SCHEDULE 14A
(Rule 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant |X|
Filed by a Party other than the Registrant |_|
Check the appropriate box:
|_| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
|X| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
Mason-Dixon Bancshares, 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)(1) 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:
<PAGE>
|_| 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:
- 2 -
<PAGE>
MASON-DIXON BANCSHARES, INC.
45 W. Main Street
Westminster, Maryland 21157
(410) 857-3401
Notice of Annual Meeting of Stockholders - April 19, 1997
To the Stockholders:
The annual meeting of the stockholders of Mason-Dixon Bancshares, Inc.
("Bancshares") will be held at 10:00 a.m., local time, on Saturday, April 19,
1997, at Wakefield Valley Golf Club, 1000 Fenby Farm Road, Westminster, Maryland
21158, for the following purposes:
1. To consider the election of the four (4) persons named as
Class II Director nominees in the Proxy Statement accompanying
this Notice;
2. To act on the stockholder proposal described in the Proxy
Statement; and
3. To transact such other business, as may properly be brought
before the meeting or any adjournment thereof.
Only stockholders of record at the close of business on Friday, February 28,
1997, will be entitled to receive notice of and vote at this meeting.
This Notice to Stockholders is accompanied by a Proxy Statement providing
important stockholder information for the Annual Meeting and Bancshares' 1996
Annual Report to Stockholders. A form of Proxy is also enclosed with the Proxy
Statement. At the request of any stockholder, a copy of Bancshares' Form 10-K
filed with the Securities and Exchange Commission will be made available free of
charge.
YOUR VOTE IS VERY IMPORTANT. TO ASSURE YOUR REPRESENTATION AT THE MEETING,
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THE ENCLOSED WHITE PROXY CARD IN
THE ENVELOPE PROVIDED FOR THAT PURPOSE.
By Order of the Board of Directors,
/S/ Vivian A. Davis
Vivian A. Davis
Corporate Secretary
Westminster, Maryland
March 17, 1997
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
MASON-DIXON BANCSHARES, INC.
45 W. Main Street
Westminster, Maryland 21157
(410) 857-3401
--------------------
Proxy Statement
for
1997 Annual Meeting of Stockholders
-----------------------------
This Proxy is being furnished to the stockholders of Mason-Dixon Bancshares,
Inc. ("Bancshares") in connection with the solicitation of proxies by the Board
of Directors of Bancshares for use at the 1997 Annual Meeting of Stockholders to
be held on April 19, 1997. Only stockholders of record on February 28, 1997 (the
"Record Date") are entitled to notice of and to vote at the meeting. As of the
Record Date, there were 5,306,851 shares of Bancshares common stock, par value
$1.00 per share ("Common Stock"), issued and outstanding and entitled to vote at
the meeting.
Solicitation, Voting and Revocability of Proxy
Solicitation of proxies is being made by the Board of Directors by mail and the
entire cost of preparing, assembling, printing and mailing this Proxy Statement,
the accompanying proxy and all other items pertaining thereto will be borne by
Bancshares. Bancshares has engaged Corporate Investor Communications, Inc. to
assist in the distribution and solicitation of proxies and has agreed to pay
Corporate Investor Communications, Inc. a fee of $4,000.00 plus expenses for its
services. The approximate date on which this Proxy Statement and the
accompanying proxy are being sent to stockholders is March 17, 1997.
The presence, in person and by proxy, of a majority of the outstanding shares of
Common Stock entitled to vote at the Annual Meeting constitutes a quorum. Each
stockholder is entitled to one vote for each share of Common Stock held. There
is no cumulative voting.
All proxies properly completed, executed and submitted to Bancshares in time for
use at the meeting will be voted in accordance with the directions given in the
proxy; if no direction is indicated, the proxy will be voted in favor of the
director nominees listed in this proxy statement and against the stockholder
proposal. In either case, the proxies will be voted in the discretion of the
named proxies as to any other matter that is properly brought before the
meeting. Stockholders who give a proxy may revoke it at any time prior to the
meeting by filing a written notice of revocation with Bancshares' Secretary or
by presenting a duly executed proxy bearing a later date. However, if you are a
stockholder whose shares are not registered in your name, you will need
appropriate documentation from the recordholder to vote personally at the
meeting.
The election of directors and the stockholder proposal require the affirmative
vote of holders of a majority of the shares of Common Stock present and voting;
therefore, withholding of votes, abstentions and broker non-votes will have no
effect on the outcome of the vote.
1
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following table reflects the beneficial ownership of the Common Stock by
directors and executive officers of Bancshares as of the Record Date. Unless
otherwise indicated below, and except for shares described below held in the
Non-Employee Directors Deferred Compensation and Fee Plan (the "Directors Plan")
which are voted by Bancshares, each person specified below has sole investment
and voting power (or shares such power with his or her spouse) with regard to
the shares set forth in the following table. To the knowledge of management, no
person owns beneficially more than 5% of the outstanding shares of Common Stock.
The address of each of the persons named below is the address of Bancshares.
Name Number of Shares Percent of Class
David S. Babylon, Jr. 49,957 (1) *
Henry S. Baker, Jr. 3,263 (2) *
Miriam F. Beck 15,309 (3) *
Donald H. Campbell 5,234 (4) *
Patricia A. Dorsey 1,551 *
William B. Dulany 19,347 (5) *
Thomas K. Ferguson 26,619 (6) *
R. Neal Hoffman 76,786 (7) 1.4%
S. Ray Hollinger 11,580 (8) *
Edwin W. Shauck 45,000 (9) *
James C. Snyder 15,110 (10) *
Stevenson B. Yingling 6,393 (11) *
All Directors and Executive
Officers as a group (22 persons) 323,130 6.1%
* Signifies less than 1% of the Common Stock
- - -----------------------------
(1) Includes 4,116 shares held as surviving trustee under the will of F.
Thomas Babylon, 1,470 shares held as surviving trustee under the will
of David Snider Babylon, and 967 shares held in the Directors Plan.
(2) Includes 164 shares held in the Directors Plan.
(3) Includes 3,453 shares held jointly with her husband, Edward R. Beck,
and 7,907 shares held in the Directors Plan.
(4) Includes 1,875 shares held by his wife, Isabelle T. Campbell, 860
shares held by a company controlled by Mr. Campbell, and 352 shares
held in the Directors Plan.
(5) Includes 937 shares held by his wife, Winifred S. Dulany, and 394
shares held by his daughter, Anne French Dulany, as to which Mr. Dulany
disclaims beneficial ownership.
(6) Includes 4,003 shares held by his wife, Sandra L. Ferguson, 13,188
shares held in Bancshares' Employee Savings and Investment Plan, and
4,500 shares that may be purchased upon the exercise of stock options.
(7) Includes 1,575 shares held by his wife, Nancy L. Hoffman, 4,243 shares
held as trustee under a trust agreement, and 21,284 shares held as
co-personal representative under the will of his father. Mr. Hoffman
disclaims beneficial ownership as to the Common Stock held by his wife.
2
<PAGE>
(8) Includes 1,201 shares held by his wife, Joan R. Hollinger, and 1,889
shares held in the Directors Plan.
(9) Includes 43,500 shares held jointly with his wife, Mary Jane Shauck.
(10) Includes 4,226 shares held in the Directors Plan.
(11) Includes 250 shares held jointly with his son, Edward R. Yingling, 250
shares held jointly with his daughter, Elizabeth A. Yingling, 250
shares held jointly with his daughter, Stacy L. Yingling, and 2,439
held in the Directors Plan.
ELECTION OF DIRECTORS
Bancshares' Articles of Incorporation provides that the Board of Directors is
divided into three Classes, each Class to consist as nearly as possible of
one-third of the directors. The term of office of the Class II Directors expires
at the 1997 Annual Meeting of Stockholders; the term of the Class III Directors
will expire at the 1998 Annual Meeting of Stockholders; and the term of the
Class I Directors will expire at the 1999 Annual Meeting of Stockholders. The
regular term of only one Class of Directors expires annually and any particular
director will stand for election only once in any three-year period.
At the 1997 Annual Meeting of Stockholders, four Class II Directors are being
nominated for election, each to hold office for three years and until his or her
successor has been elected and qualified. Certain of the nominees also serve as
directors of Bancshares' subsidiaries, Carroll County Bank and Trust Company
("Carroll County Bank") and Bank of Maryland, as indicated; no director or
nominee holds any directorships in any other public companies. In the event a
nominee declines or is unable to serve as a director, which is not anticipated,
the proxies will be voted for the Board's substitute nominee. The following
table provides certain information regarding the nominees for Class II Directors
to be elected and for the Class III and I Directors.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING PAST FIVE YEARS AGE SINCE
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NOMINEES FOR CLASS II DIRECTORS: NEW TERM WILL EXPIRE IN 2000
DAVID S. BABYLON, JR. Retired Accountant - Tax Consultant; 73 1991
Vice Chairman of the Board of Directors -
Carroll County Bank.
R. NEAL HOFFMAN Managing Partner - Hoffman, Comfort, 54 1995
Galloway & Offutt, LLP, Attorneys-At-Law;
Director - Carroll County Bank.
PATRICIA A. DORSEY Administrator (Principal) - William Winchester 47 1992
Elementary School; Director - Carroll County
Bank .
DONALD H. CAMPBELL President and CEO - First State Packaging, 60 1995
Inc., Salisbury, MD; Director - Bank of
Maryland.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF THE ABOVE
NOMINEES.
3
<PAGE>
- - -------------------------------------------------------------------------------------------------------------------------
The following tables contain information regarding directors of other Classes
who are not standing for reelection in 1997.
CLASS III DIRECTORS: TERM WILL EXPIRE IN 1998
WILLIAM B. DULANY Managing Partner - Dulany & Leahy, 69 1991
Attorneys-At-Law; Director - Mutual Fire
Insurance Company of Carroll County; Trustee
and Member Executive Committee Western
Maryland College; Chairman of Board and
Director - Episcopal Ministries To The Aging,
Inc. (Fairhaven, Copper Ridge, and related
entities), Sykesville, MD; Trustee - Maryland
Historical Society; Chairman of the Board of
Directors - Bancshares and Carroll County
Bank.
S. RAY HOLLINGER President - W. H. Davis Co. t/a Davis Buick- 66 1991
GMC Truck; President - Davis Library, Inc.;
Director - Community Foundation of Carroll
County, Inc.; Director - Carroll County Bank.
JAMES C. SNYDER Retired. Previously engaged in 66 1991
manufacturing and distribution of truck
equipment; Director - Carroll County Bank.
HENRY S. BAKER, JR. Self-employed management consultant; 70 1995
Chairman of the Board of Directors of Bank
of Maryland.
CLASS I DIRECTORS: TERM WILL EXPIRE IN 1999:
MIRIAM F. BECK Retired Administrator - Carroll County Board 65 1991
of Education; Officer-Director - Highland View
Cemetery Assoc., Inc.; Director and
Treasurer - Carroll County Hospital Health
Services, Inc.; Director - Carroll Community
College Foundation; Director - Carroll
Hospice; Director - Carroll County Bank.
THOMAS K. FERGUSON President and Chief Executive Officer of 54 1991
Bancshares; President and Chief Executive
Officer - Carroll County Bank.
EDWIN W. SHAUCK Retired April 1990 as Executive Vice 71 1991
President Carroll County Bank ; Director -
Carroll County Health Services Corp.;
Director - Carroll County Bank.
STEVENSON B. YINGLING President/Owner - Yingling General Tire 55 1992
Service, Inc.; Director - Carroll County Bank.
</TABLE>
4
<PAGE>
INFORMATION ABOUT THE BOARD OF DIRECTORS
During 1996, Bancshares' Board of Directors held 14 meetings consisting of 12
regular meetings and two special meetings. All directors attended at least 75%
of the meetings.
For 1996, non-employee directors of Bancshares received a fee in that capacity
of $2,500, except for Mr. Dulany, the Chairman of the Board, who received a fee
of $10,000; and those directors who were also directors of Carroll County Bank
received an additional fee of $10,000 in that capacity, except for Messrs.
Dulany and Babylon, the Chairman and Vice Chairman, who received fees of $40,000
and $11,500, respectively. Mr. Baker and Mr. Campbell in their capacities as
Chairman of the Board of the Bank of Maryland and director, respectively,
received fees in such capacities of $18,000 and $2,700, respectively. Any
non-employee director of Bancshares and each participating subsidiary may defer
all or a portion of his or her director's fees.
In 1996, the Board of Directors established a Compensation Committee which
conducts an annual review of various compensation issues, including salary
budgets, certain compensation plans and personnel policy and makes
recommendations to the full Board of Directors. Mr. Shauck, Mrs. Beck, Mr.
Baker, Mr. Hollinger and Mr. Yingling serve as members of the Compensation
Committee. The Board does not have any other standing committees at this time.
On December 9, 1996, Bancshares filed suit in the United States District Court
for the District of Maryland against Anthony Investments, Inc., Barbara S.
Floyd, Alvie G. Spencer, and their stockholder group ("Defendants") seeking
preliminary and permanent injunctive and declaratory relief against the
Defendants for violations of the SEC proxy solicitation rules, violation of the
Exchange Act beneficial ownership reporting rules, violation of laws requiring
approval of the Maryland Commissioner of Financial Regulation for acquisition of
a block of bank holding company stock, and for making false and misleading
statements in connection with their proxy solicitation. The Defendants
thereafter filed a counterclaim against Bancshares and the Board of Directors
alleging that the directors breached their fiduciary duty by not reporting
inquiries regarding possible interest in the acquisition of Bancshares, and have
engaged in corporate waste by bringing the lawsuit, adopting alleged golden
parachute plans and retaining Alex. Brown as Bancshares' financial advisor. The
Defendants asked the court to require Bancshares to take the actions described
in the Stockholder Proposal set forth below, and to terminate the lawsuit,
reimburse the legal fees, and to terminate the relationship with Alex. Brown and
the alleged golden parachute plans. Bancshares believes that Defendants'
counterclaim lacks merit, and is continuing to prosecute its claim against the
Defendants vigorously. On February 28, 1997, the court ruled that certain
statements made by Defendants regarding Bancshares' financial performance were
misleading, and their failure to disclose their acquisition of 5.1% of the stock
without a report to the Commissioner of Financial Regulations may have violated
a State banking acquisition law. The court ordered the issuance of a corrective
letter to be promptly distributed to all stockholders, and the rescission of all
proxies or powers of attorney obtained by the Defendants.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires that
Bancshares' directors and executive officers and persons who own more than 10%
of Bancshares' Common Stock file with the Securities and Exchange Commission
("SEC") an initial report of beneficial ownership and subsequent reports of
changes in beneficial ownership of the Common Stock. To Bancshares' knowledge,
all reports required to be so filed by such persons have been filed on a timely
basis. Bancshares believes that all of its directors and executive officers
complied with all filing requirements applicable to them with respect to
transactions during the fiscal year ended December 31, 1996.
5
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the remuneration earned in 1996 and the prior two
years by the Chief Executive Officer ("CEO") of Bancshares and by any other
executive officer whose total remuneration in the last fiscal year exceeded
$100,000 and who performed a policy-making function for Bancshares.
<TABLE>
============================================================================================================================
<CAPTION>
SUMMARY COMPENSATION TABLE
- - ----------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
----------------------------------
Annual Compensation Awards Payout
---------------------------------------- ------------------------ ------
<S> <C> <C> <C> <C> <C> <C>
Restricted Securities All Other
Name and Other Annual Stock Underlying LTIP Compen-
Principal Position Year Salary(a) Bonus Compensation(b) Awards(c) Options/SARs(d) Payout sation
- - ------------------ ---- ------ ----- ------------ ------ ------------ ------ ------
Thomas K. Ferguson 1996 $170,872 $16,107 $4,629 $32,193 $33,134 -- --
President and CEO of 1995 $164,300 $16,594 $5,457
Bancshares and Carroll 1994 $155,000 $25,128 $5,904
County Bank
Michael L. Oster 1996 $125,643 --- $3,750
Executive Vice President 1995 $ 96,772 $ 8,274 $3,296
of Carroll County Bank
H. David Shumpert 1996 $168,002 $95,000 $5,411
President and CEO of
Bank of Maryland
<FN>
NOTES:
(a) Includes base salary plus amounts deferred under the Management Deferred
Compensation Plan. Mr. Ferguson deferred the following amounts during the years
shown: 1996 - $54,450; 1995 - $36,010; 1994 - $20,000; Mr. Oster deferred $1,515
in 1996 and $484 in 1995.
(b) Includes $1,152, $348 and $680, respectively, attributable to the group term
life insurance coverage premiums paid for Mr. Ferguson, Mr. Oster, and Mr.
Shumpert; and amounts reflecting matching contributions to each of their
accounts in the Employee Savings and Investment Plan. Also includes $2,230,
representing the value of the use of a company auto for Mr. Shumpert.
(c) Represents 1,533 restricted shares of common stock, valued at $21.00 per
share as of December 27, 1996, the date of grant, of which 767 shares vest on
12/26/97 and 766 shares vest on 12/26/98. Mr. Ferguson is entitled to exercise
the voting rights associated with, and to collect any dividends declared on,
these shares.
(d) Represents the value of options to purchase 4,500 shares at a price of
$21.00 per share, the mid-point of the bid and ask prices on NASDAQ as of
December 27, 1996, the grant date, utilizing the Modified Black-Scholes American
option valuation analysis. The options are exercisable at any time during the
ten year term.
</FN>
============================================================================================================================
</TABLE>
6
<PAGE>
Stock Options
The following table sets forth information regarding stock options to purchase
Bancshares' Common Stock granted to the named executives during 1996:
<TABLE>
=====================================================================================================================
<CAPTION>
Option Grants in Fiscal Year 1996
- - ---------------------------------------------------------------------------------------------------------------------
Individual Grants
-----------------------------------------------------------------------
Percent of Total
Number of Securities Options Granted Exercise
Underlying Options to Employees in or Base Expiration Grant Date
Name Granted (1) Fiscal Year Price ($/Sh) Date Present Value $(2)
- - ---- -------------------- ---------------- ------------ ---------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Thomas K. Ferguson 4,500 100% $21.00 12-27-06 $33,134
Michael L. Oster -- -- -- -- --
H. David Shumpert -- -- -- -- --
<FN>
NOTES:
(1) All such options were granted on December 27, 1996, at a price equal to the
mid-point of the bid and ask prices on NASDAQ as of the grant date and are
immediately exercisable.
(2) This value, calculated by utilizing the Modified Black-Scholes American
option-pricing model, assumes a 6.29% risk- free interest rate, 10-year expected
life, 30% expected volatility of the stock, and 2.73% expected dividend yield on
the stock.
</FN>
=====================================================================================================================
</TABLE>
The following table sets forth information regarding stock options exercised by
the named executives during 1996 and the value of unexercised options held by
the named executives as of December 31, 1996:
<TABLE>
=====================================================================================================================
<CAPTION>
Aggregated Option Exercises in 1996 and 1996 Year End Option Values
- - ---------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options at
(#) Fiscal Year-End ($)(1)
------------------------------- -----------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- - ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Thomas K. Ferguson 4,500 -0- -- --
Michael L. Oster -- -- -- --
H. David Shumpert -- -- -- --
=====================================================================================================================
</TABLE>
7
<PAGE>
Severance and Key Employee Retention Plans
Carroll County Bank and the Bank of Maryland each sponsors and administers its
own unfunded employee benefit severance plans. Both plans provide severance
benefits to certain employees upon loss of employment due to a reduction in
force or to a merger or acquisition. To become eligible under each plan,
employees must be full-time employees who have been employed for at least two
prior consecutive years.
Both plans determine severance benefits using a formula based on the number of
full years of service. Under the Carroll County Bank Plan, eligible employees
who are not Senior Officers (i.e., Senior Vice Presidents, Executive Vice
Presidents and the CEO) are entitled to one week of base pay for each full year
of service, but in no event less than eight weeks nor more than 26 weeks. Senior
Officers are entitled to two weeks of base pay for each full year of service,
but in no event less than 13 weeks nor more than 26 weeks. Under the Bank of
Maryland Plan, eligible employees who are not bank officers are provided one
week of base pay for each full year of service with a maximum of three weeks for
service of less than 10 years. For service over 10 years, an additional week is
added for each year up to a maximum of eight weeks. Officers receive two weeks
of base pay for each full year of service with a minimum of eight weeks and a
maximum of 26 weeks. Executive Vice Presidents and the Chief Executive Officer
receive four weeks of base pay for each full year with a minimum of 26 weeks and
a maximum 48 weeks.
Under both severance plans, eligible employees are entitled to continue to
receive the same group term life and health insurance benefits until the
termination of the severance payments or the employee becomes eligible under
another group plan.
In addition, in July 1996, the Bancshares Board of Directors adopted a Key
Employee Retention Plan (the "Retention Plan"). Bancshares adopted and modified
Carroll County Bank's Retention Plan to provide certain incentives to attract
and retain key employees of Bancshares and all of its participating
subsidiaries.
The Retention Plan provides severance benefits (including health insurance) in
the event a participant's employment is terminated as a result of a change in
control of Bancshares. The Plan provides that participants with less than five
years of service may receive 12 months of base salary; participants with five to
10 years of service may receive 24 months of base salary; and participants with
more than 10 years of service may receive 36 months of base salary; provided
that 50% of these benefits are reduced by any amount the participant may be
eligible for under any other severance plan of or similar benefit from
Bancshares. The remaining 50% of the separation payments will be reduced by any
amount which the participant receives, or is entitled to receive, from other
employment, including self employment, during the time that the employee is
receiving benefits from the Retention Plan. Finally, the amounts payable under
the Retention Plan are limited so that the aggregate present value of all
payments to be received by the participant upon termination may not exceed 2.99
times the participant's average annual compensation for the preceding five
years.
Pension Plan
Carroll County Bank sponsors a non-contributory, defined benefit Pension Plan
and Trust (the "Pension Plan") which covers eligible employees of Carroll County
Bank. The Pension Plan will also cover employees of Bancshares who are covered
by the Pension Plan as employees of Carroll County Bank at the time they become
employees of Bancshares.
The Pension Plan Table below shows estimated annual benefits payable upon
retirement to qualified persons in the specified remuneration and
years-of-service categories if such retirement had occurred on December 31,
1996. The benefits listed are calculated as a life annuity and are not
integrated with
8
<PAGE>
Social Security or subject to other offsets. Compensation, as defined in the
Plan, reflects each participant's total compensation, including overtime,
incentives, and bonuses, as well as pre-tax contributions through payroll
deductions to Sections 401(k) and 125 Plans as provided by the Internal Revenue
Code of 1986 ("Code").
Benefits are computed as 1.25% of final average compensation multiplied by years
of benefit credited service (to a maximum of 25 years) at normal retirement. No
participant's monthly benefit will be less than his/her accrued benefit as of
December 31, 1993.
Benefits eligibility is as follows: normal retirement at age 65; early
retirement after completing 10 years of service and attaining age 55; vested
benefits after completing five years of service; and actuarial reduction of
benefits for commencement before age 65.
<TABLE>
================================================================================
<CAPTION>
ESTIMATED ANNUAL BENEFITS
Years of Service
FAC* 10 15 20 25
- - --------- -------- -------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
$ 20,000 $ 2,500 $ 3,750 $ 5,000 $ 6,250
30,000 3,750 5,625 7,500 9,375
40,000 5,000 7,500 10,000 12,500
50,000 6,250 9,375 12,500 15,625
60,000 7,500 11,250 15,000 18,750
70,000 8,750 13,125 17,500 21,875
80,000 10,000 15,000 20,000 25,000
90,000 11,250 16,875 22,500 28,125
100,000 12,500 18,750 25,000 31,250
110,000 13,750 20,625 27,500 34,375
120,000 15,000 22,500 30,000 37,500
130,000 16,250 24,375 32,500 40,625
140,000 17,500 26,250 35,000 43,750
150,000 18,750 28,125 37,500 46,875
<FN>
* Final Average Compensation, computed as the average of annual compensation for
the five consecutive years (out of the most recent ten years) for which
compensation is the highest.
</FN>
================================================================================
</TABLE>
Covered compensation under the Pension Plan includes those amounts shown in the
Summary Compensation Table as to Bancshares' President and CEO, with the
exception of amounts deferred through the Management Deferred Compensation Plan.
Covered compensation for 1996 is limited to $150,000. As of December 31, 1996,
Mr. Ferguson had accumulated 23 years of credited service toward retirement.
TRANSACTIONS AND RELATIONSHIPS WITH MANAGEMENT
Bancshares, through its subsidiaries, has had in the past, and expects to have
in the future, banking transactions in the ordinary course of business with
directors and executive officers on substantially the same terms, including
interest rates and collateral on loans, as those prevailing at the same time for
comparable transactions with other unaffiliated persons and, in the opinion of
management, these transactions do not and will not involve more than the normal
risk of collectibility or present other unfavorable features.
9
<PAGE>
COMPENSATION COMMITTEE REPORT
The fundamental philosophy of Bancshares' compensation program is to offer
competitive compensation opportunities for all executive officers which are
based both on the individual's contribution and on Bancshares' performance. The
compensation paid is designed to attract, retain and reward executive officers
who are capable of leading Bancshares in achieving its business objectives in an
industry characterized by complexity, competitiveness and constant change. The
compensation of Bancshares' key executives is reviewed and approved annually by
the Board of Directors upon recommendation of Bancshares' Compensation
Committee.
Annual compensation for Bancshares' CEO and other executive officers consists of
two elements: (i) base salary; and (ii) incentives, both annual and long-term,
in cash and/or stock that are variable, fluctuate annually, and are linked to
individual and Bancshares' corporate performance.
For Bancshares' CEO, the annual cash incentive during 1994, 1995 and 1996 ranged
from 16.2% to 9% of base salary. For Carroll County Bank's Executive Vice
President, the annual cash incentive for 1995 was 8.5% of base salary and for
1994, 14%. Variable compensation reflecting 1996 year- end performance, payable
in 1997, for Carroll County Bank's Executive Vice President will be reported in
Bancshares' 1998 proxy statement.
1996 was the first full year of service for the CEO of Bank of Maryland as a
policy-making officer. The 1996 cash bonus awarded to him by the Bank of
Maryland Board of Directors represents approximately 57% of his 1996 base
salary. This amount was authorized based on an existing executive bonus plan for
Bank of Maryland executives, which included various key performance factors such
as attaining pre-tax income significantly in excess of the 1995 goals. Future
compensation, consisting of base salary plus bonus, will be based on an
executive bonus plan which takes into account specific financial performance
targets for year end 1996. These compensation adjustments authorized and
distributed in 1997 will be reported in Bancshares' 1998 proxy statement.
The objective of the Compensation Committee is to design a balanced compensation
plan to provide Bancshares' CEO, Carroll County Bank's Executive Vice President,
Bank of Maryland's CEO, and other policy-making officers, with a total
compensation package that included a variable component awarding annual and
long-term cash and stock incentives. This variable portion of total
compensation, which is closely linked to Bancshares' and its subsidiaries
performance, enables the Compensation Committee to make up the difference (lag)
between Bancshares' executive base salaries and comparable base salaries paid by
similarly situated commercial and retail banking organizations. This is
accomplished by gradually increasing the variable element of total compensation
earned through these cash and stock incentives. The Board of Directors and the
Compensation Committee formalized a system of paying incentives to Bancshares'
CEO and other executive officers based on Bancshares' performance, exclusive of
extraordinary events, in the following areas: return on assets, return on
equity, earnings per share, ratio of net overhead to average assets, net income,
and ratings of regulatory compliance and of customer service/satisfaction on a
Customer Satisfaction Index established by Bancshares and Carroll County Bank.
Carroll County Bank's performance is evaluated on all of these factors,
exclusive of return on equity and earnings per share.
For 1996, the base salary of Bancshares' CEO was increased approximately 4% and
an incentive payment was made equal to approximately 9.4% of the increased base
salary. In addition, the CEO was granted restricted stock and stock options
valued at approximately 42% of the increased base salary of the CEO for 1996.
The Board determined that such increases in base salary and variable performance
based compensation were warranted in view of the performance of Bancshares and
Carroll County Bank in meeting or exceeding certain key goals during 1995. Key
profitability measures (i.e., net income and earnings per share) and dividend
payout goals were exceeded during 1995 with return
10
<PAGE>
on assets, return on equity, and ratio of net overhead to average assets
decreasing due to exceptional factors recognized during the year, particularly
the acquisition of Bank of Maryland.
The performance of Bancshares' Common Stock during the last fiscal year is
reflected in the Performance Graph below. The Compensation Committee also
considers the performance of the Common Stock in determining compensation for
Bancshares' CEO and Chief Financial Officer so that the interests of corporate
management continue to be aligned with the interests of Bancshares'
stockholders. In addition, various other performance indicators are used to
establish all executive officer compensation, including achievement of
individual and divisional goals, satisfactory or better audit and regulatory
reviews and examinations, asset quality, and increases in per share earnings,
dividends and book value.
BY THE COMPENSATION COMMITTEE:
Edwin W. Shauck
Miriam F. Beck
Henry S. Baker, Jr.
S. Ray Hollinger
Stevenson B. Yingling
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
SEC regulations require disclosure of certain information regarding the
relationships of members of Bancshares' Compensation Committee with either
Bancshares or any of its subsidiaries, or in certain circumstances, with other
corporations. The purpose of these regulations is to provide stockholders with
information regarding the independence of the decisions by the Compensation
Committee.
Beginning in 1996, the Board of Directors of Bancshares established a
Compensation Committee. The members of the Compensation Committee are Edwin W.
Shauck, Miriam F. Beck, Henry S. Baker, Jr., S. Ray Hollinger and Stevenson B.
Yingling. During the last fiscal year, no member of the Compensation Committee
was an officer or employee or a former officer or employee of Bancshares or any
subsidiary, except Henry S. Baker, Jr., who is Chairman of the Board of Bank of
Maryland. During the last fiscal year, no member of the Compensation Committee
had any relationship with Bancshares or any of its subsidiaries of a nature
required to be disclosed herein under SEC regulations.
11
<PAGE>
PERFORMANCE GRAPH
The performance graph shown below compares the cumulative total return to
Bancshares' stockholders over the most recent five-year period with both the
NASDAQ Composite Index (reflecting overall stock market performance) and the
NASDAQ Bank Index (reflecting changes in banking industry stocks). Returns are
shown on a total return basis, assuming the reinvestment of dividends. The
NASDAQ Bank Index reflects performance on a straight appreciation basis, as
annual dividend data was not yet available for this index. Bancshares' Common
Stock was listed on the NASDAQ National Market System effective April 1, 1993.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN
MASON-DIXON BANCSHARES, INC., NASDAQ COMPOSITE INDEX & NASDAQ BANK INDEX
[GRAPH]
- - --------------------------------------------------------------------------------
12/31/91 12/31/92 12/31/93 12/31/94 12/31/95 12/31/96
- - --------------------------------------------------------------------------------
Mason- 100 112.82 202.12 221.5 277.87 300.29
Dixon
- - --------------------------------------------------------------------------------
NASDAQ 100 115.41 132.39 129.49 184.62 227.13
Composite
- - --------------------------------------------------------------------------------
NASDAQ 100 152 196.62 198.76 291.22 376.66
Bank
Index
- - --------------------------------------------------------------------------------
Assumes $100 invested on January 1, 1992 in Mason Dixon Bancshares, Inc., NASDAQ
Composite Index & NASDAQ Bank Index.
VOTING OF SECURITIES
Carroll County Bank holds shares of Common Stock in a fiduciary capacity for
numerous trusts and agency accounts and other fiduciary accounts. Carroll County
Bank may be deemed a "beneficial owner" of certain of these shares because of
its power to vote or direct the voting of, or to dispose or direct a disposition
of, such shares, even if these powers are shared with co-fiduciaries and others.
12
<PAGE>
The full Board of Directors of Carroll County Bank, acting as the Trust
Committee, reviews quarterly the minutes and actions of the Trust Investment
Committee, which Committee reviews all individual trust accounts. The Board of
Directors of Bancshares has no power to directly or indirectly vote Bancshares
Common Stock held in such accounts, except shares held under the Directors Plan;
all other shares are voted by Mason-Dixon Trust Company (a division of Carroll
County Bank) in its sole discretion. As of December 31, 1996, the Trust Company
had sole voting power with respect to approximately 205,192 shares of Bancshares
Common Stock, which represents approximately 3.9% of the issued and outstanding
shares of Common Stock, and sole investment power with respect to approximately
127,484 shares of Bancshares Common Stock, which represents 2.4% of the issued
and outstanding shares of Common Stock.
STOCKHOLDER PROPOSAL
Barbara S. Floyd, 543 Benforest Drive, Severna Park, Maryland 21146, has
submitted the following proposal:
"RESOLVED, that any director of Mason-Dixon who is or becomes aware of
any expression of interest by any financially capable person or entity
("Potential Acquiror") in a potential merger, consolidation or share exchange
with, or transfer of all or substantially all (as defined in the articles of
incorporation) of the assets of Mason-Dixon to, such Potential Acquiror
("Proposed Acquisition"), shall promptly disclose any known details to
Mason-Dixon's Board of Directors ("Board"), and the Board, upon learning of a
Proposed Acquisition through a director or otherwise, shall (a) attend
presentations given by the Potential Acquiror or invite the Potential Acquiror
to make a presentation to the Board, (b) communicate with the Potential Acquiror
and request details of the Proposed Acquisition, the proposed structure of the
transaction and amount and type of consideration offered, (c) request that
written confirmation of the Proposed Acquisition be sent to the Board for
consideration, (d) report the terms of any Proposed Acquisition, the status of
negotiations and recommendation of the Board to the stockholders at each meeting
of stockholders (unless confidentiality is legally required), and (e) hold the
interests of Mason-Dixon's stockholders paramount to any other factors
considered by the Board in evaluating any Acquisition Proposal pursuant to
Article 7 of Mason-Dixon's articles of incorporation or otherwise.
Statement in Support of Stockholder Proposal
"Stockholder has submitted a proposal ("Stockholder Proposal") to
clarify the obligations of Mason-Dixon's directors if and when approached by a
financially capable person or entity ("Potential Acquiror") expressing an
interest in a merger, consolidation or share exchange with, or transfer of
assets of Mason-Dixon to, such Potential Acquiror ("Proposed Acquisition").
"Maryland law requires Mason-Dixon's board of Directors ("Board") to
use its best efforts to promote its stockholders' interests. Stockholder
believes that one or more Board members have communicated with Potential
Acquirors but have not investigated the details of any Proposed Acquisition or
discussed the specifics with the Board. Stockholder believes that the Board has
determined to oppose Proposed Acquisitions, without considering whether a
particular Proposed Acquisition may be in the best interests of Mason-Dixon
stockholders. Stockholder maintains that the Board owes a duty to the
stockholders to investigate all Proposed Acquisitions to determine whether any
such transaction is in the best interests of the Mason-Dixon stockholders.
"If the Stockholder Proposal is approved by a majority vote at
Mason-Dixon's annual meeting, the Board will be required to attend presentations
given by any Potential Acquiror, investigate the terms, and request written
confirmation, of any Proposed Acquisition, and report the terms, status of
negotiations and findings of the Board at each meeting of stockholders of
Mason-Dixon.
13
<PAGE>
"Article 7 of Mason-Dixon's articles of incorporation requires the
Board to evaluate whether a Proposed Acquisition is in the best interests of the
stockholders "and other factors the directors determine to be relevant,
including the social, legal and economic effects on employees, customers,
depositors, and communities served...." The Stockholder Proposal will require
the Board to consider the interests of the stockholders of paramount importance
over any of the other factors enumerated in Article 7."
MANAGEMENT'S STATEMENT IN OPPOSITION TO THE PROPOSAL
Your Board of Directors recommends that you vote AGAINST the Stockholder
Proposal for the reasons described below.
NOTE: Stockholder proposals, by law, express only a wish of a stockholder, and
therefore are usually stated in terms that express the desire of the stockholder
that the Board of Directors consider the resolution, if it is passed. Even
though the above Proposal is not stated in the proper terms, your Board wants to
give the proponent the opportunity to express her wishes.
Bancshares believes that the Proposal was submitted to gain an economic
benefit not shared by Ms. Floyd with her fellow stockholders, that the
Supporting Statement is incorrect and misstates Maryland law, and that the
Proposal is not in the best interests of Bancshares or its stockholders. Your
Board of Directors urges you to vote AGAINST the Proposal.
Background. As many of you are aware, Ms. Floyd is a former employee of
Bancshares who resigned in September 1992.
Prior to submitting the Proposal and the Supporting Statement on November 18,
1996, Ms. Floyd met privately with Thomas K. Ferguson, President of Bancshares,
to inform him that she was representing a group of stockholders for purposes of
filing a Schedule 13D with the Securities and Exchange Commission ("SEC") and
submitting the Proposal and Supporting Statement to Bancshares. Ms. Floyd
informed Mr. Ferguson that she was being well paid for leading the group. Ms.
Floyd, through her newly formed company, Anthony Investments, Inc., entered into
a "Service Agreement" with each member of her group which provides that, for
each share of Bancshares stock owned by the group, Anthony Investments will be
paid a fee equal to "5% of the difference between the acquisition price per
share and $17.50 upon acquisition of Bancshares by an acquiror, or 5% of the
difference between the stock price ... on the date such shares are no longer
subject to this Agreement and $17.50 ..."
One of the other stockholders acting in concert with Ms. Floyd is Alvie G.
Spencer, Jr., a former member of the Board of Directors of Bancshares and the
Bank. Mr. Spencer was removed from the Board of Bancshares in 1995.
In December 1996, Bancshares filed suit against Ms. Floyd, Mr. Spencer and
their group for, among other things, violations of the SEC's proxy solicitation
rules, violation of the beneficial ownership reporting rules of the Exchange
Act, violation of laws requiring approval of the Maryland Commissioner of
Financial Regulation for acquisition of a block of bank holding company stock
and for making false and misleading statements in connection with proxy
solicitations. On February 28, 1997, the court ruled that certain statements
made by Defendants regarding Bancshares' financial performance were misleading,
and their failure to disclose their acquisition of 5.1% of the stock without a
report to the Commissioner of Financial Regulations may have violated a State
banking acquisition law. The court ordered the issuance of a corrective letter
to be promptly distributed to all stockholders, and the rescission of all
proxies or powers of attorney obtained by the Defendants.
14
<PAGE>
Proposal is Ambiguous. The reference to "Proposed Acquisitions" by "Potential
Acquirors" implies that one or more directors of Bancshares has been presented
with bona fide business proposals or offers by a serious bidder or offeror. This
simply is not true. Ms. Floyd intentionally fails to distinguish between casual
remarks or offhanded inquiries by third parties and formal bona fide business
proposals. No such offers or proposals have been made to Bancshares or to any
director.
Proposal Cannot Change the Law. The Supporting Statement misinterprets and
misstates Maryland law with regard to the effect of the Proposal: The fiduciary
duties of the Board of Directors of Bancshares are as set forth in the Maryland
General Corporation Law and the Articles of Incorporation (the charter) of
Bancshares; the Proposal cannot alter - or enforce - those mandates. Moreover,
the manner in which directors carry out these duties will necessarily depend
upon the facts and circumstances of each case. To assert that, in every case,
directors have an absolute duty to investigate every inquiry, expression of
interest, proposal or even offer, is simply wrong. In the exercise of their
business judgment, the directors (who are also stockholders) may well determine
that it is in the best interests of Bancshares and its stockholders to "just say
no". Thus, the Supporting Statement inaccurately equates the Proposal to the
protection of the interests of stockholders.
Proposal Changes Bancshares' Charter. When Bancshares became a bank holding
company in 1991, you, the stockholders, determined that it was in your interest
and in the interest of Bancshares that, in the event of a takeover attempt, the
Board give due consideration to all of our constituencies, including the
communities in which we live and work, the people we employ and the customers
and depositors that we serve. The new charter was developed by a collective
effort in which both Ms. Floyd and Mr. Spencer were active participants, and by
an overwhelming majority, the stockholders approved the following provision:
"The directors shall evaluate whether the proposal is in the best
interests of the shareholders and other factors the directors determine
to be relevant, including the social, legal and economic effects on
employees, customers, depositors, and communities served by the
corporation or any subsidiary of the corporation, the then current
market value of the stock of the corporation or any subsidiary of the
corporation in a freely negotiated transaction, and the directors'
estimate of the future value of stock of the corporation or any
subsidiary of the corporation as an independent entity."
If implemented, we believe that the Proposal will require the Board of
Directors of Bancshares to disregard the above provision and change Bancshares'
charter. Bancshares believes that Ms. Floyd and her group have little concern
for the interests of our communities or maintaining a strong community banking
organization to meet the needs of our communities, and that they are interested
only in a short-term jump in the stock price in order to make a quick profit on
their shares.
Bancshares' Commitment to the Future. On the other hand, we at Bancshares are
committed to our joint future. We are committed to maximizing stockholder
values, and we are also committed to serving the banking needs of the
individuals and businesses in our communities and providing employment security
for our family of employees. Bancshares has in place a long-term plan for its
strategic growth and business expansion. A short-term premium over the current
market price of the stock is not in the best interests of Bancshares'
stockholders. Management believes that the successful implementation of the plan
will translate into greater long-term values to you, Bancshares' stockholders,
employment security for its employees, and broader and enhanced services to the
valued customers and constituencies of Bancshares.
FOR THE ABOVE REASONS, YOUR BOARD OF DIRECTORS URGES YOU TO VOTE WITH YOUR BOARD
AND AGAINST THE PROPOSAL.
15
<PAGE>
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1998 Annual Meeting of
Stockholders must be received by Bancshares at its executive offices not later
than November 17, 1997 (which is 120 days prior to the expected date of the 1998
Proxy Statement) in order to be eligible for inclusion in Bancshares' Proxy
Statement. In addition, stockholders wishing to propose nominees for election as
directors at the 1998 Annual Meeting must follow specified advance notice
procedures contained in Bancshares' Bylaws, a copy of which is available on
request to the Secretary of Bancshares.
INDEPENDENT AUDITORS
The Board of Directors has engaged Stegman & Company ("Stegman"), independent
certified public accountants, to audit the books and accounts of Bancshares for
the fiscal year ending December 31, 1997. Stegman has served as independent
auditors for Bancshares since its inception in 1991 and for Carroll County Bank
without interruption for many years. Stegman is to report on Bancshares'
consolidated balance sheets, and related consolidated statements of income,
consolidated statements of cash flow, and consolidated changes in stockholders'
equity and to perform such other appropriate accounting services as may be
required by the Board of Directors. For the year ended December 31, 1996,
Stegman provided, in addition to audit services, certain non-audit professional
services which were considered to have no effect on the independence of the
accountants. Such additional non-audit services included review of proxy
material and annual report filings with the Federal Deposit Insurance
Corporation and the SEC, and consultation on various audit-related matters.
Stegman has also advised Bancshares that neither it nor any of its members or
associates have any direct financial interest in or any connection with
Bancshares other than as independent public auditors. A representative of
Stegman will be present at this year's annual meeting, will have the opportunity
to make a statement and will also be available to respond to appropriate
questions.
OTHER BUSINESS
Management of Bancshares knows of no other business to be presented at the
Annual Meeting. If other matters should properly come before the Annual Meeting
or any adjournment thereof, a vote may be cast pursuant to the accompanying
Proxy in accordance with the judgment of the person or persons voting the same.
By Order of the Board of Directors
/s/ Vivian A. Davis
Vivian A. Davis
Corporate Secretary
Westminster, Maryland
Dated: March 17, 1997
16
<PAGE>
PROXY MASON-DIXON BANCSHARES, INC.
45 W. Main Street
Westminster, Maryland 21157
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS. The
undersigned hereby appoints Vivian A. Davis, Edith S. Haschert and Christine L.
Whiteleather, or either of them, as Proxies, each with the power to appoint his
or her substitutions and hereby authorizes each of them to represent and to
vote, as designated on the reverse side hereof, all the shares of Common Stock
of Mason-Dixon Bancshares, Inc. held of record by the undersigned on February
28, 1997 at the Annual Meeting of Stockholders to be held on April 19, 1997 or
any adjournment thereof.
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 THE ELECTION OF CLASS II DIRECTORS AND AGAINST THE STOCKHOLDER PROPOSAL.
(See Reverse Side)
<PAGE>
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- - -
X Please mark your votes as in this example
- - - using dark ink only.
FOR all the WITHHOLD
nominees AUTHORITY
listed at to vote
right (except for all
(as marked to the nominees
the contrary listed
below) at right FOR AGAINST ABSTAIN
1. ELECTION -------- -------- Class II Director Nominees: 2. CONSIDERATION OF STOCK- ------ ------ ------
OF | | | | David S. Babylon, Jr. HOLDER PROPOSAL REGARDING | | | | | |
DIRECTORS | | | | Donald H. Campbell POTENTIAL ACQUISITIONS | | | | | |
-------- -------- Patricia A. Dorsey ------ ------ ------
INSTRUCTIONS: To withhold authority to R. Neal Hoffman
vote for any individual 3. In their discretion, the Proxies are authorized to vote
nominee, strike a line upon such other business as may properly come before
through the nominee's the meeting.
name in the list at
right.
_______________________________________________________ WILL ATTEND -------- WILL NOT --------
MEETING | | ATTEND | |
| | MEETING | |
| | | |
-------- --------
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY CARD
PROMPTLY IN THE ENCLOSED ENVELOPE TO CORPORATE
INVESTOR COMMUNICATIONS, INC.
Dated: ___________________________________, 1997
-------------------------------------------------
Signature
-------------------------------------------------
Signature
-------------------------------------------------
Title or Capacity
</TABLE>
NOTE: Please sign exactly as name appears. When shares are held by joint
tenants, both should sign. When signing as attorney, executor,
administrator, trustee or guardian, please give full title as such. If
a corporation, please sign in full corporate name by President or other
authorized officer. If a partnership, please sign in partnership name
by authorized person.
- 2 -
<PAGE>
