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
Eagle 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:
EAGLE BANCORP, INC.
7815 WOODMONT AVENUE
BETHESDA, MARYLAND 20814
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD MAY 17, 2004
TO THE SHAREHOLDERS OF EAGLE BANCORP, INC.:
The Annual Meeting of Shareholders of Eagle Bancorp, Inc. (the "Company"), will
be held at
The Bethesda Marriott Hotel
5151 Pooks Hill Road
Bethesda, Maryland 20814
on Monday, May 17, 2004 at 10:00 A.M. for the following purposes:
1. To elect seven (7) directors to serve until the next Annual
Meeting of Shareholders and until their successors are duly
elected and qualified;
2. To consider and approve an amendment to the Company's 1998
Stock Option Plan which increases the number of shares
available for issuance under the plan by 300,000;
3. To consider and approve the Eagle Bancorp, Inc. Employee Stock
Purchase Plan; and
4. To transact any other business that may properly come before
the meeting or any adjournment or postponement of the meeting.
Shareholders of record as of the close of business on March 26, 2004
are entitled to notice of and to vote at the meeting or any adjournment or
postponement of the meeting.
By Order of the Board of Directors
Michele Midlo, Corporate Secretary
April 2, 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 DOCUMENTATION FROM YOUR
RECORDHOLDER IN ORDER TO VOTE IN PERSON AT THE MEETING.
EAGLE BANCORP, INC.
7815 Woodmont Avenue
Bethesda, Maryland 20814
------------------------------
ANNUAL MEETING OF SHAREHOLDERS
PROXY STATEMENT
------------------------------
INTRODUCTION
This Proxy Statement is being sent to shareholders of Eagle 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 10:00 A.M. on Monday, May 17,
2004, and at any adjournment or postponement of the meeting. The purposes of the
meeting are:
1. electing seven (7) directors to serve until the next Annual
Meeting of Shareholders and until their successors are duly
elected and qualified;
2. considering and approving an amendment to the Company's 1998
Stock Option Plan which increases the number of shares
available for issuance under the plan by 300,000;
3. considering and approving the Eagle Bancorp, Inc. Employee
Stock Purchase Plan; and
4. transacting any other business that may properly come before
the meeting or any adjournment or postponement of the meeting.
The meeting will be held at:
The Bethesda Marriott Hotel
5151 Pooks Hill Road
Bethesda, Maryland 20814
This proxy statement and proxy card are being sent to shareholders of
the Company on or about April 2, 2004. A copy of the Company's Annual Report on
Form 10-K for the year ended December 31, 2003, which includes our audited
financial statements, also accompanies this proxy statement.
The cost of this proxy solicitation is being paid 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 or its
subsidiary, EagleBank (the "Bank"), who will not receive any special
compensation for their services. The Company may also reimburse brokers,
custodians, nominees and other fiduciaries for their reasonable out-of-pocket
and clerical costs for forwarding proxy materials to their principals.
VOTING RIGHTS AND PROXIES
VOTING RIGHTS
Only shareholders of record at the close of business on March 26, 2004
(the "Record Date"), will be entitled to notice of and to vote at the meeting or
any adjournment or postponement of the meeting. On that date, the Company had
5,401,267 shares of common stock, par value $.01 per share (the "common stock")
outstanding, held by approximately 1,989 total beneficial shareholders,
including approximately 921 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, 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 at the meeting.
PROXIES
Properly executed proxies received by the Company in time to be voted
at the meeting will be voted as specified by shareholders. In the absence of
specific instructions, proxies received will be voted FOR the election of the
nominees for election as directors, FOR the approval of the amendment to the
1998 Stock Option Plan and FOR the approval of the Employee Stock Purchase Plan.
Management does not know of any matters that will be brought before the meeting,
other than as described in this proxy statement. 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 return promptly 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 Michele Midlo, Corporate
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.
VOTING SECURITIES AND PRINCIPAL SHAREHOLDERS
SECURITIES OWNERSHIP OF DIRECTORS, OFFICERS AND CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information concerning the
number and percentage of whole shares of the Company's common stock beneficially
owned by its directors, nominees for director, executive officers whose
compensation is disclosed, and by its directors and all executive officers as a
group, as of March 12, 2004, as well as information regarding each other person
known by the Company to own in excess of five percent of the outstanding common
stock. 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 set forth below, the Company knows of no other person or
persons, who beneficially 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.
Name Position Number of Shares Percentage(1)
------------------------------------------ ----------------------------------- --------------------- -- ---------------
Leonard L. Abel Chairman of Board of Company, 177,350(2) 3.25%
Director of Bank
Leslie M. Alperstein, Ph.D. Director of Company 32,300(3) 0.60%
Dudley C. Dworken Director of Company and Bank 56,686(4) 1.05%
Michael T. Flynn Executive Vice President and 15,100(5) 0.28%
Director of Company; President,
Chief Executive Officer and
Director of Bank
Eugene F. Ford, Sr. Director of Company 83,859(6) 1.55%
Phillip N. Margolius Director of Company and Bank 108,443(7) 2.01%
Ronald D. Paul Vice Chairman, President and 337,550(8) 6.14%
Treasurer of Company; Chairman of
Board of Bank
Thomas D. Murphy Executive Vice President, Chief 34,400(9) 0.63%
Operating Officer and Director of
Bank
Susan G. Riel Executive Vice President, Chief 25,775(10) 0.48%
Administrative Officer of Bank
Wilmer L. Tinley Executive Vice President, Chief 23,355(11) 0.43%
Financial Officer
Martha Foulon-Tonat Executive Vice President, Chief 25,364(12) 0.47%
Lending Officer of Bank
--------------------- ---------------
All directors and executive officers of 920,182(13) 16.22%
Company as a group (11 persons)
===================== ===============
All directors and executive officers of
Company and Bank as a group (23 persons) 1,460,884(14) 25.50%
===================== ===============
(1) Represents percentage of 5,401,267 shares issued and outstanding as of
March 12, 2004, except with respect to individuals holding options
exercisable within 60 days of that date, in which event, represents
percentage of shares issued and outstanding plus the number of shares
for which that person holds options exercisable within 60 days of March
12, 2004, and except with respect to all directors and executive
officers of the Company and the Company and the Bank as groups, in
which case represents percentage of shares issued and outstanding plus
the number of shares for which those persons hold options exercisable
within 60 days of March 12, 2004.
(2) Includes options and warrants to purchase 49,750 shares of common
stock, 119,550 shares of common stock held jointly, and 7,875 held by
spouse.
(3) Includes 31,800 shares of common stock held jointly.
(4) Includes 43,836 shares held in a trust of which Mr. Dworken is
beneficiary and options and warrants to purchase 12,850 shares of
common stock.
(5) Includes options to purchase 15,000 shares of common stock.
(6) Includes options and warrants to purchase 18,234 shares of common stock
31,625 shares held by his spouse and 6,375 held in a limited
partnership account.
(7) Includes options to purchase 1,175 shares of common stock, 82,995
shares in trust accounts for which Mr. Margolius has voting rights,
4,000 shares held by his spouse and 13,873 held in a profit sharing
account for which Mr. Margolius is the beneficiary.
(8) Includes options to purchase 93,050 shares of common stock, and 174,750
shares held in trust for his children.
(9) Includes options to purchase 32,900 shares of common stock. Also
includes 450 shares held by his spouse for their minor child.
(10) Includes options to purchase 21,400 shares of common stock.
(11) Includes options to purchase 20,000 shares and 3,355 shares held
jointly.
(12) Includes options to purchase 21,400 shares of common stock, and 1,632
shares held in trust for minor children.
(13) Includes options and warrants to purchase 272,122 shares of common
stock.
(14) Includes options and warrants to purchase 326,861 shares of common
stock.
ELECTION OF DIRECTORS
The size of the Company's Board of Directors is currently set at seven
(7) directors. The Board of Directors has nominated seven (7) persons for
election as director at the meeting, for a one-year period until the 2005 Annual
meeting of Shareholders and until their successors have been elected and
qualified. Each of the nominees for election as a director currently serves as a
member of the Board of Directors. 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 persons named as proxies. The Board
of Directors has determined that each director other than Mr. Paul and Mr. Flynn
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 Board Recommendation. Nominees receiving a plurality
of the votes cast at the meeting in the election of directors will be elected as
director, in the order of the number of votes received. Members of the Board of
Directors of the Company having the power to vote or direct the voting of
636,129 shares of common stock, or approximately 11.8% of the shares of common
stock outstanding on the Record Date, have indicated their intention to vote
"FOR" the election of all of the nominees for election as director. THE BOARD OF
DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR EACH OF THE NOMINEES TO THE
COMPANY'S BOARD OF DIRECTORS.
NOMINEES FOR ELECTION AS DIRECTORS
Set forth below is certain information as of the Record Date 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
at least the last five years. Each of the directors of the Company, other than
Mr. Alperstein and Mr. Ford, also currently serves as a director of the Bank.
Leonard L. Abel. Mr. Abel, 77, is Chairman of the Board of Directors of
the Company, and has served in that position since the organization of the
Company. Until retiring in 1993, Mr. Abel was partner-in-charge of the certified
public accounting firm of Kershenbaum, Abel, Kernus and Wychulis, Rockville,
Maryland with which he served for forty-five years. From October 1996, until
resigning in September 1997, Mr. Abel was a member of the Board of Directors of
F&M National Corporation (NYSE) and its wholly owned subsidiary, F&M Bank -
Allegiance, Bethesda, Maryland, and prior to that time was Chairman of the Board
of Allegiance Bank, N.A. (collectively with F&M Bank - Allegiance, "Allegiance")
and its holding company Allegiance Banc Corporation, from their organization
until their acquisition by F&M National Corporation, which was subsequently
acquired by BB&T Corporation ("F&M"). Mr. Abel was also Chairman of the Board of
Directors of Central National Bank of Maryland from 1968 until its acquisition
in 1986 by Citizens Bank of Maryland (now SunTrust Banks, Inc.).
Leslie, M. Alperstein, Ph.D. Mr. Alperstein, 61, has been President of
Washington Analysis, LLC, a leading governmental policy investment research
group in Washington DC, since its inception in 1973. He has served as Executive
Managing Director and Director of Research of HSBC Securities, Inc., Director of
Economic and Investment Research for NatWest Securities, Prudential Securities,
Shields Model Roland, Inc. and Legg Mason & Co. His professional memberships
include the National Association of Business Economists, the National Economists
Club, and the Washington Society of Investment Analysts. Mr. Alperstein was
appointed to the Board of Directors in September 2003.
Dudley C. Dworken. Mr. Dworken, 54, has served as a director of the
Company since August 1999. Mr. Dworken is the owner of Curtis Chevrolet-Geo, an
automobile dealership in Washington, D.C. Mr. Dworken was a Director of
Allegiance from 1987 until October 1997, and a director of Allegiance Banc
Corporation from 1988 until its acquisition by F&M. Mr. Dworken is an active
member of numerous community, business, charitable and educational institutions
in the Washington D.C./Montgomery County area.
Michael T. Flynn. Mr. Flynn, 56, is President and Chief Executive
Officer of the Bank. Mr. Flynn has over 30 years experience in the banking
industry in the Washington, DC and Maryland region. Prior to joining EagleBank
3
in January 2004, he was the Washington region executive for Mercantile
Bankshares Corporation from April 2003. From February 2000 to April 2003, Mr.
Flynn was the Director of Strategic Planning for Allfirst Financial, Inc., and
prior to that time was Group Executive of the Mid-Atlantic Region of the Private
Bank for BankAmerica and predecessor companies. He has been involved in
community affairs throughout his career, particularly educational groups
including the American Institute of Banking and the Corcoran College of Art &
Design. Mr. Flynn was appointed to the Board of Directors in January 2004.
Eugene F. Ford, Sr. Mr. Ford, 74, has served as a director of the
Company since its organization. Mr. Ford is engaged in the business of property
management and development as Chairman of Mid-City Financial Corporation, an
apartment developer, of which he was also president until 1995. He is Chairman
of the Community Preservation and Development Corporation, a non-profit
organization in the business of preserving public purpose housing complexes and
providing social program support for residents thereof. Through his ownership of
Mid-City Financial, Mr. Ford is the largest owner of assisted living housing
units in Maryland and the Washington metropolitan area. Mr. Ford has received
numerous awards for his work in the housing development field.
Philip N. Margolius. Mr. Margolius, 63, a graduate of Dartmouth College
and Yale Law School, is a partner in the law firm of Margolius, Mallios, Davis,
Rider & Tomar, LLP in Washington, D.C. and Largo, Maryland. He specializes in
estate planning, probate, non-profit organizations and non-profit charitable
giving. Mr. Margolius is an adjunct professor of law at the Washington College
of Law at American University and lectures to professional groups in the
community on estate planning. Washingtonian Magazine named him one of the area's
leading estate planners. Mr. Margolius has served on the Board of the Bank since
June 2000 and was appointed to the Board of Directors of the Company in
September 2003.
Ronald D. Paul. Mr. Paul, 48, is President and Vice Chairman of the
Board of Directors of the Company and Chairman of the Board of Directors of the
Bank, and has served in such positions since the organization of the Company and
the Bank. Mr. Paul served as Interim President of the Bank from November 3, 2003
until January 26, 2004. Mr. Paul is President of Ronald D. Paul Companies and
RDP Management, which are engaged in the business of real estate development and
management activities. Mr. Paul is also active in private investments, including
as Chairman of Bethesda Investments, Inc., a private venture capital fund. Mr.
Paul was a director of Allegiance from 1990 until September 1997, and a director
of Allegiance Banc Corporation from 1990 until its acquisition by F&M, including
serving as Vice Chairman of the Board of Directors from 1995. Mr. Paul is also
active in various charitable organizations, including serving as Vice Chairman
of the Board of Directors of the National Kidney Foundation from 1996 to 1997,
and its Chairman from 2002 to 2003.
ELECTION OF DIRECTORS OF THE BANK
If elected, the nominees for election as directors intend to vote for
Mr. Abel, Mr. Dworken, Mr. Flynn, Mr. Margolius, Mr. Paul and the following
persons to serve as directors of the Bank, each of whom currently serves as a
director of the Bank.
Arthur H. Blitz. Mr. Blitz, 63, an attorney engaged in private practice
since 1971, is a partner in the Bethesda, Maryland law firm of Paley, Rothman,
Goldstein, Rosenberg & Cooper. Mr. Blitz was a director of Allegiance at various
times from 1987 to October 1997.
Steven L. Fanaroff. Mr. Fanaroff, 44, is Vice President - Chief
Financial Officer of Magruder Holdings, Inc., a regional supermarket chain, with
which he has served since 1981. Mr. Fanaroff served on the Board of Directors of
Allegiance from 1990 until October 1997.
Harvey M. Goodman. Mr. Goodman, 48, has been with The Goodman, Gable,
Gould Company, the Maryland based public insurance adjusting firm where he
serves as President, since 1977. He is a director and past president of the
National Association of Public Insurance Adjusters, and is a director and
principal of Adjusters International, a national public adjusting firm.
4
Neal R. Gross. Mr. Gross, 61, is founder, Chairman and Chief Executive
Officer of Neal R. Gross & Co. which provides court reporting services to
attorneys, the federal government, private organizations and individuals since
1977. Mr. Gross previously served as a director of Century Bancshares, Inc.,
from 1995 until its acquisition by United Bankshares, Inc. in 2001.
Benson Klein. Mr. Klein, 59, has been an attorney in Montgomery County
since 1970, and a principal with Ward & Klein, Chartered, since 1978. Mr. Klein
is also engaged in real estate investment activities in Montgomery County. He
served as a director of F&M Bank - Allegiance from 1996 to 1997 and previously
served as a director of Lincoln National Bank. Mr. Klein is currently, and has
been, a member of a variety of community, business and charitable institutions
in the Washington, D.C./Montgomery County area.
Bruce H. Lee. Mr. Lee, 40, is Vice President of Development and a
member of the Board of Directors of Lee Development Group, a closely held family
real estate business founded in 1920 and based in downtown Silver Spring. He is
principal broker of record for Montgomery Land Company, LLC, which specializes
in commercial sales, leasing, and property management and the general partner of
Montgomery Land partnership, LLP. Mr. Lee is past president of the Greater
Silver Spring Chamber of Commerce and was the Chamber's charter president in
1993. Mr. Lee is an elected Council member and current Chairman of the Township
of Chevy Chase View.
Thomas D. Murphy. Mr. Murphy, 56, the Executive Vice President - Chief
Operating Officer of the Bank, served at Allegiance from September 1994,
including as Executive Vice President and Chief Operating Officer from December
1995 until November 1997. Prior to his service at Allegiance, he served in the
same position at First Montgomery Bank from August 1991 until its acquisition by
Sandy Spring National Bank of Maryland in December 1993, and he served as a Vice
President of that organization until September 1994. Mr. Murphy has 31 years
experience in the commercial banking industry.
Kim Natovitz. Ms. Natovitz, 40, is the President of Long Term Care
Planning Services, Inc., an independent general agency that specializes in long
term insurance. Prior to establishing her own firm, she was a life insurance and
pension specialist with Safeco Life Insurance Company and a marketing
representative for an insurance brokerage firm. Ms. Natovitz is a state approved
long-term care insurance instructor and conducts continuing education courses
for accountants, attorneys, financial planners and insurance agents.
J. Mitchell Neitzey. Mr. Neitzey, 47, is the Vice President and Chief
Financial Officer of EFO Capital Management, Inc. an investment management firm
based in Washington, D.C. EFO directs a diversified portfolio of marketable
securities, venture capital investments and real estate development projects. A
lifelong resident of the Washington area, Mr. Neitzey's professional career
includes senior positions in commercial banking and investment consulting.
Donald R. Rogers. Mr. Rogers, 58, has been engaged in the private
practice of law since 1972 with the Rockville, Maryland based firm Shulman,
Rogers, Gandal, Pordy & Ecker, P.A., of which he is a partner. Mr. Rogers was a
member of the Board of Directors of Allegiance from 1987 until October 1997.
Worthington H. Talcott, Jr. Mr. Talcott, 52, an attorney engaged in
private practice since 1979, has been a partner in Shulman, Rogers, Gandal,
Pordy & Ecker, P.A. since 1998. Mr. Talcott has been an active member of the
Juvenile Diabetes Foundation, serving as a member of the Board of Directors for
the Capital Chapter from 1992 to 1996, and as President of the Capital Chapter
from 1994 to 1995.
Leland M. Weinstein. Mr. Weinstein, 41, has served as president of
Syscom Services, Inc., an e-business workflow and internet consulting firm,
since 1997. Formerly, he spent thirteen years with Automated Digital Systems
(ADS), an integrator of fax technologies, where he rose to president and owner
of the company before joining Syscom, an early spin-off of ADS. Mr. Weinstein
serves on the advisory councils for Intel/Dialogic and AVT/RightFAX. He is a
member of the Inner Circle of the University of Maryland Dingman Center for
Entrepreneurship, and involved with numerous charities.
5
Eric H. West. Mr. West, 41, is a founding principal of West, Lane &
Schlager/Oncor International, specializing in tenant representation and
strategic real estate consulting in the Washington, D. C. metropolitan area.
Previously, he served for nine years as Senior Vice President at Barrueta &
Associates. During his career, Mr. West has developed a specialty in
not-for-profit organizations and corporations, leading to ongoing relationships
with such diverse groups as The National Council on the Aging, The American
Forest and Paper Association, The American Iron & Steel Institute, among many
others.
COMMITTEES, MEETINGS AND PROCEDURES OF THE BOARD OF DIRECTORS
Meetings. The Board of Directors of the Company met twelve (12) times
during 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.
Audit Committee. The Board of Directors established a standing Audit
Committee in December 2003. Previously, the Audit Committee of the Bank served
as the Audit Committee for the Company. The Audit Committee is responsible for
the selection, review and oversight of the Company's independent accountants,
the approval of all audit, review and attest services provided by the
independent accountants, the integrity of the Company's reporting practices and
evaluation of the Company's internal controls and accounting procedures. It also
periodically reviews audit reports with the Company's independent auditors. The
Audit Committee of the Company works closely with, and utilizes the resources
and expertise of the members of the Audit Committee of the Bank. The Board of
Directors has adopted a written charter for the Audit Committee, a copy of which
is attached hereto as Appendix A. The Audit Committee of the Company is
currently comprised of Mr. Dworken, the Chairman, and Messrs. Abel, Alperstein
and Ford. Each of the members of the Audit Committee is independent, as
determined 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 of the Company met once, and the Bank audit committee met eight (8)
times. The Board of Directors has determined that Mr. Alperstein is an "audit
committee financial expert" as defined under regulations of the Securities and
Exchange Commission
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. During 2003, the Board of Directors did not have a
standing nominating committee, the functions of which were performed by the full
Board of Directors. A standing nominating committee, consisting of all of the
members of the Board of Directors who are "independent directors" within the
meaning of NASD Rule 4200, was established in January 2004. The nominating
committee will be responsible in the future for the evaluation of nominees for
election as director, the nomination of director candidates for election by the
shareholders and evaluation of sitting directors. The Board of Directors has
adopted a charter addressing the nominations process. A copy of the charter is
available on the Company's website at www.eaglebankmd.com.
The Board has not developed a formal policy for the identification or
evaluation of nominees. In general, when the Board determines that expansion of
the Board or replacement of a director is necessary or appropriate, the
nominating committee will review, through candidate interviews with members of
the Board and management, consultation with the candidate's associates and
through other means, a candidate's honesty, integrity, reputation in and
commitment to the community, judgment, personality and thinking style,
willingness to invest in the Company, residence, willingness to devote the
necessary time, potential conflicts of interest, independence, understanding of
financial statements and issues, and the willingness and ability to engage in
meaningful and constructive discussion regarding Company issues. The committee
would review any special expertise, for example, expertise that qualifies a
6
person as an audit committee financial expert, and membership or influence in a
particular geographic or business target market, or other relevant business
experience. 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
director candidates.
At the meeting, three directors who were appointed to the Board of
Directors after the last annual meeting of shareholders are standing for
election. Mr. Margolius has been a director of the Bank since June 2000. His
selection as a director of the Company in September 2003 was based upon the
recommendation of all of the then current members of the Board of Directors. Mr.
Alperstein was recommended for appointment to the Board of Directors by Mr.
Abel. Mr. Flynn was appointed as a director when he became President of the Bank
in January 2004.
The nominating committee will consider director candidates nominated by
shareholders during such times as the Company is actively considering obtaining
new directors. Candidates recommended by shareholders will be evaluated based on
the same criteria described above. Shareholders desiring to suggest a candidate
for consideration should send a letter to the Company's Secretary and include:
(a) a statement that the writer is a shareholder (providing evidence if the
person's shares are held in street name) and is proposing a candidate for
consideration; (b) the name and contact information for the candidate; (c) a
statement of the candidate's business and educational experience; (d)
information regarding the candidate's qualifications to be director, including
but not limited to an evaluation of the factors discussed above which the Board
would consider in evaluating a candidate; (e) information regarding any
relationship or understanding between the proposing shareholder and the
candidate; (f) information regarding potential conflicts of interest; and (g) 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 opportunity to seek additional directors, there is no
assurance that all shareholder proposed candidates will be fully considered,
that all candidates will be considered equally, or that the proponent of any
candidate or the proposed candidate will be contacted by the Company or the
Board, and no undertaking to do so is implied by the willingness to consider
candidates proposed by shareholders.
Compensation. During 2003, the Company's Board of Directors did not
have a standing compensation committee. The Benefits Committee of the Bank,
which served as the compensation committee for the Company prior to 2004, is
currently comprised of Mr. Blitz, the Chairman, and Messrs. Abel, Paul, Dworken,
Flynn, Goodman, Lee, Natovitz, Rogers and Weinstein. The Benefits Committee is
responsible, together with management, for the adoption of the Company's
personnel policies and establishing salary and compensation guidelines and
levels for all Company officers and personnel, other than executive officers of
the Company. The Benefits Committee recommends executive officer compensation
levels to the Company's Board of Directors. Executive officer compensation
decisions are determined by the members of the Board of Directors who are
"independent directors" within the meaning of NASD Rule 4200(a)(15). Messrs.
Paul and Flynn do not participate in, or remain present during Board
discussions of their compensation. The Benefits Committee is also responsible
for annually nominating the officers of the Company and Bank and evaluating the
performance thereof. During the 2003 fiscal year, the Benefits Committee met
three (3) times.
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-K;
(2) discussed with Stegman and Company, 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
Stegman and Company, as required by Independence Standards Board Standard No. 1;
and
7
(3) discussed with Stegman and Company, its independence.
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-K for the year ended December 31, 2003. The
Audit Committee has also considered whether the amount and nature of non-audit
services provided by Stegman and Company is compatible with the auditor's
independence.
Members of the Audit Committee
Dudley C. Dworken, Chairman
Leonard L. Abel
Leslie M. Alperstein
Eugene F. Ford, Sr.
DIRECTORS' COMPENSATION
During 2003, each non-employee director other than Mr. Abel and Mr.
Paul, was entitled to elect to receive cash compensation of $200, or stock
options to purchase 15 shares for each meeting of the Board of Directors of the
Company, the Board of Directors of the Bank or a committee of the Board of the
Company or the Bank attended. Additionally, directors of both the Company and
the Bank are eligible to receive grants of warrants or options under the
Company's Option Plan. In 2003, an aggregate of $18,000 in meeting fees were
paid to members of the Board of Directors of the Company and $149,734 was paid
to members of the Board of Directors of the Bank, and options to purchase an
aggregate of 600 shares of common stock were issued in lieu of meeting fees to
Bank directors.
During 2003, Mr. Abel, the Chairman of the Board of Directors of the
Company received an annual payment of $36,000 in lieu of regular director fees
from the Company and the Bank, as well as options to purchase 6,000 shares of
common stock. The options vest immediately and have an exercise price of $17.67
per share. Mr. Abel and the Company are parties to an agreement governing his
service and compensation as Chairman. The term of Mr. Abel's current agreement
expires on December 31, 2006. On each December 31, the term of the agreement
automatically extends for one additional year, unless Mr. Abel has given notice
of his intention not to renew the term. Under his agreement, Mr. Abel is
entitled to receive an annual fee, currently $48,000, subject to periodic
increase, in lieu of all other fees for service on the Boards of Directors or
any committees of the Company and the Bank. In the event of termination of Mr.
Abel's service for any reason other than for cause (as defined), Mr. Abel (or
his estate), is entitled to receive an amount equal to 2.99 times his then
current annual fee, subject to certain limitations in the event that his
termination occurs in connection with a change in control (as defined) of the
Company or the Bank. If Mr. Abel were entitled to receive the termination
benefits as of the date hereof, he would receive approximately $143,520.
EXECUTIVE COMPENSATION
The following table sets forth a comprehensive overview of the compensation for
Mr. Paul, the President of the Company, and the four most highly compensated
executive officers of the Company and one former officer of the Company
(including officers of the Bank) who received total salary and bonuses of
$100,000 or more during the fiscal year ended December 31, 2003.
Long-term
Annual Compensation Compensation Awards
---------------------------------------------- --------------------------------------
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation($)
---------------------------------- -------------- --------------- --------------- -------------------- -----------------
Ronald D. Paul, President 2003 $ 90,000 $ 0 28,000 $ 0
2002 $ 90,000 $ 0 4,000 $ 0
2001 $ 50,000 $ 0 2,756(1) $ 0
Thomas D. Murphy, Executive Vice
President- Chief Operating
Officer of the Bank 2003 $182,500 $ 5,000 2,750 $17,577(2)
2002 $170,000 $12,500 -0- $18,434(3)
2001 $160,000 $ 6,077 11,900(1) $14,300(4)
8
Long-term
Annual Compensation Compensation Awards
---------------------------------------------- --------------------------------------
Securities All Other
Name and Principal Position Year Salary Bonus Underlying Options Compensation($)
---------------------------------- -------------- --------------- --------------- -------------------- -----------------
Susan G. Riel, Executive Vice 2003 $135,000 $ 5,000 2,750 $12,255(5)
President - Chief Administrative 2002 $122,500 $12,500 -0- $ 7,735(6)
Officer of the Bank 2001 $115,000 $ 5,212 7,400(1) $ 7,050(7)
Wilmer L. Tinley, Executive Vice 2003 $117,000 $ 5,000 2,750 $ 3,510(8)
President of the Bank - Chief 2002 $106,000 $12,500 -0- $ 3,180(9)
Financial Officer of the Company 2001 $ 95,000 $ 3,000 7,400(1) $ 2,850(10)
and Bank
Martha Foulon-Tonat, Executive 2003 $135,000 $ 5,000 2,750 $12,255(11)
Vice President - Chief Lending 2002 $122,500 $12,500 -0- $ 9,675(12)
Officer of the Bank 2001 $115,000 $ 5,212 7,400(1) $ 9,013(13)
H.L. Ward, President and Chief 2003 $220,000 -0- 3,250 $27,685(14)
Executive Officer of the Bank, 2002 $205,250 $15,000 -0- $17,815(15)
Executive Vice President of the 2001 $195,250 $ 6,755 12,400(1) $16,601(16)
Company (through October 2003)
--------------------------
(1) As adjusted to reflect the 40% stock split in the form of a dividend paid
on June 15, 2001.
(2) Includes $7,800 car allowance, $4,302 insurance premiums and $5,475 401(k)
matching contribution.
(3) Includes $7,800 car allowance, $5,534 insurance premium and $5,100 401(k)
matching contribution.
(4) Includes $6,000 car allowance, $2,190 insurance premiums and $4,650 401(k)
matching contribution.
(5) Includes $7,800 car allowance and $4,455 401(k) matching contribution.
(6) Includes $3,600 car allowance and $3,675 401(k) matching contribution.
(7) Includes $3,600 car allowance and $3,450 401(k) matching contribution.
(8) Represents $3,150 401(k) matching contribution.
(9) Represents $3,180 401(k) matching contribution
(10) Represents $2,850 401(k) matching contribution
(11) Includes $7,800 car allowance and $4,455 401(k) matching contribution.
(12) Includes $6,000 car allowance and $3,675 401(k) matching contribution.
(13) Includes $6,000 car allowance and $3,013 401(k) matching contribution.
(14) Includes $9,000 in car allowance, $6,600 401(k) matching contribution,
$8,462 payment for unused vacation at his termination of employment and
$3,623 insurance premiums. In addition Mr. Ward is entitled to receive
$18,333 per month through June 30, 2005, and should Mr. Ward elect to
continue his health and dental insurance under COBRA, payment of health
insurance premiums by the Company to the same extent as the Company
pays premiums for other executive officers, or approximately $255 per
moth at current rates, subject to his continued compliance with certain
noncompetition provisions.
(15) Includes $9,000 car allowance, $3,315 insurance premiums and $5,500 401(k)
matching contribution.
(16) Includes $9,000 car allowance, $2,275 insurance premiums and $5,325 401(k)
matching contribution.
OPTION GRANTS IN LAST FISCAL YEAR
Percent of Potential Realizable Value at
Number of Total Options Assumed Annual Rate of Stock
Securities Granted to Exercise Price Appreciation for Option Term
Underlying Employees in Price Per ---------------------------------
Name Options Granted Fiscal Year Share Expiration Date 5% 10%
------------------- --------------- ------------- --------- ------------------ -------- --------
Ronald D. Paul 4,000 aggregate (1) 6.97% (1) (1) $ 37,850 $ 95,919
24,000 (2) 41.81% $17.67 December 30 2013 $277,814 $710,036
Thomas D. Murphy 2,750 4.79% $13.84 May 28, 2013 $ 23,936 $ 60,658
Susan G. Riel 2,750 4.79% $13.84 May 28, 2013 $ 23,936 $ 60,658
Wilmer L. Tinley 2,750 4.79% $13.84 May 28, 2013 $ 23,936 $ 60,658
Martha Foulon-Tonat 2,750 4.79% $13.84 May 28, 2013 $ 23,936 $ 60,658
H.L. Ward 3,250 5.66% $13.84 May 28, 2013 $ 28,288 $ 71,687
-------------------
(1) Under his former employment contract, Mr. Paul was entitled to an aggregate
of 4,000 options per year, issued quarterly and priced at the end of each
month, based on the then current fair market value, and were immediately
exercisable. During 2003, Mr. Paul received such options as follows:
(Footnotes continue on the following page)
9
Number of Securities Exercise Price Per
Underlying Options Granted Share Expiration Date
-------------------------- ------------------ ------------------
333 $14.00 January 30, 2013
333 $14.82 February 27, 2013
334 $13.75 March 30, 2013
333 $13.72 April 29, 2013
333 $13.75 May 30, 2013
334 $15.00 June 29, 2013
333 $13.68 July 30, 2013
333 $14.40 August 30, 2013
334 $15.20 September 29, 2013
333 $17.36 October 30, 2013
333 $17.20 November 29, 2013
334 $17.67 December 30, 2013
(2) Granted in connection with Mr. Paul's new employment contract. The options
vest as follows: 2,263 upon grant; 5,659 on January 15, 2004; 5,659 on
January 15, 2005, 5,659 on January 15, 2006 and 4,760 on January 15, 2007.
In the event of termination of Mr. Paul's employment (other than for cause)
all unvested options immediately vest.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
Number of Securities Value of Unexercised
Shares Underlying Unexercised In-The-Money Options
Acquired on Options at December 31, 2003 at December 31, 2003
Name Exercise Value Realized Exercisable/Unexercisable Exercisable/Unexercisable(1)
------------------- ----------- -------------- ---------------------------- ----------------------------
Ronald D. Paul -0- $0 87,391/21,737 $940,635/$0
Thomas D. Murphy -0- $0 30,400/0 $286,977/$0
Susan G. Riel -0- $0 18,900/0 $169,422/$0
Wilmer L. Tinley -0- $0 17,500/0 $152,930/$0
Martha Foulon-Tonat -0- $0 18,900/0 $169,422/$0
H.L. Ward(2) -0- $0 34,025/0 $324,097/$0
-------------------
(1) Based on the $17.67 closing price on December 31, 2003.
(2) Mr. Ward exercised all of his options in January 2004, realizing an
aggregate of $323,296.
The Company and Mr. Paul are parties to an employment agreement
governing his service and compensation as President of the Company. The current
term of Mr. Paul's employment agreement expires on December 31, 2006. On each
December 31, the term of the agreement automatically extends for one additional
year, unless Mr. Paul has given notice of his intention not to renew the term.
Under his agreement, Mr. Paul is entitled to receive a current annual base
salary of $90,000, subject to periodic increase. Mr. Paul is also entitled to
receive options to purchase 24,000 shares of common stock, vesting over a four
year period, subject to acceleration upon termination of employment, with a
$17.67 exercise price. Mr. Paul may also receive a bonus in the discretion of
the Board of Directors. The compensation under Mr. Paul's employment agreement
is in lieu of all other fees for service on the Boards of Directors or any
committees of the Company and the Bank. In the event of termination of Mr.
Paul's employment for any reason other than for cause (as defined), Mr. Paul (or
his estate), is entitled to receive and amount in cash equal to 2.99 times his
then current base salary, subject to certain limitations in the event that his
termination occurs in connection with a change in control (as defined) of the
Company or the Bank. If Mr. Paul were entitled to receive the termination
benefits as of the date hereof, he would receive approximately $269,100.
Mr. Murphy has an employment agreement with EagleBank pursuant to which
he serves as Executive Vice President and Chief Operating Officer of the Bank.
Mr. Murphy, pursuant to his agreement, which expires December
10
31, 2006, is entitled to a current annual base salary of $196,250, $600,000 of
Bank paid life insurance (at standard rates), a $7,800 annual car allowance, and
participation in all other health, welfare, benefit, stock, option and bonus
plans, if any, generally available to officers or employees of the Bank or the
Company. If Mr. Murphy's employment is terminated without cause for reasons
other than death, disability or in connection with a change in control (as
defined), he would be entitled to receive continued payment of base salary
through the end of the term of his agreement, subject to his compliance with
certain noncompete provisions of the employment agreement. In the event of
termination of Mr. Murphy's employment, or reduction in his 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 120 days after a change in control, Mr. Murphy would be entitled to
receive a lump sum payment equal to 2.99 times his base salary, subject to
adjustment to avoid adverse tax consequences resulting from characterization of
such amount for tax purposes as a "parachute payment." If Mr. Murphy were
entitled to receive the termination benefits as of the date hereof, he would
receive a maximum of approximately $586,787.
Ms. Riel has an employment agreement with EagleBank pursuant to which
she serves as Executive Vice President and Chief Administrative Officer of the
Bank. Ms. Riel, pursuant to her agreement, which expires December 31, 2006, is
entitled to a current annual base salary of $148,500, $600,000 of Bank paid life
insurance (at standard rates), a $7,800 car allowance and participation in all
other health, welfare, benefit, stock, option and bonus plans, if any, generally
available to officers or employees of the Bank or the Company. If Ms. Riel's
employment is terminated without cause for reasons other than death, disability
or in connection with a change in control (as defined), she would be entitled to
receive continued payment of base salary through the end of the term of her
agreement, subject to her compliance with certain noncompete provisions of the
employment agreement. In the event of termination of Ms. Riel's employment, or
reduction in her 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 120 days after a change in control, Ms. Riel
would be entitled to receive a lump sum payment equal to 2.99 times her base
salary, subject to adjustment to avoid adverse tax consequences resulting from
characterization of such amount for tax purposes as a "parachute payment." If
Ms. Riel were entitled to receive the termination benefits as of the date
hereof, she would receive a maximum of approximately $444,015.
Mr. Tinley has an employment agreement with EagleBank pursuant to which
he serves as Executive Vice President and Chief Financial Officer of the Bank.
Mr. Tinley, pursuant to his agreement, which expires December 31, 2006, is
entitled to a current annual base salary of $134,500, $600,000 of Bank paid life
insurance (at standard rates), a $7,800 annual car allowance, and participation
in all other health, welfare, benefit, stock, option and bonus plans, if any,
generally available to officers or employees of the Bank or the Company. If Mr.
Tinley's employment is terminated without cause for reasons other than death,
disability or in connection with a change in control (as defined), he would be
entitled to receive continued payment of base salary through the end of the term
of his agreement, subject to his compliance with certain noncompete provisions
of the employment agreement. In the event of termination of Mr. Tinley's
employment, or reduction in his 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 120 days after a
change in control, Mr. Tinley would be entitled to receive a lump sum payment
equal to 2.99 times his base salary, subject to adjustment to avoid adverse tax
consequences resulting from characterization of such amount for tax purposes as
a "parachute payment." If Mr. Tinley were entitled to receive the termination
benefits as of the date hereof, he would receive a maximum of approximately
$402,155.
Ms. Tonat has an employment agreement with the Bank pursuant to which
she serves as Executive Vice President and Chief Lending Officer of the Bank.
Ms. Tonat, pursuant to her agreement, which expires December 31, 2006, is
entitled to a current annual base salary of $148,500, $600,000 of Bank paid life
insurance (at standard rates), a $7,800 car allowance, and participation in all
other health, welfare, benefit, stock, option and bonus plans, if any, generally
available to officers or employees of the Bank or the Company. If Ms. Tonat's
employment is terminated without cause for reasons other than death, disability
or in connection with a change in control (as defined), she would be entitled to
receive continued payment of base salary through the end of the term of her
agreement, subject to her compliance with certain noncompete provisions of the
employment agreement. In the event of termination of Ms. Tonat's employment, or
reduction in her 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 120 days after a change in control, Ms. Tonat
would be entitled to receive a lump sum payment equal to 2.99 times her base
salary, subject to adjustment to avoid adverse tax consequences resulting from
characterization of such amount for tax purposes
11
as a "parachute payment." If Ms. Tonat were entitled to receive the termination
benefits as of the date hereof, she would receive a maximum of approximately
$444,015.
Employee Benefit Plans. The Bank provides a benefit program which
includes health and dental insurance, life and long term and short term
disability insurance and a 401(k) plan under which the Company makes matching
contributions up to 3% of an employee's salary, for substantially all full time
employees.
Stock Option Plan. The Company maintains a stock option plan, adopted
by shareholders at the 1999 annual meeting, to attract, retain, and motivate key
officers of the Company and the Bank by providing them with a stake in the
success of the Company as measured by the value of its shares.
The 1998 Stock Option Plan (the "Option Plan") is administered by a
committee (the "Committee"), appointed by the Board of Directors of the Company,
consisting of not less than two (2) members of the Board and up to three (3)
additional members, who may be members of the Board of Directors, members of the
Bank's Board of Directors, or non-director officers of the Company or the Bank.
Members of the Committee may be Employee Directors or Non-Employee Directors,
and serve at the pleasure of the Board of Directors. 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 Bank, the
Company, and their affiliates 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, the Bank 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, 579,025 shares of common stock (as adjusted for
the 25% stock split in the form of a dividend paid on March 31, 2000 and the 40%
stock split in the form of a dividend paid on June 15, 2001), may be issued upon
the exercise of "Options" granted under the Option Plan. At the meeting, the
shareholders are being asked to increase the number of shares available under
the Option Plan by 300,000, to an aggregate of 879,025.
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 grants warrants ("Warrants") and other
Non-ISOs to directors of the Company, the Bank and their affiliates. ISOs,
Non-ISOs and Warrants 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, such 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 and of any subsidiary) exceeds
$100,000, the Options will be treated as Non-ISOs, and not as ISOs. A
Participant may, under the 1998 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 December 9, 1998, 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.
12
As of December 31, 2003, the Company had Options for the purchase of
485,597 shares of common stock issued and outstanding under the Option Plan. In
connection with the execution of their new employment agreements, each of Mr.
Murphy, Ms. Riel, Mr. Tinley and Ms. Tonat were granted options to purchase
5,000 shares of common stock, vesting in two equal installments over a one year
period and Mr. Flynn was granted immediately exercisable options to purchase
15,000 shares of common stock. Additionally, subsequent to December 31, 2003,
two Bank directors were granted options to purchase an aggregate of 165 shares
of common stock. At March 12, 2004, Options to acquire 30,363 shares of common
stock remained available for issuance pursuant to the Option Plan. Subsequent to
December 31, 2003 and through March 12, 2004 Options to purchase 41,964 shares
were exercised.
Securities Authorized for Issuance Under Equity Compensation Plans. The
following table sets forth information regarding outstanding options and other
rights to purchase common stock granted under the Company's compensation plans
as of December 31, 2003:
Equity Compensation Plan Information
Number of securities
Number of securities Weighted average exercise remaining available for
to be issued upon price of outstanding future issuance under equity
exercise of outstanding options, warrants compensation plans (excluding
Plan category options, warrants and rights and rights securities reflected in column (a)
--------------------------------------------------------------------------------------------------------------------------------
(a) (b) (c)
Equity compensation plans
approved by security holders (1) 485,597 $7.98 70,528
Equity compensation plans not
approved by security holders -0- -0- -0-
Total 485,597 $7.98 70,528
(1) Consists of the Company's 1998 Stock Option Plan. For additional
information, see Note 11 to the consolidated financial statements for the
year ended December 31, 2003. Does not include proposed increase in the
number of shares subject to the 1998 Stock Option Plan, or the Employee
Stock Purchase Plan, which are being voted upon at the meeting. Does not
reflect grants made subsequent to December 31, 2003.
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
Set forth below is certain information regarding persons who are
executive officers of the Company or the Bank and who are not directors of the
Company or the Bank. Except as otherwise indicated, the occupation listed has
been such person's principal occupation for at least the last five years.
Susan G. Riel. Ms. Riel, 54, Executive Vice President - Chief
Administrative Officer of the Bank, previously served as Executive Vice
President - Chief Operating Officer of Columbia First Bank, FSB from 1989 until
that institution's acquisition by First Union Bancorp in 1995. Ms. Riel has over
25 years of experience in the commercial banking industry.
Wilmer L. Tinley, Jr. Mr. Tinley, 65, Executive Vice President and
Chief Financial Officer of the Company and the Bank since June 1998, operated
his own tax, accounting and business services company from 1992 through 1998.
Prior to that time, he served as the President and Chief Executive Officer of
Montgomery National Bank (later Allegiance) from its organization in 1987 until
1992.
Martha Foulon-Tonat. Ms. Tonat, 48, Executive Vice President and Chief
Lending Officer of the Bank, served at Allegiance Bank from January 1990 to
December 1997. Her duties included being Senior Vice President and Chief Lending
Officer. Prior to her service at Allegiance Bank Ms. Tonat served at various
commercial banks in the area. She has over 21 years experience in the commercial
banking industry.
REPORT OF THE COMPENSATION COMMITTEE
The Benefits Committee of the Bank serves as the Compensation Committee
of the Company. The Benefits Committee's duty is to review compensation policies
applicable to executive officers of the Bank; to consider the relationship of
corporate performance to that compensation; to approve salary and bonus levels
for senior officers of the
13
Bank, other than those who are executive officers of the Company; to administer
various incentive plans of the Bank; to oversee the compensation system for all
positions in the Bank; to consider the role of incentive pay, benefits and stock
options in overall compensation; and to annually nominate the officers of the
Company and Bank.
The Company's Board of Directors did not have a standing compensation
committee during 2003. The Benefits Committee of the Bank, also served as the
compensation committee for the Company, and is comprised of Mr. Blitz, the
Chairman, Messrs. Abel, Paul, Dworken, Flynn, Goodman, Lee, Rogers and Weinstein
and Ms. Natovitz. The Benefits Committee recommends executive officer
compensation levels to the Company's Board of Directors. Compensation decisions
for the Chief Executive Officer and other executive officers of the Company and
Bank are determined by the members of the Board of Directors who are
"independent directors" within the meaning of NASD Rule 4200(a)(15). Messrs.
Paul and Flynn do not participate in, or remain present during, Board
discussions and/or voting on their compensation. They may participate in
discussions relative to other executive officers, however, they do not vote on
any actions taken.
Under the Bank's compensation policies, which have been established by
the Benefits Committee, bonus and incentive compensation is paid, and changes in
base compensation are made, based both on the individual executive officer's
performance, and the performance of the entire Bank. The Committee considers a
number of factors when assessing performance, including but not limited to
salaries paid by financial services companies, profits during the past year
relative to profit plans, results of federal regulatory examinations, growth,
and changes in shareholder value. Individual executive performance is based upon
its determination of the officer's contributions to the performance of EagleBank
and the accomplishment of the Bank's strategic goals. In assessing performance
for the purposes of establishing base salaries, the members of the Committee do
not make use of a mechanical formula, but instead weigh the factors described
above as they deem appropriate in the circumstances. The 2003 salary levels of
the Bank's executive officers were established consistent with this compensation
policy.
The compensation of Mr. Paul, the President and Chief Executive Officer
of the Company, represents a negotiated amount recommended by the Chairman of
the Company and approved by independent directors of the Company, within the
meaning of NASD Rule 4200(a)(15), as stated above. A substantial portion of the
compensation paid to Mr. Paul is in the form of options to purchase common
stock. During 2003 Mr. Paul was entitled to receive options to purchase 4,000
shares, in substantially equal monthly installments, at the fair market value as
of month end. In connection with a new employment agreement, Mr. Paul was
granted options to purchase 24,000 shares of common stock, as described under
"Executive Compensation" above.
Executive officers have been granted incentive stock options under
Eagle Bancorp's Stock Option Plans. The purposes of the Stock Option Plans are
to attract, retain, and motivate key officers by providing them with a stake in
the success of Eagle Bancorp as measured by the value of its shares. Options are
granted at exercise prices equal to the fair market value of the shares on the
dates of grant. The Stock Option Committee, which consists of the Chairman of
the Board of Eagle Bancorp, the Chairman of the Board of the Bank, and the
President/CEO of the Bank, has the responsibility for granting stock options to
key employees (other than Mr. Paul, Mr. Flynn and other executive Officers of
the Company, whose awards are recommended by the Stock Option Committee and
approved by the independent member of the Board of Directors) and administering
the plans. The Senior Staff of EagleBank recommends to the Stock Option
Committee the recipients and the amounts and other terms of options to be
granted. The Committee believes that the granting of stock options is a most
appropriate form of long term compensation for executive officers, since awards
of equity encourage ownership in the success of the Company. Stock option grants
are discretionary and are limited by the terms and conditions of the Company's
Stock Option Plan. The Committee and the Board of Directors intend to monitor
developments with to respect changes in the accounting for stock options and the
impact of such changes on the results of operations of the Company, and to
consider alternative methods of providing incentive compensation to employees
and officers of the Company.
The Bank also pays discretionary cash bonuses to executive officers of
the Bank. Annual bonuses are accrued as of the end of the fiscal year and are
paid in January. Bonus amounts are determined in the discretion of the Benefits
Committee following consideration of overall Company performance, individual
performance and planned increases in base compensation. Bonus compensation
determinations for executive officers of the Company are made in the same manner
as salary determinations for such officers.
In conclusion, the Benefits Committee believes that executive
compensation should be competitive yet reasonable, and be reflective of overall
performance of the Company.
14
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Bank has had, and expects to have in the future, banking
transactions in the ordinary course of business with some of its and the
Company's directors, officers, and employees and their associates. In the past,
substantially all of such transactions have been on the same terms, including
interest rates, maturities and collateral requirements as those prevailing at
the time for comparable transactions with non-affiliated persons and did not
involve more than the normal risk of collectibility or present other unfavorable
features.
The maximum aggregate amount of loans (including lines of credit) to
officers, directors and affiliates of the Company at December 31, 2003 amounted
to $5,028,589 representing approximately 22% of the Company's total
shareholders' equity at December 31, 2003. In the opinion of the Board of
Directors, the terms of these loans are no less favorable to the Bank than terms
of the loans from the Bank to unaffiliated parties. On December 31, 2003,
$3,890,972 of loans were outstanding to individuals who, during 2003, were
officers, directors or affiliates of the Company. At the time each loan was
made, management believed that the loan involved no more than the normal risk of
collectibility and did not present other unfavorable features. None of such
loans were classified as Substandard, Doubtful or Loss.
STOCK PERFORMANCE COMPARISON
The following table compares the cumulative total return on a
hypothetical investment of $100 in the Company's common stock on December 31,
1998 through December 31, 2003, with the hypothetical cumulative total return on
the Nasdaq Stock Market Index (U.S. Companies) and the Nasdaq Bank Index for the
comparable period.
[GRAPHIC OMITTED]
Eagle Bancorp Nasdaq Composite Nasdaq Bank Stock
Date Common Stock Index Index
----------------- ------------- ---------------- -----------------
December 31, 1998 100.00% 100.00% 100.00%
December 31, 1999 101.87% 185.59% 92.02%
December 31, 2000 101.53% 112.67% 105.52%
December 31, 2001 172.33% 88.95% 116.15%
December 31, 2002 231.92% 60.91% 121.40%
December 31, 2003 300.00% 91.37% 157.74%
15
AMENDMENT OF THE OPTION PLAN
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 300,000 to an aggregate of
879,025, of which 330,363 will be available for future grants.
The purpose of the Option Plan is to advance the interests of the
Company by providing selected key employees and the directors of the Company and
its subsidiaries with the opportunity to acquire shares of common stock. By
encouraging 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 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 Compensation - Employee Benefit Plans - 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.
REASONS FOR THE AMENDMENT
Since adoption of the Option Plan, awards for an aggregate of 512,497
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 March 12, 2004 only 30,363 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.
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 815,960, or 15.11% of the outstanding common stock at March
12, 2004, and 13.12% 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 and Warrants, 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
16
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 Warrant 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
or Warrant. 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 options under the Purchase Plan. The
Company intends to monitor developments in accounting requirements and will
consider them 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. THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE
APPROVAL OF THE AMENDMENT.
PROPOSAL 3--APPROVAL OF THE EAGLE BANCORP, INC.
EMPLOYEE STOCK PURCHASE PLAN
At the meeting, the shareholders are being asked to approve the
Company's Employee Stock Purchase Plan (the "Purchase Plan"), which has been
adopted by the Board of Directors. The Purchase Plan permits eligible employees
to purchase shares of the Company's common stock at a discount, on a tax
qualified basis. The Purchase Plan reserves 150,000 shares for issuance under
its provisions. A copy of the Purchase Plan is included as Appendix B to this
proxy statement. The summary description of the Purchase Plan provided below is
qualified by reference to the full text of the Purchase Plan. THE BOARD OF
DIRECTORS BELIEVES THAT APPROVAL OF THE PURCHASE PLAN IS IN THE BEST INTEREST OF
THE COMPANY AND UNANIMOUSLY RECOMMENDS A VOTE FOR THE APPROVAL OF THE PURCHASE
PLAN.
PURPOSE OF THE PURCHASE PLAN
The purpose of the Purchase Plan is to advance the interests of the
Company by providing eligible employees of the Company and its subsidiaries with
an opportunity to acquire a current ownership interest in the Company, through
the purchase of common stock of the Company upon the exercise of short term
options, so as to provide the employees with an additional incentive to advance
the interests of the Company. Subject to shareholder approval, the Purchase Plan
is intended to enable purchases to be effected at discount from the market value
of the common stock, while permitting employees to defer recognition of income
for the amount of the discount. Non-employee directors are not eligible to
participate in the Purchase Plan.
DESCRIPTION OF THE PURCHASE PLAN
Shares Subject to the Purchase Plan. The Purchase Plan reserves an
aggregate of 150,000 shares of common stock for issuance upon the exercise of
options granted under the Purchase Plan. Shares issued upon the exercise of
options may be either authorized but unissued shares or repurchased shares. 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 number and kind of shares of stock
as to which options may be awarded under the Purchase Plan, the affected terms
of all
17
outstanding options, and the aggregate number of shares of common stock
remaining available for grant under the Purchase Plan will be adjusted. 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 Purchase Plan has expired or otherwise been terminated. No adjustment
will be made that causes the option to fail to continue to qualify as an option
issued pursuant to an "employee stock plan" within the meaning of Section 423 of
the Internal Revenue Code (the "Code").
Eligibility. All of the employees of the Company and its subsidiaries
are eligible to participate in the Purchase Plan, except any employee:
o who at the date of grant has been employed by the Company or
subsidiary for less than one year;
o whose customary employment with the Company or subsidiary as of
the date of grant is 20 hours or less per week;
o whose customary employment with the Company or subsidiary is for
not more than five months in any calendar year; or
o who immediately after the grant of an option under the Purchase
Plan to the employee would own stock possessing 5% or more of the
total combined voting power or value of all classes of stock of
the Company, calculated in accordance with the applicable Code
sections.
No employee will be required to purchase shares pursuant to the
Purchase Plan, although every eligible employee will be granted an option under
the Purchase Plan at any time that any eligible employee is granted an option
under the Purchase Plan. As a result of his level of share ownership as
calculated in accordance with the applicable Code sections, Mr. Paul is not
currently eligible to participate in the Purchase Plan. Mr. Flynn is not
currently eligible to participate in the Purchase Plan. Each of the other
executive officers the compensation of whom is disclosed in this proxy statement
is eligible to participate in the Purchase Plan.
Administration. The Purchase Plan is administered by a committee
consisting of at least three members of the Board of Directors (the
"Committee"). The Committee has the discretionary authority to construe and
interpret the Purchase Plan, to supply any omissions therein, to reconcile and
correct any errors or inconsistencies, to decide any questions in the
administration and application of the Purchase Plan, and to make equitable
adjustments for any mistakes or errors made in the administration of the Plan.
Decisions of the Board are final, conclusive and binding on all parties.
Options. The Purchase Plan is effected through the issuance to all
eligible employees of an option to purchase shares of common stock having a fair
market value of up to a stated percentage, which may not be more than 10% nor
less than 1%, of the employee's Base Compensation for the prior year. The
percentage of Total Compensation will be the same for all eligible employees. No
employee will be able to receive in one calendar year options to purchase more
than $25,000 fair market value of common stock under this plan and under any
other Section 423 stock purchase plan we may adopt.
"Base Compensation" means gross compensation from the Company or any
subsidiary for the relevant period, including overtime pay and commissions, but
excluding bonuses, incentive plan compensation, severance pay, automobile and
expense allowances or reimbursements, moving expenses and income from the
exercise of nonqualified stock options, income from the disposition of incentive
stock options or shares purchased under any employee stock purchase plan, from
restricted stock or stock option awards, excess group life insurance premiums,
or other extraordinary items of compensation. Gross compensation includes any
amount that would be included in taxable income but for the fact that it was
contributed to a qualified plan pursuant to an elective deferral under Section
401(k) of the Code.
Unless otherwise provided in an agreement reflecting an option, options
granted under the Purchase Plan will be exercisable immediately upon grant, ,
and must expire not later than the last business day of January in the calendar
year following the year in which the option is granted.
18
Purchase Price. The exercise price of options must the same for all
eligible employees and will be determined by the Committee at the time of grant.
The exercise price must be equal to at least 85 percent of the lesser of:
o the fair market value of the shares of common stock of the
Company on the date of the grant of the option, or
o the fair market value of the shares of common stock of the
Company on the date of exercise of the option
It is the current expectation that the exercise price will generally be
equal to a stated percentage, not less than 85%, of the fair market value as of
the date of grant of an option, subject to the ability of the Committee to vary
the method for determining the exercise price. The Board of Directors will have
the discretion to vary the percentage of fair market value in different grant
cycles. Subject to the approval of the Purchase Plan at the meeting, each
eligible employee as of July 1, 2004 has been granted the right to purchase
shares having a fair market value as of July 1, 2004 equal to 10% of such
employee's 2003 Base Compensation, at a price per share of 85% of fair market
value on July 1, 2004. Future grants may permit the purchase of shares at a
discount from the grant day fair market value, or from the exercise day fair
market value.
For purposes of the Purchase Plan, "fair market value" of the common
stock is determined as follows:
o if the common stock is listed on a national securities exchange
(including the Nasdaq National Market), then the fair market
value is to be not less than the average of the highest and
lowest selling price on such exchange on such date, or if there
were no sales on such date, then the fair market value is not
less than the mean between the bid and asked prices on such date;
o if the common stock is traded otherwise than on a national
securities exchange, then the fair market value is not less than
the mean between the bid and asked price on such date, or, if
there is no bid and asked price on such date, then on the next
prior day on which there was a bid and asked price; or
o if no such bid and asked price is available, then the fair market
value shall be its fair market value as determined by the
Committee, in good faith, in its sole and absolute discretion.
Financial Effects to the Company of Grants of Options. The Company will
receive no monetary consideration for the grant of options under the Purchase
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 options under the Purchase Plan.
Duration of the Purchase Plan. The Purchase Plan is effective until
December 31, 2008. The expiration of the Purchase Plan, or its termination by
the Committee, will not affect any option then outstanding.
Transferability. No option granted under the Purchase Plan may be
assigned, transferred, pledged or otherwise disposed of in any way, other than
by will or the laws of descent and distribution. During an employee's lifetime,
an option may only be exercised by him or her.
Termination of Employment. In the event that an employee's service with
the Company is terminated for any reason other than death, the right to exercise
the option and purchase shares under the Purchase Plan will immediately
terminate. In the event of an employee's death, the option may be exercised by
such employee's estate or heirs through the earlier of the natural expiration
date of the option.
Mandatory Holding Period for Shares Purchased Under the Purchase Plan.
Shares purchased upon the exercise of options granted under the Purchase Plan
may not be sold or transferred for one year after purchase of the shares by the
exercise of the option, except by will or the laws of descent and distribution,
or to joint ownership with the employee's spouse. This restriction will
terminate upon a "change in control" of the Company. The decision of the
Committee as to whether a change in control has occurred will be conclusive and
binding.
19
For purposes of the Purchase Plan, "change in control" means any one of
the following events:
o the acquisition of ownership of, holding or power to vote more
than 51% of the Company's voting stock,
o the acquisition of the power to control the election of a
majority of the Company's directors,
o the exercise of a controlling influence over the management or
policies of the Company by any person or by persons acting as a
"group" (within the meaning of Section 13(d) of the Securities
Exchange Act of 1934), or
o the failure of Continuing Directors to constitute at least
two-thirds of the Board during any period of two consecutive
years. "Continuing Directors" include only those individuals who
were members of the Board at the date of adoption of the purchase
Plan by the Board and those other individuals whose election or
nomination for election as a member of the Board was approved by
a vote of at least two-thirds of the Continuing Directors then in
office.
This restriction is for the purpose of encouraging long term investment in the
Company's stock by employees and is not intended, and is not guaranteed, to
preserve any tax benefit or treatment. The holding periods required to obtain
deferral of income and other tax treatments associated with qualified employee
stock purchase plans are discussed below under "Federal Income Tax
Consequences." Although the change in control provision is included in the
Purchase Plan primarily for the protection of employee-optionees in the event of
a change in control of the Company, they may also be regarded as having a
takeover defensive effect, which may reduce the Company's vulnerability to
hostile takeover attempts and certain other transactions which have not been
negotiated with and approved by the Board of Directors.
Conditions on Issuance of Shares. The Committee will have the
discretionary authority to impose such other restrictions on shares issued
pursuant to the Purchase Plan as it may deem appropriate or desirable. In
addition, shares may not be issued unless the issuance complies with applicable
securities laws, and to that end may require that an employee make certain
representations or warranties.
Amendment and Termination of the Purchase Plan. The Board of Directors
may at any time and for any reason suspend or discontinue the Purchase Plan, or
amend it in any respect, including through the adoption of payroll deduction
procedures or providing for option grants as frequently as monthly. Except as
provided in the Purchase Plan, no termination will affect options previously
granted. Except as provided in the Purchase Plan, no amendment may make any
change in any previously granted option that adversely affects the rights of any
participant. No amendment may, without shareholder approval, increase the number
of shares subject to the Purchase Plan, permit the grant of options to persons
other than employees, extend the option period beyond fourteen months, or reduce
the purchase price below 85% of fair market value. The Company will obtain
shareholder approval of any amendment to the Purchase Plan to the extent
necessary to comply with section 423 of the Code (or any successor rule or
provision or any other applicable law or regulation), or the rules of the Nasdaq
National Market System or other exchange on which the common stock is listed or
eligible for trading, in such a manner and to such a degree as required. Unless
terminated sooner, the Purchase Plan will terminate on December 31, 2008.
FEDERAL INCOME TAX CONSEQUENCES
The Purchase Plan and the rights of participants to make purchases
under the Purchase Plan are intended to qualify under the provisions of sections
421 and 423 of the Internal Revenue Code. Under these provisions, no income will
be taxable to a participant until the shares purchased under the Purchase Plan
are sold or otherwise disposed of. Upon sale or other disposition of the shares
of common stock, the participant will generally be subject to tax, and the
amount of the tax will depend upon the holding period.
If (i) the shares of common stock are not sold or otherwise disposed of
more for at least two years from the date of grant of the option and at least
one year from the purchase of shares upon exercise of the option, then upon
disposition, or (ii) the participant dies while still owning the shares, the
participant will recognize ordinary income equal to the lesser of:
o the excess, if any, of the fair market value of the shares of
common stock at the date of grant of the option over the purchase
price, or
20
o the excess, if any, of the fair market value of the shares of
common stock at the date of disposition or death over the
purchase price.
Any additional gain will be treated as long-term capital gain. The difference
between the fair market value of the stock at the date of exercise and the
exercise price may be treated as an item of tax preference in the year of
exercise for purposes of the alternative minimum tax.
If the shares of common stock are sold or otherwise disposed of before
the expiration of the two years from grant and one year from purchase holding
periods, the participant will recognize ordinary income upon disposition
measured as the excess of the fair market value of the shares of common stock on
the date the shares are purchased by exercising the option over the purchase
price. Any additional gain or loss on such sale or disposition will be long-term
or short-term capital gain or loss, depending on the holding period.
The mandatory one year holding period discussed under "Description of
the Purchase Plan" is not intended to, and is not guaranteed to, preserve any
tax benefit or treatment.
The Company is not entitled to a deduction for amounts taxed as
ordinary income or capital gain to a participant except to the extent of
ordinary income recognized by participants upon a sale or disposition of shares
of common stock prior to the expiration of the holding periods described above.
Vote Required and Recommendation of the Board of Directors. Approval of
the Purchase Plan requires the favorable vote of at least a majority of the
votes cast. It is expected that all of the 636,129 shares, or 11.8%, of the
common stock outstanding as of March 12, 2004, over which directors of the
Company exercise voting power will be voted for the approval of the Purchase
Plan. THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR"
APPROVAL OF THE PURCHASE PLAN.
INDEPENDENT PUBLIC ACCOUNTANTS
The Audit Committee of the Board of Directors has selected Stegman and
Company, independent public accountants, to audit the Company's financial
statements for the fiscal year ending December 31, 2004. Stegman and Company has
audited the financial statements of the Company since its organization.
Representatives of Stegman and Company are expected to be present at the meeting
and available to respond to appropriate questions. The representatives also will
be provided with an opportunity to make a statement, if they desire.
FEES PAID TO INDEPENDENT ACCOUNTING FIRM
Audit Fees.
During 2003, the aggregate amount of fees billed to the Company by
Stegman and Company for services rendered by it for the audit of the Company's
financial statements and review of financial statements included in the
Company's reports on Form 10-Q, and for services normally provided in connection
with statutory and regulatory filings was $60,800. In 2002, Stegman and Company
billed $46,900 for such services.
Audit-Related Fees.
During 2003, the aggregate amount of fees billed to the Company by
Stegman and Company for assurance and related services reasonably related to the
performance of the audit services rendered by it was $2,250 for certain agreed
upon procedures related to collateral verification. In 2002, Stegman and Company
did not bill the Company for any audit-related services..
Tax Fees.
During 2003, the aggregate amount of fees billed to the Company by
Stegman and Company for tax advice, compliance and planning services was $4,500.
In 2002, Stegman and Company billed $8,200 for such services.
21
All Other Fees.
Stegman and Company did not bill the Company any amounts for other
services in 2003 or 2002.
None of the engagements of Stegman and Company to provide services
other than audit services was made pursuant to the de minimus exception to the
pre-approval requirement contained in the rules of the Securities and Exchange
Commission and the Company's audit charter.
FORM 10-K ANNUAL REPORT
THE COMPANY WILL PROVIDE, WITHOUT CHARGE, TO ANY SHAREHOLDER OF RECORD
ENTITLED TO VOTE AT THE MEETING OR ANY BENEFICIAL OWNER OF COMMON STOCK
SOLICITED HEREBY, A COPY OF ITS 2003 ANNUAL REPORT ON FORM 10-K FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION, UPON THE WRITTEN REQUEST OF SUCH
SHAREHOLDER. REQUESTS SHOULD BE DIRECTED TO MICHELE MIDLO, CORPORATE SECRETARY,
AT THE COMPANY'S EXECUTIVE OFFICES, 7815 WOODMONT AVENUE, BETHESDA, MARYLAND
20814.
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,
executive officers and ten percent shareholders, the Company is not aware of any
failure of any such person to comply with the requirements of Section 16(a),
except that two Forms 4 reporting Mr. Paul's option grants for the first and
second quarters of 2003 were filed late.
OTHER MATTERS
The Board of Directors of the Company is not aware of any other matters
to be presented for action by shareholders at the meeting. If, however, any
other matters not now known are properly brought before the meeting or any
adjournment thereof, the persons named in the accompanying proxy will vote such
proxy in accordance with their judgment on such matters.
SHAREHOLDER PROPOSALS
All shareholder proposals to be presented for consideration at the next
annual meeting and to be included in the Company's proxy materials must be
received by the Company no later than December 27, 2004. Shareholder proposals
for nominations for election as director must be received by the Company no
later than January 6, 2005. In order to be eligible for consideration at the
next annual meeting of shareholders, the Company must receive notice of
shareholder proposals for business other than the election of directors to be
conducted at the annual meeting which are not proposed to be included in the
Company's proxy materials not less than thirty and not more than ninety days
before the date of the annual meeting, or if less than forty five days notice of
the meeting is given, by the earlier of two days before the meeting and fifteen
days after the notice of the meeting is mailed.
By Order of the Board of Directors
Michele Midlo, Corporate Secretary
April 2, 2004
22
APPENDIX A
EAGLE BANCORP
AUDIT COMMITTEE CHARTER
GOALS AND OBJECTIVES
The primary function of the audit committee (herein referred to as the
"Committee") is to oversee and report to the Board of Directors regarding the 1)
integrity of the financial statements and accounting and financial reporting
processes of Eagle Bancorp and its subsidiaries (the "Company"), 2) the
Company's compliance with legal and regulatory requirements, 3) the independent
auditor's qualifications and independence 4) the performance of the Company's
internal audit function and independent accountants; and perform the other
duties of the Committee specified by federal securities laws and regulations,
the Federal Deposit Insurance Act and related regulations, or the listing
standards of The Nasdaq Stock Market, Inc. or other securities exchange or
market on which the Company's securities are listed or eligible for trading
("Listing Standards").
While the 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 Committee. The Committee also is not
responsible for ensuring compliance with laws or regulations.
GENERAL RESPONSIBILITIES
o It is the responsibility of the Committee to maintain open avenues of
communication among the internal auditors, the independent accountants, the
board of directors and management.
o The Committee will meet at least four times each year or more frequently if
appropriate. The Committee chairman has the power to call a Committee
meeting whenever he or she thinks there is a need. An audit Committee
member should not vote on any matter in which he or she is not independent.
The Committee may ask members of management or others to attend the meeting
and is authorized to receive all pertinent information from management.
o The Committee shall establish procedures for the (a) receipt, retention and
treatment of complaints received by the Company regarding accounting,
internal accounting controls or auditing matters and (b) confidential,
anonymous submission by the Company's employees of concerns regarding
questionable accounting or auditing matters.
o The Committee shall regularly report on its activities to the Board and
shall provide the Board with such information as the Board may request, and
shall make such recommendations as the Committee shall deem appropriate.
o The Committee shall fulfill such other duties and responsibilities as are
required by applicable law, the regulations of the Securities and Exchange
Commission ("SEC"), or the Listing Standards, and as assigned to the
Committee from time to time by the Board.
MEMBERSHIP
o The Committee shall consist of three or more independent directors,
appointed by the Board on an annual basis. In determining the independence
of members of the Committee, the Board shall meet current standards of
independence established for service on the audit committee by applicable
law, the regulations of the SEC, the Listing Standards and the Federal
Deposit Insurance Corporation. At a minimum, all Committee members shall
have (a) the ability to read and understand fundamental financial
statements, including the Company's balance sheet, income statement, cash
flow statement, and key performance indicators; (b) the ability to
understand key
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business and financial risks, related controls and control processes. No
member of the Committee shall have participated in the preparation of the
financial statements of the Company or any current subsidiary of the
Company at any time during the past three years. At least one member of the
Committee shall have past employment in finance or accounting, professional
certification in accounting or other comparable experience or background
which causes such member to be financially sophisticated, including being
or having been a chief executive officer, chief financial officer or other
senior officer with financial oversight responsibilities.
RESPONSIBILITIES FOR ENGAGING INDEPENDENT ACCOUNTANTS AND APPOINTING THE
INTERNAL AUDITOR
o The Committee shall be solely responsible for: (a) the appointment,
compensation, retention and oversight (including resolution of
disagreements between management and the independent accountants regarding
financial reporting) and termination of the Company's independent
accountants engaged for the purpose of preparing or issuing an audit report
or performing other audit, review and attest services, who shall report
directly to the Committee, (b) the approval, before such engagement
commences, of all audit, review and attest engagements of the independent
accountants; and (c) the approval, before such engagement commences, of all
non-audit service engagements of the independent accountants.
o The Committee shall be solely responsible for determining and approving
fees and other terms for engagements.
o Notwithstanding the foregoing, 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 SEC or the Listing Standards, and the independent auditor shall not
provide any such prohibited service.
o 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.
o 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.
o The Committee will review and have veto power over the appointment,
replacement, reassignment or dismissal of the head of internal audit
services.
o The Committee will oversee the compliance with lead (or coordinating) and
review partner and other rotation requirements by the independent auditor.
o On an annual basis, the Committee shall receive from the independent
accountants the written disclosures and letters required to be provided,
and review and discuss with the accountants all significant relationships
the accountants have with the Company to determine the accountants'
independence.
o The Committee will consider, in consultation with the independent
accountant and internal audit, the audit scope and procedural plans made by
internal audit services and the independent accountant. The Committee will
review and discuss with internal audit services and the independent
accountant their plans to coordinate the internal and external audits. The
purpose of coordinating these efforts is to assure completeness of
coverage, reduce redundancy and use audit resources effectively.
o The Committee will listen to management and the independent auditor if
either thinks there might be a need to engage additional auditors. The
Committee will decide whether to engage an additional firm and, if so,
which one.
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RESPONSIBILITIES FOR REVIEWING INTERNAL AUDITS, THE ANNUAL EXTERNAL AUDIT AND
THE REVIEW OF QUARTERLY AND ANNUAL FINANCIAL STATEMENTS
o The Committee will ascertain that the independent accountant views the
Committee as its client, that it will be available to the full board of
directors at least annually and that it will provide the Committee with a
timely analysis of significant financial reporting issues.
o The Committee will discuss with management, the internal auditor and the
independent accountant significant risks and exposures and will assess
management's steps to minimize them.
o The Committee will review the following with the independent accountant,
the internal auditor and management:
a. The adequacy of the bank's internal controls, including
computerized information system controls and security; and the
resolution of identified material weaknesses and reportable
conditions in internal controls;
b. Any fraud that involves management or other employees who have a
significant role in the Company's internal controls;
c. Any significant findings and recommendations made by the
independent accountant or internal auditing, together with
management's responses to them;
d. All critical accounting policies and practices and any other
material components of the Company's financial statements involving
management's judgment or estimates, and about the quality of
accounting principals and the clarity of financial disclosure
practices used or proposed to be used by the Company;
e. The alternative treatments of financial information within
generally accepted accounting principles that have been discussed
with management officials, ramifications of the use thereof, and
the treatment preferred by the independent accountants, as well as
any required or suggested changes in auditing or accounting
practices or principles;
f. Material off-balance sheet transactions, arrangements, obligations
and other relationships of the Company with unconsolidated entities
or others that may have a material current or future effect on the
Company's financial condition, changes in financial condition,
results of operations, liquidity, capital expenditures, capital
resources of significant components of revenue or expenses;
g. Any material changes in accounting policies or practices and the
impact thereof on the Company's financial statements;
h. The annual audited financial statements and quarterly financial
statements, including the Company's disclosures under "Management's
Discussion and Analysis of Financial Condition and Results of
Operations;
i. Any report or recommendations of the independent accountants;
j. Anything else about the audit procedures or findings that GAAP
requires the accountants to discuss with the Committee.
k. Disclosures made by the CEO and CFO during the Forms 10-K and 10-Q
certification process about significant deficiencies in the design
or operation of internal controls;
l. Any difficulties or disputes encountered with management while
conducting audits, including any restrictions on the scope of their
work or access to required information.
o The Committee will review annual filings with the SEC and other published
documents containing the Company's financial statements and will consider
whether the information in the filings is consistent with the information
in the financial statements. The Committee shall discuss earnings press
releases (particularly use of "pro forma," or "adjusted" non-GAAP,
information), as well as financial information and earnings guidance
provided to analyst and rating agencies. Such matters may be discussed
generally (e.g., types of information and presentations) and need not
include specific releases or guidance.
o The Committee will determine that the quarterly financial statements have
been reviewed by the independent accountants in accordance with SAS 100
before those interim statements are released to the public or filed with
the SEC.
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o The Committee shall prepare a report for inclusion in the proxy statement
that describes the 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 Committee
recommended that the annual financial statements be included in the
Company's annual report on Form 10-K.
PERIODIC RESPONSIBILITIES
o On an on-going basis, the Committee shall conduct an appropriate review of
all related party transactions for potential conflicts of interest and all
such transactions shall be approved by the Committee to the extent required
by applicable law.
o In performing its duties hereunder, the Committee shall have the authority
to conduct or authorize investigations, to retain and terminate such
outside legal, accounting or other advisors as it shall deem necessary,
without seeking further approval of the Board of Directors, and the Company
shall provide for appropriate funding therefore. The Committee may utilize,
consult with and engage the members and resources of the Audit Committee of
EagleBank in the discharge of its duties.
o The Committee shall, to the extent it determines appropriate, review from
time to time the expenses of the senior officers (and, if it so desires,
any other officers) of the Company charged to the Company and any
transactions between the Company and any of its subsidiaries.
o Review legal and regulatory matters that may have a material effect on the
organization's financial statements, compliance policies and programs and
reports from regulators.
o Meet with the internal auditor, the independent accountant and management
in separate executive sessions to discuss any matters that warrant
Committee attention
o The Committee shall review and assess at least annually its performance,
and the adequacy of this Charter in light of applicable law and the rules
of the SEC and the Listing Standards.
o The Committee shall discuss the Company's policies with respect to risk
assessment and risk management, including legal and ethical compliance
programs.
o Assess the continued adequacy of the Audit Services Charter, as well as the
responsibilities, budget and staffing of the internal audit services
function.
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APPENDIX B
EAGLE BANCORP, INC.
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE
This Employee Stock Purchase Plan (the "Plan") is intended to provide
the employees of Eagle Bancorp, Inc. (the "Company"), and its subsidiaries with
an opportunity to acquire a current proprietary interest in the Company, through
the purchase of common stock of the Company upon the exercise of short term
options, so as to provide the employees with an additional incentive to advance
the interests of the Company and its subsidiaries. It is intended that options
issued pursuant to this Plan shall constitute options issued pursuant to an
"employee stock purchase plan" within the meaning of ss. 423 of the Internal
Revenue Code of 1986, as amended (the "Code"). The Plan shall be administered,
interpreted and construed so as to extend and limit participation in a manner
consistent with ss. 423 of the Code. Participation in the Plan is entirely
voluntary, and the Company makes no recommendations to employees as to whether
they should or should not participate in the Plan.
2. ADMINISTRATION
The Plan shall be administered by a committee (the "Committee")
appointed by the Board of Directors (the "Board") of the Company. The Committee
shall consist of not less than three members of the Company's Board of
Directors. The Board of Directors may from time to time remove members from, or
add members to, the Committee. Vacancies on the Committee, however caused, shall
be filled by the Board of Directors. The Committee shall select one of its
members as Chairman, and shall hold meetings at such time and places as it may
determine. At all meetings of the Committee, a majority of the Committee members
then in office shall constitute a quorum for the transaction of business, and
the act of a majority of the Committee members present at any meeting in which
there is a quorum shall be the act of the Committee. Any action required or
permitted to be taken by the Committee may be taken without a meeting if the
action is taken by all members of the Committee. The action shall be evidenced
by one or more written consents stating the action taken, signed by each
Committee member either before or after the action is taken, and included in the
minutes or filed with the corporate records reflecting the action taken. In the
absence at any time of a duly appointed Committee, the Plan shall be
administered by the Compensation Committee of the Board, or in the absence
thereof, by the Board.
In order to effectuate the purposes of the Plan, the Committee shall
have the discretionary authority to construe and interpret the Plan, to supply
any omissions therein, to reconcile and correct any errors or inconsistencies,
to decide any questions in the administration and application of the Plan, and
to make equitable adjustments for any mistakes or errors made in the
administration of the Plan, and all such actions or determinations made by the
Committee, and the application of rules and regulations to a particular case or
issue by the Committee, in good faith, shall not be subject to review by anyone,
but shall be final, binding and conclusive on all persons ever interested
hereunder. No member of the Board of Directors or the Committee shall be liable
for any action or determination made in good faith with respect to the Plan or
any option granted under it.
3. ELIGIBILITY
Any employee of the Company or any employee of a subsidiary of the
Company (for purposes of this Plan the term "subsidiary" has the same definition
as it has under ss. 425(f) of the Code) who is in the employment of the Company
or a subsidiary of the Company on the date on which such option is granted, is
eligible to participate in the Plan, except any employee:
(i) who at the date of grant has been employed by the Company or
subsidiary for less than one year;
(ii) whose customary employment with the Company or subsidiary as of
the date of grant is 20 hours or less per week;
(iii) whose customary employment with the Company or subsidiary is for
not more than five months in any calendar year; or
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(iv) who immediately after the grant of an option under this Plan to
the employee would (in accordance with the provisions of ss. ss. 423
and 424(d) of the Code) own stock possessing 5% or more of the total
combined voting power or value of all classes of stock of the Company
or of its "Parent Corporations" or "Subsidiary Corporations," as
defined in ss. 424 of the Code.
4. STOCK SUBJECT TO THE PLAN
Subject to adjustment in accordance with this Section 4, the aggregate
number of shares deliverable upon the exercise of options pursuant to the Plan
shall be 150,000 shares. Shares subject to issuance hereunder may either be
authorized but unissued shares, shares held in treasury, or reacquired shares.
If any option should expire, become unexercisable or be forfeited for any reason
without having been exercised, the shares which were subject to such option
shall be available for the grant of additional options under the Plan, unless
the Plan shall have been terminated.
The number and kind of shares reserved for issuance under this Plan,
and the number and kind of shares subject to outstanding options and the
exercise price thereof, shall be proportionately adjusted for any increase,
decrease, change or exchange of shares for a different number or kind of shares
or other securities of the Company which results from a 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 the receipt or payment of consideration by the Company. The
issuance by the Company or an affiliate of shares of stock of any class, or of
securities convertible into shares or stock of another class, for cash or
property or for labor or services either upon direct sale or upon the exercise
of rights or warrants to subscribe therefor, shall not affect, and no adjustment
shall be made with respect to, the number, class, or exercise price of shares
then subject to options or reserved for issuance under this plan. If, by reason
of any adjustment made pursuant to this paragraph, an optionee becomes entitled
to new, additional, or different shares of stock or securities, such new,
additional, or different shares of stock or securities shall thereupon be
subject to all of the conditions and restrictions which were applicable to the
shares pursuant to the option before the adjustment was made. No adjustment
shall be made that causes the option to fail to continue to qualify as an option
issued pursuant to an "employee stock plan" within the meaning of Section 423 of
the Code.
5. GRANT OF OPTIONS.
(a) The Committee may authorize the grant to all, but not less than
all, eligible employees (as set forth in Section 3) as of the date of grant, of
an option to purchase the number of whole shares having a fair market value as
of the date of grant equal to a whole percentage, determined by the Committee,
of such eligible employee's Base Compensation for the immediately preceding
calendar year, provided, however, that:
(i) such percentage in any one calendar year shall not in the aggregate
exceed 10% of Base Compensation and shall be the same for all eligible
employees;
(ii) no option shall permit the rights of an optionee to purchase stock
under all "employee stock purchase plans" of the Company and its parent
corporation and subsidiary corporations to accrue at a rate which
exceeds $25,000 of fair market value of such stock (determined at the
time the option is granted) for each calendar year in which the option
is outstanding at any time; and
(iii) no person shall be eligible to receive an option to purchase, or
shall be entitle to purchase, a fractional share of Common Stock.
For purposes hereof, "Base Compensation" means gross compensation from
the Company or any subsidiary for the relevant period, including overtime pay
and commissions, but excluding bonuses, incentive plan compensation, severance
pay, expense or automobile allowances or reimbursements, moving expenses and
income from the exercise of nonqualified stock options, the disposition of
incentive stock options or shares purchased under any employee stock purchase
plan, from restricted stock or stock option awards, excess group life insurance
premiums or other extraordinary items of compensation. For these purposes, gross
compensation includes any amount that would be included in taxable income but
for the fact that it was contributed to a qualified plan pursuant to an elective
deferral under ss. 401(k) of the Code or contributed under a salary reduction
agreement pursuant to ss. 125 of the Code.
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For purposes hereof, (i) the right to purchase stock under an option
accrues when the option (or any portion thereof) first becomes exercisable
during the calendar year, (ii) the right to purchase stock under an option
accrues at the rate provided in the option, but in no case may such rate exceed
$25,000 of fair market value of such stock (determined at the time such option
is granted) for any one calendar year, and (iii) a right to purchase stock which
has accrued under one option granted pursuant to the Plan may not be carried
over to any other option.
(b) The exercise price of such options shall be the same for all
eligible employees and shall be determined by the Committee at the time of
grant. The exercise price shall be equal to at least 85 percent of the lesser
of:
(i) the fair market value of the shares of common stock of the Company
on the date of the grant of the option, or
(ii) the fair market value of the shares of common stock of the Company
on the date of exercise of the option.
For purposes of this Plan, "fair market value" means, with respect to a share of
Common Stock, if the Common Stock is listed on a national securities exchange
(including the NASDAQ National Market) on the date in question, then the fair
market value shall be not less than the average of the highest and lowest
selling price on such exchange on such date, or if there were no sales on such
date, then the fair market value shall be not less than the mean between the bid
and asked prices on such date. If the Common Stock is traded otherwise than on a
national securities exchange on the date in question, then the fair market value
shall be not less than the mean between the bid and asked price on such date,
or, if there is no bid and asked price on such date, then on the next prior day
on which there was a bid and asked price. If no such bid and asked price is
available, then the fair market value shall be its fair market value as
determined by the Committee, in good faith, in its sole and absolute discretion.
(c) Unless a later date is set forth in the agreement reflecting an
option, an option shall be exercisable commencing on the date of grant.
6. OPTION AGREEMENTS AND OTHER TERMS AND CONDITIONS
(a) Agreements. Stock options granted pursuant to the Plan shall be
evidenced by agreements in such form as the Committee shall from time to time
recommend and the Board of Directors shall from time to time approve. Each such
Agreement shall constitute a binding contract between the Company and the
participant, and every participant, upon acceptance of such Agreement, shall be
bound by the terms and restrictions of the Plan and of such Agreement. The
Chairman of the Committee and such other officers as shall be designated by the
Committee are hereby authorized to execute Agreements on behalf of the Company
and to cause them to be delivered to the recipients of options.
The terms of each such Agreement shall be in accordance with the Plan,
but each Agreement may include such additional provisions and restrictions
determined by the Committee, in its discretion, provided that such additional
provisions and restrictions are not inconsistent with the terms of the Plan. In
particular, the Committee shall set forth in each Agreement, provided that all
employees granted such options shall have the same rights and privileges, and
except as otherwise expressly required hereby or by the Code:
o the exercise price of an option, including a statement of the percentage of
fair market value represented by such exercise price;
o the number of shares subject to, and the expiration date of, the option; and
o the restrictions, if any, to be placed upon such Option, or upon shares
which may be issued upon exercise of such Option.
(b) Term of Option. Unless an earlier date is set forth in the
agreement reflecting an option, an option must be exercised not later than the
close of business on the last business day of January in the calendar year
following the year in which the option is granted.
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(c) Termination of Employment
(i) For Reasons Other Than Death. In the event that an
optionee's employment with the Company or any subsidiary of the Company
shall terminate for any reason other than optionee's death, then the
right of such optionee to exercise such option shall immediately
terminate upon such termination of service. Employment shall not be
considered terminated in the case of sick leave, military leave or any
other leave of absence approved by the Company or in the case of
transfers between payroll locations of the Company or any subsidiary of
the Company, or between the Company, an affiliate or subsidiary, or a
successor.
(ii) Death of Optionee. In the event that an optionee's
employment with the Company or any subsidiary of the Company shall
terminate as a result of the death of an optionee, the option may be
exercised by the executors or administrators of the optionee or by any
person or persons who shall have acquired the option directly from the
optionee by bequest or inheritance, to the extent that the optionee's
right to exercise such option had accrued pursuant to this Plan at the
time of his death, had not expired by its terms and had not previously
been exercised, at any time prior to the expiration of such option.
(d) Transferability No option shall be transferable by the optionee
otherwise than by will or the laws of descent and distribution, and is
exercisable during his or her lifetime only by the optionee.
(e) Mandatory Holding Period. Shares purchased upon the exercise of
options granted under this Plan may not be sold or transferred by the employee
for one year following the exercise of the option, except by will or the laws of
descent and distribution, or to joint ownership with the employee's spouse,
provided, however, that such restriction shall terminate upon a "change in
control" of the Company. This restriction is for the purpose of encouraging long
term investment in the Company's stock by employees and is not intended, and is
not guaranteed, to preserve any tax benefit or treatment.
For purposes hereof "change in control" shall mean any one of the
following events: (1) the acquisition of ownership of, holding or power to vote
more than 51% of the Company's voting stock, (2) the acquisition of the power to
control the election of a majority of the Company's directors, (3) the exercise
of a controlling influence over the management or policies of the Company by any
person or by persons acting as a "group" (within the meaning of Section 13(d) of
the Securities Exchange Act of 1934), or (4) the failure of Continuing Directors
to constitute at least two-thirds of the Board during any period of two
consecutive years. For purposes of this Plan, "Continuing Directors" shall
include only those individuals who were members of the Board at the date of
adoption hereof by the Board and those other individuals whose election or
nomination for election as a member of the Board was approved by a vote of at
least two-thirds of the Continuing Directors then in office. For purposes of
this subparagraph only, the term "person" refers to an individual or a
corporation, partnership, trust, association, joint venture, pool, syndicate,
sole proprietorship, unincorporated organization or any other form of entity not
specifically listed herein. The decision of the Committee as to whether a change
in control has occurred shall be conclusive and binding.
(f) Exercise of Option and Payment of Purchase Price. An employee may
exercise options only by (i) written notice of intent to exercise the option
with respect to a specified number of shares, and (2) payment to the Company
(contemporaneously with delivery of such notice) in cash of the amount of the
exercise price for the number of shares with respect to which the option is then
being exercised. Each such notice (and payment where required) shall be
delivered, or mailed by prepaid registered or certified mail, addressed to the
Secretary of the Company at the Company's executive offices.
(g) No Rights as a Stockholder or Employee. An optionee or a transferee
of an option shall have no rights as a stockholder with respect to any shares
covered by an option until the date payment for such shares is received and
ownership is recorded in the employee's name. No adjustment shall be made for
dividends (ordinary or extraordinary, whether in cash, securities, or other
property) or distributions or other rights for which the record date is prior to
such date, except as provided in Section 4 hereof. In no event shall an
Employee's eligibility to participate or participation in the Plan create or be
deemed to create any legal or equitable right of the Employee to continue
service with the Company or any subsidiary or affiliate of the Company.
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(h) Legend. The Company shall be entitled to note any restrictions on
transfer, including any restrictions arising as a result of state or federal
securities laws, in its transfer records, and to inscribe on each share
certificate representing shares issued upon the exercise of options a legend
noting such restrictions.
(i) Withholding. At the time an option is exercised, in whole or in
part, or at the time some or all of Common Stock issued pursuant to the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state or other tax withholding obligations, if any, that may arise upon
exercise of the option or the disposition of the shares of common stock. At any
time, the Company may, but shall not be obligated to, withhold from a
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including, any withholding required to make
available to the Company any tax deductions attributed to the sale or early
disposition of common stock by the participant.
(j) Other Provisions. The option agreements authorized under the Plan
shall contain such other provisions as the Committee and the Board shall deem
advisable, provided that no such provision may in any way be in conflict with
the terms of this Plan.
7. TERM OF PLAN
The Plan shall continue in effect from the date of adoption by the
Board of Directors until December 31, 2008 unless sooner terminated pursuant to
Section 9. No option may be granted under the Plan after December 31, 2008.
8. INDEMNIFICATION OF COMMITTEE
In addition to such other rights of indemnification as they may have as
directors, officers, or as members of the Committee, the members of the
Committee shall be indemnified by the Company against the reasonable expenses,
including attorney's fees actually and necessarily incurred in connection with
the defense of any action, suit, or proceeding, or in connection with any appeal
therein, to which they or any of them may be a party by reason of any action
taken or failure to act under or in connection with the Plan or any option
granted thereunder, and against all amounts paid by them in settlement thereof
(provided such settlement is approved by independent legal counsel selected by
the Company) or paid by them in satisfaction of a judgment in any such action,
suit, or proceeding, except in relation to matters as to which it shall be
adjudged in such action, suit, or proceeding that such Committee member is
liable for gross negligence or misconduct in performance of his duties.
9. AMENDMENT OR TERMINATION OF THE PLAN
The Board may, insofar as permitted by law, from time to time, with
respect to any shares at anytime not subject to options, suspend or discontinue
the Plan or revise or amend it in any respect whatsoever, including the adoption
of payroll deduction procedures or providing for the grant of options on a basis
as frequent as monthly, except that, without the approval of the stockholders,
no such revision or amendment shall increase the number of shares subject to the
Plan, or permit granting of options under this Plan to persons other than
employees of the Company or subsidiaries of the Company, or extend an option
period beyond 14 months, or reduce the discounted stock price below 85% of the
lesser of fair market value of the common stock as of the date of grant or the
date of exercise of any option. Furthermore, the Plan may not, without the
approval of the stockholders, be amended in any manner that will cause options
issued under it to fail to meet the requirements of employee stock purchase
options as defined in ss. 423 of the Code. No amendment, suspension or
termination of the Plan shall, without the consent of any affected holder of an
option, alter or impair any rights or obligations under any option granted prior
to such amendment, suspension or termination.
10. APPLICATION OF FUNDS
The proceeds received by the Company from the sale of common stock
pursuant to options granted pursuant to this Plan will be used for general
corporate purposes.
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11. APPROVAL OF STOCKHOLDERS; CONSEQUENCE OF NON-APPROVAL
The Plan must be approved by the holders of a majority of the votes
cast at a meeting of the Company's shareholders at which a majority of shares
are present, within twelve months after the date the Plan is adopted by the
Board of Directors. If approval is not obtained within such period, the Plan
shall automatically be terminated, unless the Board of Directors specifically
elects to continue the Plan as an employee stock purchase plan which is not
qualified under ss. 423. Further, if such approval is not obtained, any employee
who shall have exercised an option prior to such approval shall be treated as
having received, as of the date of exercise, with respect to each share
purchased, ordinary income in an amount equal to the difference between the
exercise price and the fair market value of the share on the date of exercise.
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REVOCABLE PROXY
EAGLE BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby makes, constitutes and appoints Arthur H. Blitz
and Bruce H. Lee, 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 Eagle 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 May 17, 2004 and at any adjournment or postponement
of the meeting.
ELECTION OF DIRECTORS
[ ] FOR all nominees listed below
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
[ ] FOR all nominees, except as noted
Nominees: Leonard L. Abel, Leslie M. Alperstein, Dudley C. Dworken, Michael T.
Flynn, Eugene F. Ford, Sr., Phillip N. Margolius, Ronald D. Paul
(Instructions: To withhold authority to vote for any individual nominee, write
that nominee's name in the space provided below.)
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APPROVAL OF THE AMENDMENT OF THE 1998 STOCK OPTION PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN the proposal to approve the amendment
of the 1998 Stock Option Plan.
APPROVAL OF THE EMPLOYEE STOCK PURCHASE PLAN
[ ] FOR [ ] AGAINST [ ] ABSTAIN the proposal to approve the Employee
Stock Purchase Plan.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned shareholder. If no direction is made, this proxy will be
voted FOR all of the nominees set forth above, FOR approval of the amendment to
the 1998 Stock Option Plan and FOR the approval of the Employee Stock Purchase
Plan. IN ADDITION, THIS PROXY WILL BE VOTED AT THE DISCRETION OF THE PROXY
HOLDER(S) UPON ANY OTHER MATTER WHICH MAY PROPERLY COME BEFORE THE MEETING OR
ANY ADJOURNMENT OR POSTPONEMENT OF THE MEETING.
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.
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Signature of Shareholder
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Signature of Shareholder
Dated: , 2004
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Email Address
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.