SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
( ) Preliminary Proxy Statement ( ) Confidential, for Use of the
Commission Only (as permitted
by Rule 14a-6(e)(2))
(X) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
ALEX. BROWN INCORPORATED
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
(X) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 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>
ALEX. BROWN INCORPORATED
135 East Baltimore Street
Baltimore, Maryland 21202
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
The Annual Meeting of Stockholders of Alex. Brown Incorporated will be held
on Tuesday, April 23, 1996, at 4:30 p.m. at the Company's offices on the 15th
floor at 120 East Baltimore Street, Baltimore, Maryland, for the following
purposes:
(a) Election of directors to hold office until the next Annual Meeting of
Stockholders or until their respective successors are duly elected and
qualified; and
(b) Consideration of such other business as may properly come before the
meeting.
Holders of the Company's Common Stock as of the close of business on March
8, 1996 are entitled to notice of and to vote at the meeting. For your
convenience, a form of proxy is enclosed. You are urged to complete and return
the proxy.
By Order of the Board of Directors
Robert F. Price
Secretary
March 21, 1996
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
ALEX. BROWN INCORPORATED
135 East Baltimore Street
Baltimore, Maryland 21202
PROXY STATEMENT
(First Mailed to Stockholders on March 21, 1996)
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of Alex. Brown Incorporated (the
"Company") to be voted at the Annual Meeting of Stockholders (the "Meeting")
scheduled to be held on Tuesday, April 23, 1996 at the Company's offices on the
15th floor at 120 East Baltimore Street, Baltimore, Maryland and at any
adjournment or adjournments thereof. The solicitation of proxies generally will
be by mail and by directors and officers of the Company. In some instances,
solicitations may be made by telephone, telegraph or other means.
All costs incurred in connection with the solicitation of proxies will be
borne by the Company. No compensation will be paid by the Company in connection
with the solicitation of proxies, but custodians, nominees and fiduciaries will
be requested to send proxies and proxy material to their principals, and the
Company will reimburse those custodians, nominees and fiduciaries for reasonable
out-of-pocket and clerical expenses.
Any stockholder giving a proxy pursuant to this solicitation may revoke it
at any time prior to exercise of the proxy by giving written notice of such
revocation to the Secretary of the Company at 135 East Baltimore Street,
Baltimore, Maryland 21202, or by attending the Meeting and voting in person.
The presence in person or by proxy of stockholders entitled to cast a
majority of all the votes entitled to be cast at the Meeting will constitute a
quorum for the Meeting. Abstentions and withhold-authority votes will count for
the purpose of determining a quorum. On March 8, 1996 the record date for the
determination of stockholders entitled to notice of and to vote at the Meeting,
the Company had outstanding and entitled to vote 16,018,818 shares of common
stock, par value $.10 per share (the "Common Stock"). The Common Stock has no
cumulative voting rights, and each issued and outstanding share of Common Stock
is entitled to one vote at the Meeting or any adjournment or adjournments
thereof.
Each properly executed proxy will be voted in accordance with the
instructions marked on it. With regard to the election of directors, votes may
be cast "FOR" or "WITHHELD."
In the absence of specific instructions, a proxy will be voted FOR the
election, as directors of the Company, of the nominees identified in this Proxy
Statement and in the sole discretion of the proxy holders as to any other
matters. The affirmative vote of a plurality of all votes cast at the Meeting is
required for the election of directors. All other matters require the
affirmative vote of a majority of all votes cast. Shares voted include votes FOR
or AGAINST a proposal but do not include broker non-votes, abstentions or
withhold-authority votes.
1
<PAGE>
ELECTION OF DIRECTORS AND RELATED MATTERS
It is proposed that nine directors, constituting the entire Board of
Directors (the "Board") of the Company, be elected at the Meeting, each to serve
until the next annual meeting of stockholders or until his successor is duly
elected and qualified. THE BOARD RECOMMENDS A VOTE "FOR" THE ELECTION OF EACH OF
THE NOMINEES.
Each of the nominees has agreed to serve, if elected. If one or more of the
nominees is unable to serve for any reason, the holders of proxies solicited
hereby reserve the right to nominate and vote for any other person or persons of
their choice. There is no family relationship between any of the
director-nominees or between any of such nominees and any executive officer of
the Company. Certain other pertinent information regarding each of the nominees
follows:
LEE A. AULT III
Mr. Ault, who is 59 years of age, has been a private investor since 1992.
Previously, Mr. Ault was Chairman and Chief Executive Officer of Telecredit,
Inc., a supplier of payment services. Mr. Ault has been a member of the
Company's Board since 1992, and he currently serves on its Audit Committee and
its Compensation Committee, of which he is Chairman. Mr. Ault is also a director
of Equifax Inc., Sunrise Medical Inc. and Viking Office Products, Inc.
NEIL R. AUSTRIAN
Mr. Austrian, who is 55 years of age, has been President of The National
Football League since 1991. He was previously a Managing Director of Dillon,
Read & Co., Inc., an investment banking firm. Mr. Austrian has been a member of
the Company's Board since 1995 and he currently serves on its Organization
Committee. Mr. Austrian is also a director of Viking Office Products, Inc. and
REFAC Technology Development Corp.
THOMAS C. BARRY
Since December, 1993, Mr. Barry, who is 52 years of age, has been President
and Chief Executive Officer of Zephyr Management, Inc. a financial consulting
and investment management firm. Previously, Mr. Barry was President and Chief
Executive Officer of Rockefeller & Co., Inc., a registered investment advisor.
Mr. Barry has been a member of the Company's Board since 1987, and he currently
serves on its Organization Committee. Mr. Barry is also a director of The France
Growth Fund, Inc. and Pacific Basin Bulk Shipping, Ltd.
BENJAMIN H. GRISWOLD IV
Mr. Griswold, who is 55 years of age, is a Managing Director of Alex. Brown
& Sons Incorporated ("Alex. Brown"), the Company's principal subsidiary, and
Chairman Emeritus of the Board. Mr. Griswold has been a member of the Board
since 1986, and he currently serves on its Organization Committee. Mr. Griswold
is also a director of The Baltimore Life Insurance Company and Life of Maryland,
Inc.
A. B. KRONGARD
Mr. Krongard, who is 59 years of age, has been Chairman of the Board of the
Company since April, 1994, and Chief Executive Officer of the Company since
July, 1991. From May, 1989 to July, 1991, Mr. Krongard was the Company's Chief
Operating Officer. Mr. Krongard has been a member of the Company's Board since
1989.
STEVEN MULLER, PH.D.
Dr. Muller, who is 68 years of age, is President Emeritus of The Johns
Hopkins University. Since 1990, Dr. Muller has been Chairman of the 21st Century
Foundation, an educational initiative to provide unity among democratic nations.
Dr. Muller is also Co-Chairman of the American Institute for Contemporary German
Studies.
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<PAGE>
Dr. Muller has been a member of the Company's Board since 1987, and he currently
serves on its Audit Committee and its Compensation Committee. Dr. Muller is also
a director of Beneficial Corporation, Millipore Corporation, Van Kampen American
Capital Closed End and Common Sense Funds and The Law Companies Group, Inc.
FRANK E. RICHARDSON
Mr. Richardson, who is 56 years of age, is President of Wesray Capital
Corporation, a merchant banking firm and since April, 1995 he has been the
Chairman of F. E. Richardson & Co., Inc., a private investment firm. Mr.
Richardson has been a member of the Company's Board since 1991, and he currently
serves on its Organization Committee, of which he is Chairman. Mr. Richardson is
also a director of Outlet Communications, Inc., Sonic Corp. and Dyersburg
Fabrics Inc.
MAYO A. SHATTUCK III
Mr. Shattuck, who is 41 years of age, has been President and Chief
Operating Officer of the Company since July, 1991. Previously, Mr. Shattuck was
a Managing Director of Alex. Brown. Mr. Shattuck has been a member of the
Company's Board since 1991.
JOHN J. F. SHERRERD
Mr. Sherrerd, who is 66 years of age, is retired. Prior to his retirement
in December, 1995, Mr. Sherrerd was a limited partner and consultant to Miller
Anderson & Sherrerd, an institutional investment management company, which was
co-founded by Mr. Sherrerd in 1969, and of which he was a general partner until
December, 1994. Mr. Sherrerd is being nominated to the Board for the first time.
OTHER INFORMATION REGARDING THE BOARD OF DIRECTORS
Donald B. Hebb, Jr., who resigned from the Board in December, 1995, and
David M. Norman, are not candidates for reelection to the Board.
BOARD COMMITTEES
During 1995, the Board had three standing committees -- the Audit
Committee, the Compensation Committee and the Organization Committee.
The Audit Committee oversees the financial reporting and the related
financial and accounting control systems of the Company and its subsidiaries.
The Audit Committee also recommends to the Board the appointment of the
Company's independent auditors.
The Compensation Committee reviews and approves cash compensation and
grants under the Company's equity incentive plans and supervises the
administration of the Company's other compensation plans. The Compensation
Committee Report on Executive Compensation is included beginning on page 12 of
this Proxy Statement.
The Organization Committee provides guidance and assistance to the Board in
discharging its organizational overview and corporate governance
responsibilities and serves as the nominating committee for the Board.
ATTENDANCE AT MEETINGS
During the year ended December 31, 1995, the Board held nine meetings, the
Audit Committee held four meetings, the Compensation Committee held five
meetings, and the Organization Committee held two meetings.
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<PAGE>
All of the Company's directors attended 75% or more of the aggregate of all
Board meetings and all meetings of committees of which they were members.
DIRECTORS' FEES
Directors who are employed by the Company receive no additional
compensation for serving on the Board. Each director who is not an employee of
the Company (a "Non-Employee Director") receives an annual retainer equal to
$20,000 plus $1,000 per Board meeting or committee meeting attended and
reasonable travel expenses incurred in connection with attendance at such
meetings. In addition, chairmen of committees of the Board are paid an annual
stipend of $2,500 for each committee which they chair. A portion of the annual
retainer (currently a minimum of 50%) is paid in Common Stock pursuant to the
1991 Non-Employee Director Equity Plan (the "Director Plan") described below.
1991 NON-EMPLOYEE DIRECTOR EQUITY PLAN
The Director Plan, which was approved by the Company's stockholders in May,
1991, is intended to provide Non-Employee Directors with incentives to improve
the Company's performance by increasing their level of stock ownership, and to
provide an additional means of attracting and retaining Non-Employee Directors
through the issuance of the Common Stock and the granting of Stock Options.
Participation in the Director Plan by Non-Employee Directors is mandatory.
The Director Plan provides that, immediately following the date of the
annual meeting of stockholders, each Non-Employee Director will receive a
portion of his or her annual retainer in Common Stock and will also receive a
stock option to purchase 1,500 shares of Common Stock. The number of shares of
Common Stock to be issued to each Non-Employee Director is determined by
dividing 90% of the average of the daily closing prices for the ten consecutive
business days preceding the date of the annual meeting of stockholders of the
Company (the "Market Price") into the annual retainer payable to each
participant, and multiplying that number by a designated percentage determined
by the Board. The minimum designated percentage is currently 50%, but each Non-
Employee Director may designate a higher percentage. The purchase price for the
Common Stock subject to the stock option is the Market Price. The maximum
aggregate number of shares of Common Stock that may be issued under the Director
Plan is 300,000, which may be appropriately adjusted in the event of any
extraordinary dividend, recapitalization, reorganization, merger, spin-off, or
similar change affecting the Common Stock.
In 1995, pursuant to the Director Plan, the Company issued a total of 2,595
shares of Common Stock and options to purchase 9,000 shares of Common Stock to
the Non-Employee Directors. The Director Plan will terminate on May 15, 2001.
1995 NON-EMPLOYEE DIRECTOR STOCK PURCHASE PLAN
The 1995 Non-Employee Director Stock Purchase Plan (the "1995 Plan"), which
was approved by the Company's stockholders in April, 1995, is intended to
encourage Non-Employee Directors to increase the level of their ownership in the
Common Stock, to reinforce participating directors' roles in enhancing
stockholder value and to provide an additional means of attracting and retaining
Non-Employee Directors. The maximum aggregate number of shares of Common Stock
that may be issued under the 1995 Plan is 150,000 shares, which may be
appropriately adjusted in the event of a subdivision or combination of the
Common Stock, or of a stock dividend, or similar change affecting the Common
Stock.
Pursuant to the 1995 Plan, Non-Employee Directors have the option to
purchase up to $100,000 of the Common Stock at a 15% discount in any calendar
year in which the 1995 Plan is in effect. The 1995 Plan also
4
<PAGE>
imposes various restrictions on the sale or assignment of Common Stock purchased
pursuant to the 1995 Plan. Participation in the 1995 Plan is voluntary.
In 1995, 2,173 shares of Common Stock were purchased pursuant to the 1995
Plan.
DIRECTORS' CHARITABLE AWARD PROGRAM
As part of its overall program to promote charitable giving, the Company
has established a Directors' Charitable Award Program which is funded by life
insurance policies on directors. The Company will donate a total of $1 million
on behalf of each director to one or more qualifying charitable organizations
recommended by the director. The Company will be reimbursed for that amount by
life insurance proceeds. Individual directors derive no financial benefit from
this program since all charitable deductions accrue solely to the Company. The
program results in only nominal cost to the Company over time.
SPLIT DOLLAR LIFE INSURANCE
The directors participate in split dollar life insurance arrangements with
the Company which provide the directors with death benefit protection and the
opportunity to receive tax-favored benefits through the increase in insurance
policy value. The program results in only nominal cost to the Company over time.
5
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table sets forth certain information, as of March 8, 1996
with respect to the beneficial ownership of the Common Stock by each person who
is known by the Company, based on a review of filings made with the Securities
and Exchange Commission, to own more than 5% of the outstanding shares of Common
Stock, by each director and nominee for election as a director of the Company,
by the Company's Chief Executive Officer, by the other four most highly
compensated executive officers in 1995, and by all directors and executive
officers as a group:
<TABLE>
<CAPTION>
NAME OF AMOUNT AND NATURE OF PERCENT
BENEFICIAL OWNER BENEFICIAL OWNERSHIP OF CLASS
<S> <C> <C>
Peter R. Kellogg..................................... 1,594,900(1) 10.0%
120 Broadway
New York, New York 10271
FMR Corp. ........................................... 1,098,800(2) 6.9%
82 Devonshire Street
Boston, Massachusetts 02109
Benjamin H. Griswold IV.............................. 437,275(3)(4)(5) 2.7%
A. B. Krongard....................................... 329,822(3)(5) 2.1%
Mayo A. Shattuck III................................. 124,011(3)(5) *
Bruce H. Brandaleone................................. 113,472(3)(5) *
W. Gar Richlin....................................... 56,572(3)(5) *
Denis J. Callaghan................................... 51,461(3)(5) *
Frank E. Richardson.................................. 33,525(5) *
Lee A. Ault III...................................... 21,367(5) *
Thomas C. Barry...................................... 15,352(5) *
David M. Norman...................................... 9,544(5) *
Steven Muller........................................ 8,563(5) *
Neil R. Austrian..................................... 2,077(5) *
John J. F. Sherrerd.................................. 0 *
All directors and executive.......................... 1,891,730(3)(5) 11.8%
officers as a group (21 persons)
</TABLE>
*Indicates less than 1% beneficial ownership.
(1) All information pertaining to Peter R. Kellogg and the number of shares
owned by Mr. Kellogg is based upon a Form 3 dated April 5, 1994. According
to that Form 3, Mr. Kellogg owns 754,900 shares directly and 700,000 shares
indirectly through a corporation which he owns. In addition, members of his
immediate family own 140,000 shares.
(2) All information pertaining to FMR Corp. and the number of shares owned by it
is based upon Amendment No. 1 to Schedule 13G which reported information as
of February 14, 1996.
(3) Managing Directors and Principals of Alex. Brown and certain other persons
are parties to the Company's First Amended and Restated Stockholders'
Agreement (the "Stockholders' Agreement") and as of the record date hold in
the aggregate approximately 3,867,586 shares of the Common Stock under the
Stockholders' Agreement. The parties to the Stockholders' Agreement are
required to vote their shares of the Common Stock in accordance with the
vote of the holders of the majority of the shares subject to the
Stockholders' Agreement. Subject to certain limitations, parties to the
Stockholders' Agreement retain dispositive control of stock held subject to
the terms of the Stockholders' Agreement. The share number listed in the
table excludes shares (other than those of the designated individual or of
those individuals included under "All directors and executive officers as a
group") subject to the Stockholders' Agreement.
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<PAGE>
(4) Included is an aggregate of 60,392 shares held in six trusts of which Mr.
Griswold is a trustee for the benefit of certain family members. Mr.
Griswold disclaims beneficial ownership of such shares.
(5) Beneficial ownership shown for the following individuals and group includes
the number of indicated shares of Common Stock that may be purchased within
the next sixty days upon the exercise of Stock Options as well as shares of
Common Stock which may be received upon conversion of debentures within the
next sixty days: Mr. Griswold -- debentures convertible into 16,448 shares
of Common Stock; Mr. Krongard -- Options for 10,000 shares of Common Stock
and debentures convertible into 45,433 shares of Common Stock; Mr.
Shattuck -- Options for 10,000 shares of Common Stock and debentures
convertible into 35,072 shares of Common Stock; Mr. Brandaleone -- Options
for 10,500 shares of Common Stock and debentures convertible into 12,312
shares of Common Stock; Mr. Richlin -- Options for 7,750 shares of Common
Stock and debentures convertible into 12,530 shares of Common Stock; Mr.
Callaghan -- Options for 5,200 shares of Common Stock and debentures
convertible into 2,650 shares of Common Stock; Mr. Richardson -- Options for
6,000 shares of Common Stock; Mr. Ault -- Options for 6,000 shares of Common
Stock; Mr. Barry -- Options for 7,500 shares of Common Stock; Mr.
Norman -- Options for 6,000 shares of Common Stock; Mr. Muller -- Options
for 6,000 shares of Common Stock; Mr. Austrian -- Options for 1,500 shares
of Common Stock; and all directors and executive officers as a
group -- Options for 112,970 shares of Common Stock and debentures
convertible into 168,849 shares of Common Stock.
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<PAGE>
EXECUTIVE COMPENSATION AND OTHER INFORMATION
SUMMARY OF CASH AND CERTAIN OTHER COMPENSATION
The following table shows, for the prior three fiscal years, the cash
compensation paid by the Company, as well as certain other compensation paid or
accrued for those years, to the Chief Executive Officer and each of the other
four most highly compensated executive officers of the Company for 1995 in all
capacities in which they served:
SUMMARY COMPENSATION TABLE (1)
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
AWARDS PAYOUTS
(A) (B) (C) (D) (E) (F) (G) (H) (I)
OTHER
ANNUAL RESTRICTED SECURITIES
COMPEN- STOCK UNDERLYING LTIP ALL OTHER
SALARY BONUS SATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
NAME AND PRINCIPAL POSITION YEAR ($) ($) ($) ($) (#) ($)(2) ($)(3)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
A. B. Krongard 1995 200,000 2,824,264 0 0 0 410,351 4,273,201
CHAIRMAN 1994 200,000 2,113,043 0 0 0 256,862 86,409
& CHIEF EXECUTIVE OFFICER 1993 200,000 2,723,354 0 0 0 114,685 208,687
Mayo A. Shattuck III 1995 200,000 2,572,056 0 0 0 310,320 3,220,501
PRESIDENT 1994 200,000 1,865,878 0 0 0 204,962 66,381
& CHIEF OPERATING OFFICER 1993 200,000 2,329,826 0 0 0 32,902 158,648
W. Gar Richlin 1995 200,000 1,512,792 0 0 0 103,471 138,806
MANAGING DIRECTOR, 1994 200,000 1,109,264 0 0 0 88,379 42,495
ALEX. BROWN & SONS INCORPORATED 1993 200,000 1,220,132 0 0 0 44,290 96,459
Bruce H. Brandaleone 1995 200,000 1,411,910 0 0 0 97,564 80,231
MANAGING DIRECTOR, 1994 200,000 932,718 0 0 0 95,768 6,614
ALEX. BROWN & SONS INCORPORATED 1993 200,000 1,169,691 0 0 0 68,259 8,755
Denis J. Callaghan 1995 200,000 1,058,820 0 0 0 30,651 67,789
MANAGING DIRECTOR, 1994 200,000 655,290 0 0 0 4,057 26,532
ALEX. BROWN & SONS INCORPORATED 1993 200,000 827,443 0 0 0 13,161 58,720
</TABLE>
NOTES:
(1) Cash compensation and equity awards are reported for the year in which
earned, regardless of when paid or granted.
(2) 1995 amounts consist of loan forgiveness (and related interest forgiven) on
one-sixth of loans to purchase 1990 and 1991 debenture and one-half of loans
to purchase 1992 debentures based upon achievement of ROE objectives.
(3) 1995 amounts consist of matching and profit sharing contributions to the
Company's Retirement Plan (Messrs. Krongard, Shattuck, Richlin, Brandaleone
and Callaghan -- $9,620); forgiveness of a portion of loans made pursuant to
the purchase of securities pursuant to the Equity Partnership Plan (Mr.
Richlin -- $41,007 and Mr. Callaghan -- $22,782); the "current dollar value"
of the benefit from split dollar life insurance premiums paid by the Company
(Mr. Krongard -- $122; Mr. Shattuck -- $84; Mr. Richlin -- $142; Mr.
Brandaleone -- $184; and Mr. Callaghan -- $182); special awards relating to
payments equal to outstanding loans pursuant to Equity Partnership Plan and
associated tax payments (Mr. Krongard -- $3,858,429 and Mr.
Shattuck -- $2,893,821); and payments to offset taxes resulting from taxable
income generated by the vesting of conversion rights of the Company's 1992
convertible debentures (Mr. Krongard -- $405,030; Mr. Shattuck -- $316,976;
Mr. Richlin -- $88,037; Mr. Brandaleone -- $70,427; and Mr.
Callaghan -- $35,205.)
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<PAGE>
OPTION EXERCISES
The following table sets forth information with respect to the exercise of
options during the last fiscal year by the Chief Executive Officer and the other
four most highly compensated executive officers of the Company, as well as
information concerning unexercised options held by those individuals at the end
of 1995:
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FY-END OPTION VALUE
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E)
NUMBER OF SECURITIES
SHARES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
ACQUIRED ON VALUE OPTIONS AT FY-END IN-THE-MONEY OPTIONS
EXERCISE REALIZED (#) AT FY-END ($)
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
A. B. Krongard 12,861 234,386 12,861 10,000 334,059 237,500
Mayo A. Shattuck III 34,480 674,680 12,480 10,000 321,200 237,500
W. Gar Richlin 2,000 49,000 12,108 4,750 271,739 74,406
Bruce H. Brandaleone 3,000 59,250 26,506 4,500 712,640 71,938
Denis J. Callaghan 3,000 77,625 5,200 2,800 84,350 44,150
</TABLE>
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<PAGE>
LONG-TERM INCENTIVE PLANS
The following table provides information concerning awards made to the
Chief Executive Officer and the other four most highly compensated executive
officers of the Company for 1995 under the Company's Long-Term Incentive Plan:
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR (1)
<TABLE>
<CAPTION>
(A) (B) (C) (D) (E) (F)
NUMBER OF PERFORMANCE OR
SHARES, UNIT OTHER PERIOD ESTIMATED FUTURE PAYOUTS UNDER
OR OTHER UNTIL NON-STOCK PRICE BASED PLANS
RIGHTS MATURATION THRESHOLD TARGET MAXIMUM
NAME (#) OR PAYOUT ($ OR #)(2) ($ OR #)(2) ($ OR #)(3)
<S> <C> <C> <C> <C> <C>
A. B. Krongard NA 6 years NA $ 2,024,000 NA
Mayo A. Shattuck III NA 6 years NA $ 1,656,000 NA
W. Gar Richlin NA 6 years NA $ 690,000 NA
Bruce H. Brandaleone NA 6 years NA $ 414,000 NA
Denis J. Callaghan NA 6 years NA $ 414,000 NA
</TABLE>
NOTES:
(1) Awards relate to the year in which earned, regardless of when granted.
(2) The Company has agreed to forgive one-sixth of the loan at the end of each
of the three years from 1996 through 1998 if the Company's ROE exceeds an
annual target of 15% which has been set by the Compensation Committee for
each of the years in the three-year period ending December 31, 1998 or
one-half of the loan if the Company's ROE exceeds a cumulative target of 15%
for that three-year period. Annual and cumulative loan forgiveness targets
for 1999-2001 for the remaining one-half of the original loan balance will
be set by the Compensation Committee in late 1998 or early 1999.
(3) 1995 debentures were purchased by executives in January 1996. The debentures
bear interest at 5.75% per year and mature in June, 2002. The debentures are
convertible into the Common Stock at a price of $46.00 per share beginning
in January, 1999; this conversion feature will vest to the employee if he is
employed by the Company in January, 1999. To finance such purchases, the
Company loaned executives an amount equal to the debentures' purchase price
which amount is set forth in column (e) above. The interest charged on the
loan is 5.75% per year.
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STOCK PERFORMANCE CHART
The following chart and table compare the five-year cumulative total return
on shares of the Common Stock against the cumulative total return of the S&P 500
Stock Index and the cumulative total return of certain comparable publicly
traded investment banking and brokerage companies. The companies used for
comparison purposes below include publicly traded companies which have market
capitalization generally in excess of $100 million and which operate in areas of
the securities industry similar to those of the Company. The chart and table
assume that $100 was invested on December 31, 1990 in the Common Stock, the
comparable publicly traded investment banking and brokerage companies and the
S&P 500, and that all dividends were reinvested over the 5 year period.
Comparison of Five-Year Cumulative Total Return of
Alex. Brown vs. Comparable Investment Banking and
Brokerage Companies and S&P 500
[Graph here]
Years Ended
Alex. Comparable Investment Banking
Brown and Brokerage Companies(1) S&P 500
[rule through diamond] [rule through circle] [rule through star]
(1) Comparable Investment Banking and Brokerage Companies consist of:
The Advest Group, Inc. Morgan Stanley Group Inc.
Bear Stearns Companies Inc. PaineWebber Group
A. G. Edwards Inc. Piper Jaffray Companies
Inter-Regional Financial Group Raymond James Financial, Inc.
Legg Mason, Inc. Salomon Inc.
Merrill Lynch & Co., Inc.
Alex. Comparable Investment Banking S&P 500
Brown and Brokerage Companies(1)
1990 100.00 100.00 100.00
1991 273.73 216.67 130.47
1992 249.16 225.11 140.41
1993 316.85 298.51 154.56
1994 396.24 248.55 156.60
1995 560.43 329.82 215.45
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COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
The following report is submitted by the Compensation Committee of the
Board (the "Committee"), of which all members are Non-Employee Directors. This
report addresses the Company's 1995 compensation policies applicable to
executive officers, including the Company's five most highly paid executives in
1995 (collectively, the "Senior Executives"). The report also specifically
reviews the basis for the compensation of the Chief Executive Officer ("CEO").
GENERAL
The Company's compensation plans are intended to reward the accomplishment
of specific objectives that have been designed to result in the enhancement of
stockholder value. Incentive plans provide the opportunity for employees to earn
competitive rates of total compensation by reaching goals expressed in financial
and strategic terms.
As a general matter, base salaries for Managing Directors of Alex. Brown
are $200,000 per annum, and total cash compensation is heavily based on
performance. As Managing Directors of Alex. Brown, each of the Company's Senior
Executives received a base salary of $200,000 in 1995. Base salaries for
executive officers are set at a level such that a substantial portion of
anticipated aggregate cash compensation is at risk. Aggregate cash compensation
of executive officers is materially linked to operating performance as measured
by such factors as return on stockholders' equity, operating income and other
financial and operating results measured against predetermined objectives.
Historically, in years in which the Company's performance has been favorable, as
measured by these factors, cash compensation has increased and, in less
favorable years, cash compensation has been reduced. A subjective evaluation of
individual contribution to over-all results is also an important factor in
determining cash compensation.
Since the Committee believes that compensation for executive officers
should be closely aligned to stockholder interests, the Company has adopted
several forms of incentive compensation based on stock ownership and
appreciation.
INCENTIVE BONUSES
The Company's annual incentive bonuses for its executive officers,
including bonuses paid to Senior Executives as reported in column (d) of the
Summary Compensation Table, are based on both objective and subjective
performance criteria and typically constitute a substantial portion of an
individual's total compensation. Objective criteria include a comparison of
actual versus target operating income and performance versus specific financial
and strategic objectives for both the Company as a whole and each executive's
operating unit, as established in connection with the Company's annual planning
process. Subjective criteria encompass evaluation of the executive's initiative,
ability, attitude and contribution to overall unit and corporate performance. No
formal weighting of the various criteria was employed in setting incentive
bonuses. These incentives were paid through the Management Compensation Plan
which was approved by stockholders in 1994. For 1995, Messrs. Krongard and
Shattuck determined the incentive bonuses of the Company's executive officers,
other than the Senior Executives. Mr. Krongard made specific recommendations
regarding the incentive bonuses for each of the Senior Executives. The Committee
determined Mr. Krongard's incentive bonus and accepted Mr. Krongard's
recommendations regarding the incentive bonuses of the other Senior Executives.
SPECIAL AWARDS
In 1995, Messrs. Krongard and Shattuck were awarded special payments of
$3.9 million and $2.9 million, respectively, consisting of cash to repay certain
loans payable to the Company and associated tax liabilities. These loans had
been incurred to purchase the Common Stock (34,000 shares and 25,500 shares,
respectively) and debentures which are convertible into the Common Stock (66,000
and 49,500 shares, respectively) after a vesting period. The special awards were
designed to increase the stock ownership, net of associated loans, of Messrs.
Krongard and Shattuck and thereby further align their interests with those of
the Company's stockholders. In connection with the special award, the vesting
period for the debenture conversion rights was extended.
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Originally, the debenture conversion rights vested 50% in August, 1997, 25% in
August, 1998 and 25% in August, 1999. As amended, the debentures conversion
rights vest 50% in August, 1999, 25% in August, 2000 and 25% in August, 2001.
EQUITY COMPENSATION PLAN
In 1992, the Committee instituted the Company's Equity Compensation Plan
whereby 10% of total earned cash compensation above a specified amount is
withheld from the compensation of Managing Directors and Principals. Of the
withheld amount 50% is paid in the Common Stock (calculated at a 15% discount
from market), and the individual is allowed to invest the remaining 50% of the
withheld amount either in additional shares of the Common Stock at market or in
certain investment vehicles sponsored by the Company. The stock and investments
are not available to the individual for three years (five years in the event the
individual leaves the Company). In 1995, $11,102,236 of cash compensation was
withheld pursuant to the Equity Compensation Plan, including $905,000 for the
Senior Executives, and replaced by shares of the Common Stock and investments in
Company-sponsored investment vehicles.
The Committee believes that the increase in stock ownership pursuant to the
Equity Compensation Plan is beneficial in aligning management's and
stockholders' interests and, over the long-term, increasing stockholder value.
EQUITY INCENTIVE PLAN
The other long-term incentive components of executive officers' 1995
compensation (excluding the special awards received by Messrs. Krongard and
Shattuck) arose under the Company's 1991 Equity Incentive Plan. Awards of stock
options and rights to purchase securities under the 1991 Equity Incentive Plan
are designed to promote the identity of long-term interests between the
company's key employees and its stockholders.
At the end of 1995, 440,900 options were issued at $50 per share, a 25%
premium over the stock price at award date. The options have a ten-year term and
vest pro-rata over the first six years. In setting the amounts and terms of
annual option awards, the Committee considers a number of factors including the
amounts and terms of prior awards of option grants. Option share amounts awarded
in 1995 and the option terms were approximately the same as in the past several
years. Options are generally granted to new Managing Directors, Principals and
Vice Presidents of Alex. Brown. Awards other than to newly promoted officers are
made on a subjective basis. None of the Senior Executives received options in
1995.
At the end of 1995, executive officers were awarded the right to buy a
total of $7,820,000 of 5.75% Convertible Subordinated Debentures, including
$5,198,000 for the Senior Executives. The debentures are convertible into Common
Stock at $46.00 per share, a 15% premium over the stock price at award date,
after vesting at the end of a three-year period. The purchase of the debentures
was financed by loans which the Company granted to the recipients at an annual
interest rate of 5.75%. These loans are subject to forgiveness over a six-year
period based upon annual or cumulative return on stockholders' equity objectives
which are set by the Committee every three years. In determining the amount of
debentures to be purchased by executive officers, the Committee reviewed such
amount relative to cash compensation for each executive officer although no
specific percentage relationships were employed. In general, the Committee's
policies call for the amount of convertible debentures sold to the CEO and other
executive officers to be significant relative to their total compensation.
Under the Equity Partnership Plan, certain key employees purchased Common
Stock and Convertible Subordinated Debentures at market. The purchases were
financed by recourse loans from the Company. Pursuant to the Plan, a portion of
the principal amount of such loans may be forgiven provided that the aggregate
amount of loan forgiveness does not exceed the difference between the market
value and book value at the time of purchase. In 1995, the Company forgave
$1,277,223 of the principal amount of such loans, including $63,789 to the
Senior Executives. The timing and extent of any future loan forgiveness will be
at the discretion of the Committee, based on Company and individual performance.
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OTHER COMPENSATION PLANS
At various times in the past, the Company has adopted certain employee
benefit plans in which executive officers are permitted to participate on the
same terms as other employees who meet applicable eligibility criteria, subject
to any legal limitations on the amounts that may be contributed or the benefits
that may be payable under the plans. The Company provides 401(k) matching and
profit sharing contributions to a retirement plan in amounts determined annually
based upon Company performance. In 1995 these amounts totalled 4.8% of the
salaries of the Senior Executives. Managing Directors of Alex. Brown, including
the Senior Executives, and Non-Employee Directors of the Company also
participate in split dollar life insurance arrangements.
MR. KRONGARD'S 1995 COMPENSATION
Mr. Krongard's annual and long-term incentive compensation was earned under
the same plans available to executive officers and other key employees, with
annual bonus and long-term incentive compensation based predominantly on the
Company's return on stockholders' equity and other financial ratios, operating
results and achievement of specified goals.
In early 1995, the Board of Directors accepted the Company's three-year
plan which set the Company's financial and operating objectives for 1995-1997.
In turn, the Committee, in conjunction with the Board's Organization Committee,
approved specific standards, goals and objectives for Mr. Krongard.
In establishing Mr. Krongard's 1995 annual compensation and long-term
incentives, the Committee reviewed his performance relative to the standards,
goals and objectives established early in the year although no formal or
absolute weighting of these factors was utilized. Specifically, in determining
Mr. Krongard's compensation for 1995, the factors considered by the Committee
included the following:
(Bullet) 1995 was the best year in the Company's history in terms of both
revenues and net income;
(Bullet) Book value per share increased 21% to $31.50;
(Bullet) Return on average equity for the year was 22.2% compared to 19.7%
in the prior year;
(Bullet) Revenues increased 34% and net income increased 35% over the prior
year;
(Bullet) The Company's performance compared favorably to other companies in
its industry;
(Bullet) Mr. Krongard played a critical role in promoting the long-term
strategic growth of the Company.
In light of the foregoing, the Committee approved aggregate cash
compensation for Mr. Krongard that was 31% more than in the prior year, not
including the special award described above.
SECTION 162(M) CONSIDERATION
Effective January 1, 1994, Section 162(m) of the Internal Revenue Code of
1986 (the "Code") generally denies a tax deduction to any publicly-held
corporation for compensation that exceeds $1 million paid to any Senior
Executive in a taxable year, subject to an exception for "performance-based
compensation" as defined in the Code. In 1994, the stockholders approved the
Management Compensation Plan which provides for performance-based compensation
for executive officers. In determining compensation for the Senior Executives,
the primary consideration is achievement of the Company's strategic goals,
taking into consideration competitive practices, market conditions and other
factors. To the extent that fulfilling these goals is consistent with obtaining
tax deductions, the Company is committed to making compensation awards that will
qualify for tax deductions.
SUBMITTED BY THE COMPENSATION COMMITTEE
OF THE COMPANY'S BOARD OF DIRECTORS:
Lee A. Ault III, Chairman Steven Muller, Ph.D. David M. Norman
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CERTAIN TRANSACTIONS
REAL ESTATE LEASES
The Company leases approximately 15,000 square feet of office space at 135
East Baltimore Street in Baltimore, Maryland, from Brown Realty Limited
Partnership, all except one of the owners of which are members of the family of
Benjamin H. Griswold IV. The lease, which expires on March 31, 1997, calls for
rental payments of $125,750 per year during the lease term. The lease is a net
lease, and accordingly, the Company is responsible for all taxes, utilities,
insurance and maintenance charges during the lease term. The Company believes
that the lease terms are no less favorable than those which could have been
obtained in arm's length dealings with an unaffiliated third party.
The Company also leases approximately 36,000 square feet of office space at
119-131 East Baltimore Street in Baltimore, Maryland from Alex. Brown Partners
(the "Partnership"), which was the entity through which the Company's investment
banking and securities brokerage business was conducted until 1984. The
Partnership is a Maryland limited partnership, the partners of which include
certain officers and directors of the Company and other Managing Directors and
Principals of Alex. Brown. The maximum Partnership interest of any current
director, officer or employee of the Company is less than 3%. The lease, which
expires on March 31, 1997, calls for rental payments of $262,500 per year during
the lease term. The lease is a net lease, and accordingly, the Company is
responsible for all taxes, utilities, insurance and maintenance charges during
the lease term. The Company believes that the lease terms are no less favorable
than those which could have been obtained in arm's length dealings with an
unaffiliated third party.
MARGIN ACCOUNTS
Certain directors and executive officers maintain margin accounts with the
Company. Such extensions of credit have been made in the ordinary course of the
Company's business and are on the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
non-affiliated persons, and do not involve more than the normal risk of
collectibility or present other unfavorable features.
EMPLOYMENT AGREEMENTS
During 1993, the Company and Mr. Griswold entered into an employment
agreement which provides for his employment until December 31, 1996. Under his
agreement, Mr. Griswold will be compensated during the employment period at an
annual rate which shall be determined by the Board but shall not be less than
$500,000. If Mr. Griswold ceases to be employed by the Company during the
employment period for any reason other than the termination of his employment
for cause and is not in breach of his agreement, the Company has agreed to
immediately vest and extend the term of all outstanding stock options or other
similar employment related benefits held by Mr. Griswold. The agreement further
provides that in connection with the annual meeting of stockholders for 1996,
the Board will nominate Mr. Griswold for election as a director of the Company.
Additionally, Mr. Griswold may not engage in any activity competitive with the
business of the Company during the employment period.
EMPLOYEE PARTICIPATION IN
PRIVATE INVESTMENTS
In connection with the establishment and management of certain private
investments and investment funds, certain key employees, including Senior
Executives, receive interests in the appreciation of investment assets,
including merchant banking investments. Certain key employees, including Senior
Executives, may also receive interests in any gains realized on certain equity
instruments received in connection with the Company's investment banking
activities. These interests generally have little or no value at the time of
grant and, accordingly, do
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not result in compensation expense to the Company. The ultimate amount, if any,
received by such participants will depend on the performance of the particular
investments and equity instruments.
OTHER PERTINENT INFORMATION
ACCOUNTING MATTERS
KPMG Peat Marwick LLP ("KPMG") has served as auditor for the Company and
its predecessors since 1977 and has been selected by the Board to continue as
the Company's auditor for the next fiscal year. The audit services rendered by
KPMG for the fiscal year ended December 31, 1995 included: audit of the
financial statements of the Company, review of unaudited quarterly financial
information, consultation in connection with the preparation of the annual
report to stockholders and the filing of the Annual Report on Form 10-K with the
Securities and Exchange Commission and consultation with, and assistance to,
Company personnel on accounting and related matters.
Representatives of KPMG will attend the Meeting, will have an opportunity
to make a statement if they desire to do so and will be available to respond to
appropriate questions by stockholders.
STOCKHOLDER PROPOSALS
The Company provides all stockholders with the opportunity, under certain
circumstances, to participate in the governance of the Company by submitting
proposals that they believe merit consideration at the next annual meeting of
stockholders, to be held in April 1997. Stockholders may also submit the names
of individuals that they wish to be considered by the Organization Committee of
the Board as nominees for directors. To enable management to analyze and respond
adequately to proposals and to prepare appropriate proposals for presentation in
the Company's Proxy Statement for the next annual meeting of stockholders, any
such proposal must be received by the Company no later than November 22, 1996,
and should be addressed to the attention of its Secretary at its principal place
of business in Baltimore, Maryland.
OTHER MATTERS
Management is not aware of any other matters that may be brought before the
meeting. If any matters properly come before the meeting, the persons named in
the proxy will vote in accordance with their judgment as to the best interests
of the Company with respect to such matters.
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