SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
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Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for use of the Commission only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss. 240.14 a-11(c) or ss. 240.14a-12
ESSEX BANCORP, INC.
(Name of Registrant as Specified In Its Charter)
...............................................................................
(Name of Person(s) Filing Proxy Statement if other than the Registrant)
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[X] No fee required.
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(1) Title of each class of securities to which transaction applies:
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(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 was calculated and state how it was determined):
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(5) Total fee paid:
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[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
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previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
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Essex Bancorp, Inc. Gene D. Ross
Corporate Offices President and
The Koger Center Chief Executive Officer
Building #9
Suite 200
Norfolk, Virginia 23502
(757) 893-1300
[logo]
ESSEX
BANCORP, INC.
April 14, 1998
Dear Stockholder:
You are cordially invited to attend the Annual Meeting of Stockholders (the
"Meeting") of Essex Bancorp, Inc. (the "Company"), the holding company for Essex
Savings Bank, F.S.B. (the "Bank"), which will be held at The Koger Center,
Building #5, 1st Floor Conference Room, Norfolk, Virginia, on May 28, 1998 at
1:00 p.m.
The attached Notice of the Meeting and the Proxy Statement describe the formal
business to be transacted at the Meeting. Directors and officers of the Company
will be present at the Meeting to respond to any questions that our stockholders
may have.
The Board of Directors of the Company has determined that the matters to be
considered at the Meeting are in the best interests of the Company and our
stockholders. For the reasons set forth in the Proxy Statement, the Board
unanimously recommends a vote "FOR" each matter to be considered.
YOUR VOTE IS IMPORTANT. You are urged to sign, date and mail the enclosed Proxy
Card promptly in the postage-paid envelope provided. If you attend the Meeting,
you may vote in person even if you have already mailed in your Proxy Card.
On behalf of the Board of Directors and all of the employees of the Company and
the Bank, I wish to thank you for your continued support. We appreciate your
interest.
Sincerely yours,
/s/ Gene D. Ross
Gene D. Ross
President and Chief Executive Officer
-----------------------------
For further information about
the Annual Meeting, please
call 1-757-893-1326.
-----------------------------
[logo]
ESSEX
BANCORP, INC.
The Koger Center
Building #9
Suite 200
Norfolk, Virginia 23502
(757) 893-1326
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
To Be Held on May 28, 1998
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders (the "Meeting")
of Essex Bancorp, Inc. (the "Company") will be held at The Koger Center,
Building #5, 1st Floor Conference Room, Norfolk, VA, on May 28, 1998, at 1:00
p.m.
A proxy statement and a proxy card for the Meeting are enclosed. The Meeting is
for the purpose of considering and voting upon the following proposals:
1. A proposal to amend the Company's Certificate of Incorporation to
authorize additional shares of Common and Preferred Stock.
2. The ratification of the Essex Bancorp, Inc. Management
Recognition Plan.
3. Such other matters as may properly come before the meeting, or
any adjournment thereof. The Board of Directors is not aware of
any other business to come before the meeting.
The Board of Directors has established March 31, 1998 as the record date for the
determination of stockholders entitled to notice of and to vote at the Meeting
and at any adjournments thereof. Only record holders of the common stock of the
Company as of the close of business on that date will be entitled to vote at the
Meeting or any adjournment thereof. A list of stockholders entitled to vote at
the Meeting will be available at Essex Bancorp, Inc., The Koger Center, Building
#9, Suite 200, Norfolk, Virginia 23502, for a period of ten days prior to the
Meeting and also will be available for inspection at the Meeting itself.
EACH STOCKHOLDER, WHETHER HE OR SHE PLANS TO ATTEND THE MEETING, IS REQUESTED TO
SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD WITHOUT DELAY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. ANY PROXY GIVEN BY A STOCKHOLDER MAY BE REVOKED AT ANY
TIME BEFORE IT IS EXERCISED. A PROXY MAY BE REVOKED BY FILING WITH THE SECRETARY
OF THE COMPANY A WRITTEN REVOCATION OR A DULY EXECUTED PROXY BEARING A LATER
DATE. ANY STOCKHOLDER PRESENT AT THE MEETING MAY REVOKE HIS OR HER PROXY AND
VOTE PERSONALLY ON EACH MATTER BROUGHT BEFORE THE MEETING. HOWEVER, IF YOU ARE A
STOCKHOLDER WHOSE SHARES ARE NOT REGISTERED IN YOUR NAME, YOU WILL NEED
ADDITIONAL DOCUMENTATION FROM THE RECORD HOLDER OF YOUR SHARES TO VOTE
PERSONALLY AT THE MEETING.
By Order of the Board of Directors
/s/ Jennifer L. DeAngelo
Jennifer L. DeAngelo
Norfolk, Virginia Corporate Secretary
April 14, 1998 Essex Bancorp, Inc.
- --------------------------------------------------------------------------------
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES IN ORDER TO ENSURE A QUORUM AT THE MEETING. A SELF-
ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF
MAILED IN THE UNITED STATES.
- --------------------------------------------------------------------------------
Essex Bancorp, Inc.
The Koger Center
Building #9
Suite 200
Norfolk, Virginia 23502
PROXY STATEMENT
ANNUAL MEETING OF STOCKHOLDERS
May 28, 1998
Solicitation of Voting Proxy
This proxy statement is being furnished to stockholders of Essex Bancorp, Inc.
(the "Company"), in connection with the solicitation by its Board of Directors
of proxies to be used at the Annual Meeting of Stockholders (the "Meeting") to
be held at The Koger Center, Building #5, 1st Floor Conference Room, Norfolk,
Virginia, at 1:00 p.m., and at any adjournments thereof. The 1997 Annual Report
to Stockholders, including the consolidated financial statements for the year
ended December 31, 1997, accompanies this proxy statement, which is first being
mailed to stockholders on or about April 14, 1998.
Regardless of the number of shares of common stock owned, it is important that
stockholders be represented by proxy or present in person at the Meeting.
Stockholders are requested to vote by completing the enclosed proxy card and
returning it signed and dated in the enclosed postage-paid envelope.
Stockholders are urged to indicate their vote in the spaces provided on the
proxy card. Proxies solicited by the Board of Directors of the Company will be
voted in accordance with directions given therein. Where no instructions are
indicated, proxies will be voted FOR the approval of the amendment to the
Company's Certificate of Incorporation and FOR ratification of the Essex
Bancorp, Inc. Management Recognition Plan.
The Board of Directors knows of no additional matters that will be presented for
consideration at the Meeting. Execution of a proxy, however, confers on the
designated proxyholders discretionary authority to vote the shares in accordance
with their best judgment on such other business, if any, that may properly come
before the Meeting or any adjournments thereof.
A proxy may be revoked at any time prior to its exercise by filing written
notice of revocation with the Secretary of the Company, by delivering to the
Company a duly executed proxy bearing a later date, or by attending the Meeting,
filing a notice of revocation with the Secretary and voting in person. However,
if you are a stockholder whose shares are not registered in your name, you will
need additional documentation from the record holder of your shares to vote
personally at the Meeting.
The cost of solicitation of proxies in the form enclosed will be borne by the
Company. Proxies may also be solicited personally or by telephone, fax, or
telegraph by directors, officers, and regular employees of the Company or Essex
1
Savings Bank, F.S.B. (the "Bank"), without additional cost to the Company or the
Bank. The Company will also request persons, firms and corporations holding
shares in their names, or in the name of their nominees, which are beneficially
owned by others, to send proxy material to and obtain proxies from such
beneficial owners, and will reimburse such holders for their reasonable expenses
in doing so.
Voting Securities and Principal Stockholders
The securities that may be voted at the meeting consist of shares of Common
Stock of the Company (the "Common Stock"), with each share entitling its owner
to one vote on all matters to be voted on at the Meeting, except as described
below.
The close of business on March 31, 1998 has been established by the Board of
Directors as the record date (the "Record Date") for the determination of
stockholders entitled to notice of and to vote at the Meeting and any
adjournments thereof. The total number of shares of Common Stock outstanding on
the Record Date was 1,058,510.
As provided in the Company's Certificate of Incorporation, record holders of
Common Stock who beneficially own in excess of 10% of the outstanding shares of
Common Stock (the "Limit") are not entitled to any vote in respect of the shares
held in excess of the Limit. A person or entity is deemed to beneficially own
shares owned by an affiliate of, as well as persons acting in concert with, such
person or entity. The Company is not aware of any stockholder that beneficially
owned shares in excess of the Limit at March 31, 1998.
The presence, in person or by proxy, of at least a majority of the total number
of shares of Common Stock entitled to vote (after subtracting any shares held in
excess of the Limit) is necessary to constitute a quorum at the Meeting. The
Meeting may be adjourned in order to permit the further solicitation of proxies
in the event there are not sufficient votes for a quorum at the time of the
Meeting or for such other purposes as may be considered proper. The affirmative
vote of the majority of those shares voting on an action will be required to
take any action at the Meeting.
Securities Ownership of Certain Beneficial Owners
The following table sets forth the amount of Common Stock of the Company held by
each director, certain executive officers and by all directors and executive
officers of the Company as a group, as of March 31, 1998. No persons or entities
were known to the Company to be the beneficial owners of more than 5% of the
outstanding Common Stock on such date.
2
Amount of
Common Stock
Beneficially Owned Percent of Common
Beneficial Owner at March 31, 1998 Stock Outstanding
- ---------------- -------------------- -----------------
Roscoe D. Lacy, Jr. 250 .02%
Gene D. Ross 1,870(1) .18%
All directors and executive
officers as a group 3,549(1) .34%
- ------------------------
(1) Mr. Ross and other executive officers acquired their shares through the
Company's Employee Stock Purchase Plan.
Information with Respect to Continuing Directors
The Board of Directors of the Company presently consists of four directors,
whose terms are scheduled to expire at the annual meetings of the stockholders
of the Company to be held in 1999 and 2000. Although the Company's Bylaws
provide for five directors, who serve staggered terms of office, there is an
unfilled vacancy on the Board of Directors for the seat that would otherwise be
filled at the Meeting. No persons have been nominated for this position in
accordance with the Bylaws, and accordingly, no election for directors is
scheduled to be held at the Meeting.
The following table sets forth certain information regarding the Board of
Directors of the Company.
Term
Name Age(1) Position Held Director Since Expires
- ---- ------ ------------- -------------- -------
Continuing Directors
Harry F. Radcliffe 47 Director 1995 2000
Gene D. Ross 52 Chairman, President and Chief
Executive Officer 1992(2) 2000
Roscoe D. Lacy, Jr. 57 Director 1984(2) 1999
Robert G. Hecht 57 Director 1995 1999
- ----------------------------
(1) As of March 31, 1998.
(2) Reflects year in which director became a director of the Company's
predecessor, Essex Bancorp. ("Bancorp"). In January 1995, Essex Bancorp.
and Essex Financial Partners, L.P. were merged into the Company.
3
Set forth below is additional information with respect to the directors of the
Company:
Harry F. Radcliffe. Mr. Radcliffe became a director of the Company on September
15, 1995 and also serves as a director of the Bank. He has been President and
Chief Executive Officer of Fort Pitt Capital Management, Pittsburgh,
Pennsylvania, a private investment management company, since September 1995 and
was the President and Chief Executive Officer of First Home Bancorp, Inc., a
privately-held savings institution holding company until its sale in April 1996.
He is a director of Hawthorne Financial Corporation, Los Angeles, California, a
savings institution holding company which is traded on the Nasdaq National
Market, and First Fidelity Bancorp, Irvine, California, a privately held thrift
and loan holding company. He has also been director of Miami Computer Supply,
Inc. since 1996. From 1989 to 1993, Mr. Radcliffe was the President and Chief
Executive Officer of First South Savings Association, a Pennsylvania-chartered
stock savings association located in Pittsburgh, Pennsylvania. Mr. Radcliffe
received his degree in economics from Ohio Wesleyan University.
Gene D. Ross. Mr. Ross was President and Chief Executive Officer ("CEO") of the
former general partner of Essex Financial Partners, L.P. (the "Partnership") and
Essex Bancorp., the Company's predecessors, from May 1992 until their merger
with the Company in 1995, and has been the President and CEO of the Company
since its organization in August 1994. Mr. Ross also serves as a director and
CEO and President of the Bank and various other subsidiaries of the Company.
Prior to joining the Partnership in 1992, Mr. Ross was President and CEO of
Southern Federal Savings and Loan Association of Georgia. He was hired in a
turnaround capacity to seek strategies for the recapitalization of the
institution. From October 1990 through November 1991, Mr. Ross served as an
independent consultant and Regional Director of the Ralph Edgar Group, Inc., an
RTC asset management contractor. In March 1988, Mr. Ross joined First Liberty
Financial Corp. in Atlanta, Georgia, a $1.2 billion publicly-traded thrift
holding company, as President and Chief Operating Officer. Mr. Ross played a key
role in negotiating the sale of First Liberty's Atlanta-based thrift franchise.
Prior to March 1988, Mr. Ross was President and CEO of The Empire Savings
Building and Loan Association in Denver, Colorado. During his tenure, Mr. Ross
oversaw the reorganization and repositioning of the $2 billion thrift until its
sale to an out-of-state financial institution. Previously, Mr. Ross held audit
manager positions with two nationally recognized certified public accounting
firms. Mr. Ross is a Certified Public Accountant and has a Bachelor of Arts and
Sciences from Florida State University.
Roscoe D. Lacy, Jr. Mr. Lacy is Vice President and General Manager for Miles
Jennings Industrial Supply Co., Inc., an industrial supply company located in
Elizabeth City, North Carolina. Mr. Lacy became a director of the Company in
1984 and has been a director of the Bank and one of its predecessor institutions
since 1980. Mr. Lacy also served as a director of the Partnership's former
Florida savings bank until its merger with and into the Bank in May 1993.
Robert G. Hecht. Mr. Hecht is Chief Executive Officer of Trumbull Corporation, a
highway construction company in Pittsburgh, Pennsylvania, an Executive Vice
President of P.J. Dick Incorporated, a building construction firm also located
in Pittsburgh, Pennsylvania, and President of Allegheny Asphalt Manufacturing,
Inc. in Pittsburgh, Pennsylvania. Mr. Hecht previously served as President of
Century Steel Erectors, a steel erection company in Pittsburgh, Pennsylvania,
4
until July 1990. He has also served as Vice Chairman and Director for Miami
Computer Supply, Inc. since 1996. Mr. Hecht served as a director of First Home
Bancorp, Inc., a privately-held savings institution holding company in
Pittsburgh, Pennsylvania, until its sale in April 1996. He previously served as
Director of First South Savings from September 1990 to December 1993. Mr. Hecht
became a director of the Company on September 15, 1995 and also serves as a
director of the Bank.
Meetings of the Board and Committees of the Board
During 1997, the Board of Directors of the Company held regular meetings each
month. The Board of Directors of the Bank and the Company have established
various committees, including the Audit, Executive Compensation, and Strategic
Evaluation Committees. Each of the directors of the Company attended at least
75% of the Company's board meetings and the meetings of board committees on
which such director served.
The Audit Committee is comprised of directors Lacy and Hecht, and is chaired by
Mr. Lacy. This Committee meets periodically with the Bank's internal auditor,
and periodically with the Company's and the Bank's external auditors, and
reports to the Board of Directors and to senior management on the Company's and
the Bank's financial condition and internal auditing practices and procedures.
During the year ended December 31, 1997, the Audit Committee met three times.
The Executive Compensation Committee (the "Compensation Committee") consists of
directors Lacy, Hecht and Radcliffe. The Compensation Committee meets
periodically to evaluate the compensation and fringe benefits of the Company's
and the Bank's directors, officers, and employees. During the year ended
December 31, 1997, the Compensation Committee met twice.
The Strategic Evaluation Committee was formed in January 1996 to evaluate
strategic direction as a means to enhance shareholder value. This Committee is
comprised of directors Hecht, Ross and Radcliffe. During the year ended December
31, 1997, the Strategic Evaluation Committee met twice.
Directors Fees
The directors of the Company other than Mr. Ross receive fees of $250 for each
joint board meeting of the Company and the Bank that they attend and $250 for
any separate board committee meeting that they attend.
5
PROPOSALS TO BE VOTED AT THE MEETING
Proposal 1. APPROVAL OF AMENDMENT TO THE CERTIFICATE OF
INCORPORATION.
The Board of Directors recommends a vote to approve an amendment to the
Company's Certificate of Incorporation.
The Board of Directors has unanimously adopted, and is now submitting to the
shareholders for approval, an amendment of the Company's Certificate of
Incorporation which would increase the number of the Company's authorized shares
of Common Stock. The proposed amendment would increase the Company's total
authorized capitalization to 30 million shares, consisting of 20 million shares
of Common Stock, par value of one cent ($.01) per share, and 10 million shares
of Preferred Stock, par value of one cent ($.01) per share. Approval of this
proposal to amend the Company's Certificate of Incorporation requires the
affirmative vote of the holders of a majority of the outstanding shares of the
Company entitled to vote at the meeting.
The proposed amendment would increase the Company's flexibility to issue
additional shares of Common Stock and Preferred Stock to enable the Company to
engage in strategic transactions, such as possible mergers or share exchanges
with other entities. Although the Company has no present plans to issue shares
in connection with any particular transaction, the Company's flexibility is
severely restricted by the fact that taking into account outstanding options and
warrants to purchase Common Stock, the Company's present authorization to issue
a maximum of 10 million shares of Common Stock leaves the Company with fewer
than 400,000 shares that could possibly be issued in connection with all future
transactions. Moreover, the Company presently has 2.25 million shares of
Preferred Stock outstanding, out of a total of 5 million shares of Preferred
Stock authorized, and is similarly limited in the use of Preferred Stock in
potential future transactions.
If the amendment is approved, the Directors will have the authority under
Delaware law to issue the additional shares in the future for such consideration
as they shall determine. In certain cases, a transaction in which the Company
would issue shares in the future may itself be subject to approval by the
stockholders of the Company.
Proposal 2. RATIFICATION OF THE ESSEX BANCORP, INC. MANAGEMENT
RECOGNITION PLAN.
The Board of Directors recommends a vote to approve the Company's Management
Recognition Plan.
The Company is also submitting the Essex Bancorp, Inc. Management Recognition
Plan (the "MRP") for stockholder ratification at the Meeting. The MRP, which has
been approved by the Board, will not become effective absent stockholder
ratification.
The objective of the MRP is to enable the Company to retain and attract
personnel with experience and ability in key positions of responsibility. Those
6
eligible to receive benefits under the MRP include the Company's executive
officers and such other key employees of the Company and its subsidiaries
("Employees") as are designated by the Compensation Committee. The Compensation
Committee is presently comprised of non-employee directors Lacy, Hecht and
Radcliffe. The MRP does not limit the eligibility for benefits under the MRP;
accordingly, the number of persons eligible for benefits from time to time will
vary.
Under the MRP, restricted shares of Common Stock of the Company ("Plan Shares")
may be issued to Employees upon the terms and conditions specified in the MRP
and in the agreements implementing and evidencing the grant of the Plan Shares
("Agreements"). The maximum number of Plan Shares that may be issued is five
percent (5%) of the Company's issued and outstanding shares of common stock
(excluding Plan Shares and any shares issued upon the exercise of the Company's
presently outstanding warrants). The Compensation Committee will determine the
identity of those key Employees to whom Plan Shares will be issued, the number
of Plan Shares to be granted to each, and the terms and conditions under which
the Plan Shares will vest. Unless otherwise provided in the applicable
Agreements governing the grant of Plan Shares, Plan Shares held by grantees may
be voted by those grantees and all dividends payable with respect to such shares
will be paid to the grantees, regardless of whether the shares are vested.
Unless otherwise determined by the Compensation Committee, grantees will not
have to pay for the Plan Shares issued to them.
Plan Shares issued under the MRP may not be sold, pledged or otherwise disposed
of by the grantees until vested in accordance with the vesting schedule set
forth in the applicable Agreement. Under the MRP, Plan Shares cannot vest until
the earlier of the grantee's death, permanent disability, completion of three
(3) years of employment from the date of grant or a "change in control" of the
Company (defined in the MRP in the same manner as under Mr. Ross' Restated
Employment Agreement). MRP Agreements may provide for a longer vesting period.
Under current accounting standards, the Company would recognize compensation
expense over the vesting period equivalent to the fair value of shares granted.
The fair value of the shares granted would generally be determined at the date
of grant. If vesting is contingent on future events (other than continued
employment), then the measurement of compensation would be based on the fair
value of the shares at the date the contingency is resolved.
If a participant terminates employment prior to the earlier of the date he is
fully vested in his Plan Shares, the non-vested shares held by that participant
will be forfeited back to the Company and available for reissuance under the
MRP.
The Board of Directors of the Company may terminate or amend the MRP at any
time. Although the Company, acting through its Board of Directors, has the power
to amend the MRP, the Company may not, without the approval of the stockholders
of the Company, amend the MRP so as to increase the aggregate number of Plan
Shares that may be awarded under the MRP.
7
EXECUTIVE COMPENSATION
The following table sets forth a summary of certain information concerning the
compensation paid by the Company and its subsidiaries for services rendered in
all capacities during the periods indicated to Gene D. Ross, President and Chief
Executive Officer of the Company and the Bank, and Earl C. McPherson, President
and Chief Executive Officer of Essex First Mortgage Corporation, a wholly-owned
subsidiary of the Bank. Messrs. Ross and McPherson were the only executive
officers whose total compensation during 1997 exceeded $100,000.
Summary Compensation Table
Long Term Compensation
Awards Payouts
---------------------------------------
Securities
Name and Principal Restricted Underlying LTIP All Other
Position Year Salary Bonus Stock Options(2) Payouts Compensation(3)
- ---------------------------------------------------------------------------------------------------------------------------------
Gene D. Ross 1997 $204,615(1) N/A -- -- -- $12,355
Chief Executive Officer of 1996 $208,750(1) $20,000 -- -- -- $12,378
the Company and the Bank 1995 $206,154(1) N/A -- 189,175 -- $11,587
Earl C. McPherson 1997 $114,695 N/A -- -- -- $ 6,626
President and CEO of 1996 $121,800 $10,000 -- -- -- $ 6,582
Essex First Mortgage 1995 $116,000 N/A -- 64,292 -- $ 6,336
Corporation and Executive
Vice President of the Bank
(1) Salary includes payouts for unused vacation.
(2) These stock options became exercisable during 1996.
(3) Represents the Company's contribution to the Essex Savings Bank, F.S.B.
Supplemental Executive Retirement Plan ("SERP") and imputed income on
group-term life insurance. SERP contributions vest at 20% per year. As of
the fiscal year-end 1997 the contributions had fully vested. Interest on
the SERP accrues at a return equal to the interest rate on a one-year
certificate of deposit.
8
The following table provides information on stock appreciation rights ("SARs")
exercised and the value of unexercised stock options/SARs at December 31, 1997
by Messrs. Ross and McPherson:
AGGREGATED SAR EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION/SAR VALUES
Number of Value of
Securities Underlying Unexercised
Unexercised Stock In-the-Money Stock
SARs (#) Value ($) Options/SARs at Options/SARs at
Name Exercised Realized(1) End of Fiscal Year End of Fiscal Year
- ---- --------- ------------ ------------------ ------------------
Gene D. Ross 150,000 $703,125 -0- -0-
Chief Executive Officer
of the Company and
the Bank
- ---------------------------
(1) Mr. Ross's SARs were exercised November 3, 1997. The amount due to him
arising from such exercise has not been paid by the Company, primarily as
a result of notification from the Office of Thrift Supervision that
payment was not permitted until such time as the Company sustains
sufficient core profitability. The Company has not determined how or when
it will satisfy this obligation.
Compensation Committee Interlocks And Insider Participation
There are no known potential conflicts of interest or interlocks involving
Compensation Committee members and executive officers of the Company, the Bank,
or its subsidiaries.
Compensation Committee Report On Executive Compensation
Overview
The executive compensation program of the Company is administered by the
Compensation Committee, which is composed of the three independent, non-employee
directors listed below. The Compensation Committee reviews management's
compensation and Company benefit plans and makes recommendations regarding such
compensation and benefits plans to the Board of Directors. Review of and
recommendations regarding executive compensation are a significant part of that
responsibility. This report covers the Committee's policies and actions in 1997.
The Company's executive compensation "mission" philosophy is to provide
competitive levels of compensation, integrate management's pay with the
9
achievement of the Company's strategic and performance goals, reward
above-average corporate performance, recognize individual initiative and
achievement, align management's and stockholders' interests in the enhancement
of stockholder value through stock and stock option awards, and assist the
Company in attracting and retaining qualified management. These factors are
taken into account by the Compensation Committee in assessing executive
compensation generally and the compensation of the Chief Executive Officer in
particular.
For 1997, compensation of the Company's executive officers was comprised of
annual base salary. No long-term performance incentives (i.e., stock option and
related rights awards) were granted in 1997. Bonuses were not paid during 1997
due to the financial difficulties of and regulatory restrictions on the Company.
All salaries paid to the Company's executive officers are received by them in
their capacities as officers of the Company and its subsidiaries.
Each element of the Company's 1997 executive compensation, including the
compensation of the Chief Executive Officer, is discussed separately below.
Base Salary
The Compensation Committee recommends to the Board of Directors of the Company
and the Bank the salary level to be paid to each executive officer based upon
corporate and individual performance. Base salary is determined, in part, on the
basis of the position held by the executive and is assessed in comparison to the
salaries of similarly situated executives at selected financial institutions of
comparable size in the Company's geographic market. While comparable market
ranges based upon position and responsibilities are used as guides, salaries are
also based upon a subjective evaluation of the individual performance of each
officer, the overall contribution of the executive to the attainment of the
Company's financial goals, and the executive's record of achievement in
directing the activities for which the executive is responsible. With respect to
executive officers other than the Chief Executive Officer, the Committee also
consulted with the Chief Executive Officer as to the appropriate salary level.
In this regard, and as a result of the Company's initiatives to achieve core
profitability, Mr. Ross recommended to the Board of Directors base salary
reductions during 1997 not to exceed 10%. As a result of the foregoing, Mr.
Ross' base salary for 1997 decreased to $189,000 from $210,000 in 1996. Mr.
McPherson's base salary was also reduced to $109,620 from $121,800 in 1996.
Stock Options/Long-Term Incentives
The Company's Employee Stock Option Plan (the "Option Plan") is used to motivate
key employees and executive officers to achieve long-term results beneficial to
shareholders. The purpose of the Option Plan is to encourage participants to
maintain and increase their proprietary interest as shareholders in the Company
and to benefit from the long-term performance of the Company. Options are
awarded on a case-by-case basis based upon a subjective determination of a
reasonable level for each officer relative to the officer's
10
responsibilities, performance and prior grants. The Option Plan is administered
by the Compensation Committee, which has the power to determine those
individuals to whom options and rights will be granted, the number of shares,
the types of options and other terms and conditions of the options and rights.
COMPENSATION COMMITTEE
Roscoe D. Lacy, Jr.
Robert G. Hecht
Harry F. Radcliffe
Neither the Compensation Committee report above nor the stock performance graph
that follows is incorporated by reference in any prior or future Securities and
Exchange Commission (the "SEC") filings, directly or by reference to the
incorporation of Proxy Statements of the Company, unless such filing
specifically incorporates the report or the stock performance graph. SEC rules
provide that the compensation committee report and the stock performance graph
are not deemed to constitute "soliciting material" or to be filed with the SEC,
and are not subject to SEC Regulations 14A or 14C, except as provided in SEC
regulations, or to the liabilities under Section 18 of the Exchange Act.
Stock Performance Graph
The following graph provides a comparison with the stated indices of the
percentage change in the Company's cumulative total stockholder return on its
Common Stock for the period beginning January 19, 1995, the date the Company's
Common Stock began trading on the American Stock Exchange. The Company's Common
Stock performance is compared to the Total Return Index for the Nasdaq Stock
Market (U.S. Companies) which is a broad market equity index. This index
comprises all domestic common shares traded on the Nasdaq National Market and
the Nasdaq Small Cap Market.
In addition, the Company's Common Stock performance is compared to the
Asset-Size Index of Thrifts, under $250 million in total assets compiled by SNL
Securities, a company providing broad-based financial information services to
banks and thrifts.
The Company has not included in the following graph a comparison based on the
Asset-Size Index of Thrifts $250 million to $500 million in total assets, which
it had used in prior years. The Company believes that because of the Company's
current asset size, the use of that index is no longer appropriate. For purposes
of comparison, however, the total return comparisons for that index for each of
the periods listed in the graph were 100 at January 19, 1995, 118.04 at June 30,
1995, 134.74 at December 31, 1995, 141.18 at June 30, 1996, 166.04 at December
31, 1996, 201.33 at June 30, 1997, and 281.37 at December 31, 1997.
11
The following graph is designed to be only a general depiction of one measure of
corporate performance to be used by stockholders in evaluating the performance
of the Company.
01/19/95 06/30/95 12/31/95 6/30/96 12/31/96 6/30/97 12/31/97
-------------------------------------------------------------------------------------
Essex Bancorp, Inc. 100 18.76 37.50 43.80 43.76 20.00 78.76
Nasdaq Total US 100 121.83 138.17 156.41 169.94 190.19 208.53
SNL Thrift (under $250M) Index 100 115.43 137.45 140.36 152.49 178.48 234.61
EMPLOYMENT AND OTHER EXECUTIVE SERVICES AGREEMENTS AND
PLANS
Employment Agreement
Gene D. Ross is subject to a Restated Employment Agreement (the "Employment
Agreement") with the Company, Essex Mortgage Corporation, and the Bank (the
"Employers"). The Employers approved the Employment Agreement effective January
1, 1998. The Employment Agreement provides for the employment of Mr. Ross as the
President and Chief Executive Officer of each of the Employers, and is renewable
year-to-year by the Boards of Directors of each of the Employers. The respective
Boards of Directors have approved the Employment Agreement through December 31,
1998. Mr. Ross is presently entitled to base salary at the rate of $189,000 per
year, as well as to bonuses established from time to time by the Board of
Directors of the Company based on standards of financial performance. The
Employment
12
Agreement is currently terminable for cause by the Boards of Directors of the
Company or any of the Company's subsidiaries. For purposes of the Employment
Agreement, "cause" includes personal dishonesty, gross incompetence, willful
misconduct, breach of fiduciary duty involving personal profit, intentional
failure to perform stated duties, willful violation of any law, rule or
regulation (other than non-material violations) or final cease and desist order,
or a material breach of any provisions of the Employment Agreement. In the event
of a termination for cause, Mr. Ross will be paid only his salary and vacation
pay accrued and prorated to the date of termination. The Employment Agreement is
also terminable without cause by the Board of Directors of the Company or any of
its subsidiaries upon 45 days advance written notice. In the event of a
termination without cause, Mr. Ross will be paid his salary and vacation pay
through the date of termination, plus the severance benefit described below. The
Employment Agreement also provides for the indemnification of Mr. Ross for
losses and expenses arising out of the performance of his duties under the
Employment Agreement, to the extent permitted by applicable corporate law and
Federal regulations.
The Employment Agreement provides that upon termination of Mr. Ross without
cause (including non-renewal of his agreement by the Company), Mr. Ross will be
entitled to a lump sum within thirty (30) days of termination of an amount equal
to one hundred and fifty percent (150%) of his highest rate of annual salary in
effect during the period commencing on May 1, 1997 and ending on the date of his
termination. The Employment Agreement also provides for a lump sum payment
within thirty (30) days of a change of control of an amount equal to two hundred
percent (200%) of his highest rate of annual salary in effect during the period
commencing on May 1, 1997 and ending on the date of a change in control. For
this purpose, a "Change in Control" shall occur if and only if after December
31, 1997 a "person" or "group" (as such term is used in Sections 13(d) and 14(d)
of the Securities Exchange Act of 1934), directly or indirectly, first becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of securities of the Company representing twenty percent (20%) or
more of the combined voting power of the then outstanding securities of the
Company. In either event, termination without cause or a Change in Control, Mr.
Ross would be entitled to continuing health and medical insurance, disability
insurance and life insurance coverage for periods not exceeding two (2) years on
the same basis as was in effect immediately prior to the effective date of
termination or change in control, as appropriate.
Other Executive Services Agreements
As of January 1, 1998, the Bank entered into a restated executive services
agreement with Earl C. McPherson. Mr. McPherson's agreement is substantially
similar to Mr. Ross's. In the event of termination of his agreement or
employment or a change in control, Mr. McPherson would be entitled to a lump sum
payment equal to one hundred and fifty percent (150%) of his highest rate of
annual salary in effect during the period commencing on May 1, 1997 and ending
on the date of his termination or the Change in Control.
13
Supplemental Executive Retirement Plan
The Bank maintains the Essex Savings Bank, F.S.B. Supplemental Executive
Retirement Plan ("SERP") for certain of the highly compensated officers of the
Bank and its subsidiaries. The present participants in the Plan include Messrs.
Ross, McPherson, and four other officers. The SERP was implemented in 1993 for
the purpose of attracting and retaining key management personnel. The SERP is a
non-qualified deferred compensation plan.
Each SERP participant who is continuously employed by the Bank or its
subsidiaries for an entire calendar year is credited under the SERP for that
calendar year with a pension credit of 5 percent of such participant's
compensation for the year and such profit-sharing credit, if any, as the
Compensation Committee of the Board of Directors of the Bank determines, not in
excess of 5 percent of such participant's compensation for the calendar year.
Amounts credited to the bookkeeping accounts of participants under the SERP
remain general assets of the Bank and are not funded through a separate trust or
other investment vehicle. Each participant's account under the SERP is also
credited annually with a deemed investment rate of return equal to the interest
rate in effect on the last day of the prior plan year on a one-year certificate
of deposit issued by the Bank.
Participants in the SERP fully vest upon death, permanent disability or
retirement at or after age 65 or upon any earlier change in control, as
described in the SERP. In the event of a termination of a participant's
employment prior to death, permanent disability, attainment of age 65 or a
change in control, the participant's vested interest in his account under the
SERP is based upon his completed years of employment with the Bank or its
subsidiaries after 1992. Specifically, vesting occurs at the rate of 20 percent
per year for each such year of service completed after 1992. All amounts payable
under the SERP are payable in a lump sum. Amounts accrued under the SERP are not
taxable to participants, or deductible to the Bank, until paid. During the year
ended December 31, 1997, the Company accrued $37,808 of expense pursuant to the
SERP and all participants are fully vested.
TRANSACTIONS WITH CERTAIN RELATED PERSONS
In the ordinary course of business, the Bank and its subsidiaries have made
loans, and may continue to make loans in the future, to non-executive officers
and employees. Under the Bank's policy, such loans are made on substantially the
same terms, including collateral, as are available to the general public.
However, the Bank's policy does not permit the Company's or the Bank's directors
or executive officers to borrow from the Bank or its subsidiaries, and no
director or executive officer of the Company or the Bank had any outstanding
indebtedness to the Company or the Bank during 1997.
14
Since January 1, 1997, no director or executive officer of the Company or the
Bank has engaged in any transaction or series of similar transactions with the
Company, the Bank or the Company's other subsidiaries that involved amounts
exceeding $60,000.
Furthermore, management of the Company does not believe that any director or
officer or affiliate of the Company, or any record or beneficial owner of more
than 5% of the Common Stock of the Company, or any associate of any such
director, officer, affiliate or stockholder, is a party adverse to the Company
or any of its subsidiaries or has a material interest adverse to the Company or
any of its subsidiaries in any material proceeding.
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires the Company's executive officers and
directors, and persons who own more than ten percent of a registered class of
the Company's equity securities, to file reports of ownership and changes in
ownership with the SEC and the American Stock Exchange. Executive officers and
directors and greater than ten percent stockholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.
During 1997, based solely on its review of the copies of such forms received by
it, the Company is unaware of any executive officer, director, or person who
owns more than ten percent of the Company's Common Stock, or of any executive
officer or director who has failed to file required notices on a timely basis.
INDEPENDENT ACCOUNTANTS
The Board of Directors has selected the accounting firm of Price Waterhouse LLP,
independent accountants, to be the Company's independent accountants for the
year ended December 31, 1997. The Board of Directors has not yet made a
determination regarding the selection of independent accountants for the year
ending December 31, 1998. Under the Company's Certificate of Incorporation and
Bylaws, stockholders are not required to ratify or confirm the selection of
independent accountants made by the Board of Directors. It is anticipated that a
representative of Price Waterhouse, LLP will be present at the Meeting to answer
questions concerning the financial statements presented and to make a statement
if he so desires.
15
STOCKHOLDER PARTICIPATION
In the event that a stockholder wishes to submit a proposal for consideration by
the stockholders of the Company at the 1999 Annual Meeting of Stockholders (the
"1999 Annual Meeting"), then in order for the proposal to be includible in the
proxy statement for the 1999 Annual Meeting, such proposal must be received by
the Secretary of the Company no later than December 14, 1998.
The Bylaws of the Company provide a procedure for certain business to be brought
before the annual meetings of the Company's stockholders, and such proposals may
be properly brought before the meeting even if they are not includible in the
proxy statement for the meeting, so long as the proposing stockholder complies
with the advance notice provisions of the Bylaws. The 1999 Annual Meeting is
scheduled to be held on May 27, 1999. If written notice of business proposed to
be brought before the 1999 Annual Meeting is given to the Secretary of the
Company, delivered or mailed to and received at the principal executive offices
of the Company not later than February 26, 1999, such business may be brought
before the 1999 Annual Meeting. Information regarding the contents of the
required notice to the Company is to be found in the Company's Bylaws, which are
available from the Company upon request.
Stockholders are also permitted to submit nominations of candidates for the
Board of Directors. If a stockholder wishes to nominate a candidate to stand for
election as a director at the 1999 Annual Meeting, the nomination shall be made
by written notice to the Secretary of the Company, which must be delivered or
mailed to and received at the principal executive offices of the Company not
later than February 26, 1999. The requirements regarding the form and content of
the stockholder nominations for directors are also set forth in the Company's
Bylaws.
OTHER MATTERS WHICH MAY PROPERLY COME BEFORE THE MEETING
The Board of Directors knows of no business which will be presented for
consideration at the Meeting other than as stated in the Notice of Annual
Meeting of Stockholders. If, however, other matters are properly brought before
the Meeting, it is the intention of the persons named in the accompanying proxy
to vote the shares represented thereby on such matters in accordance with their
best judgment.
Whether or not you intend to be present at the Meeting, you are urged to return
your proxy promptly. If you are present at the Meeting and wish to vote your
shares in person, your proxy may be revoked by voting at the Meeting.
16
ANNUAL REPORT ON FORM 10-K AND ADDITIONAL INFORMATION
A copy of Form 10-K as filed with the Securities and Exchange Commission is
available upon written request. Requests for this or other financial information
about the Company should be directed to Investor Relations, Essex Bancorp, Inc.,
The Koger Center, Building #9, Suite 200, Norfolk, Virginia 23502, Telephone
(757) 893-1326.
By Order of the Board of Directors
/s/ Jennifer L. DeAngelo
Jennifer L. DeAngelo
Corporate Secretary
Essex Bancorp, Inc.
Norfolk, Virginia
April 14, 1998
YOU ARE CORDIALLY INVITED TO ATTEND THE MEETING IN PERSON. WHETHER OR NOT YOU
PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO SIGN AND PROMPTLY RETURN THE
ACCOMPANYING PROXY IN THE ENCLOSED POSTAGE-PAID ENVELOPE.
17
ESSEX BANCORP, INC.
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF ESSEX BANCORP,
INC., FOR USE ONLY AT THE ANNUAL MEETING OF STOCKHOLDERS TO BE HELD ON
MAY 28, 1998 AND ANY ADJOURNMENT THEREOF.
The undersigned hereby acknowledges prior receipt of the Notice of the Annual
Meeting of Stockholders (the "Meeting") and the Proxy Statement describing the
matters set forth below, and indicating the date, time and place of the
Meeting, and hereby appoints the Board of Directors of Essex Bancorp, Inc. (the
"Company"), or any of them, as proxy, each with full power of substitution to
represent the undersigned at the Meeting, and at any adjournment or
adjournments thereof, and thereat to act with respect to all votes that the
undersigned would be entitled to cast, if then personally present on the
matters referred to on the reverse side in the manner specified.
This Proxy, if executed, will be voted as directed, but, if no instructions are
specified, this Proxy will be voted FOR each of the proposals listed. Please
date and sign this Proxy on the reverse side and return it in the enclosed
envelope. This Proxy must be received by the Company no later than May 27,
1998.
This Proxy is revocable and the undersigned may revoke it at any time prior to
the Meeting by giving written notice of such revocation to the Secretary of the
Company. Should the undersigned be present and want to vote in person at the
Meeting, or any adjournment thereof, the undersigned may revoke this Proxy by
giving written notice of such revocation to the Secretary of the Company on a
form provided at the Meeting.
(Continued and to be signed on reverse side)
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" PROPOSALS 1 AND 2.
(1) The approval of an amendment to the Company's Certificate of Incorporation
to authorize additional shares of Common and Preferred Stock.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(2) The ratification of the Essex Bancorp, Inc. Management Recognition Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(3) To vote, in its discretion, upon any other matters that may properly come
before the Annual Meeting or any adjournment thereof. Management is not
aware of any other matters that will come before the Annual Meeting.
Date _______________________, 1998
__________________________________
Signature
__________________________________
Signature
Please sign your name exactly
as it appears hereon. Joint
accounts need only one
signature, but all stockholders
should sign if possible. When
signing as an administrator,
agent, corporation, officer,
executor, trustee, guardian or
similar position or under a
power of attorney, please add
your full title to your
signature.
PLEASE RETURN THIS PROXY CARD PROMPTLY
USING THE ENCLOSED POSTAGE-PAID ENVELOPE.