S.E.C. Filing
ABIGIAL ADAMS NATIONAL BANCORP, INC.
SCHEDULE 14A
April 14, 1998
Filed: April 14, 1998
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy (Opposition to Consent Solicitation) Statement Pursuant to Section 14(a)
of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [X]
Check the appropriate box:
Preliminary Proxy Statement [X]
Confidential for Use of the Commission Only (as permitted by
Rule 14a-6 (e) (2) [ ]
Definitive Proxy Statement [ ]
Definitive Additional Materials [ ]
Soliciting Material pursuant to Rule 14a-11 (c) or Rule 14a-12 [ ]
ABIGAIL ADAMS NATIONAL BANCORP, INC.
(Name of Registrant as Specified in Its Charter)
Abigail Adams National Bancorp, Inc.
Barbara Davis Blum Steve Protulis
Shireen L. Dodson Dana Stebbins
Susan Hager Susan Williams
Clarence L. James, Jr.
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No Fee Required.
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(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>
STATEMENT OF THE REGISTRANT AND THE SEVEN DIRECTORS IN RESPONSE TO THE REYNOLDS'
DIRECTORS SCHEDULE 14A
Subsequent to the letter to shareholders dated March 20, 1998 of seven
directors (Barbara Davis Blum, Shireen Dodson, Susan Hager, Clarence L. James,
Jr., Steve Protulis, Dana Stebbins and Susan Williams) of the Company, the
Securities and Exchange Commission advised the Company of their position that
such letter technically constituted a "solicitation." Therefore, in order to
assure compliance with the Commission's position and to correct the continuing
misstatements made by three directors (Marshall Reynolds, Jeanne D. Hubbard and
Robert L. Shell, or the "Reynolds directors") in their supplemental preliminary
filings with the Commission, we are filing this Schedule 14A.
On March 11, 1998, three directors (Marshall Reynolds, Jeanne D.
Hubbard and Robert L. Shell, or the "Reynolds directors") filed a preliminary
Schedule 14A with the Securities and Exchange Commission seeking to obtain
shareholder consents to remove four directors ( Barbara Davis B lum, Shireen L.
Dodson, Susan Hagar, and Clarence L. James Jr. (referred to by the Reynolds
directors as the "Incumbents")) and to replace them with four new directors. In
response, on March 20, 1998, the seven directors not included within the
Reynolds directors ( the four Incumbents, and Susan Williams, Steve Protulius
and Dana B. Stebbins, hereafter called the "Seven Directors") transmitted to
shareholders a letter stating their response. That letter stated as follows:
NOT A SOLICITATION FOR A PROXY OR CONSENT
March 20, 1998
Dear Shareholder:
We are writing to advise you of certain recent events that are likely to bring
about imminent changes in both the control and direction of Abigail Adams
National Bancorp, Inc. and its subsidiary, Adams National Bank.
Last week, a group led by Marshall T. Reynolds filed notice with the Securities
and Exchange Commission that they are proposing a slate of directors to replace
four members of the Board of Directors of the bank holding company, including
its chairwoman and CEO Barbara Davis Blum. Mr. Reynold's stated goal is to take
control of AANB so that he can dismiss a lawsuit that the Company brought
against him, other members of his group, and Ferris Baker Watts, Inc.
("Ferris"). That lawsuit alleges that Mr. Reynolds and his co-directors breached
their duties to the shareholders and caused the shareholders to lose a valuable
financial opportunity when they reversed their initial support for the Company's
acquisition of Ballston Bancorp and its subsidiary, the Bank of Northern
Virginia. We believe that the correctness of the Company's decision to sue Mr.
Reynolds was born out last week when Main Street Bank announced that it paid
$19.5 million to purchase Ballston - that is over 33% more than the $14 million
that AANB had agreed to pay. Despite this, Mr. Reynolds and his colleagues
believe that they are better able than current management to run AANB. If the
merger vote is indicative of shareholder sentiment, he will probable be
successful in gaining control of the Company.
Though current management has decided not to engage in a costly proxy fight with
Mr. Reynolds, we believe that it is worthwhile to review with you the reasons
that we sought to acquire Ballston in the first place, and why the directors
believed it was their responsibility to sue Mr. Reynolds and his colleagues for
the actions they took in thwarting that transaction.
As you will recall, in 1996 the Company engaged in a public offering of its
stock. At the time, the directors - including Mr. Reynolds and his supporters on
the Board - told prospective purchasers that AANB wanted to raise capital to
pursue potential acquisitions "in Washington and the Maryland and Virginia
suburbs." After raising more than $6 million, the Company began to search for
banks that it might acquire. After conducting a search for months, the directors
- - including Mr. Reynolds and his supporters on the Board - decided on July 5,
1997 to enter into an agreement to acquire Ballston. The Board's unanimous
decision was supported by a careful financial analysis by a reputable investment
banking firm, Baxter, Fentriss.
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Despite his obligation as a director to use his best efforts to see that the
merger was carried out in accordance with the terms of the Company's contract
with Ballston, Mr. Reynolds announced at a Board meeting on October 21, 1997
that he had decided to oppose the transaction. He informed the Board that he had
come to the conclusion that the purchase of Ballston would be dilutive to
earnings. Significantly, Mr. Reynolds never shared with the Board or the
shareholders any financial analysis that supports this assertion. Indeed, when
management reviewed with Mr. Reynolds the economic assumptions that demonstrated
that he was in error on this point, Mr. Reynolds abandoned his position but
continued to oppose the transaction on the previously unstated ground that the
purchase of Ballston would be dilutive to the Company's tangible book value
because the purchase price included a component for "goodwill." Of course, any
purchase that has a cash component (the Ballston acquisition was 50% cash and
50% stock) of an ongoing business entity includes such a component; this was
known to Mr. Reynolds and his supporters on the Board at the time they initially
voted to go forward with the acquisition. Nothing had changed between that
initial approval and Mr. Reynold's turnabout.
Based on its contractual obligation to use its best efforts to consummate the
merger, and its perception - based upon numerous statements that Mr. Reynolds
made to several directors - that Mr. Reynolds had placed his own interests above
the best interests of the shareholders, the Board decided to sue Mr. Reynolds in
an effort to keep him from thwarting the merger. As you know, Mr. Reynolds
ultimately was successful. He was assisted in his efforts by certain officers of
Ferris, Baker, Watts, who, in clear violation of SEC rules, communicated their
opposition to the merger without ever disclosing that firm's longstanding and
ongoing close and highly remunerative financial relationship with Mr. Reynolds.
Based upon its conclusion that Mr. Reynolds and his colleagues had cost the
shareholders a significant financial opportunity - not to mention AANB's
expenditure of $1.2 million necessitated by the Board's obligation to try to
bring the merger to fruition, a charge taken against 1997 earnings that
prevented a dividend to shareholders - the Board decided to continue the lawsuit
even after the shareholders defeated the merger. A noted, the wisdom of the
Board's position has been demonstrated by the recent purchase of Ballston for
$5.5 million more that AANB had agreed to pay.
Faced with his demonstrable error, Mr. Reynolds has now decided to attempt to
take control of AANB in order to avoid any potential liability by seeking to
dismiss the lawsuit. He claims that under his direction the company will make
more money for the shareholders. While we believe that recent events refute that
assertion, the Company does not believe it is in the best interests of the
shareholders to engage in a costly proxy fight. If you, the shareholders,
possessed of all the facts, decide to hand over the Company to Mr. Reynolds,
that is a decision by which we must and will, abide.
In closing, we want to thank you for the opportunity to have served. We have
always tried to fulfill to the utmost our duties to the shareholders. We have
always felt that we could do so while maintaining AANB's unique status an its
special commitment to the customers we serve and the community in which we
reside. We believe that the direction that Mr. Reynolds wishes to take this
Company is not in the long-term interest of its shareholders, its customers, or
the community. The decision is in your hands.
Sincerely,
/s/ Barbara Davis Blum
----------------------
Barbara Davis Blum
Chairwoman and CEO
For: Shireen Dodson
Susan Hager
Clarence L. James, Jr., Esquire
Steve Protulis
Dana B. Stebbins, Esquire
Susan Williams
Directors
NOT A SOLICITATION FOR A PROXY OR CONSENT
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On April 2, 1998, the Reynolds directors filed a revised preliminary
Schedule 14A. In response, the seven directors caused counsel to furnish to the
Securities and Exchange Commission the following comments to the April 2 revised
filing:
Pam Carmody, Esq.
Division of Corporation Finance
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Dear Ms. Carmody:
On behalf of seven directors of the Abigail Adams National Bancorp
("Adams"), we are submitting the following additional comments to the April 2,
1998 revised proxy statement filed by Marshall Reynolds et al. ("Reynolds
Group"). At page 3 of their proxy statement the Reynolds Group makes
representations concerning the supposedly inadequate performance by current
management. At best, these characterizations of management's performance are
inadequate. In many respects they incorrectly describe management's actual
performance.
1. The Reynolds Group claims that the inadequate performance by
management includes the failure to consummate any of the acquisitions targeted
by it. The Reynolds Group fails to note, however, that during 1996 and 1997,
management contacted 14 D.C. area banks to explore the possibility of merger.
Because of the intense marketplace in bank acquisitions and the competitive
nature of seeking good acquisitions, only one acquisition surfaced to the level
of an agreement: the Ballston acquisition that management and the Reynolds Group
favored. Therefore, the failure to disclose that management, in fact, made every
effort to seek out and consummate acquisitions is false and deceptive.
2. The Reynolds Group says that management's performance is inadequate
for failure to increase net income or grow capital at levels consistent with the
marketplace and peers. This statement is false. In 1996, the tier one capital
for Adams National Bank ("ANB"), Adams's wholly-owned subsidiary, grew at a rate
of 12.88%, compared with a rate of 10.26% for its peer group. In 1995, ANB's
tier one capital grew at a rate of 11.1%, versus 10.12% for its peers.
Furthermore, for the past 3 years, ANB's tier one capital growth has
consistently out-performed all United States metropolitan area banks that have
between $100 million and $300 million of total assets. Clearly, the Reynolds
Group's attack is grossly deceptive.
3. The Reynolds Group faults management for not accurately predicting
or effectively controlling its expenses associated with the Ballston merger. The
Reynolds Group fails to note, however, that a majority of these expenses would
have been recouped had the merger not been defeated by him. In addition, his
belated opposition caused Adams to incur otherwise unnecessary and unanticipated
expenses to comply with a merger agreement that the Reynolds Group directors
supported. Finally, the proxy statement fails to point out that as a result of
the Reynolds Group's opposition to the acquisition, Adams lost $5.5 million as
measured by the excess of the purchase price paid for Ballston Bancorp in March
1998 as compared to the price that Adams had agreed to pay.
We note that in every single material respect, the three Reynolds Group
directors voted in favor of every activity proposed by management. The Reynolds
Group fails to point out that if management is to be faulted at all for
inadequate performance, all of the directors voted for the same activities and
they should be faulted as well. We request that you require the Reynolds Group
to disclose all of their votes on material activities during the past two years
in order to accurately inform shareholders that they supported and approved the
activities of management in all material respects. We would be glad to
supplement this letter by showing you the minutes of the company to establish
that management proposals were at all times approved by the Reynolds Group
directors.
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<PAGE>
In sum, the proposed proxy statement is deceptive to shareholders. The
Commission should require further modifications before the Reynolds Group is
permitted to use it to solicit shareholder consents.
Very truly yours,
TIGHE, PATTON, TABACKMAN & BABBIN
By: /s/ Steven C. Tabackman
---------------------------
Steven C. Tabackman
Thomas Earl Patton
On April 10, 1998, the Reynolds directors caused a second revised
preliminary Schedule 14A to be filed with the Commission. In response to that
filing, the Registrant and the Seven Directors state as follows:
The characterizations by the Reynolds directors of the performance of
management are materially false and misleading. In particular, in addition to
their responses to the first two preliminary Schedule 14 A's , as set forth in
the letters above, the Registrant and the Seven Directors state as follows:
(1) The Reynolds directors allege a failure of management to increase
net income or grow capital at levels consistent with marketplace peers "as
reported by a third party comparison of peer institutions." The Reynolds
directors do not identify any third party comparison . To the contrary, the
December 31 1997 Uniform Bank Performance Report, which includes all insured
commercial banks having assets between $100 million and $300 million with 3 or
more banking offices and located in a metropolitan area, reports that Adams'
growth rates are superior to it peers. (See also April 8 letter, above.)
Contrary to the Reynolds directors accusation that management failed to increase
net income in a time of prosperity, net income (excluding the write-off of the
Ballston costs caused by the Reynolds' directors and the reversal of the loan
loss provision recorded in 1996), increased each and every year from 1994 to
1997, despite the expenses of opening new branches in 1996 and 1997 and
installing a local area network for PC banking.
(2) The Reynolds' directors assertions that management's estimates of
the expenses of the Ballston acquisition increased from $250,000 to $750,000 to
$1.2 million are misleading and incomplete. The initial "estimate" of May 1997
was presented to the board by the company's investment advisors, not as an
estimate but as an initial goal. The first estimate was made on August 14, 1997
of $440,000 and that estimate was accurate until the Reynolds' directors changed
their position and mounted an opposition to the Ballston acquisition. In order
to fulfill its contractual obligations, management was required by the actions
of the Reynolds' directors to increase costs. Specifically, additional legal
expenses were incurred by the Company to address the stated objections of the
Reynolds directors. During this time, Mr. Reynolds instructed the Company's
counsel to prepare for a closing by December 31, 1997, thus incurring additional
fees. These actions, coupled with additional printers charges, accounted for
approximately $180,000 of unplanned costs. The Company also incurred legal and
other professional fees of approximately $453,000 in connection with the
litigation against the Reynolds directors in an effort to consummate the
favorable Ballston acquisition.
(3) The Reynolds directors assert that the "incumbents" reacted
"counterproductively" to the decision of the Company's shareholders to reject
the Ballston acquisition. That assertion is misleading and incomplete because
all of the Seven Directors, not just the four incumbents, supported the actions
taken by management---i.e. a strong majority of the board. The Reynolds'
assertion falsely implies that only a minority of the board supported
management's actions. This support includes authorization by the Seven directors
of the continuation of the Company's legal action against the Reynolds
directors, the Reynolds group of shareholders, and Ferris Baker Watts, for the
damages in excess of $7 million that they caused to the Company.
(4) The Reynolds directors assert that they initially relied on
management's projections that earnings dilution would be $ .03 per share and
that they thereafter received an analysis of a different result. In fact,
management's projection of a $ .03 per share dilution related only to the first
few months after the acquisition. Management projected that thereafter,
beginning with the first full year following the acquisition, earnings would be
accretive, and this was demonstrated to Mr. Reynolds in November, 1997 when
management showed him the cost savings that would more than
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<PAGE>
offset the impact of goodwill amortization. Since then, Mr. Reynolds has never
furnished contrary figures, although continuing to assert without support that
management's figures were incorrect. The Reynolds directors contention that
dilution per share would be greater than management had projected was never
demonstrated to the Seven Directors. Instead, the Seven Directors recognized
that the cost savings contained in management's projections were conservative
and included only the immediate hard dollar savings that could quickly be
achieved. The Reynolds directors suggest that management's projections showed
dilution for up to five years, whereas management's conservative projections
showed an almost immediately accretive result.
(5) The record date asserted by the Reynolds directors is not March 31,
but April 1, 1998.
Most significantly, the Seven Directors continue to maintain that the
Reynolds directors opposition to the Ballston transaction arose, after they
voted in favor of it, only after the board of directors rejected or postponed
consideration of Reynolds' other proposed deals involving acquisitions of banks
outside of the Company's market. In other words, the Seven Directors maintain
that the Reynolds' directors opposition to the Ballston acquisition was based on
pretextual grounds not supported by sound analysis.
The Seven Directors maintain that the Reynolds' directors decision to
change their position from support for the Ballston acquisition to opposition,
done after a definitive merger agreement was signed, has caused the Company
substantial losses. In addition to the write off of $1.2 million of costs
incurred in connection with this acquisition, the Reynolds directors acts caused
the defeat of a transaction that would have been lucrative for the Company, as
evidenced by the fact that two months following the defeat of that acquisition,
Ballston was acquired by another bank for a price $5.5 million higher than the
price the Company would have paid.
Finally, the Seven directors authorized the continuation of the
litigation against the Reynolds directors, the Reynolds group of shareholders
and Ferris Baker Watts because they are convinced that the defendants' acts in
causing the defeat of the Ballston deal were wrongful and in violation of law.
In particular, the acts constituted breaches of fiduciary duty and violations of
the federal proxy rules.
For these reasons, the Registrant and the Seven Directors believe that
there is no basis for the effort of the Reynolds' directors to remove four
directors.
THE REGISTRANT AND THE SEVEN DIRECTORS RECOMMEND THAT SHAREHOLDERS WITHHOLD
THEIR CONSENTS SOUGHT BY THE REYNOLDS DIRECTORS.
Directors' Compensation
During 1997, 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. Each director
participated in the nonqualified Directors Stock Option Plan and the 1996
Directors Stock Option Plan based upon their total months of 1995 and 1996 Board
service, respectively. No options were granted to directors during 1997.
Executive Officers
The Company's executive officers are as follows:
Executive Officer
Name Age Position with the Company Since
- ---- --- ------------------------- -----
Barbara Davis Blum 58 Chairwoman of the Board, President 1986
and Chief Executive Officer
Kimberly J. Levine 41 Senior Vice President, Treasurer 1988
and Chief Financial Officer
Kathleen Walsh Carr 51 Senior Vice President, Lending* 1997
- ----------
*This position is held with the Bank.
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<PAGE>
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 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.
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. She also serves as a trustee and a member of the Finance
Committee of the Levine School of Music, a nonprofit community music school. 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.
BENEFICIAL OWNERSHIP OF SHARES
The table on the following page sets forth information as of April 1,
1998, 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.
Beneficial Percent of
Ownership Class
Name and Address of Shares Owned
- ---------------- --------- -----
Shirley A. Reynolds.......................345,525 (1)(2) 20.9%
1130 13th Avenue
Huntington, West Virginia 25701
Barbara W. Beymer..........................39,000 (1) 2.4%
214 North Boulevard West
Huntington, West Virginia 25701
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Deborah P. Wright......................81,000 (1)(3) 4.9%
1517 Diederich Boulevard
Flatwoods, Kentucky 41139
Barbara Davis Blum.....................37,166 (4) 2.2%
Kimberly J. Levine......................2,695 (5) *
Shireen L. Dodson.........................931 (6) (7) *
Susan Hager . . . . ....................2,197 (6) (7) *
Jeanne D. Hubbard.......................4,856 (1) (7) (8) *
Clarence L. James, Jr.....................931 (6) (8) *
Steve Protulis . . .....................2,902 (7) (9) *
Marshall T. Reynolds..................225,820 (1) (2) (7) (10) 13.7%
Robert L. Shell, Jr....................66,356 (1) (7) (8) (11) (12) 4.0%
Dana B. Stebbins..........................931 (6) (7) *
Susan J. Williams.......................2,197 (6) (7) *
All directors and executive officers
as a group (12 persons)..............588,012 (13) 34.8%
- ----------
* Less than 1%
(1) Based upon Amendment No. 1 to Schedule 13D dated July 21, 1995, Marshall T.
Reynolds, Shirley A. Reynolds, 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. Amendment No.
3 to Schedule 13D dated December 30, 1997 evidences the disposition of a
total of 42,000 shares by Ms. Beymer.
(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 905 shares
granted under the 1996 Employee Incentive Stock Option Plan, options to
purchase 30,000 shares granted to Ms. Blum under the Nonqualified Stock
Option Agreement between the Company and the President and Chief Executive
Officer, options to purchase 367 shares granted to Ms. Blum under the
Directors Stock Option Plan, options to purchase 264 shares granted under
the 1996 Directors Stock Option Plan and 506
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shares granted to Ms. Blum under the Bank's Employee Stock Ownership Plan
with 401(k) Provisions (including stock granted in lieu of dividends paid
on previously granted shares and excluding stock granted in lieu of
dividends paid on unallocated shares). See EXECUTIVE COMPENSATION,
Employment Agreement, Employee Incentive Stock Option Plan, 1996 Employee
Incentive Stock Option Plan, Directors Stock Option Plan, 1996 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, options to purchase 512 shares
granted under the 1996 Employee Incentive Stock Option Plan and 371 shares
granted to Ms. Levine under the Bank's Employee Stock Ownership Plan with
401(k) Provisions (including stock granted in lieu of dividends paid on
previously granted shares and excluding stock granted in lieu of dividends
paid on unallocated shares). See EXECUTIVE COMPENSATION, Employee Incentive
Stock Option Plan and Employee Stock Ownership Plan with 401(k) Provisions.
(6) Includes options to purchase 367 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 264 shares granted to each director under the
1996 Directors Stock Option Plan.
(8) Includes options to purchase 92 shares granted to Ms. Hubbard and Mr. Shell
under the Directors Stock Option Plan. See EXECUTIVE COMPENSATION,
Directors Stock Option Plan.
(9) Includes options to purchase 122 shares granted to Mr. Protulis under the
Directors Stock Option Plan. See EXECUTIVE COMPENSATION, Directors Stock
Option Plan.
(10) Includes options to purchase 61 shares granted to Mr. Reynolds under the
Directors Stock Option Plan. See EXECUTIVE COMPENSATION, Directors Stock
Option Plan.
(11) Mr. Shell's shares include 6,000 shares transferred by gift to his wife.
(12) Robert L. Shell, Jr. shares voting and dispositive power with respect to
20,000 shares owned jointly with his wife, Lena Ji Shell.
(13) Includes options to purchase 41,106 shares granted to all directors and
executive officers as a group and 877 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 officers.
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<PAGE>
The following table shows the cash compensation paid by the Bank and
the Company during the fiscal years ended December 31, 1997, 1996 and 1995 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:
<TABLE>
<CAPTION>
Summary Compensation Table
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, 1997 $194,413 $ 0 -- $ 5,994
Chairwoman of the Board, President 1996 194,413 0 81,694 (2) 11,635
and Chief Executive Officer of the 1995 185,155 0 -- 5,555
Company and the Bank
Kimberly J. Levine, 1997 $ 118,333 $ 0 -- $ 4,223
Senior Vice President and 1996 108,167 5,000 2,749 (3) 7,993
Chief Financial Officer 1995 98,500 0 -- 2,960
</TABLE>
- ----------
(1) Represents the Bank's matching contribution of cash 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. Other than stock
granted in lieu of dividends paid on both previously granted shares and
unallocated shares, no discretionary contributions of Company stock were
made under the 401(k) Plan during 1997. 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 Aggregated Option Exercises in Last Fiscal Year and Year-End Option
Values table below.
(3) Represents options to purchase shares granted under the Employee
Incentive Stock Option Plans. See Aggregated Option Exercises in Last
Fiscal Year and Year-End Option Values table below.
Aggregated Option Exercises in Last Fiscal year and Year-End Option Values
<TABLE>
<CAPTION>
Number of Securities Value(1) 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> <C> <C>
Barbara Davis Blum -- -- 33,804 $238,469
47,890 $339,173
Kimberly J. Levine -- -- 1,724 $ 9,026
1,025 $3,341
- ----------
(1) Based on December 31, 1997 price of $14.00 per share.
</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
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<PAGE>
the Company and the Bank determine in a duly adopted resolution that the
agreement should not be extended and so notify Ms. Blum. No such notice was
given. Under the terms of the employment agreement, which was amended on March
29, 1996 and March 5, 1998, Ms. Blum is entitled to receive a base salary for
1997 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 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. On
February 27, 1998, these options were registered.
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, or if she is asked to resign, as a condition
to, in preparation for or otherwise 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 $728,000 at April 3, 1998. 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.
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<PAGE>
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
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.
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.
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, 1996 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
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<PAGE>
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 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 Company made matching cash contributions to the ESOP of $41,000 in
1997. No additional discretionary contributions were made during 1997.
Severance Agreements
On April 7, 1994, the Board of Directors of the Bank approved severance
arrangements for six 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. Such arrangements were amended and restated as of
March 5, 1998.
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 if the Change of Control has not been approved by a majority of the
"Continuing Directors" then in office (as defined in the Severance Agreements)
the Executive shall receive a lump sum payment equal to one year's full base
salary at the rate applicable to the officer in effect immediately prior to the
Change in Control. In addition, an officer will be entitled to receive such
severance payment in the event the officer is asked to resign or the officer's
employment with the Bank is "Terminated" (as defined in the Severance
Agreements) as a condition to, in preparation for or otherwise in connection
with a Change of Control, or within the one year period following a Change in
Control. These benefits are estimated to have an aggregate value of
approximately $590,000 as of April 3, 1998 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.
Rabbi Trusts
The Bank has established an irrevocable grantor trust, as of March 5, 1998,
in order to fund its severance payment obligations under the Severance
Agreements and under the Employment Agreement with Ms. Blum. The Bank has
deposited $1,023,816 in such trust. The Company also has established an
irrevocable grantor trust, as of March 5, 1998,
12
<PAGE>
in order to fund the portion of the severance payment obligations under the
Employment Agreement with Ms. Blum which are allocable to the Company. The
Company has deposited $108,450 in such trust. The trusts do not increase
benefits available to the officers. Interest earned on trust investments accrues
to the Bank and the Company, respectively. To the extent that an officer
acquires the right to receive severance benefits, such right will be no greater
than the right of any unsecured creditor of the Bank or the Company,
respectively. The trusts are effective for one year and are subject to
continuation at the option of the Board of Directors of the Bank and the
Company, respectively.
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 1997 involve more than a
normal risk of collectibility or present other unfavorable features.
As of April 3, 1998, 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 $179,000. The highest aggregate principal amount
owed during 1997 by all officers and directors of the Company and their
associates who were indebted to the Bank during the year was approximately
$440,000.
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 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, 1997 and 1996, the Company paid Hager Sharp, Inc. $0 and
$5,000, respectively, for such services.
Abigail Adams National Bancorp, Inc.
Barbara Davis Blum
Shireen L. Dodson
Susan Hager
Clarence L. James, Jr.
Steve Protulis
Dana Stebbins
Susan Williams
April __, 1998
13
