================================================================================
As filed with the Securities and Exchange Commission on February 28, 1997
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
------------------------
BAY BANKS OF VIRGINIA, INC.
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 6711 Applied For
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
100 South Main Street
Kilmarnock, Virginia 22482
(804) 435-1171
(Address, including zip code, and telephone number, including area
code of registrant's principal executive office)
------------------------
Paul T. Sciacchitano
Treasurer
Bay Banks of Virginia, Inc.
100 South Main Street
Kilmarnock, Virginia 22482
(804) 435-1171
(Name, address, including zip code, and telephone number,
including area code of agent for service)
------------------------
Copy to:
George P. Whitley, Esq.
LeClair Ryan
707 East Main Street, 11th Floor
Richmond, Virginia 23219
------------------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
====================================================================================================================================
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered (1) offering price per share aggregate offering price(2) registration fee
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Common Stock, $5.00 par value 1,133,216 $14.81 $16,784,867 $5,086
====================================================================================================================================
</TABLE>
(1) The estimated maximum number of shares to be issued.
(2) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(2) on the basis of $14.81 per
share, the book value of the stock to be acquired.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
================================================================================
<PAGE>
BAY BANKS OF VIRGINIA, INC.
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act and Item 501 of Regulation S-B,
Showing the Location or Heading in the Prospectus and proxy Statement
of the Information Required by part I of Form S-4
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Cover Page of Prospectus.....................Cover Page of Registration Statement; Outside Front
Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...........................................Available Information; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........................Summary; Selected Financial Data; General Information;
The Proposed Reorganization; The Holding Company; Bank
of Lancaster
4. Terms of the Transaction.............................Summary; The Proposed Reorganization; The Holding
Company; Certain Effects of the Reorganization
5. Pro Forma Financial Information......................Not Applicable
6. Material Contracts with the Company
Being Acquired.......................................Summary; The Proposed Reorganization
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............................Not Applicable
8. Interests of Named Experts and Counsel...............Not Applicable
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..........................................Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants..........Not Applicable
11. Incorporation of Certain Information by
Reference............................................Not Applicable
12. Information with Respect to S-2 or S-3
Registrants..........................................Not Applicable
13. Incorporation of Certain Information by
Reference............................................Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants..........................Certain Effects of the Reorganization; The Holding Company
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
<S> <C>
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies............Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................................Not Applicable
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies............................Summary; The Proposed Reorganization; Selected
Financial Data; Bank of Lancaster; The Holding Company
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited...................Summary; General Information; The Proposed Reorganization
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer.................................Not Applicable
</TABLE>
<PAGE>
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 the Indian Creek Yacht and
Country Club, Kilmarnock, Virginia. 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. Under the proposal,
the Bank will conduct its banking operations as a wholly-owned subsidiary of Bay
Banks of Virginia, Inc., a Virginia corporation that has recently been formed to
serve as the holding company for the Bank. 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, and the Bank
will continue to operate in substantially the same manner and from the same
offices as the Bank did before the reorganization.
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 facilitate the
fulfillment of our customers' needs in this rapidly changing environment. The
Board of Directors encourages you to read carefully the enclosed Proxy Statement
and to Vote For the reorganization of the Bank.
At the Annual Meeting, you will also vote on the election of four
directors of the Bank for a three year term. Your Board unanimously supports
these individuals and recommends that you Vote For them as directors.
We hope you can 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. Your vote is important regardless of the number of
shares you own. If you have any questions or comments, please contact me or any
of the Directors.
We appreciate your continuing loyalty and support.
Sincerely,
Austin L. Roberts, III
President and Chief Executive Officer
<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 and 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;
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
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, you 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>
AVAILABLE INFORMATION
Bank of Lancaster 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
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-K for the
year ended December 31, 1996, quarterly reports on Form 10-Q, 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.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page Page
<S> <C>
Summary of the Proxy Statement................... Indemnification of Directors and
Officers....................................
General Information.............................. Market for Holding Company Stock..............
Use and Revocation of Proxies................. Description of Capital Stock..................
Stockholders Entitled to Vote and
Vote Required............................... Bank of Lancaster................................
Solicitation of Proxies....................... Business......................................
Financial Statements.......................... Competition...................................
Principal Officers............................
The Proposed Reorganization...................... Legal Proceedings and Directorships...........
Description of the Reorganization............. Description of Capital Stock..................
Reasons for the Reorganization................
Anticipated Effective Date of the Election of Directors............................
Reorganization.............................. Directors.....................................
Conversion and Exchange of Stock.............. Board Committees and Attendance...............
Federal Income Tax Consequences............... Directors' Compensation.......................
Required Regulatory Approvals................. Legal Proceedings and Directorships...........
Possible Abandonment of the Certain Relationships and Related
Reorganization.............................. Transactions...............................
Effect on Stock Options....................... Executive Compensation........................
Rights of Dissenting Stockholders............. Compliance with Section 16....................
Certain Effects of the Reorganization............ Ownership of Bank Stock..........................
Anti-Takeover Effect of Executive Compensation...........................
Reorganization.............................. Regulation and Supervision.......................
Comparison in the Rights of Appointment of Auditors..........................
Stockholders................................ Other Matters....................................
Historical and Pro Forma Legal Matters....................................
Capitalization.............................. Experts..........................................
Regulation and Supervision.................... Stockholder Proposals............................
The Holding Company.............................. Exhibit A
General....................................... Agreement and Plan of Reorganization.......... A-1
Management and Operations After Exhibit B I
the Reorganization.......................... Article 15 -- Dissenters' Rights Statute...... B-1
</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. (the "Holding Company") 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.
<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 and 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; accordingly,
stockholders will not be requested to surrender their Bank stock certificates
for new certificates upon consummation of the Share Exchange. 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."
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
<PAGE>
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 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."
<PAGE>
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 Stock
Corporation Act, 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 were filed with the SCC and the Federal Reserve
on March __ and March __, respectively. 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.
<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% .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 the effects of the 2 for 1 stock split transacted May
1996.
<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, and in the discretion of the proxy
holders as to any other matters which may properly come before the 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 shareholder'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. Directors will be elected by two-thirds vote of those present or
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.
<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.
<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 have been filed with the SCC and
the Federal Reserve. 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 ( the "Effective Date").
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
one share 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 that the exchange 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 shareholder'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 shareholder'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 were filed with the SCC and the Federal Reserve in February 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.
<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 Incentive Stock Option
Plans will be adopted by the Holding Company in accordance with the terms of the
Plans. A vote for the Reorganization will be deemed a vote in favor of the
Incentive 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
will purchase 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.
<PAGE>
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 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 the 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 shareholder'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 Shareholder'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
Shareholder'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 Shareholder'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.
<PAGE>
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 Shareholder's
rights. Any stockholder who 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 certain
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 Board 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
<PAGE>
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.
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 shareholder's equity
interest in the Holding Company will be the same as the shareholder'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 do not
have preemptive rights, whereas the stockholders of the Bank did have such
rights. Preemptive rights allows 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 Serial Preferred Stock. The Articles
of Incorporation proposed for the Holding Company authorize the issuance of
2,000,000 shares of Serial Preferred Stock, par value $5.00 per share, compared
to only 500,000 shares of Serial 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 Serial 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 Serial Preferred Stock to
help deter hostile takeover attempts by assigning certain rights and preferences
to the Serial 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 serial
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.
<PAGE>
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. 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.
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..................................... 0 0
Stockholders' Equity
Common Stock.......................................... 5,666,088 150
Surplus............................................... 2,887,618 450
Undivided Profits..................................... 8,279,343 0
Unrealized Gains/Losses on AFS Securities (48,182) 0
----------------- ---------------
Total Equity Capital....................................... 16,784,867 600
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Pro Forma
---------
Holding Company
Combined
Bank with the Bank
---- -------------
<S> <C>
After the Reorganization
Number of Shares of Common 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.....................................
Stockholder' Equity(3)
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 6 organizing directors of
the Holding Company, Messrs. Dunton, Roberts, Conley, Creager, Gosse and
Sanders, each have purchased five shares of Holding Company stock at $20
per share. These shares will be redeemed by the Holding Company at $20 per
share after 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 BHCA of 1956, 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. 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.
<PAGE>
It will be required to file an application with the Federal Reserve for prior
approval to become 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
<PAGE>
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:
<TABLE>
<CAPTION>
Class I Class II Class III
------- -------- ---------
<S> <C>
William A. Creager Austin L. Roberts, III Weston F. Conley, Jr.
Ammon G. Dunton, Jr. W. Bruce Sanders Thomas A. Gosse
</TABLE>
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
Stock Corporation Act (the "Virginia Act") as in effect from time to time. As of
July 1, 1987, the Virginia Act 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 of 1933 may be permitted to directors, officers or persons controlling the
<PAGE>
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.
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 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.
Management understands that several transfers have occurred since
year-end in which the price per share ranged from $22 to $______. To the best
knowledge of management, the most recent trade in Bank stock was on
___________________, in the amount of _____ shares at a sales price of $______
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 stock 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 Serial 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 Serial 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 Serial Preferred
Stock to help deter hostile takeover attempts by assigning certain rights and
preferences to the Serial Preferred Stock that will make it more difficult for a
third party to gain control of the Holding Company.
<PAGE>
There are currently no plans nor do the Boards of Directors of the
Holding Company or Bank anticipate any need to issue shares of Serial Preferred
Stock of the Holding Company following the Reorganization.
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
Bank of Lancaster (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 County 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 areas principal industries include; agriculture, fishing, boat
repair, resorts, health care, general retail, financial, construction, and
services directed toward the retirement community.
The 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 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 the mortgage
loan customers to include customers of the Bank and the other financial
institutions which have an equity interest in the agency.
As of December 31, 1996, a total of 61 were employed by the Bank, of
whom 4 were part-time. The Bank considers relations with its employees to be
excellent.
<PAGE>
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 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:
Name and Age Present Position
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
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 the preferred stock is 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. Holders 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
<PAGE>
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.
ELECTION OF DIRECTORS
Directors
The Bank's Board consists of 12 directors divided into three classes,
consisting of four directors each who serve 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
William A. Creager (64) 1994 Founder, Former President and Chairman of Capital
Systems Group
Thomas A. Gosse (50) 1994 Principal of Braun, Dehnert, Clarke & Co., P.C.
Austin L. Roberts, III (50) 1990 President and Chief Executive Officer of the Bank
</TABLE>
<PAGE>
Other Directors Not Standing for Re-election at this time:
1998 Class (Directors Serving Until the 1998 Annual Meeting):
<TABLE>
<S> <C>
John J. Cardwell (64) 1989 Manager of American Standard Insurance Company
Weston F. Conley, Jr. (62) 1979 President and Manager of RCV Seafood Corporation
A. Wayne Saunders (60) 1992 CPA and President of A. Wayne Saunders, P.C.
Mary M. Willey (71) 1986 Retired, formerly served as Vice President of Bank of
Lancaster
</TABLE>
1999 Class (Directors Serving Until the 1999 Annual Meeting):
<TABLE>
<S> <C>
David W. Cheek (48) 1995 General Manager of Kilmarnock Motor Sales
Ammon G. Dunton, Jr. (61) 1977 Senior Partner of Dunton, Simmons & Dunton
W. T. James, III (67) 1979 Chairman and Chief Executive Officer of Northern Neck
Insurance
W. Bruce Sanders (46) 1983 Owner and President of Rappahannock Yachts
</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 11 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 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
<PAGE>
detail all reports of examination issued by regulatory authorities. During 1996
the Audit Committee held 4 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 5 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 1 time during 1996.
Directors' Compensation
Non-officer directors of the Bank received $125.00 for each meeting of
the Bank's Board of Directors. In addition, non-officer directors of the Bank
are paid a retainer fee of $2,000.00 annually. Directors of the Bank receive the
following fees for attendance at the following committee meetings: (a) $100.00
for each meeting of the Executive, Loan, Nominating and Governance, Audit,
Trust, Investment, Compensation, and ESOP Administration Committee; (b) $50.00
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.
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.
<PAGE>
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 Percent
Name Beneficial 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........... 104,827 9.3%
</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 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.
<PAGE>
(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 Company Common Stock.
(4) Includes 8,000 shares that may be acquired pursuant to currently
exercisable stock options granted under the Company's Stock Option Plan.
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
---------------------
Securities
Name and Annual Compensation (1) 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 0 1,500 6,862
Executive Officer 1994 96,000 0 0 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 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:
1996 1995 1994
---- ---- ----
401(k) Plan $ 2,745 $ 2,362 $ 2,182
ESOP 6,656 4,500 4,312
----- -------- --------
TOTAL $ 9,401 $ 6,862 $ 6,494
(4) The grant is subject to certain performance criteria being achieved. As
of this filing there has not been a determination of whether the
granted shares were earned.
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.
<PAGE>
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
Underlying Granted to Exercise Potential
Options Employees Price per Expiration Realizable Value (2)
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) Shares are subject to certain performance criteria being achieved. As
of this filing there has not been a determination of whether the
granted shares were deemed 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' shares are subject to certain performance
criteria being achieved. As of this filing there has not been a
determination of whether the granted shares were deemed 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 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
<PAGE>
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 company 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 and the 1994 Plan. Each 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 Plans and agreement entered into with
each optionee. The price of shares of stock to be issued upon the exercise of
options will be 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. The 2,735 remaining shares have expired and are not eligible for
grant. 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 Service (IRS) Code and an Employee Ownership Plan under Section
4975(E)(7) of the IRS 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.
<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 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
<PAGE>
any other general or unsecured senior liability, subordinated liability, general
creditor or stockholder. 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.
<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
<PAGE>
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 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 institutions 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.
<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.
<PAGE>
EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION is made and entered into as
of February __, 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, shareholders 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,
<PAGE>
however, for capital contributions, normal earnings and expenses, and other
capital changes between December 31, 1996 and the Effective Date.
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. Shareholders 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 shareholders 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 shareholders of such party or by
the mutual consent of the respective boards of directors of the Holding Company
and the Bank after any shareholder 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 shareholders.
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
<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;
<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
<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.
<PAGE>
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.
<PAGE>
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, Whitestone, Virginia. The name of the
town in which the initial registered office is located is Whitestone, 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 ___, 1997
/s/ Ammon G. Dunton, Jr.
------------------------
Ammon G. Dunton, Jr.
Incorporator
<PAGE>
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
<PAGE>
sale for cash 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
<PAGE>
respect to all 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
<PAGE>
person 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;
<PAGE>
3. A statement of the dissenters' right to demand payment under
ss.13.1-739; and
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
<PAGE>
article. If the court determines that such shareholder has not complied with the
provisions of this article, he shall be dismissed as a party.
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.
<PAGE>
Part II -- Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
As permitted by the Virginia Stock Corporation Act (Virginia Code
sections 13.1-601 et seq.) (the "Act"), the Registrant's Articles of
Incorporation provides:
Each director and officer shall be indemnified by 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 so to 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 to be liable
by reason of having been guilty of gross negligence or willful
misconduct in the performance of his duties as such director or
offices. In the event of any other judgment against such director or
officer or in the event of a settlement, the indemnification shall be
made only if the corporation shall be advised, in case none of the
persons involved shall be or has been a director of the corporation, by
the Board of Directors, and otherwise by independent counsel to be
appointed by the Board of Directors, that in its or his opinion such
director or officer was not guilty of gross negligence or willful
misconduct in the performance of his duties and, in the event of a
settlement, that such settlement was, or if still to be made is, in the
best interests of the corporation. If the determination is to be made
by the Board of Directors, it may rely, as to all questions of law, on
the advice of independent counsel. Every reference herein to director
or officer shall include every director or officer or former director
or officer of the corporation and every person who may have served at
its request as a director or officer of another corporation in which
the corporation owns shares of stock or of which it is a creditor or,
in case of a non-stock corporation, to which the corporation
contributes and, in all of such cases, his executors and
administrators. The right of indemnification hereby provided shall not
be exclusive of any other rights to which any director or officer may
be entitled. The aforesaid indemnification shall also apply to an
employee or agent of the corporation.
Section 13.1-698 of the Act provides:
Unless limited by its Articles of Incorporation, a corporation
shall indemnify a director who entirely prevails in the defense of any
proceeding to which he is a party because he is or was a director of
the corporation against reasonable expenses incurred by him in
connection with the proceeding.
Section 13.1.702 of the Act extends such rights to indemnification to officers
of the corporation.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibit Index
Exhibit No. Description of Exhibit
1 Not Applicable
<PAGE>
Exhibit No. Description of Exhibit
2 Agreement and Plan of Reorganization, dated February
20, 1997, between Bay Banks of Virginia, Inc., filed
as Exhibit A to the Proxy Statement/Prospectus
included in this Registration Statement.
3.1 Articles of Incorporation of the Registrant.
3.2 Bylaws of the Registrant.
5 Opinion of LeClair Ryan, A Professional
Corporation, regarding the legality of the
securities being registered and consent.
8 Form of tax opinion of LeClair Ryan, A
Professional Corporation, regarding the tax-free
nature of the proposed transaction.
10 Bank of Lancaster Incentive Stock Option Plan
23 Consent of LeClair Ryan, (included as part of Exhibit
5).
99 Form of proxy of Bank of Lancaster.
(b) No financial statement schedules are required to be filed
herewith pursuant to Item 21(b) of this Form.
Item 22. Undertakings
(a) Item 512 of Regulation S-B.
Rule 415 offerings. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of
the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any additional or changed material
information with respect to the plan of distribution.
(2) That, for the purpose of determining any liability under
the Securities Act of 1933, to treat each post-effective amendment as a new
registration statement of the securities offered, and the offering of the
securities at that time to be the initial bona fide offering.
<PAGE>
(3) To file a post-effective amendment to remove from
registration any of the securities that remain unsold at the end of the
offering.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the Town of Kilmarnock,
Commonwealth of Virginia on February 20, 1997.
BAY BANKS OF VIRGINIA, INC.
By: /s/ Austin L. Roberts, III
_______________________________________
Austin L. Roberts, III, President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints
Austin L. Roberts, III, and Paul T. Sciacchitano, and each of them singly, as
his or her true and lawful attorneys-in-fact and agents, with full power of
substitution, for him or her and in his or her name, place and stead, in any and
all capacities, to sign any and all registration statements or applications to
the Securities and Exchange Commission, the regulatory authorities of any state
in the United States or any other regulatory authorities as may be necessary to
permit shares of Common Stock of the Company to be offered in the United States
in connection with the proposed reorganization of Bank of Lancaster into a one
bank holding structure, including without limitation any and all amendments or
post-effective amendments to this registration statement, and to file the same,
with all exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission or any other such regulatory authority,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite or necessary to be done to
enable Bay Banks of Virginia, Inc. to comply with the provisions of the
Securities Act of 1933, and all requirements of the Securities and Exchange
Commission as well as all other laws, rules and regulations relating to the
offer and sale of securities.
Signature Capacity Date
--------- -------- ----
/s/ Ammon G. Dunton
- ------------------------- Chairman of the Board February 20, 1997
Ammon G. Dunton and Director
/s/ Austin L. Roberts, III
- ------------------------- President (Principal February 20, 1997
Austin L. Roberts, III Executive Officer) and
Director
<PAGE>
/s/ Paul T. Sciacchitano
- ------------------------- Treasurer (Principal February 20, 1997
Paul T. Sciacchitano Financial and Accounting
Officer)
/s/ Weston F. Conley, Jr.
- ------------------------- Director February 20, 1997
Weston F. Conley, Jr.
/s/ William A. Creager
- ------------------------- Director February 20, 1997
William A. Creager
/s/ Thomas A. Gosse
- ------------------------- Director February 20, 1997
Thomas A. Gosse
/s/ W. Bruce Sanders
- ------------------------- Director February 20, 1997
W. Bruce Sanders
-2-
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;
(f) the amount payable upon shares in the event of voluntary
liquidation;
<PAGE>
(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 incorporation of this Corporation,
<PAGE>
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.
<PAGE>
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.
<PAGE>
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, Whitestone, Virginia. The name of the
town in which the initial registered office is located is Whitestone, 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 ___, 1997
/s/ Ammon G. Dunton, Jr.
----------------------------
Ammon G. Dunton, Jr.
Incorporator
BY-LAWS
OF
BAY BANKS OF VIRGINIA, INC.
<PAGE>
Article I
Stock
Section 1. Certificates. Certificates evidencing stock shall be issued
to each stockholder in such form as may be approved by the Board of Directors.
Certificates shall be signed by the Chairman or President and by the Secretary
or Assistant Secretary. No certificates shall be issued until the same shall
have been paid for in full.
Section 2. Transfers of Stock. All transfers of stock shall be made
upon its books by surrender of certificates for the shares transferred,
accompanied by an assignment in writing executed by the holder. The assignment
may be accomplished either by the holder in person or by duly authorized
attorney in fact.
Section 3. Lost Certificates. In case of loss, mutilation or
destruction of a certificate of stock, a duplicate certificate may be issued
upon such terms not in conflict with the law as the Board of Directors may
prescribe.
Article II
Stockholders
Section 1. Annual Meeting. The annual meeting of stockholders
will be held at l:00 p.m. on the third Monday of May of each year, or such
other date as the Board of Directors may designate, at such place as may be
provided in the notice of the meeting.
Section 2. Special Meetings. Special meetings may be called by
the Chairman of the Board, the President, or a majority of the Board of
Directors.
Section 3. Notice of Meetings. Except as otherwise required by law,
notice of meetings, whether regular or special, shall be prepared and mailed by
the Secretary or an Assistant Secretary to each stockholder at his address of
record, not less than ten (10) days before any meeting; and in the case of a
special meeting, such notice shall state the purpose of the meeting.
Section 4. Quorum and General Voting at Stockholders Meetings. A quorum
at any meeting of stockholders shall consist of sixty percent (60%) of the
shares entitled to vote, represented in person or by proxy. Except as provided
in Section 2 of Article VI of the Articles of Incorporation, sixty percent (60%)
vote of such quorum shall decide any question that may come before the meeting.
Each stockholder shall be entitled to one vote in person or by proxy for each
share entitled to vote standing in his name on the books of the company. The
Chairman of the meeting may appoint one or more inspectors of the election to
determine the qualification of votes, the validity of proxies and the results of
ballots.
<PAGE>
Section 5. Stockholders Proposals. To be properly brought before a
meeting of stockholders, business must be (1) specified in the notice of meeting
(or any supplement thereto) given by or at the direction of the Board of
Directors, (2) otherwise properly brought before the meeting by or at the
direction of the Board of Directors or (3) otherwise properly brought before the
meeting by a stockholder. In addition to any other applicable requirements, for
business to be properly brought before an Annual Meeting by a stockholder, the
stockholder must have given timely notice thereof in writing to the Secretary of
the Corporation. To be timely, a stockholder's notice must be given, either by
personal delivery or by United States registered or certified mail, postage
prepaid, to the Secretary of the Corporation not later than 120 days prior to
the date of the anniversary of the immediately preceding Annual Meeting. A
stockholder's notice to the Secretary shall set forth as to each matter the
stockholder proposes to bring before the Annual Meeting (1) a brief description
of the business desired to be brought before the Annual Meeting, including the
complete text of any resolutions to be presented at the Annual Meeting with
respect to such business, and the reasons for conducting such business at the
meeting, (2) the name and address of record of the stockholder proposing such
business, (3) the class and number of shares of the Corporation that are
beneficially owned by the stockholder and (4) any material interest of the
stockholder in such business. In the event that a stockholder attempts to bring
business before an Annual Meeting without complying with the foregoing
procedure, the Chairman of the meeting may declare to the meeting that the
business was not properly brought before the meeting and, if he shall so
declare, such business shall not be transacted.
Article III
Directors
Section 1. General Powers. The business and affairs of the
Corporation shall be managed by the Board of Directors, subject to any
requirement of stockholder action.
Section 2. Eligibility. No person shall be eligible for election
as director if he or she will attain the age of seventy-two (72) years prior
to the last year of his or her term. Only stockholders may be elected
directors.
Section 3. Number of Directors. The Board of Directors shall consist of
six (6) members, who shall be divided into three classes with respect to terms
of office, each class to contain one-third of the directors.
Section 4. Nominations. Nominations for the election of directors shall
be made by the Board of Directors or by any shareholder entitled to vote in the
election of directors generally. However, any shareholder entitled to vote in
the election of directors generally may nominate one or more persons for
election as directors at a meeting only if written notice of such shareholder's
intent to make such nomination or nominations has been given, either by personal
delivery or by United States mail, postage prepaid, to the Secretary of the
Corporation not later than (i) with respect to an election to be held at an
Annual Meeting of stockholders, one hundred twenty (120) days prior to the date
<PAGE>
of the anniversary of the immediately preceding Annual Meeting, and (ii) with
respect to an election to be held at a special meeting of shareholders for the
election of Directors, the close of business on the seventh day following the
date on which notice of such meeting is first given to shareholders. Each notice
shall set forth: (a) the name and address of the shareholder who intends to make
the nomination and of the person or persons to be nominated; (b) a
representation that the shareholder is a holder of record of stock of the
Corporation entitled to vote at such meeting and intends to appear in person or
by proxy at the meeting to nominate the person or persons specified in the
notice; (c) a description of all arrangements or understandings between the
shareholder and each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are to be made by
the shareholder; (d) such other information regarding each nominee proposed by
such shareholder as would be required to be included in a proxy statement filed
pursuant to the proxy rules of the Securities and Exchange Commission, had the
nominee been nominated, or intended to be nominated, by the Board of Directors;
and (e) the consent of each nominee to serve as director of the Corporation if
so elected. The Chairman of the meeting may refuse to acknowledge the nomination
of any person not made in compliance with the foregoing procedure.
Article IV
Directors Meetings
Section 1. Meetings. Regular meetings of the Board of Directors shall
be held quarterly on the third Wednesday of each February, May, August and
November at such time and place as the Chairman of the Board shall designate;
provided, however, that the May meeting shall be held immediately following the
Annual Meeting of stockholders. The May meeting shall be the annual
organizational meeting of the board and at that meeting officers shall be
elected and committees appointed for the ensuing year.
Section 2. Special Meetings. Special meetings of the board may be
held on the call of the Chairman of the Board, the President or any three (3)
directors.
Section 3. Notice. Notices of regular or special meetings shall be
mailed by the Secretary or Assistant Secretary to each member of the board, not
less than three (3) days prior to such meeting, and in the case of special
meetings, stating the purpose therefore.
Section 4. Quorum. A majority of the directors shall constitute
a quorum for the transaction of business of the directors. The act of the
majority of the directors present at a meeting in which a quorum is present
shall be the act of the Board of Directors.
<PAGE>
Article V
Directors Committees
Section 1. Executive Committee. The Board of Directors by resolution
may designate an Executive Committee, which shall include the Chairman of the
Board and the President and such other members of the Board of Directors as they
select. The Executive Committee shall have and may exercise all authority of the
Board of Directors except to amend or repeal these By-laws and adopt new
By-laws, to approve an amendment to the Articles of Incorporation, a plan of
merger or exchange, a transaction involving the sale of all or substantially all
of the Corporation's assets other than in regular course of business, or a plan
of dissolution. The Executive Committee shall keep its minutes and provide
copies of the same at the next meeting of the Board of Directors.
Section 2. Nominating and Governance Committee. The Chairman shall
appoint a Nominating and Governance Committee which shall recommend to the Board
of Directors nominees for the Board of Directors, shall review By-laws, proxy
statements and proxies to be distributed to stockholders, and shall review
policies and practices regarding shareholder voting. The Chairman of the Board
and President of all subsidiary banks shall be among the nominees for the Board
of Directors, and each shall be subject to removal if he or she ceases to hold
such office in a subsidiary bank.
Section 3. Audit Committee. There shall be an Audit Committee composed
of the Auditor (if one shall be elected) and not less than three (3) directors,
elected by the Board of Directors, who shall have the responsibility of seeing
that the Corporation and its subsidiaries are audited regularly. It shall make
periodic reports to the Board of Directors. Such report shall state whether
adequate internal audit controls and procedures are being maintained and shall
recommend to the Board of Directors such changes in the manner of audit controls
and procedures as the Committee deems advisable.
Section 4. Other Committees. Other committees, consisting of directors,
officers or employees of the Corporation may be designated by resolution of the
Board of Directors from time to time. Such committees shall have the duties set
forth in the resolutions creating such committees.
Article VI
Officers
Section 1. Election and Removal. The Board of Directors, at its
organization meeting each year, shall elect a Chairman of the Board and a
President (both of whom shall be directors) and also a Secretary and Treasurer.
The Board may elect an Executive Vice President, one or more Vice Presidents, an
Assistant Secretary, an Auditor, and such other officers as may be necessary or
desired to carry out the business of the Corporation. The term of office of each
officer shall continue until the annual meeting of the Board of Directors
following the next Annual Meeting of stockholders and until their respective
successors are elected, but any officer may be removed at any time by the vote
of the Board of Directors. If any office becomes vacant during the year, the
Board of Directors at its discretion may fill the same for the unexpired term.
The Board of Directors shall also fix the compensation of officers of the
Corporation as well as their own compensation.
<PAGE>
Section 2. Chairman of the Board. The Chairman of the Board shall be an
ex-officio member of all committees of the Board and shall preside at all
meetings of the stockholders and the Board of Directors, and the Executive
Committee, if any. During the absence or disability of the President, he shall
exercise all the powers and discharge all the duties of the President.
Section 3. President. The President shall be the Chief Executive
Officer of the Corporation and shall be responsible for the general supervision
of its affairs and shall have all the powers and duties as are normally
delegated to the office of the Chief Executive Officer. In addition he shall be
an ex officio member of all committees. In the absence or disability of the
Chairman of the Board, the President shall perform the duties of such office.
Section 4. Executive Vice President. The Executive Vice President,
if any, shall perform such duties as may be assigned to him by the Board of
Directors.
Section 5. Secretary. The Secretary shall have charge of the seal,
stock transfer books and all certificates of stock of the Corporation. The
Secretary shall see that proper notice is given of all meetings of stockholders,
shall record the minutes of such meetings and the minutes of the meetings of the
Board of Directors and its committees, and shall act under the general
supervision of the Chairman of the Board.
Section 6. Treasurer. The Treasurer shall have charge of and be
responsible for all funds, securities, and other financial assets of the
Corporation. He shall be responsible for maintaining adequate and proper
financial records in accordance with generally accepted accounting practices,
for preparation of financial statements, for the preparation and filing of all
tax returns and reports required by law or regulations, and for the performance
of all duties incident to the office of Treasurer and such other duties as may
from time to time be assigned to him by the Board of Directors, President and
Executive Vice President, if any.
Section 7. Auditor. The Auditor, if any, shall exercise supervision
of and shall be responsible for the efficient operation of the auditing of
the Corporation and its subsidiaries. He or she shall report to the Board of
Directors and its Audit Committee.
Section 8. Other Officers. Other officers may be elected by the
Board of Directors, and shall have such duties as the Board by resolutions
shall prescribe.
Article VII
Corporate Seal
The seal of the Corporation shall be circular and shall have inscribed
thereon, within and around the circumference, the following: "Bay Banks of
Virginia, Inc." and in the center shall be the figures "1997".
<PAGE>
Article VIII
Amendments
These By-laws may be amended or repealed and new By-laws may be made at
any regular or special meeting of the Board of Directors by a majority of the
Board, provided, however, any changes in the By-laws thus effected shall be
reported annually to the stockholders at the time of the mailing of the notice
of the stockholders' Annual Meeting. By-laws made by the directors may be
repealed or changed and new By-laws may be made by two-thirds of those entitled
to vote at the stockholders' Annual Meeting. Any stockholder or group of
stockholders who wish to have a By-law repealed or amended shall comply with all
notice requirements of these Bylaws and adhere to all applicable regulations of
the Securities and Exchange Commission and the Federal Reserve System.
[LeClair Ryan Letterhead]
February 28, 1997
Bay Banks of Virginia, Inc.
100 South Main Street
Kilmarnock, Virginia 22482
Ladies and Gentlemen:
We have acted as counsel to Bay Banks of Virginia, Inc., a Virginia
corporation (the "Holding Company"), in connection with the preparation of the
Registration Statement on Form S-4 of the Holding Company (the "Registration
Statement") filed with the Securities and Exchange Commission (the
"Commission"), relating to the registration under the Securities Act of 1933, as
amended (the "Securities Act"), of a maximum of 1,133,216 shares (the "Shares")
of the Holding Company's common stock, par value $5.00 per share, issuable
pursuant to the Agreement and Plan of Reorganization, dated as of February 20,
1997 (the "Agreement"), by and between the Holding Company and Bank of Lancaster
(the "Bank"), whereby each share of common stock, par value $5.00 per share of
the Bank ("Bank Common Stock") will be exchanged for one share of Holding
Company common stock pursuant to the terms set forth in the Agreement.
In connection with this opinion, we have considered such questions of
law as we have deemed necessary as a basis for the opinions set forth below, and
we have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the following: (i) the Registration
Statement; (ii) the Articles of Incorporation and By-laws of the Holding
Company, as currently in effect; (iii) certain resolutions of the Board of
Directors of the Holding Company relating to the issuance of the Shares and the
other transactions contemplated by the Registration Statement; (iv) the
Agreement; and (v) such other documents as we have deemed necessary or
appropriate as a basis for the opinion set forth below. In our examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such copies. As to any facts material to this
opinion that we did not independently establish or verify, we have relied upon
<PAGE>
February 28, 1997
Page 2.
statements and representations of officers and other representatives of the
Holding Company and others.
Based upon the foregoing, we are of the opinion that if and when issued
in exchange for shares of Bank Common Stock pursuant to the terms of the
Agreement and under the circumstances contemplated by the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
The law covered by the opinion set forth above is limited to the laws
of the Commonwealth of Virginia and the federal law of the United States of
America.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the reference to our name under
the caption "Legal Matters" in the Proxy Statement/Prospectus constituting a
part of the Registration Statement.
Sincerely,
LECLAIR RYAN
A Professional Corporation
By: /s/George P. Whitley
George P. Whitley
Vice President
[LECLAIR RYAN LETTERHEAD]
FORM OF TAX OPINION
March ___, 1997
Bank of Lancaster Bay Banks of Virginia, Inc.
100 South Main Street 100 South Main Street
Kilmarnock, Virginia 22482 Kilmarnock, Virginia 22482
Reorganization of Bank of Lancaster
into a One-Bank Holding Company Structure
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the reorganization and share exchange to be effected among Bay
Banks of Virginia, Inc., a Virginia corporation (the "Holding Company"), Bank of
Lancaster, a Virginia banking corporation (the "Bank"), and the holders of the
Bank's issued and outstanding shares of common stock pursuant to an Agreement
and Plan of Reorganization, dated as of February 20, 1997 (the "Agreement"), by
and between the Holding Company and the Bank.
The Reorganization Transaction
Pursuant to the Agreement and subject to various regulatory approvals,
the Bank will become a wholly-owned subsidiary of the Holding Company pursuant
to a statutory share exchange under the provisions of, and with the effect
provided in, Title 13.1 of the Code of Virginia (the "Reorganization"). As a
result of the Reorganization, the Holding Company will become the parent holding
company of the Bank, and the Bank will continue to conduct its business in
substantially the same manner as prior to the Reorganization.
At the effective date of the Reorganization, each outstanding share of
common stock of the Bank ("Bank Common Stock") will be exchanged for and
converted into one share of common stock of the Holding Company ("Holding
Company Common Stock").
<PAGE>
LeClair Ryan
March ___, 1997
Page 2.
Examination
In connection with the preparation of this opinion, we have examined
such documents concerning the Reorganization as we have deemed necessary. We
have based our conclusions on the Internal Revenue Code of 1986 (the "Code") and
the regulations promulgated pursuant thereto, each as amended from time to time
and in effect as of the date hereof, as well as existing judicial and
administrative interpretations thereof.
As to various questions of fact material to our opinion, we have relied
upon the representations made in the Agreement as well as the additional
representations set forth below.
Additional Representations
In connection with the proposed Share Exchange, the following
additional representations have been made to and relied upon by us in the
preparation of this opinion:
A. The fair market value of Holding Company Common Stock received by
the Bank's shareholders will be approximately equal to the fair market value of
the Bank Common Stock to be surrendered in exchange therefor.
B. To the best knowledge of the management of the Bank, there is no
plan or intention on the part of the Bank's shareholders to sell or otherwise
dispose of Holding Company Common Stock received by them in the Reorganization
that will reduce their holdings of Holding Company Common Stock to a number of
shares having in the aggregate a fair market value of less than 50 percent of
the fair market value of all of the Bank Common Stock held by the Bank's
shareholders on the effective date of the Reorganization.
C. The Holding Company has no plan or intention to reacquire
any Holding Company Common Stock issued in the Reorganization.
D. There is no plan or intention to sell or otherwise dispose of any of
the assets of the Bank, except for dispositions made in the ordinary course of
business or transfers described in Section 368(a)(2)(C) of the Code, the Bank
has no plan or intention to issue additional shares of its capital stock that
would result in the Holding Company's ceasing to own 80 percent of the voting
power of all the Bank voting stock and 80 percent of each class of any the Bank
nonvoting stock, and the Holding Company has no plan to liquidate the Bank, to
merge the Bank into another corporation, or to sell or otherwise dispose of any
of the Bank stock acquired in the Reorganization.
E. Each party to the Reorganization will pay its own expenses,
if any, incurred in connection with the Reorganization.
<PAGE>
LeClair Ryan
March ___, 1997
Page 3.
F. Following the Reorganization, the Holding Company will continue
the historic business of the Bank.
G. No property will be transferred and no liabilities will be assumed
in the Reorganization.
H. There is no intercorporate indebtedness existing between or among
the Holding Company and the Bank that was issued, acquired or will be settled at
a discount, and in acquiring the Bank Common Stock, the Holding Company will not
assume any liability or take the Bank Common Stock subject to any liability.
I. No dividends or other distributions will be made with respect to
Bank Common Stock immediately before the Reorganization, except for regular,
normal distributions.
J. None of the shares of Holding Company Common Stock received by a
shareholder-employee of the Bank in exchange for Bank Common Stock pursuant to
the Reorganization constitutes or is intended to be compensation for services
rendered, and will not be separate consideration for, or allocable to, any
employment agreement or relationship. None of the compensation received by a
shareholder-employee of the Bank will be separate consideration for, or
allocable to, any of such shareholder-employee's Bank Common Stock. In addition,
any compensation paid to any shareholder-employee of the Bank will constitute
and be intended as compensation for services actually rendered and bargained for
at arm's length, and will be commensurate with amounts paid to third parties
bargaining at arm's-length for similar services.
K. No two parties to the Reorganization are investment companies as
defined in Section 368(a)(2)(F)(iii) and (iv) of the Code, and for each of the
Holding Company and the Bank, less than 50 percent of the fair market value of
its total assets (excluding cash, cash items, government securities, and stock
and securities in any 50 percent or greater subsidiary) consists of stock and
securities.
L. The Bank is not under the jurisdiction of a court in a Title 11
or similar case within the meaning of Section 368(a)(3)(A) of the Code.
M. Any cash payments to the Bank shareholders who elect to dissent from
the Reorganization pursuant to Article 15 of the Virginia Stock Corporation Act
shall be paid by the Bank or funded from its assets and shall not be
attributable directly or indirectly to the Holding Company.
N. Upon the consummation of the Reorganization, the Bank will not have
outstanding any warrants, options, convertible securities, or any other type of
right pursuant to which any person could acquire any Bank Common Stock.
<PAGE>
LeClair Ryan
March ___, 1997
Page 4.
O. The Holding Company does not own directly or indirectly, nor
has it directly or indirectly owned during the past 5 years, any Bank Common
Stock..
Opinion
Based upon the foregoing, and with due regard to such legal
considerations as we deem necessary, we are of the opinion that for federal
income tax purposes:
1. The Share Exchange will constitute and qualify as a "reorganization"
within the meaning of Section 368(a)(1)(B) of the Code, provided that all cash
payments to dissenting Bank shareholders are made by the Bank or from its own
funds or assets, and are not directly or indirectly attributable to the funds or
assets of the Holding Company (see Revenue Ruling 68-285, 1968-1 C.B. 147. Each
of the following opinions below assume that the foregoing proviso of this
opinion 1 are satisfied.
2. No gain, other income or loss will be recognized by the Holding
Company (pursuant to Section 1032 of the Code) or the Bank as a result of the
Reorganization.
3. Shareholders of the Bank who receive solely Holding Company Common
Stock in exchange for their shares of Bank Common Stock will recognize no gain
or loss as a result of the Reorganization, as provided in Section 354(a)(1) of
the Code.
4. A dissenting the Bank shareholder who receives solely cash in
exchange for his Bank Common Stock will be treated as receiving a distribution
in redemption of his Bank Common Stock, subject to the provisions and
limitations of Section 302(a) of the Code. Where, as a result of such
distribution, a Bank shareholder no longer holds any shares of Holding Company
Common Stock directly and, furthermore, is not deemed to own any such shares
pursuant to the constructive ownership rules under Section 318 of the Code, the
distribution will be treated as a complete termination of such shareholder's
interest within the meaning of Section 302(b)(3) of the Code and will be treated
as a distribution in full payment in exchange for the shareholder's shares
pursuant to Section 302(a) of the Code.
5. The tax basis of Holding Company Common Stock received by Bank
shareholders who exchange their Bank Common Stock solely for Holding Company
Common Stock will be the same as the tax basis of the Bank Common Stock
surrendered in exchange therefor, as provided in Section 358(a)(1) of the Code.
6. The holding period of Holding Company Common Stock received by the
Bank's shareholders will include the period during which the Bank Common Stock
surrendered in exchange therefor was held by such Bank shareholders, provided
the Bank Common Stock was held as a capital asset on the date of the exchange.
<PAGE>
LeClair Ryan
March ___, 1997
Page 5.
This opinion is based upon the provisions of the Code, as interpreted
by regulations, administrative rulings, and case law, in effect as of the date
hereof.
This opinion is made in connection with the Reorganization and is
solely for the benefit of the Holding Company, the Bank and the Bank's
shareholders. It may not be relied upon in any other manner or by any other
person.
Very truly yours,
LeClair Ryan
A Professional Corporation
By: /s/ George P. Whitley
--------------------------
George P. Whitley
Vice President
BANK OF LANCASTER
1994 INCENTIVE STOCK OPTION PLAN
The Bank of Lancaster, a Virginia banking corporation (the "Bank"),
hereby adopts the following as its 1994 Incentive Stock Option Plan (the `Plan):
1. Purpose. The purpose of the Plan is to provide added incentive for
high levels of performance by selected key officers and employees of the Bank.
The Plan is intended to provide a financial reward by means of ownership of Bank
stock for those employees who achieve specified goals, which in turn are likely
to enhance the value of the Bank's stock for the benefit of stockholders. The
availability of incentive stock options is expected to increase the ability of
the Bank to attract and retain individuals of exceptional skill upon whom, in
large measure, the sustained progress, growth and profitability of the Bank
depend. It is intended that incentive stock options granted under this Plan
shall conform to the requirements of Section 422 of the Internal Revenue Code of
1986 as amended from time to time (the "`Code"). The proceeds received by the
Bank from the sale of common stock pursuant to this Plan will be used for
general corporate purposes of the Bank.
2. Stock Subject to the Plan. The maximum numbers of shares of common
stock which may be issued pursuant to the exercise of options granted under the
Plan shall not exceed, in the aggregate, 37,500 shares, except as may be
adjusted pursuant to Paragraph 8. To the extent that options granted under the
Plan terminate or expire without having been exercised, new options may be
granted with respect to the shares covered by the terminated or expired options.
Upon the exercise of any option, the Bank shall deliver authorized and unissued
shares of its common stock. There shall be reserved at all times for the Plan a
number of shares of authorized but unissued common stock equal to the maximum
number of shares which may be purchased pursuant to all options which have been
or may be granted under the Plan, less the number of shares theretofore issued
under the Plan.
3. Administration. The Board of Directors of the Bank shall appoint
from among its members a Compensation Committee (the "Committee") consisting of
at least three directors who are not employees of the Bank. The Committee shall
have authority and responsibility to select officers or other key employees of
the Bank who would respond to the stimulus of the appreciation in the value of
the stock of the Bank subject to the options and who are in a position to cause
major improvements in the growth and profitability of the Bank and thereby
possibly increase in value of the Bank's common stock. The Committee shall
assign performance targets for each person selected to participate in the Plan
within designated time limitations, as well as the number of shares that may be
purchased under each option in the event that the target is achieved within the
appointed time. In any one calendar year, the Committee shall not grant options
for more than 7,500 shares of the Bank's stock. The Committee shall also
establish the option price of such shares in accordance with Paragraph 5 and any
other terms and provisions which it deems necessary or advisable for
administering the Plan. The Committee shall have complete authority to interpret
all provisions of this Plan, to prescribe the form of agreements, to adopt,
amend or rescind rules and regulations pertaining
<PAGE>
to the administration of the Plan, and to make all determinations necessary or
advisable for the administration of the Plan. All expenses of administering the
Plan shall be borne by the Bank. The decisions of the Committee shall be binding
and conclusive for all purposes and upon all persons unless and except to the
extent that the Board of Directors of the Bank shall have previously limited the
scope of action of the Committee.
4. Eligibility for Participation. The Committee may select
from officers of the Bank (whether or not directors) and other key employees of
the Bank those persons who shall be eligible to participate in the Plan.
5. Grant of Options and Price. Each option granted under the Plan shall
be evidenced by an agreement specifying the performance target and time period
to achieve that target which is required in order to earn a right to exercise
the option; it shall also specify the number of shares of stock that may be
purchased upon exercise, and such other terms and conditions as the Committee
shall determine. The price for the shares of stock to be issued upon the
exercise of the option shall be at least 100% of the fair market value of the
common stock on the date on which the grant is made, provided; however; that in
the case of an incentive stock option granted to an individual who may own more
than 10% of the total voting power of the Bank, the option price shall be at
least 110% of the fair market value at the time of the grant of the option. Fair
market value shall be determined by the Committee in its best judgment;
provided, however, that in determining such fair market value the Committee
shall comply with any rules or regulations that may be promulgated by the
Internal Revenue Service for such determinations. The option price is subject to
adjustment by the Committee in the event of an adjustment of shares as provided
in Paragraph 8.
6. Certain Required Provisions of Option Agreements. The
following provisions, specified by Section 422 (b) of the Code, shall be
included in all option agreements, in addition to other provisions required by
the Committee:
a. The option shall not be exercisable after the expiration of
ten (10) years from the date such option is granted; provided, however, the
Committee may impose a shorter term for any participant, and shall require that
any participant who owns more than 10% of the total voting power of the Bank
shall not have an option exercisable after the expiration of five years from the
date such option is granted.
b. The option shall be granted on or before the
date of the annual meeting of stockholders of the Bank to be held in 2003.
c. The option price is not less than the fair market
value of the stock at the time such option is granted.
d. The option shall not be transferable by any person to whom
it is granted otherwise than by will or the laws of descent and distribution,
and shall be exercisable during the participant's s lifetime only by him, or
after his death, by his executor or administrator, only as hereinafter provided.
<PAGE>
7. Exercise of Options. An option may be exercised in whole or in part
upon the delivery to the Bank of written notice of exercise, in such form as the
Committee may prescribe, accompanied by payment for the common stock in full. No
participant shall sell stock of the Bank obtained through the exercise of an
option within two years of the date of grant of the option or within one year
after the date of exercise, whichever shall be later, unless the Bank shall be
notified and shall consent. No participant shall, as a result of receiving an
option, have any rights as a stockholder until the date such participant
exercises the option. No option may be exercised unless the participant has
achieved the performance objectives specified in the option agreement, within
the time specified therein, and is then employed by the Bank and shall have been
continuously employed by the Bank since the date of grant of the option, except
as specified in this Paragraph 7. Any unexercised portion of any option shall
automatically and without notice terminate and become null and void on the
earlier to occur of the following:
a. The expiration of three months from the date of
termination of the participant's employment with the Bank, except in the case
of disability or death.
b. The expiration of six months following the death of
the participant, if his death occurs during his employment with the Bank or
during the three month period following the date of termination of such
employment.
c. The expiration of twelve months from the date of
termination of employment with the Bank solely resulting from the disability
of the participant.
d. Immediately upon termination of the participant's
employment with the Bank if the Committee determines that such termination is
attributable to the participant's commission of a felony or misdemeanor or
deliberate gross misconduct against the Bank.
e. Such time as may be specified in the option agreement.
Notwithstanding the foregoing, no option shall be exercisable after
termination of employment unless the participant shall have during the time
period in which his or her option is exercisable (a) refrained from becoming or
serving as an officer, director or employee of a banking business in competition
with the Bank in the trading area in which the Bank is operating, (b) made
himself available, if requested by the Bank, to consult with and supply
information to and otherwise cooperate with the Bank, and (c) refrain from
engaging in deliberate actions which cause substantial harm to the interests of
the bank, as determined by the Committee. If these conditions are not fulfilled,
the participant shall forfeit all rights to any unexercised option as of the
date of the breach of the condition.
8. Adjustment Upon Change in Common Stock. If the Bank effects one or
more stock dividends, stock splits, subdivisions, or consolidations of shares,
or similar changes in capitalization, the maximum number of shares as to which
the options may be granted annually or in the aggregate under the Plan shall be
proportionately adjusted. The Committee shall
<PAGE>
likewise equitably adjust the terms of options previously granted. Any
determination made under this article by the Committee shall be final and
conclusive. No options shall be affected, however, by the issuance of shares of
stock of the Bank for cash or other property, or upon conversion of securities
convertible into the common stock of the Bank.
9. Limitation. No employee eligible to participate herein shall be
granted options to purchase stock which are exercisable during any one calendar
year, to the extent that the fair market value of such shares (determined at the
time of the grant of the option) exceeds $100,000. No employee shall be given
the opportunity to exercise options granted hereunder with respect to shares
valued in excess of $100,000 in any calendar year, except and to the extent that
the options shall have accumulated over a period in excess of one year.
10. Compliance with Applicable Law. No option shall be exercisable, no
common stock shall be issued, no certificates for shares of common stock shall
be delivered, and no payment shall be made under this Plan except in compliance
with all applicable federal and state laws and regulations, including, without
limitation, securities laws and withholding tax requirements. This Plan shall
further be construed so as to be in compliance with the granting of incentive
stock options as defined in Section 422(b) of the Code. The Committee shall
require such additional agreements, legends, and other statements as it may deem
advisable in order to assure compliance with federal and state laws and
regulations, including the Code.
11. Amendment of the Plan. The Board of Directors of the Bank may, from
time to time, amend or modify the Plan, including such amendments as may be
required to conform to rules and regulations as may be promulgated by the
Internal Revenue Service; provided, however, that, unless the stockholders of
the Bank shall consent, no amendment shall be made which will (a) increase the
total number of shares reserved for options under the Plan (except for
adjustments as provided in Paragraph 8), (b) change the minimum option price
hereinabove specified, (c) change any provision relating to eligibility of
employees, or (d) extend the maximum period of exercise beyond the date
specified.
Rights and obligations under any option granted before an amendment or
modification of the Plan shall not be altered or impaired without the consent of
the person to whom the option was granted.
12. Approval by Stockholders Required; Termination or Suspension of the
Plan. The Plan shall not become effective until approved by the stockholders of
the Bank. Thereafter, the Board of Directors may suspend or terminate the Plan
at any time. The Plan shall, in all events, terminate the day after the annual
meeting of stockholders of the Bank to be held in 2003. No options may be
granted while the Plan is suspended or after it has been terminated. However,
rights and obligations under any option granted while the Plan is in effect
shall not be altered or impaired by suspension or termination of the Plan
without the consent of the person to whom such option was granted and the
Committee's powers under the Plan shall continue in effect with respect to such
outstanding options.
<PAGE>
13. Construction and Governing Law. The Plan and options granted
thereunder shall be governed by and construed in accordance with the laws of
the Commonwealth of Virginia in accordance with such federal law as may be
applicable.
BANK OF LANCASTER
This Proxy is solicited on behalf of the Board of Directors
The undersigned, revoking all prior proxies, hereby appoints Ammon G.
Dunton, Jr. and Austin L. Roberts, III, or either of them, as proxies with full
power of substitution to represent the undersigned and vote, as designated
below, all the shares of common stock of the Bank of Lancaster held of record by
the undersigned on March 7, 1997, at the Annual Meeting of Stockholders to be
held on April 28, 1997, or any adjournment thereof, on each of the following
matters:
1. To approve an Agreement and Plan of Reorganization, dated as of
February 20, 1997, between the Bank of Lancaster and Bay Banks of
Virginia, Inc., a newly-formed Virginia corporation established to
serve as the holding company for the Bank, providing for the
reorganization of the Bank into a bank holding company structure as
described in the accompanying Proxy Statement.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
(Has the same effect as a vote Against)
2. Election of directors.
[ ] FOR all Nominees listed below [ ] WITHHOLD AUTHORITY TO VOTE FOR
THOSE INDICATED BELOW
Fletcher L. Brown, III Thomas A. Gosse
William A. Creager Austin L. Roberts, III
NOTE: You may line through the name of any individual nominee for
whom you wish to withhold your vote.
3. To ratify the selection by the Audit Committee of the Board of
Directors of Eggleston, Smith, P.C., independent certified public
accountants, as auditors of the Bank for 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the meeting. The Board of
Directors has not been notified of any such matters.
This proxy, when properly executed, will be voted in the manner
directed by the undersigned shareholder. If no direction is made, this proxy
will be voted "FOR" each proposal. All joint owners MUST sign.
Please sign exactly as your name appears on the reverse side of this
proxy card. When signing as attorney, executor, administrator, trustee or
guardian, please give full title as such.
DATED ______________________ ___________________________________________
Signature
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NUMBER OF SHARES Signature (if jointly owned)
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PLEASE MARK, SIGN, DATE AND RETURN THIS PROXY PROMPTLY IN THE ENCLOSED ENVELOPE.
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