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: N/A
(2) Aggregate number of securities to which transaction applies: N/A
(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): N/A
(4) Proposed maximum aggregate value of transaction: N/A
(5) Total fee paid: N/A
<PAGE>
|_| Fee paid previously with preliminary materials: N/A
|_| 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. N/A
(1) Amount previously paid:
(2) Form, Schedule or Registration Statement no.:
(3) Filing Party:
(4) Date Filed:
<PAGE>
MASON-DIXON BANCSHARES, INC.
45 W. Main Street
Westminster, Maryland 21157
(410) 857-3401
Notice of Annual Meeting of Stockholders - April 18, 1998
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 18,
1998, 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 III Director nominees in the Proxy Statement
accompanying this Notice;
2. To consider and approve the Omnibus Share Plan;
3. To consider and approve recommended amendments to Bancshares'
Articles of Incorporation to effect the following changes:
(a) To increase the authorized shares of Common Stock
from 10,000,000 to 20,000,000 shares;
(b) To delete a provision requiring Bancshares to offer
preemptive rights to stockholders;
(c) To conform the director liability and qualifications
provisions by limiting the liability of directors and
officers of Bancshares to the extent permitted by
Maryland law and eliminating certain residency
requirements; and
4. 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 27,
1998, 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' 1997
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 PROXY CARD IN THE
ENVELOPE PROVIDED FOR THAT PURPOSE.
By Order of the Board of Directors,
Vivian A. Davis
Corporate Secretary
Westminster, Maryland
March 16, 1998
<PAGE>
(THIS PAGE INTENTIONALLY LEFT BLANK)
<PAGE>
MASON-DIXON BANCSHARES, INC.
45 W. Main Street
Westminster, Maryland 21157
(410) 857-3401
--------------------
Proxy Statement
for
1998 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 1998 Annual Meeting of Stockholders to
be held on April 18, 1998. Only stockholders of record on February 27, 1998 (the
"Record Date") are entitled to notice of and to vote at the meeting. As of the
Record Date, there were 5,082,070 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. The approximate date on which this Proxy Statement and the
accompanying proxy are being sent to stockholders is March 16, 1998.
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 FOR the director
nominees listed in this proxy statement, FOR the proposed Omnibus Share Plan,
and FOR each of the proposed amendments to Bancshares' Articles of
Incorporation. 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, including any motion for the adjournment of the meeting from time to
time. Stockholders who give a proxy may revoke it at any time prior to the
meeting by filing a written notice of revocation with Bancshares' Corporate
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.
1
<PAGE>
BENEFICIAL OWNERSHIP OF COMMON STOCK
The following tables reflect the beneficial ownership of the Common Stock by
directors and executive officers of Bancshares and by each person that, to the
knowledge of management, beneficially owns more than 5% of the Common Stock 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") or the Management Deferred Compensation Plan (the
"Management 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. Shares of
Common Stock subject to options held by directors and executive officers that
are exercisable within 60 days are included in such director's or executive
officer's beneficial ownership and in the beneficial ownership of the group. 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. 49,993 (1) *
Henry S. Baker, Jr. 3,799 (2) *
Miriam F. Beck 16,816 (3) *
Donald H. Campbell 7,527 (4) *
William B. Dulany 19,640 (5) *
Thomas K. Ferguson 38,011 (6) *
R. Neal Hoffman 75,895 (7) 1.5%
S. Ray Hollinger 12,982 (8) *
J. William Middelton 436 (9) *
Edwin W. Shauck 45,000 (10) *
James C. Snyder 14,871 (11) *
Stevenson B. Yingling 7,352 (12) *
All Directors and Executive
Officers as a group (22 persons) 349,414 6.9%
* 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 1, 003 shares held in the Directors Plan.
(2) Includes 366 shares held in the Directors Plan and 236 shares that may
be purchased upon the exercise of stock options.
(3) Includes 3,563 shares held jointly with her husband, Edward R. Beck,
8,942 shares held in the Directors Plan, and 236 shares that may be
purchased upon the exercise of stock options.
(4) Includes 2,732 shares held by his wife, Isabelle T. Campbell, 895
shares held by a company controlled by Mr. Campbell, 640 shares held in
the Directors Plan, and 236 shares that may be purchased upon the
exercise of stock options.
(5) Includes 982 shares held by his wife, Winifred S. Dulany, 406 shares
held by his daughter, Anne French Dulany, and 236 shares that may be
purchased upon the exercise of stock options.
(6) Includes 4,003 shares held by his wife, Sandra L. Ferguson, 13,885
shares held in Bancshares' Employee Savings and Investment Plan, 8,618
shares that may be purchased upon the exercise of stock options, and
6,577 shares held in the Management Plan.
2
<PAGE>
(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-trustee under the will of his father. Mr. Hoffman disclaims
beneficial ownership as to the Common Stock held by his wife.
(8) Includes 1,239 shares held by his wife, Joan R. Hollinger, and 2,690
shares held in the Directors Plan.
(9) Includes 236 shares that may be purchased upon the exercise of stock
options.
(10) Includes 43,500 shares held jointly with his wife, Mary Jane Shauck.
(11) Includes 1,144 shares held by his wife, Dolores J. Snyder, 4,632 shares
held in the Directors Plan, and 236 shares that may be purchased upon
the exercise of stock options.
(12) Includes 258 shares held jointly with his son, Edward R. Yingling, 258
shares held jointly with his daughter, Elizabeth A. Yingling, 258
shares held jointly with his daughter, Stacy L. Yingling, 3,078 held in
the Directors Plan, and 236 shares that may be purchased upon the
exercise of stock options.
OTHER BENEFICIAL OWNERS
Name Number of Shares Percent of Class
---- ---------------- ----------------
Carroll County Bank and 406,299 8%
Trust Company
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.
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
and the Management 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,
1997, the Trust Company had sole voting power with respect to approximately
166,553 shares of Bancshares Common Stock, which represents approximately 3.3%
of the issued and outstanding shares of Common Stock, and sole investment power
with respect to approximately 152,639 shares of Bancshares Common Stock, which
represents 3% of the issued and outstanding shares of Common Stock.
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 III Directors
expires at the 1998 Annual Meeting of Stockholders; the term of the Class I
Directors will expire at the 1999 Annual Meeting of Stockholders; and the term
of the Class II Directors will expire at the 2000 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.
3
<PAGE>
At the 1998 Annual Meeting of Stockholders, four Class III Directors are being
nominated for election, each to hold office for three years and until his
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 III Directors to be elected and for the Class I and II Directors.
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------------------------------------
PRINCIPAL OCCUPATION DIRECTOR
NAME DURING PAST FIVE YEARS AGE SINCE
- - ----------------------------------------------------------------------------------------------------------------------------
<S> <C>
NOMINEES FOR CLASS III DIRECTORS: NEW TERM WILL EXPIRE IN 2001
WILLIAM B. DULANY Managing Partner - Dulany & Leahy, L.L.P., 70 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 Chairman - W. H. Davis Co. t/a Davis Buick- 67 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 67 1991
manufacturing and distribution of truck
equipment; Director - Carroll County Bank.
HENRY S. BAKER, JR. Self-employed management consultant; 71 1995
Chairman of the Board of Directors of Bank
of Maryland.
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
The election of directors requires 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. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE ELECTION OF
THE ABOVE NOMINEES.
4
<PAGE>
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------
The following tables contain information regarding directors of other Classes
who are not standing for reelection in 1998.
<S> <C> <C> <C> <C> <C> <C>
CLASS I DIRECTORS: TERM WILL EXPIRE IN 1999
MIRIAM F. BECK Retired Administrator - Carroll County Board 66 1991
of Education; Officer-Director - Highland View
Cemetery Assoc., Inc.; Director and
Treasurer - Carroll County Health Services
Corporation; Director - Carroll Community
College Foundation; Trustee - Carroll
Hospice; Director - Carroll County Bank.
THOMAS K. FERGUSON President and Chief Executive Officer of 55 1991
Bancshares.
EDWIN W. SHAUCK Retired April 1990 as Executive Vice 72 1991
President Carroll County Bank ; Director -
Carroll County Health Services Corporation;
Director - Carroll County Bank.
STEVENSON B. YINGLING President/Owner - Yingling General Tire 56 1992
Service, Inc.; Director - Carroll County Bank.
CLASS II DIRECTORS: TERM WILL EXPIRE IN 2000
DAVID S. BABYLON, JR. Retired Accountant - Tax Consultant; 74 1991
Vice Chairman of the Board of Directors -
Carroll County Bank.
R. NEAL HOFFMAN Managing Partner - Hoffman, Comfort, 55 1995
Galloway & Offutt, LLP, Attorneys-At-Law;
Board of Trustees - Carroll Lutheran Village;
Director - Carroll County Bank.
J. WILLIAM MIDDELTON Chairman - Middelton, Limberg & Co., Inc., 66 1998
a business consulting firm; Director - Medical
Group Holdings, Inc.; Director - Medical
Mutual Liability Insurance Society of
Maryland; Director - Mid-Atlantic Medical
Insurance Company; Director - Bank of
Maryland .
DONALD H. CAMPBELL President and CEO - First State Packaging, 61 1995
Inc., Salisbury, MD; Director - Bank of
Maryland.
</TABLE>
INFORMATION ABOUT THE BOARD OF DIRECTORS
Mrs. Patricia A. Dorsey, a director of Bancshares since 1992, resigned in early
1998. The Board of Directors gratefully acknowledges Mrs. Dorsey's years of
dedicated service to Bancshares. J. William Middelton, a director of Bank of
Maryland, was appointed by the Board of Directors to fill the vacancy created by
Mrs. Dorsey's resignation.
During 1997, Bancshares' Board of Directors held 13 meetings consisting of four
regular meetings and nine special meetings. All directors attended at least 75%
of the meetings.
5
<PAGE>
For 1997, Bancshares paid its non-employee directors a fee of $2,500, except for
Mr. Dulany, the Chairman of the Board, who received a fee of $10,000. 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 in his capacity as Chairman of the Board of the Bank of
Maryland received $19,500. Mr. Middelton and Mr. Campbell, in their capacities
as directors of the Bank of Maryland, received fees in such capacities of $3,700
and $3,400, 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 addition to meeting as a group, certain members of the Board of Directors
also devote their time to certain standing committees. The Board of Directors
has established two standing committees: The Compensation Committee and the
Audit Committee.
The Compensation Committee has responsibility for establishing and implementing
compensation and benefit plans for executive officers of Bancshares. The
Compensation Committee meets quarterly and reports its activities to the Board
of Directors. The members of the Compensation Committee are: Henry S. Baker,
Jr., Miriam F. Beck, S. Ray Hollinger, Edwin W. Shauck and Stevenson B.
Yingling. Each member of the Compensation Committee received a fee of $1,600.
The Audit Committee is composed of directors that are not officers or employees
of Bancshares or any of its subsidiaries, and are independent of management. The
duties of the Audit Committee are prescribed in the Bylaws of Bancshares. The
primary duties of the Audit Committee are to assure that a suitable external
audit of Bancshares is conducted each year and the result of such audit is
reported, in writing, to the Board of Directors. Additionally, the Audit
Committee is responsible for reviewing the internal audit controls and
procedures and determining that adequate controls and procedures are in place;
for retaining a qualified firm of independent Certified Public Accountants to
audit the books and records of the company; to receive any reports of the
auditors and other related communications including management letters provided
by the auditors; and to accept on behalf of the Board of Directors the certified
financial reports delivered by the auditors. The following directors serve as
members of the Audit Committee: Henry S. Baker, Jr., Miriam F. Beck, Donald H.
Campbell, R. Neal Hoffman, J. William Middelton, S. Ray Hollinger, Edwin W.
Shauck, James C. Snyder and Stevenson B. Yingling. The Audit Committee met two
times in 1997.
During 1997, the Directors of Bancshares were named as defendants in a lawsuit
filed by a group called the Concerned Shareholder Group. In accordance with
Article 15 of Bancshares Articles of Incorporation and Maryland law, Bancshares
indemnified the Directors and incurred costs in defending the action of
approximately $115,000, of which approximately $15,000 was paid by Fidelity and
Deposit Company of Maryland.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1997.
6
<PAGE>
EXECUTIVE COMPENSATION
The following table summarizes the remuneration earned in 1997 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>
<S> <C> <C> <C> <C> <C> <C>
============================================================================================================================
SUMMARY COMPENSATION TABLE
- - ----------------------------------------------------------------------------------------------------------------------------
Long-Term Compensation
----------------------
Annual Compensation Awards Payout
------------------- ------ ------
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 1997 $170,872 $14,744 $5,633 -- 2,547 -- --
President and CEO of 1996 $170,872 $16,107 $4,629 $32,193 -- -- --
Bancshares 1995 $164,300 $16,594 $5,457 -- -- -- --
Michael L. Oster 1997 $138,504 $3,237 $4,716 $4,918 953 -- --
President and CEO 1996 $125,643 -- $3,750 -- -- -- --
of Carroll County Bank 1995 $96,772 $8,274 $3,296 -- -- -- --
H. David Shumpert 1997 $176,009 $110,000 $6,095 -- -- -- --
President and CEO of 1996 $168,002 $95,000 $5,411 -- -- -- --
Bank of Maryland
A. Gary Rever 1997 $95,000 $46,600 $1,087 -- -- -- --
Executive Vice President,
CFO and Secretary of
Bank of Maryland
W. Bruce McPherson 1997 $130,000 $26,600 $3,002 -- -- -- --
Executive Vice President,
Commercial Lending Division 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: 1997 - $18,000; 1996 - $54,450; 1995 - $36,010; Mr. Oster deferred $4,918
in 1997, $1,515 in 1996 and $484 in 1995. Mr. McPherson deferred $15,509 under
the Management Deferred Compensation Plan in 1997.
(b) Includes $605, $446, $299, $161 and $221 attributable to the group term life
insurance coverage premiums paid for Mr. Ferguson, Mr. Oster, Mr. Shumpert, Mr.
Rever and Mr. McPherson, respectively; 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) For Mr. Ferguson, 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 vested on 12/26/97 and 766 shares will 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. For Mr. Oster, represents 249 restricted
shares of Common Stock, valued at $19.75 per share as of February 12, 1997, the
date of grant, with a four year vesting term. Mr. Oster is entitled to exercise
the voting rights associated with, and to collect any dividends on, these
shares.
(d) For Mr. Ferguson, represents options to purchase 2,547 shares at a price of
$19.75 per share, the mid-point of the bid and ask prices on NASDAQ as of
February 12, 1997, the grant date, which are exercisable in three equal
increments on February 12, 1997, 1998 and 1999. For Mr. Oster, represents
options to purchase 953 shares at a price of $19.75 per share, the mid-point of
the bid and ask prices on NASDAQ as of February 12, 1997, the grant date, which
are exercisable in three equal increments on February 12, 1997, 1998 and 1999.
</FN>
============================================================================================================================
</TABLE>
7
<PAGE>
Stock Options
The following table sets forth information regarding stock options to purchase
Bancshares' Common Stock granted to the named executives during 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
=====================================================================================================================
Option Grants in Fiscal Year 1997
- - ---------------------------------------------------------------------------------------------------------------------
Individual Grants
-----------------
Percent of Total
Number of Securities Options Granted Exercise
Underlying Options to Employees in or Base Expiration Grant Date
Name Granted (1) Fiscal Year Price ($/Sh) Date Present Value $(2)
- - ---- ---------------------- ---------------- ------------ ---------- ------------------
Thomas K. Ferguson 2,547 40% $19.75 02-11-07 $17,497
Michael L. Oster 953 15% $19.75 02-11-07 $6,548
NOTES:
<FN>
(1) Options were granted on February 12, 1997, at a price equal to the mid-point
of the bid and ask prices on NASDAQ as of the grant date and are exercisable in
three increments on February 12, 1997, 1998 and 1999.
(2) This value, calculated by utilizing the Modified Black-Scholes American
option-pricing model, assumes a 6.29% risk-free interest rate, 10-year expected
life, 30% expected volatility of the stock, and 2.73% expected dividend yield on
the stock.
</FN>
=====================================================================================================================
</TABLE>
The following table sets forth information regarding the number and value of
underlying unexercised stock options held by the named executives as of December
31, 1997:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
=====================================================================================================================
Aggregated Option Exercises in 1997 and 1997 Year End Option Values
- - ---------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options at
(#) Fiscal Year-End ($)(1)
-------------------------- -----------------------
Name Exercisable Unexercisable Exercisable Unexercisable
Thomas K. Ferguson 5,349 1,698 $46,528 $16,556
Michael L. Oster 318 635 $3,101 $6,191
<FN>
(1) Represents the total gain which would be realized if all in-the-money
options held at December 31, 1997 were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per share
option exercise price and the fair market value of the shares at December 31,
1997 of $29.50 per share.
</FN>
=====================================================================================================================
</TABLE>
8
<PAGE>
Severance, Key Employee Retention and Supplemental Executive Retirement Plans
Effective November 1, 1997, Mason-Dixon Bancshares, Inc. adopted an updated,
uniform severance plan for Bancshares and its banking subsidiaries. The plan was
restated in its entirety and represents a continuation of the prior Carroll
County Bank and Trust Company Severance Plan with the Bank of Maryland adopting
this restated plan as well, on the effective date. The Bancshares Severance Plan
now reflects updated eligibility criteria allowing for increased coverage and
flexibility of use by the individual participating employer, while providing for
a common schedule of severance benefits using a formula based on the number of
full years of service.
Under the plan, eligible employees who are not officers are eligible for one
week of base pay for each full year of service, but in no event less than eight
weeks nor more than 13 weeks; appointed/elected officers (Bank and corporate
secretaries, assistant vice presidents, officers, and senior officers) are
eligible for one week of base pay for each full year of service with a minimum
of 13 weeks and a maximum of 26 weeks; vice presidents and managing directors
are eligible for two weeks of base pay for each full year of service with a
minimum of 26 weeks and a maximum of 39 weeks; and other elected officers
(senior vice presidents, executive vice president, president/CEO) are eligible
for a flat 52 weeks of base pay. All participants are also eligible 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, 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 or if the participant resigns
for good cause as a result of a change in control of Bancshares. The Retention
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.
Effective October 23, 1996, Bancshares' Board of Directors adopted a
Supplemental Executive Retirement Plan (SERP). The plan is performance based and
directly linked to Bancshares and its subsidiary Banks attaining or exceeding
their respective pre-established annual goals for net income. The ratio of
actual to budgeted net income for each participating employer is a key factor in
determining the SERP contribution. The SERP was established to provide
supplemental income to the participant at an estimated rate of 10% of the
participant's final base pay at age 65, assuming 30 years of service. Any
amounts credited to a participant's SERP account are deferred through a rabbi
trust; such amounts are restricted during the term of the participant's
employment.
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 also covers
9
<PAGE>
employees of Bancshares who are covered by the Pension Plan as employees of
Carroll County Bank at the time they become employees of Bancshares.
Effective June 1, 1997, the Pension Plan was amended to provide a pension
benefit value that is calculated by multiplying years of credited service by a
percentage multiplier (ranging from 7% to 11% per year of service), the result
of which is multiplied by final average compensation. The pension benefit value
is then converted into a monthly benefit. No participant's monthly benefit will
be less than his/her accrued benefit as of June 1, 1997.
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.
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,
1997. The benefits listed are calculated as a life annuity and are not
integrated with Social Security or subject to other offsets. Compensation, as
defined in the Pension 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").
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
================================================================================================================================
ESTIMATED ANNUAL BENEFITS
Years of Service
FAC* 10 15 20 25
--------- -------- -------- -------- --------
$ 20,000 $ 1,301 $ 2,081 $ 2,948 $ 3,902
30,000 1,975 3,157 4,470 5,913
40,000 2,972 4,718 6,637 8,730
50,000 3,969 6,279 8,805 11,548
60,000 4,966 7,839 10,973 14,366
70,000 5,963 9,400 13,140 17,184
80,000 6,960 10,960 15,308 20,001
90,000 7,957 12,521 17,475 22,819
100,000 8,954 14,082 19,643 25,637
110,000 9,951 15,642 21,810 28,455
120,000 10,948 17,203 23,978 31,272
130,000 11,945 18,763 26,145 34,090
140,000 12,942 20,324 28,313 36,908
150,000 13,940 21,885 30,480 39,726
160,000 14,937 23,445 32,648 42,543
<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 1997 is limited to $160,000. As of December 31, 1997,
Mr. Ferguson had accumulated 24 years of credited service toward retirement.
10
<PAGE>
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.
COMPENSATION COMMITTEE REPORT
The fundamental philosophy of Bancshares' compensation program is to offer
competitive compensation opportunities for all policy-making executive officers
which are based both on the individual's contribution and on Bancshares'
performance. The compensation levels are 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
regularly by the Compensation Committee, and any actions taken are ratified by
the Board of Directors.
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 Mr. Ferguson, Bancshares' CEO, the annual cash incentive during 1995, 1996
and 1997 ranged from 10.1% to 8.6% of base salary. For Mr. Oster, Carroll County
Bank's President, the annual cash incentive for 1996 was 1.18% of base salary
and for 1995 was 8.5%. Mr. Ferguson was awarded stock options in lieu of cash
bonus or base salary increases for 1997. Mr. Oster was awarded a combination of
cash, restricted stock and stock options from a 1995 incentive plan distribution
and no bonus, reflecting 1996 Carroll County Bank performance. Variable
compensation reflecting 1997 year-end performance, payable in 1998, will be
reported in Bancshares' 1999 proxy statement.
1996 was the first full year of service with Bancshares for H. David Shumpert,
the CEO and President of Bank of Maryland. The 1997 cash bonus awarded to Mr.
Shumpert by the Bank of Maryland Board of Directors represents approximately
62.5% of his 1997 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 1996 goals. Future compensation, consisting of base salary plus bonus, will
be based on an executive incentive plan which takes into account specific
financial performance targets for 1997. These compensation adjustments, if any,
will be authorized and distributed in 1998 and reported in Bancshares' 1999
proxy statement.
Effective April 1997, Mr. Ferguson retired as President and CEO of Carroll
County Bank while retaining his position as President and CEO of Bancshares. Mr.
Ferguson was provided a retirement recognition gift of $13,144 upon his
retirement from Carroll County Bank as part of an existing Carroll County Bank
retiree recognition program. Mr. Oster was elected President and CEO of Carroll
County Bank, succeeding Mr. Ferguson. During 1997, Messrs. Rever and McPherson
served as members of Bancshares' Management Committee and as policy-making
officers; their cash bonuses, however, reflect awards primarily for 1996
performance as executives of Bank of Maryland. In December 1997, Messrs.
Ferguson, Oster, Shumpert, Rever and McPherson each received $1,600 as part of a
corporation-wide performance bonus to all eligible employees.
The variable portion of total compensation is closely linked to Bancshares'
performance. The variable compensation element provides the executive the
opportunity to make up the difference between his
11
<PAGE>
base salary and comparable base salaries paid by similarly situated commercial
and retail banking organizations. During 1997, the Compensation Committee and
the Board of Directors formalized a system of paying incentives to Bancshares'
CEO and the other executive officers based on Bancshares' performance, exclusive
of extraordinary events, in the following areas: return on assets, return on
equity, ratio of net overhead to average assets, efficiency ratio, net income,
net charge offs and non-performing loans as a percentage of outstandings, and
ratings of regulatory (CAMELS) compliance.
The Committee has also established (1) an executive salary structure for all
Bancshares' policy-making officers, including the assignment of individual
officers to salary grades, and (2) guidelines for the Committee to achieve a
total compensation structure consisting of approximately 60% of base pay and 40%
of variable compensation based on Bancshares' performance. The purpose of this
structure is to align the executives' pay opportunities with increased values
returned to stockholders. The executive salary structure was developed through
the identification of and comparison with regional and local peer groups
consisting of commercial banks and holding companies having an asset size and
performance characteristics comparable to Bancshares.
For 1997, Bancshares did not increase Mr. Ferguson's base salary at his request
for no additional cash compensation. Instead, Mr. Ferguson was granted stock
options valued at approximately 10% of his base salary for 1996. The Committee
determined that such an increase, using options as performance-based
compensation, was warranted in view of the performance of Bancshares and Carroll
County Bank in meeting or exceeding certain key goals during 1996. Key
profitability measures (i.e., net income and earnings per share), and ratio of
net overhead to average assets were exceeded during 1996, while return on
assets, return on equity, and net interest margin decreased due to management's
emphasis on selected key profitability measures, increased volatility of
interest rates and strong regional competition for loans.
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
12
<PAGE>
PERFORMANCE GRAPH
The performance graph shown below compares the cumulative total return to
Bancshares' stockholders over the most recent five-year period with the NASDAQ
Composite Index (reflecting overall stock market performance), the NASDAQ Bank
Index (reflecting changes in banking industry stocks), and a peer group selected
by Bancshares. The peer group is made up of publicly traded bank holding
companies in Maryland, Virginia, Pennsylvania, Delaware, and the District of
Columbia with total assets between $500 million and $2.5 billion. This peer
group was added to facilitate stock performance comparisons between Bancshares
and a comparable group based on asset size and geography. 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.
<TABLE>
<CAPTION>
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN MASON-DIXON BANCSHARES, INC.,
NASDAQ COMPOSITE INDEX, NASDAQ BANK INDEX & PEER GROUP
<S> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------------
12/31/92 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97
- - ------------------------------------------------------------------------------------------------------------------------------
Mason- 100 179.16 196.34 246.31 266.19 392.76
Dixon
- - ------------------------------------------------------------------------------------------------------------------------------
NASDAQ 100 114.72 112.21 159.99 196.83 240.39
Composite
- - ------------------------------------------------------------------------------------------------------------------------------
NASDAQ 100 129.36 130.77 191.60 247.82 412.42
Bank
Index
- - ------------------------------------------------------------------------------------------------------------------------------
Peer 100 135.00 132.00 165.00 185.00 298.00
Group*
- - ------------------------------------------------------------------------------------------------------------------------------
Assumes $100 invested on January 1, 1993 in Mason Dixon Bancshares, Inc., NASDAQ
Composite Index, NASDAQ Bank Index & Peer Group.
<FN>
*Peer group includes bank holding companies in DC, DE, MD, PA and VA with assets
between $500 million and $2.5 billion.
</FN>
</TABLE>
13
<PAGE>
PROPOSAL FOR SHAREHOLDER APPROVAL OF THE
MASON-DIXON BANCSHARES 1997 OMNIBUS SHARE PLAN
General. The Board of Directors has adopted, subject to shareholder approval,
the Mason-Dixon Bancshares, Inc. 1997 Omnibus Share Plan (the "Plan"). Under the
Plan, stock options, stock appreciation rights, restricted stock, performance
shares and stock bonuses may be awarded to directors and eligible employees. The
Board believes that adoption of the Plan will serve a useful purpose in
attracting and retaining key personnel who are in a position to contribute
materially to the success of Bancshares' operations. The Plan is being submitted
for stockholder approval pursuant to the Internal Revenue Code of 1986, as
amended (the "Code") because it is intended that options granted under the Plan
may be qualified incentive stock options within the meaning of Section 422 of
the Code.
A summary description of the Plan is set forth below.
Administration. The Plan will be administered by the Compensation Committee of
the Board of Directors (the "Committee"). All directors, officers and employees
of Bancshares and its subsidiaries and other individuals who have the capacity
for contributing in a substantial measure to the successful performance of
Bancshares, as determined by the Committee, are eligible to participate in the
Plan.
Amendment; Termination. No option or award may be granted after the expiration
of 10 years after the date of the adoption of the Plan by the Board of
Directors. The Plan may be amended or terminated at any time by the Committee
except that no amendment adversely affecting a participant's rights under an
outstanding award may become effective as to such participant without his or her
consent.
Authorized Shares. The number of shares which will be available for the grant of
awards under the Plan will be 248,800. If an option or other award under the
Plan expires or otherwise terminates, or is paid in cash instead of shares, the
shares underlying any such award shall be again available for options and awards
under the Plan.
Options. Stock options may be granted under the Plan at the discretion of the
Committee. The Committee also has discretion to fix the exercise price of the
options, which may, in the discretion of the Committee be less than 100% of the
fair market value of the underlying shares at the time such option is granted.
An option granted under the Plan may be a non-qualified stock option or an
"incentive stock option" within the meaning of Section 422 of the Code. The
Committee has broad discretion as to the terms and conditions upon which options
granted shall be exercisable. Under no circumstances will an option have a term
exceeding 10 years from date of grant. The option exercise price may be
satisfied in cash, by tender of shares, by surrender to Bancshares of options to
purchase shares, by promissory note or such other consideration as the Committee
deemed appropriate, or by a combination of the foregoing agreed to by the
Committee.
Stock Appreciation Rights. The Committee may determine at the time of grant of
an option or thereafter to grant a stock appreciation right in tandem with an
option, in addition to an option or unrelated to an option. Upon the exercise of
a stock appreciation right, the grantee is entitled to receive an amount equal
to the excess of the fair market value of a Share over the grant price of the
related option. The Committee shall determine whether the grantee will receive
cash, shares or a combination of cash and shares as payment on the stock
appreciation right.
Performance Shares. The Plan authorizes the Committee to grant performance
shares. The performance conditions and length of the performance period shall be
determined by the Committee. Any certificates issued in respect of shares
subject to a grant of performance shares will be registered
14
<PAGE>
in the name of the Plan participant but will be held by Bancshares until the
shares subject to the grant of performance shares are earned.
Restricted Stock. Awards of restricted stock under the Plan will be made at the
discretion of the Committee and will consist of shares granted to a participant
and covered by a restricted stock agreement. The shares will be legended and may
not be sold, transferred or disposed of until such restrictions have lapsed.
Each award may be subject to a lapsing formula pursuant to which the
restrictions on transferability lapse over a particular time period; the
Committee has broad discretion as to the specific terms and conditions of each
award, including applicable rights upon certain terminations of employment.
Stock Bonus Awards. The Plan also authorizes the Committee to grant to
participants awards of shares or units having a value equal to an identical
number of shares, without any consideration for such shares. The provisions of
any stock bonus awards will be subject to such rules and regulations as the
Committee shall determine at the time of grant.
Awards of performance shares, restricted stock, stock bonuses and other
stock-based awards may provide for dividends or dividend equivalents and voting
rights prior to vesting.
Withholding. Bancshares may deduct from any payment to be made pursuant to the
Plan, or to require prior to the issuance or delivery of any shares or the
payment of cash under the Plan, any taxes required by law to be withheld
therefrom. A participant may elect to satisfy such withholding obligation by
having Bancshares retain the number of shares whose fair market value equal the
amount required to be withheld.
Change of Control. If a Change of Control of Bancshares occurs, (i) any award
carrying a right to exercise that was not exercisable and vested shall become
fully exercisable and vested, and (ii) any restrictions or forfeiture conditions
applicable to any other awards granted under the Plan shall lapse and terminate,
any performance conditions imposed with respect to any such awards shall be
deemed to be fully achieved, and such awards shall be deemed fully vested
without restriction. A "Change of Control" means (i) the acquisition of
"beneficial ownership" (as defined in Regulation 13D under the Securities
Exchange Act of 1934, as amended), by a person, entity or group of 25% or more
of the shares, or (ii) the election, in a two-year period or less, of directors
constituting a majority of the Board who were not nominated by the Board, or
(iii) the commencement of a tender offer (other than by Bancshares) for any
shares, or (iv) a sale or transfer, in one or a series of transactions, of
assets having a fair market value of 50% or more of the fair market value of all
assets of Bancshares, or (v) a merger, consolidation or share exchange pursuant
to which the shares of Bancshares are or may be exchanged for or converted into
cash, property or securities of another issuer, or (vi) any other business
combination (as defined in Title 3, Article 6 of the Maryland General
Corporation Law) with another party which results in a change in the control of
Bancshares or the assets or business of Bancshares, or (vii) the liquidation of
Bancshares.
Other Adjustments. If the Committee determines that any stock dividend,
extraordinary cash dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate event affects the
shares such that an adjustment is required in order to preserve the benefits
intended under the Plan, then the Committee has discretion to make equitable
adjustments in the number and kind of shares subject to the Plan or outstanding
options and awards.
New Plan Benefits. Employees of Bancshares who have demonstrated significant
management potential or who have the capacity for contributing a substantial
measure to the successful performance of Bancshares, as determined by the
Committee, will be eligible to receive awards under the Plan. As such criteria
are subjective in nature, the number of persons who may be included from time to
time cannot be accurately estimated at this time.
15
<PAGE>
The following table reflects stock options granted under the Plan, subject to
stockholder approval of the Plan, as of the Record Date:
1997 Omnibus Share Plan
Name and Principal Position Shares under Option (1)
- - --------------------------- ----------------------
Thomas K. Ferguson, President and CEO 7259
of Bancshares
Michael L. Oster 1108
President and CEO of Carroll County Bank
H. David Shumpert 1408
President and CEO of Bank of Maryland
A. Gary Rever 760
Executive Vice President, CFO and Secretary
of Bank of Maryland
W. Bruce McPherson 1040
Executive Vice President, Commercial
Lending Division of Bank of Maryland
Executive Officer Group 12,983
Non-Executive Director Group 5,648
Non-Executive Employee Group 0
- - -----------
(1) The market price of the shares of Common Stock underlying the options as of
the Record Date is $36.25 per share. Options granted to Messrs. Ferguson,
Oster, Shumpert, Rever and McPherson and other Executive Officers were
granted at an exercise price of $33.00 per share, the fair market value of
the Common Stock on January 27, 1998, the date of grant, and expire on
January 27, 2008. The options vest in three increments on January 27, 1998,
1999 and 2000. Options to purchase 706 shares were also granted to William
B. Dulany, S. Ray Hollinger, James C. Snyder and Henry S. Baker and other
Non-Executive Directors at an exercise price of $29.75, the fair market
value of the Common Stock on January 2, 1998, the date of grant, and expire
on January 2, 2008. These options vest in three increments on January 2,
1998, 1999 and 2000.
Federal Income Tax Consequences.
Options: Except as provided below, when an optionee exercises an incentive stock
option, the optionee does not recognize taxable income. If the shares acquired
upon exercise are not disposed of within the one-year period beginning on the
date of the transfer of the shares to the optionee, nor within the two-year
period from the date of the grant of the option, the optionee will have capital
gain equal to the difference between the sale price and the exercise price of
the option. When a non-qualified stock option is exercised, the difference
between the option price and any higher market value of the shares on the date
of exercise will be ordinary income to the optionee and will be allowed as a
deduction for Federal income tax purposes to Bancshares or its subsidiary. When
an optionee disposes of shares acquired by the exercise of the option, any
amount received in excess of the market value of the shares on the date of
exercise will be treated as long or short term capital gain, depending upon the
holding
16
<PAGE>
period of the shares, which commences upon exercise of the option. If the amount
received is less than the market value of the shares on the date of exercise,
the loss will be treated as long or short term capital loss, depending upon the
holding period of such stock.
Stock Appreciation Rights: When an optionee exercises a limited stock
appreciation right under the Plan, the amount of cash received will be ordinary
income to the optionee and will be allowed as a deduction for Federal income tax
purposes to Bancshares or its subsidiary.
Restricted Stock: In the absence of an election by a participant, as explained
below, the grant of shares pursuant to an award will not result in taxable
income to the participant or a deduction to Bancshares or subsidiary in the year
of the grant. The value of the shares will be taxable as ordinary income to a
participant in the year in which the restrictions lapse. Alternatively, a
participant may elect to treat as ordinary income in the year of grant the fair
market value of the shares on the date of grant. If such an election were made,
a participant would not be allowed to deduct as an ordinary loss at a later date
the amount included as taxable income if he should forfeit the shares to
Bancshares, but such amount would be a capital loss. The amount of ordinary
income recognized by a participant is generally deductible by Bancshares in the
year the income is recognized by the participant, absent an election as
discussed above. Prior to the lapse of restrictions, dividends paid on the
shares subject to such restrictions will be taxable to the participant in the
year received.
Stock Bonus Awards: When a participant receives shares free of restrictions or
when such restrictions lapse, or when an election is made as discussed above,
the fair market value of the shares will be ordinary income to the participant
and Bancshares or subsidiary will be allowed a corresponding deduction.
Special rule if option price is paid for in shares: To the extent that an
optionee pays all or part of the option price by tendering shares owned by the
optionee, the normal rules described above apply except that a number of shares
received upon such exercise equal to the number of shares surrendered as payment
of the option price will have the same tax basis and tax holding period as the
shares surrendered.
The foregoing discussion summarizes the Federal income tax consequences of the
Plan based on current provisions of the Code which are subject to change.
Participants should consult their own tax advisors as to the tax consequences
applicable to them as well as the State or local tax consequences of
participation in such Plan.
The adoption of the Omnibus Share Plan requires 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. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
ADOPTION OF THE PLAN.
17
<PAGE>
PROPOSAL TO APPROVE AMENDMENTS TO BANCSHARES'
ARTICLES OF INCORPORATION
The Board of Directors has unanimously adopted a number of amendments to
Bancshares' present Articles of Incorporation (the "Current Articles"). The
amendments are designed in conformity with current Maryland law, and include an
increase in the authorized shares of Common Stock of Bancshares. The Board
believes that the amendments are advisable and necessary; the amendments provide
Bancshares with the flexibility to issue additional shares, which may be
desirable and necessary for business purposes. The following is a summary of
each amendment and the reasons that the Board believes the amendment is in the
best interest of Bancshares.
A. INCREASE IN AUTHORIZED CAPITAL STOCK
Under Bancshares' Current Articles, Bancshares presently has authority to issue
10,000,000 shares of Common Stock, par value $1.00 per share, of which 5,082,070
shares were issued and outstanding as of the Record Date. In addition, 248,800
shares of Common Stock have been reserved for issuance under the proposed 1997
Omnibus Share Plan, 125,000 shares have been reserved for issuance under the
1995 Dividend Reinvestment and Stock Purchase Plan, 25,000 shares have been
reserved for issuance under the Management Deferred Compensation Plan, 20,000
shares have been reserved for issuance under the Directors Plan and 50,000
shares have been reserved for issuance under the Employee Savings and Investment
Plan.
The proposed amendment increases the number of authorized shares of Bancshares'
Common Stock to 20,000,000 shares. The Board considers the proposed increase to
be in the best long-term and short-term interests of Bancshares and its
stockholders. The proposed increase ensures that a sufficient number of shares
of Common Stock will be available for possible future transactions, including,
among others, acquisitions, financings, stock splits, benefit and compensation
plans and other general corporate purposes. If additional shares are issued, the
percentage ownership interests of existing stockholders would be reduced. It is
possible that shares of Common Stock may be issued at a time and under
circumstances that may increase or decrease earnings per share and increase or
decrease the book value per share of shares presently held. Although the
issuance of additional shares could be construed as having an anti-takeover
effect because it would dilute the ownership of a potential acquiror, no
consideration was given by the Board of Directors to the use of the additional
shares in that manner. All attributes of the additional Common Stock to be
authorized would be the same as those of the existing shares of Common Stock.
Bancshares does not have any immediate plans, arrangements, agreements,
commitments or understandings with respect to the issuance of any of the
additional shares of Common Stock which would be authorized by the proposed
amendment.
The affirmative vote of the holders of two-thirds of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting will be necessary for
approval of this amendment. Consequently, the withholding of votes, abstentions
and broker non-votes will be the equivalents of votes against this proposed
amendment.THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED
AMENDMENT TO INCREASE THE AUTHORIZED SHARES OF COMMON STOCK.
B. ELIMINATION OF PREEMPTIVE RIGHTS.
The Current Articles provide for preemptive rights; the proposed amendments
delete Article 13, pertaining to preemptive rights. The term "preemptive rights"
means that if Bancshares proposes to issue additional shares of its Common
Stock, the new shares must first be offered to existing
18
<PAGE>
stockholders at the same price and terms as it would be offered to new
stockholders. At the time that Bancshares' Articles were adopted in 1991, the
Maryland General Corporation Law provided that stockholders of a Maryland
corporation have preemptive rights unless the Articles expressly deny preemptive
rights. In keeping with the modern corporate structure and economic environment,
the Maryland law was updated in 1995, and currently denies preemptive rights to
stockholders unless the Articles expressly grant such right to stockholders.
The proposed amendment eliminating preemptive rights updates the Articles
consistent with the current state of the law and the current corporate
environment. The Board believes it is not in the best interests of Bancshares
and the stockholders to grant preemptive rights. The requirement of offering new
shares first to existing stockholders is likely to create legal complications
and costly delays in, or preclude any financing through, the issuance of
Bancshares' stock. The requirement of offering the new shares to existing
stockholders could also frustrate Bancshares' ability to acquire another
financial institution, and will impede the ability of Bancshares to use its
stock for other valid corporate purposes. Directors have a fiduciary duty to
obtain, as consideration for new shares, at least a value equal to the fair
market value of the Common Stock. Thus, while a stockholder's percentage
ownership of Common Stock of Bancshares may be reduced if and when new shares of
that class are issued, the stockholder's equitable interest in Bancshares's
stock will be enhanced by the fair market value received for the new shares.
The affirmative vote of the holders of two-thirds of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting will be necessary for
approval of this amendment. Consequently, the withholding of votes, abstentions
and broker non-votes will be the equivalents of votes against this proposed
amendment. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED
AMENDMENT TO ELIMINATE PREEMPTIVE RIGHTS.
C. DIRECTOR LIABILITY AND QUALIFICATION.
The Board has adopted, and proposes to the stockholders for their approval,
amendments designed to better enable Bancshares to attract and retain qualified
directors and officers. The focus of the amendments is to protect directors and
officers in the exercise of their business judgment, and to permit Bancshares to
enlist the services of exceptional people without regard to their place of
residence.
The Current Articles provide immunity to directors from private law suits by
Bancshares or its stockholders, subject to certain exceptions. The exceptions
vary from state to state; the proposed amendment was written to conform to
Maryland law.
Maryland law immunizes a director from stockholders' suits except (1) to the
extent that it is proved that the director or officer actually received an
improper benefit or profit in money, property or services, and limits the
liability to the amount of the benefit or profit in money, property or services
actually received; and (2) to the extent that a judgment or other final
adjudication adverse to the director is entered in a proceeding based on a
finding that the action or failure to act by the director or officer was the
result of his active and deliberate dishonesty and was material to the cause of
action adjudicated.
The Current Articles would permit stockholder suits for acts or omissions that a
stockholder alleges involves "intentional misconduct", a "knowingly and culpable
violation of law", "absence of good faith", alleged "disregard for the
director's duty", "unexcused patterns of inattention", etc. These categories are
so broad that they essentially are encompassed in virtually every stockholder
action brought against a corporate director for any reason. The Maryland law was
broadly drafted to permit directors to devote their attention to the business of
the corporation and make their best business judgments - even judgments which
may ultimately turn out to be wrong - without the threat of potentially high
personal costs or other uncertainties of litigation. The Board believes that
this proposed amendment is necessary to attract and retain qualified directors,
and to keep the Directors
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focused on utilizing their best business judgment without the concern that a
wrong decision would result in liability.
The text of the proposed amendment is as follows:
No Director or officer of the Corporation shall be liable to the
Corporation or to its stockholders for money damages except (i) to the
extent that it is proved that such Director or officer actually
received an improper benefit or profit in money, property or services,
for the amount of the benefit or profit in money, property or services
actually received, or (ii) to the extent that a judgment or other final
adjudication adverse to such Director or officer is entered in a
proceeding based on a finding in the proceeding that such Director's or
officer's action, or failure to act, was the result of active and
deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding. No amendment of the Articles of
Incorporation or repeal of any of its provisions shall limit or
eliminate the benefits provided to directors and officers under this
provision with respect to any act or omission which occurred prior to
such amendment.
Furthermore, the Current Articles contain certain residency requirements for
directors, mandating that directors must have resided for at least one year in a
county, or a contiguous county, in which Bancshares or any of its subsidiaries
maintains its principal office or a banking office. The Board believes that this
provision unduly restricts Bancshares and could prevent outstanding directors
from serving on the Board. The proposed amendments eliminate these residency
requirements. This change gives the Board the flexibility to enlist the services
of the most qualified people to serve on the Board, regardless of his or her
place of residence.
The Board believes that the foregoing amendments are necessary to attract and
retain the most qualified directors and officers and to enable them to properly
apply their business judgment for the benefit of Bancshares and its
stockholders.
The affirmative vote of the holders of two-thirds of the shares of Common Stock
outstanding and entitled to vote at the Annual Meeting will be necessary for
approval of these amendments. Consequently, the withholding of votes,
abstentions and broker non-votes will be the equivalents of votes against these
proposed amendments. THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE
PROPOSED AMENDMENTS LIMITING LIABILITY AND REMOVING RESIDENCY
REQUIREMENTS.
SUBMISSION OF STOCKHOLDER PROPOSALS
Stockholder proposals intended to be presented at the 1999 Annual Meeting of
Stockholders must be received by Bancshares at its executive offices not later
than November 23, 1998 (which is 120 days prior to the expected date of the 1999
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 1999 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.
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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, 1998. 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, 1997,
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 non-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
Vivian A. Davis
Corporate Secretary
Westminster, Maryland
Dated: March 16, 1998
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c71562z.634
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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 any of them, as Proxies, each with the power to appoint
substitutions, and hereby authorizes each of them to represent and to vote, as
designated on the reverse side hereof, all of the shares of Common Stock of
Mason-Dixon Bancshares, Inc. held of record by the undersigned on February 27,
1998 at the Annual Meeting of Stockholders to be held on April 18, 1998 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 III DIRECTORS, FOR PROPOSAL NO. 2 ADOPTING THE
OMNIBUS SHARE PLAN, AND FOR PROPOSAL NO. 3 APPROVING EACH OF THE PROPOSED
AMENDMENTS TO THE ARTICLES OF INCORPORATION.
(See Reverse Side)
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Class III Director Nominees
1. ELECTION OF DIRECTORS: FOR all nominees listed at right [] William B. Dulany
(except as marked to the contrary) S. Ray Hollinger
James C. Snyder
Henry S. Baker, Jr.
WITHHOLD AUTHORITY to vote for all nominees listed at right []
(INSTRUCTIONS: To withhold authority to vote for any individual nominee, strike a line through the
nominee's name in the list at right)
----------------------------------------------------------------------
2. PROPOSAL TO ADOPT THE OMNIBUS SHARE PLAN
For [] Against [] Abstain []
3. PROPOSAL TO APPROVE THE AMENDMENTS TO THE ARTICLES OF INCORPORATION:
A. INCREASE IN AUTHORIZED CAPITAL STOCK
For [] Against [] Abstain []
B. ELIMINATION OF PREEMPTIVE RIGHTS
For [] Against [] Abstain []
C. LIMITATION OF DIRECTOR LIABILITY AND REMOVAL OF RESIDENCY REQUIREMENTS
For [] Against [] Abstain []
4. In their discretion, the proxies are authorized to vote upon any other
business which properly comes before the meeting and any adjournments
thereof.
</TABLE>
WILL ATTEND WILL NOT
MEETING [] ATTEND MEETING []
PLEASE MARK, SIGN, DATE AND MAIL THE
CARD IN THE ENCLOSED ENVELOPE.
DATED:_______________________________
Signature____________________________
Signature____________________________
_____________________________________
Title or Capacity
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 the President or other authorized officer. If a partnership,
please sign in partnership name by an authorized person.
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