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
|x| Filed by the Registrant
| | Filed by a Party other than the Registrant
Check the appropriate box:
| | Preliminary Proxy Statement | | Confidential for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
|x| Definitive Proxy Statement
| | Definitive Additional Materials
| | Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
ABIGAIL ADAMS NATIONAL BANCORP, INC.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
| | $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
| | $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3)
| | 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>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
1627 K Street, N.W.
Washington, D.C. 20006
----------------------
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1997
---------------------------
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Abigail
Adams National Bancorp, Inc., a Delaware corporation (the "Company"), will be
held at The Adams National Bank, 1627 K Street, N.W., Washington, D.C. on
Tuesday, June 17, 1997 at 3:00 p.m., local time, for the purpose of considering
and acting upon the following:
(1) To elect ten directors to hold office until the next Annual Meeting of
Stockholders of the Company, or until their successors are elected and
qualified;
(2) To ratify the selection of Arthur Andersen LLP as independent
certified public accountants for the Company for 1997;
(3) To approve the 1996 Employee Incentive Stock Option Plan;
(4) To approve the 1996 Directors Stock Option Plan; and
(5) To transact such other business as properly may come before the
meeting or any adjournment thereof.
Only stockholders of record at the close of business on April 18, 1997,
will be entitled to notice of and to vote at the meeting or any adjournments
thereof. Accompanying this notice is a proxy statement and proxy card. Whether
or not you plan to attend the meeting, please indicate your choice on the
matters to be voted upon, date and sign the enclosed Proxy and return it to our
transfer agent, American Stock Transfer & Trust Company, in the enclosed
postage- paid return envelope. You may revoke your Proxy at any time prior to
its exercise by written notice to the Company, by executing a Proxy bearing a
later date, or by attending the meeting and voting in person.
You are cordially invited to attend the meeting in person.
By Order of the Board of Directors
/s/ Joyce R. Hertz
------------------
Joyce R. Hertz
Secretary
April 30, 1997
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<PAGE>
2
<PAGE>
ABIGAIL ADAMS NATIONAL BANCORP, INC.
1627 K Street, N.W.
Washington, D.C. 20006
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON JUNE 17, 1997
The enclosed Proxy is being solicited by and on behalf of the Board of
Directors of Abigail Adams National Bancorp, Inc., a Delaware corporation (the
"Company"), for the Annual Meeting of Stockholders of the Company to be held on
Tuesday, June 17, 1997 at 3:00 p.m., local time, at the principal executive
offices of The Adams National Bank, a national banking association and a
wholly-owned subsidiary of the Company (the "Bank"), located at 1627 K Street,
N.W., Washington, D.C., or at any adjournment thereof.
Stockholders of record at the close of business on April 18, 1997 (the
"Record Date") will be entitled to notice of, and to vote at, the meeting. On
the Record Date, the Company had 1,651,226 shares of common stock, par value
$0.01 per share (the "Shares"), outstanding and entitled to vote at the meeting.
Each Share is entitled to one vote. A majority of the Shares outstanding on the
Record Date represented in person or by Proxy will constitute a quorum for the
transaction of business at the meeting. Abstentions and broker non-votes are
counted for purposes of determining the presence or absence of a quorum for the
transaction of business. A majority of the votes cast by stockholders in person
or by proxy at the meeting will be necessary for approval of the proposals
described herein.
In accordance with the laws of the State of Delaware and the Company's
Charter and By-Laws, for election of Directors, which requires a plurality of
the votes cast, only proxies and ballots indicating votes "FOR all Nominees,"
"WITHHOLD AUTHORITY to vote all Nominees," or specifying that votes be withheld
from one or more designated Nominees are counted to determine the total number
of votes cast, and broker non-votes are not counted. Therefore, abstentions and
broker non-votes have no effect on the outcome of the election. For the adoption
of all other proposals, which are decided by a majority of the shares of the
stock of the Company present in person or by proxy and entitled to vote, only
proxies and ballots indicating votes "FOR," "AGAINST," or "ABSTAIN" on the
proposal or providing the designated proxies with the right to vote in their
judgment and discretion on the proposal are counted to determine the number of
shares present and entitled to vote, and broker non-votes are not counted. Thus
abstentions have the same effect as a vote against a proposal but broker
non-votes have no effect on the outcome of the proposal.
IT IS ANTICIPATED THAT THE DIRECTORS AND OFFICERS WILL VOTE THEIR SHARES OF
COMMON STOCK IN FAVOR OF THE NOMINEES FOR ELECTION TO THE BOARD OF DIRECTORS
LISTED HEREIN, FOR THE APPROVAL OF THE 1996 EMPLOYEE INCENTIVE STOCK OPTION PLAN
AND THE 1996 DIRECTORS STOCK OPTION PLAN, AND FOR THE RATIFICATION OF THE
SELECTION OF INDEPENDENT ACCOUNTANTS LISTED HEREIN.
The cost of solicitation of Proxies will be borne by the Company. The
Company may solicit Proxies in person or by telephone, in addition to
solicitation by mail. All such further solicitation will be made by directors,
officers or regular employees of the Company or of the Bank, who will not be
additionally compensated. Arrangements will be made by the Company for the
forwarding, at the Company's expense, of soliciting materials by brokers,
nominees, fiduciaries and other custodians and their principals.
It is anticipated that the Proxy Statement and the accompanying Proxy will
be mailed to stockholders on or about April 30, 1997. Shares represented by
Proxies that are properly executed and received in time for the meeting will be
voted in accordance with the stockholders' specifications. In the absence of
specific instructions to the contrary, Proxies received in response to this
solicitation will be voted (1) FOR the election of the nominees for directors
listed herein; (2) FOR ratification of the selection of Arthur Andersen LLP as
independent certified public accountants for the Company for 1997; (3) FOR
approval of the 1996 Employee Incentive Stock Option Plan; and (4) FOR approval
<PAGE>
of the 1996 Directors Stock Option Plan. Should any other matters properly come
before the Annual Meeting, the persons named as Proxies will, unless otherwise
specified in the Proxy, vote upon such matters according to their discretion. A
Proxy may be revoked at any time prior to its exercise by written notice to the
Company, by executing a Proxy bearing a later date, or by attending the meeting
and voting in person.
ELECTION OF DIRECTORS
At the meeting, ten directors (constituting the entire Board of Directors)
of the Company are to be elected to hold office until the next Annual Meeting of
Stockholders or until their respective successors have been elected and
qualified. All of the nominees are now directors of the Company. It is not
contemplated that any of the nominees will become unavailable to serve, but if
that should occur before the meeting, Proxies that do not withhold authority to
vote for directors will be voted for another nominee, or nominees, selected by
the Board of Directors. The Board of Directors of the Company recommends that
stockholders vote FOR the election of all nominees.
Nominees for Director
The nominees are as follows:
Name Age Position with the Company Director Since
- ---- --- ------------------------- --------------
Barbara Davis Blum 57 Chairwoman of the Board, 1986
President and Chief Executive
Officer
Shireen L. Dodson 45 Director 1993
Susan Hager 52 Director 1992
Jeanne D. Hubbard 48 Director 1995
Clarence L. James, Jr. 63 Director 1993
Steve Protulis 55 Director 1996
Marshall T. Reynolds 59 Director 1995
Robert L. Shell, Jr. 53 Director 1995
Dana B. Stebbins 50 Director 1993
Susan J. Williams 56 Director 1995
Barbara Davis Blum has served as Chairwoman of the Board of the Company and
the Bank since March 1986, President and Chief Executive Officer of the Company
since 1985 and President and Chief Executive Officer of the Bank since 1983. She
is also a director of the Washington Area Water and Sewer Authority. She serves
as Chairwoman of the Economic Development Finance Corporation, a quasi-public
economic development corporation for the benefit of District of Columbia
businesses; Chairwoman, Center for Policy Alternatives, a national nonprofit
organization; and a Director of Kaiser Permanente Health Care of the
Mid-Atlantic States. She is a director of the Greater Washington Board of Trade;
a Trustee of the Federal City Council; a member of the National Advisory Council
of the U.S. Small Business Administration; Senior Advisor, Commercial Real
Estate Women; and a Director of the Institute of American Indian Art, a
Presidential appointment requiring Senate confirmation. She was a founder of
Leadership Washington in 1985 and served as its Chairwoman in 1987. She also
served as 1995 and 1996 Greater Washington Area, United
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States Savings Bonds Chairwoman. From 1981 to 1983, she served as President of
Direction International, an environmental consulting firm, and from 1977 to 1981
she served as the Deputy Administrator of the U.S. Environmental Protection
Agency.
Shireen L. Dodson has served as the Assistant Director of Administration
and Planning for the Center for African American History and Culture (formerly
called the National African American Museum Project) of the Smithsonian
Institution since 1993. From 1985 to 1992, she served as Comptroller of the
Smithsonian Institution. She also served as a Commissioner of the District of
Columbia Minority Business Opportunity Commission from 1989 to 1992. She has
been President of the Coalition of 100 Black Women of D.C., Inc. and currently
serves on the Advisory Committee of that organization. She is also a member of
the Women's Advisory Board, Girl Scout Council of the National Capital. She is
Treasurer of the Washington D.C. Chamber of Commerce and has been a Director of
the Company since 1993 and a Director of the Bank since February 1992.
Susan Hager has been the President of Hager Sharp, Inc., an issues oriented
communications firm, since 1973. She is also a Director of the Greater
Washington Board of Trade, Chairwoman of the Board of the Lab School of
Washington, a member of the National Advisory Council of the U.S. Small Business
Administration and a Trustee of the Federal City Council. She served as
President of National Small Business United, a national small business trade
association, and Chairwoman of the U.S. Department of the Treasury's Small
Business Advisory Council. She was a founder of the National Association of
Women Business Owners (NAWBO). She has been a Director of the Company and the
Bank since June 1992.
Jeanne D. Hubbard has been Executive Vice President and Senior Lending
Officer of First Sentry Bank, Huntington, West Virginia since 1996. She served
as a consultant to First Guaranty Bank, Hammond, Louisiana since 1993 and
previously served as an executive officer of First Guaranty Bank during 1996.
From 1980 to 1993, Ms. Hubbard held a variety of officer positions, including
Vice President and Senior Commercial Lender and Chairwoman of the Loan Committee
and Asset/Liability Committee, with First Bank of Ceredo, Ceredo, West Virginia.
She served as President of the C-K Rotary Club and Chairwoman of the Citizens
Advisory Committee of the United Way in Huntington, West Virginia. She has been
a Director of the Company and the Bank since October 1995.
Clarence L. James, Jr. has served as Executive Director since 1996 and an
ex-officio member of the Board since 1994 of Executive Leadership Council, an
association of the top national African American business leaders. From 1995 to
1996, he was a partner with the law firm of Manatt, Phelps & Phillips, LLP. From
1983 to 1995, he served as President and Chief Operating Officer of The Keefe
Company, a government relations and public affairs firm. From 1981 to 1983, he
was Vice President of Domestic Affairs and General Counsel of The Keefe Company.
Since 1990, he has also served as Chairman of the Board of Douglas James
Securities, Incorporated, a registered broker-dealer and a member of the
National Association of Securities Dealers, Inc. From 1977 to 1981, he served as
Commissioner and Chairman of the Copyright Royalty Tribunal, a Presidential
appointment. From 1971 to 1977, he was Managing Partner of James, Moore, Douglas
& Co., LPA, a corporate, tax and land development law practice. He has been a
Director of the Company and the Bank since February 1993.
Steve Protulis is the Executive Director of the National Council of Senior
Citizens ("NCSC"), a position he has held since August 1995. From 1988 to 1995,
he coordinated senior efforts for the AFL-CIO COPE Department, and was the
national coordinator for various related support groups. Mr. Protulis has two
decades of experience working with the United Auto Workers and various
legislative efforts. He has been an executive board member of NCSC since 1984, a
member of the board of the Congressional Hispanic Caucus Institute since 1991,
and an executive board member of the National Council on Aging since 1994. He
has been a director of the Company since October 1996 and a Director of the Bank
since September 1995.
Marshall T. Reynolds is the Chairman of the Board, President and Chief
Executive Officer of Champion Industries, Inc., a holding company for commercial
printing and office products companies, a position he has held since 1992. He
became Chairman of the Board of Premier Financial Bancorp, Georgetown, Kentucky
in the first quarter of
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<PAGE>
1996 and Chairman of the Board of First Guaranty Bank, Hammond, Louisiana during
the second quarter. He became Chairman of the Board of Broughton Dairy during
the fourth quarter of 1996. From 1964 to 1993, Mr. Reynolds was President and
Manager of The Harrah and Reynolds Corporation (predecessor to Champion
Industries, Inc.). From 1983 to 1993, he was Chairman of the Board of Banc One,
West Virginia Corporation (formerly Key Centurion Bancshares, Inc.). He has
served as Chairman of United Way of the River Cities, Inc. and Boys and Girls
Clubs of Huntington. He has been a Director of the Company and the Bank since
November 1995.
Robert L. Shell, Jr., is the Chairman and Chief Executive Officer of Guyan
International, a privately held holding company for manufacturing and service
companies, a position he has held since 1985. Mr. Shell is also the Chairman of
Carolina Hose and Hydraulics, Standard Leasing Co. and Permco Hydraulik AG. He
has been a director of First Guaranty Bank, Hammond, Louisiana since 1993 and a
director of First State Bank of Sarasota since February 1994. He is a member of
the Huntington Boys and Girls Club, the Cabell Huntington Hospital Foundation
and the West Virginia Foundation for Independent Colleges. He was formerly the
Chairman of the Marshall Artists Series. He has been a Director of the Company
and the Bank since October 1995.
Dana B. Stebbins is a partner in Wilkes, Artis, Hedrick & Lane, a law firm
located in Washington, D.C., where she has practiced since 1989. From 1983 to
1989, she was Special Counsel for Klimek, Kolodney & Casale, P.C. From 1981 to
1983, she was Special Counsel for the U.S. House of Representatives Committee on
Small Business. From 1980 to 1982, she was Special Assistant to the Associate
Administrator of the U.S. Small Business Administration. From 1978 to 1980, she
was the Special Assistant and White House Liaison to the Chairman of the
Commodity Futures Trading Commission. From 1977 to 1978, she was Advisor to the
White House Office of Domestic and Urban Policy. She is the immediate Past
President of the Washington, D.C. Chamber of Commerce, a Trustee of the Federal
City Council and is on the Board of the Greater Washington Boys and Girls Clubs,
as well as the Lab School of Washington. She has been a Director of the Company
and the Bank since March 1993.
Susan J. Williams is the President of Bracy Williams & Company, a
government and public affairs consulting firm, a position she has held since
1982. In 1986, she was a representative on the Southern Growth Policies Board
for the State of Virginia. From 1979 to 1981, Ms. Williams served as Assistant
Secretary for Governmental Affairs of the U.S. Department of Transportation and
from 1977 to 1979 she was Deputy Assistant Secretary for Governmental and Public
Affairs for that agency. She is the Chairwoman of the Greater Washington Board
of Trade, having previously served as Secretary. She is also a Director of the
Henry L. Stimson Center and the American Institute for Public Service. She has
been a Director of the Company since October 1995 and a Director of the Bank
since September 1994.
Section 16(a) Beneficial Ownership Reporting Compliance
The Company's directors and executive officers, and persons who own more
than 10% of the Company's Common Stock, are required to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of any securities of the Company. To the Company's knowledge, based
solely on a review of the copies of such reports furnished to the Company and
written representations that no other reports were required, all of the
Company's directors, executive officers and beneficial owners of greater than
10% of the Company's Common Stock made all required filings during the fiscal
year ended December 31, 1996, with the exception of Barbara Davis Blum, Shireen
Dodson, Susan Hager, Jeanne Hubbard, Clarence L. James, Jr., Steve Protulis,
Marshall T. Reynolds, Robert Shell, Jr., Dana Stebbins and Susan Williams who
each filed one late report on Form 4 relating to one transaction involving the
grant of stock options under the Directors Stock Option Plan.
Board Meetings and Committees
During 1996, the Board of Directors of the Company met 10 times. Each
incumbent member of the Board of the Company who is a nominee for reelection
attended more than 75% of the combined Board of Directors and Board Committee
meetings, except for Dana Stebbins who attended 70% of the combined meetings.
The Personnel Committee which consisted of Susan Hager, Shireen Dodson, Steve
Protulis, Barbara Davis Blum and Clarence L. James, Jr. (through February 1996)
met three times during 1996 with all members in attendance, except for Barbara
Davis Blum
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<PAGE>
and Steve Protulis, who each missed one meeting. The Personnel Committee
recommends nominations to the Board of Directors of the Company and the Bank,
recommends nominations to the Board Committees and reviews personnel and
compensation issues. The Personnel Committee does not consider nominations to
the Board of Directors of the Company and Bank recommended by stockholders. The
Audit/Compliance Committee which consisted of Barbara Davis Blum, Shireen Dodson
and Clarence L. James, Jr. met five times during 1996 with all members in
attendance, except for Barbara Davis Blum who missed one meeting. The
Audit/Compliance Committee monitors the safety and soundness of the Bank's
assets and the protection of depositors by overseeing the Bank's internal
accounting controls, reviewing internal and independent audit reports and
regulatory examinations and ensuring adequate management follow-up. The
Executive Loan Committee which consisted of Barbara Davis Blum, Shireen Dodson
and Clarence L. James, Jr. met two times during 1996 with all members in
attendance, except for Clarence L. James, Jr. who missed one meeting. The
Executive Loan Committee reviews and approves loans to be made by the Company.
Directors' Compensation
During 1996, each director of the Company received $250 for each meeting of
the Board of Directors, $200 for each Executive Committee meeting and $100 for
all other committee meetings attended by such director. In addition, each
director is eligible to participate in the nonqualified 1996 Directors Stock
Option Plan based upon their total months of 1996 Board service. During 1996,
each director was granted options to purchase 792 shares of the Company's Common
Stock at an exercise price of 85% of the fair market value on the date of grant,
or $9.13. See EXECUTIVE COMPENSATION, 1996 Directors Stock Option Plan.
Executive Officers
The Company's executive officers are as follows:
Executive
Name Age Position with the Company Officer Since
- ---- --- ------------------------- -------------
Barbara Davis Blum 57 Chairwoman of the Board, President 1986
and Chief Executive Officer
Kimberly J. Levine 40 Senior Vice President, Treasurer 1988
and Chief Financial Officer
Kathleen Walsh Carr 50 Senior Vice President, Lending* 1997
* This position is held with the Bank.
Information regarding Ms. Blum appears on page 2 of this Proxy Statement.
Kimberly J. Levine, CPA, has been Senior Vice President and Treasurer of
the Company and the Bank since 1988. From 1984 to 1987, she was Vice President
and Controller of First American Bank, N.A. From 1979 to 1984, she was Assistant
Vice President of Suburban Bank in various accounting and reporting positions.
From 1977 to 1979, she was a Senior Accountant with Arthur Andersen & Co. She
formerly served as a member of the Corporate Reporting Task Force, a combination
public and private sector task force designed to address District of Columbia
government tax issues and has been an instructor for the American Institute of
Banking. Ms. Levine holds a Bachelor of Economics from the Wharton School of
Business of the University of Pennsylvania.
Kathleen Walsh Carr has been Senior Vice President and Chief Lender of the
Bank since February 1997. From 1986 to 1997, she was Senior Vice President of
Commercial Lending and subsequently Private Banking and from 1980 to 1986, she
was Vice President of Commercial Lending with NationsBank. From 1972 to 1979,
she held various management positions with National Bank of Washington. She
serves as a director of Jubilee Jobs and the Poor Roberts Foundation. Ms. Carr
holds a Bachelor of Arts degree from Marquette University.
5
<PAGE>
BENEFICIAL OWNERSHIP OF SHARES
The table on the following page sets forth information as of the Record
Date, relating to the beneficial ownership of the Common Stock by (i) each
person or group known by the Company to own beneficially more than 5% of the
outstanding Common Stock; (ii) each of the Company's directors; and (iii) all
directors and executive officers of the Company as a group. Unless otherwise
noted below, the persons named in the table have sole voting and sole investment
powers with respect to each of the shares reported as beneficially owned by such
person.
<TABLE>
<CAPTION>
Beneficial Percent of
Ownership Class
Name and Address of Shares Owned
- ---------------- --------- -----
<S> <C> <C>
Shirley A. Reynolds................................. 345,495 (1)(2) 20.9%
1130 13th Avenue
Huntington, West Virginia 25701
Barbara W. Beymer................................... 81,000 (1) 4.9%
214 North Boulevard West
Huntington, West Virginia 25701
Deborah P. Wright................................... 81,000 (1)3) 4.9%
1517 Diederich Boulevard
Flatwoods, Kentucky 41139
Barbara Davis Blum.................................. 20,844 (4) 1.2%
Kimberly J. Levine.................................. 2,205 (5) *
Shireen L. Dodson................................... 484 (6) *
Susan Hager . . . . ................................ 1,750 (6) *
Jeanne D. Hubbard................................... 4,546 (1)(7) *
Clarence L. James, Jr............................... 484 (6) *
Steve Protulis . . ................................. 1,827 (8) *
Marshall T. Reynolds................................ 225,526 (1)(2)(9) 13.7%
Robert L. Shell, Jr................................. 66,046 (1)(7)(10)(11) 4.0%
Dana B. Stebbins.................................... 484 (6) *
Susan J. Williams................................... 1,750 (6) *
All directors and executive officers as a group
(11 persons). . . ................................. 607,946 (12) 36.4%
</TABLE>
* Less than 1%
(1) Based upon Amendment No. 1 to Schedule 13D dated July 21, 1995, Marshall T.
Reynolds, Shirley A. Reynolds,
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Robert L. Shell, Jr., Robert H. Beymer, Barbara W. Beymer, Thomas W.
Wright, Deborah P. Wright and Jeanne D. Hubbard acquired 609,114
outstanding shares of the Company. Amendment No. 2 to Schedule 13D dated
March 5, 1996 evidences the disposition of a total of 45,000 shares by
Marshall T. Reynolds and Robert L. Shell, Jr. An additional 13,881 shares
were acquired by Mr. and Mrs. Reynolds, jointly, in a tender offer which
was completed on September 15, 1995.
(2) Marshall T. Reynolds and Shirley A. Reynolds share voting and dispositive
power with respect to 195,495 shares owned jointly. An additional 30,000
shares are held by a dependent child.
(3) Thomas W. Wright and Deborah P. Wright share voting and dispositive power
with respect to 21,000 shares owned jointly.
(4) Includes options to purchase 2,268 shares granted to Ms. Blum under the
Employee Incentive Stock Option Plan, options to purchase 15,000 shares
granted to Ms. Blum under the Nonqualified Stock Option Agreement between
the Company and the President and Chief Executive Officer, options to
purchase 184 shares granted to Ms. Blum under the Directors Stock Option
Plan and 536 shares granted to Ms. Blum under the Bank's Employee Stock
Ownership Plan with 401(k) Provisions. See EXECUTIVE COMPENSATION,
Employment Agreement, Employee Incentive Stock Option Plan, Directors Stock
Option Plan and Employee Stock Ownership Plan with 401(k) Provisions.
(5) Includes options to purchase 1,212 shares granted to Ms. Levine under the
Employee Incentive Stock Option Plan, and 393 shares granted to Ms. Levine
under the Bank's Employee Stock Ownership Plan with 401(k) Provisions. See
EXECUTIVE COMPENSATION, Employee Incentive Stock Option Plan and Employee
Stock Ownership Plan with 401(k) Provisions.
(6) Includes options to purchase 184 shares granted to Ms. Dodson, Ms. Hager,
Mr. James, Ms. Stebbins, and Ms. Williams under the Directors Stock Option
Plan. See EXECUTIVE COMPENSATION, Directors Stock Option Plan.
(7) Includes options to purchase 46 shares granted to Ms. Hubbard and Mr. Shell
under the Directors Stock Option Plan. See EXECUTIVE COMPENSATION,
Directors Stock Option Plan.
(8) Includes options to purchase 61 shares granted to Mr. Protulis under the
Directors Stock Option Plan. See EXECUTIVE COMPENSATION, Directors Stock
Option Plan.
(9) Includes options to purchase 31 shares granted to Mr. Reynolds under the
Directors Stock Option Plan. See EXECUTIVE COMPENSATION, Directors Stock
Option Plan.
(10) Mr. Shell's shares include 6,000 shares transferred by gift to his wife.
(11) Robert L. Shell, Jr. shares voting and dispositive power with respect to
20,000 shares owned jointly with his wife, Lena Ji Shell.
(12) Includes options to purchase 19,768 shares granted to all directors and
executive officers as a group and 929 shares granted under the Bank's ESOP
to all executive officers as a group.
EXECUTIVE COMPENSATION
The executive officers of the Company receive cash compensation from the
Bank in connection with their positions as executive officers of the Bank. The
Company generally does not separately compensate its executive
7
<PAGE>
officers.
The following table shows the cash compensation paid by the Bank and the
Company during the fiscal years ended December 31, 1996, 1995 and 1994 to the
Chief Executive Officer and the Chief Financial Officer, who are the only
executive officers of the Company and the Bank whose cash compensation exceeded
$100,000, for services rendered during the year:
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Awards
------------------- ------ All
Bonus/ Securities Other
Year Salary Other Underlying Options Compensation (1)
---- ------ ----- ------------------ ----------------
<S> <C> <C> <C> <C> <C>
Barbara Davis Blum, 1996 $194,413 $ 0 81,694 (2) $ 11,635
Chairwoman of the Board, President 1995 185,155 0 -- 5,555
and Chief Executive Officer of the 1994 185,155 0 -- 5,183
Company and the Bank
Kimberly J. Levine, 1996 $ 108,167 $ 5,000 2,749 (3) $ 7,993
Senior Vice President and 1995 98,500 0 -- 2,960
Chief Financial Officer 1994 95,167 0 -- 2,830
</TABLE>
(1) Represents the Bank's matching contribution of cash and discretionary
contribution of Company stock under the 401(k) Plan (now Employee Stock
Ownership Plan with 401(k) Provisions) for the accounts of Barbara Davis
Blum and Kimberly J. Levine. Ms. Blum received certain perquisites but the
cost of providing such perquisites did not exceed the lesser of $50,000 or
10% of her salary.
(2) Represents options to purchase shares granted under the Directors Stock
Option Plans, the Employee Incentive Stock Option Plans and the
Nonqualified Stock Option Agreement between Ms. Blum and the Company. See
Option Grants in Last Fiscal Year table below.
(3) Represents options to purchase shares granted under the Employee Incentive
Stock Option Plans. See Option Grants in Last Fiscal Year table below.
Option Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grant
----------------
Number of
Securities % of Total
Underlying Options Exercise Market Price
Options Granted in Price On Date Expiration
Name Granted Fiscal Year Per Share of Grant Date
- ---- ------- ----------- --------- -------- ----
<S> <C> <C> <C> <C> <C>
Barbara Davis Blum 918 (1) 0.8% $6.74 $7.93 Jan 2006
75,000 (2) 67.0 6.74 7.93 Feb 2006
2,268 (3) 2.0 7.93 7.93 Jan 2006
792 (4) 0.7 9.13 10.74 Nov 2006
2,716 (5) 2.4 10.74 10.74 Nov 2006
-----
81,694
Kimberly J. Levine 1,212 (3) 1.1% $7.93 $7.93 Jan 2006
1,537 (5) 1.4 10.74 10.74 Nov 2006
-----
2,749
</TABLE>
8
<PAGE>
(1) Options to purchase 918 shares granted under the Directors Stock Option
Plan vest beginning in 1996 at an annual rate of 20% at the end of each
year and become fully vested in the event of a Change in Control, as
defined in the Directors Plan, or in the event that the director leaves the
Board. As of April 14, 1997, options to purchase 184 shares are vested.
(2) Options to purchase 75,000 granted to Ms. Blum under the Nonqualified Stock
Option Agreement between Ms. Blum and the Company vest beginning in 1996 at
an annual rate of 20% at the end of each year and become fully vested in
the event of a Change in Control, as defined in the Agreement, or in the
event that the she leaves the Company or the Bank. As of April 14, 1997,
options to purchase 15,000 shares are vested.
(3) Options to purchase 2,268 shares granted to Ms. Blum and options to
purchase 1,212 shares granted to Ms. Levine under the Employee Incentive
Stock Option Plan are fully vested.
(4) Options to purchase 792 shares granted under the 1996 Directors Stock
Option Plan vest beginning in 1997 at an annual rate of 33 and 1/3% at the
end of each year and become fully vested in the event of a Change in
Control, as defined in the Directors Plan. As of April 14, 1997, no options
are vested.
(5) Options to purchase 2,716 shares granted to Ms. Blum and options to
purchase 1,537 shares granted to Ms. Levine under the 1996 Employee
Incentive Stock Option Plan vest beginning in 1997 at an annual rate of 33
and 1/3% at the end of each year and become fully vested in the event of a
Change in Control, as defined in the 1996 Employee Plan. As of April 14,
1997, no options are vested.
Aggregated Option Exercises in Last Fiscal year and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-the-Money Options
Acquired Value Options at Year End At Year-End
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Barbara Davis Blum -- -- Exercisable - 17,452 $ 84,734
Unexercisable - 64,242 309,098
Kimberly J. Levine -- -- Exercisable - 1,212 $ 4,630
Unexercisable - 1,537 1,552
</TABLE>
Employment Agreement
On February 20, 1996, the Company and the Bank entered into an employment
agreement with Barbara Davis Blum providing for the employment by the Company
and the Bank of Ms. Blum as Chairwoman, President and Chief Executive Officer of
the Company and the Bank through February 20, 1998. The agreement shall
automatically be extended for an additional two-year period unless, six months
prior to the expiration date, the Boards of Directors of the Company and the
Bank determine in a duly adopted resolution that the agreement should not be
extended and so notify Ms. Blum. Under the terms of the employment agreement,
which was amended on March 29, 1996, Ms. Blum is entitled to receive a base
salary for 1996 of $194,413, all benefits provided by any plan available by the
Bank to its employees, certain executive fringe benefits and annual or other
bonuses at the sole discretion of the Company's and the Bank's Boards. As of the
date of this proxy, no annual increases or bonuses have been granted to Ms.
Blum.
Ms. Blum also was granted a nonqualified stock option (the "Option") to
purchase 75,000 shares of the Company's Common Stock. The Option vests beginning
in 1996 at an annual rate of 20% at the end of each year and
9
<PAGE>
is exercisable for a period of 10 years from the date of grant at an exercise
price equal to $6.74 per share, which is 85% of the fair market value of the
Company's Common Stock on the date of grant. The Option shall become fully
vested in the event of a "Change in Control" (as defined in the employment
agreement) or in the event Ms. Blum's employment should terminate for any
reason, and remain exercisable for a period of two years. Ms. Blum was granted
certain registration rights in connection with the shares subject to the Option,
including "piggyback" rights for registration at the Company's expense, and one
"demand" right for registration at the Company's expense, each subject to
certain limitations.
The employment agreement provides that, in the event Ms. Blum shall resign
with 60 days notification, she shall be entitled to receive a cash payment equal
to the current year's salary then in effect. In addition, the agreement provides
that in the event of Ms. Blum's death, disability, termination without just
cause or termination without her written consent and for a reason other than
just cause in connection with or within 12 months after any Change in Control,
or upon the occurrence of certain other events in connection with a Change in
Control, she shall be entitled to receive a cash payment equal to two times her
base salary (in semi-monthly payments in the event of disability) and the
acceleration of the unvested portion of any stock options. In addition, she
shall be included to the full extent eligible in all plans providing benefits,
including group life insurance, disability insurance and pension programs for
executive employees of the Company during the term of the employment agreement
and for two years following her disability or termination without just cause or
one year following her voluntary termination. The change in control benefits are
estimated to have an aggregate value of approximately $744,000 at April 14,
1997. Ms. Blum has agreed not to engage in the banking business elsewhere in the
Washington or Baltimore, Maryland metropolitan areas or to solicit the Bank's
customers or employees for a period of one year following the voluntary
termination of her employment.
Non-Qualified Stock Option Plan
No options have been granted to date under the Company's Non-Qualified
Stock Option Plan (the "Plan"). A total of 90,000 shares of the Company's Common
Stock are authorized for issuance under the Plan, in which officers of the
Company and the Bank who have been employed for at least one year are eligible
to participate. The option exercise price of any options granted under the Plan
will equal 100% of the book value of the shares as of the date of grant. Any
options granted under the Plan will become exercisable on a cumulative basis at
a rate of 25% per year during the period of four years after the grant;
provided, however, that the first 25% will not become exercisable until the
expiration of six months after the date of grant.
Employee Incentive Stock Option Plan
On January 23, 1996, the Board of Directors of the Company approved a
qualified Employee Incentive Stock Option Plan (the "Employee Plan"). A total of
9,987 shares of the Company's Common Stock are authorized for issuance under the
Employee Plan, in which key employees of the Company and the Bank are eligible
to participate. On January 23, 1996, all such options were granted at an
exercise price of 100% of fair market value at the date of grant, or $7.93.
Options granted under the Employee Plan are immediately exercisable and expire
not later than ten years following the date of grant.
1996 Employee Incentive Stock Option Plan
On November 19, 1996, the Board of Directors of the Company approved a
qualified 1996 Employee Incentive Stock Option Plan covering key employees (the
"1996 Employee Plan"). A total of 14,193 shares of the Company's Common Stock
are authorized for issuance under the 1996 Employee Plan, in which key employees
of the Company and the Bank are eligible to participate. On November 19, 1996,
12,688 options were granted at an exercise price of 100% of fair market value,
or $10.74. On January 21, 1997, 1,000 options were granted at an exercise price
of 100% of fair market value, or $11.71. On February 18, 1997, 505 options were
granted at an exercise price of 100% of fair market value, or $11.83. Options
granted under the 1996 Employee Plan vest beginning in 1997 at an annual rate
10
<PAGE>
ranging from 33.33% to 100% at the end of each year and become fully vested in
the event of a Change in Control, as defined in the 1996 Employee Plan. Options
under the 1996 Employee Plan expire not later than ten years after the date of
grant. The 1996 Employee Plan is subject to shareholder approval, which is being
considered and acted upon at this Annual Meeting.
Directors Stock Option Plan
On January 23, 1996, the Board of Directors of the Company approved a
nonqualified Directors Stock Option Plan (the "Directors Plan"). A total of
6,429 shares of the Company's Common Stock are authorized for issuance under the
Directors Plan, in which all directors of the Company and the Bank in 1995 are
eligible to participate based upon the total months of 1995 Board service. On
January 23, 1996, all such options were granted at an exercise price of 85% of
fair market value at the date of grant, or $6.74. Options granted under the
Directors Plan vest beginning in 1996 at an annual rate of 20% at the end of
each year and expire at the earlier of ten years following the date of grant or
two years after leaving the Board. However, in the event of death or disability,
options expire one year after leaving the Board. The options shall become fully
vested in the event of a "Change in Control" (as defined in the Directors Plan)
or in the event the director leaves the Board.
1996 Directors Stock Option Plan
On November 19, 1996, the Board of Directors of the Company approved a
nonqualified Directors Stock Option Plan (the "1996 Directors Plan"). A total of
7,920 shares of the Company's Common Stock are authorized for issuance under the
Employee Plan, in which all directors of the Company and the Bank are eligible
to participate based upon the total months of 1996 Board service . On November
19, 1996, all such options were granted at an exercise price of 85% of fair
market value, or $9.13. Options granted under the 1996 Directors Plan vest
beginning in 1997 at an annual rate of 33.33% at the end of each year and expire
at the earlier of ten years following the date of grant or immediately upon
leaving the Board. However, in the event of death or disability, options expire
two years after leaving the Board. The options shall become fully vested in the
event of a "Change in Control" (as defined in the 1996 Directors Plan. The 1996
Directors Plan is subject to shareholder approval, which is being considered and
acted upon at this Annual Meeting.
Employee Stock Ownership Plan with 401(k) Provisions
On April 16, 1996, the Company's and the Bank's Boards of Directors adopted
an employee stock ownership plan with 401(k) provisions ("ESOP"). The ESOP was
amended effective as of January 1, 1997 to modify certain vesting provisions.
The ESOP replaced the Bank's former 401(k) Plan. Employees of the Bank who are
at least 21 years of age and who have completed one year of service are eligible
to participate. The Company has submitted an application to the Internal Revenue
Service for a letter of determination as to the tax-qualified status of the
ESOP. Although no assurances can be given, the Company expects the ESOP to
receive a favorable letter of determination. The ESOP may be amended or
terminated at any time by the Bank. The ESOP is to be funded by contributions
made by the Bank in cash or shares of the Company's Common Stock. On July 17,
1996, the ESOP borrowed $218,750 in funds from the Company which was an amount
sufficient to purchase 25,000 shares of Common Stock. This loan is secured by
the shares of Common Stock purchased and earnings thereon. Shares purchased with
such loan proceeds will be held in a suspense account for allocation, as the
loan is repaid, among participants who are eligible to share in the Bank's
contribution for the year. Dividends paid on allocated shares may be paid to
participants or used to repay the ESOP loan. Dividends on unallocated shares are
expected to be used to repay the ESOP loan.
Participants may elect to contribute a percentage of their salary, which
amount may not be less than 1% nor more than 15% of the participant's annual
salary up to $9,500 for 1997. In addition, the Bank may make a discretionary
matching contribution equal to one-half of the percentage of the amount of the
salary reduction elected by each participant (up to a maximum of 3%), which
percentage will be determined each year by the Bank, and an additional
discretionary contribution determined each year by the Bank. Contributions by
the Bank and shares released from the
11
<PAGE>
suspense account will be allocated among participants on the basis of their
annual wages subject to federal income tax withholding, plus amounts withheld
under certain qualified plans. Each participant is immediately vested in his or
her contributions, the Bank's matching contributions and the Bank's initial
discretionary contribution made during 1996. Each participant will begin to vest
in his or her interest in the Bank's future discretionary contributions to the
ESOP after one year of service and will be fully vested upon three years of
service. Benefits are payable upon a participant's retirement, death,
disability, or separation from service, in a single lump-sum payment or in
installments. Distributions at retirement will be in the form of cash or shares
of Common Stock or both. In addition, the participant or beneficiary has certain
put rights in the event that the Common Stock distributed cannot be readily
sold.
The Trustee of the ESOP will vote all shares of Common Stock held by it as
a part of the ESOP assets, provided that a participant or beneficiary will be
entitled to direct the Trustee as to the manner in which voting rights are to be
exercised, with respect to shares of Common Stock allocated to the participant,
in connection with certain corporate transactions as described in the ESOP. The
Bank intends to appoint an unrelated corporate Trustee for the ESOP.
The Company made matching cash contributions to the ESOP of $23,000 in 1996
and an additional discretionary contribution of 4,681 shares of Company stock,
at an aggregate fair market value on the date of grant of $55,000.
Severance Agreements
On April 7, 1994, the Board of Directors of the Bank approved severance
arrangements for seven key management officers. These arrangements were
incorporated into Severance Agreements, dated as of April 7, 1994. On January
21, 1997, the Board of Directors of the Bank approved an additional severance
arrangement for a key management officer (the "Severance Agreements") effective
February 10, 1997.
The Severance Agreements provide that, in the event of a "Change in
Control" (as defined in the Severance Agreements), the officers will be entitled
to resign from the Bank within the one year period following a Change in Control
and receive a lump sum payment equal to one year's full base salary at the rate
applicable to the officer in effect at that time. The term Change in Control
does not include a transaction approved by a majority of the "Continuing
Directors" (as defined in the Severance Agreements) then in office. In addition,
an officer will be entitled to receive such severance payment in the event the
officer's employment with the Bank is "Terminated" (as defined in the Severance
Agreements) within the one year period following a Change in Control, prior to
the resignation of the officer. These benefits are estimated to have an
aggregate value of approximately $639,000 as of April 14, 1997 based on current
salary levels. Any severance payment payable under the Severance Agreements will
be reduced to the extent that any such payment constitutes an "Excess Parachute
Payment" as such term is defined in the Internal Revenue Code of 1986, as
amended. The Severance Agreements are binding on the Bank and its successors.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Banking Transactions
The Bank has had, and it is expected that it will have in the future,
banking transactions in the ordinary course of business with the Company's
directors, officers and their associates on substantially the same terms,
including interest rates, collateral and payment terms on extensions of credit,
as those prevailing at the same time for comparable transactions with others. In
the opinion of Management these transactions did not in 1996 involve more than a
normal risk of collectibility or present other unfavorable features.
As of April 14, 1997, the aggregate principal amount of indebtedness to the
Bank owed by officers and directors of the Company and their associates on that
date was approximately $257,000. The highest aggregate principal amount owed
during 1996 by all officers and directors of the Company and their associates
who were indebted to the
12
<PAGE>
Bank during the year was approximately $1,376,000.
Other Transactions
The Company has engaged in transactions in the ordinary course of business
with some of its directors, officers, principal stockholders and their
associates. Management believes that all such transactions are made on the same
terms as those prevailing at the time with other persons. During 1994, 1995 and
1996, the Company engaged Hager Sharp, Inc., of which Susan Hager, a director of
the Company, is President, to provide public relations services. For the fiscal
year ended December 31, 1996, 1995 and 1994, the Company paid Hager Sharp, Inc.
$5,000, $15,000 and $32,000, respectively, for such services.
RATIFICATION OF SELECTION OF INDEPENDENT PUBLIC ACCOUNTANTS
It is proposed that the stockholders ratify the Board of Directors'
selection of Arthur Andersen LLP as the Company's independent certified public
accountants for 1997. Arthur Andersen LLP has served as the Company's
independent certified public accountants since 1996. KPMG Peat Marwick LLP
previously served as the Company's and the Bank's principal independent public
accountants in 1995 and had served the Company and the Bank in that capacity
since their organization. Upon recommendation of the Audit Committee, the
Company solicited bids for the audit of the Company's financial statements. On
August 27, 1996, KPMG's appointment as principal accountants was terminated and
Arthur Andersen LLP was engaged as the principal accountants. The decision to
change accountants was approved by the Audit Committee of the Board of
Directors.
In connection with the audits as of December 31, 1995 and 1994 and for each
of the years in the three year period ended December 31, 1995 and the subsequent
interim period through August 27, 1996, there were no disagreements with KPMG
Peat Marwick LLP on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedures, which disagreements if
not resolved to their satisfaction would have caused them to make reference in
connection with their opinion to the subject matter of the disagreement.
The audit reports of KPMG Peat Marwick LLP on the consolidated financial
statements of the Company and the Bank as of December 31, 1995 and 1994 and for
each of the years in the three year period ended December 31, 1995, did not
contain any adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope, or accounting principles.
A representative of Arthur Andersen LLP is expected to be present at the
Annual Meeting to respond to appropriate questions and to make a statement if he
or she desires to do so. A representative of KPMG Peat Marwick LLP is not
expected to be present at the Annual Meeting.
The Board of Directors of the Company recommends that stockholders vote FOR
the ratification of selection of such firm.
APPROVAL OF 1996 EMPLOYEE STOCK OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval, the
1996 Employee Incentive Stock Option Plan (the "1996 Employee Plan"). The
purpose of the 1996 Employee Plan is to give officers and executive personnel of
the Company and the Bank an opportunity to acquire shares of the Common Stock of
the Company in order to provide an incentive for key employees to continue to
promote the best interests of the Company and enhance its long-term performance.
The 1996 Employee Plan also provides an incentive for key employees to join or
remain with the Company. The following summarizes the principal features of the
1996 Employee Plan, which is attached as Exhibit A to the Proxy Statement.
13
<PAGE>
Principal Features of the Plan
The 1996 Employee Plan is administered by the Board of Directors which may
delegate its powers with respect to administration of the plan (except its
powers with respect to termination and amendment of the plan) to a Committee
appointed by the Board and comprised of not less than two non-employee members
of the Board. Within the limits of the 1996 Employee Plan, the Board is
authorized to determine the key employees to whom awards hereunder shall be
granted ("Optionee"), the time or times at which such awards shall be granted;
the form of awards, either incentive stock options ("ISO") and/or stock
appreciation rights ("SAR") which may be granted; the amount of the awards which
may be granted; and the limitations, restrictions and conditions applicable to
any such award. In making such determinations, the Board may take into account
the nature of the services rendered by such employees or classes of employees,
their present and potential contributions to the Company's success and such
other factors as the Board in its discretion shall deem relevant.
If deemed by the Board to be in the best interest of the Company, any ISO
granted under the Plan may include a SAR, either at the time of grant or
thereafter while the ISO is outstanding. An SAR shall be exercisable to the
extent, and only to the extent, the ISO in which it is included is exercisable
and shall be exercisable only for such period as the Board may determine (which
period may expire prior to, but not later than, the expiration date of such
ISO). An SAR is exercisable only when the fair market value of a share of Common
Stock exceeds the option price specified in such ISO. An SAR shall entitle the
Optionee to surrender to the Company unexercised the ISO, or portion thereof, to
which it is related, or any portion thereof, and to receive from the Company in
exchange therefor that number of shares of Common Stock having an aggregate fair
market value equal to the excess of the fair market value on the date of
exercise of one share of Common Stock over the option price per share specified
in such ISO multiplied by the number of shares of Common Stock subject to the
ISO, or portion thereof, which is so surrendered. The Board shall be entitled to
elect to settle any part or all of the Company's obligation arising out of the
exercise of an SAR by the payment of cash or check equal to the aggregate fair
market value on the date on which the SAR is exercised of that part or all of
the shares of Common Stock the Company would otherwise be obligated to deliver.
The individuals eligible to participate in the 1996 Employee Plan are
officers and other key employees of the Company (approximately 14 people). A
total of 14,193 shares of Common Stock are available for grant under the 1996
Employee Plan. The aggregate fair market value of the shares (determined as of
the date of grant of an option) with respect to which any Optionee in the 1996
Employee Plan may first exercise the ISOs in any calendar year (under the 1996
Employee Plan) may not exceed $100,000. In the event of certain changes
affecting the shares of Common Stock resulting from a subdivision or
consolidation of shares, whether through reorganization, recapitalization, stock
split-up, stock distribution or combination of shares, or the payment of a share
dividend or other increase or decrease in the number of such shares outstanding
effected without receipt of consideration by the Company, the Board shall
appropriately adjust the number of shares available for and subject to option
grants, as well as the option price. In the event of a dissolution or
liquidation of the Company, each ISO and SAR granted shall terminate. In the
event of a change in control (as defined in the 1996 Employee Plan), the
outstanding and unexercised stock options previously granted shall become fully
vested and exercisable. The Board, without further action on the part of the
stockholders of the Company, may alter, amend or suspend the 1996 Employee Plan,
or any ISO or SAR granted thereunder or may at any time terminate the Plan,
except that it may not, without the approval of the stockholders of the Company
(except as outlined above): (i) materially increase the total number of shares
of Common Stock available for grant under the 1996 Employee Plan; (ii)
materially modify the class of eligible employees under the 1996 Employee Plan;
or (iii) effect a change relating to ISOs granted thereunder which is
inconsistent with Section 422 of the Internal Revenue Code or regulation issued
thereunder. No action taken by the Board, either with or without the approval of
the stockholders of the Company, may materially and adversely affect any
outstanding ISO or SAR without the consent of the holder thereof.
Description of the Options
ISOs entitle the Optionee to purchase shares of Common Stock of the Company
at a prescribed price. ISOs
14
<PAGE>
granted vest over a period of one to three years, as determined by the Board,
and expire at the earlier of ten years following the date of grant, the date
specified in the option agreement or the employee's termination by other than
death or disability. If employment is terminated as a result of disability or
death, the ISOs or SARs expire a year after the termination of employment, if
not sooner by their terms. In the sole discretion of the Board, options granted
to an employee whose employment is terminated for any reason other than death or
disability may be permitted to exercise ISOs or SARs during a period of up to
three months following his or her termination. The exercise price of an ISO may
not be less than the fair market value of a share of Common Stock on the date of
grant (or 110% of the fair market value for an Optionee who is a ten percent or
more shareholder). All ISOs available for grant under the 1996 Employee Plan
were granted during 1996 and 1997 at prices ranging from $10.74 to $11.83 per
share. No SARs were granted.
No option may be exercisable more than 10 years after the date of grant.
The Board shall determine the terms and conditions and exercise periods of all
options. If any option granted under the 1996 Employee Plan terminates or
expires unexercised, the shares released thereby may be the subject of
additional grants under the 1996 Employee Plan, but in no event shall the number
of shares subject to outstanding options exceed the total shares reserved. The
exercise of ISOs shall cancel that number, if any, of SARs included in such ISO,
which is equal to the excess of (i) the number of shares of Common Stock subject
to SARs included in such ISO, over (ii) the number of shares of Common Stock
which remain subject to such ISO after such exercise. Options granted under the
1996 Employee Plan may not be transferred, assigned, pledged, or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent or distribution, and no ISO or SAR shall be subject
to execution attachment or similar process. On April 15, 1997, the closing bid
and asked prices for the common stock, as reported by the NASDAQ stock market
were both $11.50.
Federal Income Tax Implications
The Company believes that, under present law, the following federal income
tax consequences generally arise with respect to awards granted under the 1996
Employee Plan. The grant of an ISO or SAR will create no tax consequences for
the participant or the Company. A participant will not have taxable income upon
exercising an ISO (except that the alternative minimum tax may apply), and the
Company will receive no deduction at that time. Upon exercising an SAR, the
participant generally must recognize ordinary income equal to the cash or the
fair market value of the stock received. The Company will be entitled to a
deduction equal to the amount recognized as ordinary income by the participant.
A participant's disposition of shares acquired upon the exercise of an ISO
or SAR generally will result in a short-term or long-term capital gain or loss
(except in the event that shares issued pursuant to the exercise of an ISO are
disposed of within two years after the date of grant of the ISO or within one
year after the transfer of the shares to the participant) measured by the
difference between the sale price and the participant's tax basis in such shares
(or the exercise price of the option in the case of shares acquired by the
exercise of an ISO and held for the applicable ISO holding period). Generally,
there will be no tax consequences to the Company in connection with a
disposition of shares acquired under an option, except that the Company will be
entitled to a deduction (and the participant will recognize ordinary taxable
income) if shares acquired upon the exercise of an ISO are disposed of before
the applicable ISO holding period has been satisfied. With respect to awards
granted under the 1996 Employee Plan that may be settled in cash, the
participant generally must recognize compensation income equal to the cash. The
Company will be entitled to a deduction of the same amount. In addition, under
Section 162(m) of the Internal Revenue Code, certain compensation payments in
excess of $1 million are subject to a limitation on deductibility for the
Company.
The foregoing discussion, which is general in nature, is intended for the
information of stockholders considering how to vote at the Annual Meeting and
not as tax guidance to participants in the 1996 Employee Plan. This discussion
does not address the effects of other federal taxes (including possible "golden
parachute" excise taxes) or taxes imposed under state, local or foreign tax
laws. Participants in the 1996 Employee Plan should consult a tax advisor as to
the tax consequences of participation.
15
<PAGE>
The Board of Directors of the Company recommends that stockholders vote FOR
the approval of the 1996 Employee Incentive Stock Option Plan.
APPROVAL OF 1996 DIRECTORS STOCK OPTION PLAN
The Board of Directors has adopted, subject to stockholder approval, the
1996 Directors Stock Option Plan (the "1996 Directors Plan"). The purpose of the
1996 Directors Plan is to give directors of the Company and the Bank an
opportunity to acquire shares of the Common Stock of the Company in order to
provide an incentive for such directors to continue to promote the best
interests of the Company and enhance its long-term performance. The 1996
Directors Plan also provides an incentive for directors to join or remain with
the Company. The following summarizes the principal features of the 1996
Directors Plan, which is attached as Exhibit B to the Proxy Statement.
Principal Features of the Plan
The 1996 Directors Plan is administered by the Board of Directors. Under
the terms of the 1996 Directors Plan, nonqualified stock options shall be
allocated to each director who holds such position on the date of the grant
based upon the total months of 1996 board service performed by each director
prior to the date of the 1996 Directors Plan.
The individuals eligible to participate in the 1996 Directors Plan are the
directors of the Company and the Bank (approximately 10 people). A total of
7,920 shares of Common Stock are available for grant under the 1996 Directors
Plan. In the event of certain changes affecting the shares of Common Stock
resulting from a subdivision or consolidation of shares, whether through
reorganization, recapitalization, stock split-up, stock distribution or
combination of shares, or the payment of a share dividend or other increase or
decrease in the number of such shares outstanding effected without receipt of
consideration by the Company, the Board shall appropriately adjust the number of
shares available for and subject to option grants, as well as the option price.
In the event of a change in control (as defined in the 1996 Directors Plan), the
outstanding and unexercised stock options previously granted shall become fully
vested and exercisable. The Board, without further action on the part of the
stockholders of the Company, may alter, amend or suspend the 1996 Directors
Plan, or any stock option granted hereunder or may at any time terminate the
Plan, except that it may not, without the approval of the stockholders of the
Company (except as outlined above) materially increase the total number of
shares of Common Stock available for grant under the 1996 Directors Plan.
Description of the Options
Awards under the 1996 Directors Plan shall be granted in the form of
nonqualified stock options and entitle the optionee to purchase shares of Common
Stock of the Company at a prescribed price and subject to certain such terms and
conditions as the Board of Directors may determine. All options granted expire
at the earlier of their specified expiration dates, which can not be more than
ten years following the date of grant, or on the termination of directorship.
However, if a director's service terminates because of death or disability, the
options expire at the first to occur of the specified expiration date or the
second anniversary of such termination of service. The exercise price of the
option may not be less than eighty-five percent (85%) of the fair market value
of a share of Common Stock subject to such option on the date of grant. All
options available for grant under the 1996 Directors Plan were granted during
1996 at a price of 85% of fair market value on the date of grant, or $9.13 per
share.
If any option granted under the 1996 Directors Plan terminates or expires
unexercised the shares released thereby may be the subject of additional grants
under the Directors Plan, but in no event shall the number of shares subject to
outstanding options exceed the total shares reserved. Options granted under the
1996 Directors Plan may not be transferred, assigned, pledged, or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent or distribution, and no option shall be subject to
execution attachment or similar process. On April 15, 1997, the closing bid and
asked prices for the Common Stock, as reported by the NASDAQ Stock Market, were
both $11.50.
16
<PAGE>
Federal Income Tax Implications
The Company believes that, under present law, the following federal income
tax consequences generally arise with respect to awards granted under the 1996
Directors Plan. The grant of a nonstatutory option will create no tax
consequences for the participant or the Company. Upon exercising an option, the
participant generally must recognize ordinary income equal to the difference
between the exercise price and the fair market value of the stock received on
the date of exercise. The Company will be entitled to a deduction equal to the
amount recognized as ordinary income by the participant.
A participant's disposition of shares acquired upon the exercise of an
option generally will result in a short-term or long-term capital gain or loss
measured by the difference between the sale price and the participant's tax
basis in such shares. Generally, there will be no tax consequences to the
Company in connection with a disposition of shares acquired under an option.
The foregoing discussion, which is general in nature, is intended for the
information of stockholders considering how to vote at the Annual Meeting and
not as tax guidance to participants in the 1996 Directors Plan. This discussion
does not address the effects of other federal taxes (including possible "golden
parachute" excise taxes) or taxes imposed under state, local or foreign tax
laws. Participants in the 1996 Directors Plan should consult a tax advisor as to
the tax consequences of participation.
The Board of Directors of the Company recommends that stockholders vote FOR
the approval of the 1996 Directors Stock Option Plan.
Officers and directors of the Company have already been granted options
under these Plans. In order for these options to be effective, these Plans must
be approved by the stockholders. As recipients of options already granted to
date, officers and directors have an interest in the approval of these Plans.
The following table summarizes stock options granted during 1996 and 1997
under both the 1996 Employee Incentive Stock Option Plan and the 1996 Directors
Stock Option Plan.
New Plan Benefits
<TABLE>
<CAPTION>
1996 1996
Employee Directors Total Options
Name Position Plan Plan Awarded (1)
- ---- -------- ---- ---- -----------
<S> <C> <C> <C> <C>
Barbara Davis Blum Chairwoman,
President and Chief
Executive Officer 2,716 792 3,508
Kimberly J. Levine Senior Vice President and
Chief Financial Officer 1,537 -- 1,537
Shireen L. Dodson Director -- 792 792
Susan Hager Director -- 792 792
Jeanne D. Hubbard Director -- 792 792
Clarence L. James, Jr. Director -- 792 792
Steve Protulis Director -- 792 792
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
1996 1996
Employee Directors Total Options
Name Position Plan Plan Awarded (1)
- ---- -------- ---- ---- -----------
<S> <C> <C> <C> <C>
Marshall T. Reynolds Director -- 792 792
Robert L. Shell, Jr. Director -- 792 792
Dana B. Stebbins Director -- 792 792
Susan J. Williams Director -- 792 792
All current executive officers
as a group (2) 5,253 792 6,045
All current directors who
are not executive
officers as a group -- 7,128 7,128
All current employees,
including all officers,
who are not executive
officers, as a group 8,940 -- 8,940
</TABLE>
(1) Each option entitles the holder to purchase one share of common stock,
subject to the restrictions of the plan.
(2) Includes executive officers of the Bank.
All options available for grant under both Plans have been granted.
OTHER MATTERS
The Board of Directors is not aware of any other matters that may come
before the meeting. If any other business properly comes before the meeting, the
persons designated as proxies will vote upon such matters in their discretion.
18
<PAGE>
STOCKHOLDER PROPOSALS
A stockholder who intends to present a proposal at the Company's next
Annual Meeting of Stockholders must submit the written text of the proposal to
the Company no later than December 31, 1997 in order for the proposal to be
considered for inclusion in the proxy statement for that meeting.
ANNUAL REPORT
The Annual Report to Stockholders of the Company including financial
statements for the year ended December 31, 1996, is included herein. Copies of
the Annual Report as filed with the Securities and Exchange Commission on Form
10-KSB are available without charge, upon written request to Ms. Kimberly J.
Levine, Senior Vice President and Chief Financial Officer, Abigail Adams
National Bancorp, Inc., 1627 K Street, N.W., Washington, D.C. 20006.
By Order of the Board of Directors
/s/ Joyce R. Hertz
------------------
Joyce R. Hertz
Secretary
April 30, 1997
STOCKHOLDERS WHO DO NOT EXPECT TO ATTEND THE MEETING ARE REMINDED TO MARK, SIGN,
DATE AND RETURN THE ENCLOSED PROXY IN THE POSTAGE PAID ENVELOPE PROVIDED.
19
<PAGE>
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
ABIGAIL ADAMS NATIONAL BANCORP, INC.
ANNUAL MEETING OF STOCKHOLDERS ON JUNE 17. 1997
The undersigned hereby appoints Joyce R. Hertz and Alexander Beltran, or
either of them, as attorneys and proxies for the undersigned, each with full
power of substitution, and hereby authorizes them to represent and to vote as
designated below, upon the proposals set forth below, all of the shares of
Common Stock, par value $0.01 per share, of Abigail Adams National Bancorp,
Inc., a Delaware corporation (the "Company"), which the undersigned is entitled
to vote at the Annual Meeting of Stockholders of the Company to be held at The
Adams National Bank, 1627 K Street, N.W., Washington, D.C. 20006, on June 17,
1997 at 3:00 p.m. local time, and at any adjournments thereof, and to vote, in
their discretion, upon all other matters that may properly be brought before the
meeting.
1. Election of Directors
| | FOR all nominees listed below (except as marked to the contrary
below).
| | WITHHOLD AUTHORITY to vote for all nominees listed below.
Nominees: Barbara Davis Blum, Shireen Dodson, Susan Hager, Jeanne D.
Hubbard, Clarence L. James, Jr., Steve Protulis, Marshall T. Reynolds,
Robert L. Shell, Jr., Dana Stebbins and Susan J. Williams
INSTRUCTIONS: To withhold authority to vote for an individual nominee, write
that nominee's name on the line provided below.
----------------------------------------------
2. Ratification of the selection of the firm of Arthur Andersen LLP as
independent certified public accountants for the Company for 1997
| | FOR | | AGAINST | | ABSTAIN
(Over)
<PAGE>
3. Approval of the 1996 Employees Incentive Stock Option Plan
| | FOR | | AGAINST | | ABSTAIN
4. Approval of the 1996 Directors Stock Option Plan
| | FOR | | AGAINST | | ABSTAIN
The Board of Directors recommends a vote FOR proposals 1 through 4 above.
This Proxy, when properly executed, will be voted in the manner directed herein
by the undersigned stockholder. If no direction is given, this Proxy will be
voted FOR proposals 1 through 4 above. If any other business is presented at the
Annual Meeting, the Proxy will be voted in accordance with the judgment of the
proxies.
Please sign your name EXACTLY as it
appears hereon. If shares are held
jointly, each holder should sign. A
corporation is requested to sign
its name by its President or other
authorized officer, with the office
held designated. A partnership
should sign in the partnership name
by a partner. Executors, trustees,
administrators, guardians and
attorneys are requested indicate
the capacity in which they are
signing. Attorneys should submit
powers of attorney.
Dated______________________, 1997
-----------------------------------
-----------------------------------
(Signature of Stockholder)
PLEASE MARK, SIGN, DATE AND RETURN
THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE PAID ENVELOPE.
<PAGE>
EXHIBIT A
ABIGAIL ADAMS NATIONAL BANCORP, INC.
1996 EMPLOYEE INCENTIVE STOCK OPTION PLAN
1. Purpose and Administration
--------------------------
(a) Purpose. The purpose of the Employee Incentive Stock Option Plan (the
--------
"Plan") is to give officers and executive personnel ("key employees") of Abigail
Adams National Bancorp, Inc. (the "Company") and The Adams National Bank (the
"Bank") an opportunity to acquire shares of the common stock of the Company,
$.01 par value (the "Common Stock"), to provide an incentive for key employees
to continue to promote the best interests of the Company and enhance its
long-term performance, and to provide an incentive for key employees to join or
remain with the Company.
(b) Administration. The Plan shall be administered, construed and
--------------
interpreted by the Company's Board of Directors, which, to the extent the Board
shall determine, may delegate its powers with respect to the administration of
the Plan (except its powers under Section 10(c)) to a committee of two or more
non-employee directors whose members shall be designated from time to time by
resolution of the Board of Directors. The decision of a majority of the members
of the administrative body shall be sufficient with respect to an action to be
taken or interpretation to be made under the Plan. If administration is
delegated to a committee, all references herein to the Board shall be deemed to
refer to the committee.
(c) Powers. Within the limits of the express provisions of the Plan, the
------
Board shall determine:
(i) the key employees to whom awards hereunder shall be granted, (ii)
the time or times at which such awards shall be granted, (iii) the
form and amount of the awards, and (iv) the limitations, restrictions
and conditions applicable to any
such award.
In making such determinations, the Board may take into account the nature of the
services rendered by such employees, or classes of employees, their present and
potential contributions to the Company's success and such other factors as the
Board in its discretion shall deem relevant.
(d) Interpretations. Subject to the express provisions of the Plan, the
---------------
Board may interpret the Plan, prescribe, amend and rescind rules and regulations
relating to it, determine the terms and provisions of the respective awards and
make all other determinations it deems necessary or advisable for the
administration of the Plan.
(e) Determinations. The determinations of the Board on all matters
--------------
regarding the Plan shall be conclusive. A member of the Board shall only be
liable for any action taken or determination made in bad faith.
(f) Non-uniform Determinations. The Board's determinations under the Plan,
--------------------------
including without limitation, determinations as to the persons to receive
awards, the terms and provisions of such awards and the agreements evidencing
the same, need not be uniform and may be made by it selectively among persons
who receive or are eligible to receive awards under the Plan, whether or not
such persons are similarly situated.
2. Awards Under the Plan
---------------------
(a) Form. Awards under the Plan may be granted in either or both the
----
following forms: (i) incentive stock options ("Incentive Stock Options"), as
described in Section 3, and (ii) Stock Appreciation Rights, as described in
Section 4.
(b) Maximum Limitation. The aggregate number of shares of Common Stock
-------------------
available for grant under the
20
<PAGE>
Plan is 14,193 shares, subject to adjustment pursuant to Section 6. Shares of
Common Stock issued pursuant to the Plan may be either authorized but unissued
shares or shares now or hereafter held in the treasury of the Company. In the
event that any Incentive Stock Option granted under the Plan expires unexercised
or is terminated, surrendered or canceled (other than in connection with the
exercise of a Stock Appreciation Right with respect to which Common Stock is
delivered to the key employee under Section 5(b)(ii)), without being exercised,
in whole or in part, for any reason, the number of shares theretofore subject to
such Incentive Stock Option, or the unexercised, terminated, forfeited or
unearned portion thereof, shall be added to the remaining number of shares of
Common Stock available for grant as an Incentive Stock Option under the Plan,
including a grant to a former holder of such Incentive Stock Option, upon such
terms and conditions as the Board shall determine, which terms may be more or
less favorable than those applicable to such former Incentive Stock Option.
3. Incentive Stock Options
-----------------------
It is intended that Incentive Stock Options granted under the Plan shall
constitute incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Code"). Incentive Stock Options
may be granted in such form and subject to such terms and conditions as the
Board shall from time to time determine, subject to the following:
(a) Exercise Price. The per share exercise price of each Incentive Stock
---------------
Option shall be fixed by the Board in the Option Agreement (hereinafter defined)
but shall be at least 100% of the fair market value of the Common Stock subject
to such Incentive Stock Option on the date of grant.
(b) Terms of Options. Each Incentive Stock Option shall become exercisable
----------------
at the time, and for the number of shares of Common Stock, fixed by the Option
Agreement. Each Incentive Stock Option shall expire and all rights to purchase
Common Stock thereunder shall cease on the date fixed on the Option Agreement,
which shall not be later than the date ten (10) years from the date such
Incentive Stock Option is granted. With respect to an Incentive Stock Option
granted to an employee who is subject to Section 16 under the Securities
Exchange Act of 1934, as amended, a period of six months must elapse between the
date of grant of an Incentive Stock Option hereunder and the date of disposition
of the shares of Common Stock purchased upon the exercise of the Incentive Stock
Option.
(c) Limitation on Amounts. The aggregate fair market value (determined with
---------------------
respect to each Incentive Stock Option as of the time such Incentive Stock
Option is granted) of the capital stock with respect to which Incentive Stock
Options are exercisable for the first time by a key employee during any calendar
year (under this Plan or any other plan of the Company) shall not exceed
$100,000.
(d) Ten Percent Shareholder. Notwithstanding any other provisions herein
------------------------
contained, no key employee may receive an Incentive Stock Option under the Plan
if such key employee, at the time the award is granted owns (as defined in
Section 424(d) of the Code) stock possessing more than 10% of the total combined
voting power of all classes of stock of the Company, unless the option price for
such Incentive Stock Option is at least 110% of the fair market value of the
Common Stock subject to such Incentive Stock Option on the date of grant and
such Option is not exercisable after the date five years from the date such
Option is granted.
(e) Exercise. Incentive Stock Options shall be subject to such terms and
--------
conditions, shall be exercisable at such time or times, and shall be evidenced
by such form of written option agreement between the optionee and the Company,
as the Board shall determine; provided, that such terms are not inconsistent
with the other provisions of the Plan, and with Section 422 of the Code or
regulations thereunder.
(f) Manner of Exercise and Payment for Common Stock. Any Stock Option
---------------------------------------------------
granted under the Plan may be exercised by the grantee, by a legatee or legatees
of such Stock Option under the grantee's last will or by his or her executors,
personal representatives or distributees, (a) by delivering to the Secretary of
the Company written notice of the number of shares of Common Stock with respect
to which the Stock Option is being exercised, or (b) by delivering such notice
to a broker-dealer with a copy to the Secretary of the Company. Except as
otherwise provided in the Plan
21
<PAGE>
or in any Option Agreement, the purchase price of Common Stock upon exercise of
any Stock Option shall be paid in full (i) in cash or certified check, (ii) if
the grantee may do so in conformity with Regulation T and without violation of
Section 16(b) or (c) under the Securities Exchange Act of 1934, as amended,
pursuant to a broker-dealer's cashless exercise procedure, by a broker-dealer to
whom the grantee has submitted a properly executed exercise notice consisting of
a fully endorsed Stock Option and irrevocable instructions to deliver to the
Company the total exercise price in cash, (iii) in Common Stock valued at its
fair market value on the date of exercise, (iv) by agreeing to surrender Stock
Options then exercisable by him or her valued at the excess of the aggregate
fair market value of the Common Stock subject to such Stock Options on the date
of exercise over the aggregate option exercise price of such Common Stock, (v)
by directing the Company to withhold such number of shares of Common Stock
otherwise issuable upon exercise of such Stock Option having an aggregate fair
market value on the date of exercise equal to the exercise price of the Stock
Option, or (vi) by any combination of (i), (ii), (iii), (iv) and (v). In the
case of payments pursuant to (ii), (iii), (iv) or (v) above, the grantee's
election must be made on or prior to the date of exercise of the Stock Option
and must be irrevocable. The Company shall issue, in the name of the grantee,
Stock Certificates representing the total number of shares of Common Stock
issuable pursuant to the exercise of any Stock Option as soon as reasonably
practicable after such exercise.
(g) Cancellation of Stock Appreciation Rights. The exercise of any
----------------------------------------------
Incentive Stock Option shall cancel that number, if any, of Stock Appreciation
Rights (as defined in Section 4) included in such Incentive Stock Option, which
is equal to the excess of (i) the number of shares of Common Stock subject to
Stock Appreciation Rights included in such Incentive Stock, over (ii) the number
of shares of Common Stock which remain subject to such Incentive Stock Option
after such exercise.
4. Stock Appreciation Rights
-------------------------
(a) Award. If deemed by the Board to be in the best interests of the
------
Company, any Incentive Stock Option granted under the Plan may include a stock
appreciation right ("Stock Appreciation Right"), either at the time of grant or
thereafter while the Incentive Stock Option is outstanding.
(b) Terms of Rights. Stock Appreciation Rights shall be subject to such
---------------
terms and conditions not inconsistent with the other provisions of the Plan as
the Board shall determine, provided that:
(i) A Stock Appreciation Right shall be exercisable to the extent, and
only to the extent, the Incentive Stock Option in which it is included is
exercisable and shall be exercisable only for such period as the Board may
determine (which period may expire prior to, but not later than, the expiration
date of such Incentive Stock Option). Notwithstanding the preceding sentence, a
Stock Appreciation Right is exercisable only when the fair market value of a
share of Common Stock exceeds the option price specified in such Incentive Stock
Option.
(ii) A Stock Appreciation Right shall entitle the optionee to
surrender to the Company unexercised the Incentive Stock Option, or portion
thereof, to which it is related, or any portion thereof, and to receive from the
Company in exchange therefor that number of shares of Common Stock having an
aggregate fair market value equal to the excess of the fair market value on the
date of exercise of one share of Common Stock over the option price per share
specified in such Incentive Stock Option multiplied by the number of shares of
Common Stock subject to the Incentive Stock Option, or portion thereof, which is
so surrendered. The Board shall be entitled to elect to settle any part or all
of the Company's obligation arising out of the exercise of a Stock Appreciation
Right by the payment of cash or by check equal to the aggregate fair market
value on the date on which the Stock Appreciation Right is exercised of that
part or all of the shares of Common Stock the Company would otherwise be
obligated to deliver.
(c) Cash Settlement Restriction. (i) Notwithstanding Section 4(b), so long
---------------------------
as the grantee of the Stock Appreciation Right is an officer of the Company, the
Company's right to elect to settle any part or all of its obligation arising out
of the exercise of a Stock Appreciation Right by the payment of cash or by check
shall not apply, unless such exercise occurs no less than six months after the
date of grant of the Stock Appreciation Right and either: (a) the automatic
22
<PAGE>
exercise provisions in paragraph (ii) below have been triggered, or (b) during
the period beginning on the third business day following the date of release by
the Company for publication of its quarterly or annual summary statements of
sales and earnings and ending on the twelfth business day following such date.
(ii) in the event that the Company shall cancel all unexercised
Incentive Stock Options as of the effective date of a merger or other
transaction (as described in Section 7), or in the case of dissolution of the
Company, then each Stock Appreciation Right held by an executive officer or
director of the Company shall be automatically exercised for cash on such date
within 90 days prior to the effective date of such transaction or dissolution as
the Board shall determine and, in the absence of such determinations on the last
business day immediately prior to such effective date.
5. Transferability
---------------
No Incentive Stock Option or Stock Appreciation Right may be transferred,
assigned, pledged or hypothecated (whether by operation of law or otherwise),
except as provided by will or the applicable laws of descent or distribution,
and no Incentive Stock Option or Stock Appreciation Right shall be subject to
execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of an Incentive Stock Option or Stock
Appreciation Right, or levy of attachment or similar process upon the Incentive
Stock Option or Stock Appreciation Right not specifically permitted herein shall
be null and void and without effect. An Incentive Stock Option or Stock
Appreciation Right may be exercised only by a key employee during his or her
lifetime, or pursuant to Section 9(c) by his or her estate or other person who
acquires the right to exercise such Incentive Stock Option or Stock Appreciation
Right upon his or her death by bequest or inheritance.
6. Adjustment Provisions
---------------------
The aggregate number of shares of Common Stock with respect to which
Incentive Stock Options and Stock Appreciation Rights may be granted, the
aggregate number of shares of Common Stock subject to each outstanding Incentive
Stock Option and Stock Appreciation Right, and the option price per share of
each such Incentive Stock Option, may all be appropriately adjusted as the Board
may determine for any increase or decrease in the number of shares of issued
Common Stock resulting from a subdivision or consolidation of shares, whether
through reorganization, recapitalization, stock split, stock distribution or
combination of shares, or the payment of a share dividend or other increase or
decrease in the number of such shares outstanding effected without receipt of
consideration by the Company. The Board shall make adjustments under this
Section 6 in its sole discretion, and its decisions shall be binding and
conclusive.
7. Dissolution, Change of Control
------------------------------
In the event of a dissolution or liquidation of the Company, each
outstanding Option granted hereunder shall terminate, but the Optionee shall
have the right, immediately prior to such liquidation or dissolution, to
exercise his Option, in whole or in part, to the extent that such Option is then
otherwise exercisable and has not previously been exercised.
In the event that: (i) any person (as such term is used in Section 13 of
the Securities and Exchange Act of 1934, as amended, and the rules and
regulation thereunder and including any affiliate or associate of such person,
as defined in Rule 12b-2 under said Act, and any person acting in concert with
such person) directly or indirectly acquires or otherwise becomes entitled to
vote more than eighty percent (80%) of the voting power entitled to be cast at
an election for directors ("Voting Power") of the Company; or (ii) there occurs
any merger or consolidation of the Company, or any sale, lease or exchange of
all or any substantial part of the consolidated assets of the Company and its
subsidiary to any other person and (A) in the case of a merger or consolidation,
the holders of outstanding stock of the Company entitled to vote in elections of
directors immediately before such merger or consolidation (excluding for this
purpose any person, including any affiliate or associate that directly or
indirectly owns or is entitled to vote twenty percent (20%) or more of the
Voting Power of the Company) hold less than eighty percent (80%) of the Voting
Power of the survivor of such merger or consolidation or its parent; or (B) in
the case of any such sale, lease or exchange, the Company does not own at least
eighty percent (80%) of the Voting Power of the other person; or (iii) one or
more new directors of the
23
<PAGE>
Company are elected and at such time five or more directors (or, if less, a
majority of the directors) then holding office were not nominated as candidates
by majority of the directors in office immediately before such election, then
the Option will be deemed to apply to the securities to which a holder of the
number of shares of Common Stock subject to the unexercised portion of the Stock
Option would be entitled if he or she actually owned such shares immediately
prior to the record date or other times any such event became effective.
Outstanding and unexercised Stock Options previously granted shall immediately
become fully vested and exercisable.
8. Shareholder Approval, Effective Date and Conditions Subsequent to Effective
---------------------------------------------------------------------------
Date
----
The Plan shall become effective on the date of the approval of the Plan by
the Board of Directors of the Company; provided, however, that the adoption of
the Plan is subject to shareholder approval within twelve (12) months after the
date of adoption of the Plan by the Board. The Plan shall be null and void and
of no effect if the foregoing condition is not fulfilled, and in such event each
Incentive Stock Option or Stock Appreciation Right granted under the Plan shall
be null and void and of no effect.
No grant or award shall be made under the Plan more than ten years from the
earlier of the date of adoption of the Plan by the Board and shareholder
approval thereof; provided, however, that the Plan and all Incentive Stock
Options and Stock Appreciation Rights granted under the Plan prior to such date
shall remain in effect and subject to adjustment and amendment as described
herein until they have been satisfied or terminated in accordance with the terms
of the respective grants or awards and the related agreements.
9. Termination of Employment
-------------------------
(a) Each Incentive Stock Option and Stock Appreciation Right shall, unless
sooner terminated as described in Section 9(b) or (c) below, expire on the first
to occur of the tenth anniversary of the date of grant thereof or the expiration
date set forth in the applicable option agreement.
(b) The nonvested portion (if any) of an Incentive Stock Option and Stock
Appreciation Right shall expire on the first to occur of the applicable dates
set forth in paragraph (a) of this Section 9 and the date that the employment of
the key employee with the Company terminates for any reason other than death or
disability. Notwithstanding the preceding provisions of this paragraph, the
Board, in its sole discretion, may, by written notice given to an ex-employee,
permit the ex-employee to exercise Incentive Stock Options or Stock Appreciation
Rights during a period following his or her termination of employment, which
period shall not exceed three months. In no event, however, may the Board permit
an ex-employee to exercise an Incentive Stock Option or Stock Appreciation Right
after the expiration date contained in the agreement evidencing such Incentive
Stock Option or Stock Appreciation Right. Notwithstanding the preceding
provision of this paragraph, if the Board permits an ex-employee to exercise
Incentive Stock Options or Stock Appreciation Rights during a period following
his or her termination of employment pursuant to such preceding provisions, such
Incentive Stock Options or Stock Appreciation Rights shall, to the extent
unexercised, expire on the date that such ex-employee violates (as determined by
the Board) any covenant not to compete in effect between the Company and the
ex-employee.
(c) If the employment of a key employee with the Company terminates by
reason of disability (as defined in Section 422(c)(9) of the Code as determined
by the Board) or by reason of death, his or her Incentive Stock Options and
Stock Appreciation Rights, if any, shall expire on the first to occur of the
date set forth in paragraph (a) of this Section 9 and the first anniversary of
such termination of employment.
10. Miscellaneous
-------------
(a) Legal and Other Requirements. The obligation of the Company to sell and
-----------------------------
deliver Common Stock under the Plan shall be subject to all applicable laws,
regulations, rules and approvals, including, but not by way of limitation, the
effectiveness of a registration statement under the Securities Act of 1933, as
amended, if deemed necessary or appropriate
24
<PAGE>
by the Company. Certificates for shares of Common Stock issued under the Plan
may be legended as the Board shall deem appropriate.
(b) No Obligation to Exercise Options. The granting of an Incentive Stock
----------------------------------
Option shall impose no obligation upon an optionee to exercise such Incentive
Stock Option.
(c) Termination and Amendment of Plan. The Board, without further action on
----------------------------------
the part of the shareholders of the Company, may from time to time alter, amend
or suspend the Plan or any Incentive Stock Option or Stock Appreciation Right
granted thereunder or may at any time terminate the Plan, except that it may
not, without the approval of the shareholders of the Company (except to the
extent described in Section 6 hereof): (i) materially increase the total number
of shares of Common Stock available for grant under the Plan; (ii) materially
modify the class of eligible employees under the Plan; or (iii) effect a change
relating to Incentive Stock Options granted hereunder which is inconsistent with
Section 422 of the Code or regulations issued thereunder.
No action taken by the Board under this Section, either with or without the
approval of the shareholders of the Company, may materially and adversely affect
any outstanding Incentive Stock Option or Stock Appreciation Right without the
consent of the holder hereof.
(d) Application of Funds. The proceeds received by the Company from the
---------------------
sale of Common Stock pursuant to Incentive Stock Options will be used for
general corporate purposes.
(e) Withholding Taxes. Whenever the Company proposes or is required to
------------------
issue or transfer shares of Common Stock to an optionee under the Plan, the
Company shall have the right to require the optionee to remit to the Company an
amount sufficient to satisfy all federal, state and local withholding tax
requirements prior to the delivery of any certificate or certificates for such
shares. If such certificates have been delivered prior to the time a withholding
obligation arises, the Company shall have the right to require the optionee to
remit to the Company an amount sufficient to satisfy all federal, state or local
withholding tax requirements at the time such obligation arises and to withhold
from other amounts payable to the optionee, as compensation or otherwise, as
necessary. In lieu of requiring an optionee to make a payment to the Company in
an amount related to the withholding tax requirement, the Company may, in its
discretion, provide that at the optionee's election, the tax withholding
obligation shall be satisfied by the Company's withholding a portion of the
shares otherwise distributable to the optionee, such shares being valued at
their fair market value at the date of exercise, or by the optionee's delivering
to the Company a portion of the shares previously delivered by the Company, such
shares being valued at their fair market value as of the date of delivery of
such shares by the optionee to the Company.
An election pursuant to the preceding sentence must be made in writing
either (i) during the period beginning on the third business day following the
date of release of a quarterly or annual summary of earnings and ending on the
12th business day following such day, or (ii) at least six months prior to the
date the income is realized.
(f) Right to Terminate Employment. Nothing in the Plan or any agreement
-------------------------------
entered into pursuant to the Plan confers upon any key employee or other
optionee the right to continue in the employment of the Company or affect any
right which the Company may have to terminate the employment of such key
employee or other optionee.
(g) Rights as a Shareholder. No optionee shall have any right as a
-------------------------
shareholder unless and until certificates for shares of Common Stock are issued
to him or her.
(h) Leaves of Absence and Disability. The Board shall be entitled to make
---------------------------------
such rules, regulations and determinations as it deems appropriate under the
Plan in respect of any leave of absence taken by or disability of any key
employee. Without limiting the generality of the foregoing, the Board shall be
entitled to determine (i) whether or not any such leave of absence shall
constitute a termination of employment within the meaning of the Plan, and (ii)
the impact, if any of any such leave of absence on awards under the Plan
theretofore made to any key employee who takes such leave
25
<PAGE>
of absence.
(i) Fair Market Value. Whenever the fair market value of Common Stock is to
-----------------
be determined under the Plan as of a given date, such fair market value shall
be: (i) if the Common Stock is actively traded on the over-the-counter market,
the average of the bid and the asked price for the Common Stock at the close of
trading for the ten consecutive trading days immediately preceding such given
date; (ii) if the Common Stock is listed on a national securities exchange, the
average of the closing prices of the Common Stock on the Composite Tape for the
10 consecutive trading days immediately preceding such given date; and (iii) if
the Common Stock is neither actively traded on the over-the-counter market nor
listed on a national securities exchange, such value as the Board, in good
faith, shall determine.
Notwithstanding any provision of the Plan to the contrary, no determination
made with respect to the fair market value of Common Stock subject to an
Incentive Stock Option shall be inconsistent with Section 422 of the Code or
regulations thereunder.
(j) Notices. Every direction, revocation or notice authorized or required
--------
by the Plan shall be deemed delivered to the Company: (i) on the date it is
personally delivered to the Secretary of the Company at its principal executive
offices, or (ii) three business days after it is sent by registered or certified
mail, postage prepaid, addressed to the Secretary at such offices, and shall be
deemed delivered to an optionee (x) on the date it is personally delivered to
him or her, or (y) three business days after it is sent by registered or
certified mail, postage prepaid, addressed to him or her at the last address
shown for him or her on the records of the Company.
(k) Applicable Law. All questions pertaining to the validity, construction
---------------
and administration of the Plan, and Incentive Stock Options and Stock
Appreciation Rights granted under the Plan shall be determined in conformity
with the laws of Delaware, to the extent not inconsistent with Section 422 of
the Code and regulations thereunder.
(l) Elimination of Fractional Shares. If under any provision of the Plan
---------------------------------
which requires a computation of the number of shares of Common Stock subject to
an Incentive Stock Option or Stock Appreciation Right, the number so computed is
not a whole number of shares of Common Stock, such number of shares of Common
Stock shall be rounded down to the next whole number.
26
EXHIBIT B
ABIGAIL ADAMS NATIONAL BANCORP, INC.
1996 DIRECTORS STOCK OPTION PLAN
1. Purpose and Administration
--------------------------
(a) Purpose. The purpose of the Directors Stock Option Plan (the "Plan") is
--------
to give directors ("Directors") of Abigail Adams National Bancorp, Inc. (the
"Company") and The Adams National Bank (the "Bank"), an opportunity to acquire
shares of the common stock of the Company, $.01 par value ("Common Stock"), to
provide an incentive for such Directors to continue to promote the best
interests of the Company and enhance its long-term performance, and to provide
an incentive for Directors to join or remain with the Company.
(b) Administration. The Plan shall be administered, construed and
--------------
interpreted by the Company's Board of Directors. The decision of a majority of
the members of the Board shall be sufficient with respect to an action to be
taken or interpretation to be made under the Plan.
2. Awards Under The Plan
---------------------
(a) Form. Awards under the Plan shall be granted in the form of
----
nonstatutory stock options ("Stock Options"), as described in Section 3.
(b) Maximum Limitation. The aggregate number of shares of Common Stock
-------------------
available for grant under the Plan is 7,920 shares, subject to adjustment
pursuant to Section (c) below. Stock Options shall be allocated to each director
who holds such position on the date of the grant based upon the total months of
1996 board service performed by such director. Shares of Common Stock issued
pursuant to the Plan may be either authorized but unissued shares or shares now
or hereafter held in the treasury of the Company. In the event that, prior to
the end of the period during which Stock Options may be granted under the Plan,
any Stock Option under the Plan expires unexercised or is terminated,
surrendered or canceled without being exercised, in whole or in part, for any
reason, the number of shares theretofore subject to such Stock Option or the
unexercised, terminated, forfeited or unearned portion thereof, shall be added
to the remaining number of shares of Common Stock available for grant as a Stock
Option under the Plan, including a grant to a former holder of such Stock
Option, upon such terms and conditions as the Board may determine in accordance
with the Plan.
(c) Adjustment Provisions. The aggregate number of shares of Common Stock
----------------------
with respect to which Stock Options may be granted, the aggregate number of
shares of Common Stock subject to each outstanding Stock Option, and the
exercise price per share of each such Stock Option, may all be appropriately
adjusted as the Board may determine for any increase or decrease in the number
of shares of issued Common Stock resulting from a subdivision or consolidation
of shares, whether through reorganization, recapitalization, stock split, stock
distribution or combination of shares, or the payment of a share dividend or
other increase or decrease in the number of such shares outstanding effected
without receipt of consideration by the Company. Adjustments under this Section
2(c) shall be made by the Board of Directors or the applicable committee thereof
in its sole discretion, and its decisions shall be binding and conclusive.
3. Stock Options
-------------
Stock Options shall be granted in such form and upon such terms and
conditions, and shall be evidenced by such form of written option agreement
("Option Agreement") between the Director and the Company as the Board shall
determine, as follows:
(a) Exercise. The Stock Options shall be subject to such terms and
--------
conditions, and shall be exercisable at such time or times set forth in the
Option Agreement.
(b) Exercise Price. The per share exercise price of each Stock Option shall
--------------
be fixed by the Board of Directors in the Option Agreement, but shall not be
less than eighty-five percent (85%) of the fair market value of the
27
<PAGE>
Common Stock subject to such Stock Option on the date of grant.
(c) Term Of Stock Options. Each Stock Option shall become exercisable at
----------------------
the time, and for the number of shares of Common Stock, fixed by the Option
Agreement, provided, however, that a period of six months must elapse between
the date of grant of a Stock Option hereunder and the date of the disposition of
the shares of Common Stock purchased upon exercise of the Stock Option. Each
Stock Option shall expire and all rights to purchase Common Stock thereunder
shall cease on the date fixed on the Option Agreement, which shall not be later
than the date ten (10) years from the date such Stock Option is granted.
(d) Manner of Exercise and Payment for Common Stock. Any Stock Option
----------------------------------------------------
granted under the Plan may be exercised by the grantee, by a legatee or legatees
of such Stock Option under the grantee's last will or by his or her executors,
personal representatives or distributees, (a) by delivering to the Secretary of
the Company written notice of the number of shares of Common Stock with respect
to which the Stock Option is being exercised, or (b) by delivering such notice
to a broker-dealer with a copy to the Secretary of the Company. Except as
otherwise provided in the Plan or in any Option Agreement, the purchase price of
Common Stock upon exercise of any Stock Option shall be paid in full (i) in cash
or certified check, (ii) if the grantee may do so in conformity with Regulation
T and without violation of Section 16(b) or (c) under the Securities Exchange
Act of 1934, as amended, pursuant to a broker-dealer's cashless exercise
procedure, by a broker-dealer to whom the grantee has submitted a properly
executed exercise notice consisting of a fully endorsed Stock Option and
irrevocable instructions to deliver to the Company the total exercise price in
cash, (iii) in Common Stock valued at its fair market value on the date of
exercise, (iv) by agreeing to surrender Stock Options then exercisable by him or
her valued at the excess of the aggregate fair market value of the Common Stock
subject to such Stock Options on the date of exercise over the aggregate option
exercise price of such Common Stock, (v) by directing the Company to withhold
such number of shares of Common Stock otherwise issuable upon exercise of such
Stock Option having an aggregate fair market value on the date of exercise equal
to the exercise price of the Stock Option, or (vi) by any combination of (i),
(ii), (iii), (iv) and (v). In the case of payments pursuant to (ii), (iii), (iv)
or (v) above, the grantee's election must be made on or prior to the date of
exercise of the Stock Option and must be irrevocable. The Company shall issue,
in the name of the grantee, Stock Certificates representing the total number of
shares of Common Stock issuable pursuant to the exercise of any Stock Option as
soon as reasonably practicable after such exercise.
(e) Withholding. Whenever the Company proposes or is required to issue or
-----------
transfer shares of Common Stock to a Director under the Plan, the Company shall
have the right to require the Director to remit to the Company an amount
sufficient to satisfy all federal, state and local withholding tax requirements
prior to the delivery of any certificate or certificates for such shares. If
such certificates have been delivered prior to the time a withholding obligation
arises, the Company shall have the right to require the Director to remit to the
Company an amount sufficient to satisfy all federal, state or local withholding
tax requirements at the time such obligation arises and to withhold from other
amounts payable to the Director, as compensation or otherwise, as necessary. In
lieu of requiring a Director to make a payment to the Company in an amount
related to the withholding tax requirement, the Company may, in its discretion,
provide that at the Director's election, the tax withholding obligation shall be
satisfied by the Company's withholding a portion of the shares otherwise
distributable to the Director, such shares being valued at their fair market
value at the date of exercise, or by the Director's delivering to the Company a
portion of the shares previously delivered by the Company, such shares being
valued at their fair market value as of the date of delivery of such shares by
the Director to the Company.
Notwithstanding any provision of the Plan to the contrary, an election
pursuant to the preceding sentence must be made in writing either (A) during the
period beginning on the third business day following the date of release of a
quarterly or annual summary of earnings and ending on the 12th business day
following such day, or (B) at least six months prior to the date the income is
realized.
4. Transferability
---------------
No Stock Option may be transferred, assigned, pledged or hypothecated
(whether by operation of law or otherwise), except as provided by will or the
applicable laws of descent or distribution, and no Stock Option shall be subject
to execution, attachment or similar process. Any attempted assignment, transfer,
pledge, hypothecation or other disposition of a Stock Option, or levy or
attachment similar process upon the Stock Option not specifically permitted
herein shall be
28
<PAGE>
null and void and without effect. A Stock Option may be exercised only by a
Director during his or her lifetime, or pursuant to Section 7(b), by his or her
estate or the person who acquires the right to exercise such Stock Option upon
his or her death by bequest or inheritance.
5. Dissolution
-----------
In the event of a dissolution or liquidation of the Company, each
outstanding Option granted hereunder shall terminate, but the Optionee shall
have the right, immediately prior to such liquidation or dissolution, to
exercise his Option, in whole or in part, to the extent that such Option is then
otherwise exercisable and has not previously been exercised.
6. Effective Date And Conditions Subsequent To Effective Date
----------------------------------------------------------
(a) The Plan shall become effective on the date of the approval of the Plan
by the Board of Directors of the Company, but the Plan shall be null and void
and of no effect if the Plan is not ratified by the Company's stockholders at
the annual meeting subsequent to the Board's approval of the Plan, and in such
event each Stock Option granted under the Plan shall be null and void and of no
effect.
(b) No grant or award shall be made under the Plan more than ten (10) years
from the date of adoption of the Plan by the Board, provided, however, that the
Plan and all Stock Options granted under the Plan prior to such date shall
remain in effect and subject to adjustment and amendment as herein provided
until they have been satisfied or terminated in accordance with the terms of the
respective grants or awards and the related Option Agreements.
7. Termination Of Directorship
---------------------------
(a) Unless otherwise provided in the Plan, a Stock Option shall expire on
the first to occur of the expiration date set forth in the applicable Option
Agreement or the termination of the Director's directorship.
(b) If the Director's service on the Board of Directors of the Company and
all subsidiaries terminates by reason of disability (as determined by the Board)
or by reason of death, his or her Stock Options shall expire on the first to
occur of the expiration date set forth in the applicable Option Agreement or the
second anniversary of such termination of service.
8. Change In Control
-----------------
In the event that: (i) any person (as such term is used in Section 13 of
the Securities and Exchange Act of 1934, as amended, and the rules and
regulation thereunder and including any affiliate or associate of such person,
as defined in Rule 12b-2 under said Act, and any person acting in concert with
such person) directly or indirectly acquires or otherwise becomes entitled to
vote more than eighty percent (80%) of the voting power entitled to be cast at
an election for directors ("Voting Power") of the Company; or (ii) there occurs
any merger or consolidation of the Company, or any sale, lease or exchange of
all or any substantial part of the consolidated assets of the Company and its
subsidiary to any other person and (A) in the case of a merger or consolidation,
the holders of outstanding stock of the Company entitled to vote in elections of
directors immediately before such merger or consolidation (excluding for this
purpose any person, including any affiliate or associate that directly or
indirectly owns or is entitled to vote twenty percent (20%) or more of the
Voting Power of the Company) hold less than eighty percent (80%) of the Voting
Power of the survivor of such merger or consolidation or its parent; or (B) in
the case of any such sale, lease or exchange, the Company does not own at least
eighty percent (80%) of the Voting Power of the other person; or (iii) one or
more new directors of the Company are elected and at such time five or more
directors (or, if less, a majority of the directors) then holding office were
not nominated as candidates by majority of the directors in office immediately
before such election, then the Option will be deemed to apply to the securities
to which a holder of the number of shares of Common Stock subject to the
unexercised portion of the Stock Option would be entitled if he or she actually
owned such shares immediately prior to the record date or other times any such
event became effective. Outstanding and unexercised Stock Options previously
granted shall immediately become fully vested and exercisable.
29
<PAGE>
9. Miscellaneous
-------------
(a) No Obligation To Exercise Options. The granting of a Stock Option shall
---------------------------------
impose no obligation upon a Director to exercise such Stock Option.
(b) Termination And Amendment Of Plan. The Board, without further action on
----------------------------------
the part of the shareholders of the Company, may from time to time alter, amend
or suspend the Plan or any Stock Option granted hereunder or may at any time
terminate the Plan, except that, unless approved by the shareholders, it may not
(except to the extent provided in Section 2(c) hereof) materially increase the
total number of shares of Common Stock available for grant under the Plan. No
action taken by the Board under this Section may materially and adversely affect
any outstanding Stock Option without the consent of the holder thereof.
(c) Application Of Funds. The proceeds received by the Company from the
---------------------
sale of Common Stock pursuant to Stock Options will be used for general
corporate purposes.
(d) Right To Terminate Directorship. Nothing in the Plan or any agreement
--------------------------------
entered into pursuant to the plan shall confer upon any Director the right to
continue on the Board of Directors of the Company or any Subsidiary or affect
any right which the Company or any Subsidiary may have to terminate the board
service of such Director.
(e) Rights As A Shareholder. No Director shall have any right or privileges
------------------------
as a shareholder unless and until certificates for shares of Common Stock are
issuable to him or her.
(f) Fair Market Value. Whenever the fair market value of Common Stock is to
-----------------
be determined under the Plan as of a given date, such fair market value shall
be: (i) if the Common Stock is actively traded on an exchange or market in which
prices are reported on a bid and asked basis, the average of the mean between
the bid and the asked price for the Common Stock at the close of trading for the
ten (10) consecutive days immediately preceding such given date; and (ii) if the
Common Stock is principally traded listed on a national securities exchange, the
average of the closing prices of the Common Stock on the Composite Tape for the
ten (10) consecutive trading days immediately preceding such given date; and
(iii) if the Common Stock is neither actively traded on the over-the-counter
market nor listed on a national securities exchange, such value as the Board, in
good faith shall determine.
(g) Notices. Every direction, revocation or notice authorized or required
-------
by the Plan shall be deemed delivered to the Company (a) on the date it is
personally delivered to the Secretary of the Company at its principal executive
offices or (b) three business days after it is sent by registered or certified
mail; postage prepaid, addressed to the Secretary at such offices; and shall be
deemed delivered to an optionee (a) on the date it is personally delivered to
him or her or (b) three business days after it is sent by registered or
certified mail, postage prepaid, addressed to him or her at the last address
shown for him or her on the records of the Company.
(h) Applicable Law. All questions pertaining to the validity, construction
--------------
and administration of the Plan and, Stock Options granted hereunder shall be
determined in conformity with the laws of Delaware.
(i) Elimination Of Fractional Shares. If under any provision of the Plan
---------------------------------
that requires a computation of the number of shares of Common Stock subject to a
Stock Option, the number so computed is not a whole number of shares of Common
Stock, such number of shares of Common Stock shall be rounded down to the next
whole number.
(j) Legal and Other Requirements. The obligation of the Company to sell and
----------------------------
deliver Common Stock under the Plan shall be subject to all applicable laws,
regulations, rules and approvals, including, but not by way of limitation, the
effectiveness of a registration statement under the Securities Act of 1933, as
amended, if deemed necessary or appropriate by the Company. Certificates for
shares of Common Stock issued under the Plan may be legended as the Board shall
deem appropriate.
30
<PAGE>
