SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
Form 8-B
Registration of Securities of Certain Successor Issuers
Filed Pursuant to Section 12(b) or 12(g) of The Securities Exchange Act of 1934
------------------------
BAY BANKS OF VIRGINIA, INC.
(Exact name of registrant as specified in its charter)
Virginia 54-1838100
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
------------------------
100 South Main Street
Kilmarnock, Virginia 22482
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (804) 435-1171
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered Name of each exchange on which
each class is to be registered
None None
Securities to be registered pursuant to Section 12(g) of the Act:
Common Stock, par value $5.00 per share
(Title of class)
<PAGE>
INFORMATION REQUIRED IN REGISTRATION STATEMENT
Item 1. General Information
(a) Bay Banks of Virginia, Inc. (the "Company") was incorporated under
the laws of Virginia on February 10, 1997 to serve as the parent bank holding
company for Bank of Lancaster, a Virginia chartered commercial bank
headquartered in Kilmarnock, Virginia (the "Bank").
(b) The Company's fiscal year ends on December 31.
Item 2. Transaction of Succession
(a) The Bank is the only predecessor that had a class of securities
registered pursuant to Section 12(g) of the Act at the time of the succession.
As a state chartered commercial bank that is a member of the Federal Reserve
System, the Bank filed reports, proxy statements and other information with the
Board of Governors of the Federal Reserve System in accordance with Section
12(i) of the Act.
(b) Pursuant to an Agreement and Plan of Reorganization, dated as of
February 20, 1997 (the "Agreement"), the Company acquired, effective July 1,
1997, all of the issued and outstanding capital stock of the Bank. The purpose
of the Agreement was to create a bank holding company structure for the Bank.
The reorganization of the Bank (the "Reorganization") was accomplished through a
statutory share exchange between the Bank and the Company.
The Company did not engage in any business activity prior to the July
1st effective date of the Reorganization, and its only significant asset at the
present time is its investment in the Bank.
The operations of the Bank will continue in substantially the same
manner as conducted by the Bank immediately prior to the Reorganization. The
directors, officers and employees of the Bank did not change as a result of the
Reorganization.
On the effective date of the Reorganization, each share of common stock
of the Bank, par value $5.00 per share, was converted into one (1) share of
common stock of the Company, par value $5.00 per share. In order to effect the
Reorganization, the Company issued approximately 1,133,216 shares of common
stock.
The shares of common stock issued by the Company to stockholders of the
Bank in the Reorganization were registered pursuant to a registration statement
on Form S-4EF (No. 33-22579) (the "Registration Statement") filed by the Company
with the Securities and Exchange Commission ("Commission") on February 28, 1997,
and the Registration Statement become automatically effective under General
Instruction G of Form S-4 on the twentieth day after the date of filing. The
prospectus/proxy statement ("Proxy Statement") contained in the Registration
Statement and used in connection with the Annual Meeting of the Bank contains a
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more complete description of the business of the Bank and the Company, as well
as the terms of the Reorganization.
A copy of the Proxy Statement is attached hereto as Exhibit A.
Item 3. Securities to be Registered
The Company has authority to 5,000,000 shares of Common Stock, of which
1,133,216 shares were issued and outstanding as of July 1, 1997. No shares are
held by or for the account of the Company.
Item 4. Description of Registrant's Securities to Be Registered
The Company is authorized to issue (i) 5,000,000 shares of common
stock, par value $5.00 per share (the "Common Stock"), and (ii) 2,000,000 shares
of preferred stock, par value $5.00 per share (the "Preferred Stock"). The Board
of Directors is authorized pursuant to the Articles of Incorporation of the
Company to assign preferences, rights and limitations to the shares of Preferred
Stock when they are issued. As of July 1, 1997, the Company had issued and
outstanding 1,133,216 shares of Common Stock held by approximately 640 holders
of record. All outstanding shares of Common Stock are fully paid and
nonassessable. No shares of Preferred Stock have been issued. The Bank serves as
the transfer agent for the Common Stock.
Common Stock
Holders of shares of the Common Stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
therefor. The Company's ability to pay dividends is dependent upon its earnings
and financial condition of the Company and certain legal requirements.
Specifically, the Federal Reserve has stated that bank holding companies should
not pay dividends except out of current earnings and unless the prospective rate
of earnings retention by the company appears consistent with its capital needs,
asset quality and overall financial condition. In addition, Virginia law
precludes any distribution to shareholders if, after giving it effect, (a) the
Company would not be able to pay its debts as they become due in the usual
course of business; or (b) the Company`s total assets would be less than the sum
of its total liabilities plus the amount that would be needed, if the Company
were to be dissolved at the time of the distribution, to satisfy the
preferential rights upon dissolution of shareholders whose preferential rights
are superior to those receiving the distribution. Upon the liquidation,
dissolution or winding up of the Company, whether voluntary or involuntary,
holders of the Common Stock are entitled to share ratably, after satisfaction in
full of all liabilities, in all remaining assets of the Company available for
distribution. The dividend and liquidation rights of the Common Stock are
subject to the rights of any Preferred Stock that may be issued and outstanding.
Holders of the Common Stock are entitled to one vote per share on all
matters submitted to shareholders. There are no cumulative voting rights in the
election of directors or preemptive rights to purchase additional shares of any
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class of the Company's capital stock. Holders of the Common Stock have no
conversion or redemption rights.
Preferred Stock
The Board of Directors of the Company is empowered to authorize the
issuance, in one or more series, of shares of Preferred Stock at such times, for
such purposes and for such consideration as it may deem advisable without
shareholder approval. The Board of Directors is also authorized to fix the
designations, voting, conversion, preference and other relative rights,
qualifications and limitations of any such series of Preferred Stock.
The Board of Directors, without shareholder approval, may authorize the
issuance of one or more series of Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of the
Common Stock and, under certain circumstances, discourage an attempt by others
to gain control of the Company.
The creation and issuance of any series of Preferred Stock, and the
relative rights, designations and preferences of such series, if and when
established, will depend upon, among other things, the future capital needs of
the Company, then existing market conditions and other factors that, in the
judgment of the Board of Directors, might warrant the issuance of Preferred
Stock.
Certain Protective Provisions
General. Certain provisions of the Virginia Stock Corporation Act (the
"Virginia SCA") and of the Articles of Incorporation and Bylaws of the Company
may discourage an attempt to acquire control of the Company that a majority of
stockholders determined was in their best interests. These provisions also may
render the removal of one or all directors more difficult or deter or delay
corporate changes of control that the Company's Board did not approve.
Authorized Preferred Stock. The Articles of Incorporation of the
Company authorize the issuance of preferred stock. The Company's Board may,
subject to applicable law, authorize the issuance of preferred stock at such
times, for such purposes and for such consideration as it may deem advisable
without further shareholder approval. The issuance of preferred stock under
certain circumstances may have the effect of discouraging an attempt by a third
party to acquire control of the Company by, for example, authorizing the
issuance of a series of preferred stock with rights and preferences designed to
impede the proposed transaction.
Supermajority Voting Provisions. The Virginia SCA provides that, unless
a corporation's articles of incorporation provide for a higher or lower vote,
certain significant corporate actions must be approved by the affirmative vote
of the holders of more than two-thirds of the votes entitled to be cast on the
matter. Corporate actions requiring a two-thirds vote include amendments to a
corporation's articles of incorporation, adoption of plans of merger or
exchange, sales of all or substantially all of a corporation's assets other than
in the ordinary course of business and adoption of plans of dissolution
("Fundamental Actions"). The Virginia SCA provides that a corporation's articles
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may either increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes entitled to
be cast.
The Articles of Incorporation of the Company provide that a Fundamental
Action shall be approved by a vote of a majority of all votes entitled to be
cast on such transactions by each voting group entitled to vote on the
transaction, provided that the transaction has been approved and recommended by
at least two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of 80% or more of all votes entitled
to be cast on such transactions by each voting group entitled to vote on the
transaction.
Staggered Board Terms; Removal of Directors. The Company's Articles of
Incorporation provide that the Board of Directors of the Company be divided into
three classes as nearly equal in number as possible, with one class to be
elected annually for a term of three years and until their successors are
elected and qualified. Vacancies occurring in the Board of Directors of the
Company by reason of an increase in the number of directors may be filled by the
Board of Directors, and any directors so chosen shall hold office until the next
election of directors by the stockholders. Any other vacancy in the Board of
Directors, whether by reason of death, resignation, removal or otherwise, may be
filled by the remaining directors and any directors so chosen shall hold office
until the next election of the class for which such directors shall have been
chosen and until their successors are elected and qualified. Pursuant to the
Articles of Incorporation, directors of the Company may be removed only for
cause and only by a vote of the holders of two-thirds of the outstanding shares
entitled to vote.
Affiliated Transactions. The Virginia SCA contains provisions governing
"affiliated transactions" (including, among other various transactions, mergers,
share exchanges, sales, leases, or other dispositions of material assets,
issuances of securities, dissolutions, and similar transactions) with an
"interested shareholder" (generally the beneficial owner of more than 10% of any
class of the corporation's outstanding voting shares). During the three years
following the date a shareholder becomes an interested shareholder, any
affiliated transaction with the interested shareholder must be approved by both
a majority of the "disinterested directors" (those directors who were directors
before the interested shareholder became an interested shareholder or who were
recommended for election by a majority of disinterested directors) and by the
affirmative vote of the holders of two-thirds of the corporation's voting shares
other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated transaction with the interested shareholder if (i) the transaction is
approved by the holders of two-thirds of the corporation's voting shares, other
than shares beneficially owned by the interested shareholder, (ii) the
affiliated transaction has been approved by a majority of the disinterested
directors, or (iii) subject to certain additional requirements, in the
affiliated transaction the holders of each class or series of voting shares will
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receive consideration meeting specified fair price and other requirements
designed to ensure that all shareholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia SCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the acquiring person
and officers and directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit the
acquisition of such shares prior to the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws, the
statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than fifty
percent of the corporation's outstanding stock, objecting shareholders may have
the right to have their shares repurchased by the corporation for "fair value".
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. Corporations may provide in their articles of
incorporation or bylaws to opt-out of the Control Share Acquisition Statute, but
the Company has not done so.
Director and Officer Exculpation
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director,
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
The Articles of Incorporation of the Company provide that to the full
extent that the Virginia SCA permits the limitation or elimination of the
liability of directors or officers, a director or officer of the Company shall
not be liable to the Company or its shareholders for monetary damages.
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Indemnification
The Articles of Incorporation of the Company provide that to the full
extent permitted by the Virginia SCA and any other applicable law, the Company
is required to indemnify a director or officer of the Company who is or was a
party to any proceeding by reason of the fact that he is or was such a director
or officer or is or was serving at the request of the corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The board of
directors is empowered, by majority vote of a quorum of disinterested directors,
to contract in advance to indemnify any director or officer.
Item 5. Financial Statements and Exhibits
(a) No financial statements are required to be filed herewith because
the capital structure and balance of the Company immediately after the
succession were substantially the same as those of the Bank. In its Form 8-K
Report filed on July 14, 1997, the Company filed the following audited financial
information of the predecessor Bank: an audited balance sheet of the Bank as of
December 31, 1996 and 1995, and the related statements of income, cash flows and
changes in shareholders' equity for each of the years in the three-year period
ended December 31, 1996.
(b) The following exhibits to this Form 8-B are filed herewith.
Exhibit No. Description of Exhibits
----------- -----------------------
A The Prospectus/Proxy Statement, dated March 24, 1997,
which formed a part of the Holding Company's
Registration Statement on Form S-4EF (No. 33-22579) and
which includes as Exhibit A thereto the Agreement and
Plan of Reorganization, dated as of February 20, 1997
between Bay Banks of Virginia, Inc. and Bank of
Lancaster.
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Exhibit No. Description of Exhibits
----------- -----------------------
Copies of all other exhibits which would be required by Form 10-SB
2 Agreement and Plan of Reorganization, dated as February
20, 1997, between Bay Banks of Virginia, Inc. and Bank
of Lancaster included as Exhibit A to the
Prospectus/Proxy Statement, dated March 24, 1997, which
formed a part of the Holding Company's Registration
Statement on Form S-4EF (No. 33-22579) and which is
filed as Exhibit A hereto.
3.1 Articles of Incorporation of the Company. Incorporated
by reference to the Company's Registration Statement on
Form S-4EF (No. 33-22579).
3.2 Bylaws of the Company. Incorporated by reference to the
Company's Registration Statement on Form S-4EF (No.
33-22579).
4 Not applicable
7 Not applicable
9 Not applicable
10 Material contracts. Incorporated by reference to the
Company's Registration Statement on Form S-4EF (No.
33-22579).
11 Not applicable
14 Not applicable
21 Subsidiaries -- Bank of Lancaster and Bay Service
Company, Inc.
27 Not applicable
8
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SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange
Act of 1934, the registrant has duly caused this application for registration to
be signed on its behalf by the undersigned hereunto duly authorized.
BAY BANKS OF VIRGINIA, INC.
Date: July 30, 1997 By: /s/ Paul T. Sciacchitano
------------------------
Paul T. Sciacchitano
Treasurer
<PAGE>
[letterhead] Bank of
Lancaster
March 24, 1997
Dear Fellow Stockholders:
You are cordially invited to attend the Annual Meeting of Stockholders
of your Bank on April 28, 1997, at 1:00 p.m., at Indian Creek Yacht & Country
Club, Kilmarnock, Virginia. We would be pleased to have you as our guest for a
buffet luncheon starting at 12:15 p.m. If you wish to attend, please indicate
this on the bottom of the enclosed proxy. This will allow us to have an accurate
count of those joining us for the luncheon.
The accompanying Notice and Proxy Statement describe the matters to be
presented at the Meeting. Please give them your prompt and careful attention.
At the Annual Meeting, you will be asked to approve a proposal to adopt
a bank holding company form of organization for the Bank. Recently, Bay Banks of
Virginia, Inc., a Virginia corporation, has been formed by the Bank to serve as
the holding company. Under the proposal, the Bank will conduct its banking
operations as a wholly-owned subsidiary of this holding company. Each share of
your stock in the Bank will be converted, in a tax-free transaction, into one
share of common stock of Bay Banks of Virginia. Your percentage equity ownership
in Bay Banks of Virginia will be exactly the same as your present ownership in
the Bank.
The financial services industry continues to be one of the most rapidly
changing segments of Virginia's and the nation's economy. Historical
distinctions between various types of financial institutions are eroding rapidly
and banks are subject to new and more aggressive competition from every side.
Your Board believes that the greater flexibility and investment opportunities
provided by the establishment of a holding company will assist in the
fulfillment of our customers' needs in this rapidly changing environment and
advance your interests as stockholders. Among the investment opportunities
available to us as a holding company is the ability to repurchase our own stock,
which we are presently precluded from doing.
Most banks, nationally and locally, have already reorganized into
holding companies; we see no reason why you should not have the benefit of this
type of organization. The Board of Directors unanimously recommends that you
Vote For the reorganization of the Bank. If you have questions regarding the
reorganization after you have reviewed the enclosed Proxy Statement, you may
speak to either of us.
At the Annual Meeting, you will also vote on the reelection of four
directors of the Bank and to ratify the appointment of independent auditors. We
hope you can join us for the luncheon and attend the Annual Meeting. Whether or
not you plan to attend, please complete, sign and date the enclosed proxy and
return it promptly in the enclosed envelope.
We appreciate your continuing loyalty and support.
Sincerely,
/s/ Ammon G. Dunton, Jr. /s/ Austin L. Roberts, III
----------------------------- -----------------------------
Ammon G. Dunton, Jr. Austin L. Roberts, III
Chairman of the Board President and Chief Executive Officer
100 S. Main Street, P.O. Box 1869 * Kilmarnock, Virginia 22482-1869
(804) 435-1171
Toll Free Statewide: 1-800-435-1140 * Fax: (804) 435-0543
<PAGE>
Bank of Lancaster
100 South Main Street
Kilmarnock, Virginia 22482
NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
April 28, 1997
To Our Stockholders:
The Annual Meeting of Stockholders of Bank of Lancaster (the "Bank")
will be held at Indian Creek Yacht & Country Club, Kilmarnock, Virginia, on
April 28, 1997 at 1:00 p.m. for the following purposes:
1. To approve an Agreement and Plan of Reorganization dated as
of February 20, 1997, a copy of which is attached to the
accompanying Proxy Statement as Exhibit A, providing for
the reorganization of the Bank into a holding company structure;
2. To elect four Directors to serve for a three year term and
until their successors are elected and qualified;
3. To ratify the selection of Eggleston Smith P.C., independent
certified public accountants, as auditors of the Bank for the
year ending December 31, 1997; and
4. To transact such other business as may properly come before
the meeting or any adjournment thereof.
Any stockholder entitled to vote at the Annual Meeting shall have the
right to dissent from the reorganization of the Bank and to receive payment of
the fair value of his or her shares upon compliance with Article 15 of the
Virginia Stock Corporation Act, the full text of which is included as Exhibit B
to the accompanying Proxy Statement.
Only stockholders of record at the close of business on March 7, 1997
will be entitled to notice of and to vote at the Annual Meeting and any
adjournments thereof.
By Order of the Board of Directors
/s/ Peggy G. George
----------------------------------
Peggy G. George
Corporate Secretary
March 24, 1997
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR
NOT YOU PLAN TO ATTEND THE ANNUAL MEETING.
THE BOARD OF DIRECTORS OF THE BANK UNANIMOUSLY RECOMMENDS THAT
STOCKHOLDERS VOTE TO APPROVE THE AGREEMENT.
<PAGE>
BANK OF LANCASTER
Kilmarnock, Virginia
--------------------
PROXY STATEMENT
--------------------
INTRODUCTION
This Proxy Statement is furnished to stockholders of Bank of Lancaster
(the "Bank") in connection with the solicitation of proxies by the Board of
Directors of the Bank for use at the Annual Meeting of Stockholders to be held
on April 28, 1997, at the time and place set forth in the accompanying Notice of
the Annual Meeting of Stockholders and at any adjournment thereof (the "Annual
Meeting"). This Proxy Statement and the enclosed form of proxy are being mailed
to the stockholders of the Bank on or about March 24, 1997. Two-thirds of
outstanding shares are required to be present in person or by proxy to
constitute a quorum.
At the Annual Meeting, stockholders will be asked to approve the
reorganization of the Bank into a holding company structure (the
"Reorganization") in accordance with the terms and conditions set forth in the
Agreement and Plan of Reorganization, dated as of February 20, 1997 (the
"Agreement"), whereby the Bank will become a wholly-owned subsidiary of Bay
Banks of Virginia, Inc., a Virginia corporation recently organized to serve as
the holding company for the Bank (the "Holding Company"). The reorganization of
the Bank will be accomplished through a statutory share exchange. A copy of the
Agreement is attached as Exhibit A to this Proxy Statement. At the effective
date of the Reorganization, each outstanding share of common stock of the Bank
will be converted, in a tax-free transaction, into one share of common stock of
the Holding Company. After consummation of the Reorganization, the Bank will
conduct its business as a wholly-owned subsidiary of the Holding Company in
substantially the same manner and from the same offices as the Bank did before
the Reorganization. See "The Proposed Reorganization."
At the Annual Meeting, stockholders also will be asked to vote on the
election of four directors to serve for a three year term, and the ratification
of Eggleston Smith, P.C. as independent certified public accountants for the
Bank for the year ending December 31, 1997.
This Proxy Statement also constitutes a prospectus of the Holding
Company covering the shares of common stock of the Holding Company to be issued
to stockholders of the Bank in connection with the Reorganization. The Holding
Company has filed a Registration Statement under the Securities Act of 1933 with
the Securities and Exchange Commission with respect to the shares of Holding
Company common stock to be issued in connection with the Reorganization.
The principal offices of the Bank and the Holding Company are at
100 South Main Street, Kilmarnock, Virginia 22482 (Telephone: (804) 435-1171).
--------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION NOR HAS THE COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
--------------------
The date of this Proxy Statement is March 24, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
---- ----
<S> <C>
Available Information................................ 3 Bank of Lancaster.................................... 20
Business.......................................... 20
Summary of The Proxy Statement....................... 4 Competition....................................... 20
Principal Officers................................ 21
Selected Financial Information....................... 7 Legal Proceedings and Directorships............... 21
Description of Capital Stock...................... 21
General Information.................................. 8
Election of Directors................................ 22
The Proposed Reorganization.......................... 9 Directors......................................... 22
Description of the Reorganization................. 9 Board Committees and Attendance................... 23
Reasons for the Reorganization.................... 9 Directors' Compensation........................... 24
Anticipated Effective Date of the Certain Relationships and Related
Reorganization.................................. 10 Transactions................................... 24
Conversion and Exchange of Stock.................. 10 Compliance with Section 16(a) of the
Federal Income Tax Consequences................... 10 Securities Exchange Act of 1934................. 25
Required Regulatory Approvals..................... 10
Possible Abandonment of the Ownership of Bank Common Stock....................... 25
Reorganization.................................. 11
Effect on Incentive Stock Options................. 11 Executive Compensation............................... 26
Dividend Reinvestment Plan........................ 11
Rights of Dissenting Stockholders................. 11 Regulation and Supervision........................... 29
Certain Effects of The Reorganization................ 13 Appointment of Auditors.............................. 32
Anti-Takeover Effects of
Reorganization.................................. 13 Other Matters........................................ 32
Comparison in the Rights of
Stockholders.................................... 14 Legal Matters........................................ 32
Historical and Pro Forma
Capitalization.................................. 15 Experts.............................................. 33
Regulation and Supervision........................ 16
Stockholder Proposals................................ 33
The Holding Company.................................. 16
General........................................... 16 Exhibit A
Management and Operations After Agreement and Plan of Reorganization..............A-1
the Reorganization.............................. 17 Exhibit B
Indemnification of Directors and Officers......... 18 Article 15 -- Dissenters' Rights Statute..........B-1
Market for Holding Company Stock.................. 19
Description of Capital Stock...................... 19
</TABLE>
No person has been authorized to give any information or to make
any representations not contained herein and, if given or made, such
information or representations must not be relied upon as having been
authorized. This Proxy Statement does not constitute an offer to sell any
securities other than the securities to which it relates or an offer to sell
any securities covered by this Proxy Statement in any jurisdiction where, or
to any person to whom, it is unlawful to make such an Offer. Neither the
delivery hereof nor any distribution of securities of Bay Banks of Virginia,
Inc. made hereunder shall, under any circumstances, create an implication that
there has been no change in the facts herein set forth since the date hereof.
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AVAILABLE INFORMATION
The Bank is subject to the informational requirements of the rules and
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve"), as promulgated under the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Federal Reserve. Such
reports, proxy statements and other information can be inspected and copied at
the offices of the Federal Reserve, Division of Banking Supervision and
Regulation, Board of Governors of the Federal Reserve System, 20th Street and
Constitution Avenue, N.W., Washington, D.C. 20551, and copies of such records
may be requested by calling the Federal Reserve public reference facilities at
(202) 452-3244.
Pursuant to the Reorganization, the Holding Company will
assume certain securities reporting responsibilities under the Exchange Act
similar to the responsibilities previously performed by the Bank under rules
and regulations of the Federal Reserve. Following the Reorganization, the
Holding Company must comply with the reporting requirements of the Securities
and Exchange Commission (the "Commission"), and will file such reports with
the Commission, rather than the Federal Reserve.
The Bank's Annual Report to Stockholders for the year ended December
31, 1996, which Report includes audited financial statements of the Bank,
accompanies this Proxy Statement. The Bank's Annual Report on Form 10-KSB for
the year ended December 31, 1996 and quarterly reports on Form 10-QSB, as
filed with the Federal Reserve, are available free of charge to stockholders
who request a copy. All requests for copies of information should be directed to
Paul T. Sciacchitano, Executive Vice President, at the Bank's Main Office
at the address set forth on the first page of this Proxy Statement or at the
following telephone number: (804) 435-1171.
The Holding Company has filed with the Commission a
Registration Statement (the "Registration Statement") on Form S-4 under the
Securities Act of 1933, as amended (the "Securities Act"), relating to the
shares of Holding Company common stock to be issued in connection with the
Reorganization. As permitted by the rules and regulations of the Commission,
certain information included in the Registration Statement is omitted from
this Proxy Statement. For further information and reference, the
Registration Statement, including the exhibits and schedules filed as a part
thereof, can be inspected and copied at the public reference room of the
Commission, 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549,
and copies of such materials can be obtained by mail from the Public
Reference Section of the Commission, 450 Fifth Street, N.W., Room 1024,
Washington, D.C. 20549, at prescribed rates. The Commission maintains an
Internet web site that contains reports, proxy and information statements
and other information regarding issuers who file electronically with the
Commission. The address of that site is http://www.sec.gov. In addition,
copies of such materials are available for inspection and reproduction at
the public reference facilities of the Commission at its New York Regional
Office, 7 World Trade Center, Suite 1300, New York, New York 10048; and at its
Chicago Regional Office, Citicorp Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511.
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<PAGE>
SUMMARY OF THE PROXY STATEMENT
The following material is qualified in its entirety by the information
appearing elsewhere in this Proxy Statement and the Exhibits hereto.
Annual Meeting
Date, Time and Place. April 28, 1997 at 1:00 p.m. at Indian Creek
Yacht & Country Club, Kilmarnock, Virginia.
Purpose. To adopt the Agreement providing for the establishment of a
holding company structure for the Bank, to elect four directors of the Bank
to serve for a three year term, to ratify the selection of external auditors
for the Bank, and to vote on any other matters which may properly come before
the Annual Meeting. The affirmative vote of more than two-thirds of the
outstanding shares of Bank common stock will be required to approve the
Agreement.
The Reorganization
At the direction of the Bank, the Holding Company was incorporated
on February 10, 1997 under the laws of Virginia to serve as the holding
company for the Bank. At the effective date of the Reorganization,
stockholders of the Bank will automatically become stockholders of the Holding
Company. Outstanding certificates representing shares of Bank common stock
will thereafter represent the same number of shares of Holding Company common
stock. Accordingly, stockholders will not be requested to surrender their Bank
stock certificates for new certificates upon consummation of the
Reorganization. The Bank will conduct its business in substantially the same
manner and from the same offices as the Bank did prior to the
Reorganization. See "The Proposed Reorganization - Description of the
Reorganization."
Reasons for the Reorganization
The Board of Directors believes the establishment of a holding
company structure for the Bank will provide greater flexibility in responding
to the expanding financial needs of the Bank's customers and in meeting
increasing and ever-changing forms of competition for the furnishing of
financial services. The holding company structure will also afford certain
investment opportunities (including the ability to repurchase its own shares)
that are otherwise not available currently to the Bank. See "The Proposed
Reorganization - Reasons for the Reorganization."
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a tax-free "reorganization" under Section 368(a)(1)(B) of the
Internal Revenue Code in which no gain or loss will be recognized by a Bank
stockholder upon the receipt of Holding Company common stock in exchange
for Bank common stock. See "The Proposed Reorganization - Federal Income Tax
Consequences."
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<PAGE>
Comparison in the Rights of Stockholders
Except as set forth below, there are no material differences between
the rights of a Bank stockholder and the rights of a Holding Company
stockholder. The differences are described in detail under "Certain Effects
of the Reorganization - Comparison of the Rights of Stockholders." Certain
rights of stockholders will not change at all as a result of the
Reorganization. However, in order to enhance its flexibility in raising
additional capital and in negotiating for the acquisition of other businesses,
the Articles of Incorporation of the Holding Company contain provisions that
vary in several respects from the current Articles of Incorporation of the
Bank. The reasons for these differences are addressed specifically in this
Proxy Statement. Listed below are the major differences.
First, stockholders of the Holding Company will not have preemptive
rights to acquire additional shares of Holding Company stock. Second, the
Holding Company will be authorized to issue 2,000,000 shares of serial
preferred stock, compared to 500,000 shares for the Bank and, unlike the
Bank, the Holding Company is not required to obtain stockholder approval
prior to the issuance of any preferred stock. Third, the Holding
Company's Articles of Incorporation provide for changes in the requirements of
stockholder approvals for certain fundamental corporate transactions. See
"Certain Effects of the Reorganization - Comparison of the Rights of
Stockholders."
Anti-takeover Effect of the Reorganization
The Holding Company's Articles of Incorporation and the Virginia Stock
Corporation Act (the "Virginia SCA") contain certain provisions designed to
enhance the ability of the Board of Directors to deal with attempts to acquire
control of the Holding Company. These provisions, and the ability of the Board
of Directors to issue shares of preferred stock without stockholder approval and
to set the voting rights, preferences and other terms thereof, may be deemed to
have an anti-takeover effect and may discourage takeover attempts which have not
been approved by the Board of Directors. The protective provisions contained in
the Holding Company's Articles and provided by the Virginia SCA are discussed in
further detail under "Anti-takeover Effects of the Reorganization" and
"Comparative Rights of Stockholders" below.
Government Regulation and Supervision
After the effective date, the Holding Company will be subject to the
Bank Holding Company Act of 1956, as amended (the "BHCA"), and will be
subject to regulation by the Board of Governors of the Federal Reserve
System (the "Federal Reserve") with respect to its operations as a bank
holding company. The Bank will continue to be subject to regulation by the
same governmental agencies that currently regulate the Bank. See "Regulation
and Supervision."
Election of Directors
The Proxy Statement lists the twelve current directors of the Bank.
Four directors whose terms expire at the Annual Meeting, Messrs. Brown,
Creager, Gosse and Roberts, have been nominated for election to serve as
directors of the Bank for a three-year term. The eight directors whose terms
do not
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<PAGE>
expire will continue to serve as directors of the Bank. In the event the
proposed Reorganization is approved, stockholders of the Bank will automatically
become stockholders of the Holding Company upon consummation of the
Reorganization. As Holding Company stockholders, they will be entitled to vote
for the election of directors of the Holding Company, and the Board of Directors
of the Holding Company will, in turn, elect the directors of the Bank. The first
annual meeting of stockholders of the Holding Company is scheduled to be held in
May 1998. Under the terms of the Agreement, on the effective date of the
Reorganization, the directors of the Holding Company will be comprised of the
following six members: Messrs. Dunton, Roberts, Conley, Creager, Gosse and
Sanders. Similar to the Bank Board, they will serve for three-year terms. See
"The Holding Company - Management and Operations After the Reorganization."
Rights of Dissenting Stockholders
Those stockholders of the Bank who object to the Reorganization will be
entitled to dissent from the Reorganization and receive payment of the fair
value of his or her shares upon compliance with Article 15 of the Virginia SCA,
the full text of which is included as Exhibit B to the accompanying Proxy
Statement.
Conditions for Consummation; Anticipated Effective Date; Termination
The consummation of the Reorganization is subject to, among other
things, (i) the affirmative vote of more than two-thirds of the outstanding
shares of Bank common stock, and (ii) the approval of the Virginia State
Corporation Commission (the "SCC") and the Federal Reserve. Applications for
approval of the Reorganization will be filed with the SCC and the Federal
Reserve prior to March 31, 1997. The Reorganization is expected to be
consummated on or about July 1, 1997 (the "Effective Date"). The
Reorganization may be terminated by either the Holding Company or the Bank
prior to the approval of the Agreement by the stockholders of such party or
by the mutual consent of the Boards of Directors of the Holding Company and
the Bank after any stockholder group has taken the requisite affirmative
action. See "The Proposed Reorganization Possible Abandonment of the
Reorganization."
Ratification of Selection of Auditors
Eggleston Smith, P.C., has been selected as independent certified
public accountants for the Bank for the year ending December 31, 1997, subject
to the ratification by the stockholders.
Other Matters
Management currently knows of no other business to be brought
before the Annual Meeting. Should any other business properly be presented
for action at the meeting, the shares represented by the enclosed proxy
shall be voted by the persons named therein in accordance with their best
judgment and in the best interests of the Bank.
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<PAGE>
SELECTED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Year Ended December 31,
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(Dollars in thousands, except per share data)
<S> <C>
Income Statement Data
Interest income............... $ 11,628 $ 11,274 $ 10,180 $ 9,280 $ 8,804
Interest expense.............. 6,105 6,540 5,582 4,522 4,447
----------- ----------- ----------- ----------- -----------
Net interest income........... 5,523 4,734 4,598 4,758 4,357
Provision for loan losses..... 305 58 90 190 445
Other income.................. 1,141 935 815 625 625
Other expenses................ 3,985 3,727 3,597 3,214 2,859
Income tax expense............ 542 361 349 470 375
----------- ----------- ----------- ----------- -----------
Net income.................... $ 1,832 $ 1,524 $ 1,378 $ 1,510 $ 1,302
=========== =========== =========== =========== ===========
Per Share Data *
Net income.................... $ 1.64 $ 1.39 $ 1.28 $ 1.42 $ 1.25
Cash dividends................ .56 .53 .48 .45 .42
Book value, end of period..... 14.81 13.96 12.20 12.06 11.04
Balance Sheet Data
Assets........................ $ 159,333 $ 156,167 $ 150,646 $ 140,446 $ 119,381
Loans, net of unearned income 100,711 93,213 87,643 80,178 80,126
Securities.................... 45,249 46,001 52,294 44,668 26,623
Deposits...................... 142,110 140,289 136,950 127,024 107,399
Stockholders' equity.......... 16,785 15,467 13,301 12,895 11,627
Average shares outstanding * 1,116 1,098 1,079 1,060 1,041
Performance Ratios
Return on average assets...... 1.2% 1.0% 0.9% 1.2% 1.2%
Return on average equity...... 11.6 10.7 10.5 12.4 11.8
Capital Ratios
Leverage...................... 10.65% 10.49% 10.74% 9.46% 10.51%
Risk-based:
Tier 1 capital............... 17.78 18.19 17.66 10.43 9.48
Total capital................ 18.86 19.30 18.88 11.28 10.33
</TABLE>
* Per share data reflects a two-for-one stock split effected in May 1996.
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<PAGE>
GENERAL INFORMATION
Use and Revocation of Proxies
If the enclosed proxy is properly executed and returned in time for
voting at the Annual Meeting, the shares represented thereby will be voted in
accordance with such instructions. If no instructions are given, the proxy will
be voted in favor of the Reorganization, for the election of the four nominees
for director and the ratification of the selection of Eggleston Smith, P.C., and
in the discretion of the proxy holders as to any other matters which may
properly come before the Annual Meeting. Proxies will extend to, and will be
voted at, any adjourned session of the Annual Meeting.
Execution of a proxy will not affect a stockholder's right to attend
the Annual Meeting and to vote in person. Any stockholder who has executed and
returned a proxy and for any reason desires to revoke it may do so at any time
before the proxy is exercised by filing with the Secretary of the Bank an
instrument revoking it or a duly exercised proxy bearing a later date, or by
attending the Annual Meeting and voting in person after having withdrawn your
proxy.
Stockholders Entitled to Vote and Vote Required
Only holders of record of Bank common stock at the close of business on
March 7, 1997 are entitled to vote at the Annual Meeting. On the record date
there were 1,133,216 shares of Bank common stock, par value $5.00 per share,
outstanding and entitled to vote. Each share of outstanding Bank common stock is
entitled to one vote on all matters presented at the Annual Meeting. In order
for the Reorganization to become effective, more than two-thirds of the
outstanding shares of Bank common stock must be voted in favor of the
Reorganization. Approval of all other matters, including the election of
Directors, requires the affirmative vote of the holders of at least two-thirds
of the shares present or voting by proxy.
Directors and executive officers of the Bank and their affiliates
beneficially owned as of the record date 104,827 of the outstanding shares of
the Bank's stock entitled to vote on the Reorganization (exclusive of unissued
shares subject to options), which shares represent 9.3% of the outstanding
shares.
Solicitation of Proxies
The Bank will bear its own expenses incident to soliciting proxies.
Directors, officers, employees and agents of the Bank acting without special
compensation may solicit proxies in person, by telephone or by mail.
Financial Statements
The Annual Report to Stockholders for the year ended December 31, 1996
is included with this Proxy Statement to inform stockholders of the Bank's
recent financial performance. Additional copies of the reports will be furnished
without charge to stockholders upon written request directed to the Executive
Vice President at the address of the Bank's principal offices.
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<PAGE>
THE PROPOSED REORGANIZATION
Description of the Reorganization
The Board of Directors of the Bank has unanimously approved the
proposed Reorganization whereby the business of the Bank will be conducted under
a holding company structure. The Holding Company was organized in February of
this year under the laws of Virginia at the direction of the Board of Directors
of the Bank to serve as the holding company for the Bank.
The Bank and the Holding Company have entered into the Agreement under
the terms of which the Bank will become a wholly-owned subsidiary of the Holding
Company through a statutory share exchange. Upon consummation of the
Reorganization, stockholders of the Bank will automatically become stockholders
of the Holding Company.
The Bank will continue to conduct its business in the same manner as
before the Reorganization. The directors, officers and employees of the Bank
will not change as a result of the Reorganization.
The Bank will pay all expenses incurred in connection with the
Reorganization, including the costs of organizing the Holding Company.
Reasons for the Reorganization
The financial services industry is one of the most rapidly changing
segments of the American economy. Historical distinctions between various types
of financial institutions are eroding rapidly as a result of legislative changes
and changing regulatory philosophies. In addition, traditional restrictions on
branch banking have given way to multi-state banking and multi-bank holding
companies. Accordingly, banks are subject to aggressive competition from a wide
variety of institutions offering an expansive array of financial products and
services. Current laws and regulations applicable to banks limit their ability
to supplement traditional financial services and products and to diversify into
other banking-related ventures in response to increasing competition and
changing customer needs.
The laws and regulations applicable to bank holding companies, however,
allow holding companies greater flexibility in expanding their markets and in
increasing the variety of services they and their subsidiaries provide their
customers. Thus, management and the Board of Directors of the Bank believe that
the new corporate structure will enhance the Bank's ability to compete under
existing laws and regulations and to respond effectively to changing market
conditions.
One of the primary benefits of a bank holding company structure is the
expanded investment opportunities available (including investing in its own
stock). Currently, neither the Bank nor the Holding Company has made any
commitment to expand significantly its market through the acquisition of
existing banks or to engage in activities other than those currently conducted
by the Bank. If the Reorganization is approved, the Holding Company structure
will provide a vehicle to facilitate future combinations with other financial
institutions should suitable opportunities arise for acquisition, expansion or
affiliation. In addition, the Holding Company structure may provide
opportunities to engage in a wider range of activities.
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<PAGE>
Anticipated Effective Date of the Reorganization
If the holders of more than two-thirds of the outstanding shares of
Bank common stock approve the Agreement, the Reorganization will become
effective upon satisfaction of certain conditions and the receipt of required
regulatory approvals, including approval by the SCC and the Federal Reserve.
Applications for approval of the Reorganization will be filed with the SCC and
the Federal Reserve prior to March 31, 1997. Subject to receipt of all requisite
regulatory approvals and the satisfaction of all other conditions to the
Reorganization, it is anticipated that the Reorganization will become effective
on or about July 1, 1997.
Conversion and Exchange of Stock
On the Effective Date, stockholders of the Bank will become
stockholders of the Holding Company. Each share of Bank common stock, par value
$5.00 per share, will be converted into one share of Holding Company common
stock, par value of $5.00 per share (the "Exchange Ratio"). Outstanding
certificates representing shares of Bank common stock will thereafter represent
the same number of shares of Holding Company common stock. Accordingly,
stockholders will not be required to, exchange their stock certificates for
Holding Company stock certificates after consummation of the Reorganization.
Federal Income Tax Consequences
The Reorganization is intended to be a "reorganization" under Section
368(a)(1)(B) of the Internal Revenue Code, and the federal income tax
consequences summarized below are based on the assumption that this transaction
will qualify as such a reorganization. One condition to consummation of the
Reorganization is the Bank's receipt of an opinion of LeClair Ryan, special
counsel to the Bank, to the effect that the Reorganization will qualify as a
reorganization under Section 368(a)(1)(B) and will result in the non-recognition
of gain or loss.
The Bank's stockholders will not recognize any gain or loss as a result
of the proposed Reorganization. A stockholder's tax basis in the shares of
Holding Company common stock will equal his tax basis in the shares of Bank
common stock. The holding period for those shares of Holding Company common
stock will include the stockholder's holding period for the shares of Bank
common stock, if they are held as a capital asset at the time of the
Reorganization.
Upon consummation of the Reorganization, no gain or loss will be
recognized by the Holding Company or Bank.
The foregoing discussion of federal income tax consequences is a
summary of general information. The Bank's stockholders are urged to consult
their own tax advisors with regard to federal, state and local tax consequences.
Required Regulatory Approvals
The Reorganization must be approved by the SCC and the Federal Reserve.
Applications will be filed prior to March 31, 1997 with the SCC and the Federal
Reserve for approval of the Reorganization. Subject to the approval of the SCC
and the Federal Reserve and the satisfaction of all other conditions to the
Reorganization, Management believes that the Reorganization will be declared
effective on or about July 1, 1997.
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<PAGE>
Possible Abandonment of the Reorganization
Consummation of the Reorganization is subject to obtaining the required
stockholder approval and various regulatory approvals. The Agreement may be
terminated by the unilateral action of the Boards of Directors of the Bank or
the Holding Company prior to the approval of the Agreement by the stockholders
or by the mutual consent of the respective Boards of Directors of the Bank and
the Holding Company after any stockholder group has taken the requisite
affirmative action.
Effect on Incentive Stock Options
All options issued by the Bank under the its 1985 and 1994 Incentive
Stock Option Plans and outstanding as of the Effective Date will honored by the
Holding Company according to their terms, including exercise price. These
options will thereafter be exercisable (to the extent permitted by the terms of
such options) for one share of Holding Company common stock for each share of
Bank common stock covered by such options. The Bank's 1994 Incentive Stock
Option Plan will be adopted by the Holding Company in accordance with the terms
of the Plan (the 1985 Plan has expired). A vote for the Reorganization will be
deemed a vote in favor of the 1994 Stock Option Plan of the Holding Company.
Dividend Reinvestment Plan
The Bank has a Dividend Reinvestment Plan (the "Dividend Reinvestment
Plan") which provides each registered holder of the Bank's common stock with the
option to elect to reinvest their dividends in additional shares of the Bank
without fees of any kind at a discount of 5% from the market price. The Bank
purchases the shares either out of authorized but unissued shares of the Bank or
on the open market. All stockholders of the Bank are eligible to participate.
Shares held by stockholders of the Bank under the Dividend Reinvestment
Plan will be converted in the Reorganization on a share for share basis into
Holding Company common stock. After consummation of the Reorganization, the
Holding Company will continue to offer the Dividend Reinvestment Plan under the
same terms as currently offered.
Rights of Dissenting Stockholders
A stockholder of Bank common stock who objects to the Reorganization (a
"Dissenting Stockholder") and who complies with provisions of Article 15 of
Title 13.1 of the Virginia SCA ("Article 15") may demand the right to receive a
cash payment, if the Reorganization is consummated, for the fair value of his or
her stock immediately before the Effective Date, exclusive of any appreciation
or depreciation in anticipation of the Reorganization unless such exclusion
would be inequitable. In order to receive payment, a Dissenting Stockholder must
deliver to the Bank before the vote is taken at the Annual Meeting a written
notice of intent to demand payment for his or her shares if the Reorganization
is effectuated (an "Intent to Demand Payment") and must not vote his or her
shares in favor of the Reorganization. The Intent to Demand Payment should be
delivered to Paul T. Sciacchitano, Executive Vice President, Bank of Lancaster,
100 South Main Street, Kilmarnock, Virginia 22482. A VOTE AGAINST THE
REORGANIZATION WILL NOT ITSELF CONSTITUTE SUCH WRITTEN NOTICE AND A FAILURE TO
VOTE WILL NOT CONSTITUTE A TIMELY WRITTEN NOTICE OF INTENT TO DEMAND PAYMENT.
A stockholder of record of Bank common stock may assert dissenters'
rights as to fewer than all the shares registered in his or her name only if the
stockholder dissents with respect to all shares
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<PAGE>
beneficially owned by any one person and notifies the Bank in writing of the
name and address of each person on whose behalf he asserts dissenters' rights.
The rights of such a partial dissenter are determined as if the shares as to
which he dissents and his other shares were registered in the names of different
stockholders. A beneficial stockholder of Bank common stock may assert
dissenters' rights as to shares held on his behalf by a stockholder of record
only if (i) he submits to the Bank the record stockholder's written consent to
the dissent not later than the time when the beneficial stockholder asserts
dissenters' rights, and (ii) he dissents with respect to all shares of which he
is the beneficial stockholder or over which he has power to direct the vote.
Within 10 days after the Effective Date, the Bank is required to
deliver a notice in writing (a "Dissenter's Notice") to each Dissenting
Stockholder who has filed an Intent to Demand Payment and who has not voted such
shares in favor of the Reorganization. The Dissenter's Notice shall (i) state
where the demand for payment (the "Payment Demand") shall be sent and where and
when stock certificates shall be deposited; (ii) supply a form for demanding
payment; (iii) set a date by which the Bank must receive the Payment Demand; and
(iv) be accompanied by a copy of Article 15. A Dissenting Stockholder who is
sent a Dissenter's Notice must submit the Payment Demand and deposit his or her
stock certificates in accordance with the terms of, and within the time frames
set forth in, the Dissenter's Notice. As a part of the Payment Demand, the
Dissenting Stockholder must certify whether he or she acquired beneficial
ownership of the shares before or after the date of the first public
announcement of the terms of the proposed Reorganization (the "Announcement
Date"), which was March 20, 1997. The Bank will specify the Announcement Date in
the Dissenter's Notice.
Except with respect to shares acquired after the Announcement Date, the
Bank shall pay a Dissenting Stockholder the amount the Bank estimates to be the
fair value of his or her shares, plus accrued interest. Such payment shall be
made within 30 days of receipt of the Dissenting Stockholder's Payment Demand.
As to shares acquired after the Announcement Date, the Bank is only obligated to
estimate the fair value of the shares, plus accrued interest, and to offer to
pay this amount to the Dissenting Stockholder conditioned upon the Dissenting
Stockholder's agreement to accept it in full satisfaction of his or her claim.
If a Dissenting Stockholder believes that the amount paid or offered by
the Bank is less than the fair value of his or her shares or that the interest
due is incorrectly calculated, that Dissenting Stockholder may notify the Bank
of his or her own estimate of the fair value of his shares and amount of
interest due and demand payment of such estimate (less any amount already
received by the Dissenting Stockholder) (the "Estimate and Demand"). The
Dissenting Stockholder must notify the Bank of the Estimate and Demand within 30
days after the date the Bank makes or offers to make payment to the Dissenting
Stockholder.
Within 60 days after receiving the Estimate and Demand, the Bank must
either commence a proceeding in the appropriate circuit court to determine the
fair value of the Dissenting Stockholder's shares and accrued interest, or the
Bank must pay each Dissenting Stockholder whose demand remains unsettled the
amount demanded. If a proceeding is commenced, the court must determine all
costs of the proceeding and must assess those costs against the Bank, except
that the court may assess costs against all or some of the Dissenting
Stockholders to the extent the court finds that the Dissenting Stockholders did
not act in good faith in demanding payment of the Estimate and Demand.
The foregoing discussion is a summary of the material provisions of
Article 15. Stockholders are strongly encouraged to review carefully the full
text of Article 15, which is included as Exhibit B to this Proxy Statement. The
provisions of Article 15 are technical and complex, and a stockholder failing to
comply strictly with them may forfeit his or her Dissenting Stockholder's
rights. Any stockholder who
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<PAGE>
intends to dissent from the Reorganization should review the full text of those
provisions carefully and also should consult with his or her attorney. No
further notice of the events giving rise to dissenters rights or any steps
associated therewith will be furnished to the Bank stockholders, except as
indicated above or otherwise required by law.
Any Dissenting Stockholder who perfects his right to be paid the fair
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary or capital gain or loss will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Reorganization - Certain Federal Income Tax Consequences.
CERTAIN EFFECTS OF THE REORGANIZATION
Anti-Takeover Effects of the Reorganization
The Holding Company's Articles of Incorporation and the Virginia SCA
contain certain provisions designed to enhance the ability of the Board of
Directors to deal with attempts to acquire control of the Holding Company. These
provisions which are discussed in greater detail below, including the ability of
the Board of Directors to issue shares of preferred stock and to set the voting
rights, preferences and other terms thereof, may be deemed to have an
anti-takeover effect and may discourage takeover attempts which have not been
approved by the Board of Directors (including takeovers which a majority of
stockholders may deem to be in their best interest). To the extent that such
takeover attempts are discouraged, temporary fluctuations in the market price of
Holding Company common stock resulting from actual or rumored takeover attempts
may be inhibited. These provisions also could discourage or make more difficult
a reorganization, tender offer or proxy contest, even though such transaction
may be favorable to the interests of stockholders, and could potentially
adversely affect the market price of Holding Company common stock.
The provisions included in the Holding Company's Articles are not
adopted in response to or with knowledge of any takeover attempts or
"unfriendly" efforts to gain control of the Bank. The Boards of the Bank and
Holding Company propose these provisions in order to provide standard corporate
protections common among bank holding companies and in the best interests of
current Bank stockholders who will become stockholders of the Holding Company
upon consummation of the Reorganization. Also, there are no additional plans to
adopt other anti-takeover provisions following the Reorganization. The Boards of
the Bank and the Holding Company unanimously adopted these proposed provisions.
However, the Holding Company Board members do have an interest in adoption of
the provisions pursuant to the Reorganization. Provisions providing for
staggered Board terms and removal of directors only for cause serve to stabilize
the composition of the Board and are similar to provisions currently governing
the Bank.
The protective provisions contained in the Holding Company's Articles
and provided by the Virginia SCA are summarized in further detail in the
sections immediately below. This summary is necessarily general and is not
intended to be a complete description of all the features and consequences of
those provisions, and is qualified in its entirety by reference to the Holding
Company's Articles and the statutory provisions contained in the Virginia SCA.
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<PAGE>
Comparison in the Rights of Stockholders
If the proposed Reorganization is consummated, the stockholders of the
Bank will become stockholders of the Holding Company. A stockholder's equity
interest in the Holding Company will be the same as the stockholder's equity
interest in the Bank. Following the Reorganization, the rights of the Holding
Company's stockholders will be governed by the Virginia SCA and the Holding
Company's Articles of Incorporation and By-Laws. A copy of the Articles of
Incorporation is attached as Appendix 1 to Exhibit A to this Proxy Statement.
The provisions of the Bank's Articles of Incorporation and By-Laws will not
apply to the Holding Company's stockholders after the Reorganization.
Except as described below, stockholders of the Holding Company will
have rights and privileges similar to those of stockholders of the Bank. This
summary is qualified in its entirety by reference to the Articles of
Incorporation and Bylaws of the Bank and the Holding Company and to the Virginia
SCA.
No Preemptive Rights. The stockholders of the Holding Company will not
have preemptive rights, whereas the stockholders of the Bank do have such
rights. Preemptive rights allow stockholders to acquire their proportionate
share of any additional shares of common stock issued for cash. By statute,
preemptive rights do not apply to shares issued pursuant to employee benefit
plans approved by stockholders or in mergers or other forms of business
combinations.
Increase in Authorized Shares of Preferred Stock. The Articles of
Incorporation proposed for the Holding Company authorize the issuance of
2,000,000 shares of preferred stock, compared to only 500,000 shares of
preferred stock authorized by the Bank's Articles of Incorporation. Unlike the
Bank which requires stockholder approval, the Board of Directors of the Holding
Company is authorized by the Articles, without stockholder approval, to issue
shares of preferred stock and to assign preferences, rights and limitations to
the shares of preferred stock when they are issued. This authority gives the
Board of Directors of the Holding Company flexibility in the structuring and
financing of acquisitions and other financial activities. The Holding Company
may use the preferred stock to help deter hostile takeover attempts by assigning
certain rights and preferences to the preferred stock which could adversely
affect the voting power of the holders of Holding Company common stock, thus
making it more difficult for a third party to gain control of the Holding
Company. No shares of preferred stock will be issued pursuant to the
Reorganization and the Boards of Directors of the Holding Company and the Bank
have not and do not anticipate that any shares will be issued as of the date
hereof.
Stockholder Vote Required for Certain Actions. The Virginia SCA
provides that, unless a corporation's articles of incorporation provide for a
higher or lower vote, certain significant corporate actions must be approved by
a vote of more than two-thirds of the votes entitled to be cast on the matter.
These actions include amendments to its articles of incorporation, plans of
reorganization or exchange, sales of substantially all its assets other than in
the ordinary course of business or plans of dissolution ("Fundamental Actions").
Virginia law provides that a corporation's articles of incorporation may either
increase the vote required to approve Fundamental Actions or may decrease the
required vote to not less than a majority of the votes entitled to be cast.
Article VII of the Holding Company's articles decreases the stockholder
vote required to approve Fundamental Actions to 60% of the shares entitled to be
cast, provided that two-thirds of the members of the Board of Directors then in
office have approved and recommended the Fundamental Action. In the absence of
such approval and recommendation by the Board, the vote required for approval of
Fundamental Actions is increased to 80% or more of the shares entitled to vote
on the matter.
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<PAGE>
In contrast, the Bank's articles currently provide that a greater than
two-thirds vote is required in all matters involving Fundamental Actions.
The effect of this provision is to make stockholder approval of
Fundamental Actions less difficult to obtain in the case of Fundamental Actions
favored by the Board of Directors. A lower required stockholder vote will
benefit the Holding Company in terms of cost savings related to the solicitation
efforts necessary to obtain a more than two-thirds vote. If, however, the
incumbent Board does not approve a Fundamental Action by at least a two-thirds
vote, this provision will make approval of the Fundamental Action subject to the
80% affirmative vote requirement and therefore more difficult to obtain. For
this reason, the provisions of Article VI have anti-takeover implications in
that it makes a Fundamental Action not approved by the Board more difficult to
adopt, even though the holders of a majority of the outstanding shares may
support the Fundamental Transaction.
The Holding Company's By-Laws are generally similar to those of the
Bank except for changes to conform to the matters discussed above; elimination
of specific Bank officers and committees (e.g. cashier, trust committee) not
needed at the Holding Company level; elimination of ability of a majority of
stockholders to call a special meeting; reduction of regular meetings from
monthly to quarterly; and changes in the stockholders' annual meeting date from
the last Monday in April to the third Monday of May.
Historical and Pro Forma Capitalization
The table below sets forth the capitalization of the Bank as of
December 31, 1996 and the pro forma capitalization of the Bank and Holding
Company as adjusted to reflect the consummation of the Reorganization.
<TABLE>
<CAPTION>
Holding
Bank Company
---- -------
<S> <C>
Prior to the Reorganization (1)
Number of Shares of Capital Stock:
Authorized:
Common Stock........................................ 5,000,000 5,000,000
Preferred Stock..................................... 500,000 2,000,000
Issued and Outstanding:
Common Stock........................................ 1,133,216 30
Preferred Stock..................................... -- --
Stockholders' Equity:
Common Stock.......................................... $ 5,666,088 $150
Surplus............................................... 2,887,618 450
Undivided Profits..................................... 8,279,343 --
Unrealized Gains/Losses on AFS Securities*............ (48,182) --
----------------- ---------------
Total Equity Capital....................................... $16,784,867 $600
- --------------------
* Represents securities that are classified as available for sale.
</TABLE>
-15-
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
---------
Holding Company
Combined
Bank with the Bank
---- -------------
<S> <C>
After the Reorganization
Number of Shares of Capital Stock:
Authorized:
Common Stock........................................ 5,000,000 5,000,000
Preferred Stock..................................... 500,000 2,000,000
Issued and Outstanding:
Common Stock........................................ 1,113,216 1,133,216
Preferred Stock..................................... -- --
Stockholders' Equity (2):
Common Stock.......................................... $ 5,666,088 $ 5,666,088
Surplus............................................... 2,887,618 2,887,618
Undivided Profits..................................... 8,279,343 8,279,343
Unrealized Gains/Losses on AFS Securities............. (48,182) (48,182)
----------------- -----------------
Total Equity Capital....................................... $16,784,867 $16,784,867
</TABLE>
- --------------------------
(1) In order to capitalize the Holding Company, the six organizing directors of
the Holding Company, Messrs. Dunton, Roberts, Conley, Creager, Gosse and
Sanders, each purchased five shares of Holding Company common stock at $20
per share. These shares will be redeemed by the Holding Company at $20 per
share upon consummation of the Reorganization.
(2) At the Effective Date, each of the issued and outstanding shares of Bank
common stock will be converted into and become one share of Holding Company
common stock, par value $5.00, and the stockholders of the Bank will
thereupon become stockholders of the Holding Company. The Holding Company
will then own all the outstanding shares of Bank common stock.
Regulation and Supervision
The Bank currently is subject to regulation and examination by the SCC
and the Federal Reserve, and it will continue to be subject to such regulation
and examination after the Reorganization. In addition, the Holding Company will
be subject to regulation by the Federal Reserve under the Bank Holding Company
Act. The Holding Company also will be under the jurisdiction of the Securities
and Exchange Commission and certain state securities commissions with respect to
matters relating to the offer and sale of its securities and certain annual and
periodic securities reporting requirements. See "Regulation and Supervision" for
additional information.
THE HOLDING COMPANY
General
The Holding Company was incorporated under the laws of Virginia on
February 10, 1997 at the direction of the Board of Directors of the Bank for the
purpose of acquiring all of the outstanding shares of the Bank's common stock.
It will file an application with the Federal Reserve for prior approval to
become
-16-
<PAGE>
a bank holding company, and an application with the SCC for approval of the
proposed Reorganization. The Holding Company has not yet engaged in business
activity, and there are no current plans to engage in any activities other than
acting as a holding company for the common stock of the Bank.
The Holding Company owns no properties and therefore, as necessary,
will use the Bank's existing premises, facilities and personnel. The Holding
Company's needs in this regard are expected to be minimal, and the Holding
Company will reimburse the Bank for such expenses. The Holding Company's offices
will be located in the Bank's offices at 100 South Main Street, Kilmarnock,
Virginia. The Holding Company does not, therefore, contemplate any substantial
expenditures for equipment, office space, or additional personnel prior to
consummation of the Reorganization or for the foreseeable future.
After consummation of the Reorganization, the Holding Company will
continue to follow the Bank's present policy of paying dividends as and when
determined by the Board of Directors after consideration of the earnings,
general economic conditions, the financial condition of the business, and other
factors as might be appropriate in determining dividend policy. The Holding
Company's payment of dividends will be entirely dependent upon the Bank's
performance and dividend policy. Also, the Bank is subject to certain
limitations under state and federal banking laws with respect to payment of
dividends which may adversely affect payment of dividends. However, management
does not anticipate that the Reorganization will affect current levels of
dividend payments.
The Holding Company is not a party to any pending legal proceedings
before any court, administrative agency or other tribunal. Further, the Holding
Company is not aware of any material litigation which is threatened against it
or the Bank in any court, administrative agency, or other tribunal.
Management and Operations After the Reorganization
On the Effective Date of the Reorganization, the Holding Company will
then serve as the parent holding company for the Bank.
The Board of Directors of the Holding Company, after the
Reorganization, initially will be comprised of six members. At the direction of
the Board of Directors of the Bank, the incorporator of the Holding Company
designated the following persons to serve as the initial directors the Holding
Company up to and following consummation of the Reorganization:
Ammon G. Dunton, Jr. William A. Creager
Austin L. Roberts, III Thomas A. Gosse
Weston F. Conley, Jr. W. Bruce Sanders
The Board of Directors of the Bank in authorizing the formation of the
Holding Company was not aware of any family relationship between any director or
person nominated to become a director of the Holding Company; nor was the Board
of Directors of the Bank aware of any involvement in legal proceedings which are
material to any impairment of the ability or integrity of any director or person
nominated to become such director.
Approval of the Reorganization by the stockholders of the Bank at the
Annual Meeting will be deemed to constitute the election of the six designees as
directors of the Holding Company at the Effective Date. The Holding Company
Board is divided into three classes, and directors are elected to serve
staggered three-year terms. The classes into which the directors will be divided
are as follows:
-17-
<PAGE>
Class I Class II Class III
------- -------- ---------
William A. Creager Austin L. Roberts, III Weston F. Conley, Jr.
Ammon G. Dunton, Jr. W. Bruce Sanders Thomas A. Gosse
The directors in Class I will serve until the 1998 Annual Meeting of
Stockholders of the Holding Company, and the Class II directors and Class III
director will serve until the 1999 and 2000 Annual Meetings, respectively.
The Board of Directors, officers and employees of the Bank will not
change as a result of the Reorganization.
Following the Reorganization, the Bank will keep its existing name and
office locations and will continue to carry on its banking businesses in the
same manner as before the Reorganization.
The six members of the proposed Holding Company Board currently serve
as members of the Board of Directors of the Bank. See "Management of the Bank -
Directors" for a description of the initial directors' principal occupations for
the past five years, their ages, the years in which they were first elected to
the Board of Directors of the Bank and the number of shares of Bank common stock
beneficially held by each of them.
Mr. Ammon G. Dunton, Jr. will serve as Chairman of the Board of the
Holding Company, Mr. Austin L. Roberts, III, will serve as President and
Chief Executive Officer, Mrs. Hazel S. Pittman will serve as Secretary, and Mr.
Paul T. Sciacchitano will serve as the Treasurer. See "Management of the
Bank" for further information about these individuals and the other officers of
the Bank.
Indemnification of Directors and Officers
Similar to Bank's current Articles of Incorporation, the Holding
Company's Articles of incorporation require indemnification of the directors and
officers of the Holding Company to the full extent permitted by the Virginia SCA
as in effect from time to time. As of July 1, 1987, the Virginia SCA permits a
corporation to provide in its articles of incorporation or a
stockholder-approved bylaw for the mandatory indemnification of its directors
and officers against liability incurred in all proceedings, including derivative
proceedings, arising out of their service to the corporation so long as they
have not engaged in willful misconduct or a knowing violation of the criminal
law. Accordingly, the Holding Company is required to indemnify its directors and
officers in all such proceedings if they have not violated this standard.
In addition and similar to the Bank's Articles of Incorporation, the
Holding Company's Articles of Incorporation eliminates the liability of the
directors and officers of the Holding Company for monetary damages in connection
with a derivative or stockholder proceeding. The limitation of liability in the
Holding Company's Articles does not apply in the event the director or officer
has engaged in willful misconduct or a knowing violation of the criminal law or
a federal or state securities law.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling the Holding
Company pursuant to the foregoing provisions, the Holding Company has been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
-18-
<PAGE>
Market for Holding Company Common Stock
No established public trading market currently exists for the Bank's
common stock. No brokerage firm regularly makes a market for the Bank's common
stock, and trades in the Bank's stock occur infrequently on a local basis.
Accordingly, the quotations set forth below do not necessarily reflect the price
that would be paid in an active and liquid market. The Bank from time to time on
an informal basis attempts to match or pair persons who desire to buy and sell
the Bank's stock. As of December 31, 1996, the Bank had 639 stockholders of
record.
To the best knowledge of management, the price for the Bank's stock
ranged during 1995 from $16.50 to $17.00 and during 1996 from $17.00 to $22.00.
To the best knowledge of management, the most recent trade in Bank stock
occurred on January 10, 1997 involving 300 shares at a sales price of $22.00 per
share.
The Bank is prohibited by the Federal Reserve from holding or
purchasing its own shares except in limited circumstances.
Similarly, there will be no established public trading market for
Holding Company common stock. Unlike the Bank, however, the Holding Company will
generally be able to purchase its own shares. It is expected that Holding
Company common stock will be traded in a manner essentially similar to Bank
common stock.
Description of Capital Stock
Stockholders of Holding Company will be entitled to one vote per share
on all matters submitted to stockholders. Stockholders will not possess
cumulative voting rights nor preemptive rights for the purchase of additional
shares. Holding Company stockholders will be entitled to receive such dividends
as may be declared by the Board of Directors and, in the event of liquidation or
dissolution, to receive the net assets of the Holding Company in proportion to
their respective holdings.
The Holding Company will be authorized to issue 5,000,000 shares of
common stock, par value $5.00 per share. The shares of Holding Company common
stock issued upon the consummation of the Reorganization will be fully paid and
nonassessable when issued.
Additionally, the Holding Company will be authorized to issue 2,000,000
shares of preferred stock, par value $5.00 per share. The Board of Directors is
authorized pursuant to the Articles of Incorporation of the Holding Company (see
Appendix I to Exhibit A attached hereto) to assign preferences, rights and
limitations to the shares of preferred stock when they are issued. This
authority gives the Board of Directors of the Holding Company flexibility in the
structuring and financing of acquisitions and other financial activities. The
Holding Company will also be able to use the preferred stock to help deter
hostile takeover attempts by assigning certain rights and preferences to the
preferred stock that will make it more difficult for a third party to gain
control of the Holding Company.
There are currently no plans nor do the Boards of Directors of the
Holding Company or Bank anticipate any need to issue shares of preferred stock
of the Holding Company following the Reorganization.
-19-
<PAGE>
See "Certain Effects of the Reorganization - Comparison of the Rights
of Stockholders" for a discussion of the similarities and differences between
the rights and privileges of the stockholders of the Holding Company and the
Bank.
BANK OF LANCASTER
Business
The Bank is an independent commercial bank chartered under the laws of
Commonwealth of Virginia. The Bank has its Main Office at 100 South Main Street,
Kilmarnock, Virginia and has a branch office in the town of White Stone and the
north side of Kilmarnock. The Bank opened for business in 1930.
With an emphasis on personal service, the Bank offers a full range of
banking and related financial services, including checking, savings, and other
depository services, commercial and industrial loans, residential and commercial
mortgages, home equity loans, and consumer installment loans. The Bank's Trust
Department also offers a broad range of trust and related fiduciary services.
The population of the Bank's trade area, which includes Lancaster
County and parts of Northumberland and Middlesex Counties, was approximately
31,500 as of June 30, 1995. (This includes the entire population of
Northumberland and Middlesex of which the Bank serves only a portion.)
The area's principal industries include agriculture, fishing, boat
repair, resorts, health care, general retail, financial, construction, and
services directed toward the retirement community.
Lancaster, Northumberland and Middlesex Counties are situated on the
Chesapeake Bay and its tributaries and, as such, many people find it a highly
desirable vacation spot. Second and summer homes are also prevalent. The senior
citizen market is substantial, as many are relocating into the area to reside on
the Chesapeake Bay. As of 1994, approximately 45% of the population of both
Lancaster and Northumberland Counties was over 50 years old. Approximately 40%
of the population of Middlesex County was over 50 years old. The resorts and
health care providers are the largest employees in the community.
The Bank had approximately $159 million in total assets and $142
million in total deposits as of December 31, 1996. Earnings for the year ended
December 31, 1996, were $1,831,616.
The Bank has one wholly-owned subsidiary, Bay Service Company, Inc., a
Virginia corporation organized in 1994 that owns an equity interest in a land
title insurance agency which generally sells title insurance to, among other
persons, the mortgage loan customers of the Bank and the other financial
institutions which have an equity interest in the agency.
As of December 31, 1996, the Bank employed a total of 61 persons,
of whom 4 were part-time. The Bank considers relations with its employees to
be excellent.
Competition
The Bank is subject to competition from various financial institutions
and other companies or firms that offer financial services. The Bank's principal
competition in its market area consists of some of the
-20-
<PAGE>
major statewide banks and other local banks. The Bank also competes for deposits
with credit unions, and with money-market funds. In making loans, the Bank
competes with consumer finance companies, credit unions, leasing companies and
other lenders.
Principal Officers
The following table sets forth certain information with respect to the
Bank's principal executive officers:
<TABLE>
<CAPTION>
Name and Age Present Position
------------ -----------------
<S> <C>
Austin L. Roberts, III (50)................. President & Chief Executive Officer
Ammon G. Dunton, Jr. (61)................... Chairman of the Board
Paul T. Sciacchitano (46)................... Executive Vice President, Chief Financial
Officer, Cashier
Kenneth O. Bransford, Jr. (52).............. Senior Vice President, Senior Lending Officer
Kenneth T. Whitescarver (47)............... Vice President, Senior Trust Officer
</TABLE>
Legal Proceedings and Directorships
None of the officers and directors of the Bank (i) serves as a director
of any company with a class of securities registered pursuant to Section 12 of
the Securities Exchange Act of 1934 or (ii) is, or has been in the last five
years, subject to any legal proceedings material to the evaluation of his or her
integrity as an officer or director.
Description of Capital Stock
The capital stock of the Bank consists of its common stock, par value
$5.00 per share, of which 5,000,000 shares are authorized and 1,133,216 shares
were issued and outstanding as of December 31, 1996, and its preferred stock,
par value $5.00. No shares of preferred stock are outstanding and there are no
current plans to issue any shares of preferred stock.
The holders of Bank common stock are entitled to dividends, out of
funds legally available therefor, when and as declared by the Board of
Directors. Holders of Bank common stock are entitled to one vote for each share
held. Stockholders do not possess cumulative voting rights in the election of
directors.
The outstanding shares of Bank common stock are fully paid and
nonassessable.
The Bank acts as its own transfer agent for its common stock.
The Bank furnishes its stockholders with annual reports which contain
audited consolidated financial statements for the Bank and summary financial
information for the prior five-year period. See "Certain Effects of the
Reorganization -- Comparison of the Rights of Stockholders" for a discussion of
the similarities and differences between the rights and privileges of the
stockholders of the Holding Company and stockholders of the Bank.
-21-
<PAGE>
ELECTION OF DIRECTORS
Directors
The Bank's Board consists of 12 directors divided into three classes,
consisting of four directors each who serves for a term of three years. The four
persons named immediately below, each of whom currently serves as a director of
the Bank, will be nominated to serve for another three year term. The persons
named in the proxy will vote for the election of the nominees named below unless
authority is withheld. If for any reason any of the persons named as nominees
below should become unavailable to serve, an event which management does not
anticipate, proxies will be voted for the remaining nominees and such other
person or persons as the Board of Directors may designate.
If the Reorganization is approved by the stockholders, the Holding
Company, as the sole stockholder of the Bank following the Reorganization, will
elect Directors of the Bank at the Bank's annual meeting. However, current
stockholders of the Bank, all of whom will become stockholders of the Holding
Company if the Reorganization is approved and consummated, will be entitled to
vote in the election of the directors of the Holding Company. For a description
of the change in the composition and terms of the Board of Directors of the
Holding Company following the Reorganization, see the discussion in "The Holding
Company Management and Operations After the Reorganization."
The Board of Directors recommends that stockholders vote for the four
nominees set forth below.
<TABLE>
<CAPTION>
Served as Principal Occupation
Name (Age) Director Since During Past Five Years
---------- -------------- ----------------------
<S> <C>
1997 Class (Nominees for Election):
Fletcher L. Brown, III (51) 1994 Owner and President of Eubank & Son Hardware,
Kilmarnock, Va.
William A. Creager (64) 1994 Retired, was founder and formerly served as President
and Chairman of Capital Systems Group (a professional
services and information systems company), Rockville,
Md.
Thomas A. Gosse (50) 1994 Principal in the accounting firm of Braun, Dehnert,
Clarke & Co., P.C., Irvington, Va.
Austin L. Roberts, III (50) 1990 President and Chief Executive Officer of the Bank
Other Directors Not Standing for Re-election at this Time:
1998 Class (Directors Serving Until the 1998 Annual Meeting):
John J. Cardwell (64) 1989 Manager of American Standard Insurance Company
(independent insurance agency), Kilmarnock, Va.
</TABLE>
-22-
<PAGE>
1998 Class (Directors Serving Until the 1998 Annual Meeting) (cont'd):
<TABLE>
<CAPTION>
Served as Principal Occupation
Name (Age) Director Since During Past Five Years
---------- -------------- ----------------------
<S> <C>
Weston F. Conley, Jr. (62) 1979 President and Manager of RCV Seafood Corporation
(seafood processor and wholesaler), Morattico, Va.
A. Wayne Saunders (60) 1992 Accountant and President of A. Wayne Saunders, P.C.,
Burgess, Va.
Mary M. Willey (71) 1986 Retired, formerly served as Vice President of Bank of
Lancaster
1999 Class (Directors Serving Until the 1999 Annual Meeting):
David W. Cheek (48) 1995 General Manager of Kilmarnock Motor Sales (John Deere
farm equipment dealer), Kilmarnock, Va.
Ammon G. Dunton, Jr. (61) 1977 Attorney, Senior Partner of Dunton, Simmons & Dunton,
White Stone, Va.
W. T. James, III (67) 1979 Chairman and Chief Executive Officer of Northern Neck
Insurance Company (insurance underwriting and sales),
Irvington, Va.
W. Bruce Sanders (46) 1983 Owner and President of Rappahannock Yachts (marina),
Irvington, Va.
</TABLE>
In accordance with Article III, Section 6 of the By-Laws, stockholders
intending to nominate director candidates at a stockholder meeting must deliver
notice within specified timeframes and must follow a specific procedure. A
stockholder desiring information on timeframes and procedures should request the
information from the Corporate Secretary.
Board Committees and Attendance
During 1996 there were thirteen (13) meetings of the Board of
Directors. Each director attended at least 75% of all meetings of the Board and
committees on which they served. The Bank's Board has, among others, standing
Executive, Audit, Compensation, and Nominating and Governance Committees.
Executive Committee. The Bank's Executive Committee is comprised of
Messrs. Dunton, Conley, Sanders, Roberts, James, and Mrs. Willey. Such
committee has and may exercise all of the authority of the Board of
Directors except to approve an amendment to the Articles of Incorporation or
a plan of merger or consolidation. The committee met eleven times during 1996.
Audit Committee. The Bank's Audit Committee is comprised of Messrs.
James, Gosse, and Saunders. Messrs. Dunton and Roberts are ex officio members.
The Audit Committee reviews on a regular basis the work of the internal audit
department which includes reviews and also approves the scope
-23-
<PAGE>
and detail of the continuous audit program. This is conducted by the internal
Auditor to protect against improper and unsound practices and to furnish
adequate protection of all assets and records. Subject to the approval of the
Board of Directors and stockholders, it engages a firm of certified public
accountants to conduct such audit work as is necessary and receives written
reports, supplemented by such oral reports, as it deems necessary from the audit
firm. It also reviews in detail all reports of examination issued by regulatory
authorities. During 1996 the Audit Committee held four meetings.
Compensation Committee. The Board has a Compensation Committee
comprised of Messrs. Saunders, Conley, Gosse, Cheek, Creager and Mrs.
Willey. The committee is responsible for the overall management of the
Bank's salary administration policies and practices, as well as the Bank's
employee benefit plans, retirement plans, and the Incentive Stock Option Plan.
The committee met five times during 1996.
Nominating and Governance Committee. The Board has a Nominating and
Governance Committee comprised of Messrs. Brown, Cardwell, Dunton, Sanders,
Roberts, and Mrs. Willey. The committee reviews on an as needed basis the
qualifications of candidates for membership to the Board and Advisory Boards.
Following appropriate review, the Board ascertains the willingness of selected
individuals to serve as Board members. The committee also reviews Articles of
Incorporation, By-Laws, and Proxy Statements of the Bank. It makes
recommendations for changes in By-Laws and Articles of Incorporation to the
Board of Directors. The committee met once during 1996.
Directors' Compensation
Non-officer directors of the Bank receive $125 for each meeting of the
Bank's Board of Directors. In addition, non-officer directors of the Bank are
paid a retainer fee of $2,000 annually. Directors of the Bank receive the
following fees for attendance at the following committee meetings: (a) $100 for
each meeting of the Executive, Loan, Nominating and Governance, Audit, Trust,
Investment, Compensation, and ESOP Administration Committee; (b) $50 for each
meeting of the Community Reinvestment Advisory Board and the Trust Advisory
Board.
Directors who are employees of the Bank are not compensated for
attendance at Bank Board meetings and do not receive any fees for attendance at
committee meetings. The Chairman of the Board, Mr. Ammon G. Dunton, Jr., is a
Bank officer. As an officer, he received $28,500.00 compensation, but receives
no annual retainer or Board or committee attendance fees.
Certain Relationships and Related Transactions
Some of the Bank directors, executive officers, and members of their
immediate families, and corporations, partnerships and other entities of which
such persons are officers, directors, partners, trustees, executors or
beneficiaries, are customers of the Bank. All loans and loan commitments to them
were made in the ordinary course of business, upon substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility or present other unfavorable features. It is the policy
of the Bank to provide loans to officers who are not executive officers and to
employees at more favorable rates than those prevailing at the time for
comparable transactions with other persons. These loans do not involve more than
the normal risk of collectibility or present other unfavorable features.
-24-
<PAGE>
The law firm of Dunton, Simmons & Dunton serves as legal counsel to
the Bank. Mr. Ammon G. Dunton, Jr. is a senior member of the firm. In
addition, American Standard Insurance, of which John Cardwell is the manager,
provided insurance to the Bank.
There is one family relationship involving the Board and a Bank
officer. Mr. Fletcher L. Brown, III is the brother-in-law of the Bank's Auditor,
Margaret Brown.
Compliance with Section 16(a) of the Securities Exchange Act of 1934
Pursuant to Section 16(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), directors and executive officers of the Bank are
required to file reports with the Federal Reserve indicating their holdings of
and transactions in Bank common stock. To the Bank's knowledge, based solely on
a review of the copies of such reports furnished to the Bank and written
representations that no other reports were required, insiders of the Bank
complied with all filing requirements during the fiscal year ended December 31,
1996.
OWNERSHIP OF BANK COMMON STOCK
The following table sets forth, as of March 7, 1997, certain
information with respect to the beneficial ownership of Bank common stock held
by each director and nominee and each executive officer named in the Summary
Compensation Table below, and by the directors and all executive officers as a
group.
As of March 7, 1997, no stockholder of the Bank beneficially owned 5%
or more of Bank common stock, except for the Bank of Lancaster Employee Stock
Ownership Plan, which owns 5.50% of the outstanding shares of Bank common stock.
<TABLE>
<CAPTION>
Amount and Nature
of Beneficial Percent
Name Ownership (1) of Class
---- ---------------- ---------
<S> <C>
Fletcher L. Brown, III.................................... 2,644 (2) (3)
John J. Cardwell.......................................... 2,298 (3)
David W. Cheek............................................ 755 (2) (3)
Weston F. Conley, Jr...................................... 25,685 (2) 2.3%
William A. Creager........................................ 2,200 (2) (3)
Ammon G. Dunton, Jr....................................... 18,204 (2) 1.6%
Thomas A. Gosse........................................... 1,000 (2) (3)
W. T. James, III.......................................... 38,630 (2) 3.4%
Austin L. Roberts, III.................................... 9,794 (2) (4) (3)
W. Bruce Sanders.......................................... 1,405 (3)
A. Wayne Saunders......................................... 467 (3)
Mary M. Willey............................................ 5,068 (3)
All directors and executive officers as a group........... 118,433 (4) 10.3%
</TABLE>
- ---------------------
(1) For purposes of this table, beneficial ownership has been determined
in accordance with the provisions of Rule 13d-3 of the Securities
Exchange Act of 1934 under which, in general, a person is deemed
(footnotes continued on next page)
-25-
<PAGE>
to be the beneficial owner of a security if he has or shares the power to
vote or direct the voting of the security or the power to dispose of or
direct the disposition of the security, or if he has the right to acquire
beneficial ownership of the security within sixty days.
(2) Includes shares held by affiliated corporations, close relatives and
children, and shares held jointly with spouses or as custodians or
trustees, as follows: Mr. Brown, 2,164 shares; Mr. Cheek, 173
shares; Mr. Creager, 200 shares; Mr. Conley, 4,886 shares; Mr. Dunton,
3,400 shares; Mr. Gosse, 600 shares; Mr. James, 4,134 shares; and Mr.
Roberts, 800 shares.
(3) Represents less than 1% of Bank common stock.
(4) Includes: (i) 8,000 shares that may be acquired by Mr. Roberts pursuant to
currently exercisable stock options; and (ii) 13,606 shares that may be
acquired by all executive officers as a group pursuant to currently
exercisable stock options.
EXECUTIVE COMPENSATION
The following table presents compensation information on the Chief
Executive Officer of the Bank. No other employee of the Bank earned over
$100,000 in salary and bonus in 1996.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-term
Compensation
---------------------
Annual Compensation (1) Securities
Name and --------------------------------- Underlying All Other
Principal Position Year Salary Bonus Options (2) Compensation (3)
------------------ ---- ------ ----- ----------- ----------------
<S> <C>
Austin L. Roberts, III 1996 $112,000 $10,000 2,450(4) $9,401
President/Chief 1995 105,000 -- 1,500 6,862
Executive Officer 1994 96,000 -- -- 6,494
- ------------------
</TABLE>
(1) Mr. Roberts did not receive perquisites or other personal benefits in
excess of the lesser of $50,000 or 10% of the total of his salary and
bonus.
(2) The Bank's Incentive Stock Option Plan does not permit the granting of
restricted stock awards or stock appreciation rights. The Plan is the
Bank's only stock-based long term compensation plan currently in
effect.
(3) Mr. Roberts has received other compensation as follows:
<TABLE>
<CAPTION>
1996 1995 1994
---- ---- ----
<S> <C>
401(k) Plan $ 2,745 $ 2,362 $ 2,182
ESOP 6,656 4,500 4,312
----- -------- --------
TOTAL $ 9,401 $ 6,862 $ 6,494
</TABLE>
(4) The option grant is subject to certain performance criteria being
achieved. As of this date, there has not been a determination whether
the granted options have been earned.
-26-
<PAGE>
Stock Option Grants in 1996
The Bank's Stock Option Plan provides for the granting of both
incentive and non-qualified stock options to executive officers and key
employees of the Bank and its subsidiaries.
The following table provides certain information concerning stock
options granted during 1996 to Mr. Roberts.
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------
Percent of
Number of Total
Shares Options Potential
Underlying Granted to Exercise Realizable Value (2)
Options Employees Price per Expiration ---------------------
Name Granted (1) in 1996 Share Date 5% 10%
---- ----------- ------- ----- ---- -- ---
<S> <C>
Austin L. Roberts, III 2,450 16% $17 5/16/06 $26,193 $66,379
- -------------------
</TABLE>
(1) The option grant is subject to certain performance criteria being
achieved. As of this date, there has not been a determination whether
the granted options have been earned.
(2) Potential realizable value at the assumed annual rates of stock price
appreciation based on actual option term (10 years) and annual
compounding.
Stock Option Exercises in 1996 and year-end Option Values
The following table shows certain information with respect to the
number and value of unexercised options at year-end. No stock options were
exercised during 1996 by Mr. Roberts.
<TABLE>
<CAPTION>
Number of Value of
Shares Underlying Unexercised
Number of Unexercised In-the-Money
Shares Acquired Value Options at Options at
Name on Exercise Realized December 31, 1996 December 31, 1996 (1)
---- ----------- -------- ----------------- ---------------------
<S> <C>
Austin L. Roberts, III None $0 10,450 (2) $71,650
- -----------------
</TABLE>
(1) Calculated by subtracting the exercise price from the fair market value
of the stock at December 31, 1996
(2) 2,450 of Mr. Roberts' option shares are subject to certain
performance criteria being achieved. As of this date, there has not
been a determination whether this option grant has been earned.
Benefit Plans
Pension Plan. The Bank has a non-contributory defined benefit pension
plan which covers substantially all salaried employees who have reached the age
of twenty-one and who have completed one-year of service. A participant's
monthly retirement benefit (if they have twenty-five years of credited service
at their normal retirement date) is 25% of their final average pay, plus an
additional 18.75% if their pay is in excess of the participant's Social Security
covered pay. The Social Security covered pay is the average pay of the
participant's working lifetime prior to the year the participant attains their
Social
-27-
<PAGE>
Security retirement age. If the participant has less than twenty-five years of
service at his or her normal retirement date, the participant's monthly
retirement benefit will be actuarially reduced by 1/25 for each year of credited
service less than twenty-five years. Cash benefits under the plan generally
commence on retirement, death or other termination of employment and are payable
in various forms at the election of the participant.
401(k) Plan. The Bank has a contributory 401(k) Plan. All salaried
employees are eligible to participate after having worked six months
consecutively; there is no age requirement. Participants may elect to defer
between 1% to 15% of their base compensation which will be contributed to the
plan, providing the amount deferred does not exceed the dollar maximum election
deferral for each year. The Bank's match is 100% up to a 2% deferral; the Bank
will provide a 25% match on employee contributions up to 4% of salary. Under the
Plan, an employee is vested 20% after three years and 20% each year thereafter
for the next four years of service. If an employee leaves prior to the
three-year period, he or she forfeits any accrued Bank match contribution.
Distribution to participants are made at death, retirement or other
termination of employment in a lump sum payment. The Plan permits certain
in-service withdrawals. Normal retirement age is considered sixty-five; early
retirement is considered at fifty-five with ten years of vested service;
disability retirement has no age requirements but a service requirement of ten
years of vested service.
Stock Option Plan. The Bank has two incentive Stock Option Plans, the
1985 Plan (which has expired, but options granted thereunder are still
exercisable) and the 1994 Plan. The 1994 Plan provides for the award of
incentive stock options to key employees of the Bank as selected by the Board of
Directors. The Board of Directors makes awards under the Plan and fixes the
terms and conditions of each award pursuant to a separate agreement entered into
with each optionee. The price of shares of stock to be issued upon the exercise
of options is 100% of the fair market value on the date of the award. The option
is not exercisable after the expiration of ten years from the date such option
is granted. An option is not transferable by a person to whom it is granted
other than by will or the laws of descent and distribution.
Under the 1985 Plan, accounting for two 10% stock dividends and a
2-for-1 split, 31,080 shares were reserved, all of which have been granted or
exercised. Under the 1994 Plan, 75,000 shares have been authorized and 17,730
have been granted.
Employee Stock Ownership Plan (ESOP). The Bank provides an Employee
Stock Ownership Plan that is a non-contributory plan supported by annual
contributions made at the discretion of the Board of Directors.
The Plan is a Stock Bonus Plan qualified under Section 401(a) of the
Internal Revenue Code and an Employee Ownership Plan under Section 4975(E)(7) of
the Code. The plan is administered by Trustees and an Administrative Committee
both elected by the Board of Directors of the Bank for the exclusive benefit of
participants.
The plan is eligible to each Bank employee over the age of
twenty-one and credited with at least 1,000 hours of service for the plan year.
Other Benefit Plans. The Bank provides life, medical, dental and
disability insurance to all eligible employees of the Bank.
-28-
<PAGE>
REGULATION AND SUPERVISION
Bank holding companies and banks operate in a highly regulated
environment and are regularly examined by federal and state regulators. The
following description briefly discusses certain provisions of federal and state
laws and certain regulations and the potential impact of such provisions on the
Holding Company and the Bank. These federal and state laws and regulations have
been enacted for the protection of depositors in national and state banks and
not for the protection of stockholders of bank holding companies or banks.
Bank Holding Companies
As a result of the Reorganization, the Bank will become a subsidiary of
the Holding Company, and the Holding Company must register as a bank holding
company under the Bank Holding Company Act of 1956, as amended (the "BHCA"), and
become subject to regulation by the Federal Reserve. The Federal Reserve has
jurisdiction under the BHCA to approve any bank or nonbank acquisition, merger
or consolidation proposed by a bank holding company. The BHCA generally limits
the activities of a bank holding company and its subsidiaries to that of
banking, managing or controlling banks, or any other activity which is so
closely related to banking or to managing or controlling banks as to be a proper
incident thereto.
Federal law permits bank holding companies from any state to acquire
banks and bank holding companies located in any other state. Effective June 1,
1997, the law will allow interstate bank mergers, subject to earlier "opt-in" or
"opt-out" action by individual states. The law currently allows interstate
branch acquisitions and de novo branching if permitted by the host state.
Virginia has adopted early "opt-in" legislation that allows interstate bank
mergers. These laws also permit interstate branch acquisitions and de novo
branching in Virginia by out-of-state banks if reciprocal treatment is accorded
Virginia banks in the state of the acquiror.
There are a number of obligations and restrictions imposed on bank
holding companies and their depository institution subsidiaries by federal law
and regulatory policy that are designed to reduce potential loss exposure to the
depositor of such depository institutions and to the Federal Deposit Insurance
Corporation (the "FDIC") insurance fund in the event the depository institution
becomes in danger of default or in default. For example, under a policy of the
Federal Reserve with respect to bank holding company operations, a bank holding
company is required to serve as a source of financial strength to its subsidiary
depository institutions and to commit resources to support such institutions in
circumstances where it might not do so otherwise. In addition, the
"cross-guarantee" provisions of federal law require insured depository
institutions under common control to reimburse the FDIC for any loss suffered or
reasonably anticipated by either the Savings Association Insurance Fund ("SAIF")
or the Bank Insurance Fund ("BIF") as a result of the default of a commonly
controlled insured depository institution in danger of default. The FDIC may
decline to enforce the cross-guarantee provisions if it determines that a waiver
is in the best interest of the SAIF or the BIF or both. The FDIC's claim for
reimbursement is superior to claims of stockholders of the insured depository
institution or its holding company but is subordinate to claims of depositors,
secured creditors and holders of subordinated debt (other than affiliates) of
the commonly controlled insured depository institution.
The Federal Deposit Insurance Act ("FDIA") also provides that amounts
received from the liquidation or other resolution of any insured depository
institution by any receiver must be distributed (after payment of secured
claims) to pay the deposit liabilities of the institution prior to payment of
any other general or unsecured senior liability, subordinated liability, general
creditor or stockholder.
-29-
<PAGE>
This provision would give depositors a preference over general and subordinated
creditors and stockholders in the event a receiver is appointed to distribute
the assets of any of the Banks.
The Holding Company also will be required to register in Virginia with
the SCC under the financial institution holding company laws of Virginia.
Accordingly, the Holding Company will be subject to regulation and supervision
by the SCC.
Finally, the Holding Company will be subject to the periodic reporting
requirements of the Securities Exchange Act of 1934, as amended, including but
not limited to, filing annual, quarterly and other current reports with the
Securities and Exchange Commission.
Capital Requirements
The Federal Reserve, the Comptroller of the Currency, and the FDIC have
issued substantially similar risk-based and leverage capital guidelines
applicable to United States banking organizations. In addition, those regulatory
agencies may from time to time require that a banking organization maintain
capital above the minimum levels because of its financial condition or actual or
anticipated growth. Under the risk-based capital requirements of these federal
bank regulatory agencies, the Bank is required to maintain a minimum ratio of
total capital to risk-weighted assets of at least 8%. At least half of the total
capital is required to be "Tier 1 capital," which consists principally of common
and certain qualifying preferred shareholders' equity, less certain intangibles
and other adjustments. The remainder "Tier 2 capital" consists of a limited
amount of subordinated and other qualifying debt (including certain hybrid
capital instruments) and a limited amount of the general loan loss allowance.
The Tier 1 and total capital to risk-weighted asset ratios of the Bank as of
December 31, 1996 were 17.78% and 18.86%, respectively, exceeding the minimums
required.
In addition, each of the federal regulatory agencies has established a
minimum leverage capital ratio (Tier 1 capital to average tangible assets).
These guidelines provide for a minimum ratio of 3% for banks and bank holding
companies that meet certain specified criteria, including that they have the
highest regulatory examination rating and are not contemplating significant
growth or expansion. All other institutions are expected to maintain a leverage
ratio of at least 100 to 200 basis points above the minimum. The Tier 1 capital
leverage ratio of the Bank as of December 31, 1996, was 10.65%. The guidelines
also provide that banking organizations experiencing internal growth or making
acquisitions will be expected to maintain strong capital positions substantially
above the minimum supervisory levels, without significant reliance on intangible
assets.
Banking agencies have recently adopted final regulations which mandate
that regulators take into consideration concentrations of credit risk and risks
from non-traditional activities, as well as an institution's ability to manage
those risks, when determining the adequacy of an institution's capital. This
evaluation will be made as a part of the institution's regular safety and
soundness examination. Banking agencies also have recently adopted final
regulations requiring regulators to consider interest rate risk (when the
interest rate sensitivity of an institution's assets does not match the
sensitivity of its liabilities or its off-balance-sheet position) in the
evaluation of a bank's capital adequacy. Concurrently, banking agencies have
proposed a methodology for evaluating interest rate risk. After gaining
experience with the proposed measurement process, those banking agencies intend
to propose further regulations to establish an explicit risk-based capital
charge for interest rate risk. The Holding Company and the Bank do not expect
any of these rules, either individually or in the aggregate, to have a material
impact on their respective capital requirements.
-30-
<PAGE>
Limits on Dividends and Other Payments
The Holding Company is a legal entity separate and distinct from the
Bank.. The Bank is a state member bank of the Federal Reserve System. As a
result, the Bank is regulated by the Federal Reserve and the SCC. There are
various regulatory limitations applicable to the payment of dividends by the
Bank as well as the payment of dividends by the Holding Company to its
stockholders. Under applicable laws of Virginia to the Bank, prior approval from
the bank regulatory agencies is required if cash dividends declared in any given
year exceed net income for that year plus net income for the prior two years
less all dividends paid during the current year and two prior years. Under
existing supervisory practices, at December 31, 1996, the Bank could have paid
additional dividends of approximately $2,815,768, without obtaining prior
regulatory approval. The payment of dividends by the Bank or the Holding Company
may also be limited by other factors, such as requirements to maintain capital
above regulatory guidelines. Bank regulatory agencies have authority to prohibit
the Bank or the Holding Company from engaging in an unsafe or unsound practice
in conducting their business. The payment of dividends, depending upon the
financial condition of the Bank or the Holding Company, could be deemed to
constitute such an unsafe or unsound practice. The Federal Reserve has stated
that, as a matter of prudent banking, a bank or bank holding company should not
maintain its existing rate of cash dividends on common stock unless (1) the
organization's net income available to common stockholders over the past year
has been sufficient to fund fully the dividends and (2) the prospective rate of
earnings retention appears consistent with the organization's capital needs,
asset quality, and overall financial condition.
Under the FDIA, insured depository institutions such as the Bank are
prohibited from making capital distributions, including the payment of
dividends, if, after making such distribution, the institution would become
"undercapitalized" (as such term is used in the statute). Based on the Bank's
current financial condition, it is not anticipated that this provision will have
any impact on its ability to obtain dividends from the Bank.
The Bank is supervised and regularly examined by the Federal Reserve
and the SCC. The Bank is also subject to various requirements and restrictions
under federal and state law such as limitations on the types of services that
they may offer, the nature of investments that they make, and the amounts of
loans that may be granted. Various consumer and compliance laws and regulations
also affect the operations of the Bank. In addition to the impact of regulation,
the Bank is affected significantly by actions of the Federal Reserve in
attempting to control the money supply and the availability of credit.
The Bank also is subject to the requirements of the Community
Reinvestment Act (the "CRA"). The CRA imposes on financial institutions an
affirmative and ongoing obligation to meet the credit needs of their local
communities, including low- and moderate-income neighborhoods, consistent with
the safe and sound operation of those institutions. Each financial institution's
efforts in meeting community credit needs currently are evaluated as part of the
examination process pursuant to twelve assessment factors. These factors also
are considered in evaluating mergers, acquisitions and applications to open
branches. The Bank has attained an "Satisfactory" rating on its most recent CRA
performance evaluation.
As a result of a 1993 Presidential initiative, each of the federal
banking agencies recently approved a final rule establishing a new framework for
the implementation of CRA. The new rule, which will become fully effective on
July 1, 1997 will emphasize an institution's performance in meeting community
credit needs. Institutions will be evaluated on the basis of a three pronged
lending, investment and service test, with lending being of primary importance.
CRA ratings will continue to be a matter of public record, and CRA performance
will continue to be evaluated in connection with mergers, acquisitions and
branch
-31-
<PAGE>
applications. Although the new rule is likely to have some impact on the Bank's
business practices, it is not anticipated that any changes will be material.
Deposit Insurance
As an institution with deposits insured by BIF, the Bank also is
subject to insurance assessments imposed by the FDIC. Currently, a risk-based
assessment schedule imposes assessments on BIF deposits, ranging from an annual
minimum payment of $2,000 for well-capitalized institutions to .27% of deposits
for under-capitalized institutions. The Bank currently is assessed as
well-capitalized.
Other Safety and Soundness Regulations
The federal banking agencies have broad powers under federal law to
take prompt corrective action to resolve problems of insured depository
institutions. The extent of these powers depends upon whether the institutions
in question are "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized," as such terms are defined under uniform regulations defining
such capital levels issued by each of the federal banking agencies.
APPOINTMENT OF AUDITORS
On the recommendation of the Audit Committee, the Board of Directors
has appointed Eggleston Smith P.C., certified public accountants, as the Bank's
independent auditors for 1997 subject to ratification of the stockholders.
Eggleston Smith P.C. rendered audit services to the Bank during 1996. These
services consisted primarily of the examination and audit of the Bank's
financial statements, tax reporting assistance, and other audit and accounting
matters. Stockholders are requested to ratify the selection of Eggleston Smith
P.C. at the Annual Meeting.
Representatives of Eggleston Smith P.C. are expected to be
present at the Annual Meeting and are expected to be available to respond to
questions during and after the meeting.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Annual Meeting other than those matters described above. However, if any other
matters should properly come before the Annual Meeting, it is intended that
proxies in the accompanying form will be voted in respect thereof in accordance
with the judgment of the person or persons voting the proxies.
LEGAL MATTERS
The legality of Holding Company common stock to be issued pursuant to
the Reorganization will be passed upon for the Holding Company by the law firm
of LeClair Ryan, Richmond, Virginia, which has acted as special counsel to the
Bank and the Holding Company in connection with the Reorganization.
-32-
<PAGE>
EXPERTS
The financial statements of the Bank of Lancaster for the period ended
December 31, 1996 included in the accompanying Annual Report to Stockholders are
incorporated herein in reliance upon the report of Eggleston Smith P.C.,
certified public accountants, and upon the authority of said firm as experts in
accounting and auditing.
STOCKHOLDER PROPOSALS
In the event the Reorganization is consummated prior to the scheduled
1998 Annual Meeting of Stockholders of the Bank, the Holding Company will be
conducting such annual meeting of stockholders. Stockholder proposals intended
to be presented at the Bank's 1998 Annual Meeting, or, in lieu thereof, the
Holding Company's 1998 Annual Meeting, must be submitted to the Holding Company
by January 16, 1998 in order to be considered for inclusion in the proxy
materials for such meeting.
-33-
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as
of February 20, 1997, by and between Bay Banks of Virginia, Inc., a proposed
bank holding company organized under the laws of Virginia, with its principal
office in Kilmarnock, Virginia (the "Holding Company") and Bank of Lancaster, a
banking corporation organized under the laws of the Commonwealth of Virginia
with its Main Office in Kilmarnock, Virginia (the "Bank"). The Holding Company
and the Bank are collectively referred to herein as the "Constituent
Corporations".
WITNESSETH:
WHEREAS, the respective boards of directors of the Constituent
Corporations consider the consolidation of the Bank and the Holding Company by
way of a statutory share exchange pursuant to the Virginia Stock Corporation Act
(the "Act"), with the effect provided in Section 13.1-721 of the Act (the "Share
Exchange"), so that the Bank will become and be a wholly-owned subsidiary of the
Holding Company, to be in the respective best interests of the Constituent
Corporations and their shareholders. To that end, each such board has approved
this Agreement and Plan of Reorganization.
NOW THEREFORE, in consideration of the mutual agreements set forth
herein, the Constituent Corporations agree as follows:
1. The Share Exchange. At the Effective Date of the Share Exchange
(as hereinafter defined), the Bank shall be consolidated with the Holding
Company, which shall, after the Share Exchange, own 100% of the issued and
outstanding shares of the Bank. The Share Exchange shall be pursuant to the
provisions of and with the effect provided in Sections 6.1-43 and 6.1-44 of the
Virginia Banking Act.
2. Name; Articles of Incorporation; Bylaws; Offices. The name,
Articles of Incorporation, and Bylaws of the Bank shall remain unchanged after
the Effective Date. The Main Office and branches of the Bank immediately prior
to the Share Exchange shall remain as such after the Effective Date. The
Articles of Incorporation and Bylaws of the Holding Company shall remain
unchanged after the Effective Date. The Articles of Incorporation of the Holding
Company shall be in substantially the form attached as Appendix I.
3. Conversion of Shares. Upon, and by reason of, the Share Exchange
becoming effective pursuant to the issuance of a Certificate of Share Exchange
by the Virginia State Corporation Commission, no cash shall be allocated to the
shareholders of the Bank, and each of the issued and outstanding shares of
common stock of the Bank ("Bank Common Stock") shall be automatically exchanged
for one share of common stock of the Holding Company ("Holding Company Common
Stock"). Outstanding certificates representing shares of Bank Common Stock will
thereafter represent an equal number of shares of Holding Company Common Stock;
accordingly, stockholders will not be required to surrender their Bank stock
certificates for new certificates upon consummation of the Share Exchange. The
Holding Company may, however, on a date subsequent to the Effective Date require
that all certificates of Bank Common Stock be surrendered and exchanged for
certificates of Holding Company Common Stock.
4. Capital of the Bank. The capital, surplus and undivided profits
of the Bank at the Effective Date will be equal to the capital structure of the
Bank at December 31, 1996 adjusted, however, for capital contributions, normal
earnings and expenses, and other capital changes between December 31, 1996 and
the Effective Date.
A-1
<PAGE>
5. Board of Directors; Officers. (a) At the Effective Date,
the boards of directors of the Bank and the Holding Company shall continue to
serve as such until their respective terms expire or until such time as their
successors have been elected and qualified.
(b) At the Effective Date, the respective officers of the Bank
and the Holding Company shall continue to serve as such until such time as their
successors have been elected or appointed.
6. Rights of Dissenting Shareholders. Stockholders of the
Bank who dissent from the Share Exchange will be entitled to the
dissenters' rights and remedies set forth in Sections 13.1-730 through
13.1-741 of the Act.
7. Conditions of the Share Exchange. Consummation of the Share
Exchange is conditioned upon (i) the approval of this Agreement by the
stockholders of the Bank and the Holding Company, respectively, at meetings to
be held on the call of their respective boards of directors, (ii) the receipt of
the required regulatory approvals, and (iii) the receipt of an opinion of
counsel as to the tax-free nature of the transaction. Upon the satisfaction of
the foregoing conditions, the Share Exchange shall become effective at the time
specified in a Certificate of Share Exchange to be issued by the Virginia State
Corporation Commission approving the Share Exchange (the "Effective Date").
8. Termination. This Agreement may be terminated by the unilateral
action of either of the boards of directors of the Holding Company or the Bank
prior to the approval of the Agreement by the stockholders of such party or by
the mutual consent of the respective boards of directors of the Holding Company
and the Bank after any stockholder group has taken the requisite affirmative
action. Upon termination for any reason, this Agreement shall be void and of no
further effect, and there shall be no liability by reason of this Agreement or
the termination thereof on the part of the Bank or the Holding Company or any of
their directors, officers, employees, agents or stockholders.
WITNESS, the following signatures for the parties, each hereunto set by
its President pursuant to duly authorized resolutions of its board of directors.
BAY BANKS OF VIRGINIA, INC., a Virginia
corporation
By: /s/Austin L. Roberts, III
______________________________
Austin L. Roberts, III
President
BANK OF LANCASTER, a Virginia banking
corporation
By: /s/Ammon G. Dunton, Jr.
______________________________
Ammon G. Dunton, Jr.
Chairman of the Board
A-2
<PAGE>
Appendix I to
Exhibit A
ARTICLES OF INCORPORATION
OF
BAY BANKS OF VIRGINIA, INC.
I. NAME
The name of the corporation is Bay Banks of Virginia, Inc.
II. PURPOSE
The purpose for which the Corporation is formed is to act as a
bank holding company and to transact any or all lawful business not required to
be specifically stated in these Articles for which corporations may be
incorporated under the Virginia Stock Corporation Act, as amended from time to
time.
III. CAPITAL STOCK
The Corporation shall have authority to issue five million
(5,000,000) shares of Common Stock, par value $5.00 per share, and two million
(2,000,000) shares of Preferred Stock, par value $5.00 per share. The rights,
preferences, voting powers and the qualifications, limitations and restrictions
of the authorized stock shall be as follows:
A. Preferred Stock
The Preferred Stock may be issued from time to time in one or
more classes or series, with such distinctive designations, rights and
preferences as shall be stated and expressed herein or in the resolution or
resolutions providing for the issuance of shares of a particular series, and in
such resolution or resolutions providing for the issuance of shares of such
series, the Board of Directors is expressly authorized to fix or establish the
basis for determining:
(a) the maximum number of shares constituting such class or
series, and the designation of such class or series, which
shall be such as to distinguish the shares thereof from the
shares of all other classes and series;
(b) the annual or other periodic dividend rate for such
series, the dividend payment dates and, if cumulative, the
dates from which dividends shall be cumulative, and the extent
of participation rights, if any;
(c) any right to vote with holders of shares of any other
series or class and any right to vote as a class, either
generally or as a condition to specified corporate action;
(d) the price at, and the terms and conditions on which,
shares may be redeemed;
(e) the amount payable upon shares in event of involuntary
liquidation;
A-3
<PAGE>
(f) the amount payable upon shares in the event of voluntary
liquidation;
(g) any sinking fund provisions for the redemption or
purchase of shares;
(h) the rights, if any, of the holders of shares of such
series to convert such shares into other classes of stock of
the Corporation, or to exchange such shares for other
securities, and the terms and conditions of any such
conversion or exchange; and
(i) such other rights as may be specified by the Board of
Directors and not prohibited by law.
All shares of Preferred Stock of any one series shall be
identical with each other in all respects except, if so determined by the Board
of Directors, as to the dates from which dividends thereon shall be cumulative;
and all shares of Preferred Stock shall be of equal rank with each other,
regardless of series, and shall be identical with each other in all respects
except as provided herein or in the resolution or resolutions providing for the
issuance of a particular series.
B. Common Stock
Section 1. Subject to the provisions of law and the rights of
holders of shares at the time outstanding of Preferred Stock, the holders of
Common Stock at the time outstanding shall be entitled to receive such dividends
at such times and in such amounts as the Board of Directors may deem advisable.
Section 2. In the event of any liquidation, dissolution or
winding up (whether voluntary or involuntary) of the Corporation, after the
payment or provision for payment in full for all debts and other liabilities of
the Corporation and all preferential amounts to which the holders of shares at
the time outstanding of Preferred Stock shall be entitled, the remaining net
assets of the Corporation shall be distributed ratably among the holders of the
shares at the time outstanding of Common Stock.
Section 3. The holders of Common Stock shall be entitled to
one vote per share on all matters as to which a shareholder vote is taken.
IV. NO PREEMPTIVE RIGHTS
No holder of shares of any class of capital stock of the
Corporation shall have any preemptive or preferential right to subscribe to or
purchase (i) any shares of capital stock of the Corporation, whether now or
hereafter authorized, (ii) any securities convertible into such shares or (iii)
any options, warrants, or rights to purchase such shares or securities
convertible into any such shares.
V. DIRECTORS
Section 1. The Board of Directors shall consist of such number
of individuals as may be fixed or provided for by the bylaws of the Corporation.
Section 2. The Board of Directors shall be divided into three
classes, Class I, Class II and Class III as nearly equal in number as possible.
On the effective date of these articles of
A-4
<PAGE>
incorporation of this Corporation, the classification of directors of this
Corporation shall be implemented as follows: directors of the first class (Class
I) shall be elected to hold office for a term expiring at the 2000 annual
meeting of the shareholders; directors of the second class (Class II) shall be
elected for a term expiring at the 1999 annual meeting of the shareholders, and
directors of the third class (Class III) shall be elected to hold office for a
term expiring at the 1998 annual meeting of shareholders. The successors to the
class of directors whose terms expires shall be identified as being of the same
class as the directors they succeed and elected to hold office for a term
expiring at the third succeeding annual meeting of shareholders. When the number
of directors is changed, any newly created directorship shall be apportioned
among the classes by the Board of Directors as to make all classes as nearly
equal as possible.
Section 3. Directors of the Corporation may be removed only
for cause and with the affirmative vote of at least two-thirds of the
outstanding shares entitled to vote.
Section 4. If the office of any director shall become vacant,
the directors at the time in office, whether or not a quorum, may, by majority
vote of the directors then in office, choose a successor who shall hold office
until the next annual meeting of stockholders. In such event, the successors
elected by the stockholders at that annual meeting shall hold office for a term
that shall coincide with the remaining term of the class of directors to which
that person has been elected. Vacancies resulting from the increase in the
number of directors shall be filled in the same manner.
Section 5. Each director shall hold office until his or her
successor is elected and qualified or until his or her death, resignation,
retirement or removal.
VI. SHAREHOLDER'S QUORUM AND VOTING
Section 1. A quorum for any meeting of the stockholders shall
consist of sixty percent (60%) of the shares of stock of the Corporation
entitled to vote. If a quorum is present, in person and by proxy, the concurring
vote of more than sixty percent (60%) of the voting shares of the Corporation
represented at the meeting shall be required in order to constitute the act of
the stockholders.
Section 2. Notwithstanding the provisions of Section 1, as to
any amendment of the Corporation's Articles of Incorporation, a plan of merger
or exchange, a transaction involving the sale of all or substantially all the
Corporation's assets other than in the regular course of business and a plan of
dissolution shall be approved by the vote of sixty percent (60%) of all the
votes entitled to be cast on such transactions by each voting group entitled to
vote on the transaction at a meeting at which a quorum of the voting group is
present, provided that the transaction has been approved and recommended by at
least two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of eighty percent (80%) or more of all
votes entitled to be cast on such transactions by each voting group entitled to
vote on the transaction.
VII. INDEMNIFICATION
Section 1. To the full extent that the Virginia Stock
Corporation Act, as it exists on the date hereof or may hereafter be amended,
permits the limitation or elimination of the liability of directors or officers,
a director or officer of the Corporation shall not be liable to the Corporation
or its shareholders for monetary damages.
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Section 2. To the full extent permitted and in the manner
prescribed by the Virginia Stock Corporation Act, the Corporation shall
indemnify each director or officer of the Corporation against liabilities,
fines, penalties and claims imposed upon or asserted against him (including
amounts paid in settlement) by reason of having been such director or officer,
whether or not then continuing to so be, and against all expenses (including
counsel fees) reasonably incurred by him in connection therewith, except in
relation to matters as to which he shall have been finally adjudged liable by
reason of his willful misconduct or a knowing violation of criminal law in the
performance of his duty as such director or officer. The Board of Directors is
hereby empowered, by majority vote of a quorum of disinterested directors, to
contract in advance to indemnify any director or officer.
Section 3. The Board of Directors is hereby empowered, by
majority vote of a quorum of disinterested directors, to cause the Corporation
to indemnify or contract in advance to indemnify any person not specified in
Section 2 of this Article against liabilities, fines, penalties and claims
imposed upon or asserted against him (including amounts paid in settlement by
reason of having been an employee, agent or consultant of the Corporation,
whether or not then continuing so to be, and against all expenses (including
counsel fees) reasonably incurred by him in connection therewith, to the same
extent as if such person were specified as one to whom indemnification is
granted in Section 2.
Section 4. The Corporation may purchase and maintain insurance
to indemnify it against the whole or any portion of the liability assumed by it
in accordance with this Article and may also procure insurance, in such amounts
as the Board of Directors may determine, on behalf of any person who is or was a
director, officer, employee, agent or consultant of the Corporation against any
liability asserted against or incurred by any such person in any such capacity
or arising from his status as such, whether or not the Corporation would have
power to indemnify him against such liability under the provisions of this
Article.
Section 5. In the event there has been a change in the
composition of a majority of the Board of Directors after the date of the
alleged act or omission with respect to which indemnification is claimed, any
determination as to indemnification and advancement of expenses with respect to
any claim for indemnification made pursuant to Sections 2 or 3 of this Article
VII shall be made by special legal counsel agreed upon by the Board of Directors
and the proposed indemnitee. If the Board of Directors and the proposed
indemnitee are unable to agree upon such special legal counsel, the Board of
Directors and the proposed indemnitee each shall select a nominee, and the
nominees shall select such special legal counsel.
Section 6. No amendment, modification or repeal of this
Article shall diminish the rights provided hereby or diminish the right to
indemnification with respect to any claim, issue or matter in any then pending
or subsequent proceeding that is based in any material respect on any alleged
action or failure to act occurring before the adoption of such amendment,
modification or repeal.
Section 7. Every reference herein to director, officer,
employee, agent or consultant shall include (i) every director, officer,
employee, agent, or consultant of the Corporation or any corporation the
majority of the voting stock of which is owned directly or indirectly by the
Corporation, (ii) every former director, officer, employee, agent, or consultant
of the Corporation, (iii) every person who may have served at the request of or
on behalf of the Corporation as a director, officer, employee, agent, consultant
or trustee of another corporation, partnership, joint venture, trust or other
entity, and (iv) in all of such cases, his executors and administrators.
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VIII. INITIAL DIRECTORS
Set forth below are the names and addresses of the individuals who are
to serve as the initial directors of the Corporation:
Name Addresses
------ -----------
Ammon G. Dunton, Jr. P. O. Box 38
Merry Point, Virginia 22513
Austin L. Roberts, III P. O. Box 1869
Kilmarnock, Virginia 22482
Weston F. Conley, Jr. Box 85
Morattico, Virginia 22523
William A. Creager Route 1, Box 661
Kilmarnock, Virginia 22482
Thomas A. Gosse P. O. Box 467
Irvington, Virginia 22480
W. Bruce Sanders P. O. Box 1893
Kilmarnock, Virginia 22482
IX. INITIAL REGISTERED OFFICE AND AGENT
The post office address of the initial registered office is Dunton,
Simmons & Dunton, 678 Rappahannock Drive, White Stone, Virginia. The name of the
town in which the initial registered office is located is White Stone, Virginia.
The name of the initial registered agent is Ammon G. Dunton, Jr., whose business
office is the same as the registered office and who is a resident of Virginia
and a member of the Virginia State Bar.
Dated: February 10, 1997
/s/ Ammon G. Dunton, Jr.
_________________________________________
Ammon G. Dunton, Jr.
Incorporator
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Exhibit B
ARTICLE 15.
DISSENTERS' RIGHTS
ss.13.1-729. Definitions.--In this article:
"Corporation" means the issuer of the shares held by a dissenter before
the corporate action, except that (i) with respect to a merger, "corporation"
means the surviving domestic or foreign corporation or limited liability company
by merger of that issuer, and (ii) with respect to a share exchange,
"corporation" means the acquiring corporation by share exchange, rather than the
issuer, if the plan of share exchange places the responsibility for dissenters'
rights on the acquiring corporation.
"Dissenter" means a shareholder who is entitled to dissent from
corporate action under ss. 13.1-730 and who exercises that right when and in the
manner required by ss.13.1-732 through ss.13.1-739.
"Fair value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation of the corporate action to which
the dissenter objects, excluding any appreciation or depreciation in
anticipation of the corporate action unless exclusion would be inequitable.
"Interest" means interest from the effective date of the corporate
action until the date of payment, at the average rate currently paid by the
corporation on its principal bank loans or, if none, at a rate that is fair and
equitable under all the circumstances.
"Record shareholder" means the person in whose name shares are
registered in the records of a corporation or the beneficial owner of shares to
the extent of the rights granted by a nominee certificate on file with a
corporation.
"Beneficial shareholder" means the person who is a beneficial owner of
shares held by a nominee as the record shareholder.
"Shareholder" means the record shareholder or the beneficial
shareholder.
ss.13.1-730. Right to Dissent.--A. A shareholder is entitled to
dissent from, and obtain payment of the fair value of his shares in the event
of, any of the following corporate actions:
1. Consummation of a plan of merger to which the corporation is a
party (i) if shareholder approval is required for the merger by ss.13.1-718 or
the articles of incorporation and the shareholder is entitled to vote on the
merger or (ii) if the corporation is a subsidiary that is merged with its parent
under ss.13.1-719;
2. Consummation of a plan of share exchange to which the
corporation is a party as the corporation whose shares will be acquired, if the
shareholder is entitled to vote on the plan;
3. Consummation of a sale or exchange of all, or substantially all,
of the property of the corporation if the shareholder was entitled to vote on
the sale or exchange or if the sale or exchange was in furtherance of a
dissolution on which the shareholder was entitled to vote, provided that such
dissenter's rights shall not apply in the case of (i) a sale or exchange
pursuant to court order, or (ii) a sale for cash
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pursuant to a plan by which all or substantially all of the net proceeds of the
sale will be distributed to the shareholders within one year after the date of
sale;
4. Any corporate action taken pursuant to a shareholder vote to the
extent the articles of incorporation, bylaws, or a resolution of the board of
directors provides that voting or nonvoting shareholders are entitled to dissent
and obtain payment for their shares.
B. A shareholder entitled to dissent and obtain payment for his
shares under this article may not challenge the corporate action creating his
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation.
C. Notwithstanding any other provision of this article, with
respect to a plan of merger or share exchange or a sale or exchange of property
there shall be no right of dissent in favor of holders of shares of any class or
series which, at the record date fixed to determine the shareholders entitled to
receive notice of and to vote at the meeting at which the plan of merger or
share exchange or the sale or exchange of property is to be acted on, were (i)
listed on a national securities exchange or (ii) held by at least 2,000 record
shareholders, unless in either case:
1. The articles of incorporation of the corporation issuing such
shares provide otherwise;
2. In the case of a plan of merger or share exchange, the holders
of the class or series are required under the plan of merger or share exchange
to accept for such shares anything except:
a. Cash;
b. Shares or membership interests, or shares or membership
interests and cash in lieu of fractional shares (i) of the surviving or
acquiring corporation or limited liability company or (ii) of any other
corporation or limited liability company which, at the record date fixed to
determine the shareholders entitled to receive notice of and to vote at the
meeting at which the plan of merger or share exchange is to be acted on, were
either listed subject to notice of issuance on a national securities exchange or
held of record by at least 2,000 record shareholders or members; or
c. A combination of cash and shares or membership
interests as set forth in subdivisions 2a and 2b of this subsection; or
3. The transaction to be voted on is an "affiliated transaction"
and is not approved by a majority of "disinterested directors" as such terms are
defined in ss.13.1-725.
D. The right of a dissenting shareholder to obtain payment of
the fair value of his shares shall terminate upon the occurrence of any one of
the following events:
1. The proposed corporate action is abandoned or rescinded;
2. A court having jurisdiction permanently enjoins or sets aside
the corporate action; or
3. His demand for payment is withdrawn with the written consent of
the corporation.
ss.13.1-731. Dissent by Nominees and Beneficial Owners.--A. A record
shareholder may assert dissenters' rights as to fewer than all the shares
registered in his name only if he dissents with respect to all
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shares beneficially owned by any one person and notifies the corporation in
writing of the name and address of each person on whose behalf he asserts
dissenters' rights. The rights of a partial dissenter under this subsection are
determined as if the shares as to which he dissents and his other shares were
registered in the names of different shareholders.
B. A beneficial shareholder may assert dissenters' rights as to
shares held on his behalf only if:
1. He submits to the corporation the record shareholder's
written consent to the dissent not later than the time the beneficial
shareholder asserts dissenters' rights; and
2. He does so with respect to all shares of which he is the
beneficial shareholder or over which he has power to direct the vote.
ss.13.1-732. Notice of Dissenters' Rights.--A. If proposed corporate
action creating dissenters' rights under ss. 13.1-730 is submitted to a vote at
a shareholders' meeting, the meeting notice shall state that shareholders are or
may be entitled to assert dissenters' rights under this article and be
accompanied by a copy of this article.
B. If corporate action creating dissenters' rights under
ss.13.1-730 is taken without a vote of shareholders, the corporation, during the
ten-day period after the effectuation of such corporate action, shall notify in
writing all record shareholders entitled to assert dissenters' rights that the
action was taken and send them the dissenters' notice described in ss.13.1-734.
ss.13.1-733. Notice of Intent to Demand Payment.--A. If proposed
corporate action creating dissenters' rights under ss.13.1-730 is submitted to a
vote at a shareholders' meeting, a shareholder who wishes to assert dissenters'
rights (i) shall deliver to the corporation before the vote is taken written
notice of his intent to demand payment for his shares if the proposed action is
effectuated and (ii) shall not vote such shares in favor of the proposed action.
B. A shareholder who does not satisfy the requirements of
subsection A of this section is not entitled to payment for his shares under
this article.
ss.13.1-734. Dissenters' Notice.--A. If proposed corporate action
creating dissenters' rights under ss.13.1-730 is authorized at a shareholders'
meeting, the corporation, during the ten-day period after the effectuation of
such corporate action, shall deliver a dissenters' notice in writing to all
shareholders who satisfied the requirements of ss.13.1-733.
B. The dissenters' notice shall:
1. State where the payment demand shall be sent and where and
when certificates for certificated shares shall be deposited;
2. Inform holders of uncertificated shares to what extent
transfer of the shares will be restricted after the payment demand is
received;
3. Supply a form for demanding payment that includes the date of
the first announcement to news media or to shareholders of the terms of the
proposed corporate action and requires that the person
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asserting dissenters' rights certify whether or not he acquired beneficial
ownership of the shares before or after that date;
4. Set a date by which the corporation must receive the
payment demand, which date may not be fewer than thirty nor more than sixty
days after the date of delivery of the dissenters' notice; and
5. Be accompanied by a copy of this article.
ss.13.1-735. Duty to Demand Payment.--A. A shareholder sent a
dissenters' notice described in ss.13.1-734 shall demand payment, certify that
he acquired beneficial-ownership of the shares before or after the date required
to be set forth in the dissenters' notice pursuant to paragraph 3 of subsection
B of ss. 13.1-734, and, in the case of certificated shares, deposit his
certificates in accordance with the terms of the notice.
B. The shareholder who deposits his shares pursuant to subsection A
of this section retains all other rights of a shareholder except to the extent
that these rights are canceled or modified by the taking of the proposed
corporate action.
C. A shareholder who does not demand payment and deposits his share
certificates where required each by the date set in the dissenters' notice, is
not entitled to payment for his shares under this article.
ss.13.1-736. Share Restrictions.--A. The corporation may restrict
the transfer of uncertificated shares from the date the demand for their
payment is received.
B. The person for whom dissenters' rights are asserted as to
uncertificated shares retains all other rights of a shareholder except to the
extent that these rights are canceled or modified by the taking of the proposed
corporate action.
ss.13.1-737. Payment.--A. Except as provided in ss.13.1-738, within
thirty days after receipt of a payment demand made pursuant to ss.13.1-735, the
corporation shall pay the dissenter the amount the corporation estimates to be
the fair value of his shares, plus accrued interest. The obligation of the
corporation under this paragraph may be enforced (i) by the circuit court in the
city or county where the corporation's principal office is located, or, if none
in this Commonwealth, where its registered office is located or (ii) at the
election of any dissenter residing or having its principal office in the
Commonwealth, by the circuit court in the city or county where the dissenter
resides or has its principal office. The court shall dispose of the complaint on
an expedited basis.
B. The payment shall be accompanied by:
1. The corporation's balance sheet as of the end of a fiscal year
ending not more than sixteen months before the effective date of the corporate
action creating dissenters' rights, an income statement for that year, a
statement of changes in shareholders' equity for that year, and the latest
available interim financial statements, if any;
2. An explanation of how the corporation estimated the fair
value of the shares and of how the interest was calculated;
3. A statement of the dissenters' right to demand payment under
ss.13.1-739; and
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4. A copy of this article.
ss.13.1-738. After-Acquired Shares.--A. A corporation may elect to
withhold payment required by ss. 13.1-737 from a dissenter unless he was the
beneficial owner of the shares on the date of the first publication by news
media or the first announcement to shareholders generally, whichever is earlier,
of the terms of the proposed corporate action, as set forth in the dissenters'
notice.
B. To the extent the corporation elects to withhold payment under
subsection A of this section, after taking the proposed corporate action, it
shall estimate the fair value of the shares, plus accrued interest, and shall
offer to pay this amount of each dissenter who agrees to accept it in full
satisfaction of his demand. The corporation shall send with its offer an
explanation of how it estimated the fair value of the shares and of how the
interest was calculated, and a statement of the dissenter's right to demand
payment under ss.13.1-739.
ss.13.1-739. Procedure if Shareholder Dissatisfied with Payment or
Offer.--A. A dissenter may notify the corporation in writing of his own estimate
of the fair value of his shares and the amount of interest due, and demand
payment of his estimate (less any payment under ss. 13.1-737), or reject the
corporation's offer under ss. 13.1-738 and demand payment of the fair value of
his shares and interest due, if the dissenter believes that the amount paid
under ss.13.1-737 or offered under ss. 13.1-738 is less than the fair value of
his shares or that the interest due is incorrectly calculated.
B. A dissenter waives his right to demand payment under this
section unless he notifies the corporation of his demand in writing under
subsection A of this section within thirty days after the corporation made or
offered payment for his shares.
ss.13.1-740. Court Action.--A. If a demand for payment under
ss.13.1-739 remains unsettled, the corporation shall commence a proceeding
within sixty days after receiving the payment demand and petition the circuit
court in the city or county described in subsection B of this section to
determine the fair value of the shares and accrued interest. If the corporation
does not commence the proceeding within the sixty-day period, it shall pay each
dissenter whose demand remains unsettled the amount demanded.
B. The corporation shall commence the proceeding in the city or
county where its principal office is located, or, if none in this Commonwealth,
where its registered office is located. If the corporation is a foreign
corporation without a registered office in this Commonwealth, it shall commence
the proceeding in the city or county in this Commonwealth were the registered
office of the domestic corporation merged with or whose shares were acquired by
the foreign corporation was located.
C. The corporation shall make all dissenters, whether or not
residents of this Commonwealth, whose demands remain unsettled parties to the
proceeding as in an action against their shares and all parties shall be served
with a copy of the petition. Nonresidents may be served by registered or
certified mail or by publication as provided by law.
D. The corporation may join as a party to the proceeding any
shareholder who claims to be a dissenter but who has not, in the opinion of the
corporation, complied with the provisions of this article. If the court
determines that such shareholder has not complied with the provisions of this
article, he shall be dismissed as a party.
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E. The jurisdiction of the court in which the proceeding is
commenced under subsection B of this section is plenary and exclusive. The court
may appoint one or more persons as appraisers to receive evidence and recommend
a decision on the question of fair value. The appraisers have the powers
described in the order appointing them, or in any amendment to it. The
dissenters are entitled to the same discovery rights as parties in other civil
proceedings.
F. Each dissenter made a party to the proceeding is entitled to
judgment (i) for the amount, if any, by which the court finds the fair value of
his shares, plus interest, exceeds the amount paid by the corporation or (ii)
for the fair value, plus accrued interest, of his after-acquired shares for
which the corporation elected to withhold payment under ss.13.1-738.
ss.13.1-741. Court Costs and Counsel Fees.--A. The court in an
appraisal proceeding commenced under ss.13.1-740 shall determine all costs of
the proceeding, including the reasonable compensation and expenses of appraisers
appointed by the court. The court shall assess the costs against the
corporation, except that the court may assess costs against all or some of the
dissenters, in amounts the court finds equitable, to the extent the court finds
the dissenters did not act in good faith in demanding payment under ss.13.1-739.
B. The court may also assess the reasonable fees and expenses
of experts, excluding those of counsel, for the respective parties, in
amounts the court finds equitable:
1. Against the corporation and in favor of any or all
dissenters if the court finds the corporation did not substantially comply
with the requirements of ss. 13.1-732 through ss. 1 3.1-739; or
2. Against either the corporation or a dissenter, in favor of any
other party, if the court finds that the party against whom the fees and
expenses are assessed did not act in good faith with respect to the rights
provided by this article.
C. If the court finds that the services of counsel for any
dissenter were of substantial benefit to other dissenters similarly situated,
the court may award to these counsel reasonable fees to be paid out of the
amounts awarded the dissenters who were benefited.
D. In a proceeding commenced under subsection A of ss. 13.1-737 the
court shall assess the costs against the corporation, except that the court may
assess costs against all or some of the dissenters who are parties to the
proceedings, in amounts the court finds equitable, to the extent the court finds
that such parties did not act in good faith in instituting the proceeding.
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