<PAGE> 1
SCHEDULE 14A INFORMATION
Proxy 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 [ ]
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
FRANKLIN BANCORPORATION, INC.
------------------------------------------------
(Name of Registrant as Specified In Its Charter)
------------------------------------------------
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[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.:
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3) Filing Party:
------------------------------------------
4) Date Filed:
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<PAGE> 2
April 28, 1997
Dear Shareholder:
You are invited to attend the Annual Meeting of Shareholders of
Franklin Bancorporation, Inc. ("Bancorp"), which will be held on Wednesday,
May, 28, 1997 at 4:00 p.m., at our principal offices located at 1722 I (Eye)
Street, N. W., Washington, D.C. 20006.
The proposals before the meeting for the election of nine directors,
ratification of the Franklin Bancorporation, Inc. 1997 Stock Option Plan and
ratification of Bancorp's appointment of independent auditors are described
more fully in the Proxy Statement and are deemed by management and the Board of
Directors to be in the best interests of Bancorp. We believe they deserve your
support.
We ask that you complete, sign and date the accompanying proxy card
and return it as soon as possible in the postage-paid envelope provided.
Please do so even if you intend to be at the meeting.
Thank you very much for your loyal support of our past efforts. We
look forward to sharing the benefits with you as a shareholder of Bancorp.
JOSEPH R. SCHUBLE, SR.
Chairman of the Board
ROBERT P. PINCUS
President and Chief Executive Officer
<PAGE> 3
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders of Franklin Bancorporation, Inc.:
The Annual Meeting of Shareholders of Franklin Bancorporation, Inc., a
Delaware corporation ("Bancorp"), will be held on May 28, 1997, at 4:00 p.m.,
at our offices located at 1722 I (Eye) Street, N.W., Washington, D.C. 20006
for the following purposes:
1. To elect nine directors of Bancorp, each to serve until the
next Annual Meeting of Shareholders and his or her successor
has been elected and qualified or until his or her earlier
resignation or removal;
2. To approve the Franklin Bancorporation, Inc. 1997 Stock Option
Plan, which provides for the issuance of up to 500,000 shares
of Bancorp's common stock, par value $0.10 per share;
3. To ratify the appointment of Coopers & Lybrand L.L.P. as
Bancorp's independent auditors for fiscal year 1997; and
4. To transact such other business as may properly come before
the meeting or any adjournments thereof.
Your attention is directed to the accompanying Proxy Statement for
further information with respect to the matters to be acted upon at the
meeting.
The record date for determining shareholders entitled to notice of,
and to vote at, the Annual Meeting has been fixed by the Board of Directors as
the close of business on April 21, 1997.
This notice and the accompanying Proxy Statement and proxy card are
sent to you by order of the Board of Directors.
LINDA B. JOHNSON
Senior Vice President
and Corporate Secretary
April 28, 1997
YOU ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING. IT IS IMPORTANT THAT
YOUR SHARES BE REPRESENTED REGARDLESS OF THE NUMBER YOU OWN. EVEN IF YOU PLAN
TO BE PRESENT, YOU ARE URGED TO COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED
PROXY PROMPTLY IN THE ENVELOPE PROVIDED. IF YOU ATTEND THIS MEETING, YOU MAY
VOTE EITHER IN PERSON OR BY YOUR PROXY. ANY PROXY GIVEN MAY BE REVOKED BY YOU
IN WRITING OR IN PERSON AT ANY TIME PRIOR TO THE EXERCISE THEREOF.
<PAGE> 4
FRANKLIN BANCORPORATION, INC.
1722 I (EYE) STREET, N.W.
WASHINGTON, D. C. 20006
PROXY STATEMENT
FOR
ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 28, 1997
GENERAL INFORMATION
The following information is being furnished in connection with the
Annual Meeting of Shareholders of Franklin Bancorporation, Inc., a Delaware
corporation ("Bancorp"), to be held at 4:00 P.M. on Wednesday, May 28, 1997 at
Bancorp's principal executive offices located at 1722 I (Eye) Street, N.W.,
Washington, D.C. 20006 (the "Annual Meeting"). It is contemplated that this
Proxy Statement and the enclosed form of proxy will be first sent to
shareholders on or about April 28, 1997.
Only holders of record of the Bancorp's common stock, par value $0.10
per share ("Common Stock") at the close of business on April 21, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting or any
adjournment thereof. On such date, there were 6,487,694 shares of Common Stock
outstanding. The holders of a majority of Bancorp's outstanding shares of
Common Stock, present in person or by proxy, are required for a quorum at the
meeting. If a share is represented for any purpose at the meeting, it is
deemed to be present for quorum purposes for all other matters as well.
Abstentions and shares held of record by a broker or its nominee ("Broker
Shares") that are voted in any matter are included in determining the number of
votes present or represented at the meeting. Broker Shares that are not voted
on any matter at the meeting will not be included in determining whether a
quorum is present. Each share of Common Stock is entitled to one vote on all
matters to come before the meeting. The election of directors requires the
affirmative vote of holders of a plurality of the shares of Common Stock
present in person or represented by proxy at the Annual Meeting and entitled to
vote. The approval of the Franklin Bancorporation, Inc. 1997 Stock Option Plan
requires the affirmative vote of holders of a majority of the shares of Common
Stock present in person or represented by proxy at the Annual Meeting and
entitled to vote. Votes that are withheld and Broker Shares that are not voted
as to any such matter will not be included in determining the number of votes
cast.
The enclosed proxy for the Annual Meeting is being solicited by the
Board of Directors of Bancorp and is revocable at any time before it is
exercised. All properly executed proxies delivered pursuant to this
solicitation will be voted at the meeting in accordance with instructions, if
any. In the absence of instructions, properly executed proxies will be voted
for the nominees to the Board set forth below and for the other proposals
described below. If any other matters are properly brought before the Annual
Meeting the proxies will be voted in the discretion of the proxy holders. The
cost of this solicitation will be borne by Bancorp. In addition to the use of
the mail, directors, officers and employees of Bancorp may solicit proxies by
telephone, fax, or personal interview. Banks, brokerage houses and other
institutions, nominees and fiduciaries will be requested to forward the
soliciting materials to beneficial owners and to obtain authorization for the
execution of proxies. Bancorp will, upon request, reimburse such parties for
their reasonable expenses in forwarding proxy material to beneficial owners.
<PAGE> 5
ELECTION OF DIRECTORS
DIRECTORS
Nine directors are to be elected at the 1997 Annual Meeting, each for
a term running until the 1998 Annual Meeting of Shareholders and his or her
successor has been elected and qualified, or his or her earlier resignation or
removal. It is the intention of the persons named as proxies in the
accompanying form of proxy to vote for the election of the nine named nominees
of the Board of Directors unless authorization is withheld. Each nominee has
agreed to serve if elected. In the event any nominee shall unexpectedly be
unable to serve, the Board may reduce its size or nominate an alternative
candidate for whom the proxies may vote.
The name, principal occupation and selected biographical information
of each nominee are set forth below. All nominees currently are directors of
Bancorp. All nominees also serve as directors of Bancorp's banking subsidiary,
Franklin National Bank of Washington, D.C. (the "Bank"):
Joseph R. Schuble, Sr. Mr. Schuble, age 57, is Chairman of Bancorp's
Board of Directors and has been a director of Bancorp since 1992. He has also
been a director of the Bank since 1991. Mr. Schuble has been Chairman of
Dreyfuss Brothers, Inc. or its predecessor (real estate management) since 1993
and was Executive Vice President from 1970 to 1993.
Robert P. Pincus. Mr. Pincus, age 50, is President and Chief
Executive Officer of Bancorp and the Bank. Mr. Pincus became the President and
Chief Executive Officer of the Bank in 1991, and of Bancorp in 1992. Mr.
Pincus was elected to the Board of Directors of Bancorp and the Bank in 1991.
Prior to joining the Bank, Mr. Pincus was the President and Chief Executive
Officer of C&S Sovran Bank/DC National Bank or its predecessor since 1982. He
also is a director of Mills Corp. (real estate investment trust).
Joseph B. Gildenhorn. Mr. Gildenhorn, age 67, has been a director of
Bancorp and a director of the Bank since 1994 and has served as Chairman of the
Board of Directors of the Bank since February 1996. Mr. Gildenhorn has been an
executive partner of The JBG Companies (real estate development and management)
since 1958. From 1989 to 1993, Mr. Gildenhorn served as the United States'
Ambassador to Switzerland. He has been a director of Bancorp and the Bank
since 1994. He also is a director of Biscayne Apparel, Inc. (children's
apparel).
George Chopivsky, Jr. Mr. Chopivsky, age 50, has been a director of
Bancorp since 1993 and a director of the Bank since 1991. He has served as the
Chair of the Bank's Investment Committee since 1992. Mr. Chopivsky has been
director, officer and founder of United Psychiatric Corp., Washington, D.C.
(psychiatric hospital management) since 1983. He also is a director of Health
Care REIT, Inc. (real estate investment trust).
Stephen S. Haas. Dr. Haas, age 57, has been a director of Bancorp
since 1993 and a director of the Bank since 1991. Dr. Haas has been a
principal with McCartee, Haas & Grossman, M.D.P.A., Washington, D.C. and
Bethesda, MD (orthopedic surgeons) since 1976.
Susan B. Hepner. Ms. Hepner, age 45, has been a director of Bancorp
since 1993, and a director of the Bank since 1991. She also has served as the
Chair of the Bank's Audit Committee since 1992. Ms. Hepner has been a
principal with Freidkin, Matrone & Horn, P.A., Rockville, MD (certified public
accountants) since 1979.
2
<PAGE> 6
H. Peter Larson, III. Mr. Larson, age 52, has been a director of
Bancorp since February 1996. He has been a director of the Bank since 1982.
Mr. Larson has been president of Larson, Ball & Gould, Inc., Washington, D.C.
(real estate brokers) since 1985. Prior to 1985, he served as Vice President,
Commercial Leasing Division for Shannon & Luchs Company, Washington, D.C. (real
estate brokers).
Gant Redmon. Mr. Redmon, age 59, has been a director of Bancorp since
April 1995 and a director of the Bank since August 1996. Mr. Redmon served as
a director of the George Washington Banking Corporation ("GW Bancorp") from
1994 until March 1995 when it merged with Bancorp. Mr. Redmon subsequently
served as a director of Franklin National Bank of Virginia (the "Virginia
Bank") until its merger into the Bank in August 1996. He has been managing
partner of Redmon, Boykin & Braswell (law firm) since 1990. He also is a
director of Colchester Corporation (land development).
James C. Stearns. Mr. Stearns, age 47, has been a director of Bancorp
since April 1995 and a director of the Bank since August 1996. Mr. Stearns
served as a director of the George Washington Banking Corporation ("GW
Bancorp") from 1994 until March 1995 when it merged with Bancorp. Mr. Stearns
subsequently served as a director of Franklin National Bank of Virginia (the
"Virginia Bank") until its merger into the Bank in August 1996. Mr. Stearns
has been counsel with Porter, Wright, Morris & Arthur (law firm) since 1994.
From 1991 to 1993 Mr. Stearns was special counsel with Saul, Ewing, Remick &
Saul (law firm). Prior to that Mr. Stearns was counsel with Patterson,
Belknap, Webb & Tyler (law firm) from 1989 to 1991.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE ELECTION TO THE
BOARD OF DIRECTORS OF THE NOMINEES SET FORTH ABOVE.
EXECUTIVE OFFICERS
The name, principal occupation and selected biographical information
of each of the executive officers of Bancorp are set forth below:
Diane M. Begg. Ms. Begg, age 49, has been Executive Vice President
and Chief Financial Officer of Bancorp since April 1997. From January 1994
through April 1997 she served as Senior Vice President Chief Financial Officer
of Bancorp. She also served as Senior Vice President and Chief Financial
Officer of the Bank from July 1993 through April 1997. From March 1991
through June 1993 Ms. Begg was Senior Vice President of Federal Capital Bank.
From September 1988 through March 1991, Ms. Begg was with the public accounting
firm of Deloitte and Touche.
Albert A. D'Alessandro. Mr. D'Alessandro, age 53, has served as
Executive Vice President of Bancorp since January 1993. He also has been
Executive Vice President of the Bank since April 1991. From 1984 through 1991,
Mr. D'Alessandro was an Executive Vice President of C&S Sovran Bank/DC National
Bank or its predecessor.
David G. Fleming. Mr. Fleming, age 49, has served as Executive Vice
President of Bancorp since April 1996. He also has been Executive Vice
President of the Bank since December 1995. From 1989 through 1995, Mr. Fleming
was Executive Vice President and Chief Lending Officer in charge of the
Commercial Banking Department for Columbia First Bank.
3
<PAGE> 7
Joseph B. Head. Mr. Head, age 45, has served as Executive Vice
President of Bancorp since January 1993. He also has been Executive Vice
President of the Bank since April 1991. From 1988 through 1991, Mr. Head was
an Executive Vice President of C&S Sovran Bank/DC National Bank or its
predecessor.
Linda B. Johnson. Ms. Johnson, age 49, is Senior Vice President and
Secretary of Bancorp; she was appointed Secretary in November 1991 and Senior
Vice President in January 1993. Ms. Johnson also has been Senior Vice
President for Administration and Secretary of the Bank since April 1991. Ms.
Johnson was a Vice President and then Senior Vice President of C&S Sovran
Bank/DC National Bank or its predecessor from 1985 through 1991.
Kim Ray. Mr. Ray, age 41, has served as Senior Vice President and
Chief Operating Officer of Bancorp since September 1996. Mr. Ray served as
Senior Vice President and Internal Auditor of Bancorp from July 1994 to
September 1996. Mr. Ray also is Senior Vice President and Chief Operations
Officer of the Bank. He had been Internal Auditor since November 1992 and a
Senior Vice President since July 1994.
J. Mercedes Alvarez. Ms. Alvarez, age 36, has served as Vice
President and Internal Auditor of Bancorp since January 1997 and Internal
Auditor of the Bank since September 1996. From February 1991 to December 1995,
Ms. Alvarez served as Assistant General Auditor at Columbia First Bank
FSB/First Union Bank.
INDEBTEDNESS AND OTHER TRANSACTIONS
Since the beginning of fiscal year 1996, none of Bancorp's directors
or executive officers, or any member of their immediate families, has or had
any material interest in any transaction to which Bancorp or the Bank is or was
a party outside of the ordinary course of the Bank's business.
The directors and executive officers of Bancorp, members of their
immediate families, and companies, firms or partnerships with which they are
associated, engage in normal banking transactions with the Bank from time to
time in the ordinary course of business. All loans or loan commitments
included among such transactions have been made on substantially the same
terms, including interest rates charged and collateral required, as those
prevailing at the time for comparable transactions with unrelated persons of
similar creditworthiness, and do not involve more than a normal risk of
collectibility or present other unfavorable features.
MEETINGS AND COMMITTEES
During 1996, the Board of Directors held 4 meetings and acted three
times by unanimous written consent. Each director of Bancorp attended 75% or
more of all meetings of the Board of Directors. The Board has no standing
audit, nominating or compensation committees at this time.
4
<PAGE> 8
STOCK OWNERSHIP OF DIRECTORS AND EXECUTIVE OFFICERS
The table below sets forth the beneficial ownership of Common Stock as
of April 21, 1997 by all directors, the Chief Executive Officer and the three
other executive officers of Bancorp (determined at the end of the last fiscal
year) whose annual salary and bonus as so determined was at least $100,000
(such officers, the "Named Executive Officers"), and all directors and
executive officers of Bancorp as a group. To management's knowledge, no person
or group beneficially owns more than five percent of the issued and outstanding
shares of common stock. Unless otherwise indicated and subject to applicable
community property and similar statutes, all persons listed below have sole
voting and investment power over all shares of Common Stock beneficially owned.
Share ownership has been computed in accordance with the Securities and
Exchange Commission ("SEC") rules and does not necessarily indicate beneficial
ownership for any other purpose.
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF
NAME OF BENEFICIAL OWNER BENEFICIAL OWNERSHIP PERCENT OF CLASS
- ------------------------ -------------------- ----------------
<S> <C> <C>
George Chopivsky, Jr. (1) 213,575 2.91
Albert A. D'Alessandro (2) 138,750 1.89
David G. Fleming(3) 40,000 0.54
Joseph B. Gildenhorn (4) 244,932 3.34
Stephen S. Haas (5) 51,790 0.71
Joseph B. Head (6) 139,750 1.91
Susan B. Hepner (7) 213,391 2.91
H. Peter Larson, III (8) 38,605 0.53
Robert P. Pincus (9) 281,494 3.84
Gant Redmon (10) 5,780 0.08
Joseph R. Schuble, Sr. (11) 301,518 4.11
James C. Stearns 5,716 0.08
All directors and officers 1,789,101 24.24
as a group (16) persons)(12)
</TABLE>
(1) Includes 10,000 shares held by the Chopivsky Family Partnership of which
Mr. Chopivsky is a general partner, 29,000 shares held by the Chopivsky
Family Foundation, of which Mr. Chopivsky is president and vested options
to purchase 4,000 shares of Common Stock.
(2) Includes vested options to purchase 120,000 shares of Common Stock and
18,750 shares owned through his retirement account.
(3) Includes vested options to purchase 40,000 shares of Common Stock.
(4) Includes vested options to purchase 4,000 shares of Common Stock.
(5) Includes vested options to purchase 7,500 shares of Common Stock.
(6) Includes vested options to purchase 120,000 shares of Common Stock.
(7) Includes 203,391 shares held by Professional Associates of which Ms.
Hepner is a general partner, and vested options to purchase 10,000 shares
of Common Stock.
(8) Includes 100 shares owned by his spouse, 200 shares owned by his children,
300 shares owned by his sister-in-law, 15,840 shares owned through various
retirement accounts and vested options to purchase 11,500 shares of Common
Stock.
(9) Includes vested options to purchase 200,000 shares of Common Stock.
(10) Includes 2,640 shares owned by his spouse and vested options to purchase
500 shares of Common Stock.
(11) Includes 130,532 shares held by of Essex Investments Limited Partnership
of which Mr. Schuble is a general partner, 157,986 shares held by Schuble
Family Investment Limited Partnership of which Mr. Schuble is a general
partner, and vested options to purchase 10,500 shares of Common Stock.
(12) Includes vested options to purchase 621,000 shares of Common Stock.
5
<PAGE> 9
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table provides certain summary information concerning
compensation paid or accrued by the Bancorp or the Bank to or on behalf of the
Named Executive Officers for the fiscal years ended December 31, 1996, 1995 and
1994:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Annual Compensation Compensation
Awards
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (g) (i)
Securities
Name and Other Annual Underlying All Other
Principal Position Year Salary(1) Bonus Compensation(2) Options (#) Compensation(3)
------------------ ---- ------ ----- ------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Robert P. Pincus 1996 $300,000 $60,000 - 30,000 $10,208 (4)
President and 1995 260,082 75,000 - 10,000 8,790
Chief Executive 1994 234,500 49,964 - 10,000 12,268
Officer
Albert A. D'Alessandro 1996 $140,000 $26,300 - 15,000 $7,152 (5)
Executive Vice 1995 130,032 19,500 - 10,000 6,399
President 1994 123,500 19,760 - 10,000 7,452
David G. Fleming 1996 $115,000 $22,000 - 5,000 $2,123
Executive Vice 1995 N/A N/A - 20,000 N/A
President 1994 N/A N/A - N/A N/A
Joseph B. Head 1996 $140,000 $25,000 - 15,000 $9,127 (6)
Executive Vice 1995 130,032 19,050 - 10,000 6,239
President 1994 123,500 19,760 - 10,000 7,596
</TABLE>
- -------------------------------
(1) Includes amounts deferred under the Bank's 401(k) plan.
(2) None of the named individuals received perquisites or other benefits
in excess of lesser of $50,000 or 10% of total salary and bonus as
reported in columns (c) and (d) of this table.
(3) Includes the Bank's contributions made under the Bank's 401(k) plan
and other amounts accrued thereunder.
(4) Includes $1,314.48 of insurance premiums which represents the
pro-rated portion (341 days in 1996) of the term life insurance
element of a whole life insurance policy for Mr. Pincus. Life
insurance premiums paid for fiscal years 1995 and 1994 were $166.00
and 1,635.40 respectively. Mr. Pincus and the Bank have entered into
a Deferred Compensation Agreement (The "Deferred Compensation
Agreement") whereby the payment of a portion of his compensation is
deferred each year. The Bank is obligated to pay Mr. Pincus either
(i) an annual sum set forth in the Deferred Compensation Agreement up
through December 20, 2002, which will not exceed $50,000 per year ($0
for the 12 month period ending December 20, 1996) or (ii) $50,000 for
each such period in the event of the death of Mr. Pincus (see
"Employment Contracts" herein). Because the amount payable under the
Deferred Compensation Agreement through December 20, 1996 was $0
(other than upon the death of Mr. Pincus) no compensation under the
Deferred Compensation Agreement is reflected in the Summary
Compensation Table for fiscal year 1996.
(5) Includes $1,552.00 of insurance premiums of the term life insurance
element of a whole life insurance policy for Mr. D'Alessandro. Life
insurance premiums paid for fiscal years 1995 and 1994 were $1,368.00
and $1,254.00 respectively.
(6) Includes $587.06 of insurance premiums which represents the pro-rated
portion (168 days in 1996) of the term life insurance element of a
whole life insurance policy for Mr. Head. Life insurance premiums
paid for fiscal years 1995 and 1994 were $1,216.00 1,128.00
respectively.
6
<PAGE> 10
STOCK OPTIONS
The following table provides certain information concerning the grant
of stock options under the Bancorp Stock Option Plan to the Named Executive
Officers during the fiscal year ended December 31, 1996:
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential
Realizable Value at
Assumed Annual
Rates of Stock Price
Appreciation(2)
Individual Grants for Option Term
- ------------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c) (d) (e) (f) (g)
% of
Number of Total
Securities Options
Underlying Granted to Exercise
Options Employees or Base
Granted in Fiscal Price Expiration
Name (#) Year ($/sh) Date (1) 5% ($) 10% ($)
---- ---------- ---------- -------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
Robert P. Pincus 10,000 8.7% $7.625 4/17/06 $47,950 $121,520
20,000 17.4% 8.094 11/01/06 101,800 258,000
Albert A. D'Alessandro 10,000 8.7% 7.625 4/22/06 47,950 121,520
5,000 4.3% 8.094 11/01/06 25,450 64,500
David G. Fleming 5,000 4.3% 8.094 11/01/06 25,450 64,500
Joseph B. Head 10,000 8.7% 7.625 4/22/06 47,950 121,520
5,000 4.3% 8.094 11/01/06 25,450 64,500
</TABLE>
- -------------------------------
(1) The options are effective from the date of grant until the
earliest of (a) the date all of the shares are purchased by the
grantee; (b) the grantee makes written request to the Board to
surrender the granted options in exchange for a cash payment equal
to the difference obtained by subtracting the exercise price of
the shares which relate to the surrendered options from the fair
market value of the shares which relate to the options on the date
of surrender; (c) the date of the termination of full-time
employment, or (d) the cancellation of the option by agreement of
the grantee and Bancorp.
(2) In order to calculate the potential realizable values in columns
(f) and (g), assumes that the price per share of Common Stock
would be approximately $12.42 and $19.78, respectively, for Mr.
Pincus, Mr. D'Alessandro and Mr. Head for the first set of options
granted, and $13.18 and $20.99, respectively, for Mr. Pincus, Mr.
D'Alessandro, Mr. Fleming and Mr. Head for the second set of
options granted, at the end of the ten-year option term. Amounts
represent hypothetical gains that could be achieved for the
respective options at the end of the ten year option term. The
assumed 5% and 10% rates of stock appreciation are mandated by the
rules of the U.S. Securities and Exchange Commission and may not
accurately reflect the appreciation of the price of the Common
Stock from the date of grant until the end of the option term.
These assumptions are not intended to forecast future price
appreciation of the Common Stock.
7
<PAGE> 11
OPTION HOLDINGS
The following table provides certain information concerning
unexercised stock options held by the Named Executive Officers by or during the
fiscal year ended December 31, 1996:
YEAR-END OPTION VALUE TABLE
<TABLE>
<CAPTION>
FY-End Option Value
- --------------------------------------------------------------------------------------------------------------------
(a) (d) (e)
Number of Value of
Securities Securities
Underlying Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)
Exercisable/ Exercisable/
Unexercisable Unexercisable(1)
------------- ----------------
<S> <C> <C>
Robert P. Pincus 170,000/- 0 - $1,019,370/- 0 -
Albert A. D'Alessandro 105,000/- 0 - 632,065/- 0 -
David G. Fleming 25,000/- 0 - 97,655/- 0 -
Joseph B. Head 105,000/- 0 - 632,065/- 0 -
</TABLE>
- -------------------------------
(1) The closing bid price on December 31, 1996 for Common Stock was
$10.125 and is used in calculating the value of unexercised options.
The total value of the unexercised in-the-money options is based on
this closing price less the exercise price of the options.
DIRECTORS' COMPENSATION
For fiscal year 1997, non-employee directors of Bancorp are
compensated for their services at the rate of $150.00 per board or committee
meeting attended and $200.00 per board or committee meeting chaired. The
chairmen of both Bancorp and the Bank receive a $5,000.00 annual retainer;
Board members receive a $4,000.00 annual retainer. During fiscal year 1996
non-employee directors of Bancorp received $100.00 per board or committee
meeting attended.
A Nondiscretionary Stock Option Plan also has been adopted by
Bancorp. The Nondiscretionary Stock Option Plan provides that non-employee
directors of Bancorp and the Bank who secure business for the Bank will be
awarded options to purchase shares of Common Stock, the number of such options
and their terms to be determined by reference to the following nondiscretionary
formula: each such participant who secures business for Bancorp and/or the Bank
in an amount of at least $700,000 (average balance) in deposits and $500,000 in
loans in a given calendar year will receive options to purchase 500 shares of
Common Stock; each such participant who secures business for Bancorp and/or the
Bank in an amount of at least $1,400,000 (average balance) in deposits and
$1,000,000 in loans in a given calendar year will receive options to purchase
an additional 500 shares of Common Stock; and each such participant who secures
business for Bancorp and/or the Bank in an amount of at least $2,800,000
(average balance) in deposits and $2,000,000 in loans in a given calendar year
will receive options to purchase an additional 1000 shares of Common Stock.
For fiscal year 1996, the following directors were granted options in January
1997 to purchase the following numbers of shares of Common Stock thereunder:
George
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<PAGE> 12
Chopivsky, 2,000; Joseph B. Gildenhorn, 2,000; Susan B. Hepner, 2,000; H. Peter
Larson, III, 2,000; Joseph R. Schuble, Sr., 1,000; and Gant Redmon, 500.
EMPLOYMENT CONTRACTS
On April 17, 1991, Robert P. Pincus entered into an employment
agreement for a term of three years, subject generally to automatic extension
every 18 months thereafter. The agreement automatically renewed for additional
18 month terms on April 17, 1994, October 17, 1995 and April 17, 1997. Mr.
Pincus' initial salary of $228,500 is subject to review and adjustment on a
yearly basis. Under the terms of his employment agreement, Mr. Pincus received
vested stock options for 100,000 shares of Common Stock exercisable at $3.00
per share and, so long as he continues employment with the Bank, a right to
receive options for an additional 50,000 shares of Common Stock. The latter
options were granted at a rate of 10,000 per year beginning in the second year
of employment, continuing through the sixth year of employment, and are
exercisable at the market price of Common Stock at the time of grant. For
fiscal year 1996, Mr. Pincus' base salary was increased from $260,082 to
$300,000.
Mr. Pincus' employment agreement provides that, if his employment is
terminated, he will receive the following payments in addition to salary and
benefits accrued to the date of termination. If he is terminated without cause
or as a result of (or within 90 days of) a change in control of Bancorp or the
Bank, he will receive (a) if the termination occurs during the first thirty-six
months of employment, an amount equal to (i) his total aggregate base salary
for a full eighteen month period and (ii) his base salary for the remainder of
the then-current eighteen month period, or (b) if the termination occurs after
the first thirty-six months of employment, an amount equal to his base salary
for the remainder of the then-current eighteen month period. Further, if his
employment is terminated during the first thirty-six months of employment due
to the receivership of the Bank, he will receive an amount equal to his base
salary for the remainder of the then-current eighteen month period. All such
payments are to be made at the time when they would have been due had his
employment not been terminated. Finally, if his employment is terminated due
to death or disability, he (or his estate) will receive an amount equal to his
base salary for the remainder of the then-current twelve month period.
As of December 20, 1996, Mr. Pincus and the Bank entered into
a Deferred Compensation Agreement (the "Deferred Compensation Agreement")
whereby the payment of a portion of his compensation is deferred each year.
The Bank agreed to pay Mr. Pincus or a beneficiary of Mr. Pincus (in the event
of his death) certain compensation for every 12 month period (commencing on
December 20, 1995) that Mr. Pincus remains employed by the Bank. The
compensation payable under the Deferred Compensation Agreement is either (i) an
annual sum set forth in the Deferred Compensation Agreement (as described in
footnote 4 of the Summary Compensation Table) or (ii) $50,000 per year in the
event of the death of Mr. Pincus. Under the terms of the Deferred Compensation
Agreement, the deferred compensation will be payable in installments upon the
termination of Mr. Pincus' employment with the Bank or the termination of the
Deferred Compensation Agreement or as a lump sum payment in the event of the
death of Mr. Pincus. The Deferred Compensation Agreement shall terminate on
December 20, 2002.
Concurrently therewith, as of December 20, 1996, Mr. Pincus, the Bank
and a trust established by Mr. Pincus (the "Trust") entered into a
Split-Dollar Life Insurance Agreement (the "Insurance Agreement") whereby the
Trust purchased a whole life insurance policy (the "Policy") insuring the life
of Mr. Pincus. The Bank has agreed to pay the annual premium payments under
the Policy. Under the terms of the Insurance Agreement, upon
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<PAGE> 13
the death of Mr. Pincus the death benefit payable on the Policy will be paid to
a beneficiary less the aggregate amount of all of the premiums paid over the
life of the Policy, which will be paid over to the Bank. The Insurance
Agreement shall terminate on December 20, 2002. Additionally, if the Insurance
Agreement is terminated prior to the death of Mr. Pincus, for any number of
reasons, the Bank will cease to make payments on the Policy and the lesser of
the cash surrender value of the Policy or the aggregate amount of the premiums
paid on the Policy by the bank shall be paid from the Policy to the Bank.
These payment rights are secured by a collateral assignment of the Policy to
the Bank.
On April 22, 1991, Albert A. D'Alessandro and Joseph B. Head each
entered into employment agreements for terms of two years, subject generally to
automatic extension every year thereafter; the agreements renewed for
additional one year terms on, April 22, 1994, April 22, 1995 and April 22,
1996. Mr. D'Alessandro and Mr. Head both received one time bonuses of $50,000
and their initial salaries of $120,000 are subject to review and adjustment on
a yearly basis. Under the terms of their respective employment agreements, Mr.
D'Alessandro and Mr. Head each received vested options for 50,000 shares of
Common Stock exercisable at $3.00 per share and, so long as he continues
employment with the Bank, the right to receive options for an additional 50,000
shares of Common Stock. The latter options were granted at a rate of 10,000
per year beginning in the second year of employment, continuing through the
sixth year of employment and are exercisable at the market price of Common
Stock at the time of grant. For fiscal year 1996, Mr. D'Alessandro's and Mr.
Head's base salaries were increased from $130,032 to $140,000.
Each of Mr. Head's and Mr. D'Alessandro's employment agreements
provides that, if his employment is terminated, he will receive the following
additional payments in addition to salary and benefits accrued during the first
two years of employment, (a) an amount equal to (i) his total aggregate base
salary for a full twelve month period and (ii) his base salary for the
remainder of the then-current twelve month period, or (b) if the termination
occurs after the first two years of employment, an amount equal to his base
salary for the remainder of the then-current twelve month period. If his
employment is terminated during the initial two year period due to the
receivership of the Bank, he will receive an amount equal to his base salary
for the remainder of the then-current twelve month period. If his employment
is terminated as a result of (or within 90 days of) a change in control of the
Bank or Bancorp, he will receive his base salary for the remainder of the
then-current eighteen month period. All such payments are to be made at the
time when they would have been due had his employment not been terminated.
Finally, if his employment is terminated due to death or disability, he (or his
estate) will receive an amount equal to his base salary for the remainder of
the then-current twelve month period.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
The Board of Directors of Bancorp has no compensation committee.
James C. Stearns, Joseph B. Gildenhorn, Susan B. Hepner, Victor S. Kamber,
Robert P. Pincus and Joseph R. Schuble, Sr. serve as the Bank's Compensation
Committee.
Of the members of the Bank's Compensation Committee, Mr. Pincus is
the President and Chief Executive Officer of the Bank and Bancorp (although, as
further described in the report of the Compensation Committee set forth below,
he did not participate in decisions relating to his own compensation during
fiscal year 1996). Further, Mr. Schuble is the Chairman of the Board of
Bancorp.
10
<PAGE> 14
BOARD COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
Generally, decisions on compensation of the Bank's executives
currently are made by a six-member Compensation Committee of the Bank's Board.
Five of the members are non-employee directors of the Bank, four of whom also
are also non-employee directors of Bancorp, and one is the Chief Executive
Officer of Bancorp and the Bank (the "CEO"). Decisions regarding compensation
of the CEO are made by all non-employee members of the Committee. All
decisions by the Compensation Committee relating to the compensation of the
Bank's executive officers are reviewed and approved by the full Board of
Directors of the Bank. Set forth below is a report prepared by Messrs.
Stearns, Gildenhorn, Kamber, Schuble, and Pincus, and Ms. Hepner in their
capacity as the Bank Board's Compensation Committee addressing the Bank's
compensation philosophy and executive compensation for 1996.
Philosophy Regarding Compensation
of Executive Officers
Regulations of the SEC require the Compensation Committee to
disclose the Committee's bases for executive compensation. The Compensation
Committee's executive compensation philosophy, which it began to implement with
regard to 1992 compensation, which it has continued to implement to date and
which it will further implement with regard to 1997 compensation, is as
follows: compensation packages should be designed to provide competitive levels
of compensation that align pay with the Bank's annual and long-term performance
goals, motivate key executive officers to achieve strategic business
initiatives and reward them for their achievements, and provide compensation
opportunities which are comparable to those offered by other financial
institutions. This should allow the Bank to compete for and retain talented
executives who are critical to the Bank's long-term success, align the interest
of executives with the long-term interests of stockholders through award
opportunities that can result in ownership of Common Stock, and recognize
individual initiative and achievements. The Compensation Committee also
endorses the position that stock ownership by management is beneficial in
aligning management's and shareholders' interests in the enhancement of
shareholder value.
Relationship of Performance Under
Compensation Plans
The compensation paid the Named Executive Officers in 1996 comprised
salary, long-term incentive opportunities in the form of stock options, bonuses
and other benefits typically offered to executives by competing financial
institutions. This basic structure was set when the Named Executive Officers,
with the exception of Mr. Fleming, were engaged by the Bank and Bancorp in
1991, and is reflected in the employment agreements entered into by the Bank,
Bancorp and each of the Named Executive Officers at that time.
Salaries. The original base salaries paid to the Messrs. Pincus,
Head and D'Alessandro pursuant to their respective employment agreements were
set in 1991, when those agreements were entered into. Since Messrs. Pincus,
Head and D'Alessandro were newly employed at that time, their salaries did not
reflect corporate performance of the Bank or Bancorp. Instead, these salaries
were primarily based upon what Messrs. Pincus, Head and D'Alessandro would
accept to agree to be employed by the Bank and Bancorp, bearing in mind their
11
<PAGE> 15
compensation packages received in prior employment. Messrs. Pincus, Head and
D'Alessandro's employment agreements provide for an annual review of salary.
The first annual review of salary pursuant to the Messrs. Pincus, Head and
D'Alessandro's employment agreements related to compensation for 1993 and
subsequent annual reviews were undertaken in 1994, 1995 and 1996. Messrs.
Pincus, Head and D'Alessandro's base salaries for 1996 (which increased from
1995) were based on the Compensation Committee's subjective evaluation of the
following performance-related factors: leadership; the Bank's financial
performance; managerial effectiveness; and supervisory ability.
Mr. Fleming's employment is not under contractual agreement;
Mr. Fleming's salary, long-term incentive opportunities in the form of stock
options, bonuses and other benefits are reviewed by the Compensation Committee
on an annual basis. Mr. Fleming's base salary for 1996 was based on the
Compensation Committee's subjective evaluation of the following
performance-related factors: leadership; the Bank's financial performance;
managerial effectiveness; and supervisory ability.
Annual Bonuses. Annual bonuses were awarded to the Named Executive
Officers during 1996, as indicated in the Summary Compensation Table. The
bonuses were based on the achievement of specific bank and division goals. The
Executive Committee of the Bank set nine bank-wide benchmarks for: net loan
growth, average deposit growth, net earnings, return on assets, return on
equity, average net interest margin, productivity ratio, non-interest income
excluding security gains and treasury connection accounts. The bank-wide
benchmarks were based on financial results from the previous year as well as
projected growth. The Executive Committee also set objective and subjective
divisional benchmarks based on historical performance. In 1996, seven of the
nine bank-wide benchmarks were met (four were met at greater than 110% of the
benchmark, three were met at 100% of the benchmark and two were less than the
benchmark) and substantially all of the divisional benchmarks were met. None
of the benchmarks were assigned a specific weight in determining bonuses; the
Compensation Committee of the Bank subjectively determined that, in light of
their performance in meeting and exceeding bank-wide and divisional goals, 90%
of the bonus pool that they were eligible to receive would be awarded to the
Named Executive Officers.
Stock Option Plan. Bancorp has a Stock Option Plan which was
approved by its sole shareholder in 1991, amended and restated in 1993 and
amended and restated again in 1997. The four Named Executive Officers are
eligible to receive grants under the Bancorp Stock Option Plan. Grants under
this plan to the four Named Executive Officers are for a period of 10 years,
are priced at market value on the date of grant, and are intended to provide
incentives for future performance, and to help attract and retain qualified
individuals and to provide equity incentives for their active participation to
increase the growth and profitability of Bancorp, the Bank, and any future
subsidiaries of Bancorp. In 1996 twenty thousand options were granted to Mr.
Pincus and five thousand options each were granted to Messrs. Head, Fleming and
D'Alessandro by the Board of Directors in accordance with the Bancorp Stock
Option Plan. The remaining options granted to each Named Executive Officer,
with the exception of Mr. Fleming, in 1996 were in accordance with their
respective employment agreements entered into in 1991, and were not based on
any other performance-related factor.
Other Compensation Plans. The Bank has adopted certain broad-based
employee benefit plans in which the Named Executive Officers are permitted to
participate on the same terms as non-executive employees who meet applicable
eligibility criteria, subject to any legal limitations on the amounts that may
be contributed or the benefits
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<PAGE> 16
that may be payable thereunder, including but not limited to the Bank's
Employee 401(k) Plan. Benefits under these plans are not tied to the Bank's or
Bancorp's performance.
Mr. Pincus' 1996 Compensation
Regulations of the SEC require the Compensation Committee to disclose
the Committee's bases for compensation reported for Mr. Pincus in 1996
and to discuss the relationship between Bancorp's performance during the last
fiscal year and Mr. Pincus' compensation.
Mr. Pincus' salary was increased to $300,000 in 1996 from $260,032 in
1995. Mr. Pincus' salary is based on the Compensation Committee's subjective
evaluation of certain performance-related factors (i.e., leadership, the Bank's
financial performance, managerial effectiveness and supervisory ability). For
1996 the Committee, having noted the Bank's overall financial performance and
continued growth for 1996, adjusted Mr. Pincus' salary upward accordingly. In
addition, Mr. Pincus earned an annual bonus in 1996 based on the achievement of
substantially all objective bank-wide benchmarks and objective and subjective
divisional benchmarks set by the Compensation Committee and the Compensation
Committee's evaluation of those achievements described above.
Compensation Committee
James C. Stearns, Chairman
Joseph B. Gildenhorn
Susan B. Hepner
Victor S. Kamber
Robert P. Pincus
Joseph R. Schuble, Sr.
PERFORMANCE GRAPH
[See page 14.]
13
<PAGE> 17
PERFORMANCE GRAPH
Comparison of Five Year-Cumulative Total Returns
Performance Graph for
FRANKLIN BANCORPORATION, INC.
Prepared by the Center for Research in Security Prices
Produced on 01/14/97 including data to 12/31/96
[GRAPH]
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
Legend
Symbol CRSP Total Returns Index for: 12/31/92 12/31/93 12/30/94 12/29/95 12/31/96
------ ---------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
________ + FRANKLIN BANCORPORATION, INC. 109.7 90.3 119.4 206.5 267.7
...___ . * Nasdaq Stock Market (US Companies) 108.9 125.0 122.2 172.8 212.5
- -------- /\ Nasdaq Bank Stocks 111.4 127.0 126.6 188.5 249.2
SIC 6020-6029, 6710-6719 US & Foreign
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
Notes:
A. The lines represent monthly index levels derived from compounded daily
returns that include all dividends.
B. The indexes are reweighted daily, using the market capitalization on
the previous trading day.
C. If the monthly interval, based on the fiscal year-end, is not a trading
day, the preceding trading day is used.
D. The index level for all series was set to $100.0 on 11/09/92.
5848/90030000 (c) Copyright 1997
CRSP - The University of Chicago Graduate School of Business
14
<PAGE> 18
FRANKLIN BANCORPORATION, INC. 1997 STOCK OPTION PLAN
On April 23, 1997, the Bank's Board of Directors voted to recommend
that the Bancorp's Board of Directors adopt the Franklin Bancorporation, Inc.
1997 Stock Option Plan (the "Plan"), effective for calendar year 1997. On
April 23, 1997, the Bancorp's Board of Directors voted to so adopt the Plan.
Under the Plan, executive officers and key employees of Bancorp, the Bank, and
other future subsidiaries of Bancorp (to which Bancorp's directors elect to
extend the Plan) are participants and may be granted options to purchase in the
aggregate up to 500,000 shares of Common Stock. On April 23, 1997, bid and
asked prices for Common Stock were reported on NASDAQ at $10.625 and $11.00 per
share, respectively. The effectiveness of the Plan is subject to approval by
the holders of a majority of the shares of Common Stock present in person or
represented by proxy at the Annual Meeting and entitled to vote on the matter.
GENERALLY
The following is a summary of the material provisions of the Plan.
This summary is qualified in its entirety by reference to the complete text of
the Plan. Bancorp will provide promptly, upon request and without charge, a
copy of the full text of the Stock Option Plan to each person to whom a copy of
this proxy statement is delivered. Requests should be directed to the
Corporate Secretary of Franklin Bancorporation, Inc., 1800 K Street, N.W.,
Suite 929, Washington, D.C. 20006.
Management believes that the Plan will advance the interests of Bancorp
by providing eligible individuals an opportunity to acquire or increase their
proprietary interest in Bancorp, which thereby will create a stronger incentive
to expend maximum effort for the growth and success of Bancorp and its
subsidiaries and will encourage such eligible individuals to continue to serve
Bancorp.
Options granted under the Plan are intended to be Incentive Stock
Options ("ISOs") within the meaning of Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"), except (a) to the extent that any such option
would exceed the limitations set forth in Section 8 of the Plan and (b) for
options specifically designated at the time of grant as not being ISOs. The
Plan is not a qualified deferred compensation plan within the meaning of
Section 401(a) of the Code nor is it subject to the provisions of the Employee
Retirement Income Security Act of 1964, as amended.
ADMINISTRATION OF THE PLAN
The Plan is administered by Bancorp's Administrative Committee or the
Board of Directors.
TOTAL NUMBER OF OPTIONS AND TERMS OF OPTIONS
As noted above, the total number of shares of Common Stock which may be
issued under the Plan from time to time is 500,000 in the aggregate, as may be
adjusted in accordance with the terms of the Plan. Shares may be issued under
the Plan out of unauthorized and unissued (or reacquired) Common Stock. In the
event that an option expires or is terminated before it is exercised (for
reasons other than the exercise of a stock appreciation right granted in tandem
with the option), the shares subject to the portion of option not exercised may
again be subject
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<PAGE> 19
to an option.
The option price is as set forth in the Stock Option Agreement. The
exercise price for each option granted under the Plan is the fair market value
of a share of Common Stock, as calculated by reference to an average of the bid
and asked prices for Common Stock on the date of grant, as reported on NASDAQ
(or, if the Common Stock in the future is quoted on the NASDAQ National Market
System or traded on an exchange, the average of the closing prices for the
Common Stock on the date of grant, as quoted by the Wall Street Journal).
Each option will have a ten year term from its grant date, subject to
certain limitations.
TRANSFERABILITY AND TERMINATION OF OPTIONS
No option is assignable or transferable by the participant to whom it
is granted, other than by the will or the laws of descent and distribution.
Upon the termination of the participant's employment with Bancorp (other than
in the event of death or disability) the options granted shall terminate;
provided, however, the Board of Directors or the Committee may extend the time
period the options will terminate or provide for certain other exceptions to
termination in the stock option agreement with the participant.
OPTION EXERCISE
Upon the approval of the Plan by the shareholders and subject to
certain limitations on exercise, pursuant to the terms of each participant's
stock option agreement with Bancorp, any portion of an option may be exercised
during the option term by completing, executing and delivering to Bancorp a
notice of exercise in the form supplied by Bancorp. Payment to Bancorp of the
exercise price must be made at the time of exercise by good check or as
otherwise provided in the stock option agreement, which may permit payment of
the exercise price by a loan from Bancorp or by surrender of shares of Common
Stock held by the participant.
The Board may offer to buy out options previously granted for a payment
in cash or Common Stock, and also may accept the surrender of options in
satisfaction of specified obligations of the participant.
EXPIRATION OF PLAN AND AMENDMENTS
No option may be granted pursuant to the Plan after April 23, 2007.
Bancorp's Board of Directors may at any time amend or terminate the Plan in
whole or in part, except as follows. First, any amendment or termination may
not (i) materially change the eligibility requirements; (ii) increase the
number of shares of Common Stock available under the plan; or (iii) adversely
affect any option previously granted, unless required by applicable law or
regulation. Second, any amendment must be approved by Bancorp's shareholders
if required by applicable law.
FEDERAL INCOME TAX CONSEQUENCES
The following is only a summary of the more significant federal income
tax considerations, and does not purport to be a complete description of all
applicable rules regarding the federal income tax treatment of options. In
particular, the summary does not apply to dispositions by participants of
Common Stock other than through sales
16
<PAGE> 20
(such as through gifts), and does not discuss in detail any potential
consequences of alternative minimum tax, state, local and foreign taxes and the
effect of gift, estate and inheritance taxes. For more detailed information,
reference should be made to the Code and the regulations relating thereto (the
"Regulations").
Some of the options granted under the Plan may qualify as ISOs for
federal income tax purposes as described in Section 422 of the Code.
Generally, with qualified ISOs, an optionee recognizes no taxable income upon
either the grant or exercise of an ISO, although the difference between the
exercise price and the fair market value of the stock on the date of exercise
is an item of tax preference in computing the optionee's alternative minimum
tax liability, if any. If certain holding period requirements are met, gain or
loss on a subsequent sale of the stock by the optionee is taxed at capital gain
rates. Generally, long-term capital gains rates will apply to the optionee's
full gain at the time of the sale of the stock, provided that: (i) no
disposition of the stock is made within two years from the date of grant of the
option not within one year after the acquisition of such stock, and (ii) the
option is exercised within three months of the optionee's termination of
employment (one year in the event of disability).
A sale, exchange, gift or other transfer of legal title of stock
acquired pursuant to an ISO within two years from the date of grant or within
one year after acquisition of the stock pursuant to exercise of the option
constitutes a disqualifying disposition. A disqualifying disposition involving
a sale or exchange produces taxable income to the optionee, and an income tax
deduction to Bancorp, in an amount equal to the lesser of (i) the fair market
value of the stock on the date of exercise minus the option price, or (ii) the
amount realized on disposition minus the option price. Otherwise, generally,
neither issuance not exercise of an ISO nor the disposition of the underlying
stock produces a deduction for Bancorp. A disqualifying disposition as a
result of a gift produces taxable income to the optionee in an amount equal to
the difference between the option price and the fair market value of the stock
on the date of exercise.
As noted above, options granted under the Plan may not qualify as ISOs
under the Code. A participant who receives a nonqualified option which does
not have a readily ascertainable value at the time of grant would recognize no
income for federal income tax purposes upon the grant of such an option.
Ordinarily, an option which is not publicly traded will not be considered to
have a readily ascertainable value on the date of grant.
A participant who receives shares of stock upon exercise of a
nonqualified option will be required to recognize ordinary income equal to the
excess of the fair market value of the shares received over the exercise price.
The taxable year in which this income is reportable, and the date for
determining the value of the shares received, depends on whether the shares
received upon exercise of the option are subject to a substantial risk of
forfeiture (or are transferrable free of such risk of forfeiture), as described
below. Generally, only shares received by directors, executive officers or
holders of more than 10% of the Common Stock upon the exercise of a
nonqualified option within six months of the grant of such option will be
subject to a substantial risk of forfeiture as a result of the applicability of
Section 16 of the Securities Exchange Act of 1934.
If the shares received upon exercise of a nonqualified option are not
subject to a substantial risk of forfeiture or are transferrable free of any
existing restrictions which would impose a substantial risk of forfeiture, the
participant will recognize ordinary income in the year of exercise. The amount
of income recognized on exercise of the option will be the excess of the fair
market value of the shares as of the date of exercise over the amount paid
17
<PAGE> 21
for the shares.
If the shares received upon exercise of a nonqualified option are
subject to restrictions which create a substantial risk of forfeiture, and may
not be transferred to another person free of such restrictions, a participant
will not recognize income solely by reason of such exercise, unless the
participant voluntarily elects under Section 83(b) of the Code to recognize
income as if the stock were not subject to such restrictions. If "restricted"
shares are received on the exercise of a nonqualified option and an election is
not made under Section 83(b) of the Code, a participant will recognize ordinary
income only upon the earlier of (i) the date of lapse of the restrictions which
cause the stock to be considered to be subject to a substantial risk of
forfeiture when received (restrictions on resale pursuant to Section 16 of the
Securities Exchange Act of 1934 would lapse six months after the grant of the
option), or (ii) the date on which such stock is sold to a third party. The
amount of ordinary income recognized upon the lapse of restrictions will be the
excess of the value of the shares at the time such restrictions lapse over the
amount paid for the shares upon exercise of the option. In the event of a sale
of shares prior to the lapse of the restrictions causing the risk of
forfeiture, the entire amount of gain on such sale would be treated as ordinary
income to the participant in the year of sale.
If an election under Section 83(b) is made with respect to shares which
are subject to a substantial risk of forfeiture, a participant will recognize
ordinary income in the year of the exercise of the option equal to the excess
of the value of the shares received over the exercise price paid. The value of
the shares will be determined as of the date of exercise and without regard to
the effect of any restrictions other than restrictions which by their terms
will never lapse. An election under Section 83(b) can only be made within 30
days of the exercise of the option.
Upon the sale of shares acquired upon exercise of a nonqualified
option, a participant would recognize capital gain or loss equal to the
difference between the sales proceeds and his basis in the shares. The basis
in shares acquired under a nonqualified option would be the amount paid for the
shares, plus any amount required to be reported as ordinary income prior to or
as a result of the sale (as described above). If income has been reported by a
participant pursuant to an election under Section 83(b), however, the amount of
such income may not be included in the basis of the shares for purposes of
computing any loss on the sale. Any capital gain or loss recognized upon such
sale would be long or short-term gain or loss depending on the time period
elapsed since the exercise of the option (if the shares purchased were
unrestricted or a Section 83(b) election were made) or the date that income
became reportable by reason of lapse of restrictions. Under current law, the
required holding period to cause a gain to qualify as a long term capital gain
is one year.
Ordinary income currently is subject to a federal tax rate ranging from
15 to 39.6 percent. The federal tax rate on long-term capital gains is 28
percent; however, the marginal tax rates for ordinary income and long-term
capital gains may be higher than 39.6 percent and 28 percent, respectively,
since under current law, at certain levels of adjusted gross income, certain
itemized deductions may be limited and certain personal exemptions may be
phased out. Federal tax rates on ordinary income and long-term capital gains
may change in the future.
Bancorp generally will receive a compensation deduction equal to the
amount reportable as ordinary income by the participant under the rules
described above. This deduction may be subject to certain limitations imposed
by the Code and the Regulations, such as a $1 million annual deductibility cap
and certain capitalization rules. To secure a deduction, Bancorp will need to
comply with applicable reporting requirements.
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<PAGE> 22
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has reappointed Coopers & Lybrand, L.L.P. as
independent auditors to audit the consolidated financial statements of Bancorp
and its subsidiaries for 1997. This appointment is subject to ratification by
the shareholders. Coopers & Lybrand, L.L.P. has served as independent auditors
for Bancorp since 1995.
Representatives of Coopers & Lybrand, L.L.P. are expected to be present
at the Annual Meeting, where they will have the opportunity to make a
statement, if they desire to do so, and be available to respond to appropriate
questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" RATIFICATION OF THE
APPOINTMENT OF COOPERS & LYBRAND L.L.P. AS INDEPENDENT AUDITORS FOR 1997.
Coopers & Lybrand L.L.P. have served as Bancorp's independent
accountants since the resignation of Price Waterhouse L.L.P. as Bancorp's
independent accountants on February 6, 1995. The report of Price Waterhouse
L.L.P. on Bancorp's financial statements for fiscal years 1993 and 1994
contained no adverse opinion or disclaimer of opinion and was not qualified or
modified as to uncertainty, audit scope or accounting principles. The Bank's
Audit Committee participated in and approved the decision to change Bancorp's
independent accountants. During fiscal years 1993, 1994 and through February
6, 1995, there were no disagreements with Price Waterhouse L.L.P. on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Price Waterhouse L.L.P., would have caused them to make
reference to the subject matter thereof in their report on Bancorp's financial
statements for the relevant period. During fiscal years 1993, 1994 and through
February 6, 1995, Bancorp did not consult with Coopers & Lybrand L.L.P. on
items which (1) related to the application of accounting principles to a
specified transaction, or the type or audit opinion that might be rendered on
Bancorp's financial statements, or (2) concerned any matter that was the
subject of a disagreement or an otherwise reportable event under SEC
regulations.
OTHER BUSINESS
The Board of Directors does not know of any matters to be presented for
action at the meeting other than those listed in the Notice of Meeting and
referred to in this Proxy Statement. The enclosed proxy confers discretionary
authority, however, with respect to the transaction of any other matters that
may properly come before the meeting, and it is the intention of the persons
named in the proxy to vote in accordance with their judgment on any such
matter.
19
<PAGE> 23
COMPLIANCE WITH SECTION 16(a) OF THE
SECURITIES EXCHANGE ACT OF 1934
Based solely upon a review of Forms 3, 4 and 5 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) under the Securities
Exchange Act of 1934, as amended, with respect to the Company's most recent
fiscal year, to the best of the Company's knowledge and information: (1) Albert
A. D'Alessandro, David G. Fleming, Joseph B. Head, H. Peter Larson, III, and
Robert P. Pincus each did not report one change in derivative security holdings
by timely filing one Form 4 each, but those reports have been completed; (2)
George Chopivsky Jr. did not report one change in Common Stock holdings by
timely filing one Form 4, but that report has been completed; and (3) Diane M.
Begg Linda B. Johnson, and Kim Ray each did not report two changes in
derivative security holdings by timely filing two Form 4s, but those changes
have been reported in one Form 4 and a timely filing of a Form 5.
SHAREHOLDER PROPOSALS
Proposals of shareholders intended to be presented at the 1998 Annual
Meeting and included in Bancorp's 1997 Notice of Meeting and Proxy Statement
must be received by Bancorp no later than December 29, 1997. Director-nominees
and shareholder proposals should be directed to the Corporate Secretary of
Bancorp at its principal office located at 1722 I (Eye) Street, N.W.,
Washington, D.C. 20006. Shareholder proposals must comply with the proxy rules
of the Securities and Exchange Commission in order to be included in the Proxy
Statement.
ANNUAL REPORT ON FORM 10-K
COPIES OF BANCORP'S ANNUAL REPORT AND FORM 10-K, WITHOUT EXHIBITS, AS
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 28, 1997, ARE
AVAILABLE TO ANY SHAREHOLDER WITHOUT CHARGE UPON REQUEST IN WRITING DIRECTLY TO
THE CORPORATE SECRETARY OF BANCORP AT 1722 I (EYE) STREET, N.W. WASHINGTON,
D.C. 20006.
By order of the Board of Directors.
LINDA B. JOHNSON
Senior Vice President
and Corporate Secretary
April 28, 1997
20
<PAGE> 24
FRANKLIN BANCORPORATION, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
P
R
O
X
Y
The undersigned hereby appoints Robert P. Pincus, Albert A.
D'Alessandro and Joseph B. Head, and each of them, with full power of
substitution, the proxies of the undersigned to vote all shares of Common Stock
of Franklin Bancorporation, Inc. (the "Company") which the undersigned is
entitled to vote at the Annual Meeting of Stockholders of the Company to be
held at its principal corporate office, 1722 I (Eye) Street, N.W., Washington,
D.C. 20006, on May 28, 1997, at 4:00 P.M. and at any adjournments or
postponements thereof, with the same force and effect as the undersigned might
or could do if personally present thereat:
<TABLE>
<S> <C> <C> <C>
1. ELECTION OF DIRECTORS [ ] FOR all nominees listed below [ ] WITHHOLD AUTHORITY
(except as marked to the contrary below) to vote for all nominees listed below
</TABLE>
(The Board of Directors recommends a vote FOR.)
R. Pincus, J. Schuble, G. Chopivsky, J. Gildenhorn, S. Haas, S. Hepner, H.
Peter Larson, III, G. Redmon, J. Stearns
(INSTRUCTION: TO WITHHOLD AUTHORITY TO VOTE FOR ONE OR MORE INDIVIDUAL
NOMINEES, STRIKE A LINE THROUGH THE NOMINEE'S NAME IN THE LIST ABOVE.)
2. PROPOSAL TO APPROVE THE BANCORP 1997 STOCK OPTION PLAN which provides for
the issuance of up to 500,000 shares of Common Stock, par value $0.10.
(The Board of Directors recommends a vote FOR.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. PROPOSAL TO RATIFY THE SELECTION OF COOPERS & LYBRAND L.L.P. as independent
public accountants for the Company for the fiscal year ending December 31,
1997. (The Board of Directors recommends a vote FOR.)
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Continued on other side)
<PAGE> 25
(Continued from other side)
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER DIRECTED
HEREIN BY THE UNDERSIGNED STOCKHOLDER. IF NO DIRECTION IS MADE, THIS PROXY
WILL BE VOTED FOR PROPOSALS 1, 2 AND 3.
<TABLE>
<S> <C>
Please sign exactly as name appears below. When shares are held by When signing as attorney, executor,
joint tenants, both should sign. administrator,trustee or guardian please give full
title as such. If a corporation, please sign in full
corporate name by president or other authorized
person. If a partnership, please sign in full
partnership name by authorized person.
DATED: _____________________________________, 1997
__________________________________________________
Signature
__________________________________________________
Signature if held jointly
</TABLE>
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD PROMPTLY
USING THE ENCLOSED ENVELOPE.
