<PAGE>
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:
|X| Preliminary Proxy Statement |_| Confidential, For Use of the
Commission Only (as permitted by Rule
14a-6(e)(2))
|_| Definitive Proxy Statement
|_| Definitive Additional Materials
|_| Soliciting Material Pursuant to Rule 14a-11(c) or Rule 14a-12
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 amendments to Bancshares' Articles of
Incorporation as contained in the proposed Articles of Amendment and
Restatement; 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 the proposed Articles of Amendment and Restatement. 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.
2
<PAGE>
(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.
(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.
3
<PAGE>
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.
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
- ----------------------------------------------------------------------------------------------------------------------------
NOMINEES FOR CLASS III DIRECTORS: NEW TERM WILL EXPIRE IN 2001
<S> <C> <C> <C>
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.
</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>
- --------------------------------------------------------------------------------
The following tables contain information regarding directors of other Classes
who are not standing for reelection in 1998.
CLASS I DIRECTORS: TERM WILL EXPIRE IN 1999
<TABLE>
<CAPTION>
<S> <C> <C> <C>
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>
============================================================================================================================
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
- ------------------ ---- ------ ----- ------------ ------ ------------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
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
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 $19.75 per share, the mid-point of
the bid and ask prices on NASDAQ as of February 12, 1997, the grant date, which
are exercisable in three equal increments on February 12, 1997, 1998 and 1999.
============================================================================================================================
</TABLE>
7
<PAGE>
Stock Options
The following table sets forth information regarding stock options to purchase
Bancshares' Common Stock granted to the named executives during 1997:
<TABLE>
<CAPTION>
=====================================================================================================================
Option Grants in Fiscal Year 1997
- ---------------------------------------------------------------------------------------------------------------------
Individual Grants
-----------------
Percent of Total
Number of Securities Options Granted Exercise
Underlying Options to Employees in or Base Expiration Grant Date
Name Granted (1) Fiscal Year Price ($/Sh) Date Present Value $(2)
- ---- ----------- ----------- ------------ ---- ------------------
<S> <C> <C> <C> <C> <C>
Thomas K. Ferguson 2,547 40% $19.75 02-11-07 $17,497
Michael L. Oster 953 15% $ 19.75 02-11-07 $6,548
<FN>
NOTES:
(1) Options were granted on February 12, 1997, at a price equal to the mid-point
of the bid and ask prices on NASDAQ as of the grant date and are exercisable in
three increments on February 12, 1997, 1998 and 1999.
(2) This value, calculated by utilizing the Modified Black-Scholes American
option-pricing model, assumes a 6.29% risk- free interest rate, 10-year expected
life, 30% expected volatility of the stock, and 2.73% expected dividend yield on
the stock.
</FN>
=====================================================================================================================
</TABLE>
The following table sets forth information regarding the number and value of
underlying unexercised stock options held by the named executives as of December
31, 1997:
<TABLE>
<CAPTION>
=====================================================================================================================
Aggregated Option Exercises in 1997 and 1997 Year End Option Values
- ---------------------------------------------------------------------------------------------------------------------
Number of Securities
Underlying Unexercised Value of Unexercised
Options at Fiscal Year-End In-the-Money Options at
(#) Fiscal Year-End ($)(1)
------------------------- ------------------------------
Name Exercisable Unexercisable Exercisable Unexercisable
- ---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Thomas K. Ferguson 5,349 1,698 $46,258 $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").
================================================================================
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
* 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.
================================================================================
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.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN MASON-DIXON BANCSHARES, INC.,
NASDAQ COMPOSITE INDEX, NASDAQ BANK INDEX & PEER GROUP
PERFORMANCE GRAPH
<TABLE>
<CAPTION>
<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*
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Assumes $100 invested on January 1, 1993 in Mason Dixon Bancshares, Inc., NASDAQ
Composite Index, NASDAQ Bank Index & Peer Group. *Peer group includes bank
holding companies in DC, DE, MD, PA and VA with assets between $500 million and
$2.5 billion.
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
- -----------
(5) 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 all of
the 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 AMENDMENT AND RESTATEMENT
OF ARTICLES OF INCORPORATION
The Board of Directors has unanimously adopted resolutions that the present
Articles of Incorporation of Bancshares (the "Current Articles") be amended and
restated by the adoption of Articles of Amendment and Restatement (the "Restated
Articles") set forth in Appendix A to this Proxy Statement. THE FOLLOWING
DISCUSSION OF THE ARTICLES OF AMENDMENT AND RESTATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO APPENDIX A.
Increase in Authorized Shares. 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.
Article IV of the Restated Articles 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.
Issuance of Stock. The Restated Articles add two new subsections in Article VI
which (i) authorizes the Board to classify or reclassify unissued shares, and
(ii) reserves the right to Bancshares to amend its Articles of Incorporation
upon the approval of the holders of two-thirds of the outstanding shares of
Common Stock, so that such amendment may alter the contract rights, as expressly
set forth in the Articles of Incorporation, of any class of outstanding stock.
In the event of any such amendment, dissenting stockholders will not be entitled
to demand and receive payment of the fair value of their stock.
Numbered Term and Qualification of Directors. The Current Articles do not give
the Board much flexibility to increase or decrease the number of directors
pursuant to the Bylaws. The Restated Articles permit the Board to increase or
decrease the number of directors and provide that the size of the Board of
Directors shall range between eight (8) and eighteen (18) directors. The Board
believes that it is important to have the flexibility to expand the size of the
Board or, if appropriate, reduce it. As a growing company with a rapidly
expanding business, the Board may find it necessary or desirable to add to the
Board persons who bring a certain expertise or an added dimension to Bancshares,
who open to Bancshares new business opportunities, or who have particular
knowledge regarding a new business acquired by Bancshares. The Board may also
decide not to fill vacancies and thus reduce the size of the Board. The Board
should have this flexibility without the need to amend the Articles of
Incorporation for this purpose. The Current Articles contain certain residency
requirements for directors. The Restated Articles delete these residency
requirements. The change is intended to give
18
<PAGE>
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.
Amending the By-Laws. The Restated Articles clarify that, in the event of a
stockholder proposal to amend the Bylaws, notice of the meeting must specify the
proposed amendment and the purposes for the amendment. The Current Articles
require at least 20 days notice to stockholders of a special or annual meeting
to alter, amend or repeal the Bylaws. The Restated Articles lengthen the notice
period to at least 45 days.
Preemptive Rights. The Current Articles provide for preemptive rights; the
Restated Articles 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
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 in
keeping with the current state of the law. 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's 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.
Director Liability. This section provides immunity to Directors from private law
suits by Bancshares or its shareholders, subject to certain exceptions. The
exceptions vary from state to state; the Restated Articles were 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 provision of the Restated Articles is necessary to attract and retain
qualified Directors, and to keep the Directors focused on utilizing their best
business judgment without the concern that a wrong decision would result in
liability.
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Director Indemnification. The Current Articles authorize but do not mandate the
advancement of expenses to directors in connection with a legal proceeding, and
does not provide for the advancement of expenses for officers or other employees
or agents. The Restated Articles state that Bancshares shall indemnify and
advance expenses to a director or officer to the fullest extent permitted by and
in accordance with the Section 2-418 of the Corporations and Associations
Article of the Annotated Code of Maryland. The Restated Articles also give the
Board the discretion to indemnify and advance expenses to employees or agents
who are not directors or officers.
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 the Articles of Amendment and Restatement. Consequently, the
withholding of votes, abstentions and broker non-votes will be the equivalents
of votes against the proposed Articles of Amendment and Restatement. THE BOARD
OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE PROPOSED RESTATED ARTICLES.
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.
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.
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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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APPENDIX A
ARTICLES OF AMENDMENT AND RESTATEMENT
OF MASON-DIXON BANCSHARES, INC.
Mason-Dixon Bancshares, Inc., a Maryland corporation (hereinafter
called the "Corporation"), having it's principal office located in Westminster,
Maryland, hereby certifies to the State Department of Assessments and Taxation
of Maryland that:
SECTION I. The Corporation desires to completely amend and restate its
Charter by striking all paragraphs of the Articles of Incorporation and
amendments thereto, and inserting in lieu thereof the following:
FIRST: The name of the Corporation is MASON-DIXON BANCSHARES, INC.
SECOND: The purposes for which the Corporation is formed are as
follows:
(a) To exercise all powers of a bank holding company.
(b) To engage in any lawful act or activities permitted by a
corporation organized under the laws of the State of Maryland.
The foregoing enumeration of the purposes, objects and
business of the Corporation is made in furtherance, and not in limitation, of
the powers conferred upon the Corporation by law, and is not intended, by the
mention of any particular purpose, object or business, in any manner to limit or
restrict the generality of any other purpose, object or business mentioned, or
to limit or restrict any of the powers of the Corporation, and the said
Corporation shall enjoy and exercise all of the powers and rights now or
hereafter conferred by statute upon corporations. Nothing herein contained shall
be deemed to authorize or permit the Corporation to carry on any business or
exercise any power or do any act which a corporation formed under the laws of
the State of Maryland may not at the time lawfully carry on or do.
THIRD: The post office address of the principal office of the
Corporation in this State is 45 W. Main Street, Westminster, Maryland 21157,
County of Carroll. The name of the resident agent of the Corporation at such
address is Thomas K. Ferguson. Said resident agent is an individual actually
residing in this State.
FOURTH: The total number of shares of stock which the Corporation
has authority to issue is 20,000,000 shares of common stock, each of which shall
have a par value of $1.00 per share, for an aggregate capital of $20,000,000.
FIFTH: The number of Directors of the Corporation shall be not
less than eight (8) nor more than eighteen (18). The number of directors may be
increased or decreased pursuant to the Bylaws of the Corporation, subject,
however, to the above provisions.
The terms of the members of the Board of Directors shall be
staggered three-year terms, with the terms of one-third (or as near one-third as
possible) of the Directors expiring each year so that one-third of the Directors
shall be elected by a majority of the votes cast at each annual meeting of
stockholders or by similar vote at any special meeting called for the purpose,
to serve three-year terms. Each Director shall hold office until the expiration
of the term for which he or she is elected, except as otherwise stated in the
Bylaws, and thereafter until his or her successor has been elected and
qualified. Election of Directors need not be by written ballot.
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No more than three (3) Directors shall be "insiders" of the
Corporation. The term "insiders" means an employee of the Corporation or any
financial institution subsidiary of the Corporation, and also means any
beneficial owner (as defined under Section 13(d) of the Securities Exchange Act
of 1934) of ten percent (10%) or more of the Corporation's stock. For purposes
of such ownership, any Corporation stock owned by such individual's spouse,
lineal descendants (i.e., parents and children), any entity in which the
individual owns a controlling interest (i.e., 20% or more interest), and any
group of which the owner is a member will be attributed to such individual.
An individual may not serve as a Director of the Corporation if
such individual also serves as a director or employee of any financial
institution (other than a subsidiary of the Corporation), or corporation which
maintains as a principal subsidiary one or more financial institutions, or if
such service otherwise would violate the federal Depository Institution
Management Interlocks Act. The term "principal subsidiary" is defined to mean
one or more financial institutions whose total assets constitute twenty-five
percent (25%) or more of such corporation's consolidated total assets. The term
"financial institution" means a credit union, savings and loan, or commercial
bank.
An affirmative vote of the holders of not less than sixty-seven
percent (67%) of the outstanding voting stock of the Corporation is required to
amend or repeal the provisions of this Article FIFTH.
SIXTH: The following provisions are hereby adopted for the
purposes of describing the rights and powers of the Corporation and of the
Directors and stockholders:
(a) The Board of Directors of the Corporation is hereby
empowered to authorize the issuance from time to time of shares of stock of any
class, whether now or hereafter authorized and securities convertible into
shares of its stock of any class whether now or hereafter authorized for such
consideration as said Board of Directors may deem advisable, subject to such
limitations and restrictions, if any, as may be set forth in the Bylaws of the
Corporation.
(b) The Board of Directors of the Corporation may
classify or reclassify any unissued shares by fixing or altering in any one or
more respects, from time to time before issuance of such shares, the
preferences, rights, voting powers, restrictions and qualifications of, the
dividends on, the times and prices of redemption of, and the conversion rights
of, such shares.
(c) The Corporation reserves the right, upon
authorization by the Board of Directors and requisite approval by the
affirmative vote of holders of two-thirds of the outstanding stock, to amend its
Charter so that such amendment may alter the contract rights, as expressly set
forth in the Charter, of any such class of outstanding stock, and any objecting
stockholder whose rights may or shall be thereby substantially adversely
affected shall not be entitled to demand and receive payment of the fair value
of his stock.
The enumeration and definition of a particular power of the Board
of Directors included in the foregoing is for descriptive purposes only and
shall in no way limit or restrict the terms of any other clause of this or any
other Article of these Articles of Incorporation, or in any manner exclude or
limit any powers conferred upon the Board of Directors under the Maryland
General Corporation Law now or hereafter in force.
SEVENTH: A Director of the Corporation may only be removed during
his or her term of office for cause, which means criminal conviction of a
felony, unsound mind, adjudication of bankruptcy, non-acceptance of office or
conduct prejudicial to the interest of the Corporation, by the affirmative vote
of a majority of the entire Board of Directors of the Corporation (exclusive of
the Director being considered for removal) or by the affirmative vote of not
less than sixty-seven percent (67%) of the outstanding voting stock of the
Corporation. Stockholders shall not have the right to
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remove Directors without such cause. Stockholders may only attempt to remove a
Director for cause after service of specific charges, adequate notice and full
opportunity to refute the charges.
The affirmative vote of the holders of not less than sixty-seven
percent (67%) of the outstanding voting stock of the Corporation is required to
amend or repeal the provisions of this Article SEVENTH.
EIGHTH: Any and all vacancies on the Board of Directors,
including those created by increase in the number of Directors or by removal of
Directors, shall be filled by individuals who are not currently serving as
Directors of the Corporation. The Board of Directors shall elect the individual
who will serve the remainder of the vacant Director's term of office.
NINTH: In the event that at least a majority of the Board of
Directors of the Corporation recommends against a Corporation stockholder vote
in favor of (1) a merger or consolidation of the Corporation with, or (2) a
sale, exchange or lease of all or substantially all the assets of the
Corporation to, any person or entity, then the affirmative vote of the holders
of not less than sixty-seven percent (67%) of the outstanding voting stock of
the Corporation will be required to approve such transaction. For purposes of
this provision, substantially all of the assets shall mean assets having a fair
market value or book value, whichever is greater, of 25% or more of the total
assets as reflected on a balance sheet of the Corporation as of a date no
earlier than 45 days prior to any acquisition of such assets.
The affirmative vote of the holders of not less than sixty-seven
percent (67%) of the outstanding voting stock of the Corporation is required to
amend or repeal the provisions of this Article NINTH.
TENTH: The Directors of the Corporation shall consider all
factors they deem relevant in evaluating any proposed offer for the Corporation
or any of its stock, any proposed merger or consolidation of the Corporation or
subsidiary of the Corporation with or into another entity, any proposal to
purchase or otherwise acquire all or substantially all the assets of the
Corporation or any subsidiary of the Corporation, and any other business
combination (as such term is defined in the Maryland General Corporation Law).
The Directors shall evaluate whether the proposal is in the best interests of
the Corporation and its subsidiaries by considering the best interests of the
stockholders and other factors the Directors determine to be relevant. The
Directors shall evaluate the consideration being offered to the stockholders in
relation to the then current market value of the Corporation and its
subsidiaries, the then current market value of the stock of the Corporation or
any subsidiary in a freely negotiated transaction, and the Directors' judgment
as to the future value of the stock of the Corporation as an independent entity.
The affirmative vote of the holders of not less than sixty-seven
percent (67%) of the outstanding voting stock of the Corporation is required to
amend or repeal the provisions of this Article TENTH.
ELEVENTH: The Board of Directors shall, at a properly called
meeting, have, by majority vote, the right to alter, amend or repeal the Bylaws
of the Corporation. Furthermore, upon the affirmative vote of the holders of not
less than sixty-seven percent (67%) of the outstanding voting stock of the
Corporation, the stockholders may also amend, alter or repeal the Bylaws,
provided the stockholders are given at least 45 days notice by first class mail
(effective the date of mailing) of the special or annual meeting to be held to
effectuate such changes and that such notice specifies the proposed amendment
and purposes for the amendment.
TWELFTH: Any meeting of stockholders, whether annual or special,
called to consider a vote in favor of a merger or consolidation of the
Corporation with, or a sale, exchange or lease of
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substantially all of the assets of the Corporation to, any person or entity, as
defined in Articles NINTH and TENTH of these Articles of Amendment and
Restatement, which is not recommended by at least a majority vote of the Board
of Directors, shall require attendance in person or by proxy of sixty-seven
percent (67%) of the stockholders of the Corporation in order for a quorum for
the conduct of business to exist. Such a meeting may not be adjourned absent
notice if a quorum is not present.
The affirmative vote of the holders of not less than sixty-seven
percent (67%) of the outstanding voting stock of the Corporation is required to
amend or repeal the provisions of this Article TWELFTH.
THIRTEENTH: 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 these Articles of Amendment and Restatement 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.
FOURTEENTH: As used in this Article FOURTEENTH, any word or words
that are defined in Section 2-418 of the Corporations and Associations Article
of the Annotated Code of Maryland (the "Indemnification Section"), as amended
from time to time, shall have the same meaning as in the Indemnification
Section. The Corporation shall indemnify and advance expenses to a director or
officer of the Corporation in connection with a proceeding to the fullest extent
permitted by and in accordance with the Indemnification Section. With respect to
an employee or agent, other than a director or officer of the Corporation, the
Corporation may, as determined by and in the discretion of the Board of
Directors of the Corporation, indemnify and advance expenses to such employees
or agents in connection with a proceeding to the extent permitted by and in
accordance with the Indemnification Section.
FIFTEENTH: The name of the sole incorporator is Thomas K.
Ferguson and the address of the incorporator is 45 W. Main Street, Westminster,
Maryland 21157.
SECTION II. The provisions set forth in these Articles of Amendment and
Restatement are all of the provisions of the Charter of the Corporation in
effect upon acceptance of these Articles of Amendment and Restatement (the
"Articles") for record by the State Department of Assessments and Taxation of
Maryland, and upon such acceptance these Articles shall constitute the entire
Charter of the Corporation and supersede all prior Charter papers.
SECTION III. The foregoing complete Amendment and Restatement of the
Charter of the Corporation includes amendments to the Charter duly advised by
the Board of Directors and approved by the stockholders of the Corporation in
the manner required for a Charter amendment under the Charter and Bylaws of the
Corporation and the laws of the State of Maryland.
SECTION IV. (a) The Board of Directors of the Corporation at a meeting
held on February 11, 1998, adopted a resolution in which was set forth the
foregoing complete Amendment and Restatement of the Articles of Incorporation,
declaring that said Amendment and Restatement were advisable, and directing that
they be submitted to the stockholders of the Corporation for their
consideration.
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(b) The stockholders of the Corporation approved the
complete Amendment and Restatement of the Articles of the Corporation as
hereinabove set forth at a meeting of the stockholders held on April 18, 1998.
SECTION V. (a) The total number of shares of all classes of stock of
the Corporation authorized immediately before these Articles become effective,
and the number and par value of the shares of each class are as follows:
Ten Million (10,000,000) shares of common stock, each of which
shall have a par value of $1.00 per share, for an aggregate
capital of $10,000,000.
(b) The total number of shares of all classes of stock of
the Corporation, as increased, and the number and par value of the shares of
each class, are as follows:
Twenty Million (20,000,000) shares of common stock, each of
which shall have a par value of $1.00 per share, for an
aggregate capital of $20,000,000.
(c) The preferences, conversion and other rights, voting
powers, restrictions, limitations as to dividends, qualifications, and terms and
conditions of redemption of each class of authorized capital stock, as
increased, are not changed by the foregoing Articles of Amendment and
Restatement.
IN WITNESS WHEREOF, Mason-Dixon Bancshares, Inc. has caused these
Articles of Amendment and Restatement to be signed and acknowledged in its name
and on its behalf by its President and witnessed and attested by its Corporate
Secretary on this ___ day of April, 1998, and they acknowledged the same to be
the act of said Corporation, and that to the best of their knowledge,
information and belief, all matters and facts stated herein are true in all
material respects and that this statement is made under the penalties of
perjury.
ATTEST: MASON-DIXON BANCSHARES, INC.
________________________________ By:___________________________(SEAL)
Vivian A. Davis, Corporate Secretary Thomas K. Ferguson, President
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APPENDIX B
MASON-DIXON BANCSHARES, INC
1997 OMNIBUS SHARE PLAN
1. PURPOSE. The purpose of the 1997 Omnibus Share Plan of Mason-Dixon
Bancshares, Inc. (the "Plan") is to promote the financial interests of
Mason-Dixon Bancshares, Inc. (the "Company"), including its growth and
performance, by encouraging the directors, officers and employees of the Company
and its subsidiaries to acquire an ownership position in the Company, enhancing
the ability of the Company and its subsidiaries to attract and retain employees
of outstanding ability, and providing employees with a way to acquire or
increase their proprietary interest in the Company's success.
2. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in
Section 18, the number of common shares, par value $1.00 per share, of
beneficial interest in the Company (the "Shares") which shall be available for
the grant of awards under the Plan shall be 248,800 Shares.
Shares subject to an award that expires unexercised, that is
forfeited, terminated or canceled, in whole or in part, or is paid in cash in
lieu of Shares, shall thereafter again be available for grant under the Plan.
3. ADMINISTRATION. The Company's Compensation Committee of the Board of
Directors (the "Committee") will make all discretionary decisions involving the
Plan. A majority of the Committee shall constitute a quorum, and the acts of a
majority shall be the acts of the Committee.
Subject to the provisions of the Plan, the Committee shall (i) from
time to time select directors, officers and employees of the Company and its
subsidiaries who will participate in the Plan (the "Participants"), (ii)
determine the type of awards to be made to Participants, (iii) determine the
Shares or share units subject to awards, and (iv) have the authority to
interpret the Plan, to establish, amend and rescind any rules and regulations
relating to the Plan, determine the terms and provisions of any agreements
entered into hereunder, and make all other determinations necessary or advisable
for the administration of the Plan. The Committee may correct any defect, supply
any omission or reconcile any inconsistency in the Plan or in any award in the
manner and to the extent it shall deem desirable to carry it into effect. The
determinations of the Committee in the administration of the Plan, as described
herein, shall be final and conclusive.
4. ELIGIBILITY. All directors and all officers and employees of the
Company and its subsidiaries who have demonstrated significant management
potential, or who have contributed or have the capacity for contributing in a
substantial measure to the successful performance of the Company, or who have
excelled in their performance on behalf of the Company, all as determined by and
in the sole and absolute discretion of the Committee, are eligible to be
Participants in the Plan.
5. AWARDS. Awards under the Plan ("Awards") may consist of the following:
stock options (either incentive stock options within the meaning of Section 422
of the Internal Revenue Code or non-qualified stock options), stock appreciation
rights, grants of restricted stock, performance shares, stock bonuses and other
stock-based awards. Awards of performance shares and restricted stock, stock
bonuses and other stock-based awards may provide the Participant with dividends
or dividend equivalents and voting rights prior to vesting (whether based on a
period of time or based on attainment of specified performance conditions).
6. STOCK OPTIONS. The following terms shall apply, except to the extent
varied in any Award Agreement as defined in Section 11 herein.
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(a) General. The Committee shall establish the option price at the
time each stock option is granted, which price may, in the discretion of the
Committee, be less than 100% of the fair market value of the Shares on the date
of grant. Stock options shall be exercisable for such period as specified by the
Committee, but in no event may options be exercisable more than ten years after
their date of grant.
(b) Payment. The exercise price for each option shall be paid in full
at the time of such exercise. Such payment may be made (i) in cash or by check
payable to the order of the Company, (ii) with Shares of the Company, to the
extent the fair market value of the Shares on the date of exercise equals the
exercise price for the Option Shares purchased, (iii) by surrender to the
Company of options to purchase Shares, to the extent of the difference between
the exercise price of such options and the Fair Market Value (as hereinafter
defined) of the Shares subject to such options (the "spread"), (iv) by
promissory note or other payment arrangement agreed to by the Committee, or (v)
any combination of the foregoing agreed to by the Committee. The Company shall
have the right, and the Participant may require the Company, to withhold and
deduct from the number of Shares deliverable upon the exercise hereof a number
of Shares having an aggregate fair market value equal to the amount of taxes and
other charges that the Company is obligated to withhold or deduct from amounts
payable to the Participant.
(c) Incentive Stock Options. An option granted under the Plan may be a
non-qualified stock option or an "incentive stock option" ("Incentive Stock
Options") within the meaning of Section 422 of the Internal Revenue Code of
1986, as amended (the "Code"), and if not otherwise specified, shall be deemed
to be an Incentive Stock Option. An Incentive Stock Option shall not result in
income upon the receipt of the option to the extent (i) the aggregate fair
market value (determined at the time the option is granted) of the Shares that
may be purchased by the optionee during any calendar year (under the Plan and
all other plans of the Company) does not exceed $100,000; and (ii) the optionee
(other than the optionee's estate where the optionee is deceased) does not
dispose of the Shares until the later of (a) two years from and after the date
the option is granted, and (b) one year after the date the Shares are issued to
the optionee. In the event of a disposition of Shares received upon exercise of
an Incentive Stock Option where the disposition occurs within two years from the
date the option is granted or one year from the receipt of the shares, the
optionee shall notify the Corporate Secretary of the Company in writing as to
the date of such disposition, the sale price (if any), and the number of Shares
involved.
7. STOCK APPRECIATION RIGHTS. Stock appreciation rights may be granted in
tandem with a stock option, in addition to a stock option, or may be
freestanding and unrelated to a stock option. Stock appreciation rights granted
in tandem with or in addition to a stock option may be granted either at the
same time as the stock option or at a later time. No stock appreciation right
shall be exercisable earlier than six months after grant, except in the event of
the Participant's death or disability. A stock appreciation right shall entitle
the Participant to receive from the Company an amount equal to the increase of
the fair market value of the Share on the exercise of the stock appreciation
right over the grant price. The Committee, in its sole discretion, shall
determine whether the stock appreciation right shall be settled in cash, Shares
or a combination of cash and Shares.
8. PERFORMANCE SHARES. Performance shares may be granted in the form of
actual Shares or share units having a value equal to an identical number of
Shares. In the event that a certificate is issued in respect of Shares subject
to a grant of performance shares, such certificate shall be registered in the
name of the Participant but shall be held by the Company until the time the
Shares subject to the grant of performance shares are earned. The performance
conditions and the length of the performance period shall be determined by the
Committee. The Committee, in its sole discretion, shall determine whether
performance shares are granted in the form of share units shall be paid in cash,
Shares or a combination of cash and Shares.
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9. RESTRICTED STOCK. Restricted stock may be granted in the form of
actual Shares or share units having a value equal to an identical number of
Shares. In the event that a certificate is issued in respect of a grant of
restricted stock, such certificate shall be registered in the name of the
Participant subject to all restrictions, and shall bear a legend to such effect
until the end of the restricted period. The employment conditions and the length
of the period for vesting of restricted stock shall be established by the
Committee at the time of grant. The Committee, in its sole discretion, shall
determine whether restricted stock granted in the form of share units shall be
paid in cash, Shares, or a combination of cash and Shares.
10. STOCK BONUS AWARDS. Stock bonus awards may be granted in the form of
Shares or share units having a value equal to an identical number of Shares. A
stock bonus award shall entitle the Participant to receive the number of Shares
specified in the award certificate as a bonus under this Plan, without any
consideration for such Shares. In the event that a stock certificate is issued
in respect of Shares subject to a grant of a bonus award of common stock, such
certificate shall be issued in the name of the Participant and will generally be
issued to the Participant within 15 days after proper presentment of the award
certificate. The Committee, in its sole discretion, shall determine whether
bonus stock granted in the form of share units shall be paid in cash, Shares, or
a combination of cash and Shares.
11. AWARD AGREEMENTS. Each award under the Plan shall be evidenced by an
agreement ("Award Agreement") setting forth the terms and conditions, as
determined by the Committee, which shall apply to such award, in addition to the
terms and conditions specified in the Plan. In the event that discrepancies
exist between the Plan and any Award Agreement, the Award Agreement shall
control.
12. WITHHOLDING. The Company shall have the right to 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. The Participant may elect to satisfy such
withholding obligation by having the Company retain the number of Shares whose
fair market value equal the amount required to be withheld. Any fraction of a
Share required to satisfy such obligation shall be disregarded and the amount
due shall instead be paid in cash to the Participant.
13. LIMITED TRANSFERABILITY. No Award shall be transferred, assigned,
pledged or hypothecated, other than by will and the laws of descent and
distribution, and no right of interest of any Participant shall be subject to
execution, attachment or similar process. Notwithstanding the foregoing, the
Participant may transfer such Awards, other than Incentive Stock Options, to his
spouse, lineal ascendants, lineal descendants or to a duly established trust for
the benefit of one or more of these individuals. Awards so transferred may
thereafter be transferred only to the Participant or to an individual or trust
to whom he could have initially transferred the Awards pursuant to this Section.
Awards transferred pursuant to this Section shall be held by the transferee
according to the same terms and conditions as applied to the Participant. Upon
any attempt to transfer any Award, or to assign, pledge, hypothecate or
otherwise dispose of any Award in violation of this provision, or upon the levy
of any attachment or similar process upon any Award or any rights hereunder,
such Award shall immediately lapse and become null and void.
14. NO RIGHT TO AWARDS. No person shall have any claim or right to be
granted an award, and the grant of an award shall not be construed as giving a
Participant the right to be retained in the employ of the Company or its
subsidiaries. Further, the Company and its subsidiaries expressly reserve the
right at any time to dismiss a Participant free from any liability, or any claim
under the Plan, except as provided herein or in any agreement entered into
hereunder.
15. CHANGE OF CONTROL
B-III
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(a) Definitions.
(i) Change of Control. 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 ("Non-Continuing Directors"), or (iii) the commencement of a tender offer
(other than by the Company) 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 the Company, or (v) a merger,
consolidation or share exchange pursuant to which the Shares of the Company 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 the Company or the assets or business of
the Company, or (vii) the liquidation of the Company (an "Extraordinary Event").
(ii) Event Date. The "Event Date" means (i) the date of
acquisition of beneficial ownership of 25% or more of the Shares, or (ii) the
date of the election of directors as a result of which the majority of the Board
is comprised of Non-Continuing Directors, (iii) the commencement of a tender
offer, if the Extraordinary Event is a tender offer, and (iv) in the case of any
other Extraordinary Event, the day preceding the record date in respect of such
Extraordinary Event, or if no record date is fixed, the day preceding the date
as of which stockholders of record become entitled to the consideration payable
in respect of such Extraordinary Event. Notwithstanding the foregoing, the
immediate vesting of any Award shall be conditioned upon the actual occurrence
and completion of the Extraordinary Event.
(iii) Fair Market Value. The "Fair Market Value" per Share as of
any particular date shall be the closing price per Share on the trading day
immediately preceding such date on the Nasdaq Stock Market or on such other
principal national securities exchange on which the Shares are listed on such
date.
(b) Upon the occurrence of a Change of Control, (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 on and at all times after the Event Date, and such
Awards shall be deemed fully vested without restriction from and after the Event
Date.
(c) In the event of the acceleration of the exercise date of any
option pursuant to this Section, the exercise price for which shall not have
been fixed as of the Event Date, the exercise price per Share subject to such
option shall be equal to the average Fair Market Value per Share for the thirty
(30) days preceding the announcement or other publication of the Extraordinary
Event.
(d) In case of an Extraordinary Event other than a tender offer, the
exercise of any option pursuant to this Section prior to the Event Date shall be
effective on and as of the Event Date. Upon the exercise of such option upon the
occurrence of an Extraordinary Event, the Company shall issue, on and as of the
effective date of such exercise, all Shares with respect to which such option
shall have been exercised. In the event that the Participant fails to exercise
his or her option, in whole or in part, pursuant to this Section upon an
Extraordinary Event, or if there shall be any capital reorganization or
reclassification of the Shares, the Company shall take such action as may be
necessary to enable such Participant to receive upon any subsequent exercise of
his or her options, in whole or in part, in lieu of Shares, securities or other
assets as were issuable or payable upon such Extraordinary Event in respect of,
or in exchange for, such Shares.
B-IV
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16. TERMINATION OF RIGHTS. All unexercised or unexpired options, rights,
performance shares and other such rights granted or awarded under this Plan
(collectively, "Rights") will terminate, be forfeited and will lapse immediately
if such Participant's employment or relationship with the Company is terminated
for any reason, unless and to the extent the Committee permits the exercise of
such Rights after the date of such termination. If a Participant's employment or
relationship with the Company is terminated by reason of his death, such
Participant's personal representatives, estate or heirs (as the case may be) may
exercise, subject to any restrictions imposed by the Committee at the time of
the grant, for a period of one year after the Participant's death, any Right
which was exercisable by the Participant as of the date of his death, unless
otherwise provided by the Committee.
17. REGISTRATION. If the Company shall be advised by its counsel that any
Shares deliverable upon any exercise of a Right are required to be registered
under the Securities Act of 1933, or that the consent of any other authority is
required for the issuance of such Shares, the Company may effect registration or
obtain such consent, and delivery of Shares by the Company may be deferred until
registration is effected or such consent is obtained.
18. ADJUSTMENT OF AND CHANGES IN SHARES. In the event of any change in the
outstanding Shares by reason of any share dividend or split, recapitalization,
merger, consolidation, spinoff, combination or exchange of Shares or other
corporate change, or other distributions to common stockholders other than
regular cash dividends, the Committee may make such substitution or adjustment,
if any, as it deems to be equitable, as to the number or kind of Shares or other
securities issued or reserved for issuance pursuant to the Plan and to
outstanding awards.
19. AMENDMENT. The Committee may amend or terminate the Plan or any portion
thereof at any time, provided that, without such Participant's consent, no
amendment or termination shall affect adversely any of the rights of a
participant under any Award theretofore granted under the Plan.
20. EFFECTIVE DATE. The Plan shall be effective upon its adoption by the
Board of Directors, subject to ratification by the stockholders. Subject to
earlier termination pursuant to Section 19, the Plan shall have a term of ten
years from and after its effective date.
B-V
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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 OF
MASON-DIXON BANCSHARES, INC. The undersigned hereby appoints Vivian A. Davis,
Edith S. Haschert and Christine L. Whiteleather and each 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 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 HEREBY
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 THE ARTICLES OF AMENDMENT
AND RESTATEMENT.
(See Reverse Side)
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
1. ELECTION OF DIRECTORS: FOR all nominees listed at right [] William B. Dulany
(except as marked to the contrary below) 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 ARTICLES OF AMENDMENT AND RESTATEMENT
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>
Please sign exactly as your 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.
PLEASE MARK, SIGN, DATE AND MAIL THE
CARD IN THE ENCLOSED ENVELOPE.
DATED: ___________________, 1998 Signature________________________________
DATED: ___________________, 1998 Signature________________________________
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C71823a.634 R:2
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