SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the Commission
Only (as permitted by Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|X| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Talbot Bancshares, Inc.
-----------------------
(Name of Registrant as Specified in Its Charter)
N/A
---
(Name of Person(s) Filing Proxy Statement, if Other Than the Registrant)
Payment of Filing Fee (Check the appropriate box):
|X| No fee required.
|_| Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11.
(1) Title of each class of securities to which transaction applies: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
|_| Fee paid previously with preliminary materials: N/A
|_| Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To the Stockholders of TALBOT BANCSHARES, INC.
Notice is hereby given that the Annual Meeting of Stockholders of
Talbot Bancshares, Inc. (the "Company") will be held at the offices of The
Talbot Bank of Easton, Maryland, 18 East Dover Street, Easton, Maryland, 21601
at 11:00 a.m., local time, on Wednesday, April 28, 1999, for the following
purposes:
1. To elect four Class I Directors to the Company's Board of
Directors to serve until the 2002 Annual Meeting.
2. To consider a proposal to approve the 1999 Stock Option Plan.
3. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Stockholders of record at the close of business on March 22, 1999, will
be entitled to notice of and to vote at the meeting. This proxy statement is
accompanied by the Company's 1998 Annual Report to Stockholders.
All stockholders are cordially invited to attend the meeting in person.
Those who cannot attend are urged to sign, date and mail promptly the enclosed
proxy in the envelope provided for that purpose. Proposals 1 and 2 require the
affirmative vote of holders of a majority of the shares of common stock present
and voting. Whether you own a few or many shares, your proxy is important in
fulfilling this requirement. Returning your proxy does not deprive you of your
right to attend the meeting and to vote your shares in person.
By Order of the Board of Directors,
W. Moorhead Vermilye
President
March 26, 1999
18 East Dover Street, Easton, Maryland 21601
---------------------------------------------------------
410-822-1400 / Fax 410-820-7180
<PAGE>
[THIS PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
TALBOT BANCSHARES, INC.
18 EAST DOVER STREET
EASTON, MARYLAND 21601
PROXY STATEMENT
FOR
1999 ANNUAL MEETING OF STOCKHOLDERS
This Proxy Statement is furnished to the stockholders of Talbot
Bancshares, Inc. (the "Company") in connection with the solicitation of proxies
by the Board of Directors of the Company to be voted at the Annual Meeting of
Stockholders. The Annual Meeting of Stockholders will be held on Wednesday,
April 28, 1999 at 11:00 a.m., local time, at the offices of The Talbot Bank of
Easton, Maryland, 18 East Dover Street, Easton, Maryland 21601, and at any
adjournments thereof. The expense of preparing, printing, and mailing the
proxies and solicitation materials will be borne by the Company. In addition to
solicitations by mail, the Company may solicit proxies in person or by
telephone, and arrange for brokerage houses and other custodians, nominees, and
fiduciaries to send proxies and proxy material to their principals at the
expense of the Company. The approximate date on which this proxy statement and
attached form of proxy is mailed to stockholders is March 26, 1999.
Holders of record at the close of business on March 22, 1999 (the
"Record Date") of outstanding shares of the Company's common stock, par value
$.01 per share ("Common Stock"), are entitled to notice of and to vote at the
meeting. As of the Record Date, the number of shares of outstanding Common Stock
entitled to vote is 1,192,222 shares. Each share of stock is entitled to 1 vote.
Shares represented by any proxy properly executed and received pursuant to this
solicitation will be voted in accordance with the directions of the stockholder;
if no direction is given, the proxy will be voted for approval of Proposals 1
and 2 and in the discretion of the holders of the proxies as to any other
matters that may properly come before the meeting. The proxy may be revoked by a
stockholder at any time prior to its use by execution of another proxy bearing a
later date, or by written notice delivered to W. Moorhead Vermilye, President of
the Company, at the Company's address or at the meeting. The Company's address
is 18 East Dover Street, Easton, Maryland 21601 (410-822-1400). The Company is
the parent bank holding company to The Talbot Bank of Easton, Maryland (the
"Bank"), a Maryland commercial bank. In 1997, the Company exchanged each share
of the Bank's common stock for 2 shares of the Common Stock of the Company.
Holders of Common Stock will be asked to (1) elect four Class I
Directors to the Company's Board of Directors to serve until the 2002 Annual
Meeting; and (2) to consider a proposal to approve the 1999 Stock Option Plan.
ELECTION OF DIRECTORS (Proposal 1)
By resolution of a majority of the entire Board of Directors, the
number of Directors constituting the Board is fixed at 13. At the 1998 Annual
Meeting, Directors were elected into 3 classes, as nearly equal in number as
possible, with respect to the time for which the Directors may hold office.
Directors are elected to hold office for a term of 3 years, and 1 class of
Director expires each year. The terms of Directors of Class I expire this year.
Directors of Class II will hold office until the 2000 Annual Meeting of
Stockholders and Directors of Class III will hold office until the 2001 Annual
Meeting of Stockholders. In each case, Directors are elected until their
successors are duly elected and qualify.
<PAGE>
The Directors of Class I, therefore, are up for election at this Annual
Meeting. The Company's President is a member of Class III, and the Company's
Vice President is a member of Class II. The following nominees for Directors of
Class I, their ages as of the Record Date, their principal occupations and
business experience for the past 5 years, and certain other information are set
forth below.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
NOMINEES FOR CLASS I DIRECTORS
(New Term will Expire in 2002)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Herbert L. Andrew, III 62 Mr. Andrew has served as a Director of the Company since its
formation in 1997 and of the Bank since 1977. He is a farmer
and served on the Talbot County Council from 1994 to 1998.
Blenda W. Armistead 47 Ms. Armistead has served as a Director of the Company since
its formation in 1997 and of the Bank since 1992. She is an
investor, and the former County Manager of Talbot County.
Lloyd L. Beatty, Jr. 46 Mr. Beatty has served as a Director of the Company since its
formation in 1997 and of the Bank since 1992. He is a
Certified Public Accountant, Principal in Beatty, Satchell &
Company, LLC, and President of Darby Advisors, Inc.
Donald D. Casson 69 Mr. Casson has served as a Director of the Company since its
formation in 1997 and of the Bank since 1983. He is a
Certified Public Accountant and real estate broker.
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The election of directors requires the affirmative vote of holders of a
majority of the shares of Common Stock present and voting. A quorum for the
Annual Meeting consists of a majority of the issued and outstanding shares of
Common Stock present in person or by proxy and entitled to vote, and directors
are elected by a plurality of the votes of the shares present in person or by
proxy and entitled to vote. Consequently, withholding of votes, abstentions and
broker non-votes with respect to shares otherwise present at the Annual Meeting
in person or by proxy will have no effect on the outcome of this vote. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE NOMINEES.
The following tables contain information regarding Directors of other
Classes whose terms do not expire in 1999, including the Directors' ages as of
the Record Date, and their principal occupations and business experience for the
past 5 years.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
CLASS II DIRECTORS
(Term Expires in 2000)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Gary L. Fairbank 62 Mr. Fairbank has served as a Director of the Company since its
formation in 1997 and of the Bank since 1985. He is the
owner of Fairbank Tackle.
Page 2
<PAGE>
Ronald N. Fox 61 Mr. Fox has served as a Director of the Company since its
formation in 1997 and of the Bank since 1981. He is an
investor, and an owner of Oxford Spirits. Prior to 1997 he was
the co-owner of the Washington Street Pub.
Richard C. Granville 56 Mr. Granville has served as a Director of the Company since its
formation in 1997 and of the Bank since 1994. He is the
President of Celeste Industries Corporation of Easton,
Maryland.
Jerome M. McConnell 52 Mr. McConnell has served as a Director of the Company since
its formation in 1997 and of the Bank since 1990. He has been
the Vice President of the Company since its formation, and
Executive Vice President of the Bank since 1989.
- --------------------------------------------------------------------------------------------------------------------------
CLASS III DIRECTORS
(Term Expires in 2001)
- --------------------------------------------------------------------------------------------------------------------------
Name Age Principal Occupation and Business Experience
---- --- --------------------------------------------
Shari L. McCord 42 Ms. McCord has served as a Director of the Company since its
formation in 1997 and of the Bank since 1995. She is the
President of Chesapeake Travel Services, Inc. of Easton,
Maryland.
William H. Myers 86 Mr. Myers has served as a Director of the Company since its
formation in 1997 and of the Bank since 1948 and as Chairman
of the Board since 1995. He is a farmer.
David L. Pyles 54 Mr. Pyles has served as a Director of the Company since its
formation in 1997 and of the Bank since 1989. He is an
investor. Prior to 1996, Mr. Pyles was the President of Pyles
Lincoln Mercury, Inc.
Christopher F. Spurry 51 Mr. Spurry has served as a Director of the Company since its
formation in 1997 and of the Bank since 1995. He is the
President of Spurry & Associates, Inc.
W. Moorhead Vermilye 58 Mr. Vermilye has served as a Director of the Company since its
formation in 1997 and of the Bank since 1977. He has been
the President of the Company since its formation, President of
the Bank since 1988, and Chief Executive Officer of the Bank
since 1993.
</TABLE>
During the past year the Bank has had banking transactions in the
ordinary course of its business with its directors, officers and owners of 5% or
more of the outstanding Common Stock and with their associates on substantially
the same terms, including interest rates, collateral, and repayment terms on
loans, as those prevailing at the same time for comparable transactions with
others. The extensions of credit by the Bank to these persons have not and do
not currently involve more than the normal risk of collectability or present
other unfavorable features.
The Company has no standing committees. The Bank has 5 standing
committees of the Board of Directors as of December 31, 1998. The Bank's
Executive Committee consists of Messrs. Vermilye,
Page 3
<PAGE>
Andrew, Fox, McConnell, Pyles and Ms. Armistead. The Committee has the authority
to exercise the powers of the Board in the management of the business and
affairs of the Bank, subject to subsequent revision or alteration of any such
action by the Board of Directors of the Bank. The Executive Committee meets
every Wednesday, other than on Wednesdays on which regularly scheduled Board
meetings are held. Although not required, it is common practice that all Board
members attend these meetings. The Executive Committee met 40 times during 1998.
The Bank's Loan Committee consists of Messrs. Vermilye, McConnell,
Casson, Fox, Granville and McCord. The Loan Committee meets to evaluate loan
requests which require Board approval prior to the next regularly scheduled
meeting of the Board of Directors. The Loan Committee meets jointly with the
Executive Committee each Wednesday, other than on Wednesdays on which regularly
scheduled Board meetings are held. As with the Executive Committee, all Board
members typically attend these meetings. The Loan Committee met 40 times during
1998.
The Bank's Audit Committee consists of 3 non-management Directors
(Messrs. Casson, Fox and Pyles). The Committee meets with the Bank's independent
accountants to review whether satisfactory accounting procedures are being
followed and with the Bank's internal auditor to ensure internal accounting
controls are adequate. During 1998 the Audit Committee held 4 meetings.
The Bank's Nominating Committee consists of Mr. Vermilye and 4
non-management Directors (Messrs. Andrew, Fairbank, Myers and Ms. Armistead).
The basic function of this Committee is the recommendation to the Board of those
persons to be designated as Board nominees for election to the Board by the
stockholders at their Annual Meeting. The Nominating Committee met twice in
1998. According to the Company's Bylaws, nominations by stockholders may be made
by written request to the Secretary of the Company received not less than 90
days nor more than 120 days prior to the date fixed for the meeting. As
described further in the Company's Bylaws, the notice must set forth (i) all
information relating to such proposed nominee that is required to be disclosed
in solicitation in Regulation 14A of the Securities Exchange Act of 1934, as
amended (including the nominee's written consent); and (ii) certain other
information provided by the stockholder, including the name and address and the
class and number of shares of the Company's stock that is beneficially owned by
the stockholder.
The Bank's Personnel Committee consists of Messrs. Andrew, Beatty,
Fairbank, Fox and Pyles. The Committee is responsible for determining executive
compensation and promotions. The Personnel Committee met twice in 1998.
The total number of meetings of the Board of Directors of the Company,
including regularly scheduled and special meetings, which were held in 1998 was
9. The total number of meetings of the Board of Directors of the Bank, including
regularly scheduled and special meetings, which were held in 1998 was 12. No
Director during the last full fiscal year attended fewer than 75% of the
aggregate of (1) the total number of meetings of the Board of Directors (held
during the period for which that person has been Director); and (2) the total
number of meetings held by all committees of the Board on which that person
served (during the period served), except that Mr. Myers attended 61% of the
Board and Committee meetings in which he is a member. Outside Directors receive
an annual retainer of $5,000 per year for serving on the Company and Bank Board,
plus $150 per meeting attended. Directors are compensated once for attendance at
jointly held meetings.
Total Director fees paid to Directors during 1998 were $77,100. In
addition, $55,000 was accrued for the Directors' retainers for 1998. Mr. Andrew
also received fees of $7,200 for inspections of real property in connection with
the monitoring of construction loans.
Page 4
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table reflects the beneficial ownership of Common Stock
by executive officers, directors and by stockholders known to management to own
beneficially 5% or more of Common Stock as of the Record Date, and includes all
shares of Common Stock that may be acquired by such persons within 60 days of
the Record Date. Unless otherwise indicated below, each person specified below
has sole investment and voting power (or shares such power with his or her
spouse) with regard to the shares set forth in the following table. The address
of each of the persons named below is the address of the Company.
- --------------------------------------------------------------------------------
Number of Percent
Shares of Class
Beneficially Beneficially
Name Owned Owned
- --------------------------------------------------------------------------------
Herbert L. Andrew, III 19,147 (1) 1.56%
Blenda W. Armistead 1,462 (2) .12%
Lloyd L. Beatty, Jr. 2,192 (3) .18%
Donald D. Casson 10,490 (4) .85%
Gary L. Fairbank 3,882 (5) .32%
Ronald N. Fox 8,904 (6) .72%
Richard C. Granville 30,608 (7) 2.49%
Jerome M. McConnell 13,145 (8) 1.07%
Shari L. McCord 100 (9) .01%
William H. Myers 45,000 3.66%
David L. Pyles 24,454 (10) 1.99%
Christopher F. Spurry 1,000 (11) .08%
W. Moorhead Vermilye 37,653 (12) 3.06%
All Directors/Executive
Officers as a Group (16
Persons) 211,038 17.16%
Other Persons
Nicholas F. Brady 82,554 6.71%
Total 293,592 23.87%
- --------------------------------------------------------------------------------
(1) Includes 18,019 shares held jointly with Mr. Andrew's spouse, and 128
shares held by the Bank as Custodian for his IRA.
(2) Includes 200 shares held by Ms. Armistead's spouse, 244 shares held by the
Bank as Custodian for her IRA, 518 shares held by the Bank as Custodian for
her spouse's IRA, and 300 shares held by her spouse as Custodian of a MUTMA
for her daughter.
(3) Includes 242 shares held by the Bank as Custodian for Mr. Beatty's IRA, 200
shares held in a brokerage account for another IRA, 320 shares held by
Beatty, Satchell & Company, LLC 401(k) plan FBO Mr. Beatty, 1,130 shares
held jointly with his spouse, and 200 shares held by his spouse.
(4) Includes 2,365 shares held by the Bank as Custodian for Mr. Casson's IRA,
334 shares held by his spouse, and 2,740 shares held by the Bank as
Custodian for his spouse's IRA.
Page 5
<PAGE>
(5) Includes 1,000 shares held jointly with Mr. Fairbank's spouse, 2,126 shares
held in a brokerage account for his IRA, and 300 shares held by the Bank as
custodian for his IRA.
(6) Includes 132 shares held by the Bank as Custodian for Mr. Fox's IRA, and
132 shares held by the Bank as Custodian for his spouse's IRA.
(7) Includes 5,668 shares held by the Bank as Custodian for Mr. Granville's
IRA.
(8) Includes 3,045 shares held by the Bank's 401(k) plan, and 10,000 stock
options.
(9) Includes 100 shares held by the Bank as Custodian for Ms. McCord's IRA.
(10) Includes 2,000 shares held by Mr. Pyles' spouse.
(11) Includes 500 shares held by the Bank as Custodian for Mr. Spurry's IRA, and
300 shares held jointly with his spouse.
(12) Includes 1,406 shares held by the Bank as Custodian for Mr. Vermilye's IRA,
6,355 shares held by the Bank's 401(k) plan, 20,000 stock options, and 692
shares held by his spouse.
EXECUTIVE COMPENSATION
The following table summarizes the remuneration earned in 1998 and the
prior 2 years by the President of the Company and the Bank, and any other
executive officer of the Company or the Bank who received cash compensation
during the preceding 3 fiscal years that exceeds $100,000. All remuneration
earned prior to the Company's formation is for services provided solely to the
Bank.
<TABLE>
<CAPTION>
==========================================================================================================================
SUMMARY COMPENSATION TABLE
- --------------------------------------------------------------------------------------------------------------------------
Annual Compensation Long-Term
Compensa- All
tion Other
Compensation
($)(3)
------------------------------------------------------------------
Name and principal Year Salary ($) Bonus ($) Other Annual Options
position Ended Compensation SARs
($)(1) (#)(2)
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
W. Moorhead Vermilye 1998 164,000 81,000 4,421 0 26,560
President & CEO 1997 162,225 78,000 4,502 0 26,489
1996 157,500 72,600 4,316 10,000 25,519
- --------------------------------------------------------------------------------------------------------------------------
Jerome M. McConnell 1998 112,000 40,000 2,915 0 4,480
Executive Vice 1997 110,000 37,500 2,514 0 4,400
President 1996 106,800 35,000 2,246 5,000 3,916
==========================================================================================================================
</TABLE>
(1) Includes value of benefits from the Bank's life insurance program, and tax
"gross up" for use of a motor vehicle.
(2) Amount reflects the number of options and SARs issued under the Talbot
Bancshares, Inc. Employee Stock Option Plan.
(3) Represents Bank matching contributions under the 401(k) and deferred
compensation plans.
Page 6
<PAGE>
BENEFIT PLANS
Defined Benefit Pension Plan
Effective January 1, 1995 the bank froze its non-contributory Defined
Benefit Pension Plan so that no future benefits will accrue after that date. The
plan covered substantially all full time employees with more than six months of
service. The Plan is administered by a committee appointed by the Board of
Directors. The funded status of the plan is presented in Note 9 of the Notes to
Consolidated Financial Statements contained in the 1998 Annual Report. The
Bank's policy has been to fund the actuarially determined minimum annual
required amount.
The following is based on the January 1, 1998 Actuarial Valuation of
the Plan:
<TABLE>
<CAPTION>
Name and Principal Years Annual Benefit Percentage
Position of Service at Retirement Vested
-------- ---------- ------------- ------
<S> <C> <C> <C>
Mr. Vermilye 11 $21,180 100
President and CEO
Mr. McConnell 9 $10,805 100
Executive Vice President
</TABLE>
401(k) Plan
The Bank's 401(k) Plan is administered by a committee appointed by the
Board of Directors and is available to eligible employees of the Bank who have
completed 6 months of service. Participants are required to contribute at least
1% and not more than 15% of base salary.
The Bank provides employer matching contributions to each active
member's account for each year in an amount equal to 100% of the member's pay
reduction contributions up to 3% of base salary, plus 50% of contributions which
exceed 3% of base salary, up to 5% of base salary, with a maximum matching
contribution equal to the Maximum Annual Additions limit for that year. In 1998,
the Bank made matching contributions to the Plan on behalf of Messrs. Vermilye
and McConnell of $6,560 and $4,480, respectively.
All employee contributions are immediately vested. Matching
contributions vest incrementally over a 6 year period. Pre-tax and matching
contributions may be withdrawn while a member is employed by the Bank if the
member has reached age 59-1/2, in circumstances of financial hardship or in
certain other circumstances pursuant to Plan restrictions.
Profit Sharing and Retirement Plan
Effective January 1, 1995 the Bank adopted the Profit Sharing and
Retirement Plan to replace the frozen Defined Benefit Plan. The Plan covers
substantially all full-time employees with more than 6 months of service. The
Bank makes discretionary contributions to the Plan based on profits.
Contributions to the Plan are allocated using an age-weighted formula. In 1998,
the Bank made contributions to the Plan totalling $100,000. Contributions
allocated to W. Moorhead Vermilye and Jerome M. McConnell were $14,420 and
$8,601, respectively.
Employee Incentive Stock Option Plan
The Company has an Employee Stock Option Plan and has reserved 40,000
shares of Common Stock for issuance thereunder (as adjusted for the Company's 2
for 1 share exchange), and 800 shares are currently available under the plan.
The Stock Option Plan provides for the granting of incentive and
Page 7
<PAGE>
nonqualified stock options to certain key employees of the Company. No options
may be granted after January 11, 2005. Options to purchase 575 shares were
exercised during 1998, none of which were exercised by a named executive officer
of the Company. The following table sets forth certain information relating to
the number and value of underlying unexercised stock options held by the named
executives as of December 31, 1998.
<TABLE>
<CAPTION>
Aggregated Option Exercises in 1998 and 1998 Year End Option Values
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options at
(#) Fiscal Year-End ($)(1)
--------------------------- ------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
W. Moorhead Vermilye 20,000 0 $615,000 $0
Jerome M. McConnell 10,000 0 $307,500 $0
</TABLE>
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1998 were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per share
option exercise price and the fair market value of the shares at December 31,
1998 of $53 per share.
Upon exercise of all or a portion of these options, the Company shall
pay the Optionee a Tax Benefit Payment in an amount of U.S. dollars equal to the
number of shares as to which the option is being exercised, times the "Tax
Rate", times the difference between the per share fair market value at the time
of exercise and the per share option price. The Tax Rate shall be a percentage
designated by the Committee to result in compensating the Optionee for the
federal, state and local income tax liability incurred by the Optionee by virtue
of his exercise of the option and the payment to him of the Tax Benefit Payment.
Deferred Compensation
During 1996, the Company adopted a supplemental deferred compensation
plan to provide retirement benefits to its President and Chief Executive
Officer. The plan calls for fixed annual payments of $20,000 vesting immediately
to be credited to the participant's account. Contributions to the plan totaled
$20,000 for the year ended December 31, 1998.
Bonus Plans
The Bank has a discretionary bonus plan whereby officers and employees
are awarded annual bonuses based upon individual merit and the Bank's financial
performance. Amounts accrued under the plan totalled $306,993 for 1998.
EXECUTIVE COMPENSATION COMMITTEE REPORT
All compensation paid to the Company's executive officers is paid by
the Bank to those individuals in their capacities as executive officers of the
Bank. The Personnel Committee of the Bank's Board of Directors (the "Committee")
is responsible for the Company's executive compensation program and for
administering the Company's Employee Stock Option Plan. The philosophy of the
Committee is to provide compensation at levels sufficient to attract and retain
highly qualified individuals. It is the Committee's belief that in such a
complex and competitive an industry as banking, success is dependent on
retaining such leadership.
Page 8
<PAGE>
The Committee meets annually to consider salary increases and bonuses
for executive officers of the Bank. The Committee not only considers the
individual performance but also the overall financial performance of the Bank.
Financial performance indicators such as return on assets and loan and deposit
growth are compared to the Board's approved business plan and to performance of
its peer group.
Base Salaries--Base salaries are determined in comparison to average
salaries by position in banks of similar size. The Company has access to
published compensation data and often participates in compensation surveys.
Annual Bonuses--The Committee determines the amount of annual bonuses
based primarily on the overall performance of the Company measured on growth and
the return on assets.
Stock Option Plan--Stock options are granted to provide an incentive
that is basic to the increase in shareholder value. Options are issued on the
date of grant at fair market value and have a term of ten years. There is no
defined formula for determining the number of shares granted to any one
individual. Historical awards and the employee's contribution to the overall
Company's performance are two major factors.
The Committee believes the total compensation awarded to the executive
officers of the Company is consistent with the Committee's objectives and the
individual performance of each executive officer. For 1998, the Committee
increased the CEO's and Executive Vice President's base salary by less than 2%.
Annual bonuses paid to the CEO and Executive Vice President represented
approximately a 4.0% increase over the prior year.
This report is provided as a summary of the current philosophy and
practices of the Company concerning executive compensation.
PERSONNEL COMMITTEE
By: Herbert L. Andrew, III Ronald N. Fox
Lloyd L. Beatty, Jr. David L. Pyles
Gary L. Fairbank
EXECUTIVE OFFICERS
The following table sets forth the executive officers of the Company
and the Bank:
Position
Name In This Capacity Age Years Served
---- ---------------- --- ------------
W. Moorhead Vermilye Company President;
Bank President and Chief 58 11
Executive Officer
Jerome M. McConnell Company Vice President; 52 9
Bank Executive Vice
President
Susan E. Leaverton Secretary/Treasurer of 35 6
the Company; Bank Vice
President--Finance
G. Rodney Taylor Bank Senior Vice 57 16
President - Operations
Page 9
<PAGE>
Robert J. Meade Bank Vice President-- 55 4
Human Resources
All officers have served in their present capacity for the previous 5
years except as follows: Ms. Leaverton was appointed Vice President in 1994.
Prior to 1994, Ms. Leaverton served as the Internal Auditor of the Bank. Mr.
Meade joined the Bank in 1994 in his present capacity. Prior to joining the
Bank, Mr. Meade was employed by Cadmus Journal Services, Inc. as Director of
Human Resources. Each officer is reappointed on an annual basis by the Board of
Directors.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934, as amended,
requires that the Company's directors and executive officers and persons who own
more than 10% of the Common Stock file with the Securities and Exchange
Commission an initial report of beneficial ownership and subsequent reports of
changes in beneficial ownership of the Common Stock. The Company believes that
all of its directors and executive officers complied in a timely manner with all
filing requirements applicable to them with respect to transactions during the
fiscal year ended December 31, 1998.
APPROVAL OF 1999 STOCK OPTION PLAN (Proposal 2)
The Company's Board adopted the 1999 Stock Option Plan (the "Stock
Option Plan") contingent upon approval by the stockholders within 12 months of
the date of adoption. Unless extended or earlier terminated by the Board, the
Plan will continue in effect until, and will terminate on, April 28, 2009. The
purpose of the Stock Option Plan is to provide incentives for executive officers
and key employees of the Company, the Bank, and their subsidiaries and to
provide an additional means of attracting and retaining competent personnel.
This Proposal 2 must be approved by an affirmative vote of a majority of the
votes cast by the holders of shares of Common Stock present in person or
represented by proxy at the Annual Meeting at which a quorum is present. For
purposes of this proposal, abstentions and broker non-votes do not affect the
majority vote.
Administration of the Stock Option Plan
The Stock Option Plan will be administered by the Company's Board of
Directors (the "Board"). No member of the Board may vote upon or decide any
matter relating to himself or herself or to members of his or her immediate
family. The Board is authorized to determine and designate from time to time
those executive officers and key employees to whom options are to be granted.
The granting of an option to an employee takes place only when a written and
executed option agreement containing the terms and conditions of the option is
delivered to the employee. Unless an earlier expiration is specified by the
Board in the option agreement, each option granted under the Stock Option Plan
will expire generally on the 10th anniversary of the date the option was
granted.
In the event of termination of an optionee's employment for cause, all
unexercised options of the optionee immediately terminate. In the event of
termination of employment of an optionee other than for cause, all unexercised
options will terminate, provided that the optionee, within 3 months after the
termination of employment, may exercise the option to purchase that number of
shares that were purchasable by the optionee at the time of his or her
termination. In the event of the death of an optionee or termination of
employment due to permanent or total disability, the option may be exercised by
the personal representative, administrator, or bequestee, or by the disabled
optionee, as the case may be, within 1 year after the death or termination of
employment, to purchase that number of shares that were purchasable by the
optionee at the time of his or her death or disability.
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The Stock Option Plan provides for the reservation of 85,000 shares of
Common Stock of the Company for issuance upon the exercise of options granted
under the Stock Option Plan. This amount represents, in newly issued shares,
approximately 7% of the total number of issued and outstanding shares of the
Company. The number of shares reserved for the grant of options and the number
of shares which are subject to outstanding options under the Stock Option Plan
are subject to adjustment in the event of any stock split, stock dividend or
other relevant changes in the capitalization of the Company.
Terms of Options
The exercise price for shares being purchased upon the exercise of
options may be paid (i) in cash or by check; (ii) with shares of the Company, to
the extent the fair market value of such shares on the date of exercise equals
the exercise price of the shares being purchased, (iii) by surrender to the
Company of options to purchase shares, to the extent of the difference between
the exercise price of such options and the fair market value of the shares
subject to such options on the date of such surrender, or (iv) a combination of
(i), (ii) or (iii) above. The Company has the right, and the optionee may
require the Company, to withhold and deduct from the number of shares
deliverable upon the exercise of any options under the Stock Option Plan a
number of shares having an aggregate fair market value equal to the amount of
any taxes and other charges that the Company is obligated to withhold or deduct
from amounts payable to the optionee.
No option may be transferred by an optionee other than by will and the
laws of descent and distribution. Options are exercisable only by the optionee
during his or her lifetime and only as described in the Stock Option Plan.
Options may not be assigned, pledged or hypothecated, and are not subject to
execution, attachment or similar process. Upon any attempt to transfer an
option, or to assign, pledge, hypothecate or otherwise dispose of an option in
violation of the Stock Option Plan, or upon the levy of any attachment or
similar process upon such option or such rights, the option immediately becomes
null and void.
Exercise Periods
Unless otherwise authorized by the Board, 20% of the shares subject to
the option will become exercisable on each anniversary date of the grant of the
option, so that the option shall become fully exercisable on the fifth
anniversary of the date the option was granted. However, upon the occurrence of
certain "Extraordinary Events," all options granted under the Stock Option Plan
will become fully exercisable for the full number of shares subject to any such
option. An "Extraordinary Event" is defined as the commencement of a tender
offer (other than by the Company) for any shares of the Company, or a sale or
transfer, in 1 or a series of transactions, of assets having a fair market value
of 50% or more of the fair market value of all assets of the Company, or a
merger, consolidation or share exchange pursuant to which the shares of the
Company are or may be exchanged for or converted into cash, property or
securities of another issuer, or the liquidation of the Company. If an optionee
fails to exercise his or her option upon an Extraordinary Event, or if there is
a capital reorganization or reclassification of the shares, the Company must
take action as may be necessary to enable each optionee to receive upon any
subsequent exercise of his or her options, in lieu of shares, securities or
other assets as were issuable or payable upon the Extraordinary Event in respect
of, or in exchange for, such shares.
Tax Consequences
Options granted under the Stock Option Plan may be either incentive
stock options within the meaning of Section 422(b) of the Internal Revenue Code
of 1986, as amended (qualified options), or nonqualified options. The price at
which shares may be purchased upon exercise of an option will be equal to the
fair market value of the shares on the date the option is granted. An employee
realizes no income upon the grant of an incentive stock option. An employee who
holds his or her shares for 2 years
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after the grant of the option and for 1 year after he or she receives the shares
upon its exercise generally will not incur any federal income tax liability upon
receipt of the shares pursuant to the exercise. However, the spread between the
exercise price and the fair market value of the shares at the time of exercise
will be included in alternative minimum taxable income for the year of exercise.
After satisfying such holding periods, upon a disposition of the shares at a
price greater than the option exercise price, the employee will realize taxable
long-term capital gain. The Company will not be allowed a deduction for federal
income tax purposes in connection with the grant or exercise of a qualified
option; however, if the employee does not comply with the holding periods, he or
she will realize ordinary income in the year of sale equal to the difference
between the exercise price and the value of the underlying shares on the date of
exercise (or the sale price if lower where the sale is to an unrelated party).
Where the sale price is lower than the fair market value of the shares on the
date of exercise and the sale is to an unrelated party, and the exercise and
sale occur within the same taxable year, the amount included in alternative
minimum taxable income will be the amount of the sale price. In such a case, the
Company would be entitled to a deduction in an amount equal to the ordinary
income realized by the employee.
Optionees will realize no income upon the grant of a nonqualified
option. Generally, however, the holder of a nonqualified option will realize
taxable ordinary income at the time of the exercise of his or her option in an
amount equal to the excess of the fair market value of the shares acquired at
the time of exercise over the exercise price of the option, and the Company will
be entitled to a deduction for the amount included in the optionee's income.
Upon the sale of the shares, the optionee will realize capital gain or capital
loss. Whether such capital gain or capital loss is long-term or short-term will
depend upon the period of time the optionee holds the shares once they are
acquired.
Interest of Executive Officers in Approval of the Stock Option Plan
Executive officers of the Company will be eligible to participate in
the Stock Option Plan and, therefore, have an interest in the approval of the
plan because they could receive a financial benefit under the plan.
Current Benefits granted under the Stock Option Plan
No options to purchase the Company's Common Stock have been granted to
any employee or other individual under the Stock Option Plan. The number of
options that will be granted to an employee has not been determined, and is
subject to the discretion of the Board and the requirements of the Stock Option
Plan.
THE BOARD RECOMMENDS THAT STOCKHOLDERS VOTE FOR APPROVAL OF THE
STOCK OPTION PLAN.
INDEPENDENT AUDITORS
The Board of Directors has engaged Stegman & Company, Certified Public
Accountants, to audit the books and accounts of the Company for the fiscal year
ending December 31, 1999. Stegman & Company served as the Company's independent
auditor for 1998. Stegman & Company has advised the Company that neither the
accounting firm nor any of its members or associates has any direct financial
interest in or any connection with the Company other than as independent public
auditors. A representative of Stegman & Company will be present at this year's
Annual Meeting and will respond to appropriate questions.
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[GRAPHIC OMITTED] PERFORMANCE GRAPH
The performance graph shown below compares the cumulative total return
to the Company's stockholders over the most recent 5-year period with both the
NASDAQ Composite index (reflecting overall stock market performance) and the
NASDAQ Bank Index (reflecting changes in banking industry stocks). Returns are
shown on a total return basis, assuming the reinvestment of dividends.
COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
TALBOT BANCSHARES, INC., NASDAQ COMPOSITE INDEX AND NASDAQ BANK INDEX
<TABLE>
<CAPTION>
Period Ending
Index 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- ----- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Talbot Bancshares, Inc. 100.00 102.63 122.20 142.48 259.34 314.70
NASDAQ Bank Index 100.00 99.64 148.38 195.91 328.02 325.38
NASDAQ Composite (US) 100.00 97.74 135.24 170.03 208.75 292.65
</TABLE>
Assumes $100 invested on January 1, 1994 in the Company (or the predecessor Bank
prior to 1997), NASDAQ Composite Index and NASDAQ Bank Index.
FINANCIAL STATEMENTS
A copy of the Company's annual report containing audited financial
statements for the year ended December 31, 1998, accompanies this Proxy
Statement. A copy of Form 10-K, as filed with the Securities and Exchange
Commission, may be obtained, without charge, upon written request to Susan E.
Leaverton, Secretary/Treasurer, Talbot Bancshares, Inc., 18 East Dover Street,
Easton, Maryland 21601.
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DATE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholders' proposals for the 2000 Annual Meeting of Stockholders
pursuant to Rule 14a-8 of the Securities Exchange Act of 1934 must be received
at the Company's principal office not later than November 26, 1999 (120 days
before the date of mailing based on this year's proxy statement date) and meet
all other requirements for inclusion in the proxy statement. The procedures for
nominations of Directors are set forth in Article I, Section 8 of the Bylaws and
are described above under the heading "Election of Directors." All other
stockholder proposals must be received by the Company at its principal office by
February 6, 2000 (45 days before the date of mailing based on this year's proxy
statement date).
OTHER BUSINESS
As of the date of this proxy statement, management does not know of any
other matters that will be brought before the meeting requiring action of the
stockholders. However, if any other matters requiring the vote of the
stockholders properly come before the meeting, it is the intention of the
persons named in the enclosed form of proxy to vote the proxies in accordance
with the discretion of management. The persons designated as proxies will also
have the right to approve any and all adjournments of the meeting for any
reason.
By Order of the Board of Directors,
W. Moorhead Vermilye
President
March 26, 1999
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TALBOT BANCSHARES, INC.
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned stockholder of Talbot Bancshares, Inc. hereby appoints W.
Moorhead Vermilye and Donald D. Casson, or either of them, the lawful attorneys
and proxies of the undersigned with full power of substitution to vote, as
designated below, all shares of capital stock of the Company which the
undersigned is entitled to vote at the Annual Meeting of Stockholders called to
convene on Wednesday, April 28, 1999, and at any and all adjournments and
postponements thereof:
1. ELECTION OF CLASS I NOMINEES FOR DIRECTOR
Class I Nominees (to hold office until 2002 Annual Meeting):
HERBERT L. ANDREW, III, BLENDA W. ARMISTEAD, LLOYD L. BEATTY, JR., DONALD D.
CASSON
FOR all of AGAINST all of
the Nominees the Nominees
[ ] [ ]
(TO WITHHOLD AUTHORITY TO VOTE FOR ANY INDIVIDUAL NOMINEE, STRIKE OUT THE
NOMINEE'S NAME.)
2. PROPOSAL TO APPROVE THE 1999 STOCK OPTION PLAN
FOR the AGAINST the ABSTAIN
Stock Option Plan Stock Option Plan from Voting
[ ] [ ] [ ]
3. IN THEIR DISCRETION ON SUCH MATTERS AS MAY PROPERLY COME BEFORE THE
MEETING.
Shares represented by all properly executed proxies will be voted in accordance
with instructions appearing on the proxy. In the absence of specific
instructions, proxies will be voted FOR the directors named in the proxy
statement, FOR proposal number 2, and in the best discretion of the proxy
holders as to any other matters.
Dated ____________________________, 1999
--------------------------------------
Signature
--------------------------------------
Signature
(Please sign as name(s) appear(s) on stock certificate. If jointly held, both
owners must sign. Executors, administrators, trustees or persons signing in such
capacity should so indicate.)
<PAGE>
