non-employee
or independent director, may be elected to serve as
Chairman.
We
have separated the position of Chairman of the Board and that of
Chief Executive Officer. While our Board believes the separation of
these positions serves our Company well, and intends to maintain
this separation where appropriate and practicable, the Board does
not believe that it is appropriate to prohibit one person from
serving as both Chairman of the Board and Chief Executive Officer.
We believe our leadership structure is appropriate at this time for
our Company.
At
present, the position of Chairman is held by Howard Jung and the
position of Chief Executive Officer is held by Robert C.
Hatley.
Board’s Role in Risk Management
Risk
is inherent in any business, and, as is the case with other
management functions, our senior management has primary
responsibility for managing the risks we face. However, as a
financial institution, our business involves financial risks that
do not exist, or that are more extensive than, the risks that exist
in some other types of businesses. We are subject to extensive
regulation that requires us to assess and manage those risks, and
during their periodic examinations, our regulators assess our
performance in that regard. As a result, the Board is actively
involved in overseeing our risk management programs.
The
Board administers its oversight function primarily through
committees, which may be established as separate or joint
committees of the boards of the Company and/or the Bank. Those
committees include our audit committee, compensation committee, and
nominating and corporate governance committee. The Board approves
and periodically reviews the Bank’s operating policies and
procedures.
We
believe the Board’s involvement in our risk management
results in Board committees that are more active than those of
corporations that are not financial institutions or that are not
regulated as extensively as financial institutions. We believe this
committee activity enhances our Board’s effectiveness and
leadership structure by providing opportunities for non-employee
directors to become familiar with the Bank’s critical
operations and actively involved in the Board’s oversight
role with respect to risk management, as well as its other
oversight functions.
Code of Ethics
The
Board has adopted a Code of Ethics and Business Conduct, which
applies to our directors and executive officers, and, among other
things, is intended to promote:
●
honest
and ethical conduct, including the ethical handling of actual or
apparent conflicts of interest;
●
full,
fair, accurate, timely and understandable disclosure in reports and
documents that we file with, or submit to the SEC and in other
public communications we make;
●
compliance
with applicable governmental laws, rules and
regulations;
●
the
protection of our assets, including corporate opportunities and
confidential information;
●
fair
dealing practices;
●
the
deterrence of wrongdoing; and
●
accountability
for adherence to the Code of Ethics and Business
Conduct.
A copy of the Code of Ethics and Business Conduct
is posted in the investor relations section of the Company’s
website at www.paragonbank.com.
Director Independence
With
the exception of Messrs. Hatley and Harmon, each member of the
Company’s Board is “independent” as defined by
Nasdaq listing standards and the regulations promulgated under the
Securities Exchange Act of 1934 (the “Exchange Act”).
In making this determination, the Board considered certain
transactions with directors for the provision of goods or services
to the Company and the Bank. All such transactions were conducted
at arm’s length upon terms no less favorable than those that
would be available from an independent third party.
Director Relationships
No
director is a director or nominee for director of a corporation
with a class of securities registered pursuant to Section 12 of the
Exchange Act or subject to the requirements of Section 15(d) of the
Exchange Act, or any corporation registered as an investment
company under the Investment Company Act of 1940.
There
are no family relationships among the Company’s directors and
executive officers.
Selection of Nominees for the Board of Directors
The
nominating and corporate governance committee of our Board has the
responsibility for recommending which directors should stand for
re-election to the Board and the selection of new directors to
serve on the Board. The committee has formulated the following
qualifications for director candidates:
●
having
a basic knowledge of the banking industry, the financial regulatory
system, and the laws and regulations that govern the operation of
the Company;
●
a
willingness to put the interests of the Company ahead of personal
interests;
●
exercising
independent judgment and actively participating in decision
making;
●
having
an inquiring and independent mind, practical wisdom, and sound
judgment;
●
a
willingness to avoid conflicts of interest;
●
having
a background, knowledge, and experience in business or another
discipline to facilitate oversight of the Bank;
●
a
willingness and ability to commit the time necessary to prepare for
and regularly attend Board and committee meetings; and
●
equity
ownership in the Company.
The
committee also considers diversity of experience in selecting
candidates for director.
The
Company’s Bylaws permit any shareholder of record to nominate
candidates for director. Shareholders wishing to nominate a
candidate for director must deliver a written nomination to our
Corporate Secretary not less than 120 days prior to the meeting of
shareholders at which time nominees will be considered for election
to the Board.
Meetings of the Board of Directors
There
were four meetings of the Board during 2016. All of our directors
attended at least 75% of the aggregate of all meetings of the Board
and the committees on which he served during 2016. Although we do
not have a formal written policy with respect to directors’
attendance at our annual meeting of shareholders, we generally
encourage all directors to attend. All of our directors who were on
the Board at that time attended the annual meeting of shareholders
in May 2016.
Committees of the Board of Directors
Our Board has the authority to appoint committees
to perform certain management and administrative functions. Our
Board of Directors has three permanent committees: the audit
committee, the compensation committee, and the nominating and
corporate governance committee. Each of these committees operates
under a written charter approved by the Board that sets out the
committee’s duties and responsibilities. We believe that each
member of these committees is an “independent director”
as that term is defined by Nasdaq’s listing standards. Copies
of the charters of each of these committees are posted in the
investor relations section of the Company’s website at
www.paragonbank.com.
In
addition, from time to time, special committees may be established
under the direction of our Board when necessary to address specific
issues.
Information
about each of the permanent committees of the Board
follows:
Audit
Committee. The current members
of the audit committee are Messrs. Brewer, Jung and Oxholm. The
audit committee met three times during our 2016 fiscal year. The
audit committee is responsible for the following, among other
things:
●
appointing,
terminating, compensating, and overseeing the work of any
accounting firm engaged to prepare or issue an audit report or
other audit, review or attest services;
●
reviewing
and approving, in advance, all audit and non-audit services to be
performed by the independent auditor, taking into consideration
whether the independent auditor’s provision of non-audit
services to us is compatible with maintaining the independent
auditor’s independence;
●
reviewing
and discussing the adequacy and effectiveness of our accounting and
financial reporting processes and controls and the audits of our
financial statements;
●
establishing
and overseeing procedures for the receipt, retention, and treatment
of complaints received by us regarding accounting, internal
accounting controls or auditing matters, including procedures for
the confidential, anonymous submission by our employees regarding
questionable accounting or auditing matters;
●
investigating
any matter brought to its attention within the scope of its duties
and engaging independent counsel and other advisors as the audit
committee deems necessary;
●
determining
compensation of the independent auditors and of advisors hired by
the audit committee and ordinary administrative
expenses;
●
reviewing
and discussing with management and the independent auditor the
annual and quarterly financial statements prior to their
release;
●
monitoring
and evaluating the independent auditor’s qualifications,
performance, and independence on an ongoing basis;
●
reviewing
reports to management prepared by the internal audit function, as
well as management’s response;
●
reviewing
and assessing the adequacy of the formal written charter on an
annual basis;
●
reviewing
and approving related-party transactions for potential conflict of
interest situations on an ongoing basis; and
●
handling
such other matters that are specifically delegated to the audit
committee by the Board from time to time.
The
Board has determined that Thomas B. Oxholm satisfies the
requirements for independence and financial literacy under the
rules and regulations of Nasdaq and the SEC, and that he qualifies
as an “audit committee financial expert” as such term
is defined in Item 407(d) of Regulation S-K promulgated by the SEC.
The designation does not impose on Mr. Oxholm any duties,
obligations or liabilities that are greater than those generally
imposed on members of our audit committee and the
Board.
Compensation
Committee. The current members
of the Company’s compensation committee are Messrs. Jones,
Jung and Russell. The Company’s compensation committee did
not meet during our 2016 fiscal year. Prior to our initial public
offering, or IPO, in June 2016, the Company did not have a
separately standing compensation committee. All compensation
committee functions were carried out by the Bank’s
compensation committee prior to our IPO. The Company’s
compensation committee was established in connection with our IPO.
The Company’s compensation committee is responsible for the
following, among other things:
●
reviewing
and approving the compensation, employment agreements and severance
arrangements, and other benefits of all of our executive officers
and key employees;
●
reviewing
and approving, on an annual basis, the corporate goals and
objectives relevant to the compensation of the executive officers,
and evaluating their performance in light thereof;
●
reviewing
and making recommendations, on an annual basis, to the Board with
respect to director compensation;
●
reviewing
any analysis or report on executive compensation required to be
included in the annual proxy statement and periodic reports
pursuant to applicable federal securities rules and regulations,
and recommending the inclusion of such analysis or report in our
proxy statement and period reports;
●
reviewing
and assessing, periodically, the adequacy of the formal written
charter; and
●
such
other matters that are specifically delegated to the compensation
committee by the Board from time to time.
Our
Board has determined that each member of our compensation committee
meets the requirements for independence under the rules of Nasdaq
and SEC rules and regulations and is a “non-employee
director” as defined in Section 16 of the Exchange
Act.
In
2016, the compensation committee engaged Blanchard Consulting
Group, a national compensation consulting company, in connection
with its review of the amount and form of executive and director
compensation. The committee instructed Blanchard to provide a
comparative peer review of executive and director compensation. The
purpose of the review was to assess compliance with our
compensation philosophy and assure the competitiveness of our
compensation packages.
Nominating
and Corporate Governance Committee. The current members of the Company’s
nominating and corporate governance committee are Messrs. Jung,
Oxholm and Russell. The Company’s nominating and corporate
governance committee did not meet during our 2016 fiscal year.
Prior to our IPO, the Company did not have a separately standing
nominating and corporate governance committee. All nominating and
corporate governance committee functions were carried out by the
Bank’s governance committee prior to our IPO. The
Company’s nominating and corporate governance committee was
established in connection with our IPO. The Company’s
nominating and corporate governance committee is responsible for
the following, among other things:
●
identifying
and screening candidates for the Board, and recommending nominees
for election as directors;
●
establishing
procedures to exercise oversight of the evaluation of the Board and
management;
●
developing
and recommending to the Board a set of corporate governance
guidelines, as well as reviewing these guidelines and recommending
any changes to the Board;
●
reviewing
the structure of the Board’s committees and recommending to
the Board for its approval directors to serve as members of each
committee, and where appropriate, making recommendations regarding
the removal of any member of any committee;
●
developing
and reviewing our Code of Ethics and Business Conduct, evaluating
management’s communication of the importance of the code, and
monitoring compliance with the code;
●
reviewing
and assessing the adequacy of the formal written charter on an
annual basis; and
●
generally
advising the Board on corporate governance and related
matters.
Our
Board has determined that each member of our nominating and
corporate governance committee meets the requirements for
independence under the rules of Nasdaq.
Compensation Committee Interlocks and Insider
Participation
None
of the current members of our compensation committee is or has been
an officer or employee of our Company. None of our executive
officers currently serve, or in the past year has served, as a
member of the compensation committee (or other board committee
performing equivalent functions or, in the absence of any such
committee, the entire board) or as a director of any entity that
has one or more executive officers serving on our compensation
committee or our Board.
Indebtedness of and Transactions with Management
The
Company’s bank subsidiary, Paragon Commercial Bank, has had,
and expects to have in the future, banking and other transactions
in the ordinary course of business with certain of its current
directors, nominees for director, executive officers and
associates. All such transactions are made on substantially the
same terms, including interest rates, repayment terms and
collateral, as those prevailing for comparable transactions with
persons not related to the lender, and do not involve more than the
normal risk of collection or present other unfavorable features.
Loans made by Paragon Commercial Bank to directors and executive
officers are subject to the requirements of Regulation O of the
Board of Governors of the Federal Reserve System. Regulation O
requires, among other things, prior approval of the Board with any
“interested director” not participating, dollar
limitations on amounts of certain loans and prohibits any favorable
treatment being extended to any director or executive officer in
any of the bank’s lending matters.
DIRECTOR COMPENSATION
Board Fees.
During the fiscal year ended December
31, 2016, each non-employee director received a fee of $500 per
board meeting attended for the Company and the Bank and $300 per
committee meeting attended. For service as a director of the Bank,
each director also received an annual retainer of $40,000.
Committee chairs received an additional annual retainer of $2,500
($5,000 for the chairs of the Compensation Committee and the Audit
Committee) and the chairman of the Board received an additional
annual retainer of $5,000. Non-employee directors also received an
annual retainer of $15,000 for serving on the Company’s
Board.
The
following table presents a summary of all compensation paid by the
Company to its non-employee directors for their service during the
year ended December 31, 2016. Directors of the Company who are also
employees are not separately compensated for their service on the
Board.
Name
|
Fees
Earned
or
Paid
in
Cash
|
|
|
Non-Equity
Incentive
Plan
Compensation
|
Nonqualified
Deferred
Compensation
Earnings
|
|
|
Curtis
C. Brewer III
|
$66,600
|
$--
|
--
|
--
|
--
|
--
|
$66,600
|
Roy
L. Harmon, Jr.
|
46,900
|
--
|
--
|
--
|
--
|
--
|
46,900
|
K.
Wesley M. Jones
|
62,600
|
--
|
--
|
--
|
--
|
--
|
62,600
|
Howard
Jung
|
76,300
|
--
|
--
|
--
|
--
|
--
|
76,300
|
Thomas
B. Oxholm
|
67,250
|
--
|
--
|
--
|
--
|
--
|
67,250
|
F.
Alton Russell
|
66,500
|
--
|
--
|
--
|
--
|
--
|
66,500
|
____________
(1)
|
At
December 31, 2016, the following restricted stock awards were
outstanding: Mr. Brewer – 1,000 shares; Mr. Harmon –
1,000 shares; Mr. Jones – 1,000 shares; Mr. Jung –
1,000 shares; Mr. Oxholm – 1,000 shares; and Mr. Russell
– 1,000 shares.
|
(2)
|
At
December 31, 2016, the following option awards were outstanding:
Mr. Brewer – 1,875 shares; Mr. Harmon – 1,875 shares;
Mr. Jones – 0 shares; Mr. Jung – 1,875 shares; Mr.
Oxholm – 1,875 shares; and Mr. Russell – 1,875
shares.
|
EXECUTIVE OFFICERS
The
following table sets forth certain information regarding the
Company’s current executive officers.
Name
|
|
Age
|
|
Position
|
|
Business Experience
|
Robert C. Hatley
|
|
66
|
|
President and Chief Executive Officer
|
|
Founded
Paragon Bank in August 1998 and has been the President, Chief
Executive Officer and a director since that time. He also serves as
the President, Chief Executive Officer and a director of the
Company. Mr. Hatley began his banking career at Wachovia Bank. Over
the course of his fourteen years with Wachovia, Mr. Hatley served
as a field representative, a credit manager, a branch manager, and
a city executive. From 1994 to 1998, Mr. Hatley was Regional Market
Manager for Wake County, RBC Centura (now PNC Bank). Prior to this,
during the period from 1989 to 1994, Mr. Hatley was the City
Executive for Cary, North Carolina, RBC Centura. Mr. Hatley
graduated with a BS in Business Administration from Appalachian
State University.
|
Steven E. Crouse
|
|
53
|
|
Executive Vice President and Chief Financial Officer
|
|
Joined
Paragon Bank as Executive Vice President and Chief Financial
Officer in July 2005. He also serves as Executive Vice President
and Chief Financial Officer of the Company. He has extensive
financial experience, including as Senior Vice President, Finance
and Chief Accounting Officer at Capital Bank in Raleigh from 1998
through 2005. Prior to that, Mr. Crouse spent eight years in public
accounting at McGladrey & Pullen. Since 1990, Mr. Crouse has
been a North Carolina State Board Certified Public Accountant. Mr.
Crouse graduated with a BA in both Accounting and Business
Management from North Carolina State University.
|
Matthew C. Davis
|
|
50
|
|
Executive Vice President and Chief Operating Officer
|
|
Executive
Vice President and Chief Operating Officer at the Company and
Paragon Bank, a position he has held since December 2012. He served
as the Company’s Chief Credit Officer from June 2002 to
December 2012. Prior to joining the Company, Mr. Davis was Vice
President, Commercial Lending from 1996 through 1998 at RBC Centura
Bank, which is now PNC Bank, National Association, in Cary, North
Carolina. Before PNC Bank, Mr. Davis served as Assistant Vice
President, Corporate Banking, from 1994 through 1996 at Wachovia
Bank, which is now Wells Fargo & Company, in Charlotte, North
Carolina. Mr. Davis graduated with a BA degree in Business
Management and an MS in Management from North Carolina State
University.
|
EXECUTIVE COMPENSATION AND OTHER MATTERS
The following summary compensation table shows all
cash and non-cash compensation paid to or received or deferred
by Robert C. Hatley,
Steven E. Crouse, and Matthew C. Davis, who we refer to as our
“named executive officers,” for services rendered to us
and the Bank in all capacities during the fiscal years ended
December 31, 2016 and 2015. Compensation paid to our named
executive officers consisted of cash salary, bonus, stock awards,
non-equity incentive plan compensation paid in cash, and other
compensation as detailed in the footnotes
provided.
Summary Compensation Table
Name
and
Principal
Position
|
|
|
|
|
|
|
Non-Equity
Incentive Plan Compensation(3)
|
Non-Qualified
DeferredCompensation Earnings
|
|
|
Robert C.
Hatley
|
|
2016
|
$425,000
|
$92,385
|
$69,073
|
--
|
$132,165
|
--
|
$50,841(4)
|
$769,464
|
President and Chief
|
|
2015
|
412,000
|
15,235
|
40,000
|
--
|
149,765
|
--
|
42,980(5)
|
659,980
|
Executive Officer |
|
|
|
|
|
|
|
|
|
|
Steven E.
Crouse
|
|
2016
|
$241,500
|
$64,899
|
$29,429
|
--
|
$75,101
|
--
|
$35,408(6)
|
$446,337
|
Executive Vice President
|
|
2015
|
230,000
|
11,393
|
17,260
|
--
|
83,607
|
--
|
30,738(7)
|
372,998
|
and Chief Financial Officer |
|
|
|
|
|
|
|
|
|
|
Matthew C.
Davis
|
|
2016
|
$241,500
|
$64,899
|
$29,429
|
--
|
$75,101
|
--
|
$28,456(8)
|
$439,385
|
Executive Vice President
|
|
2015
|
230,000
|
11,393
|
17,260
|
--
|
83,607
|
--
|
22,971(9)
|
365,231
|
and Chief Operating Officer |
|
|
|
|
|
|
|
|
|
|
____________
(1)
Represents
discretionary cash bonus earned for performance in the year
indicated, which was paid to the named executive officer in the
following year.
(2)
The assumptions
used in estimating the fair value of restricted stock awards are
set forth in Note 10 to the Company’s audited consolidated
financial statements as of December 31, 2016 and 2015. Additional
information regarding outstanding stock awards is contained in the
table entitled “Outstanding Equity Awards at Fiscal
Year-End” on page 24
..
(3)
See
“Nonequity Incentive Compensation” below for more
information.
(4)
Includes $15,900
in 401(k) matching contributions; $3,512 of taxable benefit in
connection with a split-dollar life insurance arrangement; $5,499
related to personal use of a Company-owned automobile; $12,036 in
club dues; and $13,894 in insurance premiums (life, medical,
dental, disability, and accidental death and
dismemberment).
(5)
Includes $15,900
in 401(k) matching contributions; $3,103 of taxable benefit in
connection with a split-dollar life insurance arrangement; $5,055
related to personal use of a Company-owned automobile; $12,417 in
club dues; $4,800 in health insurance premiums; $1,489 in life
insurance premiums; and $216 in accidental death and dismemberment
insurance premiums.
(6)
Includes $15,900
in 401(k) matching contributions; $933 of taxable benefit in
connection with a split-dollar life insurance arrangement; $6,300
in club dues; and $12,275 in insurance premiums (life, medical,
dental, disability, and accidental death and
dismemberment).
(7)
Includes $15,900
in 401(k) matching contributions; $1,288 of taxable benefit in
connection with a split-dollar life insurance arrangement; $6,060
in club dues; $6,411 in health insurance premiums; $943 in life
insurance premiums; and $137 in accidental death and dismemberment
insurance premiums.
(8)
Includes $14,457
in 401(k) matching contributions; $697 of taxable benefit in
connection with a split-dollar life insurance arrangement; and
$13,302 in insurance premiums (life, medical, dental, disability
and accidental death and dismemberment).
(9)
Includes $13,800
in 401(k) matching contributions; $733 of taxable benefit in
connection with a split-dollar life insurance arrangement; $7,472
in health insurance premiums; $844 in life insurance premiums; and
$122 in accidental death and dismemberment insurance
premiums.
Employment Agreement
The
Company and the Bank entered into an employment agreement with
Robert C. Hatley on September 1, 2013, which was amended on October
27, 2015 and December 29, 2016. The employment agreement’s
initial term concluded on December 31, 2016, and automatically
extends for one additional year upon expiration of the initial term
and any subsequent term, unless the Board determines not to extend
the term. The employment agreement establishes the terms and
conditions of Mr. Hatley’s employment relationship, including
his initial base salary, and also provides for certain fringe
benefits, such as use of an automobile, payment of certain club
dues and reimbursement of reasonable business expenses. Mr.
Hatley’s annual base salary for 2017 is set at $455,000. Mr.
Hatley is also entitled to participate in any and all officer or
employee compensation, bonus, incentive, and benefit plans,
including plans providing pension, medical, dental, disability, and
group life benefits.
The
employment agreement may be terminated by the Company or the Bank
with or without “cause” (as defined in the employment
agreement). The employment agreement provides for severance
benefits after either involuntary termination without cause or
voluntary termination with “good reason” (as defined in
the employment agreement), as well as benefits that become payable
after a “change in control” (as defined in the
employment agreement). Severance benefits are not payable for
involuntary termination with cause or for voluntary termination
without good reason. In the event of termination as a result of Mr.
Hatley’s death during active service to the Company or the
Bank, the Company and the Bank would provide, without cost,
continued health care coverage to Mr. Hatley’s family for one
year.
In
the event of termination due to disability, Mr. Hatley will be
entitled to (a) his base salary and all perquisites and other
benefits (other than bonus) until he becomes eligible for benefits
under any disability plan or insurance program and (b) any unpaid
bonus or incentive compensation earned or accrued through the date
of incapacity, including any unvested amounts awarded for previous
years.
If
Mr. Hatley’s employment terminates involuntarily without
cause or voluntarily but with good reason and either such
termination is a separation from service (as defined in the
employment agreement), then Mr. Hatley will receive his base salary
for the remaining term of the employment agreement and reasonable
outplacement expenses in the discretion of the Board. Good reason
for voluntary termination will exist if specified adverse changes
in Mr. Hatley’s employment circumstances occur without his
consent, such as a material diminution of his base salary,
authority, duties, or responsibilities or a material change in the
geographic location at which he must perform services for the
Company or the Bank. Whether termination is involuntary without
cause or voluntary but with good reason, Mr. Hatley will continue
to receive his life and medical insurance benefits, at the expense
of the Company or the Bank, until the first to occur of (a) Mr.
Hatley’s return to employment at the Company, the Bank or
another employer, (b) Mr. Hatley’s attainment of age 65, (c)
Mr. Hatley’s death, or (d) a period of 18 months has elapsed
since the date of termination.
Mr.
Hatley will be entitled to an undiscounted lump-sum cash payment
equal to 2.99 times his annual compensation if a change in control
occurs while Mr. Hatley’s employment agreement is in
effect.
Under
the employment agreement, the Company and Bank agree to nominate
Mr. Hatley for election as a director of the Company as is
necessary for him to remain a director of the Company and that the
Board of both the Company and the Bank shall undertake every lawful
effort to ensure Mr. Hatley also remains a director of the Bank.
Mr. Hatley also agrees to not compete directly or indirectly with
the Company or the Bank for 24 months following termination of the
employment agreement voluntarily by Mr. Hatley or for cause by the
Company or the Bank.
Change in Control Agreements
The
Company and the Bank entered into change-in-control agreements with
each of Steven E. Crouse and Matthew C. Davis on March 28, 2013, as
amended on May 20, 2014. The change in control agreements have an
initial term that concluded on March 31, 2014, and automatically
extend for one additional year upon expiration of the initial term
and any subsequent term, unless the Board determines not to extend
the term.
The
change-in-control agreements provide that if a “change in
control” (as defined in the change-in-control agreements)
occurs during the term of the agreements and, within one year of
such change in control, the applicable officer is terminated
involuntarily without “cause” (as defined in the
change-in-control agreements) or voluntarily with “good
reason” (as defined in the change-in-control agreements),
then the affected officer will be entitled to certain severance
benefits, including a payment of 2.0 times annual compensation
(paid in 18 equal monthly installments), continued life, health and
disability insurance coverage for such officer and his family for
the year following the termination unless such officer becomes
employed by another employer first, and a cash bonus equal to any
contribution that would have been made under any 401(k), retirement
or profit-sharing plan had the termination not occurred before the
end of the plan year. Good reason for voluntary termination will
exist if specified adverse changes occur with respect to the
employment circumstances of Mr. Crouse or Mr. Davis without their
consent, such as a material reduction in base salary, benefits,
duties or responsibilities, or a 25-mile change in the geographic
location at which the officer must perform services for the
Company. Mr. Crouse and Mr. Davis, respectively, will not be
entitled to severance benefits if such officer (a) dies or becomes
“totally disabled” (as defined in the change-in-control
agreements) while actively employed by the Company or the Bank or
(b) is terminated for cause.
Salary Continuation and Endorsement Split Dollar
Agreements
The
Bank has entered into amended and restated salary continuation
agreements with each of Messrs. Hatley, Crouse and Davis. Each
salary continuation agreement entitles the applicable officer to
certain benefits upon a termination of the officer’s
employment, unless such termination is for “cause” (as
defined in the salary continuation agreements). The amount of the
benefit payments and the timing of such payments vary depending on
various factors, including, among other things, whether the
termination of employment was voluntary or involuntary, whether
such officer’s employment was terminated within 24 months
after a change in control of the Company, and whether such officer
had attained the age of 65 at the time the officer’s
employment is terminated.
Under
the salary continuation agreements, assuming an officer remains
employed through his normal retirement age, which is 65 years old
under the agreements, the officer will be entitled to an annual
benefit payment, paid in equal monthly installments, for a period
of 20 years. The annual benefit payment is $120,000 for Mr. Hatley,
$132,000 for Mr. Crouse, and $100,000 for Mr. Davis, and such
payments would commence following the termination of the
officer’s employment. Pursuant to the terms of the salary
continuation agreements, however, an officer is not entitled to
benefit payments if the officer’s termination of employment
is a termination with “cause” (as defined in the
applicable agreement). Additionally, the amount of the annual
benefit payment differs if the officer is terminated prior to
reaching normal retirement age, as the aggregate amount paid over
the 20-year period will be limited to the accrual balance as of the
month end prior to the termination of employment. The only
exception to the reduction in the annual benefit payment for an
early termination would be in a change in control scenario. If the
applicable officer has a separation from service that is an
involuntary termination without cause or a voluntary termination
with “good reason” (as defined in the salary
continuation agreement), in either case within the 24-month period
following a change in control, then the officer would still be
entitled to the full annual benefit payment. The commencement of
annual benefit payments in an early termination scenario (i.e.,
termination prior to normal retirement age) will be delayed until
the officer reaches the age of 65, even if termination is following
a change in control. Payments owed under the salary continuation
agreements will be paid out in a lump sum to the designated
beneficiary if the officer dies prior to receiving all payments to
which the officer is entitled under the agreement.
On
December 29, 2016, the Bank also entered into an additional salary
continuation agreement with Mr. Davis. The terms of the agreement
are similar to those described above. The annual benefit payment is
$32,000. The accrued benefit vests over a period of ten years from
January 1, 2017. The initial vesting date is December 31, 2022. If
separation from service occurs before the initial vesting date,
then Mr. Davis is 0% vested in the accrued benefit. Twenty percent
of the accrued benefit vests on each of December 31, 2022, 2023,
2024, 2025, and 2026. Mr. Davis will be fully vested if separation
from service occurs on or after December 31, 2026.
The
foregoing summary description of the amended and restated salary
continuation agreements is not complete and is qualified in its
entirety by reference to the full agreements.
The
Bank entered into endorsement split dollar agreements with each of
Messrs. Hatley, Crouse and Davis on July 1, 2007. The endorsement
split dollar agreements grant each officer the right to designate
one or more beneficiaries for a portion of the death benefits
payable under Bank-owned insurance policies on their lives. The
Bank is responsible for paying all premiums due for each such
policy. Upon the death of Messrs. Hatley, Crouse or Davis, provided
such death occurs prior to separation from service (as defined in
the salary continuation agreements), the designated beneficiary
will be entitled to the lesser of (x) a portion of the net death
proceeds equal to 60% of the “accrual balance” required
at “normal retirement age” (as each term is defined in
the salary continuation agreements) and (y) 100% of the net death
proceeds, which amount will be payable by the insurer to the
designated beneficiary. The term “net death proceeds”
means the total death proceeds of the applicable officer’s
life insurance policy minus such policy’s cash surrender
value. The policy cash surrender value and the portion of the net
death proceeds not payable to the deceased officer’s
beneficiary are payable in their entirety to the Bank.
Nonequity Incentive Compensation
Our
named executive officers are eligible for cash incentive payments.
The amount of compensation depends on the Bank’s performance
for the fiscal year in three metrics: net income, loan growth and
local deposit growth. The compensation committee sets a target
amount for each of these metrics. The named executive officers
become eligible for incentive payments if the Bank’s results
are at a threshold level representing 90% of the target amounts set
by the compensation committee. At the threshold level, the named
executive officers are eligible for payments equal to 12.5% of
their annual salaries. The amount of the incentive payments
increases proportionally as the Bank’s performance relative
to the target amounts improves. If the Bank achieves the target
amounts, then the named executive officers are eligible for
payments equal to 25% of their annual salaries. If the Bank’s
performance exceeds the target amounts by 25% or more, then the
named executive officers are eligible for payments of 50% of their
annual base salaries. The maximum amount of incentive compensation
payable to any named executive officer for a given fiscal year is
50% of his annual salary.
2006 Omnibus Stock Incentive Plan
The
shareholders of the Company approved the 2006 Omnibus Stock
Incentive Plan at the 2006 annual meeting of shareholders. The 2006
Omnibus Plan authorizes the issuance of awards covering up to
312,500 shares of the Company’s common stock. The awards may
be issued in the form of incentive stock option grants,
non-qualified stock option grants, restricted stock grants,
long-term incentive compensation units, or stock appreciation
rights. The purpose of the Omnibus Plan is to increase the
performance incentive for employees and directors of the Company,
to encourage the continued employment of current employees, and to
attract new employees and directors by facilitating their purchase
of the common stock of the Company. The Omnibus Plan is
administered by the compensation committee. Each grant under the
Omnibus Plan is evidenced by a written agreement between the
Company and the optionee/participant.
The
2006 Omnibus Plan expired in 2016 and no additional awards may be
granted under the plan.
Options.
The Company receives no monetary consideration for the granting of
an option. The consideration, if any, that the Company receives
from the granting of such stock options is the further dedication
of its employees and directors in the performance of their
responsibilities, duties and functions on behalf of the Company.
Upon the exercise of options, the Company receives payment in the
form of cash, shares of the common stock of the Company or both
from the optionee in exchange for shares
issued.
Incentive stock option
grants. Options may be granted
under the Omnibus Plan with the intention to qualify them as
“incentive stock options” within the meaning of Section
422 of the Internal Revenue Code (“ISOs” and each an
“ISO”). Under the Internal Revenue Code, ISOs may only
be granted to eligible employees of the Company and afford
favorable tax treatment to recipients upon compliance with certain
restrictions but do not result in tax deductions to the
Company.
Employees
of the Company are eligible to receive an ISO grant under the
Omnibus Plan at no cost to them at the grant date. The exercise
price for options granted pursuant to the Omnibus Plan may not be
less than 100% of the fair market value of the Company’s
common stock on the date of grant. No ISO will be exercisable more
than ten years after the date of its grant. In the case of an
employee who owns more than 10% of the shares of the common stock
of the Company at the time the ISO is granted, the option price may
not be less than 110% of the fair market value of the
Company’s common stock on the date of grant, and the ISO
shall not be exercisable for more than five years from the date of
its grant. The optionee cannot transfer or assign any option other
than by will or in accordance with the laws of descent and
distribution. In the event that a participant ceases to serve as an
employee of the Company for the reason of retirement, an
exercisable ISO will continue to be exercisable for three months
but in no event after ten years from the date of its grant. In the
event of the disability or in the event of the death of an optionee
during such service or within three months following retirement, an
exercisable ISO will continue to be exercisable for 12 months from
the date of disability or death to the extent it was exercisable by
the optionee immediately prior to disability or death. The
compensation committee, in its discretion, determines the vesting
schedule of the ISOs for each employee.
Subject
to alternative minimum tax rules under the Internal Revenue Code, a
recipient of an ISO grant will not be taxed upon either the grant
of the ISO or on the date he or she exercises the ISO. Unless
subject to the alternative minimum tax, a recipient will be taxed
only upon the sale of the stock underlying the ISO and will be
taxed on the difference between the option price and the sales
price of the stock. The taxable amount will be treated as capital
gain. In order to receive this favorable tax treatment, optionees
may not exercise such options until the expiration of a one-year
waiting period from the date of the grant and may not dispose of
any shares acquired pursuant to the exercise of stock options for
two years from the date of the grant. If the federal tax
requirements are satisfied, the Company will receive no
corresponding deduction for any portion of the ISO.
Non-statutory stock
option grants. Options may be
granted under the Omnibus Plan that do not qualify as
“incentive stock options” within the meaning of Section
422 of the Internal Revenue Code and do not afford favorable tax
treatment to recipients (“NSSOs” and each an
“NSSO”). Directors and employees of the Company are
eligible to receive NSSO grants under the Omnibus Plan. NSSO grants
under the Omnibus Plan do result in tax deductions to the
Company.
Directors
and employees of the Company are eligible to receive a NSSO grant
under the Omnibus Plan at no cost to them other than the option
exercise price. The options must be exercised within ten years from
the date of grant. In the event a participant ceases to serve as a
director or employee of the Company for any reason other than
cause, as defined in the Omnibus Plan, an exercisable NSSO will
continue to be exercisable upon the terms and conditions contained
in the grant. Termination for cause will terminate the NSSO. In the
event of the death of a participant during his or her service with
the Company, an exercisable NSSO will continue to be exercisable
for 12 months from the date of death to the extent it was
exercisable by the participant immediately prior to
death.
A
recipient of an NSSO grant under the Omnibus Plan will not be taxed
upon the grant of the option. Upon the date he or she exercises the
NSSO, the recipient will have taxable ordinary income on the
difference between the option price and the fair market value of
the stock on the date of exercise. The Company receives a tax
deduction for any amount recognized by the recipient as ordinary
income.
Restricted
stock grants. Restricted stock
may be granted under the Omnibus Plan to directors and employees of
the Company. Restricted stock grants under the Omnibus Plan do
result in tax deductions to the Company. Directors and employees of
the Company are eligible to receive a restricted stock grant under
the Omnibus Plan at no cost to them unless the compensation
committee specifies a purchase price in the grant. In the event
that a participant does not satisfy any conditions specified in the
grant, some or all of the restricted stock will be
forfeited.
A
recipient of a restricted stock grant under the Omnibus Plan may
elect to be taxed upon the grant of the restricted stock in an
amount equal to the fair market value of the stock on the date of
grant. Otherwise, the recipient will be taxed upon the grant of the
restricted stock in an amount equal to the fair market value of the
stock on the date that any conditions on the grant end. The Company
receives a tax deduction for the amount recognized by the recipient
as ordinary income.
Long-term
incentive compensation units.
Long-term incentive compensation units may be granted under the
Omnibus Plan to eligible employees of the Company. Long-term
incentive compensation units may consist of stock and cash.
Long-term incentive compensation units under the Omnibus Plan do
result in tax deductions to the Company. Employees of the Company
are eligible to receive a grant of long-term incentive compensation
units under the Omnibus Plan at no cost to them. Long-term
incentive compensation units are distributed only after the end of
a performance period established by the compensation committee. In
the event that the conditions specified for the performance period
are not satisfied, part or all of the long-term incentive
compensations units will be forfeited. In the event of death,
disability or retirement of a unit recipient prior to the end of a
performance period, a pro rata number of the units will be
distributed. In the event that a unit recipient terminates his or
her status as an employee prior to the end of the performance
period, all of the long-term incentive compensation units will be
forfeited.
A
recipient of a grant of long-term incentive compensation units
under the Omnibus Plan will be taxed upon the value of the stock
portion of the unit in an amount equal to the fair market value of
the stock at the date that the shares are issued after the end of
the performance period. The Company receives a tax deduction for
the amount recognized by the recipients as ordinary
income.
Stock
appreciation rights. Stock
appreciation rights may be granted under the Omnibus Plan to
employees of the Company. A recipient of a grant of a stock
appreciation right is entitled to a payment of the difference
between the initial base value of the right (as established in the
grant) and the fair market value of a number of shares of stock
(also established in the grant) at the date of the exercise of the
stock appreciation right. Stock appreciation rights under the
Omnibus Plan do result in tax deductions to the Company. Employees
of the Company will be eligible to receive a grant of stock
appreciation rights under the Omnibus Plan at no cost to them. The
stock appreciation rights must be exercised within the period
specified in the grant, which may not exceed ten years from the
date of grant.
A
recipient of stock appreciation rights under the Omnibus Plan will
not be taxed upon the grant of the stock appreciation right. Upon
the date he or she exercises the stock appreciation rights, the
recipient will have taxable ordinary income on the difference
between the stock appreciation right initial base value and the
fair market value of the stock on the date of exercise. The Company
receives a tax deduction for any amount recognized by the recipient
as ordinary income.
2016 and 2015 Restricted Stock Grants
On
April 1, 2015, we awarded 2,000 restricted shares of the
Company’s common stock to Mr. Hatley, 863 shares to Mr.
Crouse and 863 shares to Mr. Davis. These awards were made under
our 2006 Omnibus Stock Ownership and Long Term Incentive Plan prior
to its expiration. The restricted shares are subject to an
obligation to forfeit and surrender the shares to the Company upon
the occurrence of certain events. These events are referred to as
forfeiture restrictions. The restricted shares may not be sold or
otherwise transferred while the forfeiture restrictions are in
place. The forfeiture restrictions with respect to 100% of the
restricted shares awarded will lapse on April 1, 2018, provided
that the officer has continuously served as our employee from April
1, 2015 until April 1, 2018. After April 1, 2018, the shares may be
transferred and will no longer be subject to the forfeiture
restrictions.
In
the event the officer’s employment is terminated for any
reason prior to April 1, 2018, the officer will forfeit all of his
restricted shares to the Company on the date of the officer’s
termination of service with the Company. If there is a change in
control transaction involving the Company prior to April 1, 2018,
the forfeiture restrictions will immediately lapse. A change in
control transaction is defined as the dissolution or liquidation of
the Company; a reorganization, merger or consolidation of the
Company as a result of which the outstanding securities of the
Company are changed into or exchanged for cash or property or
securities not of the Company’s issue; or a sale of all or
substantially all of the assets of the Company to, or the
acquisition of stock representing more than 25% of the voting power
of the capital stock of the Company then outstanding by, another
corporation, trust, limited liability company, bank, entity or
person, other than pursuant to a merger in which the Company is the
surviving entity. In addition, the Board or the compensation
committee has the right to accelerate the vesting of the restricted
shares at any time.
On
April 1, 2016, we awarded 2,563 restricted shares of the
Company’s common stock to Mr. Hatley; 1,092 shares to Mr.
Crouse; and 1,092 shares to Mr. Davis. The forfeiture restrictions
with respect to these shares will lapse on April 1, 2019, provided
that the officer has continuously served as our employee from April
1, 2016 until April 1, 2019. The terms of the 2016 awards are
otherwise substantially identical to the terms of the 2015 awards
described above, except that the operative date is April 1, 2019
rather than April 1, 2018.
Outstanding Equity
Awards at Fiscal Year-End
The
following table sets forth information regarding vested and
unvested incentive stock options and restricted stock granted to
the named executive officers and outstanding as of December 31,
2016.
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Name
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Number of securities underlying unexercised options (#)
exercisable
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Number of securities underlying unexercised options (#)
unexercisable
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Option
exercise price ($)
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Option
expiration date
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Number of shares or units of stock that have not vested
(#)
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Market value of shares or
units of stock that have not vested ($)(1)
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Robert
C. Hatley
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5,000
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-0-
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48.00
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February
1, 2017
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5,563(2)
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243,214
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5,000
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-0-
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43.20
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June
18, 2018
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Steven
E. Crouse
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2,875
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-0-
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48.00
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February
1, 2017
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1,955(3)
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85,473
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2,875
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-0-
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43.20
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June
18, 2018
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Matthew
C. Davis
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2,750
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-0-
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48.00
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February
1, 2017
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1,955(3)
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85,473
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2,750
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-0-
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43.20
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June
18, 2018
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(1)
Market
value based on the closing price of a share of the Company’s
common stock on the last trading day of 2016.
(2)
The vesting
schedule for these shares of restricted stock is as
follows
Date
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September 15, 2017
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500
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April 1,
2018
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2,000
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September 15,
2018
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500
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April 1,
2019
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2,563
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(3)
The vesting
schedule for these shares of restricted stock is as
follows:
Date
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April 1,
2018
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863
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April 1,
2019
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1,092
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Employee Stock Purchase Plan
In
2015, our shareholders approved the Paragon Commercial Corporation
Employee Stock Purchase Plan (the “Employee Stock Purchase
Plan”), pursuant to which 200,000 shares (subject to
adjustment as described below) of the Company’s common stock
were made available for purchase by employees of the Company or the
Bank who meet certain basic criteria. The Employee Stock Purchase
Plan is intended to qualify as an “Employee Stock Purchase
Plan” pursuant to section 423 of the Internal Revenue Code.
The purposes of the Employee Stock Purchase Plan are: (i) to
provide eligible employees of the Company and the Bank with a
convenient means of acquiring an equity interest in the Company;
(ii) to enhance employees’ sense of participation in the
affairs of the Company and the Bank; and (iii) to provide an
incentive for employees’ continued employment with the
Company and the Bank.
Participation
in the Employee Stock Purchase Plan is open to any employee of the
Company or the Bank: (i) who has been employed by the Company or
the Bank for at least three consecutive months; (ii) who is a
full-time employee (customarily employed for more than twenty hours
per week and more than five months per year); (iii) who does not
beneficially own 5% or more of the Company’s common stock
(and who would not own 5% or more of the Company’s common
stock upon the acquisition of shares pursuant to the Employee Stock
Purchase Plan); and (iv) who is not an independent contractor of
the Company or the Bank.
Under
the terms of the Employee Stock Purchase Plan, employees meeting
these criteria (“Eligible Employees”) are granted an
option to purchase a number of shares of the Company’s common
stock based on the ratio that the employee’s annual rate of
compensation bears to the aggregate annual base compensation paid
to all Eligible Employees. The exercise price for options granted
under the Employee Stock Purchase Plan is 95% of the fair market
value of the shares underlying such options. The Employee Stock
Purchase Plan provides for a payroll deduction program under which
any Eligible Employee may, at his or her written instruction,
specify that a pre-determined portion of such Eligible
Employee’s salary or wages be deducted and applied toward the
purchase of shares of the Company’s common stock in
accordance with the terms of the Employee Stock Purchase
Plan.
Although
participation in the Employee Stock Purchase Plan is open to any
Eligible Employee, the exercise of options granted under the
Employee Stock Purchase Plan is entirely at such employee’s
discretion. Any option granted under the Employee Stock Purchase
Plan that is not exercised prior to its expiration date immediately
terminates and is of no further force or effect. Furthermore, the
termination of an Eligible Employee’s employment with the
Company or the Bank for any reason (including, but not limited to,
retirement or death) or a change in employment status which results
in an employee’s failure to qualify as an “Eligible
Employee” under the terms of the Employee Stock Purchase Plan
results in the termination of such employee’s participation
in the Employee Stock Purchase Plan. Any Eligible Employee may file
a written designation of beneficiary with the Company, in which
such employee may designate the person or persons who are to
receive any unallocated cash or shares of the Company’s
common stock remaining in such employee’s account upon
death.
As
required by the Internal Revenue Code, no Eligible Employee may
purchase stock under the Employee Stock Purchase Plan at a rate
which, when aggregated with his or her other rights to purchase the
Company’s common stock, exceeds $25,000 in fair market value
per year. Employee’s rights under the Employee Stock Purchase
Plan are nonassignable. Furthermore, each employee participating in
the Employee Stock Purchase Plan is required to furnish written
notice to the Company in the event that such employee disposes of
shares acquired under the Employee Stock Purchase Plan within two
years of the date of grant of the options or within one year of the
date on which such shares were actually acquired.
In
the event of increases, decreases or changes in the Company’s
outstanding common stock resulting from a stock dividend,
recapitalization, reclassification, stock split, consolidation,
combination or similar event, or resulting from an exchange of
shares or merger or other reorganization in which the Company is
the surviving entity, then the Board shall make equitable
proportionate adjustments in the aggregate number and kind of
shares of the Company’s common stock available for issuance,
options and exercise prices under the Employee Stock Purchase
Plan.
CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS
Ordinary Banking Relationships
Certain
of our officers, directors and principal shareholders, as well as
their immediate family members and affiliates, are customers of, or
have or have had transactions with, Paragon Bank in the ordinary
course of business. These transactions include deposits and loans.
Related party transactions are made in the ordinary course of
business, on substantially the same terms, including interest rates
and collateral (where applicable), as those prevailing at the time
for comparable transactions with persons not related to us, and do
not involve more than normal risk of collectability or present
other features unfavorable to us. As of the date of this
prospectus, no related party loans were categorized as nonaccrual,
past due, restructured or potential problem loans. We expect to
continue to enter into transactions in the ordinary course of
business on similar terms with our officers, directors and
principal shareholders, as well as their immediate family members
and affiliates.
Policies and Procedures Regarding Related Party
Transactions
Transactions
by Paragon Bank or us with related parties are subject to
regulatory requirements and restrictions. These requirements and
restrictions include Sections 23A and 23B of the Federal Reserve
Act (which govern certain transactions between affiliated entities,
such as the Company and Paragon Bank) and the Federal
Reserve’s Regulation O, (which governs certain loans by
Paragon Bank to its executive officers and directors, and principal
shareholders of the Company). We have adopted policies to comply
with these regulatory requirements and restrictions.
PROPOSAL 2: RATIFICATION OF
INDEPENDENT AUDITORS
The
audit committee, pursuant to authority granted to it by the Board,
has appointed the firm of Elliott Davis Decosimo, PLLC, independent
registered public accountants, as the Company’s independent
auditors for 2017. The Board has ratified and confirmed the
appointment. A representative of Elliott Davis Decosimo, PLLC is
expected to be present at the Annual Meeting and available to
respond to appropriate questions and will have the opportunity to
make a statement if he or she desires to do so.
The
Board is submitting this proposal to the vote of the shareholders
as a matter of good corporate governance. If the shareholders do
not ratify the selection of Elliott Davis Decosimo, PLLC, the audit
committee will reconsider their appointment.
The
Company has paid Elliott Davis Decosimo, PLLC fees in connection
with its assistance in the Company’s annual audit, review of
the Company’s financial statements and certain other
matters.
The
following table sets forth fees paid to Elliott Davis Decosimo,
PLLC in various categories during 2016 and 2015.
AUDIT FEES (1)
Category
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|
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Audit Fees (2)
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$208,839
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$110,808
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Audit-Related
Fees
|
--
|
--
|
Tax Fees (3)
|
--
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--
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All
Other Fees
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32,690
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1,795
|
Total Fees Paid
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$241,529
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$112,603
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____________
(1)
Please
note that the amounts in this table have been updated since those
reported in the “Audit Fees” table in Amendment No. 1
to the Company’s Annual Report on Form 10-K filed with the
SEC on April 28, 2017.
(2)
Includes fees paid
for audits of annual consolidated financial statements, reviews of
consolidated financial statements included in quarterly reports on
Form 10-Q.
(3)
Includes event
fees, review of registration statements, and annual meeting
fees.
All services rendered by Elliott Davis
Decosimo, PLLC during 2016 were
subject to pre-approval by the audit committee. The audit committee
has considered whether Elliott Davis Decosimo,
PLLC’s provision of other
non-audit services to the Company is compatible with maintaining
independence of Elliott Davis Decosimo, PLLC. The audit committee has determined that it is
compatible with maintaining the independence of Elliott
Davis Decosimo, PLLC.
THE
BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE
“FOR” PROPOSAL 2 RATIFYING ELLIOTT DAVIS DECOSIMO, PLLC
AS THE COMPANY’S INDEPENDENT AUDITORS FOR 2017.
Report of the Audit Committee
The
audit committee of the Company is responsible for receiving and
reviewing the annual audit report of the Company’s
independent auditors and reports of examinations by bank regulatory
agencies, and helps formulate, implement, and review the
Company’s internal audit program. The audit committee
assesses the performance and independence of the Company’s
independent auditors and recommends their appointment and
retention. The audit committee has in place pre-approval policies
and procedures that require an evaluation of any conflicts of
interest that may impair the independence of the independent
auditors and pre-approval of an engagement letter that outlines all
services to be rendered by the independent auditors.
During
the course of its examination of the Company’s audit process
in 2016, the audit committee reviewed and discussed the audited
financial statements with management. The audit committee also
discussed with the independent auditors, Elliott Davis Decosimo,
PLLC, all matters that are required to be discussed in accordance
with standards adopted by the Public Company Accounting Oversight
Board (“PCAOB”). Furthermore, the audit committee
received from Elliott Davis Decosimo, PLLC disclosures regarding their
independence in accordance with applicable standards of the PCAOB,
and have discussed with Elliott Davis Decosimo, PLLC their
independence.
Based
on the review and discussions above, the audit committee
recommended to the Board that the audited financial statements be
included in the Company’s annual report on Form 10-K for the
year ended December 31, 2016 for filing with the SEC.
This
report is submitted by the audit committee:
Thomas
B. Oxholm
Curtis
C. Brewer III
Howard
Jung
OTHER MATTERS
The
Board of Directors knows of no other business that will be brought
before the Annual Meeting. Should other matters be properly
presented for action at the Annual Meeting, the Proxies, or their
substitutes, will be authorized to vote shares represented by
appointments of proxy according to their best
judgment.
PROPOSALS FOR 2018 ANNUAL MEETING
Shareholders
may present proposals for action at meetings of shareholders only
if they comply with the proxy rules established by the SEC,
applicable North Carolina law and our Bylaws.
Under
SEC Rule 14a-8, in order for a shareholder proposal to be included
in our proxy solicitation materials for the 2018 annual meeting of
shareholders, it must be delivered to our principal executive
office is located at 3535 Glenwood Avenue, Raleigh, North Carolina
27612 by June 24, 2018; provided, however, that if the date of the
2018 annual meeting is more than 30 days before or after November
28, 2018, a shareholder proposal must be received by a reasonable
time before the Company begins to print and mail its proxy
solicitation materials for such annual meeting.
Our
Bylaws permit any shareholder of common stock to nominate
directors. Shareholders wishing to nominate a director must deliver
written notice of the nomination to our Corporate Secretary at
least 120 days prior to the meeting at which directors will be
elected. The shareholder making such nomination must also submit a
detailed resume of the nominee, stating the reasons why such person
would be qualified to serve on the Board and the written consent of
the nominee that, if elected, such nominee would serve as a member
of the Board.
Management’s
proxy holders for the 2018 annual meeting will have discretion to
vote proxies given to them on any shareholder proposal of which the
Company does not have notice on or before September 5,
2018.
INTERNET AND ELECTRONIC AVAILABILITY OF PROXY
MATERIALS
As required by applicable SEC rules and
regulations, the Company has furnished a notice of internet
availability of proxy materials to all shareholders as part of this
Proxy Statement and all shareholders will have the ability to
access this Proxy Statement and other reports the Company has filed
with the SEC, by visiting the investor relations section of our
website, www.paragonbank.com.
HOUSEHOLDING MATTERS
The
SEC has adopted rules that permit companies to deliver a single
copy of proxy materials to multiple shareholders sharing an address
unless a company has received contrary instructions from one or
more of the shareholders at that address. This means that only one
copy of the proxy materials may have been sent to multiple
shareholders in your household. If you would prefer to receive
separate copies of the proxy materials either now or in the future,
please contact Carol Isaac, Senior Vice President, at the
Company’s offices at 3535 Glenwood Avenue, Raleigh, North
Carolina 27612. Upon written request, the Company will provide a
separate copy of the proxy materials. In addition, shareholders at
a shared address who receive multiple copies of proxy materials may
request to receive a single copy of proxy materials in the future
in the same manner as described above.
SHAREHOLDER COMMUNICATIONS
The
Company does not currently have a formal policy regarding
shareholder communications with the Board of Directors; however,
any shareholder may submit written communications to Carol Isaac,
Senior Vice President, at the Company’s offices at 3535
Glenwood Avenue, Raleigh, North Carolina 27612, and such
communications will be forwarded to the Board of Directors as a
group or to the individual director or directors
addressed.
MISCELLANEOUS
Our Annual Report on
Form 10-K for the fiscal year ended December 31, 2016, as
amended and filed with the SEC is accessible free of charge in the
investor relations section of our website at www.paragonbank.com.
The Annual Report on Form 10-K contains audited consolidated
balance sheets of the Company as of December 31, 2016 and
2015, and the related consolidated statements of income,
comprehensive income, changes in shareholders’ equity and
cash flows for each of the three years in the period ended
December 31, 2016. You
can request a copy of our Annual Report on Form 10-K free of charge
by contacting Carol Isaac, Senior Vice President, at the
Company’s offices at 3535 Glenwood Avenue, Raleigh, North
Carolina 27612.
The Annual Report of the Company for the year ended December 31,
2016, which includes financial statements audited and reported upon
by the Company’s independent auditors, was included as
Exhibit 13.1 to our Annual Report on Form 10-K for the fiscal year
ended December 31, 2016, and was previously mailed to our
shareholders.
PARAGON COMMERCIAL CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF
DIRECTORS
ANNUAL
MEETING OF SHAREHOLDERS – NOVEMBER 28, 2017 AT 3:00 PM LOCAL
TIME
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CONTROL ID:
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REQUEST ID:
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The
undersigned hereby appoints Curtis C. Brewer III, K. Wesley M.
Jones, and Thomas B. Oxholm (the “Proxies”), or any of
them, as attorneys and proxies, with full power of substitution, to
vote all outstanding shares of the common stock of Paragon
Commercial Corporation (the “Company”) held of record
by the undersigned on October 13, 2017, at the annual meeting of
shareholders of the Corporation to be held at Paragon Bank, 3535
Glenwood Avenue, Raleigh, North Carolina 27612, at 3:00 p.m., on
November 28, 2017, and at any adjournments thereof:
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(CONTINUED AND TO BE SIGNED ON REVERSE SIDE.)
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VOTING
INSTRUCTIONS
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If you vote by phone, fax or internet, please DO NOT mail your
proxy card.
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MAIL:
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Please
mark, sign, date, and return this Proxy Card promptly using the
enclosed envelope.
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FAX:
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Complete the reverse portion of this Proxy Card
and Fax to 202-521-3464.
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INTERNET:
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https://www.iproxydirect.com/PBNC
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PHONE:
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1-866-752-VOTE(8683)
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ANNUAL MEETING OF THE SHAREHOLDERS OFPARAGON COMMERCIAL
CORPORATION
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PLEASE COMPLETE, DATE, SIGN AND RETURN PROMPTLY IN THE ENCLOSED
ENVELOPE. PLEASE MARK YOUR VOTE IN BLUE OR BLACK INK AS SHOWN
HERE: ☒
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PROXY
SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
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Proposal
1
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The Board of
Directors recommends a vote FOR each of the nominees listed in
Proposal 1.
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FOR
ALL
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AGAINST
ALL
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FOR
ALL
EXCEPT
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To
elect the following individuals to the Company’s Board of
Directors:
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☐
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☐
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CONTROL ID:
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Howard
Jung
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☐
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REQUEST ID:
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Robert
C. Hatley
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☐
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Proposal
2
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The Board of
Directors recommends a vote FOR Proposal 2.
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FOR
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AGAINST
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To
ratify the appointment of Elliott Davis Decosimo, PLLC as the
Company’s independent auditors for 2017.
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☐
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☐
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MARK
“X” HERE IF YOU PLAN TO ATTEND THE MEETING:
☐
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THE SHARES REPRESENTED BY THIS APPOINTMENT OF PROXY WILL BE VOTED
BY THE PROXIES IN ACCORDANCE WITH THE SPECIFIC INSTRUCTIONS ABOVE.
IN THE ABSENCE OF INSTRUCTIONS, THE PROXIES WILL VOTE SUCH SHARES
“FOR” THE ELECTION OF THE NOMINEES LISTED IN PROPOSAL 1
AND “FOR” PROPOSAL 2. IF, AT OR BEFORE THE TIME OF THE
MEETING, EITHER OF THE NOMINEES LISTED IN PROPOSAL 1 FOR ANY
REASON HAS BECOME UNAVAILABLE FOR ELECTION OR UNABLE TO SERVE AS A
DIRECTOR, THE PROXIES HAVE THE DISCRETION TO VOTE FOR A SUBSTITUTE
NOMINEE. THIS APPOINTMENT OF PROXY MAY BE REVOKED AT ANY TIME
BEFORE IT IS EXERCISED BY FILING WITH THE SECRETARY OF THE COMPANY
AN INSTRUMENT REVOKING IT OR A DULY EXECUTED APPOINTMENT OF PROXY
BEARING A LATER DATE, OR BY ATTENDING THE ANNUAL MEETING AND VOTING
IN PERSON.
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MARK HERE FOR ADDRESS CHANGE ☐ New Address (if applicable):
__________________________
__________________________
__________________________
IMPORTANT: Please sign exactly as your name or names appear
on this Proxy. When shares are held jointly, each holder should
sign. When signing as executor, administrator, attorney, trustee or
guardian, please give your full title as such. If the signer is a
corporation, please sign the full corporate name by duly authorized
officer, giving your full title as such. If the signer is a
partnership, please sign in the partnership name by authorized
person.
Dated:
________________________, 2017
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(Print Name of
Shareholder and/or Joint Tenant)
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(Signature of
Shareholder)
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(Second Signature
if held jointly)
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