SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ANNAPOLIS NATIONAL BANCORP
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) No fee required
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
( ) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
[GRAPHIC]
180 Admiral Cochrane Drive, Suite 300
Annapolis, Maryland 21401
(410) 224-4455
April 4, 2000
Dear Stockholder:
You are cordially invited and encouraged to attend the Annual Meeting of
Stockholders (the "Annual Meeting") of Annapolis National Bancorp, Inc. (the
"Company"), the holding company for Annapolis National Bank (the "Bank"),
Annapolis, Maryland, which will be held on April 27, 2000, at 6:00 p.m., Eastern
Daylight Savings Time, at the Radisson Hotel Annapolis, 210 Holiday Court,
Annapolis, Maryland 21401.
The attached Notice of the Annual Meeting and the Proxy Statement describe
the formal business to be transacted at the Annual Meeting. Directors and
officers of Annapolis National Bancorp, Inc., as well as a representative of
Rowles & Company, LLP, the Company's independent auditor, will be present at the
Annual Meeting to discuss the Company and the Bank and respond to any questions
that our stockholders may have.
The Board of Directors of Annapolis National Bancorp, Inc. has determined
that the matters to be considered at the Annual Meeting are in the best
interests of the Company and its stockholders. For the reasons set forth in the
Proxy Statement, the Board unanimously recommends that you vote "FOR" each
matter under consideration.
Please sign and return the enclosed proxy card promptly. Your cooperation
is appreciated since a majority of the Company's common stock must be
represented, either in person or by proxy, to constitute a quorum for the
conduct of business.
On behalf of the Board of Directors and all of the employees of the Company
and the Bank, I thank you for your continued interest and support.
Sincerely yours,
/s/ Richard M. Lerner
- ---------------------
Richard M. Lerner
Chief Executive Officer
<PAGE>
ANNAPOLIS NATIONAL BANCORP, INC.
------------------
NOTICE OF 2000 ANNUAL MEETING OF STOCKHOLDERS
To Be Held on April 27, 2000
----------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Annapolis
National Bancorp, Inc. ("Company") will be held on April 27, 2000, at 6:00 p.m.
local time, at the Radisson Hotel Annapolis, 210 Holiday Court, Annapolis,
Maryland 21401, for the following purposes:
(1) To elect five directors; and
(2) To approve the selection of Stegman & Company as independent auditor
for the fiscal year ending December 31, 2000; and
(3) To approve the Annapolis National Bancorp, Inc. 2000 Stock Incentive
Plan; and
(4) To transact any other business that may properly come before the
meeting, and at any adjournments thereof, including whether or not to adjourn
the meeting.
Only those holders of record of Common Stock as of the close of business on
March 17, 2000, ("Record Date") are entitled to notice of and to vote at the
2000 Annual Meeting of Stockholders and any adjournments or postponements
thereof.
Please sign, date and mail the accompanying proxy in the enclosed,
self-addressed, stamped envelope, whether or not you expect to attend the
meeting in person. You may withdraw your proxy at the meeting should you be
present and desire to vote your shares in person. All stockholders are cordially
invited to attend.
By Order of the Board of Directors
/s/ Lori J. Mueller
-------------------
LORI J. MUELLER
Secretary
Annapolis, Maryland
April 4, 2000
<PAGE>
ANNAPOLIS NATIONAL BANCORP, INC.
------------------
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
April 27, 2000
------------------
SOLICITATION AND VOTING OF PROXIES
This Proxy Statement is being mailed on or about March 29, 2000, to the
stockholders of Annapolis National Bancorp, Inc. (the "Company") in connection
with the solicitation by the Board of Directors of proxies to be used at the
Annual Meeting of Stockholders (the "Annual Meeting") to be held on April 27,
2000, at 6:00 p.m. local time, and at any adjournments or postponements thereof,
at the Radisson Hotel Annapolis, 210 Holiday Court, Annapolis, Maryland 21401.
Regardless of the number of shares of common stock owned, it is important
that record holders of a majority of the shares be represented by proxy or in
person at the Annual Meeting. Stockholders are requested to vote by completing
the enclosed proxy card and returning it signed and dated in the enclosed
postage-paid envelope. Stockholders are urged to indicate their vote in the
spaces provided on the proxy card. Proxies solicited by the Board of Directors
of the Company will be voted in accordance with the directions given therein.
Where no instructions are indicated, signed proxy cards will be voted FOR the
approval and ratification of the specific proposals presented in this proxy
statement.
Other than the matters listed on the attached Notice of Annual Meeting of
Stockholders, the Board of Directors knows of no additional matters that will be
presented for consideration at the Annual Meeting. Execution of a proxy,
however, confers on the designated proxy holders discretionary authority to vote
the shares in accordance with their best judgment on such other business, if
any, that may properly come before the Annual Meeting and at any adjournments
thereof, including whether or not to adjourn the Annual Meeting.
A proxy may be revoked at any time prior to its exercise by filing a
written notice of revocation with the Corporate Secretary of the Company, by
delivering to the Company a duly executed proxy bearing a later date, or by
attending the Annual Meeting and voting in person. However, if you are a
stockholder whose shares are not registered in your own name, you will need
appropriate documentation from your record holder to vote personally at the
Annual Meeting.
The cost of solicitation of proxies on behalf of management will be borne
by Annapolis National Bank (the "Bank"). Proxies may be solicited personally or
by telephone by directors, officers and other employees of the Company and its
subsidiary, without compensation therefor. The Company will also request
persons, firms and corporations holding shares in their names, or in the name of
their nominees, which are beneficially owned by others, to send proxy material
to and obtain proxies from such beneficial owners, and will reimburse such
holders for their reasonable expenses in doing so.
VOTING SECURITIES AND PRINCIPAL HOLDERS THEREOF
Stockholders are entitled to one vote for each share of common stock, par
value $.01 per share (the "Common Stock") registered in their names on the stock
transfer books of the Company at the close of business on March 17, 2000, the
record date fixed by the Board of Directors. At March 17, 2000, the Company had
outstanding 2,323,506 shares of Common Stock entitled to vote at the Annual
Meeting.
As to the election of a director, the proxy card being provided by the
Board of Directors enables a stockholder to vote "FOR" the election of the
nominee proposed by the Board of Directors, or to "WITHHOLD"
1
<PAGE>
authority to vote for the nominee being proposed. Under the Company's Bylaws,
directors are elected by a plurality of votes cast, without regard to either (i)
broker non-votes, or (ii) proxies as to which authority to vote for the nominee
being proposed is withheld.
As to the ratification of Stegman & Company as independent auditor of the
Company, the approval of the Annapolis National Bancorp, Inc. 2000 Stock
Incentive Plan and all other matters that may properly come before the Annual
Meeting, by checking the appropriate box, you may: (i) vote "FOR" the item; (ii)
vote "AGAINST" the item; or (iii) "ABSTAIN" with respect to the item. Under the
Company's Bylaws, unless otherwise required by law, all such matters shall be
determined by a majority of the votes cast, without regard to either (i) broker
non-votes, or (ii) proxies marked "ABSTAIN" as to that matter.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth information regarding the beneficial
ownership of Common Stock as of March 17, 2000, by each of the Company's and
Bank's directors, nominees and Named Executive Officers and by each person known
by the Company to own beneficially more than 5% of the Company's voting
securities, and by the executive officers and directors of the Company as a
group, including the number of shares beneficially owned by, and percentage
ownership of each such person as of that date. Other than those persons listed
below, the Company is not aware of any person, as such term is defined in the
Securities Exchange Act of 1934, as amended, that owns more than 5% of the
Company's Common Stock as of the Record Date.
2
<PAGE>
<TABLE>
<CAPTION>
Number of Percent of
Name and Address of Beneficial Owner Shares Owned (1) Class
- ------------------------------------------------------------ ------------------ -----------
<S> <C> <C>
Mark H. Anders (2) ......................................... 22,200 *
1408 Malvern Avenue
Baltimore, MD 21204
Kevin J. Barron (3) ........................................ 2,000 *
1523 Elwyn Avenue
Crofton, MD 21114
Stanley J. Klos Jr. ........................................ 20,000 *
76 Chautaugua Road
Arnold, MD 21012
Lawrence E. Lerner ......................................... 881,453 37.94%
2711 Washington Avenue
Chevy Chase, MD 20815
Richard M. Lerner .......................................... 115,000 4.95%
5447 Grove Ridge Way
Rockville, MD 20852
Dimitri P. Mallios ......................................... 12,000 *
3204 Ellicott Street, N.W.
Washington, D.C. 20008
Albert Phillips ............................................ 20,500 *
118 Riverside Drive
Cambridge, MD 21613
Lawrence W. Schwartz ....................................... 19,766 *
10854 Country Pond Lane
Oakton, VA 22124
Officers and directors as a group (23 persons) (4) ......... 1,077,353 47.58%
</TABLE>
* Represents less than one (1) percent.
- ----------
(1) Information relating to beneficial ownership of Common Stock is based upon
"beneficial ownership" concepts set forth in rules of the SEC under Section
13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). Under these rules, a person is deemed to be a "beneficial owner" of a
security if that person has or shares "voting power" which includes the
power to vote or direct the voting of such security, or "investment power"
which includes the power to dispose or to direct the disposition of such
security. A person is deemed to be a beneficial owner of any security of
which that person has the right to acquire beneficial ownership within sixty
days. Under the rules, more than one person may be deemed to be a beneficial
owner of the same securities, and a person may be deemed to be a beneficial
owner of securities in which he has no beneficial interest. For instance,
beneficial ownership may include spouses, minor children and other relatives
residing in the same household, and trusts, partnerships, corporations, or
deferred compensation plans which are affiliated with the principal. Unless
otherwise indicated by footnote, each individual has sole voting and
dispositive powers to all shares indicated.
(2) Includes options to purchase 20,000 shares of Company Common Stock which are
currently exercisable at an exercise price of $4.94 per share, and are
deemed to be outstanding for the purpose of computing the percentage of
outstanding Common Stock beneficially owned by all directors and executive
officers as a group.
(3) Includes options to purchase 2,000 shares of Company Common Stock which are
currently exercisable at an exercise price of $9.75 per share and are deemed
to be outstanding for the purpose of computing the percentage of outstanding
Common Stock beneficially owned by all directors and executive officers as a
group.
3
<PAGE>
(4) Includes options to purchase 30,000 shares of Company Common Stock which are
currently exercisable by officers at exercise prices ranging from $4.94 to
$11.00 per share, and are deemed to be outstanding for the purpose of
computing the percentage of outstanding Common Stock beneficially owned by
all directors and executive officers as a group.
PROPOSALS TO BE VOTED ON AT THE MEETING
PROPOSAL 1. ELECTION OF DIRECTORS
The Board of Directors of the Company previously consisted of seven (7)
directors. Mr. John W. Marhefka, Jr. resigned as a Director of the Company on
May 7, 1999 and the Board of Directors subsequently appointed Mark H. Anders to
fill that vacancy on October 1, 1999. On February 25, 2000, the Board of
Directors voted to expand its membership to nine (9) directors and subsequently
nominated Messrs. F. Carter Heim and Ermis Sfakiyanudis to stand for election to
these newly created positions. The Company's Articles of Incorporation provide
that the Board of Directors shall be divided into three classes, as nearly equal
in number as the then total number of directors constituting the entire board
shall permit, with directors of each class being elected for three-year terms at
each Annual Meeting. The terms of two directors of the Company will expire at
the time of the Annual Meeting. The positions of these two directors are to be
filled at the Annual Meeting. Additionally, there are three new nominees for
directors. Therefore, the two incumbent directors have been nominated to be
elected to hold office until the 2003 Annual Meeting or until their respective
successors are elected and qualified or until their earlier resignation or
removal. The incumbent nominees are Messrs. Dimitri P. Mallios and Albert
Phillips. Mr. Anders is nominated to hold office until the 2001 Annual Meeting
or until his successor is elected and qualified or until his earlier resignation
or removal. Mr. Sfakiyanudis is nominated to serve until the 2002 Annual Meeting
or until his successor is elected and qualified or until his earlier resignation
or removal and Mr. Heim is nominated to serve until the 2003 Annual Meeting or
until his successor is elected and qualified or until his earlier resignation or
removal.
The proxies solicited hereby, unless directed to the contrary, will be
voted FOR the election as directors of all five nominees listed in the following
table. In order to be elected, a majority of the shares voted must be voted FOR
the election of each nominee. Each nominee has consented to serve as a director,
if elected. The Board of Directors has no reason to believe that any nominee
will be unwilling or unable to serve as a director but, if for any reason any
nominee is not willing or able to serve as a director, the accompanying proxy
will be voted FOR a substitute nominee chosen by the Board of Directors.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE ELECTION OF THE FIVE
NOMINEES NAMED IN THIS PROXY STATEMENT.
INFORMATION CONCERNING NOMINEES
The following table sets forth information as of the Record Date concerning
persons nominated by the Board of Directors for election as directors of the
Company to serve until the Annual Meeting previously designated or until their
successors have been elected and qualified or until their earlier resignation or
removal. Except as indicated, the nominees have been officers of the
organizations named below or of affiliated organizations as their principal
occupations for more than five years.
4
<PAGE>
<TABLE>
<CAPTION>
Nominees
Name of Directors Age, Principal Occupation, Position with the Company and the Bank
- ---------------------------- --------------------------------------------------------------------------
<S> <C>
Mark H. Anders ............. Mr. Anders, age 45, was appointed President and Chief Executive
Officer of the Bank on October 1, 1999. He has held high level
positions in Maryland financial institutions since 1991. Most recently he
was President and Chief Executive Officer of Sterling Bank & Trust Co.
in Baltimore, Maryland. Mr. Anders is active in community affairs and
serves on the Towson University Foundation's Executive and Finance
Committees.
F. Carter Heim ............. Mr. Heim, age 46, is a Certified Public Accountant who has been in
practice since December 1975 and is the current President of the
Maryland Association of CPAs. Mr. Heim is also currently a member of
the American Institute of CPAs and the Anne Arundel Trade Council.
Mr. Heim is President and sole stockholder of Heim and Associates,
P.A., an accounting firm he began in July 1995. Prior to establishing his
own firm Mr. Heim was Executive Vice President of Hammond-Heim,
Chartered.
Dimitri P. Mallios ......... Mr. Mallios, age 67, is an attorney who has practiced law since 1960,
and is a member of the Bars of the State of Maryland and the District of
Columbia. He is presently a senior partner in the law firm Margolius,
Mallios, Davis, Rider & Tomar, LLP located in Washington, D.C.
Mr. Mallios has been a Director of the Company and the Bank since
their inception.
Albert Phillips ............ Mr. Phillips, age 73, has been the Chairman of the Board of The Phillips
Corporation, a manufacturer and supplier of manufacturing technology
products headquartered in Columbia, Maryland since 1961. He has been
a Director of the Company and the Bank since their inception.
Mr. Phillips serves as Chairman of the Board of the Company.
Ermis Sfakiyanudis ......... Mr. Sfakiyanudis, age 31, presently serves as Vice-President and
Principal of Sigma Engineering, Inc. an Annapolis based civil
engineering firm. Mr. Sfakiyanudis is also a member of the Board of
Directors of the Anne Arundel Economic Development Corporation.
Mr. Sfakiyanudis is also a member of numerous professional
associations.
</TABLE>
INFORMATION CONCERNING CONTINUING DIRECTORS AND NAMED EXECUTIVE OFFICERS
The following table sets forth information as of the Record Date concerning
directors and Named Executive Officers of the Company and the Bank whose terms
of office will continue after the 2000 Annual Meeting. As indicated, some
directors will serve until the 2001 Annual Meeting, and other directors will
serve until the 2002 Annual Meeting. Except as indicated, the directors have
been officers of the organizations named below or of affiliated organizations as
their principal occupations for more than five years.
5
<PAGE>
<TABLE>
<CAPTION>
Directors serving until 2001
Name of Directors Age, Principal Occupation, Position with the Company and the Bank
- ----------------------------- ------------------------------------------------------------------------
<S> <C>
Stanley J. Klos, Jr ......... Mr. Klos, age 48, is an attorney who has practiced law in Anne Arundel
and Prince George's Counties since 1977. He is currently an attorney
with the firm of O'Malley, Miles, Nylen & Gilmore, P.A. He is a
member of the Maryland, District of Columbia, Anne Arundel County,
and Prince George's County Bar Associations. He has been a Director of
the Company and the Bank since April 1997. Mr. Klos is active in
community affairs and serves on the Boards of Directors of Leadership
Anne Arundel, the 21st Century Education Foundation and the Anne
Arundel County YMCA.
Richard M. Lerner ........... Mr. Lerner, age 40, became President and Chief Executive Officer of the
Company and Chairman of the Board of the Bank in April 1999. Since
1984, he has been President of White Flint Builders, Inc., an upscale
residential development and construction company located in Bethesda,
Maryland. Mr. Lerner has been a Director of the Company and the Bank
since their inception. Mr. Lerner is the son of Lawrence E. Lerner, a
Director of the Company and the Bank.
Directors serving until 2002
<CAPTION>
Name of Directors Age, Principal Occupation, Position with the Company and the Bank
- ------------------------------ -------------------------------------------------------------------------
<S> <C>
Lawrence E. Lerner ........... Mr. Lerner, age 67, has been active in real estate development in the
Washington, D.C. metropolitan area for 30 years. He has been involved
in the development and construction of two regional shopping centers,
several other commercial developments, and more than 2,800 apartment
units. Mr. Lerner manages his real estate investments, comprised of
various partnership interests in entities which own real estate. He has
been a Director of the Company and the Bank since their inception.
Mr. Lerner is the father of Richard M. Lerner, President and Chief
Executive Officer of the Company, Chairman of the Board of the Bank
and a Director of the Company.
Lawrence W. Schwartz ......... Mr. Schwartz, age 45, is a certified public accountant who has operated
CPA firms since 1984 and currently operates Lawrence Schwartz, CPA a
sole proprietorship in Fairfax, Virginia. Additionally, he was Executive
Vice President and Chief Financial Officer of Federal Supply Contracts
Group, Inc., a reseller of furniture to the government, from 1993 to
1995. Mr. Schwartz has been a Director of the Company since April
1997 and a Director of the Bank since its inception.
</TABLE>
6
<PAGE>
<TABLE>
<CAPTION>
Named Executive Officers
Name of Executive Officer Age, Principal Occupation, Position with the Company and the Bank
- --------------------------- -----------------------------------------------------------------------
<S> <C>
Kevin J. Barron ........... Mr. Barron, age 44, is a Senior Vice President of the Bank responsible
for Real Estate Lending. He joined the Bank in December of 1997 after
having worked ten years for Signet Banking Corporation where he was
in charge of construction lending for the Washington and Baltimore
markets. Prior to that he worked for three years with Mellon Bank in
Alexandria, Virginia. Mr. Barron serves on the Bank's Officers' Loan
Committee.
</TABLE>
COMMITTEES
The Company and the Bank each have an Audit Committee and additionally the
Bank has standing Compensation, Compliance, Executive, and Nominating Committees
of the Board of Directors. The members of each of the named committees serve at
the discretion of the Board of Directors. The Bank has also formed a Strategic
Planning Committee with the first meeting occurring in the first quarter of
2000.
The Audit Committee consists of Messrs. Klos, Phillips and Schwartz and
reviews and reports to the Board of Directors on examinations of the Company and
the Bank and its subsidiaries by regulatory authorities, recommends the
independent accountants for appointment by the Boards of the Company and the
Bank, reviews the scope of the work of the independent accountants and their
reports, and reviews the activities and actions of the Bank's internal auditor.
The Audit Committee met five times during 1999.
The Compliance Committee consists of Messrs. Anders, Klos, R. Lerner and
Schwartz. The Compliance committee reviews and determines compliance with the
Bank's Formal Agreement with the OCC. The Compliance Committee met six times
during 1999.
The Compensation Committee consists of Messrs. Klos, R. Lerner, Mallios,
and Schwartz and reviews and determines salaries and other benefits for
executive and senior management persons of the Company and its subsidiaries,
reviews and determines employees to whom stock options are to be granted and the
terms of such grants, and reviews incentive and other compensatory plans and
arrangements. The Compensation Committee met two times during 1999.
The Executive Committee consists of Messrs. Anders, Klos, L. Lerner, R.
Lerner, Mallios, Phillips, and Schwartz and considers new loan applications
which are in excess of the limits granted by the Board of Directors to the
Officers' Loan Committee. The Executive Committee met 19 times during 1999.
The Nominating Committee, consisting of the full Board of Directors,
nominates persons for election to the Board of Directors of the Company and the
Bank. The Nominating Committee will consider stockholder nominations submitted
to it in writing in care of the Company if such nominations are timely
submitted. To be considered timely, the nominations must be received at least
thirty (30) but not more than sixty (60) days prior to the Annual Meeting if the
company has given at least forty (40) days prior notice of the meeting,
otherwise such nominations should be submitted within ten (10) days of the
Company first giving notice of the Annual Meeting. The Nominating Committee met
one (1) time during 1999.
DIRECTORS' COMPENSATION
The Board of Directors of the Company met 18 times and the Board of
Directors of the Bank held 26 meetings during 1999. All of the directors of the
Company with the exception of Director Lawrence E. Lerner attended at least 75%
of the total number of Company board meetings held and committee meetings on
which such director served during 1999. The Company pays no board or committee
fees. Directors of the Bank received fees for each board and committee meeting
attended in 1999 in the amount of $250 per Board of Directors
7
<PAGE>
meeting, $200 per Compliance and Executive Committee meeting of the Bank, and
$150 per other committee meeting. Mr. R. Lerner and Mr. Anders currently
receive no fees for attendance at board or committee meetings as they are full
time employees of the Company or the Bank. Mr. R. Lerner received fees for
attending board or committee meetings prior to his employment by the Company or
Bank on May 7, 1999. Mr. R. Lerner received fees prior to his employment in
accordance with the fee schedule described above.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid or allocated for
services rendered to the Company or the Bank in all capacities during the years
ended December 31, 1997, 1998 and 1999 to executive officers whose compensation
exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term Compensation
--------------------------------
Annual Compensation Awards Payouts
--------------------------------- ----------------------- --------
Other Securities All
Annual Restricted Underlying Other
Compen- Stock Options/ LTIP Compen-
Salary Bonus sation Awards SARs Payouts sation
Name and Principal Position Year ($) ($) ($)(3)(4) ($) (#) ($) ($)(5)(6)
- ------------------------------------ ------ ---------- ---------- ----------- ----------- ----------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard M. Lerner (1) 1999 $ 60,460 $ -0- $ -0- -0- -0- $-0- $6,650
CEO & President of the 1998 $ -0- $ -0- $ -0- -0- -0- $-0- $6,450
Company and Chairman of 1997 $ -0- $ -0- $ -0- -0- -0- $-0- $4,800
the Board of Directors of the Bank
John W. Marhefka, Jr. (2) 1999 $ 58,682 $ -0- $2,084 -0- -0- $-0- $1,909
Director of the Company and 1998 $134,439 $ -0- $3,473 -0- -0- $-0- $4,889
President & CEO of the Bank 1997 $113,715 $16,979 $3,551 -0- 16,600 $-0- $ -0-
Kevin J. Barron (3) 1999 $118,065 $ -0- -0- -0- -0- $-0- $3,882
Senior Vice President -- Real 1998 $ 80,000 $25,285 -0- -0- -0- $-0- -0-
Estate Lending of the Bank 1997 $ 1,538 $ -0- -0- -0- 5,000 $-0- -0-
</TABLE>
- ----------
(1) Mr. Lerner became Chief Executive Officer and President of the Company on
May 7, 1999.
(2) Mr. Marhefka became Chief Executive Officer of the Bank on February 21,
1997. He resigned his position with the Bank effective May 7, 1999.
(3) Mr. Barron became Senior Vice President -- Real Estate Lending of the Bank
on December 15, 1997.
(4) Represents personal use of a Bank automobile. For 1998 and 1999, there were
no (a) perquisites over the lesser of $50,000 or 10% of the individual's
total salary and bonus for the years; (b) payments of above market
preferential earnings on deferred compensation; (c) payments of earnings
with respect to long term incentive plans prior to settlement or maturation;
(d) tax payment reimbursements; or (e) preferential discounts in stock.
(5) With respect to Mr. Lerner, represents director fees paid prior to Mr.
Lerner being an employee of the Company.
(6) With respect to Messrs. Marhefka and Barron, represents amounts contributed
to the Named Executive Officer by the Bank's 401(k) Plan.
EMPLOYMENT AGREEMENT -- MARK H. ANDERS
On October 1, 1999, (the "Effective Date") the Bank and Mr. Anders entered
into an employment agreement which expires on December 31, 2003 (the "Employment
Agreement"). Pursuant to the Employment Agreement, Mr. Anders will received an
initial base salary of $135,000 per year, which base salary increases to
$150,000 per annum on the first payroll period after the Board determines in its
sole discretion that the Office
8
<PAGE>
of the Comptroller of Currency has been satisfied that the Bank has complied
with all deadlines and requirements in its Formal Agreement dated September
30,1999. From January 1, 2002 through December 31, 2003 the Bank shall pay Mr.
Anders a salary at an annual rate that is 10% greater than the annual rate in
effect on December 31, 2001. Additionally, the Bank provides and maintains an
automobile for Mr. Anders' use and provides family health insurance. Mr. Anders
is eligible to participate in other benefit plans that the Bank has now or
adopts in the future.
Pursuant to the Employment Agreement, on October 1, 1999, Mr. Anders was
granted an incentive stock option to purchase 20,000 shares of Company common
stock at an exercise price of $4.94 per share. The stock option becomes
exercisable only on the date that the Office of the Comptroller of Currency
issues a notice of intent not to disapprove Mr. Anders' appointment. Once
exercisable the stock option will continue until its automatic expiration on the
first to occur of: (i) October 1, 2000 (ii) Mr. Anders' termination of
employment due to Just Cause; or (iii) ten business days after Mr. Anders'
employment terminates for any other reason, provided that ten days shall be
increased to six months in the event of the executive's death while employed.
In addition, Mr. Anders shall receive an incentive stock option to purchase
10,000 shares of the Company's common stock; Mr. Anders will become fully vested
in the right to exercise the incentive stock option at the rate of 20% per full
year of employment with the Bank beginning October 1, 1999. The term of this
incentive stock option is ten (10) years, subject to earlier expiration in
accordance with the terms of the Bank's Employee stock option Plan.
In addition, Mr. Anders will have an opportunity to be granted additional
options at the end of each fiscal year that begins after the Effective Date. Mr.
Anders shall receive a stock option to purchase a number of shares equal to the
sum of (i) 1,000 but only if the consolidated return-on-average-equity for the
fiscal year equals or exceeds 10% and (ii) 10 shares for each basis point by
which such return exceeds 10%. The Executive shall become vested in the right to
exercise each stock option granted under this paragraph upon completing one year
of employment with the Bank after the grant date; provided that the stock option
will be forfeited immediately if the Bank's most recently assigned composite
CAMELS rating under the Uniform Financial Institutions Rating System is not "1"
or "2," or the equivalent under a successor system, on the date the vesting is
scheduled to occur for the stock option. The Board may make other stock option
grants in its sole discretion.
Pursuant to the Employment Agreement, the Bank will pay a bonus of $75,000
to its executive officers if all three of the following goals are achieved: (i)
the meeting, to the satisfaction of the Office of the Comptroller of the
Currency, of all deadlines and requirements set forth in the Formal Agreement,
(ii) the Bank's receipt of a composite CAMELS rating of "1" or "2," or the
equivalent rating under a successor system, at the time of the first safety and
soundness examination performed by the Office of the Comptroller of the Currency
subsequent to the Effective Date; and (iii) the lifting of the Formal Agreement
by the Office of the Comptroller of the Currency on or before December 31, 2000.
Mr. Anders shall receive no less than $25,000 of the $75,000 special bonus pool,
and the Board or Compensation Committee shall review and approve the executive's
determination as to the allocation of the remainder of the special bonus pool.
At the end of each calendar year beginning after the Effective Date, the
Bank shall credit a deferred compensation account in Mr. Anders' name with an
amount equal to his year-end base salary times the following multiple: 8% for
the year 2000, 10% for 2001, and 12% for 2002 and 2003; provided that Mr. Anders
shall forfeit these amounts if he is terminated for just cause or violates the
non-compete section of the Employment Agreement. The deferred compensation shall
be paid to Mr. Anders in a lump sum on the second anniversary date of the
Expiration Date of the Agreement (unless the parties have previously agreed in
writing upon a separate payout schedule). Deferred compensation amounts will
earn interest until paid.
The Employment Agreement may be terminated by either party with or without
"cause." The Employment Agreement provides that, except in certain
circumstances, if Mr. Anders terminates the Employment Agreement
9
<PAGE>
by voluntary resignation, or his employment is terminated without cause, Mr.
Anders will not, without the Bank's written consent, participate or be connected
with any competing institution that has offices or does business within a fifty
(50) mile radius in which the Bank or its affiliates or agents is operating
customer service or other facilities or actively planning to open such
facilities at the time of the termination of his employment. In the event
employment is terminated without cause, Mr. Anders will be entitled to 150% of
the his annual salary and continued health benefits at a level substantially
equal to those that the Bank provided for a period of 12 months.
The Employment Agreement provides for the payment to Mr. Anders in the
event of a "change in control" as defined in the Employment Agreement, a
severance benefit equal to 150% of his annual base salary at the time of the
"change in control;" provided that 150% will be replaced with: (i) 200% if the
ratio to selling price per share to book value per share exceeds 200%; or (ii)
300% if this ratio exceeds 300%; provided that any amount payable shall be
reduced to the extent necessary to avoid excise tax liability.
EMPLOYMENT AGREEMENT -- JOHN W. MARHEFKA, JR.
On February 21, 1997, the Bank and Mr. Marhefka entered into a five year
employment agreement (the "Marhefka Employment Agreement"). Pursuant to the
Marhefka Employment Agreement, Mr. Marhefka received an initial base salary of
$132,500 per year, with increases on each anniversary of the Marhefka Employment
Agreement. Additionally, the Bank provided and maintained an automobile for Mr.
Marhefka's use and provided family health insurance. In addition to the base
salary, the Marhefka Employment Agreement provided for, among other things,
participation in stock benefit plans and other fringe benefits applicable to
executive personnel. Pursuant to the Marhefka Employment Agreement, the Bank
also paid a bonus to Mr. Marhefka following the close of each calendar year
during the term of the Marhefka Employment Agreement (the "Annual Bonus").
The Marhefka Employment Agreement also provided that it might be terminated
by either party with or without "cause." The Marhefka Employment Agreement
further provided that, except in certain circumstances, if Mr. Marhefka
terminated the Marhefka Employment Agreement by voluntary resignation, or his
employment was terminated without cause, Mr. Marhefka would not, without the
Bank's written consent, participate or be connected with any competing
institution that has offices or does business in Anne Arundel County, Maryland
for the remaining term of the Marhefka Employment Agreement, not to exceed one
year in the case of resignation, or eight months if employment is terminated
without cause (the "Noncompetition Clause").
Effective May 7, 1999, Mr. Marhefka resigned as a Director and President
and Chief Executive Officer of the Bank. Concurrent with his resignation, Mr.
Marhefka executed a release which relieves the Bank and the Company of any and
all liability or obligation to Mr. Marhefka prior to the date of his
resignation. Under the terms of the release, the Bank and the Company waived
their right to enforce the Noncompetition Clause of the Marhefka Employment
Agreement.
Stock Option Plan
The Company maintains an Employee Stock Option Plan (the "Option Plan")
which provides for discretionary awards of up to an aggregate of 100,000 options
to purchase Company Common Stock to officers and key employees of the Company
and Bank as determined by a committee of disinterested directors at the fair
market value of the Common Stock on the date of grant. The Option Plan is not
qualified under Section 401(a) of the Internal Revenue Code and is not subject
to any provisions of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"). The Option Plan was approved by the Company's stockholders on
April 25, 1997. As of April 4, 2000, the Company also had outstanding to
officers options to purchase an aggregate of an additional 86,500 shares of
Company Common Stock at exercise prices from $4.16 to $11.00 per share. These
options are subject to a vesting schedule and will become exercisable in five
equal annual installments beginning one year from the date of grant. The Company
intends to grant additional options to certain key Bank employees in the future,
however, the timing and amount of such grants has yet to be determined. All such
options will be granted at not less than the fair market value of the Common
Stock at the time of the grant.
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The Board of Directors has approved the Annapolis National Bancorp, Inc.
2000 Stock Incentive Plan and has submitted it for stockholder approval. See
Proposal 3. A copy of the plan is attached as Exhibit A.
Other Compensation Plans
Executive officers participate in the Company's health and welfare and
qualified retirement plans on the same terms as non-executive employees who meet
the applicable eligibility criteria, subject to any legal limitations on the
amounts that may be contributed or the benefits that may be payable under these
plans. In addition, all full-time employees are covered as a group for
comprehensive hospitalization, including major medical, long-term disability and
dismemberment insurance and group term life insurance.
STOCK OPTION GRANTS
As discussed above and as an inducement to attract and retain qualified
managers and employees, the Company maintains the Option Plan. During 1999,
there were no grants of options under the Stock Option Plan to the Named
Executive Officers.
STOCK OPTION EXERCISES AND HOLDINGS
There were no stock options exercised by the Named Executive Officers
during 1998. A total of 10,000 stock options were exercised by Mr. Marhefka
during 1999 at the exercise price of $5.00 per share. The following table
reflects the number of shares covered by all remaining unexercised stock options
for Named Executive Officers as of December 31, 1999. Also reported are the
values for "in-the-money" options which represent the difference between the
exercise price of any such remaining unexercised options and the year-end market
price of the Common Stock.
AGGREGATED OPTION/SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUE
<TABLE>
<CAPTION>
Shares
Acquired Value Number of Securities Value of Unexercised
on Exercise Realized Underlying Unexercised In-the-Money Options/SARs
Name (#) ($) Options/SARs at December 31, 1999 (#) at December 31, 1999 ($)(3)
- ------------------------------- ------------ -------- --------------------------------------- ----------------------------
Exercisable/Unexercisable Exercisable/Unexercisable
--------------------------------------- ----------------------------
<S> <C> <C> <C> <C>
John W. Marhefka, Jr. (1) ..... 10,000 $16,250 -- --
Kevin J. Barron (2) ........... -- -- 2,000/3,000 $0/0
</TABLE>
- ----------
(1) The 10,000 options exercised by Mr. Marhefka had an exercise price of $5.00
per share.
(2) 5,000 options, of which 2,000 are currently exercisable, have an exercise
price of $9.75 per share. These options will expire on December 15, 2007,
ten (10) years from the date of grant.
(3) Based on the market value of the underlying stock at fiscal year-end minus
the exercise price. The closing price of the Common Stock on December 31,
1999 was $4.06 per share.
CERTAIN TRANSACTIONS WITH MANAGEMENT
The Bank has adopted a policy which requires that all loans or extensions
of credit to executive officers and directors must be made on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with the general public and must not involve
more than the normal risk of repayment or present other unfavorable features.
11
<PAGE>
PROPOSAL 2. TO APPROVE THE SELECTION OF THE
INDEPENDENT AUDITOR FOR THE YEAR 2000
For the fiscal years ended December 31, 1998 and 1999, the Company's
financial statements were audited by Rowles & Company, LLP. On March 16, 2000,
the Company dismissed Rowles & Company, LLP as its independent accountants.
Reports by Rowles & Company, LLP on the financial statements of the Company for
the past two fiscal years did not contain an adverse opinion or a disclaimer of
opinion and were not qualified or modified as to uncertainty, audit scope, or
accounting principles. The decision to change independent accountants was
approved by the Company's Board of Directors and its Audit Committee.
During the Company's fiscal years ending December 31, 1998 and December 31,
1999 and up to the date of the replacement of Rowles & Company, LLP, there were
no disagreements between the Company and Rowles & Company, LLP on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure which, if not resolved to the satisfaction of Rowles &
Company, LLP, would have caused them to make reference to the subject matter of
any such disagreements in connection with their reports. Representatives of
Rowles & Company, LLP are expected to be present at the Annual Meeting and will
have the opportunity to make a statement if they desire to do so and to respond
to appropriate questions.
On the date of the dismissal of Rowles & Company, LLP, the Company engaged
Stegman & Company as its independent accountants for the fiscal year ending
December 31, 2000, subject to shareholder ratification. Stegman & Company will
serve as independent auditors for the Company and the Bank beginning in April
2000, and the firm has advised the Company that neither the firm nor any of its
partners or associates has any direct financial interest in or any connection
with the Company or any of its subsidiaries other than as independent auditors.
Representatives of Stegman & Company are not expected to be present at the
Annual Meeting.
Proxies will be voted FOR the Proposal unless otherwise instructed by the
Stockholders.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR RATIFICATION OF THE
APPOINTMENT OF STEGMAN & COMPANY AS ITS INDEPENDENT AUDITORS TO THE COMPANY FOR
THE YEAR 2000.
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<PAGE>
PROPOSAL 3. TO APPROVE THE ANNAPOLIS NATIONAL
BANCORP, INC. 2000 STOCK INCENTIVE PLAN
GENERAL
The Board of Directors of the Company is seeking stockholder approval of
the Annapolis National Bancorp, Inc. 2000 Stock Incentive Plan (the "SIP"). A
copy of the SIP is attached hereto as Exhibit A and should be consulted for
detailed information. All statements made herein regarding the SIP are only
intended to summarize the SIP and are qualified in their entirety by reference
to the SIP.
PURPOSE OF THE SIP
The SIP is being presented for approval because the Company's existing
stock option plan has an inadequate reserve of shares available for future
grants. By providing directors and employees of the Company and its affiliates,
including the Bank with the opportunity to acquire shares of Common Stock, the
Company seeks to attract, retain, and motivate the best available personnel for
these positions of substantial responsibility. In addition, stock awards would
be used to provide additional incentive to directors and employees of the
Company and its affiliates to promote the success of the business and the
interests of stockholders.
DESCRIPTION OF THE SIP
Effective Date. The Plan shall become effective upon stockholder approval,
provided that such approval is received before March 24, 2001, and provided
further that the Board of Directors may grant Options pursuant to the Plan prior
to stockholder approval if such Options by their terms are contingent upon
subsequent stockholder approval of the Plan.
Administration. The SIP is administered by a sub-committee of the
Compensation Committee (the "Committee") a committee appointed by the Board, and
consisting of at least three directors of the Company who are "non-employee
directors" within the meaning of the federal securities laws. The Committee has
discretionary authority to select participants and grant awards, to determine
the form and content of any awards granted under the SIP, to interpret the SIP,
to prescribe, amend and rescind rules and regulations relating to the SIP, and
to make other decisions necessary or advisable for the administration of the
SIP. All decisions, determinations and interpretations of the Committee are
final and conclusive on all persons affected thereby. Members of the Committee
will be indemnified to the full extent permissible under the Company's governing
instruments in connection with any claims or other actions relating to any
action taken under the SIP. The Committee currently consists of Messrs. Klos,
Mallios and Schwartz. The Board may act in lieu of the Committee on any matter
within its discretion or authority.
Eligible Persons; Types of Awards. Under the SIP, the Committee has
discretionary authority to grant stock options ("Options"), restricted stock
awards, and deferred share awards (collectively, "Awards") to such employees and
directors, including members of the Committee, as the Committee shall designate.
As of the Record Date, the Company and its subsidiaries had sixty-six employees
and five non-employee directors who were eligible to participate in the SIP.
Shares Available for Grants. The SIP reserves 200,000 shares of Common
Stock for issuance upon the exercise of Options, as well as upon the
distribution of restricted stock and deferred share awards. Such shares may be
authorized but unissued shares, or shares held in treasury. In the event of any
merger, consolidation, recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares, or similar event in which the number
or kind of shares is changed without receipt or payment of consideration by the
Company, the Committee will adjust the number and kind of shares reserved for
issuance under the SIP, the number of and kind of shares subject to outstanding
Awards, and the exercise prices of Options. To the extent Awards expire, become
unexercisable, or are forfeited for any reason without having resulted in the
issuance of Common Stock to Award holders, those shares shall be available for
the grant of additional Awards.
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<PAGE>
Options; Exercise Price. Options may be either incentive stock options
("ISOs") as defined in Section 422 of the Internal Revenue Code, or Options that
are not ISOs ("Non-ISOs"). The exercise price as to any Option may not be less
than the fair market value (determined under the SIP) of the optioned shares on
the date of grant. The last reported sale price of the Common Stock on March 17,
2000 was $ 3.625 per share. No employee who owns more than 10% of the
outstanding Common Stock may receive an ISO grant. As required by federal tax
laws, to the extent that the aggregate fair market value (determined when an ISO
is granted) of the Common Stock with respect to which ISOs are exercisable by a
participant for the first time during any calendar year (under all plans of the
Company and of any subsidiary) exceeds $100,000, the Options granted in excess
of $100,000 will be treated as Non-ISOs.
Exercise of Options. The exercise of Options will be subject to such terms
and conditions as are established by the Committee in a written agreement
between the Committee and the participant. Only Common Stock is subject to
purchase upon exercise of the Options, and an Option may not be exercised for a
fractional share.
Method for Exercise. A participant may exercise Options, subject to
provisions relative to their termination and limitations on their exercise in an
Option agreement, only by (i) written notice of intent to exercise the Option
with respect to a specified number of shares of Common Stock, and (ii) payment
to the Company (contemporaneously with delivery of such notice) in cash, in
previously-owned Common Stock, or a combination of cash and Common Stock, of the
amount of the exercise price for the number of shares with respect to which the
Option is then being exercised. Alternatively, the Committee may permit a
cashless exercise through a broker, or a participant may surrender shares
subject to his or her Award. Common Stock utilized in full or partial payment of
the exercise price for Options shall be valued at its market value at the date
of exercise, and may consist of shares subject to the Option being exercised.
Effect of Termination of Service. In the absence of Committee action to the
contrary (which may include accelerating or extending the period for exercising
an Option), an otherwise unexpired Option shall cease to be exercisable upon (i)
the date on which the participant terminates service for any reason other than
retirement or (ii) the date that is two years after a participant's death or
(iii) 90 days after the participant's retirement with the Committee's consent;
provided that the Committee may immediately cancel any unexercised Option after
a participant terminates service if the Committee determines that the
participant has engaged in activities or employment that is contrary to the
Company's best interest.
Restricted Stock and Deferred Share Awards. The Committee may make
discretionary restricted stock and deferred share awards to select employees and
directors (including members of the Committee). Under the Plan the Committee has
the discretion and authority not only to determine the conditions for vesting of
restricted stock awards, but also to implement a program for deferred share
awards as part of a deferred compensation program for executives and directors.
Cash dividends that are declared on these Awards will accumulate for
distribution at the time and in the manner selected by the participant for
distribution of the shares subject to his or her Award. Until transferred to a
participant, the Committee will control voting of any shares that are
outstanding and subject to these Awards.
Conditions on Issuance of Shares. The Committee will have the discretionary
authority to impose, in agreements, such restrictions on shares of Common Stock
issued pursuant to the SIP as it may deem appropriate or desirable to comply
with applicable law for the SIP's proper administration.
Nontransferability. Participants may transfer non-ISOs to family members or
trusts under specified circumstances. Awards may not be sold, pledged, assigned,
hypothecated, transferred or disposed of in any manner other than by will or by
the laws of descent and distribution. In addition, Common Stock that is
purchased upon the exercise of an Option may not be sold within the six-month
period following the grant date of that Option, except in the event of the
participant's death or disability, or such other event as the Board may
specifically deem appropriate. A participant may not assign his or her claim to
deferred or restricted shares and associated
14
<PAGE>
earning during his or her lifetime. A participant's right to deferred shares and
associated earning shall at all times constitute an unsecured promise of the
Company to pay benefits as they come due. Neither the participant nor his or her
beneficiary will have any claim against or rights in any specific assets of the
Company.
Effect of Change in Control. Upon a "change in control" (as defined in the
Plan), all Options will become fully exercisable and all restricted stock awards
shall become fully vested.
Duration of the SIP and Grants. The SIP has a term of 10 years from the
Effective Date, after which date no Awards may be granted. The maximum term for
an Award is 10 years from the date of grant. The expiration of the SIP, or its
termination by the Committee, will not affect any Award then outstanding.
Amendment and Termination of the SIP. The Board of Directors may from time
to time amend the terms of the SIP and, with respect to any shares at the time
not subject to Awards, suspend or terminate the SIP. No amendment, suspension,
or termination of the SIP will (i) increase the number of shares reserved for
Awards, (ii) decrease the exercise price for Options, (iii) permit the exercise
of Options more than 10 years after grant, or (iv) without the consent of any
affected participant, alter or impair any rights or obligations under any Award
previously granted.
Financial Effects of Awards. The Company will receive no monetary
consideration for the granting of Awards under the SIP. It will receive no
monetary consideration other than the exercise price for shares of Common Stock
issued to participants upon the exercise of their Options, and will receive no
monetary consideration upon the distribution of Common Stock satisfying Deferred
Share or Restricted Stock Awards. Cash proceeds from the sale of Common Stock
issued pursuant to the exercise of Options will be added to the general funds of
the Company to be used for general corporate purposes.
Under the intrinsic value method that the Company follows under applicable
accounting standards, recognition of compensation expense is not required when
Options are granted at an exercise price equal to or exceeding the fair market
value of the Common Stock on the date the Option is granted, but disclosure may
be required in financial statement footnotes regarding pro forma effects on
earnings and earnings per share of recognizing as a compensation expense an
estimate of the fair value of such stock-based awards.
The granting of restricted stock and deferred share Awards will require
charges to the Company's income over the vesting period, if any, for the Award
(with such expense based on the fair market value, on the date of award, of the
shares of Common Stock credited pursuant to the Award). Changes in value of the
Common Stock after the date of award will not result in financial expense.
FEDERAL INCOME TAX CONSEQUENCES
Summarized below are the federal income tax consequences that the Company
expects (based on current tax laws, rules, and interpretations) with respect to
Awards.
Date of Award. The recipient of an Award will not recognize taxable income
upon its grant. Nor will the grant entitle the Company to a current deduction.
Subsequent Events. The subsequent tax consequences for Award recipients
differ, as follows, depending on the type of Award. In general, however, the
Company will be entitled to a deduction for federal income tax purposes at the
same time and in the same amount as the ordinary income recognized by the Award
holder.
ISOs. If an Award holder holds the shares purchased upon exercise of an ISO
for at least two years from the date the ISO is granted, and for at least one
year from the date the ISO is exercised, any gain realized on the sale of the
shares received upon exercise of the ISO is taxed as long-term capital gain.
However, the difference between the fair market value of the Common Stock on the
date of exercise and the exercise price of the
15
<PAGE>
ISO will be treated by the holder as an item of tax preference in the year of
exercise for purposes of the alternative minimum tax. If a holder disposes of
the shares before the expiration of either of the two special holding periods
noted above, the disposition is a "disqualifying disposition." In this event,
the holder will be required, at the time of the disposition of the Common Stock,
to treat the lesser of the gain realized or the difference between the exercise
price and the fair market value of the Common Stock at the date of exercise as
ordinary income and the excess, if any, as capital gain.
The Company will not be entitled to any deduction for federal income tax
purposes as the result of the grant or exercise of an ISO, regardless of whether
or not the exercise of the ISO results in liability to the holder for
alternative minimum tax. However, if a participant recognizes ordinary income
taxable as compensation as a result of a disqualifying disposition, the Company
will be entitled to deduct an equivalent amount.
Non-ISOs. A holder will recognize ordinary income upon the exercise of the
Non-ISO in an amount equal to the difference between the fair market value of
the shares on the date of exercise and the option price (or, if the holder is
subject to certain restrictions imposed by federal securities laws, upon the
lapse of those restrictions unless the holder makes a special tax election
within 30 days after the date of exercise to have the general rule apply). Upon
a subsequent disposition of such shares, any amount received by the holder in
excess of the fair market value of the shares as of the exercise will be taxed
as capital gain.
Deferred and Restricted Shares. Whenever the Company transfers unrestricted
shares of Common Stock or associated earnings to a participant, the participant
will recognize ordinary income equal to the fair market value of the property
transferred. A participant may, however, choose to accelerate taxation to the
date of award pursuant to an election under section 83(b) of the Code, with any
future gain (or loss) being capital gain (or loss). In all cases, the Company's
deduction will mirror the amount and timing of income that the participant
recognizes.
NEW PLAN BENEFITS
The Board of Directors has determined that the SIP is desirable, cost
effective, and produces incentives that will benefit the Company. No awards will
be granted under the SIP prior to the Annual Meeting, and no determination has
been made regarding the grant of awards under the SIP if it is approved at the
Annual Meeting.
RECOMMENDATION AND VOTE REQUIRED
The Board of Directors has determined that the SIP is desirable, cost
effective, and produces incentives that will benefit the Company and its
stockholders. The Board of Directors is seeking stockholder approval of the SIP
in order to satisfy the requirements of the Internal Revenue Code for favorable
tax treatment of ISOs and to satisfy the listing requirements of the National
Association of Securities Dealers for national market system securities.
Stockholder approval of the SIP requires the affirmative vote of the
holders of a majority of the votes cast at the Annual Meeting.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR THE APPROVAL OF THE ANNAPOLIS
NATIONAL BANCORP, INC. 2000 STOCK INCENTIVE PLAN.
16
<PAGE>
ADDITIONAL INFORMATION
STOCKHOLDER PROPOSALS -- 2000 ANNUAL MEETING
Any proposal of a stockholder intended to be presented at the 2001 Annual
Meeting of the Company must be received by the Company at 180 Admiral Cochrane
Drive, Suite 300, Annapolis, Maryland 21401 prior to November 17, 2000, to be
eligible for inclusion in the proxy statement and form of proxy. In order to
curtail controversy as to compliance with this requirement, stockholders are
urged to submit proposals to the Secretary of the Company by Certified
Mail-Return Receipt Requested. Any such proposal will be subject to 17 C.F.R.
ss.240.14a-8 of the Rules and Regulations under the Exchange Act.
ANNUAL REPORTS
The Company's 1999 Annual Report to Stockholders accompanies this Proxy
Statement. Copies of the report may be obtained upon written request to the
Secretary of the Company, 180 Admiral Cochrane Drive, Suite 300, Annapolis,
Maryland 21401, and will be available at the Annual Meeting.
By Order of the Board of Directors
/s/ Lori J. Mueller
--------------------
LORI J. MUELLER
Secretary
Annapolis, Maryland
April 4, 2000
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON.
WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE
REQUESTED TO SIGN, DATE AND PROMPTLY RETURN THE
ACCOMPANYING PROXY CARD IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
17
<PAGE>
[X] PLEASE MARK VOTES
AS IN THIS EXAMPLE
ANNUAL MEETING OF STOCKHOLDERS
The undersigned appoints the official proxy committee consisting of the
following members of the Board of Directors of Annapolis National Bancorp, Inc.
(the "Company"), Messrs. Dimitri P. Mallios, Albert Phillips and Lawrence W.
Schwartz, each with full power of substitution, to act as attorneys and proxies
for the undersigned, and to vote all shares of Common Stock of the Company which
the undersigned is entitled to vote only at the Annual Meeting of Stockholders,
to be held April 27, 2000, at 6:00 p.m., Eastern Daylight Savings Time, at the
Radisson Hotel Annapolis, 210 Holiday Court, Annapolis, Maryland 21401 and at
any and all adjournments thereof, as follows:
PLEASE CHECK BOX IF YOU PLAN TO --------> [ ]
ATTEND THE ANNUAL MEETING
- --------------------------------------------------------------------------------
Date
- --------------------------------------------------------------------------------
Please be sure to sign and date this Proxy in
- --------------------------------------------------------------------------------
Stockholder sign above Co-holder (if any) sign
- --------------------------------------------------------------------------------
REVOCABLE PROXY
ANNAPOLIS NATIONAL BANCORP, INC.
FOR WITHHOLD
1. The election as directors of all nominees listed
(except as marked to the contrary below); [ ] [ ]
Mark II. Anders F. Carter Hem Dimitri P. Mallios
Albert Phillips Ernis Stakiyanudis
- --------------------------------------------------------------------------------
2. The ratification of Stegman & Company as the independent auditors of the
Company for the year ending December 31, 2000.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
3. To approve the Annapolis National Bancorp, Inc. 2000 Stock Incentive Plan.
FOR AGAINST ABSTAIN
[ ] [ ] [ ]
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR"
EACH OF THE LISTED PROPOSALS.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
The undersigned acknowledges receipt from the Company, prior to the execution of
this Proxy, of a Notice of Annual Meeting and a Proxy Statement dated April 4,
2000.
Please sign exactly as your name appears hereon. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder may sign, but only one signature is
required.
- --------------------------------------------------------------------------------
DETACH ABOVE CARD, SIGN, DATE AND MAIL IN POSTAGE PAID ENVELOPE PROVIDED.
ANNAPOLIS NATIONAL BANCORP, INC.
PLEASE ACT PROMPTLY
SIGN, DATE & MAIL YOUR PROXY CARD TODAY
EXHIBIT A
ANNAPOLIS NATIONAL BANCORP, INC.
2000 STOCK INCENTIVE PLAN
1. PURPOSE
The proper execution of the duties and responsibilities of the directors,
executives, and employees of Annapolis National Bancorp, Inc. (the
"Corporation") and its subsidiaries is a vital factor in the continued growth
and success of the Corporation. Toward this end, it is necessary to attract and
retain effective and capable individuals to assume positions that contribute
materially to the successful operation of the business of the Corporation and
its subsidiaries. It will benefit the Corporation, therefore, to bind the
interests of these persons more closely to its own interests by offering them an
attractive opportunity to acquire a proprietary interest in the Corporation and
thereby provide them with added incentive to remain in the service of the
Corporation and its subsidiaries and to increase the prosperity, growth, and
earnings of the Corporation. This stock option plan is intended to serve these
purposes.
2. DEFINITIONS
The following terms wherever used herein shall have the meanings set forth
below:
(a) The term "Awards" shall mean Options, Deferred Shares, and Restricted
Share Awards, collectively.
(b) The term "Board of Directors" shall mean the Board of Directors of the
Corporation.
(c) The term "Change in Control of the Corporation" shall mean a change in
control of a nature that would be required to be reported in response to Item
6(c) of Schedule 14A of Regulation 14A promulgated under the Exchange Act,
whether or not the Corporation is in fact required to comply therewith, provided
that, without limitation, such a change in control shall be deemed to have
occurred if (A) any "person" (as such term is used in Section 13(d) and 14(d) of
the Exchange Act), other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Corporation or any of its subsidiaries or
a corporation owned, directly or indirectly, by the stockholders of the
Corporation in substantially the same proportions as the ownership of Common
Stock of the Corporation, and other than Lawrence E. Lerner or any member or
members of this family, is or becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Corporation representing 20% or more of the combined voting power of the
Corporation's then outstanding securities; (B) during any period of two
consecutive years (not including any period prior to the adoption of the Plan)
individuals who at the beginning of such period constitute the Board and any new
director (other than a director designated by a person who has entered into an
agreement with the Corporation to affect a transaction described in clauses (A)
or (D) of this definition) whose election by the Board or nomination for
election by the Corporation's stockholders was approved by a vote of at least
two-thirds of the directors then still in office who either were directors at
the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board; (C) the Corporation enters into an agreement, the consummation of which
would result in the occurrence of a Change in Control of the Corporation; (D)
the stockholders of the Corporation approve a merger, share exchange or
consolidation of the Corporation with any other corporation, other than a
merger, share exchange or consolidation that would result in the voting
securities of the Corporation outstanding immediately prior thereto held by
Lawrence E. Lerner or any member or members of his family continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the combined voting power of
the voting securities of the Corporation or such surviving entity outstanding
immediately after such merger, share exchange or consolidation, or the
stockholders of the Corporation approve a plan of complete liquidation of the
Corporation or any agreements for the sale or disposition by the Corporation of
all or substantially all the Corporation's assets.
<PAGE>
(d) The term "Code" shall mean the Internal Revenue Code of 1986, as
amended, and any regulations promulgated thereunder.
(e) The term "Committee" shall mean a sub-committee of the Compensation
Committee to be appointed by the Board of Directors to consist of three or more
members, all of whom are members of the Board of Directors and are "non-employee
directors" within the meaning of Rule 16-3 under the Exchange Act.
(f) The term "Common Stock" shall mean the shares of common stock, par
value $0.01 per share, of the Corporation.
(g) The term "Corporation" shall mean Annapolis National Bancorp, Inc., a
Maryland corporation.
(h) The term "Deferred Shares" shall mean shares that the Corporation has
credited, pursuant to Paragraph 9 hereof, to a deferred compensation account in
the name of a Participant.
(i) The term "Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended.
(j) The term "Fair Market Value" shall mean the then current fair market
value of Common Stock, as determined in good faith by the Committee and in a
manner consistent with the rules set forth in Treas. Reg. ss.20.2031-2.
(k) The term "Incentive Stock Option" shall mean an Option granted pursuant
to the Plan that is designated as an Incentive Stock Option and which satisfies
the requirements of Section 422(b) of the Code.
(l) The term "Nonqualified Stock Option" shall mean an Option granted
pursuant to the Plan that is not an Incentive Stock Option.
(m) The term "Option" or "Stock Option" shall mean a right granted pursuant
to the Plan to purchase shares of Common Stock, and shall include the terms
Incentive Stock Option and Nonqualified Stock Option.
(n) The term "Option Agreement" shall mean the written agreement
representing Options granted pursuant to the Plan as contemplated by Paragraph 7
of the Plan.
(o) The term "Participant" shall mean any person holding an Award
outstanding under the Plan.
(p) The term "Plan" shall mean the Annapolis National Bancorp, Inc. 2000
Stock Incentive Plan as approved by the Board of Directors on March 24, 2000,
as the same may be amended from time to time.
(q) The term "Restricted Share Award" shall mean a right granted under
Section 10 of this Plan to receive shares.
(r) The term "subsidiary" or "subsidiaries" shall mean a corporation of
which capital stock possessing 50% or more of the total combined voting power of
all classes of its capital stock entitled to vote generally in the election of
directors is owned in the aggregate by the Corporation directly or indirectly
through one or more subsidiaries.
3. EFFECTIVE DATE OF THE PLAN
The Plan shall become effective upon stockholder approval, provided that
such approval is received before March 24, 2001, and provided further that the
Board of Directors may grant Options pursuant to the Plan prior to stockholder
approval if such Options by their terms are contingent upon subsequent
stockholder approval of the Plan.
4. ADMINISTRATION
(a) The Plan shall be administered by the Committee, provided that the
Board may act in lieu of the Committee on any matter within the Committee's
discretion or authority.
<PAGE>
(b) The Committee may establish, from time to time and at any time subject
to the limitations of the Plan as set forth herein, such rules and regulations
and amendments and supplements thereto as it deems necessary to comply with
applicable law and regulation and for the proper administration of the Plan. A
majority of the members of the Committee shall constitute a quorum. The vote of
a majority of a quorum shall constitute action by the Committee.
(c) The Committee shall from time to time submit to the Board of Directors
for its approval the names of those directors, executives, and employees who, in
its opinion, should receive Options, and shall recommend the numbers of shares
on which Options should be granted to each such person and the nature of the
Options to be granted.
(d) Options shall be granted by the Committee and shall become effective
only after execution of an Option Agreement between the Corporation and the
Option holder.
(e) The Committee's interpretation and construction of the provisions of
the Plan and the rules and regulations adopted by the Committee shall be final,
unless otherwise determined by the Board of Directors. No member of the
Committee or the Board of Directors shall be liable for any action or
determination made, in respect of the Plan, in good faith.
5. PARTICIPATION IN THE PLAN
(a) Participation in the Plan shall be limited to the employees and
directors of the Corporation and its subsidiaries who shall be designated by the
Committee.
(b) No member of the Board of Directors who is also an officer of the
Corporation shall be eligible to serve on the Committee.
6. STOCK SUBJECT TO THE PLAN
(a) There shall be reserved for the granting of Awards pursuant to the Plan
and for issuance and sale pursuant to such Awards 200,000 shares of Common
Stock. To determine the number of shares of Common Stock available at any time
for the granting of Awards, there shall be deducted from the total number of
reserved shares of Common Stock, the number of shares of Common Stock in respect
of which Awards have been granted pursuant to the Plan that are still
outstanding or have been exercised. The shares of Common Stock to be issued upon
the exercise or vesting of Awards shall be made available from the authorized
and unissued shares of Common Stock. If for any reason shares of Common Stock as
to which an Award has been granted cease to be subject to purchase or delivery
to Award holders thereunder, then such shares of Common Stock again shall be
available for issuance pursuant to new Awards.
(b) Proceeds from the purchase of shares of Common Stock upon the exercise
of Options granted pursuant to the Plan shall be used for the general business
purposes of the Corporation.
(c) In the event of the reorganization, recapitalization, stock split,
stock dividend, combination of shares of Common Stock, merger, consolidation,
share exchange acquisition of property or stock, or any change in the capital
structure of the Corporation, the Committee shall make such adjustments as may
be equitable and appropriate in the number and kind of shares reserved for
purchases by directors, executives or other employees, in the number, kind and
price of shares covered by Awards granted pursuant to the Plan and then
outstanding.
7. TERMS AND CONDITIONS OF OPTIONS
(a) Each Option granted pursuant to the Plan shall be evidenced by an
Option agreement in such form as the Committee from time to time may determine.
<PAGE>
(b) The exercise price per share for Options shall be established by the
Board of Directors upon the recommendation of the Committee at the time of the
grant of Options pursuant to the Plan and shall not be less than the Fair Market
Value of a share of Common Stock on the date on which the Option is granted. If
the Board of Directors does not establish a specific exercise price per share at
the time of grant, the exercise price per share shall be equal to the Fair
Market Value of a share of Common Stock on the date of grant of the Options.
(c) Each Option, subject to the other limitations set forth in the Plan,
may extend for a period of up to 10 years from the date on which it is granted.
The term of each Option shall be determined by the Board of Directors at the
time of grant of the Option, provided that if no term is established by the
Board of Directors the term of the Option shall be 10 years from the date on
which it is granted.
(d) The Board of Directors upon recommendation of the Committee, may
provide in the Option Agreement that the right to exercise each Option for the
number of shares subject to each Option shall vest, in the Option holder over
such period of time as the Committee, in its discretion, shall determine for
each Option holder. Notwithstanding the foregoing, each Option Agreement shall
provide that, upon the occurrence of a Change in Control of the Corporation, all
Options then outstanding shall become immediately exercisable.
(e) Options shall be nontransferable and nonassignable, except that Options
may be transferred by testamentary instrument or by the laws of descent and
distribution, and Nonqualified Stock Options may be transferred to family
members or family trusts, subject to the original terms of the Option.
(f) Unless the Committee specifies otherwise in an Option agreement, upon
voluntary or involuntary termination of an Option holder's service with the
Corporation, his Options and all rights thereunder shall terminate effective at
the close of business on the date the Option holder ceases to be a Director or
regular, full-time employee of the Corporation or any of its subsidiaries,
except (i) to the extent previously exercised and (ii) as provided in
subparagraphs (g), (h) and (i) of this Paragraph 7.
(g) In the event an Option holder (i) takes a leave of absence from the
Corporation or any of its subsidiaries for personal reasons or as a result of
entry into the armed forces of the United States, or any of the departments or
agencies of the United States government, or (ii) terminates his employment, or
ceases providing services to the Corporation or any of its subsidiaries, by
reason of death, disability, voluntary termination with the consent of the
Committee, or other special circumstances, the Committee may consider his case
and may take such action in respect of the related Option Agreement as it may
deem appropriate under the circumstances, including accelerating the time
previously granted for Options to be exercised and extending the time following
the Option holder's termination of active employment or service during which the
Option holder is entitled to purchase the shares of Common Stock subject to such
Options, provided that in no event may any Option be exercised after the
expiration of the time of the Option.
(h) If an Option holder dies during the term of his Option without having
fully exercised this Option, the executor or administrator of his estate or the
person who inherits the right to exercise the Option by bequest or inheritance
shall have the right within two years of the Option holder's death to purchase
the number of shares of Common Stock that the deceased Option holder was
entitled to purchase at the date of his death, after which the Option shall
lapse, provided that in no event may any Option be exercised after the
expiration of the term of the Option.
(i) If an Option holder terminates employment without his having fully
exercised his Option due to his retirement with the consent of the Corporation,
then such Option holder shall have the right within ninety (90) days of the
Option holder's termination of employment or service to purchase the number of
shares of Common Stock that the Option holder was entitled to purchase at the
date of his termination, after which the Option shall lapse, provided that in no
event may any Option be exercised after the expiration of the term of the
Option. The Committee may cancel the Option during the ninety-day period
referred to in this paragraph, if the Participant engages in employment or
activities, which, in the opinion of the Committee, are contrary to the best
interests
<PAGE>
of the Corporation. The Committee shall determine in each case whether a
termination of employment or service shall be considered a retirement with the
consent of the Corporation, and, subject to applicable law, whether a leave of
absence shall constitute a termination of employment. Any such determination of
the Committee shall be final and conclusive, unless overruled by the Board.
(j) The granting of an Option pursuant to the Plan shall not constitute or
be evidence of any agreement or understanding, express or implied, on the part
of the Corporation or any of its subsidiaries to retain or employ the Option
holder for any specified period.
(k) In addition to the general terms and conditions set forth in this
Paragraph 7 in respect of Options granted pursuant to the Plan, Incentive Stock
Options granted pursuant to the Plan shall be subject to the following
additional terms and conditions:
(i) "Incentive Stock Options" shall be granted only to individuals who,
at the date of grant of the Option, are employees of the Corporation or any
of its subsidiaries;
(ii) No employee who owns beneficially more than 10% of the total
combined voting power of all classes of stock of the Corporation shall be
eligible to be granted an "Incentive Stock Option;"
(iii) The aggregate fair market value (determined at the time the
Incentive Stock Option is granted) of the shares of Common Stock in respect
of which "Incentive Stock Options" are exercisable for the first time by the
Option holder during any calendar year (under all such plans of the
Corporation and its subsidiaries) shall not exceed $100,000 (but to the
extent this limit is exceeded, the Option shall be a Non-Incentive Stock
Option); and
(iv) Any other terms and conditions specified by the Board of Directors
that are not inconsistent with the Plan, except that such terms and
conditions must be consistent with the requirements for "Incentive Stock
Options" under Section 422 of the Code.
8. METHODS OF EXERCISE OF OPTIONS
(a) An Option holder (or other person or person, if any, entitled to
exercise an Option hereunder) desiring to exercise an Option granted pursuant to
the Plan as to all or part of the shares of Common Stock covered by the Option
shall (i) notify the Corporation in writing at its principal office at 180
Admiral Cochrane Drive, Annapolis, Maryland 21401-7394, to that effect,
specifying the number of shares of Common Stock to be purchased and the method
of payment therefor, and (ii) make payment or provision for payment for the
shares of Common Stock as purchased in accordance with this Paragraph 8. Such
written notice may be given by means of a facsimile transmission. If a facsimile
transmission is used, the Option holder should mail the original executed copy
of the written notice to the Corporation promptly thereafter.
(b) Payment or provision for payment shall be made as follows:
(i) The Option holder shall deliver to the Corporation at the address set
forth in subparagraph 8(a) United States currency in an amount equal to the
aggregate purchase price of the shares of Common Stock as to which such
exercise relates; or
(ii) The Option holder shall tender to the Corporation shares of Common
Stock already owned by the Option holder that, together with any cash
tendered therewith, have an aggregate fair market value (determined based on
the Fair Market Value of a share of Common Stock on the date the notice set
forth in subparagraph 8(a) is received by the Corporation) equal to the
aggregate purchase price of the shares of Common Stock as to which such
exercise relates; or
<PAGE>
(iii) The Option holder shall deliver to the Corporation an exercise
notice together with irrevocable instructions to a broker to deliver promptly
to the Corporation the amount of sale or loan proceeds necessary to pay the
aggregate purchase price of the shares of Common Stock as to which such
exercise relates and to sell the shares of Common Stock to be issued upon
exercise of the Option and deliver the cash proceeds, less commission and
brokerage fees to the Option holder or to deliver the remaining shares of
Common Stock to the Option holder.
Notwithstanding the foregoing provisions, the Committee and the Board of
Directors, in granting Options pursuant to the Plan, may limit the methods in
which an Option may be exercised by any person and, in processing any purported
exercise of an Option granted pursuant to the Plan, may refuse to recognize the
method of exercise selected by the Option holder (other than the method of
exercise set forth in subparagraph 8(b)(i)).
(c) In addition to the alternative methods of exercise set forth in
paragraph 8(b), holders of Nonqualified Stock Options shall be entitled, at or
prior to the time the written notice provided for in subparagraph 8(a) is
delivered to the Corporation, to elect to have the Corporation withhold from the
shares of Common Stock to be delivered upon exercise of the Nonqualified Stock
Option that number of shares of Common Stock (determined based on the Fair
Market Value of a share of Common Stock on the date the notice set forth in
subparagraph 8(a) is received by the Corporation) necessary to satisfy any
withholding taxes attributable to the exercise of the Nonqualified Stock Option.
Alternatively, such holder of a Nonqualified Stock Option may elect to deliver
previously owned shares of Common Stock upon exercise of the Nonqualified Stock
Option to satisfy any withholding taxes attributable to the exercise of the
Nonqualified Stock Option. If the Board of Directors does not include any
provisions relating to this withholding feature in its resolutions granting the
Nonqualified Stock Option or in the Option Agreement, the maximum amount that an
Option holder may elect to have withheld from the shares of Common Stock
otherwise deliverable upon exercise or the maximum number of previously owned
shares an Option holder may deliver shall be equal to the minimum federal and
state withholding. Notwithstanding the foregoing provisions, the Committee or
the Board of Directors may include in the Option Agreement relating to any such
Nonqualified Stock Option provisions limiting or eliminating the Option holder's
ability to pay his withholding tax obligation with shares of Common Stock; or if
no such provisions are included in the Option Agreement, but in the opinion of
the Committee or the Board of Directors such withholding would have an adverse
tax or accounting effect to the Corporation, at or prior to exercise of the
Nonqualified Stock Option the Committee or the Board of Directors may limit or
eliminate the Option holder's ability to pay his withholding tax obligation with
shares of Common Stock. Notwithstanding the foregoing provisions, a holder of a
Nonqualified Stock Option may not elect any of the methods of satisfying his
withholding tax obligation in respect of any exercise if, in the opinion of
counsel to the Corporation, there is a substantial likelihood that the election
or timing of the election would subject the holder to a substantial risk of
liability under Section 16 of the Exchange Act.
(d) An Option holder at any time may elect in writing to abandon an Option
in respect of all or part of the number of shares of Common Stock as to which
the Option shall not have been exercised.
(e) An Option holder shall have none of the rights of a stockholder of the
Corporation until the shares of Common Stock covered by the Option are issued to
him upon exercise of the Option.
9. DEFERRED SHARES
(a) Elections to Defer. The Committee may at any time allow any
Participant (or Participants) who is a member of the Board of Directors, or a
member of a select group of management or highly compensated employees (within
the meaning of the Employees' Retirement Income Security Act of 1973, with each
such individual being referred to herein as a "Participant") to irrevocably
elect, on the form as approved by the Committee (the "Election Form"), to
forego the receipt of cash compensation and in lieu thereof to have the
Corporation credit Deferred Shares to the Participant's account with a Fair
Market Value equal to the compensation deferred. Each
<PAGE>
Election Form shall take effect five business days after its delivery to the
Committee, unless in the meantime the Committee sends the Participant a written
notice explaining why the Election Form is invalid. Notwithstanding the
foregoing sentence, Election Forms shall be ineffective with respect to any
compensation that a Participant earns before the date on which the Committee
receives the Election Form.
(b) Vesting. Deferred Shares shall be 100% vested at all times.
(c) Recordkeeping; Cash Earnings on Deferred Shares. The Committee shall
establish and maintain an individual account (the "Cash Account") in the name of
each Participant who files an Election Form. On the last day of each fiscal
quarter, the Corporation shall credit to the Participant's Cash Account any cash
dividends paid on the balance of Deferred Shares credited to the Participant's
Account. On the last day of each fiscal year of the Corporation, the Committee
shall credit to the Participant's Account Deferred Shares with a Market Value
equal to the balance of the Participant's Cash Account (without regard to
fractional shares), and the balance of the Participant's Cash Account shall be
reduced to zero. The Trustees shall hold each Participant's Deferred Shares
until distribution is required pursuant to subsection (d) hereof.
(d) Distributions of Deferred Shares and Earnings. The Trustees shall
distribute a Participant's Deferred Shares in five substantially equal annual
installments that are paid before the last day of each of the five fiscal years
of the Corporation that end after the date on which the Participant's Continuous
Service terminates, unless the Participant has properly elected a different form
of distribution, on the form (the "Distribution Election Form") approved by the
Committee, and the Committee has received the Participant's Distribution
Election Form either more than 90 days before a Change in Control or more than
one year before the date on which the Participant's Continuous Service
terminates for any reason. Fractional Shares shall not be distributed.
(e) Hardship Withdrawals. Notwithstanding any other provision of the Plan
or a Participant's Election Form, in the event the Participant suffers an
unforeseeable hardship within the contemplation of this Section, the Participant
may apply to the Committee for an immediate distribution of all or a portion of
his Deferred Shares. The hardship must result from a sudden and unexpected
illness or accident of the Participant or a dependent of the Participant,
casualty loss of property, or other similar conditions beyond the control of the
Participant. Examples of purposes, which are not considered hardships, include
post-secondary school expenses or the desire to purchase a residence. In no
event will a distribution be made to the extent the hardship could be relieved
through reimbursement or compensation by insurance or otherwise, or by
liquidation of the Participant's nonessential assets to the extent such
liquidation would not itself cause a severe financial hardship. The amount of
any distribution hereunder shall be limited to the amount necessary to relieve
the Participant's financial hardship. The determination of whether a Participant
has a qualifying hardship and the amount, which qualifies for distribution, if
any shall be made by the Committee in its sole discretion. The Committee may
require evidence of the purpose and amount of the need, and may establish such
application or other procedures as it deems appropriate.
(f) Rights to Deferred Shares. A Participant may not assign his or her
claim to Deferred Shares during his or her lifetime. A Participant's right to
Deferred Shares shall at all times constitute an unsecured promise of the
Corporation to pay benefits as they come due. The right of the Participant or
his or her beneficiary to receive benefits hereunder shall be solely an
unsecured claim against the general assets of the Corporation. Neither the
Participant nor his or her beneficiary shall have any claim against or rights in
any specific assets, shares, or other funds of the Corporation.
10. RESTRICTED SHARE AWARDS
(a) Grants. The Committee shall have the discretion to grant Restricted
Share Awards to Employees and members of the Board of Directors. As promptly as
practicable after a determination is made that a Restricted Share Award is to be
made, the Committee shall notify the Participant in writing of the grant of the
Award, the number of shares covered by the Award, and the terms upon which the
shares subject to the Award may be
<PAGE>
earned. The date on which the Committee so notifies the Participant shall be
considered the date of grant of the Restricted Share Awards. The Committee shall
maintain records as to all grants of Restricted Share Awards under the Plan.
(b) Earning Shares. Unless the Committee specifically eliminates any
vesting schedule in an Agreement granting a Restricted Share Award, shares
subject to Restricted Share Awards shall be earned and become non-forfeitable by
a Participant according to the following schedule, provided the Participant is
an Employee or Director on the scheduled vesting date:
<TABLE>
<CAPTION>
Vested Percentage
Years Since Award (applied to Restricted Shares)
------------------- -------------------------------
<S> <C>
Less than 1 0%
1 25%
2 50%
3 75%
4 or More 100%
</TABLE>
Notwithstanding the foregoing and unless otherwise provided in a Participant's
Restricted Stock Award, each Participant shall become (100%) vested immediately
(i) upon termination of the Participant's service due to the Participant's
disability or death, or (ii) upon a Change in Control of the Corporation.
(c) Accrual of Dividends. Whenever shares are paid to a Participant or
beneficiary under Section 11(d), such Participant or beneficiary shall also be
entitled to receive, with respect to each share paid, an amount equal to any
cash dividends (including special large and nonrecurring dividends, including
one that has the effect of a return of capital to the Corporation's
stockholders) and a number of shares of Common Stock equal to any stock
dividends, declared and paid with respect to a share of Common Stock between the
date the relevant Restricted Share Award was initially granted to such
Participant and the date the shares are being distributed. There shall also be
distributed an appropriate amount of net earnings, if any, with respect to any
cash dividends so paid out.
(d) Distribution of Shares.
(i) Timing of Distributions: General Rule. Except as otherwise expressly
stated in this Plan, the Committee shall distribute shares and accumulated
cash from dividends and interest to the Participant or his Beneficiary, as
the case may be, as soon as practicable after they have been earned. No
fractional shares shall be distributed.
(ii) Form of Distribution. The Committee shall distribute all shares,
together with any shares representing stock dividends, in the form of Common
Stock. One share of Common Stock shall be given for each share earned.
Payments representing cash dividends (and earnings thereon) shall be made in
cash.
(iii) Withholding. The Committee shall withhold from any cash payment
made under this Plan sufficient amounts to cover any applicable withholding
and employment taxes, and if the amount of such cash payment is not
sufficient, the Committee shall require the Participant or beneficiary to pay
to the Committee the amount required to be withheld as a condition of
delivering the shares. The Committee shall pay over to the Corporation or
Affiliate which employs or employed such Participant any such amount withheld
from or paid by the Participant or beneficiary.
(iv) Regulatory Exceptions. No Restricted Shares shall be distributed
unless and until all of the requirements of all applicable law and
regulations shall have been fully complied with, including the receipt of
approval of the Plan by the stockholders of the Corporation by such vote, if
any, as may be required by applicable law and regulations.
<PAGE>
(e) Voting of Plan Shares. All shares of Common Stock subject to Awards
(whether or not subject to a Restricted Share Award) shall be voted by the Board
of Directors in the manner directed by the Board of Directors.
(f) Deferral Elections. At any time 12 months prior to the date on which a
Participant becomes vested in any shares subject to his or her Restricted Share
Award, a Participant who is a member of a select group of management or highly
compensated employees (within the meaning of the Employees' Retirement Income
Security Act of 1973) may irrevocably elect, on the form (the "Election Form")
approved by the Committee, to defer the receipt of all or a percentage of the
shares that would otherwise be transferred to the Participant upon the vesting
of such Award. If such an election is made, the shares shall be credited to the
Participant's Account as Deferred Shares on the date such shares would otherwise
have been distributed to the Participant.
11. AMENDMENTS AND DISCONTINUANCE OF THE PLAN
The Board of Directors shall have the right at any time and from time to
time to amend, modify, or discontinue the Plan provided that, except as provided
in subparagraph 6(c), no such amendment, modification, or discontinuance of the
Plan shall (i) revoke or alter the terms of any valid Option previously granted
pursuant to the Plan, (ii) increase the number of shares of Common Stock to be
reserved for issuance and sale pursuant to Options granted pursuant to the Plan,
(iii) decrease the exercise price determined pursuant to the provisions of
subparagraph 7(b), or (iv) provide for Options exercisable more than 10 years
after the date granted.
12. PLAN SUBJECT TO GOVERNMENTAL LAWS AND REGULATIONS
The Plan and the grant of Awards pursuant to the Plan shall be subject to
all applicable governmental laws and regulations. Notwithstanding any other
provision of the Plan to the contrary, the Board of Directors may in its sole
and absolute discretion make such changes in the Plan as may be required to
conform the Plan to such laws and regulations.
13. DURATION OF THE PLAN
No Option shall be granted pursuant to the Plan after the close of business
on March 23, 2010.
