SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (AMENDMENT NO. )
Filed by the Registrant /x/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement Confidential, for Use of the
/x/ Definitive Proxy Statement Commission Only (as permitted
/ / Definitive Additional Materials by Rule 14a-6(e)(2)) / /
/ / Soliciting Material Pursuant to
Rule 14a-11(c) or Rule 14a-12
Frederick County Bancorp, Inc.
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box): /x/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
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2. Aggregate number 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 is calculated and state how it
was determined):
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4. Proposed maximum aggregate value of transaction:
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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 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration
statement number, or the Form or Schedule and the date of its filing.
1. Amount Previously Paid:
2. Form, Schedule or Registration Statement No.:
3 Filing Party:
4. Date Filed:
FREDERICK COUNTY BANCORP, INC.
30 West Patrick Street
Frederick, Maryland 21701
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD APRIL 13, 2004
TO THE SHAREHOLDERS OF FREDERICK COUNTY BANCORP, INC.:
The Annual Meeting of Shareholders of Frederick County Bancorp, Inc. will
be held at:
Holiday Inn at Francis Scott Key Mall
I-270 and Route 85
Frederick, Maryland
on April 13, 2004 at 7:00 p.m. for the following purposes:
(1) To elect eleven (11) directors to serve until their successors are
duly elected and qualified.
(2) To vote on an amendment of the articles of incorporation to
increase the authorized capital stock and authorize
reclassification of unissued shares.
(3) To vote on an amendment of the option plan to increase the number
of shares available for issuance.
(4) To transact such other business as may properly come before
the meeting or any adjournment or postponement thereof.
Shareholders of record as of the close of business on February 6, 2004
are entitled to notice of and to vote at the Annual Meeting or any adjournment
or postponement of the meeting.
By Order of the Board of Directors
Raymond Raedy
Secretary
Frederick, Maryland
March 8, 2004
PLEASE SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR
NOT YOU PLAN TO ATTEND THE MEETING IN PERSON. NO POSTAGE IS
REQUIRED IF MAILED IN THE UNITED STATES IN THE ENCLOSED
ENVELOPE. IF YOU ATTEND THE MEETING, YOU MAY, IF YOU DESIRE,
REVOKE YOUR PROXY AND VOTE IN PERSON. IF YOUR SHARES ARE NOT
REGISTERED IN YOUR NAME, YOU WILL NEED ADDITIONAL INFORMATION
FROM YOUR RECORDHOLDER IN ORDER TO VOTE IN PERSON.
FREDERICK COUNTY BANCORP, INC.
30 West Patrick Street
Frederick, MD 21701
------------------------------
ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
------------------------------
This proxy statement is being sent to shareholders of Frederick County
Bancorp, Inc., a Maryland corporation (the "Company"), in connection with the
solicitation of proxies by the Board of Directors of the Company for use at the
Annual Meeting of Shareholders to be held at 7:00 p.m. on April 13, 2004 (the
"Meeting"), and at any adjournment or postponement of the Meeting. The purposes
of the Meeting are:
(1) to elect eleven (11) directors to serve until their successors
are duly elected and qualified;
(2) to vote on an amendment of the Articles of Incorporation to
increase the authorized capital stock and authorize
reclassification of unissued shares;
(3) to vote on an amendment of the 2001 Stock Option Plan to
increase the number of shares available for issuance; and
(4) to transact such other business as may properly come before
the Meeting or any adjournment or postponement of the Meeting.
The Meeting will be held at:
Holiday Inn at Francis Scott Key Mall
I-270 and Route 85
Frederick, Maryland
This proxy statement and proxy card are being sent to shareholders of
the Company on or about March 8, 2004. A copy of our Annual Report to
Shareholders for the year ended December 31, 2003, which includes our audited
financial statements, also accompanies this proxy statement.
VOTING RIGHTS AND PROXIES
VOTING RIGHTS
Only shareholders of record at the close of business on February 6,
2004 will be entitled to notice of and to vote at the Meeting or any adjournment
or postponement of the Meeting. On that date, there were 727,576 shares of our
common stock, par value $0.01 per share, outstanding, held by approximately 677
shareholders of record. The common stock is the only class of the Company's
stock of which shares are outstanding. Each share of common stock is entitled to
one vote on all matters submitted to a vote of the shareholders. Shareholders do
not have the right to cumulate votes in the election of directors. The presence
at the Meeting, in person or by proxy, of not less than a majority of the total
number of outstanding shares of common stock is necessary to constitute a
quorum.
PROXIES
Properly executed proxies which are received by the Company in time to
be voted at the Meeting will be voted as specified by the shareholder giving the
proxy. In the absence of specific instructions, proxies received will be voted
FOR the election of the nominees for election as directors, FOR the amendment to
the Articles of Incorporation and FOR the amendment to the 2001 Stock Option
Plan. Management does not know of any matters other than those described in this
proxy statement that will be brought before the Meeting. If other matters are
properly brought before the Meeting, the persons named in the proxy intend to
vote the shares to which the proxies relate in accordance with their best
judgment.
The judges of election appointed by the Board of Directors for the Meeting will
determine the presence of a quorum and will tabulate the votes cast at the
Meeting. Abstentions will be treated as present for purposes of determining a
quorum, but as unvoted for purposes of determining the approval of any matter
submitted to the vote of shareholders. If a broker indicates that he or she does
not have discretionary authority to vote any shares of common stock on a
particular matter, such shares will be treated as present for general quorum
purposes, but will not be considered as present or voted with respect to that
matter.
Please sign, date, mark and promptly return the enclosed proxy in the
postage paid envelope provided for this purpose in order to assure that your
shares are voted. You may revoke your proxy at any time before it is voted at
the Meeting:
o by granting a later proxy with respect to the same shares;
o by sending written notice to Raymond Raedy, Secretary of the
Company, at the address noted above, at any time prior to the
proxy being voted; or
o by voting in person at the Meeting.
Attendance at the Meeting will not, in itself, revoke a proxy. If your
shares are held in the name of your bank or broker, you will need additional
documentation to vote in person at the meeting. Please see the voting form
provided by your recordholder for additional information regarding the voting of
your shares.
Many shareholders whose shares are held in an account at a brokerage
firm or bank will have the option to submit their proxies or voting instructions
electronically through the Internet or by telephone. Shareholders should check
the voting form or instructions provided by their recordholder to see which
options are available. Shareholders submitting proxies or voting instructions
electronically should understand that there may be costs associated with
electronic access, such as usage charges from Internet access providers and
telephone companies, that would be borne by the shareholder. To revoke a proxy
previously submitted electronically, a shareholder may simply submit a new proxy
at a later date before the taking of the vote at the Meeting, in which case, the
later submitted proxy will be recorded and the earlier proxy will be revoked.
2
VOTING SECURITIES AND PRINCIPAL HOLDERS
The following table sets forth certain information as of February 6,
2004 concerning the number and percentage of shares of the Company's common
stock beneficially owned by its directors, nominees for director, and executive
officers for whom compensation information is included in this proxy statement,
and by its directors and executive officers as a group. Except as otherwise
indicated, all shares are owned directly, and the named person possesses sole
voting and sole investment power with respect to all such shares. Except as
indicated below, the Company knows of no other person or persons, other than
street name nominee owners, who, beneficially or of record, own in excess of
five percent of the Company's common stock. Further, the Company is not aware of
any arrangement, which at a subsequent date may result in a change of control of
the Company.
Percentage of Class
Number of Shares Beneficially
Name Beneficially Owned(1) Owned(2)
- ----------------------------------------------------------- ------------------
Directors
Emil D. Bennett 18,750 2.58%
John N. Burdette 20,960(3) 2.86%
J. Denham Crum 18,460(4) 2.52%
George E. Dredden, Jr. 2,200(5) 0.30%
William S. Fout 16,210(6) 2.21%
William J. Kissner 32,210(7) 4.39%
Martin S. Lapera 53,010(8) 7.18%
30 West Patrick Street
Frederick, Maryland 21701
Kenneth G. McCombs 28,460(9) 3.88%
Farhad Memarsadeghi 28,000(10) 3.85%
Raymond Raedy 24,754(11) 3.37%
Ramona C. Remsberg 3,875(12) 0.53%
Executive Officers
William R. Talley, Jr. 18,947(13) 2.57%
All directors and executive
officers as a group (12 persons) 265,836(14) 33.89%
- -------------------------------------
(1) In accordance with Rule 13d-3 under the Exchange Act, a person is deemed to
be the beneficial owner, for purposes of this table, of any shares of
common stock with respect to which he or she has sole or shared voting
and/or investment power, including any shares which he or she has the right
to acquire within 60 days. The table includes shares owned by spouses,
other immediate family members in trust, shares held in retirement accounts
or retirement funds for the benefit of the named individuals, and other
forms of ownership, over which shares the persons named in the table
possess voting and investment power.
(2) Based on 726,576 shares outstanding as of February 6, 2004, except with
respect to persons holding options to acquire common stock exercisable
within sixty days of that date, in which event represents percentage of
shares issued and outstanding plus the number of such options held by such
person, and all directors and officers as a group, which represents
percentage of shares outstanding plus the number of such options held by
all such persons as a group.
(3) The shares attributable to Mr. Burdette include 3,250 shares held in trust
as to which he has voting and investment power. Also included in the total
shares owned are options, currently exercisable, to purchase 5,960 shares
of the Company's common stock.
(4) The shares attributed to Mr. Crum include 8,000 shares as to which Mr. Crum
shares voting and investment powers with his wife, and 4,500 shares held in
trust as to which Mr. Crum has voting and investment power. Also included
in the total shares owned are options, currently exercisable, to purchase
5,960 shares of the Company's common stock.
3
(5) The shares attributed to Mr. Dredden include 1,575 shares as to which Mr.
Dredden shares voting and investment powers with his wife. Also included in
the total shares owned are options, currently exercisable, to purchase 625
shares of the Company's common stock.
(6) The shares attributed to Mr. Fout include 1,750 shares as to which Mr. Fout
shares voting an investment power with his wife and 1,000 shares owned by
his wife as to which Mr. Fout disclaims beneficial ownership. Also included
in the total shares owned are options, currently exercisable, to purchase
5,960 shares of the Company's common stock.
(7) The shares attributed to Mr. Kissner include 11,250 shares held in trust as
to which Mr. Kissner had voting and investment power and 15,000 shares
owned by Mr. Kissner's wife, as to which Mr. Kissner disclaims beneficial
ownership. Also included in the total shares owned are options, currently
exercisable, to purchase 5,960 shares of the Company's common stock.
(8) The shares attributed to Mr. Lapera include 23,000 shares as to which Mr.
Lapera shares voting and investment power with his wife, 6,175 shares owned
by Mr. Lapera's wife and 375 shares owned by Mr. Lapera's wife with their
daughter as to which Mr. Lapera disclaims beneficial ownership. Also
included in the total shares owned are options, currently exercisable, to
purchase 10,960 shares of the Company's common stock.
(9) The shares attributed to Mr. McCombs include 22,500 shares as to which Mr.
McCombs shares voting and investment powers with his wife. Also included in
the total shares owned are options, currently exercisable, to purchase
5,960 shares of the Company's common stock.
(10) The shares attributed to Mr. Memarsadeghi include 12,000 shares owned by
Mr. Memarsadeghi's wife and 4,000 shares owned by his daughters as to which
Mr. Memarsadeghi disclaims beneficial ownership.
(11) The shares attributed to Mr. Raedy include 15,972 shares owned by Mr.
Raedy's wife with their sons and 807 shares owned by Mr. Raedy's wife, as
to which Mr. Raedy disclaims beneficial ownership. Also included in the
total shares owned are options, currently exercisable, to purchase 5,960
shares of the Company's common stock.
(12) Included in the total shares owned by Mrs. Remsberg are options, currently
exercisable, to purchase 1,125 shares of the Company's common stock.
(13) The shares attributed to Mr. Talley include 5,712 shares as to which Mr.
Talley shares voting and investment power with his wife. Also included in
the total shares owned are options, currently exercisable, to purchase
8,460 shares of the Company's common stock.
(14) Includes options, currently exercisable, to purchase an aggregate of 56,930
shares of common stock.
ELECTION OF DIRECTORS
Eleven (11) directors will be elected at the Meeting for a one-year
period until the 2004 Annual Meeting of Shareholders and until their successors
have been elected and qualified. Unless authority is withheld, all proxies in
response to this solicitation will be voted for the election of the nominees
listed below. Each nominee has indicated a willingness to serve if elected.
However, if any nominee becomes unable to serve, the proxies received in
response to this solicitation will be voted for a replacement nominee selected
in accordance with the best judgment of the proxy holders named therein. Each of
the nominees for election as director currently serves as a director, and has
served as a director since the Company became the holding company for Frederick
County Bank (the "Bank"). The term of service indicated for each director
includes service as a director of the Bank before the holding company was
established. The Board of Directors has determined that each director other than
Mr. Lapera is an "independent director" as that term is defined in Rule
4200(a)(15) of the National Association of Securities Dealers (the "NASD").
Vote Required and Recommendation of the Board of Directors. Nominees
receiving a plurality of the votes cast at the Meeting in the election of
directors will be elected as directors in the order of the number of votes
received. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF
THE NOMINEES TO THE BOARD OF DIRECTORS.
4
NOMINEES FOR ELECTION AS DIRECTORS
Set forth below is certain information concerning the nominees for
election as director of the Company. Except as otherwise indicated, the
occupation listed has been such person's principal occupation for a least the
last five years.
Emil D. Bennett. Mr. Bennett, 57, is currently President and owner of
Rock Creek Realty, a full-service real estate firm headquartered in Thurmont,
Maryland. He is also the President of Bennett Land Company, a builder/developer
with 40 years experience in the industry. Mr. Bennett is currently on the Board
of Directors of Mt. Olivet Cemetery and Vice President of Excalibur Condo
Associates in Ocean City. He is very involved in the local community, and is
currently a member of the National Association of Home Builders and of the
National Association of Realtors. Mr. Bennett was first elected as a director in
2002.
John N. Burdette. Mr. Burdette, 76, is a principal in the Frederick,
Maryland, law firm of Offutt, Horman, Burdette, P.A., where his practice
concentrates on Federal tax law, estate planning, and probate administration. He
joined Offutt, Horman, Burdette & Frey in 1983 following retirement as a Senior
Executive from the Internal Revenue Service. Mr. Burdette received degrees in
accounting and law from the University of Baltimore, and is a member of the
Maryland Bar. He was the Founding Chairman of the Board and is a Director and
officer of QUADS Trust Company, a Maine Non-Depository Custodial Trust Company;
is a Director of the QUADS Financial Group, a holding company, located in
Frederick, Maryland; serves as a Director of several tax-exempt corporations;
and is a member of the Rotary Club of Frederick. Mr. Burdette was first elected
as a director in 2001.
John Denham Crum. Mr. Crum, 58, is Owner/Manager of Crumland Farms,
LLC, Frederick, Maryland, a family business, which he joined in 1968. After
graduating from Frederick High School, he attended Frederick Community College,
and received his B.S. in Dairy Science from Iowa State University. Mr. Crum has
been involved in many farm organizations, including the Farm Bureau, Capital
Milk Producers, Maryland Virginia Milk Producers Coop, and the Holstein Freisian
Council. His club memberships include the Rotary Club of Frederick, Frederick
Jaycees (Director), Frederick Catoctin Club (Director), and Frederick Elks. Mr.
Crum has served on the local and corporate boards of the Homewood Retirement
Centers and has volunteered his time with the Frederick Community Foundation. He
is a member of the Frederick County Planning Commission. He also has served on
the Banner School Board, was active in the PTA of Monocacy Middle and Thomas
Johnson High Schools, and has volunteered for many church youth activities. Mr.
Crum was first elected as a director in 2001.
George E. Dredden, Jr. Mr. Dredden, 74, is Chairman of GED Inc. and
Publisher of The County Globe Newspaper. After 35 years as a Federal Government
Manager, he started Sussex Group, LLC, a management - consulting firm. Mr.
Dredden graduated from Morgan State University with a degree in Biology. He is
currently a member of Episcopal Ministries to the Aging, Inc. Board of Trustees,
Member Copper Ridge Inc. Board of Directors, and a member of the Frederick
County Office of Economic Development Business Development Advisory Council and
The Greater Frederick Development Corporation. He is a past President of the
Chamber of Commerce of Frederick County, and past Secretary of the Frederick
Memorial Heath Care System. Mr. Dredden is a member of St. John the Evangelist
Catholic Church in Frederick, Maryland and the Frederick Rotary Club. Mr.
Dredden was first elected as a director in 2001.
William S. Fout. Mr. Fout, 64, is the President of William S. Fout,
Inc., Frederick, Maryland, a crane and rigging service, which he founded in
1973. He is a graduate of Frederick High School and of the Virginia Military
Institute with a Bachelor of Science degree in Civil Engineering. Mr. Fout is a
Fellow member of the American Society of Civil Engineers and is a registered
engineer in both Maryland and Virginia. From 1969 through 1979, he served as the
Frederick County Highway Engineer. Mr. Fout was a member of the Frederick County
Planning Commission from 1983-1993, acting as chairman for the last 18 months.
He currently serves on the Board of Property Review of Frederick County. Mr.
Fout is a member of the Fredericktowne Rotary Club and of Calvary United
Methodist Church in Frederick, where he serves on the Administrative Board. Mr.
Fout was first elected as a director in 2001.
5
William J. Kissner. Mr. Kissner, 63, is a 50% owner and the Vice
President, Engineering of Miscellaneous Metals, Inc., Frederick, Maryland, a
steel fabrication and erection business, which he co-founded in 1977. He
attended the Columbia Technical School of Arlington, Virginia and the Washington
School of Drafting, in Washington, DC. Miscellaneous Metals, Inc. employs 160
people and has annual sales of $20 million. Mr. Kissner was first elected as a
director in 2001.
Martin S. Lapera. Mr. Lapera, 51, a resident of Frederick County,
Maryland, is President and Chief Executive Officer of the Company. Mr. Lapera
was Executive Vice President of FCNB Corp, Frederick, Maryland, until its
acquisition by BB&T Corporation in January 2001, and was Executive Vice
President, Chief Operating Officer and Chief Lending Officer of FCNB Bank, its
$1.6 billion subsidiary, and was Senior Vice President and Senior Credit Officer
of the Potomac region of BB&T Bank (comprised primarily of Frederick County),
until May 2001. Prior to joining FCNB Bank in 1985, Mr. Lapera was Vice
President of First National Bank of Maryland. Mr. Lapera received a degree in
Business from Towson State University and an MBA from the University of
Baltimore. Mr. Lapera was first elected as a director in 2001.
Kenneth G. McCombs. Mr. McCombs, 64, is a 50% owner and President of
Miscellaneous Metals, Inc., Frederick, Maryland, a steel fabrication and
erection business, which he co-founded in 1977. He attended the Columbia
Technical School of Arlington, Virginia and the Washington School of Drafting,
in Washington, DC. Miscellaneous Metals, Inc. employs 160 people and has annual
sales of $20 million. Mr. McCombs was first elected as a director in 2001.
Farhad Memarsadeghi. Mr. Memarsadeghi, 58, is currently President and
owner of Admar Construction, Incorporated, a residential housing development
firm headquartered in Frederick, Maryland. He is also the CEO of Admar Custom
Homes, and a General Partner of Coblentz Farm Limited Partnership. Mr.
Memarsadeghi graduated from Tehran University with a Master's Degree in
Architecture. He is very involved in the local community, and is currently a
member of the National Association of Home Builders. Mr. Memarsadeghi was first
elected as a director in 2002.
Raymond Raedy. Mr. Raedy, 63, is the primary organizer of the Company.
He is an investor and business owner residing in Frederick, Maryland. Since
1980, Mr. Raedy has owned several businesses. He currently is a partner in one
pharmacy (having sold another pharmacy and a medical supplies business in 1999)
and owns a real estate investment firm. He is a graduate of the University of
Notre Dame and the Washington College of Law at the American University. He is a
member of the Maryland and District of Columbia Bars, but has not engaged in the
practice of law since 1983. Mr. Raedy has held positions at the American
Enterprise Institute, the Republican National Committee, the Maryland
Legislature, and the United States Senate in the Sergeant at Arms Office. He has
been Counsel to the National Society of Public Accountants, the Health Insurance
Association of American, the American Bankers Associations, and an insurance
brokerage firm, Alexander & Alexander. Mr. Raedy is a lector at his church and
served as President of the Rotary Club of Frederick, MD, where he has lived
since 1974. Mr. Raedy was first elected as a director in 2001.
Ramona C. Remsberg. Mrs. Remsberg, 75, joined FCNB Bank as a clerk in
1945. During her 46 years of employment at FCNB, she rose to the position of
President, in which she served from 1988 until her retirement in 1991. Following
her retirement, she served as Vice Chairman of the Board for an additional three
years, and as a director until 1999. Mrs. Remsberg has served the Frederick
community in a number of capacities. She served as Campaign Chairman of the
United Way of Frederick for two years, and an additional two years as President.
After serving 17 years with the United Way, she recently resigned from the
Board. She is a member of the Hood College Board of Associates and serves on the
Presidential Leadership Scholarship Committee. She is also a member of the
Special Gifts Committee of the Frederick Memorial Hospital Development Council,
and a Director of Homewood at Crumland Farms of Frederick, Maryland, Inc. She
previously served for seven years as a member of the Board of the Community
Foundation of Frederick County, and one year as a Chairman of the Board. She is
an active member of the United Church of Christ in Jefferson, Maryland, where
she served as organist and choir director for 35 years. Mrs. Remsberg was first
elected as director in 2001.
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William R. Talley, Jr. Mr. Talley, 48, Executive Vice President and
Chief Financial Officer of the Company and the Bank, was previously Senior Vice
President and Chief Financial Officer of the Bank. Prior to joining the Company
he was Comptroller and Assistant Treasurer of FCNB Corp, Frederick, Maryland,
until its acquisition by BB&T Corporation in January 2001, and was Senior Vice
President and Comptroller of FCNB Bank, its $1.6 billion subsidiary, until the
merger of FCNB Bank into BB&T Bank in March 2001. He received his BS in
Accounting from Mount Saint Mary's College and is a member of the American
Institute of Certified Public Accountants. He is also a member of the Finance
Committee for the Board of Trustees for the Frederick Community College
Foundation, a member of the Board of Trustees for the Record Street Home for the
Aged and a member of the Rotary Club of Carroll Creek.
MEETINGS, COMMITTEES AND PROCEDURES OF THE BOARD OF DIRECTORS
Meetings. The Board of Directors of the Company met five times (5)
during the period October 1, 2003 to December 31, 2003 and prior to the
formation of the Company, the Board of Directors of the Bank met twenty times
(20) times during the period January 1, 2003 to September 30, 2003. All members
of the Board of Directors attended at least 75% of the meetings held by the
Board of Directors and by all committees on which such member served during the
2003 fiscal year or any portion thereof except for Mr. Fout and Mr. McCombs, who
attended 56% and 72% respectively.
Audit Committee. The Board of Directors has a standing Audit Committee.
The Audit Committee assists the Board of Directors of the Company in exercising
its fiduciary responsibilities for oversight of audit and related matters,
including corporate accounting, internal controls and regulatory compliance. Its
duties include: monitoring the Company's internal controls and procedures;
recommending the selection of independent auditors; reviewing the scope of
audits conducted by the independent auditors, as well as the results of their
audits; and reviewing policies relating to compliance with applicable banking
and other laws. The Board of Directors has adopted a written charter for the
Audit Committee, a copy of which is attached as Appendix A to this proxy
statement. The Audit Committee is currently comprised of Messrs. Burdette,
Dredden, Kissner and Raedy. Each of the members of the Audit Committee is
independent, as determined under NASD Rule 4200(a)(15). Each of the members of
the audit committee other than Mr. Raedy is independent under the definition of
independence adopted by the NASD for audit committee members in Rule
4350(d)(2)(A). During the 2003 fiscal year, the Audit Committee met ten (10)
times.
The audit committee is also responsible for the pre-approval of all
non-audit services provided by its independent auditors. Non-audit services are
only provided by the Company's auditors to the extent permitted by law.
Pre-approval is required unless a "de minimus" exception is met. To qualify for
the "de minimus" exception, the aggregate amount of all such non-audit services
provided to the Company must constitute not more than five percent of the total
amount of revenues paid by the Company to its independent auditors during the
fiscal year in which the non-audit services are provided; such services were not
recognized by the Company at the time of the engagement to be non-audit
services; and the non-audit services are promptly brought to the attention of
the committee and approved prior to the completion of the audit by the committee
or by one or more members of the committee to whom authority to grant such
approval has been delegated by the committee.
Nominations. The Board of Directors has a standing Corporate Governance
and Compensation Committee which performs the functions of the nominating
committee and recommends nominees for election as director to the Board of
Directors. The committee is currently comprised of Messrs. Bennett (Chairman),
Burdette, Crum, Raedy and Mrs. Remsberg. All of the members of the Corporate
Governance and Compensation Committee are independent directors with in the
meaning of NASD Rule 4200(a)(15). The committee, which met one time in 2003,
does not have a charter.
The Board will consider director candidates nominated by shareholders
during such times as the Company is actively considering obtaining new
directors. Shareholders who want to suggest a candidate for consideration should
send a letter, addressed to:
Chairman
Corporate Governance & Compensation Committee
Frederick County Bancorp, Inc.
P.O. Box 1100 Frederick, MD 21702-0100
7
The letter must include the following: (1) a statement that the writer
is a shareholder and is proposing a candidate for consideration; (2) the name
and contact information for the candidate; (3) a statement of the candidate's
business and educational experience; (4) information regarding the candidate's
qualifications to be director; (5) information regarding any relationship or
understanding between the proposing shareholder and the candidate; and (6) a
statement that the candidate is willing to be considered and willing to serve as
director if nominated and elected.
Because of the limited resources of the Company and the limited
occasion to seek additional directors, there is no assurance that: all
shareholder proposed candidates will be fully considered, all candidates will be
considered equally, or the proponent of any candidate or the proposed candidate
will be contacted by the Chairman, and no undertaking to do so is implied by the
willingness to consider candidates proposed by shareholders. Nominations must be
received by November 1 to be considered for director elections to be held the
following year. To date, the Company has not paid any fee to any third party to
identify or evaluate, or to assist it in identifying or evaluating, potential
nominees.
Compensation. The Corporate Governance and Compensation Committee
performs the function of a compensation committee. The committee is responsible
for making recommendations to the Board of Directors regarding executive
compensation and incentive compensation awards and plans.
Shareholders Communications with Board. Any shareholder is free to
communicate in writing with the Board of Directors on matters pertaining to the
Company by addressing their comments to:
Chairman of the Board
Frederick County Bancorp, Inc.
P.O. Box 1100
Frederick, MD 21702-0100
Your letter must state you are a shareholder. The nature of the
communication will determine to whom your letter will be forwarded. Based on the
nature of the communication, there is no assurance that all communications will
receive a response.
Director Attendance at the Annual Meeting. It is the policy of the
Company that all directors should attend each annual meeting of shareholders.
Ten directors attended the 2003 annual meeting of shareholders.
Audit Committee Report
The Audit Committee has been appointed to assist the Board of Directors
in fulfilling the Board's oversight responsibilities by reviewing the financial
information that will be provided to the shareholders and others, the systems of
internal controls established by management and the Board and the independence
and performance of the Company's audit process.
The Audit Committee has:
(1) reviewed and discussed with management the audited financial
statements included in the Company's Annual Report and Form 10-KSB;
(2) discussed with McGladrey & Pullen, LLP, the Company's independent
auditors, the matters required to be discussed by statement of Auditing
Standards No. 61, and has received the written disclosures and letter from
McGladrey & Pullen, LLP, as required by Independence Standards Board Standard
No. 1; and
(3) discussed with McGladrey & Pullen, LLP, its independence.
8
Based on these reviews and discussions, the Audit Committee has recommended to
the Board of Directors that the audited financial statements be included in the
Company's annual report on Form 10-KSB for the year ended December 31, 2003. The
Audit Committee has also considered whether the amount and nature of non-audit
services provided by McGladrey & Pullen, LLP, is compatible with the auditor's
independence.
Members of the Audit Committee
John N. Burdette George E. Dredden, Jr.
William J. Kissner Raymond Raedy
DIRECTORS' COMPENSATION
Neither the Company nor the Bank paid any director or committee fees
for the fiscal year ended December 31, 2003.
EXECUTIVE OFFICER COMPENSATION AND CERTAIN TRANSACTIONS
COMPENSATION - OVERVIEW
The following table sets forth a comprehensive overview of the
compensation for Mr. Lapera, the President of the Company, and executive
officers of the Company who received total salary and bonuses of $100,000 or
more during the fiscal year ended December 31, 2003.
SUMMARY COMPENSATION TABLE
Long-term
Annual Compensation Compensation Awards
----------------------------------------- -------------------
Securities All Other
Name and Principal Position Year Salary Bonus(3) Underlying Options Compensation($)(4)
- -------------------------------- ------------ ------------- ------------- ------------------- -----------------
Martin S. Lapera, Director, 2003 $170,593 $ -- -- --
President and Chief Executive 2002 156,154 16,000 -- --
Officer of the Company 2001 26,723(1) -- 10,960 --
and the Bank
William R. Talley, Jr., 2003 $135,441 $ -- -- --
Executive Vice President and 2002 125,000 12,500 -- --
Chief Financial Officer of the 2001 72,115(2) -- 8,460 --
Company and the Bank
(1) Accrued salary for the period October 18 to December 31, 2001.
(2) For the period May 21 to December 31, 2001.
(3) Amounts shown as bonus compensation accrue in the year indicated and are
paid in the following year.
(4) All other compensation was less than 10% of total annual salary and bonus.
No option or other stock based compensation was paid or granted to any executive
officer in 2003.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Underlying Unexercised Options In-The-Money Options
Shares Acquired at December 31, 2003 at December 31, 2003
Name on Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable
- ------------------------ ---------------- -------------- ------------------------------ -------------------------
Martin S. Lapera -- -- 10,960/-- $120,560/$--
William R. Talley, Jr. -- -- 8,460/-- $93,060/$--
- ------------------------
9
EMPLOYMENT AGREEMENTS AND BENEFIT PLANS
Employment Agreements. Mr. Lapera has an employment agreement with the
Company pursuant to which he serves as President and Chief Executive Officer of
the Company. Mr. Lapera, pursuant to his agreement, which commenced as of
September 14, 2001 and runs until October 1, 2006, is entitled to an annual base
salary of $164,800. He is also entitled to $164,800 of Company paid life
insurance (at standard rates), and participation in all other health, welfare,
benefit, stock option and bonus plans, if any, generally available to officers
or employees of the Company.
Mr. Talley has an employment agreement with the Company pursuant to
which he serves as Executive Vice President and Chief Financial Officer of the
Company. Mr. Talley, pursuant to his agreement, which commenced as of September
14, 2001 and runs until October 1, 2006, is entitled to an annual base salary of
$130,625. He is also entitled to $130,625 of Company paid life insurance (at
standard rates), and participation in all other health, welfare, benefit, stock
option and bonus plans, if any, generally available to officers or employees of
the Company.
If either Mr. Lapera's or Mr. Talley's employment is terminated without
cause for reasons other than death, disability or in connection with a change in
control (as defined), they would be entitled to receive continued payment of
base salary through the end of the term of their agreements, subject to their
compliance with certain non-compete provisions of the employment agreements. In
the event of termination of their employment, or reduction in their compensation
or position or responsibilities within 120 days before or after a change in
control, or the voluntary termination of employment within the 30 day period
following a change in control, Mr. Lapera and Mr. Talley would be entitled to
receive lump sum payments equal to 2.99 times their base salaries, subject to
adjustment to avoid adverse tax consequences resulting from characterization of
such amount for tax purposes as a "parachute payment."
Employee Benefit Plans. The Company provides a benefit program, which
includes health and dental insurance, life and long term and short-term
disability insurance, a 401(k) plan for substantially all full time employees,
and an Executive and Director Deferred Compensation Plan. The Company also has
adopted the 2001 Stock Option Plan.
401(k) profit sharing plan. The Company has a Section 401(k) profit
sharing plan covering employees meeting certain eligibility requirements as to
minimum age and years of service. Employees may make voluntary contributions to
the Plan through payroll deductions on a pre-tax basis. The Company makes
discretionary contributions to the Plan based on the Company's earnings. The
Company's contributions are subject to a vesting schedule (20 percent per year)
requiring the completion of five years of service with the Company, before these
benefits are fully vested. A participant's account under the Plan, together with
investment earnings thereon, is normally distributable, following retirement,
death, disability or other termination of employment, in a single lump-sum
payment. The Company made $32,000 in contributions to the Plan in 2003.
Deferred Compensation Plan. On January 28, 2002, the Board of Directors
of the Bank approved the Frederick County Bank Executive and Director Deferred
Compensation Plan (the "Plan"). The Plan is effective January 1, 2002 for
certain executive employees and directors of the Bank. The purpose of the Plan
is to (1) allow participants an opportunity to elect to defer the receipt of
compensation ("Participant Compensation Deferral"), and (2) provide a vehicle
for the Bank to credit amounts on a tax deferred basis for employee participants
("Employer Contribution Credit"). The Employer Contribution Credits are subject
to various vesting restrictions and are available solely to Plan participants
who are employees of the Bank. The Plan is intended to be a "top hat" plan under
various provisions of the Employee Retirement Income Security Act of 1974, as
amended.
Each Plan participant's account will be adjusted for credited interest
or increases or decreases in the realizable net asset value, as applicable, of
the designated deemed Plan investments. Benefit payments under the Plan, which
in the aggregate equal the participant's vested account balance, will be paid in
a lump sum or in five or ten substantially equal, annual installments,
commencing on the date or dates selected by the Plan's participants.
Stock Option Plan. The Company maintains a stock option plan, adopted
by shareholders at the 2002 annual meeting, to attract, retain, and motivate key
officers and directors of the Company by providing them with a stake in the
success of the Company as measured by the value of its shares.
10
The 2001 Stock Option Plan (the "Option Plan") is administered by a
committee (the "Committee"), appointed by the Board of Directors, consisting of
not less than three (3) members of the Board who are not employees. In the
absence at any time of a duly appointed Committee, the Option Plan will be
administered by the full Board of Directors.
The purpose of the Option Plan is to advance the interests of the
Company by providing directors and selected key employees of the Company with
the opportunity to acquire shares of common stock. By encouraging such stock
ownership, the Company seeks to attract, retain and motivate the best available
personnel for positions of substantial responsibility and to provide additional
incentive to directors and key employees of the Company and any affiliate to
promote the success of the business as measured by the value of its shares, and
to increase the commonality of interests among directors, key employees and
other shareholders.
Under the Option Plan, 71,524 shares of common stock may be issued upon
the exercise of "Options" granted under the Option Plan. At the Meeting, the
shareholders are being asked to approve an amendment to the Option Plan which
would increase the number of shares available for issuance upon the grant of
Options by 58,476 to an aggregate of 130,000.
Under the Option Plan, the Committee may grant incentive stock options
("ISOs") or non-incentive stock options ("Non-ISOs") to such key employees as
the Committee may designate, and may grant Non-ISOs to directors of the Company.
ISOs and Non-ISOs are collectively referred to as "Options." In the event of any
merger, consolidation, recapitalization, reorganization, reclassification, stock
dividend, split-up, combination of shares or similar event in which the number
or kind of shares is changed without receipt or payment of consideration by the
Company, the Committee will adjust both the number and kind of shares of stock
as to which Options may be awarded under the Option Plan, the affected terms of
all outstanding Options, and the aggregate number of shares of common stock
remaining available for grant under the Option Plan. If any Option expires,
becomes unexercisable or is forfeited for any reason without having been
exercised or becoming vested in full, the shares of common stock subject to such
Options will be available for the grant of additional Options unless the Option
Plan has expired or otherwise been terminated.
The exercise price of Options may not be less than 100% of the fair
market value of the common stock on the date of grant. In the case of an
optionee who owns more than 10% of the outstanding common stock on the date of
grant, the option price may not be less than 110% of fair market value of the
shares. As required by federal tax laws, to the extent that the aggregate fair
market value (determined when an ISO is granted) of the common stock with
respect to which ISOs are exercisable by an optionee for the first time during
any calendar year (under all plans of the Company) exceeds $100,000, the Options
will be treated as Non-ISOs, and not as ISOs. A Participant may, under the
Option Plan, receive additional options notwithstanding the earlier grant of
options and regardless of their having been exercised, expired, or surrendered.
The Option Plan has a term of 10 years from October 18, 2001, its
effective date, after which date no Options may be granted. The maximum term for
an Option is 10 years from its date of grant, except that the maximum term of an
ISO may not exceed five years if the optionee owns more than 10% of the common
stock on the date of grant.
As of December 31, 2003, the Company had Options for the purchase of
66,830 shares of common stock issued and outstanding under the Option Plan. As
of the date hereof, options to acquire 4,694 shares of common stock remain
available for issuance pursuant to the Option Plan.
TRANSACTIONS WITH DIRECTORS, EXECUTIVE OFFICERS, AND ASSOCIATES
During the past year, the Company has had, and the Company expects to
have in the future, banking transactions in the ordinary course of business with
its directors and officers as well as with their associates. These transactions
have been made on substantially the same terms, including interest rates,
collateral, and repayment terms, as those prevailing at the same time for
comparable transactions with unaffiliated parties. The extensions of credit to
these persons have not and do not currently involve more than the normal risk of
collectability or present other unfavorable features. At December 31, 2003,
loans to directors and officers and their respective associates, including loans
guaranteed by such persons, aggregated $2.04 million, which represented
approximately 16.05% of shareholders' equity.
11
The Company entered into a lease in July 2003 for approximately 3,800
square feet of office space owned by a partnership of which Messrs. Burdette,
Lapera and Raedy are members. The lease term commenced on July 10, 2003 and will
expire on July 10, 2008. Pursuant to this lease, monthly payments of $3,715 are
required during the first twelve months. Subsequent twelve-month periods are
subject to a five percent increase thereafter. The Company believes that the
lease is on terms which are at least as favorable to the Company as could be
obtained in a transaction with an unaffiliated third party.
On January 2, 2002, the Company entered into a consulting contract with
Raymond Raedy, a shareholder and director of the Company. This agreement engages
Mr. Raedy to devote his efforts to assist with facilities management, Company
expansion and other projects as directed by the Company's President and will
expire on December 31, 2006. As compensation for his services under this
agreement, Mr. Raedy will be paid at a rate not to exceed $35,000 per year, or
$175,000 over the agreement's term.
PROPOSAL 2 - AMENDMENT OF THE ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED CAPITAL STOCK AND AUTHORIZE RECLASSIFICATION OF UNISSUED SHARES
At the meeting, the shareholders are being asked to approve an
amendment to the Company's Articles of Incorporation which would increase the
number of authorized shares of capital stock from 2,000,000 shares to 10,000,000
shares, all of which are initially classified as common stock. The amendment
would also authorize the reclassification of unissued shares of capital stock by
the Board of Directors. The Board of Directors is proposing the amendment to
ensure that a sufficient amount of capital stock is available for issuance in
the future by the Company, upon action of the Board of Directors, and to enable
the Board of Directors to respond to situations where the issuance of a
different class of capital stock might be advisable. The Board of Directors
believes that the proposed amendment is in the best interest of the Company and
unanimously recommends a vote FOR the proposed amendment.
The Amendment. The Board of Directors has approved, subject to
shareholder approval, the amendment of Article III of the Articles of
Incorporation to read in its entirety as follows:
"ARTICLE III. Capital Stock. The number of shares of stock of
all classes which the Corporation shall have authority to issue is ten
million (10,000,000), all of which shall initially be common stock, par
value $.01 per share and the aggregate par value of all shares of all
classes of stock is $100,000. The Board of Directors, by action of a
majority of the full Board of Directors, shall have the authority to
issue the shares of capital stock from time to time on such terms as it
may determine. The Board of Directors may classify and reclassify any
unissued shares of capital stock by setting or changing in any one or
more respects the preferences, conversion or other rights, voting
powers, restrictions, limitations as to distributions and dividends,
qualifications or terms or conditions of redemption of such shares of
stock."
Purpose of Amendment. The Articles of Incorporation currently authorize
the issuance of up to 2,000,000 shares of common stock. As of the record date
for the meeting, the Company had 727,576 shares of common stock outstanding and
71,524 shares of common stock reserved for issuance to directors, officers and
employees under the Company's stock option plans, leaving only 1,200,900
available shares. The Company does not have an authorized class of preferred
stock. If the shareholders approve the proposed amendment and the amendment to
the Option Plan being presented at the Meeting, there will be 9,142,424
authorized, unissued and unreserved shares of capital stock available for
issuance in capital raising transactions, as stock dividends, stock splits,
possible corporate acquisitions or other transactions, possible future employee
benefit plans or for other corporate purposes.
The amendment also authorizes the Board of Directors to reclassify any
unissued shares of capital stock by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to distributions and dividends, qualifications or
terms or conditions of redemption of such stock. The Board of Directors will not
have the authority to change any outstanding shares of stock. This provision
will allow the Board of Directors to create a series of stock with different
rights than the common stock if it becomes advisable to do so, without further
action by the shareholders, and without the creation of a separate class of
undesignated, or "blank check" preferred stock. The Company does not have an
existing class of blank check preferred because the Bank did not have, and under
the administrative policy of its regulator was not permitted to have, blank
check preferred stock at the time of the share exchange through which the
holding company was formed.
12
While the Company currently does not have any immediate plans to issue
additional capital stock (other than shares of common stock pursuant to various
compensation and benefit plans currently in existence and possible stock splits
or dividends on the common stock), the Board of Directors may determine that the
issuance of additional stock in the future, either in connection with capital
raising, a corporate acquisition or otherwise, is in the best interests of the
Company. In that event, the shares of common stock available as of the record
date could be insufficient. Therefore, the Board is proposing an amendment of
the Articles of Incorporation to increase the authorized capital stock from
2,000,000 to 10,000,000 shares, and to permit the reclassification of shares.
The existence of shares of authorized shares of capital stock and
shares which can be reclassified by the Board of Directors would enable us to
meet possible contingencies or opportunities in which the issuance of shares of
common stock or shares of other classes of capital stock, such as preferred
stock, may be advisable, such as in the case of acquisition or financing
transactions. Having shares of capital stock available for issuance gives us
flexibility in that it would allow us to avoid the expense and delay of calling
a meeting of shareholders at the time the contingency or opportunity arises. Any
reclassification of shares of capital stock and issuance of such shares with
voting rights or which is convertible into voting shares could adversely affect
the voting power of the holders of common stock. Shares of capital stock could
be reclassified into shares which have the right to receive dividends or other
distributions, such as upon the liquidation of the Company, before the holders
of common stock receive dividends or distributions.
The existence of shares of authorized shares of capital stock and
shares which can be reclassified by the Board of Directors which can be issued
without additional shareholder approval could have the effect of rendering more
difficult or discouraging hostile takeover attempts or of facilitating a
negotiated acquisition. Such shares, which may be convertible into shares of
common stock, could be issued to shareholders or to a third party in an attempt
to frustrate or render a hostile acquisition more expensive.
Authorized, unissued and unreserved capital stock may be issued from
time to time for any proper purpose without further action of the shareholders,
except as required by the Articles of Incorporation and applicable law. Each
share of common stock authorized for issuance has the same rights as, and is
identical in all respects to, each other share of common stock. Issuance of
newly authorized shares of common stock will not affect the rights, such as
voting and liquidation rights, of the shares of common stock currently
outstanding. Shareholders will not have preemptive rights to purchase any
subsequently issued shares of capital stock, except as the Board of Directors
may specifically authorize in connection with a specific offering of shares.
Vote Required and Recommendation of the Board of Directors. Approval of
the proposed amendment to the Articles of Incorporation requires the favorable
vote of at least two thirds of the outstanding shares entitled to vote. It is
expected that all of the 208,906 shares, or 28.71%, of the common stock
outstanding as of February 6, 2004, over which directors of the Company exercise
voting power will be voted for the proposed amendment. THE BOARD OF DIRECTORS
UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" APPROVAL OF THE PROPOSED
AMENDMENT.
PROPOSAL 3 - AMENDMENT OF THE OPTION PLAN
TO INCREASE THE NUMBER OF SHARES AVAILABLE FOR ISSUANCE
At the meeting, the shareholders are being asked to approve an
amendment to the Company's Option Plan in order increase the number of shares of
common stock reserved for issuance under the plan, and the number of shares of
common stock for which options may be granted, by 58,476 to an aggregate of
130,000.
The purpose of the Option Plan is to advance the interests of the
Company by enabling it to attract and retain outstanding key management
employees and non-employee directors, and to provide an incentive to, and
encourage, stock ownership in the Company by those employees and directors
responsible for the policies and operations of the Company. By encouraging such
stock ownership, the Company seeks to attract, retain and motivate the best
available personnel for positions of substantial responsibility and to provide
additional incentive to key employees and directors of the Company and its
affiliates to promote the success of the business as measured by the value of
its shares, and to increase the commonality of interests among key employees,
directors and other shareholders.
The principal features of the Option Plan are described above under the
caption "Executive Officer Compensation and Certain Transactions - Stock Option
Plan". Except as proposed to be amended hereby, the provisions of the Option
Plan as currently in effect will continue in full force and effect.
13
REASONS FOR THE AMENDMENT
Since adoption of the Option Plan, awards for an aggregate of 66,830
shares have been granted to directors, officers and employees of the Company and
the Bank or reserved for future issuance in accordance with the terms of
outstanding awards. As of February 6, 2004 only 4,694 shares remain available
for issuance under the Option Plan. The Board of Directors feels that this
number of shares is inadequate to permit the Company to appropriately compensate
employees, officers and directors in coming years. If the amendment to the
Option Plan is approved, an aggregate of 63,170 shares will be available for
issuance upon the exercise of future options grants.
The Board of Directors believes that the availability of a stock based
compensation program intended to provide directors, officers and key employees
with at least a moderate portion of their overall compensation package, and that
will enable them to participate in the growth and prosperity of the Company as
reflected in the stock price, is necessary in order to attract and retain high
caliber directors, officers and employees in key positions. The Board of
Directors also believes that such a plan is necessary to align the interests of
such persons with the interests of the Company's stockholders, which will
increase their incentive to improve the Company's performance. As such, the
Board of Directors believes that the authorization of additional shares for
issuance under the Option Plan is necessary in order to permit the Company's
continued growth and profitability.
If the amendment to the Option Plan is approved, the total number of
shares subject to issuance under outstanding and future awards pursuant to the
Option Plan will be 130,000 or 17.87% of the outstanding common stock, and
15.16% of the common stock assuming the exercise of all Options.
Certain Federal Income Tax Consequences of the Option Plan. A recipient
recognizes no taxable income at the time an Option is granted under the Option
Plan. With regard to Non-ISO's, ordinary income is recognized by the recipient
at the time of his or her exercise of an Option. The amount of income equals the
difference between the exercise price and the fair market value of the shares on
the date of exercise. Tax withholding is required on such income. When a
recipient disposes of shares acquired upon exercise of the Option, any amount
received in excess of the fair market value of the shares on the date of
exercise is treated as long or short-term capital gain, depending upon the
holding period of the shares, and if the amount received is less than the fair
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 the
shares.
With regard to ISO's, no income is recognized by a recipient upon
exercise. However, the excess of the fair market value of the shares received on
exercise over the exercise price is an adjustment to the recipient's taxable
income for purposes of computing the recipient's alternative minimum taxable
income. Assuming compliance with applicable holding period requirements for
ISO's, a recipient realizes long-term capital gain or loss when he disposes of
his shares, measured by the difference between the exercise price and the amount
received for the shares at the time of disposition. If the recipient disposes of
shares acquired by the exercise of the Option before the expiration of at least
one year from the date of exercise and two years from the date of grant of the
Option, any amount realized from such disqualifying disposition is taxable as
ordinary income in the year of disposition to the extent that the lesser of (i)
fair market value on the date the Option was exercised or (ii) the amount
realized upon such disposition, exceeds the exercise price. Any amount realized
in excess of fair market value on the date of exercise will be treated as long
or short-term capital gain, depending upon the holding period of the shares. If
the amount realized upon such disposition is less than the exercise price, the
loss is treated as long or short-term capital loss, depending upon the holding
period of the shares.
No deduction is allowed to the Company for federal income tax purposes
at the time of grant of a Non-ISO or at the time of grant or exercise of an ISO.
The Company is entitled to a deduction for federal income tax purposes at the
same time and in the same amount as the recipient is considered to have
recognized ordinary income in connection with the exercise of a Non-ISO. In the
event of a disqualifying disposition of shares received upon exercise of an ISO,
the Company is entitled to a deduction for the amount taxable to the recipient
as ordinary income.
Financial Effects to the Company of Grants of Options. The Company
receives no monetary consideration for the grant of Options under the Option
Plan. It will receive no monetary consideration other than the Option exercise
price for shares of common stock issued to Optionees upon the exercise of their
Options. Under current accounting standards, recognition of compensation expense
is not required when options qualified under Section 423 of the Code are
granted. Proposed changes in accounting standards may affect the financial
effect to the Company of the grant of
14
options under the Purchase Plan. The Company intends to monitor developments in
accounting requirements and will consider their impact in future compensation
determinations.
Vote Required and Recommendation of the Board of Directors. The
affirmative vote of a majority of the votes cast at the meeting on the proposal
to amend the Option Plan is required for the approval of the amendment to the
Option Plan. It is expected that all of the 208,906 shares, or 28.71%, of the
common stock outstanding as of February 6, 2004, over which directors of the
Company exercise voting power will be voted for the proposed amendment. THE
BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and persons who own more than ten
percent of the common stock, to file reports of ownership and changes in
ownership on Forms 3, 4 and 5 with the Securities and Exchange Commission, and
to provide the Company with copies of all Forms 3, 4, and 5 they file.
Based solely upon the Company's review of the copies of the forms,
which it has received and written representations from the Company's directors
and executive officers, the Company is not aware of any failure of any such
person to comply with the requirements of Section 16(a).
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors has selected McGladrey & Pullen, LLP,
independent public accountants, to audit the accounts of the Company for the
fiscal year ended December 31, 2004. The Company has been advised by McGladrey &
Pullen, LLP, that neither that firm nor any of its associates has any
relationship with the Company, other than the usual relationship that exists
between independent public accountants and clients. That firm audited the
Company's financial statements for 2003. Representatives of McGladrey & Pullen,
LLP, are expected to be present at the Annual Meeting and will have an
opportunity to make a statement if they so desire and to respond to appropriate
questions.
The following table presents fees for professional audit services
rendered by McGladrey & Pullen, LLP for the audit of Frederick County Bancorp
Inc.'s annual consolidated financial statements for the years ended December 31,
2002 and 2003, and fees billed for other services rendered by McGladrey &
Pullen, LLP and RSM McGladrey, Inc. (an affiliate of McGladrey & Pullen, LLP).
2002 2003
----------- ----------
Audit Fees (1) $42,425 $59,450
Audit-Related Fees (2) 425 -
Tax Services (3) 2,500 2,500
(1) Audit fees consist of fees for professional services rendered for the audit
of Frederick County Bancorp, Inc.'s financial statements and review of
financial statements included in Frederick County Bancorp, Inc.'s quarterly
reports and services normally provided by the independent auditor in
connection with statutory and regulatory filings or engagements.
(2) Audit-related fees are fees principally for professional services rendered
for technical accounting consulting and research.
(3) Tax services fees consist of compliance fees for the preparation of original
tax returns.
COSTS OF SOLICITATION
The cost of the proxy solicitation is being borne by the Company. In
addition to the use of the mail, proxies may be solicited personally or by
telephone, by officers, regular employees or directors of the Company, who will
not be compensated for any such services.
15
Brokerage firms, fiduciaries and other custodians who forward
soliciting material to the beneficial owners of shares of common stock held of
record by them will be reimbursed for their reasonable expenses incurred in
forwarding such material.
FORM 10-K ANNUAL REPORT
THE COMPANY WILL PROVIDE TO ANY SHAREHOLDER SOLICITED HEREBY, WITHOUT
CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-KSB FOR THE YEAR ENDED
DECEMBER 31, 2003 FILED WITH THE SECURITIES AND EXCHANGE COMMISSION, UPON
WRITTEN REQUEST. REQUESTS SHOULD BE DIRECTED TO WILLIAM R. TALLEY, JR.,
EXECUTIVE VICE PRESIDENT AND CHIEF FINANCIAL OFFICER, FREDERICK COUNTY BANCORP,
INC., P.O. BOX 1100, FREDERICK, MARYLAND 21702-0100.
SHAREHOLDER PROPOSALS
All shareholder proposals intended to be presented at the 2005 Annual
Meeting of Shareholders must be received by the Company at the Company's
principal office in writing not later than November 7, 2004 for inclusion in the
Company's proxy statement and form of proxy relating to that meeting. Any such
proposals shall be subject to the requirements of the proxy rules adopted under
the Securities Exchange Act of 1934. The Company must receive written notice of
any shareholder proposal or nomination to be acted upon at the next annual
meeting, for which inclusion in the Company's proxy materials is not sought, not
less than 30 days or more than 60 days prior to the 2005 Annual Meeting of
Shareholders, which will be held on or about April 13, 2005.
OTHER BUSINESS
The Board of Directors knows of no matters to be presented for action
at the meeting other than those mentioned above. However, if any other matters
properly come before the meeting, it is intended that the persons named in the
accompanying proxy will vote on such other matters in accordance with their best
judgment.
By Order of the Board of Directors
FREDERICK COUNTY BANCORP, INC.
March 8, 2004 Raymond Raedy, Secretary
16
EXHIBIT A
AUDIT COMMITTEE CHARTER
I. PURPOSE
The primary function of the Audit Committee is to assist the Board of Directors
in fulfilling its oversight responsibilities by reviewing: the financial reports
and information provided to shareholders and regulatory agencies; the systems of
internal controls regarding accounting, legal and compliance that management and
the Board have established; and the corporation's audit processes in general.
The Audit Committee's primary duties and responsibilities are to:
o Serve as an independent and objective party to monitor the
corporate financial reporting process and internal control
system.
o Review and evaluate the audit efforts of the independent
accountants.
o Provide an open avenue of communication between the independent
accountants, senior management, and the Board of Directors.
In accordance with Maryland Financial Institutions Annotated Code Section I-205,
the Board of Directors has designated the Audit Committee as a compliance review
committee. Under this law, "any documents prepared for or created by compliance
review committees are confidential and not discoverable or admissible in any
civil action arising out of matters evaluated by the Audit Committee".
While the Audit Committee has the review, oversight, and reporting
responsibilities set forth in this charter, it does not have responsibility for
planning or conducting audits or for determining that the financial statements
are complete and accurate and are in accordance with generally accepted
accounting principles. Those are responsibilities of management and the
independent accountants, rather than the Audit Committee. The Audit Committee
also is not responsible for ensuring compliance with laws or regulations, or for
resolving disagreements, if any, between management and the independent
accountants.
II. MEMBERSHIP
The Audit Committee shall consist of three or more non-executive (outside)
directors, determined to be independent by the Board, and appointed by the Board
on an annual basis. Each of the directors appointed shall be independent and
free from any relationship that, in the opinion of the Board, would interfere
with the exercise of his or her independent judgment as a member of the Audit
Committee. In determining the independence of members of the Audit Committee,
the Board shall consider, at a minimum, the then current standards of
independence established by The NASDAQ Stock Market and the Federal Deposit
Insurance Corporation. All members shall be independent directors within the
meaning of NASD Rule 4200(a)(15), and a majority shall be independent for
purposes of audit committee service within the meaning of NASD Rule 4350. All
Audit Committee members shall have (1) the ability to read and understand
fundamental financial statements, including a Company's balance sheet, income
statement, cash flow statement, and key performance indicators: (2) the ability
to understand key business and financial risks, related controls and control
processes. At least one member of the Audit Committee shall have accounting or
related financial management expertise. The Audit Committee members shall
appoint the Committee chairperson.
III. MEETINGS
The Audit Committee shall meet as least quarterly, or more frequently as it
deems necessary or as the Board may direct. In conjunction with its scheduled
meetings, the Audit Committee will meet with the independent accountants and
management on a quarterly basis to review corporate financial statements. The
Audit Committee will take such action to protect the confidential nature of all
matters discussed. The Audit Committee may ask members of management or others
to attend meetings to provide pertinent information as deemed necessary. The
engaged independent accountants may also have a representative in attendance at
all meetings to foster open communication and enhance the annual audit. The
Audit Committee is advised by the
independent auditors and the Company's outside counsel, and also may, but is not
required to, engage separate counsel or other advisors to the Audit Committee.
The Audit Committee may rely on these advisors regarding the application,
contents, and meaning of auditing and accounting standards, laws, and
regulations. The Audit Committee may rely on the independent auditors to
identify the matters required to be discussed and disclosed by the independent
auditors.
IV. RESPONSIBILITIES AND DUTIES
To fulfill its responsibilities and duties, the Audit Committee shall:
1. Provide an open avenue of communication between the independent accountant
and the board of directors.
2. Review and update the Audit Committee charter annually.
3. Recommend to the Board of Directors the selection of the independent
accountants, considering independence and effectiveness, including
recommending to the Board of Directors whether the engagement of the
independent accountants should be continued or terminated, and approve the
fees and other compensation to be paid to the independent accountants. On
an annual basis, the Audit Committee should receive from the independent
accountants the written disclosures and letter required to be provided,
review, and discuss with the accountants all significant relationships the
accountants have with the Company to determine the accountants'
independence.
4. Inquire of management and the independent accountant about significant
risks or exposures and assess the steps management has taken to minimize
such risk to the Company.
5. Consider and review with the independent accountant:
a. The adequacy of the Company's internal controls including computerized
information system controls and security.
b. Any significant findings and recommendations of the independent
accountant together with management's responses thereto.
c. Any difficulties encountered in the course of their audits, including
any restrictions on the scope of their work or access to required
information.
d. Any changes required in the planned scope of their audit plan.
6. Consider and review with management and the director of internal audit:
a. Significant findings during the year and management's responses
thereto.
b. Any difficulties encountered in the course of their audits, including
any restrictions on the scope of their work or access to required
information.
c. Any changes required in the planned scope of their audit plan.
d. The internal audit department budget and staffing.
7. Consider and review with management and the independent auditors the scope
of services required by the audit, major risk factors, significant
accounting policies, audit conclusions regarding significant accounting
estimates, and the compliance of the audit with the audit procedures
required by Section 10A of the Securities Exchange Act of 1934 relating to
detection of illegal acts, identification of related party transactions,
and evaluation of the Company as a going concern.
8. The Committee will oversee the compliance with lead (or coordinating) and
review partner and other rotation requirements by the independent auditor.
9. The Committee shall not approve any non-audit service engagement where the
provision of such service by the independent accountants is prohibited by
applicable law, the regulations of the Securities Exchange Commission, or
the listing standards of any market or exchange upon which the Company's
securities are listed or eligible for trading, and the independent auditor
shall not provide any such prohibited service.
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10. The Committee shall pre-approve any permitted non-audit services.
Notwithstanding the foregoing, pre-approval is not required with respect to
the provision of non-audit services if:
a. the aggregate amount of all such non-audit services
provided to the Company constitutes not more than five
percent of the total amount of revenues paid by the
Company to its independent auditors during the fiscal year
in which the non-audit services are provided;
b. such services were not recognized by the Company at the
time of the engagement to be non-audit services; and
c. the non-audit services are promptly brought to the
attention of the Committee and approved by the Committee,
or by one or more members of the Committee to whom
authority to grant such approval has been delegated, prior
to the completion of the audit.
The Committee may delegate the authority to grant such
pre-approvals to one or more Committee members designated
by the Committee, provided that any matters so
pre-approved shall be presented to the full Committee at
its next regular meeting.
11. Review policies and procedures with respect to officers' expense accounts
and perquisites, including their use of corporate assets, and consider the
results of any review of those areas by the internal auditor or independent
accountant.
12. Review legal and regulatory matters that may have a material impact on the
financial statements, related Company compliance policies, and programs and
reports received from regulators.
13. Review with management and the independent accountant at the completion of
the annual examination:
a. The Company's annual financial statements and related footnotes.
b. The independent accountant's audit of the financial statements and
their report thereon.
c. Any significant changes required in the independent accountant's audit
plan.
d. Any serious difficulties or disputes with management encountered during
the course of the audit.
e. Other matters related to the conduct of the audit, which are to be
communicated to the Audit Committee under generally accepted auditing
standards.
14. Review filings with the SEC and other published documents containing the
Company's financial statements and consider whether the information
contained in these documents is consistent with the information contained
in the financial statements. Review with financial management and the
independent accountants the 10-Q prior to its filing or release of
earnings.
15. Prepare a report for inclusion in the proxy statement that describes the
Audit Committee's composition and responsibilities, and how they were
discharged, including a statement regarding their review and discussion of
the annual financial statements, review of the independence of the
independent accountants, and discussions with the independent accountants,
and a statement that based on the foregoing, the Audit Committee
recommended that the annual financial statements be included in the
Company's annual report on Form 10-K.
16. Report Audit Committee actions to the Board of Directors with such
recommendations, as the Audit Committee may deem appropriate. Detailed
minutes of each Audit Committee meeting will be provided to the Board of
Directors for review, discussion, and approval.
17. The Audit Committee shall have the power to conduct or authorize
investigations into any matters within the Committee's scope of
responsibilities. The Audit Committee shall have access to all Company
records and personnel in performing their responsibilities.
18. The Committee will put in place a procedure to provide for the confidential
and/or anonymous submission of concerns about the Bank's accounting,
internal accounting controls, or auditing matters by employees.
19. The Audit Committee will perform such other functions as assigned by law,
regulation, the listing standards of any market or exchange upon which the
Company's securities are listed or eligible for trading, the Company's
charter or bylaws, or the Board of Directors.
A-3
REVOCABLE PROXY
FREDERICK COUNTY BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby makes, constitutes and appoints William R.
Talley, Jr. and Jay M. House, and each of them (with the power of substitution),
proxies for the undersigned to represent and to vote, as designated below, all
shares of common stock of Frederick County Bancorp, Inc. (the "Company") which
the undersigned would be entitled to vote if personally present at the Company's
Annual Meeting of Shareholders to be held on April 13, 2004 and at any
adjournment or postponement thereof.
PROPOSAL 1. ELECTION OF DIRECTORS
[ ] FOR ALL NOMINEES LISTED BELOW (EXCEPT AS NOTED TO BE THE CONTRARY BELOW)
[ ] WITHHOLD AUTHORITY TO VOTE FOR ALL NOMINEES LISTED BELOW
Nominees: Emil D. Bennett, John N. Burdette, John Denham Crum, George E.
Dredden, Jr., William S. Fout, William J. Kissner, Martin S.
Lapera, Kenneth G. McCombs, Farhad Memarsadeghi, Raymond Raedy,
Ramona C. Remsberg,
(Instructions: To withhold authority to vote for any individual nominee,
write that nominee's name in the space provided below.)
PROPOSAL 2. AMENDMENT OF THE ARTICLES OF INCORPORATION TO INCREASE THE
AUTHORIZED CAPITAL STOCK AND AUTHORIZE RECLASSFICIATION OF UNISSUED
SHARES
[ ] FOR [ ] AGAINST [ ] ABSTAIN
PROPOSAL 3. AMENDMENT OF THE OPTION PLAN TO INCREASE THE NUMBER OF SHARES
AVAILABLE FOR ISSUANCE
[ ] FOR [ ] AGAINST [ ] ABSTAIN
- --------------------------------------------------------------------------------
IMPORTANT. Please date and sign your name as addressed, and return this proxy in
the enclosed envelope. When signing as executor, administrator, trustee,
guardian, etc., please give full title as such. If the shareholder is a
corporation, the proxy should be signed in the full corporate name by a duly
authorized officer whose title is stated.
---------------------------------
Signature of Shareholder
---------------------------------
Signature of Shareholder
Dated: , 2004
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PLEASE COMPLETE, DATE, SIGN AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
[ ] Please check here if you plan to attend the Annual Meeting.