As filed with the Securities and Exchange Commission on __________________
Registration No. 333-_____
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------
Form S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
-----------------------------
MAINSTREET BANKGROUP INCORPORATED
(Exact name of registrant as specified in its charter)
VIRGINIA 6711 54-1046817
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation) Classification Code Number) Identification No.)
200 East Church Street
Martinsville, Virginia 24112
(540) 666-6724
(Address, including zip code, and telephone number,
including area code, of registrant's principal
executive offices)
Rebecca J. Jenkins
Executive Vice President and Secretary
200 East Church Street
Martinsville, Virginia 24112
(540) 666-3272
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
-----------------------------
<PAGE>
Copies to:
Douglas W. Densmore Ariel Vannier
Flippin, Densmore, Morse, Venable, Baetjer, Howard &
Rutherford & Jessee Civiletti, LLP
300 First Campbell Square 1201 New York Avenue, N.W.
Roanoke, Virginia 24011 Suite 1000
(540) 510-3000 Washington, DC 20005
(202) 962-4800
Approximate date of commencement of proposed
sale to the public: From time to time after the
effective date of this Registration Statement.
If the securities being registered on this form are
being offered in connection with the formation of a
holding company, check the following box. [ ]
CALCULATION OF REGISTRATION FEE
======================================================================
<TABLE>
<CAPTION>
Title of each class Proposed Proposed Proposed maximum Amount of
of securities to be Amount to be maximum offering aggregate offering Registration
registered registered(1) price per unit(2) price(2) Fee
<S> <C>
- -----------------------------------------------------------------------------------------------------------------------
Common Stock (3) 887,128 shs $14.50 $12,863,356 $3,795
======================================================================
</TABLE>
(1) This Registration Statement covers the maximum number of shares of
common Stock of the Registrant which are expected to be issued in
connection with the transactions described herein.
(2) Estimated in accordance with Rule 457(f)(1) for the purpose of
calculating the registration fee, with the value of Tysons
Common Stock (as defined below) being exchanged in the
transaction for BankGroup Common Stock (as defined below) being
based upon the market value of Tysons Common Stock at December
29, 1997, the latest practical date prior to filing.
(3) The Rights to Purchase Participating Cumulative Preferred
Stock, Series A will be attached to and will trade with shares
of the Common Stock of MainStreet BankGroup Incorporated.
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 THAT THE REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY
DETERMINE.
MAINSTREET BANKGROUP INCORPORATED
CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
Item of Form S-4 Location in Prospectus
<S> <C>
1 Forepart of Facing Page; Cross Reference
Registration Statement Sheet; Outside Front Cover
and Outside Front Cover Page of Prospectus
Page of Prospectus
2 Inside Front and Inside Front Cover Page of
Outside Back Cover Prospectus; Table of Contents;
Pages of Prospectus Available Information;
Incorporation of Certain
Information by Reference
3 Risk Factors, Ratio of Summary; Comparative Per Share
Earnings to Fixed Data
Charges and Other
Information
4 Terms of the Summary; The Merger;
Transaction Comparative Rights of Shareholders;
Annex A
5 Pro Forma Financial Not Applicable
Information
6 Material Contacts with Not Applicable
the Company Being
Acquired
7 Additional Information Not Applicable
Required for Reoffering
by Persons and Parties
Deemed to be
Underwriters
<PAGE>
8 Interests of Named Not Applicable
Experts and Counsel
9 Disclosure of Not Applicable
Commission Position
on Indemnification for
Securities Act Liabilities
10 Information with Available Information;
Respect to S-3 Incorporation of Certain
Registrants Information by Reference
Summary; MainStreet BankGroup
Incorporated
11 Incorporation of Incorporation of Certain
Certain Information by Information by Reference
Reference
12 Information with Not Applicable
Respect to S-2 or S-3
Registrants
13 Incorporation of Incorporation of Certain
Certain Information by Information by Reference
Reference
14 Information with Not Applicable
Respect to Registrants
Other than S-2 or S-3
Registrants
15 Information with Not Applicable
Respect to S-3
Companies
16 Information with Not Applicable
Respect to S-2 or S-3
Companies
17 Information with Summary; Supervision and
Respect to Companies Regulation; Tysons; Market
other than S-2 or S-3 for and Dividends Paid on
Companies Tysons Common Stock; Experts
<PAGE>
18 Information if Proxies, Incorporation of Certain
Consents or Information By Reference;
Authorizations are to Summary -- Shareholder
be Solicited Meeting; The Merger
19 Information if Proxies, Not Applicable
Consents or
Authorizations are not
to be Solicited, or in
an Exchange Offer
</TABLE>
<PAGE>
Dear Shareholders:
You are cordially invited to attend the Special Meeting of
Shareholders of Tysons Financial Corporation ("Tysons") on January 30,
1998 at 10:00 a.m., Eastern Time, at Tysons' main office at 8200
Greensboro Drive, Suite 100, McLean, Virginia. This is a very important
meeting regarding your investment in Tysons.
The purpose of the meeting is to consider and vote upon the
Agreement and Plan of Merger, dated as of July 25, 1997, by and between
Tysons and MainStreet BankGroup Incorporated ("BankGroup") (the
"Agreement") and the related Plan of Merger between Tysons and MB Corp.
(the "Plan") pursuant to which, among other things, MB Corp., a Virginia
corporation and a wholly owned subsidiary of BankGroup, will be merged
with and into Tysons (the "Merger") as a result of which, Tysons will
survive the Merger and become a subsidiary of BankGroup. In the Merger,
each share of Tysons Common Stock will be converted into the right to
receive shares of Common Stock of BankGroup, as described in the
accompanying Proxy Statement/Prospectus. Your Board of Directors
unanimously recommends that you vote in favor of the Agreement and the
Plan, which the Board believes is in the best interests of shareholders
of Tysons.
Enclosed Is A Notice Of The Special Meeting Of Shareholders, A
Proxy Statement/Prospectus Containing A Discussion Of The Agreement And
The Merger And A Proxy Card. PLEASE COMPLETE, SIGN AND DATE THE ENCLOSED
PROXY CARD AND RETURN IT AS SOON AS POSSIBLE EITHER IN THE ENVELOPE
PROVIDED OR, IF YOU PREFER, VIA FACSIMILE.
IF YOU DECIDE TO ATTEND THE SPECIAL MEETING, YOU MAY VOTE YOUR SHARES
IN PERSON WHETHER OR NOT YOU HAVE PREVIOUSLY SUBMITTED A PROXY. IT IS IMPORTANT
THAT YOU UNDERSTAND THAT THE AGREEMENT AND THE PLAN MUST BE APPROVED BY THE
HOLDERS OF AT LEAST TWO-THIRDS OF ALL OUTSTANDING SHARES OF COMMON STOCK OF
TYSONS ENTITLED TO VOTE AT THE SPECIAL MEETING, AND THAT THE FAILURE TO VOTE
WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE PROPOSAL. ON BEHALF OF THE
BOARD, THANK YOU FOR YOUR ATTENTION TO THIS IMPORTANT MATTER.
____________ ___, 1997 By Order of the Board of Directors
-------------------------------
Terrie G. Spiro
President and Chief Executive Officer
<PAGE>
TYSONS FINANCIAL CORPORATION
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON JANUARY 30, 1998
The Special Meeting of Shareholders (the "Meeting") of Tysons Financial
Corporation ("Tysons") will be held at Tysons' main office at 8200 Greensboro
Drive, Suite 100, McLean, Virginia, on the 30th of January, 1998 at 10:00 a.m.
(local time) and at any adjournment thereof for the following purposes:
1. To consider and vote on the Agreement and Plan of Merger between Tysons and
MainStreet BankGroup Incorporated and the related Plan of Merger between Tysons
and MB Corp.
2. To consider such other matters as properly may come before the Meeting or any
adjournment of the Meeting.
Only holders of record of Tysons Common Stock at the close of business
on December 29, 1997, will be entitled to notice of and to vote at the Meeting.
A Proxy Statement/Prospectus and a Proxy solicited by the Board of
Directors are enclosed. Please sign, date and return the Proxy promptly to
Tysons either in the enclosed postage-paid reply envelope or, if you prefer, via
facsimile. This will not prevent you from voting in person, should you desire to
do so, but will help to secure a quorum and will assist us in preparing for the
Meeting.
All shareholders are cordially invited to attend the Meeting.
By Order of the Board of Directors
Terrie G. Spiro
President and Chief Executive Officer
_______________, 1997
WHETHER OR NOT YOU EXPECT TO ATTEND THE MEETING, PLEASE COMPLETE, DATE AND SIGN
THE ENCLOSED PROXY AND PROMPTLY MAIL IT IN THE ENCLOSED ENVELOPE OR SEND IT VIA
FACSIMILE IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES AT THE MEETING.
<PAGE>
TYSONS FINANCIAL CORPORATION
8200 GREENSBORO DRIVE
SUITE 100
MCLEAN, VIRGINIA 22102
PROXY STATEMENT
FOR SPECIAL MEETING OF SHAREHOLDERS
To Be Held on January 30, 1998
This Proxy Statement/Prospectus and accompanying proxy is furnished in
connection with the solicitation of proxies by the Board of Directors (the
"Tysons Board") of Tysons Financial Corporation ("Tysons") for use at the
Special Meeting of Shareholders (the "Meeting") to be held on January 30, 1998,
and at any adjournment thereof, for the purposes set forth in the accompanying
Notice of Annual Meeting of Shareholders. All proxies will be voted in
accordance with the instructions contained in the proxies. If no choice is
specified, proxies will be voted FOR the approval of the Agreement and Plan of
Merger between Tysons and MainStreet BankGroup Incorporated ("BankGroup") and
the related Plan of Merger between Tysons and MB Corp. and, at the proxy
holder's discretion, on any other manner that may properly come before the
Meeting. Any shareholder may revoke a proxy given pursuant to this solicitation
prior to the Meeting by delivering an instrument revoking it or by delivering a
duly executed proxy bearing a later date to the Secretary of Tysons. A
shareholder may elect to attend the Meeting and vote in person even if he or she
has a proxy outstanding.
The cost of soliciting proxies will be borne by Tysons. In addition to
solicitations by mail, officers and regular employees of Tysons and Tysons
National Bank (the "Bank") may solicit proxies personally and by telephone,
telecopy or other means, for which they will receive no compensation in addition
to their normal compensation. Arrangements may also be made with brokerage
houses and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons and Tysons may reimburse them for their reasonable out-of-pocket and
clerical expenses.
Tysons has fixed December 29, 1997, as the record date (the "Record
Date") for determining the shareholders entitled to notice of and to vote at the
Meeting. At the close of business on the Record Date, there were outstanding and
entitled to vote 1,071,619 shares of common stock of Tysons, par value $5.00 per
share (the "Tysons Common Stock"), with each share being entitled to one vote. A
majority of the outstanding shares of Common Stock represented at the Meeting,
in person or by proxy, will constitute a quorum.
This Proxy Statement and the accompanying form of proxy were first
mailed to shareholders on or about _____________________, 1997.
<PAGE>
Any shareholder or shareholder's representative who, because of a
disability, may need special assistance to allow him or her to participate in
the special meeting of shareholders may request reasonable assistance from
Tysons by contacting Tysons Financial Corporation, Attention: Elissa A. Felix,
8200 Greensboro Drive, Suite 100, McLean, Virginia 22102, telephone (703)
556-0015, fax (703) 556-0023. To provide Tysons sufficient time to arrange for
reasonable assistance, please submit all requests by January 21, 1998.
THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE FOR THE APPROVAL OF THE
AGREEMENT AND PLAN OF MERGER BETWEEN TYSONS FINANCIAL CORPORATION AND MAINSTREET
BANKGROUP INCORPORATED AND THE RELATED PLAN OF MERGER BETWEEN TYSONS FINANCIAL
CORPORATION AND MB CORP.
PROSPECTUS OF
MAINSTREET BANKGROUP INCORPORATED
Common Stock
- ---------------
This Proxy Statement/Prospectus is being furnished to the holders of
Common Stock, par value $5.00 per share ("Tysons Common Stock"), of Tysons
Financial Corporation ("Tysons"), a Virginia corporation, in connection with the
solicitation of proxies by the Board of Directors of Tysons (the "Tysons Board")
for use at the Special Meeting of Tysons Shareholders to be held at 10:00 a.m.,
Eastern Time on January 30, 1998, at Tysons' main office at 8200 Greensboro
Drive, Suite 100, McLean, Virginia (the "Tysons Shareholder Meeting" or the
"Special Meeting").
At the Tysons Shareholder Meeting, shareholders of record of Tysons
Common Stock as of the close of business on December 29, 1997, will consider and
vote upon a proposal to approve the Agreement and Plan of Merger, dated as of
July 25, 1997 (the "Agreement"), by and between MainStreet BankGroup
Incorporated, a Virginia corporation ("BankGroup"), and Tysons, and the related
Plan of Merger between Tysons and MB Corp. (the "Plan"), pursuant to which,
among other things, MB Corp., a Virginia corporation and wholly owned subsidiary
of BankGroup, will be merged with and into Tysons (the "Merger") as a result of
which Tysons will survive the Merger and become a subsidiary of BankGroup. Upon
consummation of the Merger, which is expected to occur in the first quarter of
1998, each outstanding share of Tysons Common Stock (other than Excluded Shares
as defined in the Agreement) shall be converted into and represent the right to
receive a number of shares of Common Stock of BankGroup, par value $5.00 per
share ("BankGroup Common Stock"), determined by the Exchange Ratio, subject to
adjustment as set forth in the Agreement.
This Prospectus is also being furnished to the holders of
options granted to directors in such capacity to purchase Tysons Common
Stock ("Directors Options") for review in connection with the exchange
of their Directors Options for BankGroup Common Stock, as determined by
the Option Ratio, subject to adjustment as detailed within the
Agreement. For a description of the Agreement, which is included herein
as Annex A to this Proxy Statement/Prospectus, see "The Merger."
---------------
<PAGE>
This Proxy Statement/Prospectus and the accompanying proxy card are
first being mailed to shareholders of Tysons on or about __________ __, 1997.
---------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE. THE SHARES OF BANKGROUP COMMON STOCK OFFERED
HEREBY ARE NOT SAVINGS ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENT
AGENCY.
---------------
The date of this Proxy Statement/Prospectus is ________ __, 1997.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
AVAILABLE INFORMATION .................................................................................... 1
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE......................................................... 2
SUMMARY ................................................................................................. 2
Parties to the Merger............................................................................ 2
Tysons Shareholder Meeting....................................................................... 3
Vote Required; Record Date....................................................................... 3
The Merger....................................................................................... 3
Conversion of ISOs............................................................................... 4
The Exchange Ratio............................................................................... 4
The Warrant Exchange Ratio....................................................................... 4
Exchange of Directors Options.................................................................... 4
Recommendation of the Tysons Board;
Reasons for the Merger........................................................................... 5
Merger Effective Date............................................................................ 6
Dissenters' Appraisal Rights..................................................................... 6
Opinion of Financial Advisor..................................................................... 6
Conditions to Consummation....................................................................... 7
Conduct of Business Pending the Merger........................................................... 7
Interests of Certain Persons in the Merger....................................................... 7
Resale of BankGroup Common Stock................................................................. 7
Certain Federal Income Tax Consequences of the Merger............................................ 8
Market Prices Prior to Announcement of the Merger................................................ 8
Comparative Per Share Data....................................................................... 8
SELECTED FINANCIAL DATA................................................................................... 10
TYSONS FINANCIAL CORPORATION.............................................................................. 15
Management's Discussion and Analysis of
Financial Condition and Results of Operations.................................................... 15
Business of Tysons............................................................................... 36
Lending Activities............................................................................... 38
Competition...................................................................................... 40
Employees........................................................................................ 40
Description of Property.......................................................................... 40
Legal Proceedings................................................................................ 41
<PAGE>
VOTING INFORMATION........................................................................................ 41
THE MERGER ............................................................................................... 42
Background of the Merger......................................................................... 42
Opinion of Financial Advisor..................................................................... 43
Merger Effective Date............................................................................ 47
Lock-Up Option................................................................................... 47
Determination of Exchange Ratio; Exchange of Tysons
Common Stock for BankGroup Common Stock.......................................................... 47
Business of Tysons Pending the Merger............................................................ 48
Conditions to Consummation of the Merger......................................................... 49
Termination...................................................................................... 49
Operations After the Merger...................................................................... 49
Interests of Certain Persons in the Merger....................................................... 49
Indemnification; Liability Insurance............................................................. 51
Employee Benefits................................................................................ 51
Exchange of Tysons Warrants...................................................................... 52
Exchange of Directors Options.................................................................... 52
Conversion of ISOs............................................................................... 52
Certain Federal Income Tax Consequences.......................................................... 53
Dissenters' Appraisal Rights..................................................................... 54
MAINSTREET BANKGROUP INCORPORATED......................................................................... 54
General ........................................................................................ 54
The BankGroup Banks.............................................................................. 55
Recent Development............................................................................... 57
PRICE RANGE OF BANKGROUP COMMON STOCK AND DIVIDENDS....................................................... 58
TYSONS FINANCIAL CORPORATION.............................................................................. 59
Description of Business.......................................................................... 59
MARKET FOR COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS.................................................................................... 59
Market Information............................................................................... 59
Holders ........................................................................................ 60
Dividends........................................................................................ 60
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS OF TYSONS STOCK.................................................... 60
Security Ownership of Certain Beneficial Owners and Management................................... 60
Vote Required to Approve Matters................................................................. 63
<PAGE>
REGULATION AND SUPERVISION................................................................................ 63
Bank Holding Companies........................................................................... 64
Capital Regulations.............................................................................. 66
Limits on Dividends and Other Payments........................................................... 68
Supervision of State Banks....................................................................... 70
Supervision by Risk of National Bank............................................................. 70
Community Reinvestment Act....................................................................... 70
Deposit Insurance................................................................................ 71
Safety and Soundness Regulations................................................................. 71
Transactions with Affiliates and Insiders........................................................ 71
Other Regulations................................................................................ 72
Uniform Financial Institution Ratings System ("UFIRS")........................................... 72
Governmental Monetary Policies and Economic Controls............................................. 72
Recent Legislative Developments.................................................................. 73
DESCRIPTION OF CAPITAL STOCK OF BANKGROUP................................................................. 73
Preferred Stock.................................................................................. 73
BankGroup Common Stock........................................................................... 74
Rights .......................................................................................... 74
Virginia Stock Corporation Act................................................................... 76
Reports to Shareholders.......................................................................... 77
Transfer Agent................................................................................... 77
COMPARATIVE RIGHTS OF SHAREHOLDERS........................................................................ 77
Capitalization................................................................................... 77
Amendment of Articles or Bylaws.................................................................. 77
Required Shareholder Vote for Certain Actions.................................................... 78
Director Nominations............................................................................. 78
Directors and Classes of Directors; Vacancies and
Removal of Directors............................................................................. 79
Anti-Takeover Provisions......................................................................... 80
Preemptive Rights................................................................................ 80
Assessment....................................................................................... 81
Conversion; Redemption; Sinking Fund............................................................. 81
Liquidation Rights............................................................................... 81
Dividends and Other Distributions................................................................ 81
Indemnification.................................................................................. 81
Shareholder Proposals............................................................................ 83
Shareholder Inspection Rights; Shareholder Lists................................................. 83
Shareholder Rights Plan.......................................................................... 84
Dissenters' Appraisal Rights..................................................................... 84
RESALE OF BANKGROUP COMMON STOCK.......................................................................... 84
EXPERTS .................................................................................................. 84
LEGAL OPINIONS ........................................................................................ 85
OTHER MATTERS ........................................................................................ 85
INDEX TO FINANCIAL STATEMENTS............................................................................. F-1
ANNEX A -- Agreement and Plan of Merger dated July 25, 1997
ANNEX B -- Fairness Opinion of Scott & Stringfellow, Inc.
</TABLE>
<PAGE>
AVAILABLE INFORMATION
BankGroup is subject to the reporting and informational requirements of
the Securities Exchange Act of 1934 (the "Exchange Act") and in accordance
therewith files reports, proxy statements and other information with the
Securities and Exchange Commission (the "SEC"). Reports, proxy statements and
other information filed with the SEC can be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at its Regional Offices located at Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60611-2511
or Seven World Trade Center (13th Floor), New York, New York 10048. Copies of
such material can be obtained from the Public Reference Section of the SEC at
450 Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The SEC
also maintains a web site that contains reports, proxy statements, information
statements and other information regarding registrants that file electronically,
including BankGroup and Tysons, with the SEC at HTTP:\\www.SEC.GOV. Such
reports, proxy statements and other information also may be inspected at the
offices of the National Association of Securities Dealers, Inc. (the "NASD")
located at 1735 K Street, N.W., Washington, D.C. 20006 for BankGroup. As
permitted by the Rules and Regulations of the SEC, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is
a part, and exhibits thereto (together with the amendments thereto, the
"Registration Statement"), which has been filed by BankGroup with the SEC under
the Securities Act of 1933 (the "1933 Act") with respect to BankGroup Common
Stock and to which reference is hereby made.
No person has been authorized to give any information or to make any
representation other than as contained herein in connection with the offer
contained in this Proxy Statement/Prospectus, and if given or made, such
information or representation must not be relied upon as having been authorized
by BankGroup or Tysons. This Proxy Statement/Prospectus does not constitute an
offer to sell or a solicitation of an offer to buy any securities other than the
securities to which it relates, nor does it constitute an offer to or
solicitation of any person in any jurisdiction to whom it would be unlawful to
make such an offer or solicitation. Neither the delivery of this Proxy
Statement/Prospectus nor the distribution of any of the securities to which this
Proxy Statement/Prospectus relates shall, at any time, imply that the
information herein is correct as of any time subsequent to the date hereof.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO BANKGROUP THAT ARE NOT PRESENTED HEREIN OR DELIVERED
HEREWITH. BANKGROUP DOCUMENTS ARE AVAILABLE WITHOUT CHARGE UPON REQUEST FROM
REBECCA J. JENKINS, EXECUTIVE VICE PRESIDENT AND SECRETARY, MAINSTREET BANKGROUP
INCORPORATED, 200 EAST CHURCH STREET, MARTINSVILLE, VIRGINIA 24112, (540)
666-3272. IN ORDER TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUESTS
SHOULD BE MADE BY JANUARY 22, 1998.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed by BankGroup are incorporated by
reference in this Proxy Statement/Prospectus: (i) BankGroup's Annual Report on
Form 10-K for the year ended December 31, 1996; (ii) BankGroup's Quarterly
Reports on Form 10-Q for the quarters ended March 31, 1997, June 30, 1997 and
September 30, 1997; (iii) the description of BankGroup Common Stock in
BankGroup's registration statement filed under the Exchange Act with respect to
BankGroup Common Stock, including all amendments and reports filed for the
purpose of updating such description; and (iv) BankGroup's Current Reports on
Form 8-K, filed on July 8, 1997, August 5, 1997, November 7, 1997 and December
4, 1997.
All documents filed by BankGroup pursuant to Sections 13(a), 13(c), 14
or 15(d) of the Exchange Act subsequent to the date hereof and prior to the date
of Tysons Shareholder Meeting are hereby incorporated by reference in this Proxy
Statement/Prospectus and shall be deemed a part hereof from the date of filing
of such documents. Any statement contained in any supplement hereto or in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of the Registration Statement
and this Proxy Statement/Prospectus to the extent that a statement contained
herein, in any supplement hereto or in any subsequently filed document which
also is or is deemed to be incorporated by reference herein modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of the
Registration Statement, this Proxy Statement/Prospectus or any supplement
hereto.
Also incorporated by reference is the Agreement and Plan of Merger
between BankGroup and Tysons, dated July 25, 1997, which is attached to this
Proxy Statement/Prospectus as Annex A.
SUMMARY
The following summary is not intended to be a complete description of
all material facts regarding BankGroup, Tysons and the matters to be considered
at the Tysons Shareholder Meeting and by the holders of Tysons Directors Options
and is qualified in all respects by the information appearing elsewhere or
incorporated by reference in this Proxy Statement/Prospectus, the Annexes hereto
and the documents referred to herein. Shareholders and Option holders are urged
to read carefully all such information.
Parties to the Merger
BankGroup. The main office of BankGroup is located at 200 East
Church Street, Martinsville, Virginia 24112 and its telephone number is
(540) 666-6724. See "MainStreet BankGroup Incorporated."
<PAGE>
Tysons. The main office of Tysons is located at 8200
Greensboro Drive, Suite 100, McLean, Virginia 22102 and its telephone
number is (703) 556-0015. See "Tysons Financial Corporation."
Tysons Shareholder Meeting
Tysons Shareholder Meeting will be held on January 30, 1998 at 10:00
a.m., Eastern Time, at Tysons' main office at 8200 Greensboro Drive, Suite 100,
McLean, Virginia, for the purpose of considering and voting upon a proposal to
approve the Agreement and the Plan and such other business as may properly come
before the meeting.
Vote Required; Record Date
Only Tysons shareholders of record at the close of business on December
29, 1997 (the "Record Date") are entitled to vote at the Tysons Shareholder
Meeting. The affirmative vote of the holders of at least two-thirds of the
Tysons Common Stock shares outstanding on such date is required to approve the
Agreement and the Plan. As of the Record Date, there were 1,071,619 shares of
Tysons Common Stock entitled to be voted, held by approximately 1,001
shareholders of record.
As explained in Note 13 under "Ownership by Certain Beneficial
Owners of Tysons Stock -- Security Ownership of Certain Beneficial Owners
and Management," the Trustees of the Tysons Financial Corporation
Employee Stock Ownership Security Ownership of Certain Beneficial Owners
and Management Plan ("ESOP"), as shareholders of record, will vote the
shares of Tysons Common Stock held by the ESOP Trust. Pursuant to the
provisions of the ESOP, the ESOP Trustees will vote these shares in
accordance with instructions from participating employees, which will be
collected in a confidential manner. Participating employees will be sent
the Proxy Statement/Prospectus under cover of certain Participant
Instructions. Participant voting instructions will be collected by
American Stock Transfer and Trust Company, 6201 - 15th Avenue, Brooklyn,
New York 11219.
Directors and executive officers of Tysons and their affiliates
beneficially owned, as of the Record Date, 254,245 shares or
approximately 23.7% of the 1,071,619 outstanding shares of Tysons Common
Stock. See "Ownership by Certain Beneficial Owners of Tysons Stock."
The Board of Directors of BankGroup has approved the Agreement and the
Plan. Approval of the Agreement and the Plan by BankGroup shareholders is not
required by applicable law or regulation.
The Merger
Pursuant to the Agreement, at the Merger Effective Date, as defined
herein under the heading "The Merger -- Merger Effective Date," MB Corp., a
Virginia corporation and a wholly owned subsidiary of BankGroup, will merge into
Tysons, Tysons will be the surviving corporation and as a result of the Merger,
Tysons will become a subsidiary of BankGroup in accordance with the Agreement.
At the Merger Effective Date, each outstanding share of Tysons Common Stock
(other than Excluded Shares as defined in the Agreement) will be converted into
the right to receive a number of shares of BankGroup Common Stock, determined by
the Exchange Ratio (defined below), subject to adjustment as set forth in the
Agreement.
<PAGE>
Conversion of ISOs
Options of employees of Tysons to purchase Tysons Common Stock ("ISOs")
shall be converted into options to purchase BankGroup Common Stock adjusted
according to the Exchange Ratio.
The Exchange Ratio
For the purpose of determining the Exchange Ratio, each outstanding
share of Tysons Common Stock has been valued at $14.50. The number of shares of
BankGroup Common Stock to be delivered for each share of Tysons Common Stock
will be determined by dividing $14.50 by the average of the bid/ask price per
share (the "Average BankGroup Share Price") for BankGroup Common Stock as
reported on the National Association of Securities Dealers Automated Quotation
("Nasdaq") National Market system for each of the 20 trading days preceding the
later to occur of (i) the shareholder approval(s) contemplated by Paragraph A of
Article VI of the Agreement and (ii) the expiration of the latest financial
institution regulatory approvals (but not the associated statutory waiting
periods) contemplated by Paragraph B of Article VI of the Agreement (the
"Exchange Ratio"). If such quotient is less than 0.507, the Exchange Ratio shall
be 0.507. If such quotient is greater than 0.620, the Exchange Ratio shall be
0.620. The Exchange Ratio will be adjusted to reflect any consolidation,
split-up, other subdivisions or combinations of BankGroup Common Stock, any
dividend payable in BankGroup Common Stock, or any capital reorganization
involving the reclassification of BankGroup Common Stock. See "The Merger --
Determination of Exchange Ratio; Exchange of Tysons Common Stock for BankGroup
Common Stock."
The Warrant Exchange Ratio
Each holder of Tysons Warrants shall be asked to enter into a written
agreement with Tysons, reasonably acceptable to BankGroup, to cause a
termination of its Warrants effective as of immediately prior to the closing of
the merger (the "Merger Closing"). It is expected that such holders, as of
immediately prior to the Merger Closing, will have either exercised their
Warrants or exchanged them for that number of shares of Tysons Common Stock per
Tysons Warrant equal to the percentage obtained by dividing (i) the difference
between $14.50 minus the strike price per warrant by (ii) $14.50 ("Warrant
Exchange Ratio"). The strike price for Tysons Warrants is $10.00 per share.
<PAGE>
Exchange of Directors Options
Not less than thirty (30) days prior to the closing of the Merger as
contemplated by Paragraph E of Article I of the Agreement (the "Merger
Closing"), each holder of a Directors Option shall have entered into a written
agreement with Tysons for the express benefit of and reasonably satisfactory to
BankGroup agreeing to accept as of the Merger Effective Date in full
satisfaction of the optionee's rights under such Directors Option that number of
shares of BankGroup Common Stock equal to the quotient obtained by dividing (y)
the difference between $14.50 minus the price per share at which the optionee
could have exercised his option rights under the terms of his Directors Option
("Strike Price"), by (z) the Average BankGroup Share Price ("Option Ratio"). If
the Option Ratio computed in accordance with the immediately preceding sentence
is less than the ratio ("Bottom Ratio") obtained by dividing (y) the difference
between $14.50 minus the Strike Price, by (z) $28.60, the Option Ratio shall be
the Bottom Ratio; if the Option Ratio computed in accordance with the
immediately preceding sentence is greater than the ratio ("Top Ratio") obtained
by dividing (y) the difference between $14.50 minus the Strike Price, by (z)
$23.40, the Option Ratio shall be the Top Ratio.
Recommendation of the Tysons Board;
Reasons for the Merger
Tysons' Board has determined that the Agreement and the Plan are in the
best interests of Tysons and its shareholders. Tysons Board was influenced by a
number of factors in arriving at this determination, though it did not assign
any specific or relative weight to these factors in its consideration. Among the
factors considered were:
(i) The Tysons Board believes that the Exchange Ratio provides a fair
price to Tysons' shareholders for their shares of Tysons Common Stock. Scott &
Stringfellow, Inc. ("Scott & Stringfellow"), Tysons' financial advisor,
concluded that terms of the Agreement are fair from a financial point of view to
Tysons' Shareholders. See "The Merger--Opinion of Financial Advisor."
(ii) The Merger is anticipated to be tax-free for federal income tax
purposes for the Shareholders of Tysons Common Stock (other than in respect to
cash paid in lieu of fractional shares).
(iii) The BankGroup Common Stock to be received in the Merger by Tysons
Shareholders has historically paid a dividend while no dividend has been paid on
Tysons Common Stock.
(iv) The Tysons Board also considered the marketability of BankGroup
Common Stock which is traded on the Nasdaq National Market, a more liquid market
than the Nasdaq SmallCap Market where Tysons Common Stock currently trades.
(v) The Merger will broaden the range of financial services and
products which Tysons offers and enhance its ability to provide credit and other
financial products in its market area.
(vi) The Merger will enhance Tysons' delivery system capability, thus
improving its services to its customers, including enhancing response time to
credit requests.
(vii) The Merger will strengthen Tysons' operational systems and allow
economies of scale to be achieved in administrative and related functions which
will be shared with other affiliates of BankGroup.
(viii) The Merger will allow Tysons to continue its community
philosophy.
(ix) The Merger will enhance the safety and soundness of Tysons'
operations.
(x) The Tysons Board also considered the strength and prospects of
BankGroup and BankGroup Common Stock.
Based on these matters, and such other matters as Tysons' Board deemed
relevant, Tysons Board unanimously adopted the Agreement and the Plan as being
in the best interests of Tysons and its shareholders.
TYSONS BOARD RECOMMENDS THAT TYSONS SHAREHOLDERS VOTE FOR APPROVAL OF
THE PROPOSAL.
Merger Effective Date
The Merger is expected to be consummated in the first quarter of 1998.
Subject to the terms and conditions set forth herein, including receipt of all
required regulatory approvals, the Merger shall become effective on the date and
time the Virginia State Corporation Commission ("SCC") issues a certificate of
merger reflecting the Merger (the "Merger Effective Date"). Tysons and BankGroup
each has the right, acting unilaterally, to terminate the Agreement should the
Merger not be completed by March 31, 1998. See "The Merger -- Termination."
Dissenters' Appraisal Rights
Under the Virginia Stock Corporation Act (the "VSCA"), a shareholder
does not have appraisal rights in certain circumstances, including a merger, if
such shareholder's stock is listed on a national exchange or is designated on
the Nasdaq System. As Tysons Common Stock is traded on the Nasdaq SmallCap
Market under the symbol "TYFC" and as Tysons shareholders will not receive
anything other than cash or shares of BankGroup Common Stock in the Merger,
dissenters' appraisal rights will not be available with respect to the Merger.
Opinion of Financial Advisor
Tysons has received the opinion of Scott & Stringfellow that the terms
of the Agreement are fair from a financial point of view to Tysons shareholders.
Scott & Stringfellow's opinion is directed only to the terms of the Agreement
and does not constitute a recommendation to any holders of Tysons Common Stock
as to how such holders of Tysons Common Stock should vote at the Tysons
Shareholder Meeting or as to any other matter. Scott & Stringfellow will be paid
a fee for its services at the closing of the Merger. For additional information
concerning Scott & Stringfellow and its opinion, see "The Merger -- Opinion of
Financial Advisor" and the opinion of such firm attached as Annex B to this
Proxy Statement/Prospectus.
Conditions to Consummation
Consummation of the Merger will be accomplished by the statutory merger
of MB Corp. into Tysons resulting in the acquisition of Tysons by BankGroup. The
Merger is contingent upon the approvals of the Board of Governors of the Federal
Reserve System (the "Federal Reserve Board") and the SCC, which approvals will
be or will be applied for as soon as practicable and are expected to be
received. The Merger is also subject to other usual conditions. See "The Merger
- -- Conditions to Consummation of the Merger."
Conduct of Business Pending the Merger
Pursuant to the terms of the Agreement, Tysons has agreed not to take
certain actions relating to the operation of its business pending consummation
of the Merger, without the prior approval of BankGroup, except as otherwise
permitted by the Agreement. See "The Merger -- Business of Tysons Pending the
Merger."
Interests of Certain Persons in the Merger
Certain members of Tysons' management and Tysons' Board have interests
in the Merger in addition to their interests as shareholders of Tysons
generally. These include, among other things, indemnification for ESOP Trustees,
indemnification and directors' and officers' liability insurance for Tysons
directors and officers, eligibility of Tysons employees for certain BankGroup
employee benefits, the effect of the Merger under Terrie G. Spiro's employment
agreement, the repayment of a loan to the ESOP from a member of the Tysons'
Board, exchange of Tysons Directors Options in return for shares of BankGroup
Common Stock, conversion of Tysons ISOs into options with respect to BankGroup
Common Stock and the exchange of Tysons Warrants for Tysons Common Stock. See
"The Merger -- Interests of Certain Persons in the Merger."
Resale of BankGroup Common Stock
Shares of BankGroup Common Stock received in the Merger will be freely
transferable by the holders thereof, except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and 10% or greater shareholders) of Tysons or
BankGroup under applicable federal securities laws. See "Resale of BankGroup
Common Stock."
<PAGE>
Certain Federal Income Tax Consequences of the Merger
The Merger is intended to qualify as a tax-free "reorganization" within
the meaning of section 368(a) of the Internal Revenue Code of 1986, as amended
(the "Code"), but the receipt of cash by a holder of Tysons Common Stock for any
shares of Tysons Common Stock, including cash received in lieu of a fractional
share of BankGroup Common Stock, will be a taxable transaction. A condition to
consummation of the Merger is the receipt by BankGroup and Tysons of an opinion
from Venable, Baetjer, Howard & Civiletti, LLP, counsel to Tysons, as to the
qualification of the Merger as a tax-free reorganization and certain other
Federal income tax consequences of the Merger. See "The Merger -- Certain
Federal Income Tax Consequences."
Market Prices Prior to Announcement of the Merger
The following is information regarding the last reported closing price
per share of BankGroup Common Stock on the Nasdaq National Market System on July
24, 1997, the date immediately preceding the Agreement on July 25, 1997. See
"Market for Common Equity and Related Stockholder Matters" for information
concerning recent market prices of Tysons Common Stock.
Tysons
Historical Equivalent
BankGroup Tysons Pro Forma(a)
Common Stock $27.875 $13.687 $7.117
(a) The equivalent price for Tysons Common Stock is the product of multiplying
an assumed Exchange Ratio of .520 shares of BankGroup Common Stock times
$13.687.
- ----------------
Comparative Per Share Data
The following table presents historical and pro forma per share data
for BankGroup, and historical and equivalent pro forma per share data for
Tysons. The pro forma combined amounts give effect to an assumed Exchange Ratio
of 0.509 shares of BankGroup Common Stock for each share of Tysons Common Stock
(based on the average of the bid/ask price of BankGroup Common Stock at the
close of business on September 30, 1997 of $28.50). The equivalent pro forma
Tysons share amounts allow comparison of historical information about one share
of Tysons Common Stock to the corresponding data about what one share of Tysons
Common Stock will equate to in the combined corporation and are computed by
multiplying the pro forma combined amounts by an assumed Exchange Ratio of
0.509. As discussed in "The Merger -- Determination of Exchange Ratio and
Exchange for BankGroup Common Stock," the final Exchange Ratio will be
determined based on the average of the bid/ask price per share for BankGroup
Common Stock as reported on the Nasdaq National Market System for each of the 20
trading days preceding the later to occur of (i) the shareholder approval(s)
contemplated by paragraph A of Article VI of the Agreement and (ii) the
expiration of the latest financial institution regulatory approvals (but not the
associated statutory waiting periods) contemplated by paragraph B of Article VI
of the Agreement. The following table is based on the assumption that all issued
and outstanding shares of Tysons Common Stock are converted into shares of
BankGroup Common Stock. The Merger is reflected under the purchase method of
accounting and pro forma information is derived accordingly.
The pro forma combined amounts also give effect to: (i) the conversion
of the options of the employees of Tysons to purchase Tysons Common Stock into
options to purchase BankGroup Common Stock adjusted according to the Exchange
Ratio; (ii) the exchange of Tysons Warrants for that number of shares of Tysons
Common Stock per Tysons Warrant determined according to the Warrant Exchange
Ratio; and (iii) the agreement of the holders of Directors Options to exchange
their Directors Options as of the Merger Effective Date for that number of
shares of BankGroup Common Stock determined according to the Option Ratio.
The per share data included in the following table should be read in
conjunction with the consolidated financial statements of BankGroup incorporated
by reference herein and the financial statements of Tysons incorporated by
reference and the notes accompanying all such financial statements. The data
presented below are not necessarily indicative of the results of operations
which would have been obtained if the Merger had been consummated in the past or
which may be obtainable in the future.
COMPARATIVE PER SHARE DATA
<TABLE>
<CAPTION>
For the Nine For the Year
Months Ended Ended
September 30, 1997 December 31, 1996
------------------- -----------------
<S> <C>
Book Value Per Share at Period End: (4)
BankGroup Historical $10.57 $ 9.56
Tysons Historical 8.17 7.72
Proforma Combined per BankGroup Common Share (1) 11.47 10.51
Equivalent Proforma per Tysons Common Share 5.84 5.35
Cash Dividends Declared per Share: (4)
BankGroup Historical $0.42 $0.49
Tysons Historical - -
Proforma Combined per BankGroup Common Share (2) 0.40 0.47
Equivalent Proforma per Tysons Common Share 0.20 0.24
Net Income Per Share: (4)(5)
BankGroup Historical $1.14 $1.37
Tysons Historical 0.41 1.23
Proforma Combined per BankGroup Common Share (3) 1.12 1.39
Equivalent Proforma per Tysons Common Share 0.57 0.71
- ------------------------------------------
</TABLE>
(1) Proforma combined book value per BankGroup common share represents
combined common shareholders' equity amounts, divided by proforma
combined period-end common shares outstanding.
(2) Proforma combined dividends per BankGroup common share represent
combined common dividends declared, divided by proforma combined
average common shares outstanding.
(3) Proforma combined net income per BankGroup common share represents
combined net income available to common shareholders, divided by
proforma combined average common shares outstanding.
(4) BankGroup's and Tysons' fiscal years end December 31. Book value per
share is as of the dates presented, and net income and dividend data
reflect results for the periods presented.
(5) Net income per share data is based on fully diluted shares. Common
stock equivalents were utilized in the calculation of fully diluted
shares. The common stock equivalents for Tysons were stock options and
warrants. The common stock equivalents for BankGroup were stock
options.
- ---------------------------
SELECTED FINANCIAL DATA
MAINSTREET BANKGROUP INCORPORATED
AND TYSONS FINANCIAL CORPORATION
The following BankGroup consolidated financial data and Tysons
financial data is qualified in its entirety by the information included in the
documents incorporated in this Proxy Statement/Prospectus by reference. Interim
financial results, in the opinion of BankGroup and Tysons management, reflect
all adjustments necessary for a fair presentation of the results of operations,
including adjustments related to completed acquisitions. All such adjustments
are of a normal recurring nature. The results of operations for an interim
period are not necessarily indicative of results that may be expected for a full
year or any other interim period.
MAINSTREET BANKGROUP INCORPORATED
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------ ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
EARNINGS:
Interest Income $81,273 $68,240 $93,302 $81,169 $70,077 $67,592 $68,203
Interest Expense 41,248 30,943 42,855 36,757 29,197 28,948 33,200
-------- -------- -------- -------- -------- -------- ---------
Net Interest Income 40,025 37,297 50,447 44,412 40,880 38,644 35,003
Provision for Loan Losses 2,805 2,369 3,276 1,419 3,091 1,690 2,643
--------- --------- --------- --------- --------- --------- ----------
Net Interest Income
After Provision For
Loan Losses 37,220 34,928 47,171 42,993 37,789 36,954 32,360
Noninterest Income 9,996 8,229 11,028 8,526 1,724 6,991 7,050
Noninterest Expense 28,279 25,900 35,348 32,461 32,073 31,351 26,808
-------- -------- -------- -------- -------- -------- ---------
Income Before
Income Taxes 18,937 17,257 22,851 19,058 7,440 12,594 12,602
Income Taxes 5,955 5,401 7,118 5,566 843 3,407 3,486
--------- --------- --------- --------- ---------- --------- ----------
Net Income $ 12,982 $ 11,856 $15,733 $13,492 $ 6,597 $ 9,187 $ 9,116
======== ======== ======= ======= ======== ======== =========
</TABLE>
<PAGE>
MAINSTREET BANKGROUP INCORPORATED
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------ ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
PER SHARE DATA:
Net Income (Primary): (1) $ 1.14 $1.03 $1.37 $1.26 $0.63 $0.89 $0.89
Net Income (Fully Diluted): (1) 1.14 1.03 1.37 1.21 0.62 0.85 0.85
Dividends Declared (1) 0.42 0.35 0.49 0.37 0.31 0.27 0.21
Book Value: (1) 10.57 9.34 9.56 8.69 6.97 7.43 6.78
Average Primary
Shares (Thousands): (1) 11,421 11,476 11,460 10,744 10,410 10,287 10,158
Average Fully Diluted
Shares (Thousands) (1) 11,424 11,477 11,463 11,450 11,416 11,317 11,202
SELECTED PERIOD-END BALANCES:
Total Assets $1,455,531 $1,235,356 $1,288,837 $1,064,872 $942,385 $910,729 $860,006
Interest-Earning Assets 1,373,155 1,177,126 1,211,169 1,010,044 880,312 857,082 813,101
Loans (Net of
Unearned Income) 824,000 765,697 784,367 673,678 595,187 529,455 511,357
Allowance for Loan Losses 10,942 9,870 10,195 9,036 9,160 9,035 9,166
Total Deposits 930,494 878,492 886,519 845,577 830,597 796,775 753,137
Long-Term Debt (Includes
7% Subordinated Debentures) 76,873 70,857 71,029 929 8,918 9,194 9,455
Common Shareholders' Equity 120,660 104,737 108,476 98,657 71,994 76,055 68,912
Total Shareholders' Equity 120,660 104,737 108,476 98,657 71,994 76,055 68,912
AVERAGE BALANCES:
Total Assets $1,384,637 $1,118,770 $1,154,019 $995,896 $929,298 $880,050 $818,780
Interest-Earning Assets 1,311,077 1,067,562 1,099,295 941,810 872,662 832,625 777,851
Loans (Net of Unearned
Income) 801,418 714,684 730,753 627,166 562,272 530,763 503,178
Allowance for Loan
Losses 10,707 9,509 9,648 9,176 9,106 9,498 9,700
Total Deposits 908,640 854,390 862,806 839,479 818,721 773,546 720,797
Long-Term Debt
(Includes 7% Subordinated
Debentures) 73,973 54,607 58,678 7,398 9,167 9,394 9,463
Total Shareholders' Equity 115,214 103,327 104,793 83,960 75,617 73,560 66,205
RATIOS:
Return on Average Assets 1.25% 1.41% 1.36% 1.35% 0.71% 1.04% 1.11%
Return on Average
Shareholders' Equity 15.07 15.29 15.01 16.07 8.72 12.49 13.77
Return on Average
Common Shareholders'
Equity 15.07 15.29 15.01 16.07 8.72 12.49 13.77
</TABLE>
<PAGE>
MAINSTREET BANKGROUP INCORPORATED
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------ ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
Net Interest Margin (3) 4.17 4.77 4.68 4.86 4.85 4.82 4.69
Total Shareholders' Equity
to Total Assets at Period End 8.29 8.48 8.42 9.26 7.64 8.35 8.01
CREDIT QUALITY RATIOS:
Net Charge-Offs to Average
Loans, Net of
Unearned Income 0.34% 0.28% 0.29% 0.25% 0.53% 0.34% 0.50%
Allowance for Loan Losses
to Loans at Period
End, Net of Unearned Income 1.33 1.33 1.30 1.34 1.54 1.71 1.79
Allowance for Loan Losses
to Nonperforming
Loans at Period End 220.43 208.18 166.15 156.36 196.40 175.92 121.66
Allowance for Loan Losses
to Nonperforming
Assets at Period End (2) 179.85 173.13 141.40 117.81 127.03 88.52 67.80
CAPITAL RATIOS AT PERIOD END:
Tier I Risk-Adjusted Capital 13.68% 14.05% 13.58% 15.04% 13.19% 12.83% 12.34%
Total Risk-Adjusted Capital 14.94 15.30 14.83 16.29 15.93 15.65 15.29
Tier I Leverage 8.09 8.60 8.37 9.26 8.35 8.24 7.85
</TABLE>
TYSONS FINANCIAL CORPORATION
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------ ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
EARNINGS:
Interest Income $5,151 4,590 $6,276 $4,460 $2,103 $1,557 $1,081
Interest Expense 1,840 1,655 2,228 1,522 576 457 400
------ -------- ------- ------- ------- ------- -------
Net Interest Income 3,311 2,935 4,048 2,938 1,527 1,100 681
Provision for Loan Losses 103 125 172 394 90 96 149
------ -------- -------- -------- -------- ------- -------
Net Interest Income
After Provision For
Loan Losses 3,208 2,810 3,876 2,544 1,437 1,004 532
Noninterest Income 205 216 281 339 137 82 58
Noninterest Expense 2,714 2,397 3,169 2,566 1,712 1,465 1,201
------ -------- ------- ------- ------- ------ ------
</TABLE>
<PAGE>
TYSONS FINANCIAL CORPORATION
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------ ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
Income (Loss) Before
Income Taxes and Cumulative
Effect of Accounting Change 699 629 988 318 (138) (379) (611)
Income Taxes 239 (203) (74) (250) - 641 -
-------- ----------- ------- -------- --------- -------- --------
Income (Loss) Before
Cumulative Effect
Of Accounting Change 460 832 1,062 568 (138) (1,020) (611)
Cumulative Effect Of
Accounting Change - - - - - 641 -
-------- -------- ----------- ----------- ----------- -------- --------
Net Income (Loss) $ 460 $ 832 $ 1,062 $ 568 $ (138) $ (379) $ (611)
======= ======= ======== ======== ========= ========= =========
PER SHARE DATA:
Income Before Cumulative
Effect Of Accounting Change
(Primary) $0.42 $ 1.04 $1.23 $0.92 $(0.22) $(1.53) $(0.91)
Income Before Cumulative
Effect Of Accounting Change
(Fully Diluted) 0.41 1.04 1.23 0.92 (0.22) (1.53) (0.91)
Net Income (Primary) 0.42 1.04 1.23 0.92 (0.22) (0.57) (0.91)
Net Income (Fully Diluted) 0.41 1.04 1.23 0.92 (0.22) (0.57) (0.91)
Common Dividends Declared - - - - - - -
Book Value 8.17 7.49 7.72 6.19 5.06 6.16 6.73
Average Primary Shares
(Thousands) 1,108 801 857 617 638 669 669
Average Fully Diluted
Shares (Thousands) 1,134 801 857 617 638 669 669
SELECTED PERIOD-END BALANCES:
Total Assets $98,002 $96,748 $87,837 $70,611 $38,989 $30,933 $24,407
Interest-Earning Assets 89,047 89,474 79,355 63,610 36,607 29,184 23,068
Loans (Net of Unearned
Income) 62,120 52,673 57,677 44,360 24,048 16,134 13,713
Allowance for Loan Losses 724 659 694 585 298 207 176
Total Deposits 86,619 87,764 78,554 65,493 34,894 26,684 19,816
Long-Term Debt 338 388 375 425 475 - -
Total Shareholders'
Equity 8,749 8,019 8,265 4,140 3,386 4,121 4,501
AVERAGE BALANCES:
Total Assets $84,585 $77,148 $78,415 $53,313 $31,871 $25,987 $18,906
Interest-Earning Assets 77,998 70,630 72,389 49,196 29,644 24,163 17,814
Loans (Net of Unearned
Income) 60,142 47,072 48,931 35,127 18,981 14,211 7,635
Allowance for Loan Losses 722 599 617 407 236 186 91
Total Deposits 73,713 69,392 70,878 48,799 27,631 21,215 14,055
</TABLE>
TYSONS FINANCIAL CORPORATION
SELECTED FINANCIAL DATA
(In 000's except per share data)
<TABLE>
<CAPTION>
Nine Months Ended Years Ended
September 30, December 31,
------------------ ---------------------------------------------------------
1997 1996 1996 1995 1994 1993 1992
---- ---- ---- ---- ---- ---- ----
<S> <C>
Long-Term Debt 360 408 402 452 286 - -
Total Shareholders'
Equity 8,519 6,112 6,568 3,674 3,761 4,659 4,758
RATIOS:
Return on Average Assets 0.73% 1.44% 1.35% 1.07% (0.43)% (1.46)% (3.23)%
Return on Average
Shareholders' Equity 7.22 18.18 16.17 15.45 (3.68) (8.15) (12.85)
Net Interest Margin (3) 5.68 5.53 5.59 5.97 5.15 4.55 3.82
Total Shareholders' Equity
to Total Assets at
Period End 8.93 8.29 9.41 5.86 8.68 13.32 18.44
CREDIT QUALITY RATIOS:
Net Charge-Offs to Average
Loans, Net of
Unearned Income 0.16% 0.14% 0.13% 0.30% - 0.46% -
Allowance for Loan Losses
to Loans at Period End,
Net of Unearned
Income 1.17 1.25 1.20 1.32 1.24 1.28 1.28
Allowance for Loan Losses
to Nonperforming
Loans, at Period End 1,248.28 693.68 359.59 219.92 - 295.02 -
CAPITAL RATIOS AT PERIOD END (4):
Tier I Risk-Adjusted Capital 11.18% 11.32% 11.50% 7.34% 15.40% 22.40% 30.10%
Total Risk-Adjusted Capital 12.23 12.39 12.60 8.59 16.60 23.60 31.30
Tier I Leverage 8.66 8.45 8.66 5.46 11.40 14.20 18.80
</TABLE>
NOTES TO SELECTED FINANCIAL DATA-
MAINSTREET BANKGROUP INCORPORATED AND TYSONS FINANCIAL CORPORATION
(1) Per Share Data for BankGroup has been retroactively adjusted to reflect a
2-for-1 stock split in the form of a stock dividend to shareholders of record on
March 4, 1996 and a 5-for-4 stock split in the form of a stock dividend to
shareholders of record on July 15, 1993.
(2) Nonperforming assets include nonaccrual loans, loans past due 90 days and
greater, other real estate and other repossessed assets.
(3) Net interest margin is calculated on a taxable equivalent basis, using a tax
rate of 35% for 1996 and 34% for all preceding years for BankGroup. Tysons did
not have any nontaxable income for the years presented.
(4) Ratios are presented on a bank-only basis for Tysons because the
Company is under $150 million in assets.
SPECIAL NOTE REGARDING FORWARD-LOOKING INFORMATION
Certain statements under the caption "Management's Discussion and
Analysis of Financial Condition and Results of Operation" and elsewhere in this
Form S-4 and the documents incorporated herein by reference constitute
"forward-looking statements" within the meaning of the United States Private
Securities Litigation Reform Act of 1995. Such forward-looking statements
involve known and unknown risks, uncertainties and other factors which may cause
the actual results, performance or achievements of Tysons, or industry results,
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: general economic and business conditions in Tysons'
market area, inflation, fluctuations in interest rates, changes in government
regulations and competition, which will, among other things, impact demand for
loans and banking services; the ability of Tysons to implement its business
strategy; and changes in, or the failure to comply with, government regulations.
Forward-looking statements are intended to apply only at the time they
are made. Moreover, whether or not stated in connection with a forward-looking
statement, Tysons undertakes no obligation to correct or update a
forward-looking statement should Tysons later become aware that it is not likely
to be achieved. If Tysons were to update or correct a forward-looking statement,
investors and others should not conclude that Tysons will make additional
updates or corrections thereafter.
TYSONS FINANCIAL CORPORATION
Management's Discussion and Analysis
of Financial Condition and Results of Operations
The following discussion of Tysons' financial condition and results of
operations should be read in conjunction with Tysons' financial statements and
related notes and other statistical information included elsewhere herein and
with Tysons' 1996 Annual Report on Form 10-KSB and Quarterly Reports on Form
10-QSB for the periods ended March 31, 1997, June 30, 1997 and September 30,
1997. Results reflect the operations of Tysons and the Bank during the years
ended December 31, 1996 and 1995 and during the nine months ended September 30,
1997 and 1996 (the "Interim Period").
Interim Periods Ended September 30, 1997 and 1996
Overview
Net income before taxes for the nine months ended September 30, 1997
was $699,000, an increase of 11.1% over $629,000 for the same period of 1996.
Net income for the first nine months of 1997 reached $460,000 which included tax
expense of $239,000. Net income for the same period of 1996 was $832,000 which
included a tax benefit of $203,000. Earnings per share for the nine month period
ended September 30, 1997 was $0.42 as compared to $1.04 over the same period of
1996. Return on average assets was 0.73% for the nine month period ending
September 30, 1997 and 1.44% for the same period of 1996. Return on average
equity was 7.22% for the nine month period ended September 30, 1997 as compared
to 18.18% for the same period in 1996. Equity to average assets was 10.34% for
the first nine months of 1997 and 10.44% for the same period in 1996.
As of September 30, 1997, Tysons' total assets were $98,002,000 as
compared to $87,837,000 as of December 31, 1996 which represented an increase of
11.6%. The increase in assets of $10,165,000 was primarily due to growth in
certificates of deposit and other deposits resulting from a promotion to
increase customers.
Total loans, net of allowance for loan losses, at September 30, 1997,
were $61,396,000 as compared to $56,983,000 at December 31, 1996, which
represented an increase of $4,413,000 or 7.7%. Changes in the balances of total
loans from December 31, 1996 to September 30, 1997 were comprised of increases
in commercial real estate of $2,701,000, residential real estate of $2,548,000,
commercial loans of $1,269,000 and consumer loans of $747,000. Real estate
construction loans decreased $2,793,000 for the nine month period ended
September 30, 1997. The composition of the loan portfolio as of September 30,
1997 and December 31, 1996 is presented below.
Table 1: Composition of Loan Portfolio
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- -------------------------------
<S> <C>
($ in thousands) % of % of
Loan Category Amount Total Amount Total
------------- ------ ----- ------ -----
Commercial $18,577 29.9 $17,308 30.0
Real estate-construction 1,462 2.3 4,255 7.4
Real estate-residential 15,481 24.9 12,933 22.4
Real estate-commercial 16,573 26.6 13,872 24.0
Consumer 10,136 16.3 9,389 16.2
------- ------ -------- ------
Gross loans 62,229 100.0 57,757 100.0
Less: unearned income (109) (80)
----------- ----------
62,120 57,677
Allowance for Loan Losses (724) (694)
--------- ---------
Net Loans $61,396 $56,983
======= =======
</TABLE>
Gross loans at September 30, 1997 totaled $62,229,000 for an increase
of 7.74% over the December 31, 1996 balance of $57,757,000. Average loans as a
percentage of average total earning assets increased to 77.1% as of September
30, 1997, as compared to 66.6% as of December 31, 1996 due to the growth in
loans. Table 2 below is a summary of the composition of earning assets as of
September 30, 1997, as compared to December 31, 1996.
<PAGE>
Table 2: Summary of Earning Assets
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
----------------------- ------------------------
<S> <C>
($ in thousands) % of % of
Earning Assets Amount Total Amount Total
- -------------- ------ ----- ------ -----
Federal funds sold $12,863 14.4 $6,810 8.6
Interest bearing deposits in banks 100 0.1 100 0.1
Investment securities
Available-for-sale 12,008 13.5 11,041 13.9
Held-to-maturity 1,956 2.2 3,727 4.7
Loans, net of unearned income 62,120 69.8 57,677 72.7
------- ----- ------- -----
Total earning assets $89,047 100.0 $79,355 100.0
======= ===== ======= =====
</TABLE>
Federal funds sold and cash and due from banks represent Tysons' cash
and cash equivalents. Federal funds sold and cash and due from banks at
September 30, 1997 totaled $19,965,000 compared to $13,625,000 at December 31,
1996, representing an increase of $6,340,000, or 46.5%. Federal funds sold
increased $6,053,000 while cash and due from banks increased $287,000. The
increase in federal funds sold was primarily due to increased deposits of
shorter term escrow funds that could not be invested in longer term investments.
Total deposits were $86,619,000 at September 30, 1997, up from
$78,554,000 at December 31, 1996, representing an increase of 10.3%. The
increase of $8,065,000 was primarily the result of increased certificates of
deposit resulting from a deposit promotion. Non-interest bearing deposits
increased by $1,266,000 while interest-bearing deposit accounts increased
$6,799,000. Table 3 presents the composition of deposits on September 30, 1997
as compared to December 31, 1996.
Table 3: Deposit Summary
<TABLE>
<CAPTION>
September 30, 1997 December 31, 1996
--------------------------- ------------------------
<S> <C>
% of % of
($ in thousands) Amount Total Amount Total
- ---------------- ------ ----- ------ -----
Non-interest bearing demand $21,379 24.7 $20,113 25.6
NOW and Money Market 27,046 31.2 37,956 48.3
Savings 1,910 2.2 2,439 3.1
Time $100,000 and over 14,248 16.5 4,374 5.6
Time, under $100,000 22,036 25.4 13,672 17.4
------- ----- ------- -----
Total deposits $86,619 100.0 $78,554 100.0
======= ===== ======= =====
</TABLE>
Results of Operations for the Nine Months Ended September 30, 1997 and 1996
Net income for the nine months ended September 30, 1997 was $460,000, a
$372,000 decrease from the $832,000 net income for the same period of 1996. The
primary reason for the decrease was the change from a tax benefit of $203,000 in
the first nine months of 1996 to a tax expense of $239,000 in the same period of
1997. This increased tax expense of $442,000 was due to the net operating loss
carryforward for Tysons becoming fully recognized in the last quarter of 1996.
Net income before taxes of $699,000 for the nine month period ended September
30, 1997 as compared to $629,000 for the same period of 1996 represents an 11.1%
increase. Net interest income for the nine month period ended September 30, 1997
increased $376,000 or 12.8% over the same period of 1996 due to the increased
volume of loans. During the same time period non-interest income decreased
$11,000 due to a reduction in overdraft and returned check charges. In the first
nine months of 1997, non-interest expenses increased $317,000 or 13.2% over the
same period of 1996 due to increased operational and facility costs related to
company growth.
A provision of $103,000 was made for loan losses in the first nine
months of 1997 which primarily reflects loan portfolio growth. The allowance for
loan losses at September 30, 1997 was 1.17% of outstanding loans.
Net income per share was $0.42 for the nine month period ended
September 30, 1997 compared to $1.04 per share for the same period of 1996. The
decrease is due to the tax increase of $442,000 and increased number of weighted
average shares outstanding. At September 30, 1996, there were 800,818 weighted
average shares outstanding as compared to 1,107,703 at September 30, 1997. This
increase in shares outstanding is primarily the result of the May 1996 stock
offering.
Net Interest Income/Margins. The primary source of revenue for Tysons
is net interest income, which is the difference between income earned on
interest-earning assets, such as loans and investment securities, and interest
incurred on interest-bearing liabilities, such as deposits and borrowings. The
level of net interest income is determined primarily by the average balances
("volume") of interest-earning assets and the various rate spreads between the
interest-earning assets and Tysons' funding sources.
Net interest income was $3,311,000 for the nine month period ended
September 30, 1997, a 12.8% increase from the $2,935,000 earned during the same
period of 1996. Earning assets averaged $77,998,000 in the first nine months of
1997, a 10.4% increase as compared to $70,630,000 in the same period of 1996.
The increase in net interest income is due to the growth of the loan portfolio.
Average loans as a percentage of total average earning assets increased to 77.1%
in the third quarter of 1997, as compared with 66.6% in the same period of 1996.
Total average investment securities as a percent of total average earning assets
increased slightly for the nine month period ended September 30, 1997,
representing 16.2% as compared to 15.7% in 1996. Average federal funds sold in
the nine months ended September 30, 1997 decreased to 6.7% of total average
earning assets from 17.7% in the comparable period in 1996. The decrease in
federal funds sold was primarily due to the lower amount of volatile deposits at
September 30, 1997, as compared to September 30, 1996. Federal funds sold are
used to maintain liquidity for the volatile deposits as well as other liquidity
needs. The overall increase in average earning assets increased net interest
income for Tysons in the first nine months of 1997.
Interest income on loans of $4,298,000 for the nine months ended
September 30, 1997 represented an increase of $774,000, or 20.9% from $3,554,000
for the same period of 1996, constituting the largest dollar increase in
interest income and reflecting an increase in the average balance of loans to
$60,142,000 for the nine months ended September 30, 1997 from $47,072,000 for
the same period of 1996. The net interest spread, which is the difference
between the yield on earning assets and the cost of interest-bearing
liabilities, decreased to 4.52% in the first nine months of 1997 from 4.58% in
the same period of 1996. The lower net interest spread was attributable to the
increased cost of funds due to the mix of deposits shifting from lower cost
money market funds to higher cost certificates of deposit.
Non-Interest Income. Non-interest income consists of revenues generated
from service charges on deposit accounts, as well as servicing fees on loans,
wire transfer fees, official check fees and collection fees.
Non-interest income in the nine months ended September 30, 1997 was
$205,000, a decrease of $11,000, or 5.1%, from $216,000 for the same period of
1996. The decrease was primarily due to lower overdraft and returned check
activity. Deposit service charges accounted for 63.1% and 65.1% of total
non-interest income for the nine months ended September 30, 1997 and 1996,
respectively.
Non-Interest Expense. Non-interest expense totaled $2,714,000 for the
nine month period ended September 30, 1997, as compared to $2,397,000 for the
same period of 1996; representing an increase of $317,000, or 13.2%. Although
total non-interest expense increased during the first nine months of 1997,
non-interest expense as a percentage of average total assets increased only 0.1%
to 3.2% for the nine month period ended September 30, 1997 as compared to 3.1%
for the same period of 1996.
Salaries and employee benefits continued to account for the largest
component of non-interest expense, comprising 47.5% of total non-interest
expenses for the first nine months of 1997 and 50.1% for the same period of
1996. Salaries and employee benefits increased by $88,000, or 7.3%, for the nine
month period ended September 30, 1997 as compared to the same period of 1996.
The increase was mainly attributable to increased staffing as a result of the
addition of the McLean and Fairfax City branches.
Operations expense increased $90,000, or 23.1%, from the first nine
months of 1996 as compared to the same period of 1997 primarily due to increased
data processing, ATM charges and supply costs. All of the increases were volume
driven.
Occupancy and equipment expenses increased by $176,000, or 64.2%. The
increase was due to the addition of the McLean branch, Fairfax City branch and
lending facilities space and additional equipment purchases and upgrades
necessary to service the Bank's customer base.
Administrative expense decreased by $38,000 or 7.1% primarily due to
decreased Federal Deposit Insurance Corporation ("FDIC") insurance. The FDIC
insurance rate decreased once the Bank became "well capitalized" in June 1996.
FDIC insurance for the first nine months of 1997 was $7,000 as compared to
$36,000 for the same period of 1996.
Income Taxes. Tysons recognized a net income tax expense of $239,000 in
the first nine months of 1997, as compared to an income tax benefit of $203,000
in the same period of 1996. The net operating loss carryforward related to the
start-up of Tysons became completely utilized for accounting purposes in the
last quarter of 1996. This accounted for a $442,000 change in net income at
September 30, 1997, as compared to September 30, 1996. Net income before taxes
increased by $70,000 for the nine month period ended September 30, 1997, as
compared to the same period of 1996.
Loan Quality. The Bank attempts to manage the risk characteristics of
its loan portfolio through various control processes, such as credit evaluation
of borrowers, establishment of lending limits and application of lending
procedures, including the holding of adequate collateral and the maintenance of
compensating balances. However, the Bank seeks to rely primarily on the cash
flow of its borrowers as the principal source of repayment. Although credit
policies are designed to minimize risk, management recognizes that loan losses
will occur and that the amount of these losses will fluctuate depending on the
risk characteristics of the loan portfolio as well as general and regional
economic conditions.
The allowance for loan losses represents a reserve for potential losses
in the loan portfolio. The adequacy of the allowance for loan losses is
evaluated periodically based on a review of all significant loans, with a
particular emphasis on non-accruing, past due and other loans that management
believes require special attention. As of September 30, 1997, Tysons had loans
of $58,000 in non-accrual loans as compared to $193,000 as of December 31, 1996
and $95,000 as of September 30, 1996.
For significant problem loans, management's review consists of
evaluation of the financial strengths of the borrower, the related collateral
and the effects of economic conditions. Specific reserves against the remaining
loan portfolio are based on analysis of historical loan loss ratios, loan
charge-offs, delinquency trends and previous collection experience, along with
an assessment of the effects of external economic conditions.
The provision for loan losses is a charge to earnings in the current
period to replenish the allowance and maintain it at a level management has
determined to be adequate. Tysons made a provision for loan losses for the first
nine months of 1997 of $103,000 as compared to $125,000 in the same period of
1996. The provision for losses reflects growth in the loan portfolio.
As of September 30, 1997 the allowance for loan losses was 1.17% of
outstanding loans which decreased slightly from the 1.20% at December 31, 1996.
Management's judgment as to the level of future losses on existing loans is
based on management's internal review of the loan portfolio, including an
analysis of the borrower's current financial position, the consideration of
current and anticipated economic conditions and their potential effects on
specific borrowers, an evaluation of the existing relationships among loans,
potential loan losses and the present level of the loan loss allowance; and
results of examinations by independent consultants. In determining the
collectibility of certain loans, management also considers the fair value of any
underlying collateral. However, management's determination of the appropriate
allowance level is based upon a number of assumptions about future events, which
are believed to be reasonable, but which may or may not prove valid. Thus, there
can be no assurance that charge-offs in future periods will not exceed the
allowance for loan loss or that additional increases in the loan loss allowance
will not be required.
Non-performing loans are defined as non-accrual and renegotiated loans.
When real estate acquired by foreclosure and held for sale and other assets
repossessed and held for sale are included with non-performing loans, such
category is reported as non-performing assets. Non-performing assets as of
September 30, 1997 consisted of loans for $58,000 and $279,000 of other assets.
The increase in non-performing assets was comprised of $144,000 in repossessed
autos and $135,000 in other receivables. The other receivables were collected
subsequent to September 30, 1997. The non-performing loans were classified for
regulatory purposes as substandard, and as such, management had allocated a
portion of its allowance for possible loan losses for future potential loss.
There were $95,000 in non-performing loans as of September 30, 1996.
Tysons had impaired loans with an unpaid principal balance of $58,000
at September 30, 1997. These loans are on non-accrual and have related
impairment reserves of $3,000.
As a result of management's ongoing review of the loan portfolio, loans
are classified as non-accrual when collection of full principal and interest
under the original terms is not expected. These loans are classified as
non-accrual, even though the presence of collateral or the borrower's financial
strength may be sufficient to provide for ultimate repayment. Interest on
non-accrual loans is recognized only when received.
Capital Resources. Stockholders' equity was $8,749,000 as of September
30, 1997 as compared to $8,265,000 as of December 31, 1996. The $484,000
increase, or 5.9%, was primarily the result of net income of $460,000. The
remaining change in stockholders' equity was due to a payment on the long-term
liability relating to the ESOP and a $30,000 reduction in the unrealized gain on
investment securities available-for-sale. No dividends have been declared by
Tysons since its inception. See "Tysons Financial Corporation, Description of
Business -- Dividends." In addition, no stock warrants have been exercised and
no options under the Tysons Financial Corporation Stock Option Plan, as amended
and restated August 21, 1996 (the "Stock Option Plan") have been exercised.
Under the Federal Reserve Board's capital regulations, for as long as
Tysons' assets are under $150 million, Tysons' capital ratios are reviewed on a
bank-only basis. The Bank exceeded its capital adequacy requirements as of
September 30, 1997 and December 31, 1996. Tysons continually monitors its
capital adequacy ratios to assure that the Bank remains within the guidelines.
Liquidity and Interest Rate Sensitivity. The primary objective of
asset/liability management is to ensure the steady growth of Tysons' primary
earnings component, net interest income. Net interest income can fluctuate with
significant interest rate movements. To lessen the impact of these rate swings,
management endeavors to structure the balance sheet so that repricing
opportunities exist for both assets and liabilities in roughly equivalent
amounts at approximately the same time intervals. Imbalances in these repricing
opportunities at any point in time constitute interest rate sensitivity.
The measurement of Tysons' interest rate sensitivity, or "gap," is one
of the principal techniques used in asset/liability management.
Interest-sensitive gap is the dollar difference between assets and liabilities
which are subject to interest-rate repricing within a given time period,
including both floating rate or adjustable rate instruments and instruments
which are approaching maturity.
In theory, interest rate risk can be diminished by maintaining a
nominal level of interest rate sensitivity. In practice, this is made difficult
by a number of factors, including cyclical variations in loan demand, different
impacts on interest-sensitive assets and liabilities when interest rates change
and the availability of funding sources. Accordingly, Tysons undertakes to
manage the interest-rate sensitivity gap by adjusting the maturity of and
establishing rate prices on the earning asset portfolio and certain
interest-bearing liabilities to keep it in line with management's expectations
relative to market interest rates. Management generally attempts to maintain a
balance between rate-sensitive assets and liabilities as the exposure period is
lengthened to minimize the overall interest rate risk to Tysons.
The Bank's Executive Committee which oversees the asset/liability
management function meets periodically to monitor and manage the structure of
the balance sheet, control interest rate exposure and evaluate pricing
strategies for Tysons. The asset mix of the balance sheet is continually
evaluated in terms of several variables: yield, credit quality, appropriate
funding sources and liquidity. Management of the liability mix of the balance
sheet focuses on expanding the various funding sources.
At September 30, 1997, Tysons had an asset sensitive gap (more assets
than liabilities subject to repricing within the stated timeframe) of $8,685,000
which represents 9.8% of earning assets over a 30 day period. This suggests that
if interest rates were to increase over this period, the net interest margin
would improve, and if interest rates were to decrease, the net interest margin
would decline. Since all interest rates and yields do not adjust at the same
velocity, the gap is only a general indicator of interest rate sensitivity. The
analysis presents only a static view of the timing of maturities and repricing
opportunities, without taking into consideration that changes in interest rates
do not affect all assets and liabilities equally. Net interest income may be
impacted by other significant factors in a given interest rate environment,
including changes in the volume and mix of earning assets and interest-bearing
liabilities.
Liquidity represents the ability to provide steady sources of funds for
loan commitments and investment activities, as well as to provide sufficient
funds to cover deposit withdrawals and payment of debt and operating
obligations. These funds can be obtained by converting assets to cash or by
attracting new deposits. The Bank seeks to rely primarily on core deposits from
customers to provide stable and cost-effective sources of funding to support
asset growth. Other sources of funds available to the Bank include short-term
borrowings, primarily in the form of federal funds purchased. In the normal
course of business, the Bank enters into various off balance sheet credit
facilities with its customers, including commitments to extend credit at a
future date and letters of credit. Since many of the commitments can be expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements. At September 30, 1997, the Bank
had $341,000 in letters of credit and $11,656,000 in unfunded loan commitments.
Average liquid assets (cash and amounts due from banks,
interest-bearing deposits in other banks, federal funds sold, investment
securities and other short-term investments) were 30.3% of average deposits for
the first nine months of 1997, as compared to 39.7% for the same period of 1996.
Average loans were 81.6% of average deposits for the first nine months of 1997,
as compared to 67.8% for the first nine months of 1996. Average deposits were
94.5% of average earning assets for the nine months ended September 30, 1997 as
opposed to 98.5% for the same period of 1996.
Securities maintained in the available-for-sale portfolio may be sold
prior to maturity in order to provide Tysons and the Bank with increased
liquidity. Available-for-sale investment securities totaled $12,008,000 and
$11,137,000 as of September 30, 1997 and 1996, respectively.
New Accounting Standards. In February 1997, the Financial Accounting
Standards Board ("FASB") issued Statement of Financial Accounting Standards No.
128, Earnings Per Share ("SFAS 128") which is effective for financial statements
issued for periods ending after December 15, 1997, including interim periods.
SFAS 128 establishes standards for computing and presenting earnings per share
("EPS") and applies to entities with publicly held common stock or potential
common stock. Management does not expect that the adoption of SFAS 128 will have
a material impact on Tysons' financial condition or reported EPS.
In February 1997, the FASB issued Statement of Financial Accounting
Standards No. 129, Disclosure of Information about Capital Structure ("SFAS
129") which is effective for financial statements issued for periods ending
after December 15, 1997. SFAS 129 establishes standards for disclosing
information about an entity's capital structure and applies to all entities.
Management does not expect that the adoption of SFAS 129 will have a material
impact on Tysons' financial condition or reported capital structure.
In June 1997, the FASB issued SFAS 130 "Reporting Comprehensive
Income" and SFAS 131 "Disclosures about Segments of an Enterprise and
Related Information" which are effective for years beginning after
December 15, 1997. Management does not expect that the adoption of SFAS
130 and SFAS 131 will have a material impact on Tysons' financial
condition.
<PAGE>
Years Ended December 31, 1996 and 1995
Overview
The year ended December 31, 1996 represented Tysons' most successful
year since commencement of operations by the Bank on July 1, 1991. Record
earnings of $1,062,000 for the year were posted, and Tysons reported net income
for each of the fiscal quarters during the year ended December 31, 1996.
On a per share basis, earnings were $1.23 per share in 1996 as compared
to a $0.92 in 1995. Return on average assets was 1.35% in 1996 and 1.07% in
1995. Return on average equity was 16.17% in 1996 as compared to 15.45% in 1995.
Equity to average assets was 10.47% in 1996 and 7.74% in 1995.
Tysons' total assets were $87,837,000 as of December 31, 1996 as
compared to $70,611,000 as of December 31, 1995, which represented an increase
of 24.4%. The 1996 growth of $17,266,000 was less than the growth of $31,622,000
from December 31, 1994 to December 31, 1995. The growth during 1995 was
primarily due to the acquisition of certain loans and assumption of deposits
from Suburban Bank in May of 1995. The Bank's overall asset size and customer
base, both individual and business, increased significantly during 1996.
Total loans, net of allowance for loan losses, at December 31, 1996
were $56,983,000 as compared to $43,775,000 at December 31, 1995, which
represented an increase of 30.2%. The $13,208,000 increase in loans was due to
the Bank's continued focus on its core lending activities such as commercial
loans, real estate loans, home equity lines of credit and consumer loans.
Average loans as a percentage of average total earning assets decreased from
1995 to 1996, representing 67.6% of average total earning assets as of December
31, 1996, as compared to 71.4% as of December 31, 1995. The higher ratio in 1995
reflects the May 1995 purchase of $13,000,000 in loans from Suburban Bank.
Federal funds sold and cash and due from banks at December 31, 1996
totaled $13,625,000 compared to $14,399,000 at December 31, 1995, representing a
decrease of $774,000, or 5.4%. Cash and due from banks increased by $1,325,000,
or 24.1% and federal funds sold decreased by $2,100,000, or 23.6% during such
period. The increase in cash and due from banks is due to the increase in
overall volume of the Bank's deposit base and the Bank's internal growth during
1996. The decrease in federal funds sold was the result of a shift in funds from
such lower yielding assets to higher yielding investments and loans.
Total deposits were $78,554,000 at December 31, 1996, up from
$65,493,000 at December 31, 1995, representing an increase of 19.9%. The growth
of $13,061,000 was related to the Bank's normal growth and marketing efforts.
Interest-bearing deposit accounts accounted for the largest increase of
$11,010,000.
<PAGE>
Results of Operations
Tysons' net income for the year ended December 31, 1996 was $1,062,000,
a $494,000 increase from the $568,000 net income for the year ended December 31,
1995. The net income represents a return on average assets of 1.35% in 1996 as
compared to 1.07% in 1995. Return on average equity improved to 16.17% in 1996
from 15.45% in 1995. The primary reason for the $494,000 increase in net income
from 1995 to 1996 is net interest income due to the growth and mix in interest
earning assets and interest bearing liabilities. Average assets rose from
$53,313,000 in 1995 to $78,415,000 in 1996. The growth in assets and liabilities
contributed to a $1,110,000, or 37.8%, increase in net interest income.
Non-interest income decreased by $59,000 or 17.4% due to a reduction in
overdraft and return check income from several deposit accounts incurring these
charges during the last half of 1995. This management of overdrafts reduces the
losses on deposit accounts balances to a minimum. Although there was a
substantial increase in assets in 1996, management was able to limit growth in
non-interest expenses to $603,000, or 23.5% as compared to the $853,000, or
49.8% increase in 1995.
In addition, Tysons recognized a net income tax benefit of $74,000 in
1996, as compared to $250,000 in 1995, related to a reduction in the deferred
tax asset valuation allowance. Based upon Tysons' profitability in 1996 and
projected profitability for 1997, management believed that deferred tax assets
were more likely than not realizable in the future. See Note (5) to Tysons'
December 31, 1996 Consolidated Financial Statements, Income Taxes. Also in 1996,
Tysons made a provision of $172,000 for loan losses as compared to a $394,000
provision in 1995. Tysons' purchase of approximately $13,000,000 of loans from
Suburban Bank in May of 1995 required additional provision for that year.
The 1996 increase in net income over that of 1995 is reflected in
Tysons' net income per share even though there are 402,500 additional shares
outstanding due to the May 1996 common stock offering. Net income per share in
1996 was $1.23, which is a significant improvement from the $0.92 per share in
1995.
Net Interest Income/Margins. Table 4: "Comparative Average Balances -
Yields and Rates" indicates Tysons' average volume of interest-earning assets
and interest-bearing liabilities for 1996 and 1995 and average yields and rates.
Changes in net interest income from period to period result from increases or
decreases in the volume of interest-earning assets and interest-bearing
liabilities, increases or decreases in the average rates earned and paid on such
assets and liabilities, the ability to manage the earning-asset portfolio, and
the availability of particular sources of funds, such as non-interest bearing
deposits. Table 5: "Rate/Volume Variance" below indicates the changes in Tysons'
net interest income as a result of changes in volume and rates from 1995 to 1996
and from 1994 to 1995.
Net interest income was $4,048,000 for 1996, a 37.8% increase from the
$2,938,000 earned in 1995. Earning assets averaged $72,389,000 in 1996, a 47.1%
increase as compared to $49,196,000 in 1995. The increase in net interest income
is due to the growth of the loan portfolio and an increase in the volume of
investment securities. Average loans as a percentage of total average earning
assets decreased to 67.6% in 1996 as compared with 71.4% in 1995. Total
investment securities as a percent of total average earning assets decreased in
1996 representing 16.8% as compared to 17.8% in 1995. Average federal funds sold
increased to 15.5% of total average earning assets in 1996 from 10.5% in 1995.
Interest income on loans of $4,879,000 in 1996 increased $1,258,000, or
34.7% from $3,621,000 in 1995, constituting the largest dollar increase in
interest income and reflecting an increase in the average balance of loans to
$48,931,000 in 1996 from $35,127,000 in 1995. The increase in net interest
income was partially reduced by a decrease in the net interest spread due to
increased competition for loans. The net interest spread, which is the
difference between the yield on earning assets and the cost of interest-bearing
liabilities, decreased to 4.62% in 1996 from 5.00% in 1995.
The key performance measure for net interest income is the "net
interest margin," or net interest income divided by average earning assets.
Tysons' net interest margin decreased to 5.59% for 1996 from 5.97% for 1995.
Tysons' net interest margin is affected by loan pricing, credit administration
and deposit pricing. The 1996 decrease was due to increased competition for
loans which reduced the yield on net loans to 9.97% as compared to 10.31% in
1995. The yield on interest-bearing liabilities also decreased in 1996, although
to a lesser degree to 4.05% as compared to 4.07% in 1995.
Table 4: Comparative Average Balances - Yields and Rates
<TABLE>
<CAPTION>
1996 1995
----------------------------------- --------------------------------------
Average Income Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rates Balance Expense Rates
------- ------- ----- ------- ------- -----
<S> <C>
Assets:
Loans (net of unearned income) (1) $48,931 $4,879 9.97% $35,127 $3,621 10.31%
Investment securities:
Available-for-sale 7,929 523 6.60% 3,727 239 6.41%
Held-to-maturity 4,210 261 6.20% 5,032 290 5.76%
Federal funds sold 11,219 607 5.41% 5,155 301 5.84%
Interest bearing deposits in banks 100 6 6.00% 155 9 5.81%
--------- -------- --------- ---------
Total earning assets (2) $72,389 $6,276 8.67% $49,196 $4,460 9.07%
====== ======
Allowance for loan losses (617) (407)
Other assets 6,643 4,524
-------- --------
Total assets $78,415 $53,313
======= =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1996 1995
----------------------------------- --------------------------------------
Average Income Yield/ Average Income/ Yield/
(dollars in thousands) Balance Expense Rates Balance Expense Rates
------- ------- ----- ------- ------- -----
<S> <C>
Liabilities and stockholders' equity:
Deposits:
Interest-bearing demand 5,496 113 2.06% 5,371 125 2.33%
Savings 3,081 91 2.95% 3,860 119 3.08%
Money market accounts 27,976 914 3.26% 15,086 511 3.39%
Time deposits 18,000 1,066 5.92% 12,608 716 5.68%
------- ------ ------- -------
Total interest-bearing deposits $54,553 $2,184 4.00% $36,925 $1,471 3.98%
Federal funds purchased 75 3 4.00% 34 2 5.88%
Other borrowed funds 402 41 10.20% 452 49 10.84%
--------- -------- --------- --------
Total interest-bearing liabilities $55,030 $2,228 4.05% $37,411 $1,522 4.07%
====== ======
Demand deposits 16,322 11,874
Other liabilities 495 354
Stockholders' equity 6,568 3,674
-------- -------
Total liabilities and
stockholders' equity $78,415 $53,313
======= =======
Interest spread
(Average rate earned less average rate paid) 4.62% 5.00%
Net interest income
(Interest earned less interest paid) $4,048 $2,938
Net interest margin
(Net interest income/total earning assets) 5.59% 5.97%
</TABLE>
(1) Loans on non-accrual are included in the calculation of average
balance.
(2) From inception through December 31, 1996, Tysons made no loans or
investments that qualify for tax-exempt treatment and, accordingly, had no
tax-exempt income.
Changes in interest income and interest expense can result from
variances in both volume and rates. Tysons has an asset and liability management
policy designed to provide a proper balance between rate sensitive needs.
The following table presents the changes in Tysons' net interest income
as a result of changes in volume and rate from 1995 to 1996 and from 1994 to
1995.
<PAGE>
Table 5: Rate/Volume Analysis
<TABLE>
<CAPTION>
1996 Compared to 1995 1995 Compared to 1994
(variances in) (variances in)
---------------------------------- ----------------------------------
<S> <C>
Net Net
Average Average Increase/ Average Average Increase/
(dollars in thousands) Volume Rate Decrease Volume Rate Decrease
- ---------------------- ------ --------- -------- ------ --------- --------
Interest Income:
Loans $1,372 ($114) $1,258 $1,607 $399 $2,006
Investment securities:
Available-for-sale 277 7 284 116 5 121
Held-to-maturity (54) 25 (29) (62) 82 20
Federal funds sold 327 (21) 306 185 42 227
Interest bearing bank balances (3) -- (3) (24) 7 (17)
-------- ------- -------- -------- ------ --------
Total interest income $1,919 ($103) $1,816 $1,822 $535 $2,357
Interest Expense:
Interest bearing demand
accounts 3 (16) (13) 42 (1) 41
Savings (23) (5) (28) 9 13 22
Money market 421 (18) 403 199 80 279
Time deposits 318 32 350 482 98 580
Federal funds purchased 1 -- 1 1 -- 1
Other borrowed funds (5) (2) (7) 17 6 23
----- ---- ----- ----- ---- -----
Total interest expense $ 715 ($9) $ 706 $ 750 $196 $ 946
----- ---- ----- ----- ---- -----
Change in net interest
income $1,204 ($94) $1,110 $1,072 $339 $1,411
====== ==== ====== ====== ==== ======
</TABLE>
Note: The change in interest income due to both rate and volume has been
allocated proportionally between volume and rate. Loan fees are
included in the interest income computation.
Non-Interest Income. Non-interest income in 1996 was $280,000, a
decrease of $59,000, or 17.4%, from $339,000 in 1995. The decrease was primarily
due to decreases in the number of returned checks and overdraft fees. Management
carefully reviews accounts incurring these charges to prevent losses due to this
type of activity.
Table 6: Non-Interest Income
<TABLE>
<CAPTION>
1996 1995
---------------------------- ----------------------------
<S> <C>
(dollars in thousands) Amount % Change Amount % Change
- ---------------------- ------ -------- ------ --------
Deposit services charges $188 (20.3)% 236 174.4%
Other operating income 92 (10.7) 103 98.1
-- ----- ---- ----
Total non-interest income $280 (17.4)% 339 147.4%
==== =====
Non-interest income as a percent of
average total assets 0.4% 0.6%
</TABLE>
Non-Interest Expense. Non-interest expense totaled $3,169,000 for 1996,
as compared to $2,566,000 for 1995, an increase of $603,000, or 23.5%. Although
total non-interest expense increased during 1996, non-interest expense as a
percentage of average total assets decreased to 4.0% in 1996 as compared to 4.8%
in 1995.
As shown in Table 7, salaries and employee benefits continued
to account for the largest component of non-interest expense, comprising
49.5% of total non-interest expenses for 1996 and 49.7% in 1995.
Salaries and employee benefits increased by $291,000, or 22.8%, from
1995 to 1996, and increased by $465,000, or 57.3%, from 1994 to 1995.
The increase in 1995 was mainly attributable to increased staffing as a
result of the addition of the Reston branch and additional staffing
needed to adequately service increased deposits and loans due to the
Suburban Bank transaction, while the 1996 increase reflected increases
in staffing, wage increases and increases in employee health insurance.
In addition, the 1995 salaries and employee benefits also increased due
to payments on the leveraged ESOP which was funded during June 1994. A
lump sum payment is due in June of 1998. See "The Merger -- Interests of
Certain Persons in the Merger." See "The Merger -- Employee Benefits" for
a discussion of the impact of the Merger on the ESOP.
Data processing expenses increased by $33,000, or 14.6%, from 1995 to
1996, as compared to an increase of $113,000, or 100.7%, from 1994 to 1995. The
increases in data processing expenses are primarily volume driven. The increase
during 1995 was related to the addition of the Reston branch and the overall
increase in the Bank's transaction volume during 1995.
Occupancy and equipment expenses increased by $95,000, or 31.8%, from
1995 to 1996, as compared to a decrease of $92,000, or 44.2%, from 1994 to 1995.
The increase in 1995 was due to the addition of the Reston branch in May. Four
months of the new branch in McLean as well as one full year of the Reston branch
increased occupancy and equipment expenses to the 1996 totals.
Legal and professional expenses increased by $81,000, or 36.3%, from
1995 to 1996, as compared to an increase of $55,000, or 32.6%, from 1994 to
1995. The increases in 1996 and 1995 were primarily due to increases in audit
fees paid to the external auditors and regulators as a result of the increase in
the Bank's asset size. Increases in the size of the loan portfolio also
increased the costs of legal fees expended to maintain the Bank's lower losses
on those loans.
Amortization of the premium paid on deposits acquired totaling $126,000
in 1996 and $77,000 in 1995 resulted from the $1,200,000 premium recorded in the
Suburban Bank transaction. The premium is being amortized over a 10 year period
based upon Tysons' estimated life of the acquired deposit base.
Business development expenses increased $8,000, or 6.8% in 1996. The
increase was primarily attributable to an increase in advertising and
newsletters sent to the Bank's larger customer base and Tysons' increased number
of shareholders.
The following table presents the principal components of non-interest expense
for the last two fiscal years.
Table 7: Non-Interest Expenses
<TABLE>
<CAPTION>
1996 1995
------------------------------ -----------------------
<S> <C>
(dollars in thousands) Amount % Change Amount % Change
- ---------------------- ------ -------- ------ --------
Salaries and employee benefits $1,567 22.8 $1,276 57.3
Data processing 259 14.6 226 100.7
Occupancy and equipment 394 31.8 299 44.2
Office and operations expenses 355 23.6 287 3.1
Legal and professional 305 36.2 224 32.6
Amortization of premium paid for deposits 126 63.6 77 100.0
Deposit insurance 41 (34.9) 63 10.1
Business development 122 7.0 114 47.8
------- -------
Total non-interest expense $3,169 23.5 $2,566 49.8
====== ======
Non-interest expense as a percentage
of average total assets 4.0% 4.8%
</TABLE>
Income Tax Benefit. Tysons recognized a net income tax benefit of
$74,000 in 1996, as compared to $250,000 in 1995, related to a reduction in the
deferred tax asset valuation allowance and utilization of net operating loss
carryforwards. See Note (5) to Tysons' December 31, 1996 Consolidated Financial
Statements, Income Taxes, for additional information.
Composition of Loan Portfolio. Because loans are expected to produce
higher yields than investment securities and other interest-earning assets, the
absolute volume of loans and the volume as a percentage of total earning assets
is an important determinant of net interest margin. During 1996, average loans
were $48,931,000 and constituted 67.6% of average earning assets and 62.4% of
average total assets. This represents increases of $13,804,000, or 39.3% over
1995 average loans of $35,127,000 which represented 71.4% of average earning
assets and 65.9% of average total assets. At December 31, 1996, Tysons' loan to
deposit ratio was 73.4% as compared to 67.7% at December 31, 1995. Loan growth
during 1996 of $13,318,000 was more than total deposit growth of $13,061,000
which contributed to the decrease in the loan to deposit ratio.
Commercial loans represent the largest category with 30.0% of the total
loan portfolio. Residential real estate loans experienced the largest volume
increase of $3,708,000 raising the category to 22.4%, or $12,933,000 of the
total loan portfolio as of December 31, 1996. Consumer loans increased
$2,750,000 to 16.2% of the total loans to $9,389,000.
The following table sets forth the composition of Tysons' loan portfolio, and
the related percentage composition of total loans, as of December 31, 1996 and
1995.
<PAGE>
Table 8: Loan Portfolio Composition
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------
($ in thousands) 1996 1995
- ---------------- --------------------------------- ----------------------------
% of % of
Types of Loans Amount Total Amount Total
- -------------- ------ ----- ------ -----
<S> <C>
Commercial $17,308 30.0 $14,352 32.2
Real estate-construction 4,255 7.4 1,991 4.5
Residential real estate 12,933 22.4 9,225 20.7
Commercial real estate 13,872 24.0 12,311 27.7
Consumer 9,389 16.2 6,640 14.9
-------- ------ -------- ------
Total loans $57,757 100.0 $44,519 100.0
Less:
Unearned income 80 159
---------- ---------
Loans net of unearned income $57,677 $44,360
Allowance for loan losses 694 585
--------- --------
Net loans $56,983 $43,775
======= =======
</TABLE>
Approximately 93.0% of Tysons' commercial and real estate loans have
adjustable rates, the majority of which are tied to the prime rate. This allows
the Bank to adjust the interest rates on its loans to the current interest rate
environment, whereas fixed rates do not allow this flexibility. If interest
rates were to increase in the future, the interest earned on loans would
improve, and if rates were to fall, the interest earned would decline, thus
impacting Tysons' income. See also the discussion under "Liquidity and Interest
Rate Sensitivity" below.
The following table sets forth the maturity distribution, classified
according to sensitivity to changes in interest rates, for commercial and real
estate components of Tysons' loan portfolio at December 31, 1996. Some of the
loans may be renewed or repaid prior to maturity. Therefore, the following table
should not be used as a forecast of future cash collections.
Table 9: Maturity Schedule of Selected Loans
<TABLE>
<CAPTION>
As of December 31,
1996
----------------------------------------------------------------
(dollars in thousands) < 1 Year 1 to 5 Years 5+ Years Total
- ---------------------- -------- ------------ -------- -----
<S> <C>
Commercial $16,266 $ 896 $148 $17,310
Real estate 28,202 2,856 -- 31,058
------- ------ ------- -------
Total $44,468 $3,752 $148 $48,368
======= ====== ==== =======
Fixed interest rate $ 258 $2,941 $148 $ 3,347
Variable interest rate 44,210 811 -- 45,021
------- ---- ---- -------
Total $44,468 $3,752 $148 $48,368
======= ====== ==== =======
1995
----------------------------------------------
(dollars in thousands) < 1 Year 1 to 5 Years 5+ Years Total
- ---------------------- -------- ------------ -------- -----
Commercial $13,053 $1,250 $ 49 $14,352
Real estate 19,539 3,313 675 23,527
------- ------ ---- -------
Total $32,592 $4,563 $724 $37,879
======= ====== ==== =======
Fixed interest rate $ 176 $3,507 $724 $ 4,407
Variable interest rate 32,416 1,056 -- 33,472
------ ----- --- ------
Total $32,592 $4,563 $724 $37,879
======= ====== ==== =======
</TABLE>
Loan Quality. As of December 31, 1996, Tysons had loans
totaling $193,000 in non-accrual loans as compared to $266,000 as of
December 31, 1995.
Tysons' provision for loan losses for 1996 was $172,000, as
compared to $394,000 in 1995. The Bank's total loan balance increased to
$57,677,000 as of December 31, 1996 as compared to $44,359,000 as of
December 31, 1995. The larger provision for loan losses during 1995 was
related primarily to the growth in the loan portfolio due to the loans
purchased from Suburban Bank.
The Bank charged off $88,000 in 1996 as compared to $107,000 in
1995. The charge-offs resulted from $50,000 in real estate loans, $3,000
in commercial loans and $35,000 in consumer loans. There were $25,000 in
recoveries on loans previously charged off during 1996, as compared to
no recoveries during 1995. The following Table 10: "Allowance for Loan
Losses" summarized the allowance activities for the years ended December
31, 1996 and 1995.
Table 10: Allowance for Loan Losses
<TABLE>
<CAPTION>
1996 1995
------------ -----------
<S> <C>
(dollars in thousands)
Allowance for loan losses, January 1 $ 585 $ 298
Loans charged off:
Commercial (3) (102)
Real estate (50) --
Consumer (35) (5)
-------- --------
Total loans charged off $ (88) $ (107)
Recoveries:
Commercial 25 --
--- --
Net (charge-offs) recoveries $ (63) $ (107)
Provision for loan losses 172 394
---- ---
Allowance for loan losses, December 31 $ 694 $ 585
======= =====
Loans (net of discount):
Year-end balance $57,677 $44,359
Average balance during the year $48,931 $35,127
Allowance as a percent of year-end loan balance 1.20% 1.32%
Percent of average loans:
Provision for loan losses .35% 1.12%
Net charge-offs .13% 0.30%
</TABLE>
The following Table 11: "Allowance for Loan Loss Allocation"
summarizes the allocation of allowance by loan type.
<PAGE>
Table 11: Allowance for Loan Loss Allocation
<TABLE>
<CAPTION>
As of December 31, 1996:
----------------------------
Amount % of Total
------ ----------
<S> <C>
(dollars in thousands)
Commercial $169 24.35
Real estate 255 36.76
Consumer 105 15.10
Unallocated 165 23.79
---- ------
Total $694 100.00
==== ======
As of December 31, 1995:
--------------------------
Amount % of Total
------ ----------
(dollars in thousands)
Commercial $ 87 14.87
Real estate 105 17.95
Consumer 43 7.35
Unallocated 350 59.83
---- ------
Total $585 100.00
===== ======
</TABLE>
Non-performing assets as of December 31, 1996 consisted of loans
totaling $193,000. The non-performing loans as of December 31, 1996 were
classified for regulatory purposes as substandard and, as such, management had
allocated a portion of its allowance for possible loan losses for future
potential loss. There was one non-performing loan as of December 31, 1995 for
$266,000. Table 12: "Non-Performing Assets" presents information on these assets
for the past two years.
There were three impaired loans with an unpaid principal balance of
$182,000 at December 31, 1996. These loans are non-accrual, and there is $16,000
in related impairment reserves. The average balance of impaired loans during
1996 was $140,000, which had an average impairment reserve of $20,000. No income
was recognized on impaired loans during 1996.
Table 13: "Foregone Interest" indicates the amount of interest that
would have been recorded had all loans classified as non-accrual been current in
accordance with their original terms and the amount of interest actually
accrued.
Table 12: Non-Performing Assets
<TABLE>
<CAPTION>
As of December 31,
----------------------
1996 1995
---- ----
<S> <C>
(dollars in thousands)
Loan on non-accrual basis $193 $266
Renegotiated or restructured loans -- --
Real estate acquired by foreclosure -- --
---- ----
Total non-performing assets $193 $266
==== ====
</TABLE>
<PAGE>
Table 13: Foregone Interest
<TABLE>
<CAPTION>
For the Year Ended December 31,
-------------------------------
1996 1995
---- ----
<S> <C>
(dollars in thousands)
Interest income that would have been accrued at original terms $7 $13
Interest recognized -- --
</TABLE>
Capital Resources. Stockholders' equity was $8,265,000 as of December
31, 1996, as compared to $4,140,000 as of December 31, 1995. The $4,125,000
increase, or 99.6%, was partially the result of net income of $1,062,000, a
reduction in the Tysons Financial Corporation ESOP Trust (the "ESOP Trust")
debt, and a change in the unrealized gain on investment securities
available-for-sale of $37,000. The remaining increase in stockholders' equity
was due to the net proceeds of $2,976,000 from the May 1996 stock offering. The
Bank exceeded its regulatory capital adequacy requirements as of December 31,
1996 and 1995.
Liquidity and Interest Rate Sensitivity. The interest rate sensitivity
position at year-end 1996 is presented in Table 14: "Rate Sensitivity Analysis."
The difference between rate-sensitive assets and rate-sensitive liabilities, or
the interest rate sensitivity gap, is shown at the bottom of the table. Tysons
would benefit from increasing market rates of interest when it is asset
sensitive and would benefit from decreasing market rates of interest when it is
liability sensitive. At year-end 1996, Tysons had an asset sensitive gap of
$3,835,000 which represents 109.2% of earning assets over a 30 day period.
Table 14: Rate Sensitivity Analysis
<TABLE>
<CAPTION>
December 31, 1996
-----------------
(dollars in thousands) 30 Days 31-90 91-180 181 days- One Year Non-
- ---------------------- or Less Days Days One Year or Less Sensitive Total
------- ----- ------ --------- ------- --------- -----
<S> <C>
Earning Assets:
- --------------
Federal funds sold $ 6,810 $ -- $ -- $ -- $ 6,810 $ -- $ 6,810
Interest bearing deposits -- -- 100 -- 100 -- 100
Investment securities:
Available-for-sale -- -- -- 2,315 2,315 8,726 11,041
Held-to-maturity -- 999 251 750 2,000 1,727 3,727
Loans:
Variable rate 38,787 568 2,772 2,562 44,689 1,230 45,919
Fixed rate 36 13 271 70 390 11,175 11,565
--------- -------- ------- -------- --------- ------- -------
Total earning assets $45,633 $1,580 $3,394 $5,697 $56,304 $22,858 $79,162
Source of Funds:
Savings $ 2,438 $ -- $ -- $ -- $ 2,438 $ -- $ 2,438
NOW accounts 5,774 $ -- -- -- 5,774 -- 5,774
Money market accounts 32,182 -- -- -- 32,182 -- 32,182
CDs 566 899 1,278 3,941 6,684 5,500 12,184
CDs 100,000 & over 371 104 213 1,460 2,148 2,226 4,374
IRAs 92 127 126 371 716 773 1,489
---------- ------- ------- ------- --------- -------- --------
Total rate-sensitive deposits $41,423 $1,130 $1,617 $5,772 $49,942 $ 8,499 $58,441
Long-term borrowings 375 -- -- -- 375 -- 375
------------------------------------------- -------------------- ---------
Total rate-sensitive liabilities $41,798 $1,130 $1,617 $5,772 $50,317 $ 8,499 $58,816
Non interest-bearing liabilities $ -- $ -- $ -- $ -- $ -- $20,113 $20,113
Interest rate sensitivity gap $ 3,835 $ 450 $1,777 $ (75) $ 5,987
Ratio of rate sensitive assets
to rate sensitive liabilities 109.18% 139.82% 209.89% 98.70% 111.90%
</TABLE>
Cash flows from financing activities, which included funds received
from new and existing depositors, provided a large source of liquidity in 1996
and 1995 as increases in deposits totaled $13,061,000 and $30,600,000,
respectively. The Bank seeks to rely primarily on core deposits from customers
to provide stable and cost-effective sources of funding to support asset growth.
The Bank also seeks to augment such deposits with higher yielding certificates
of deposit. Certificates of deposit of $100,000 or more are summarized by
maturity in Table 15: "Maturity of Time Deposits $100,000 or More."
Table 15: Maturity of Time Deposits $100,000 or More
<TABLE>
<CAPTION>
December 31,
-----------------------
1996 1995
---- ----
<S> <C>
(dollars in thousands)
Under 3 months $ 475 $ 613
3 to 6 months 213 --
6 to 12 months 1,460 704
Over 12 months 2,226 1,821
----- ------
Total $4,374 $3,138
====== ======
</TABLE>
In the normal course of business, the Bank enters into various off
balance sheet credit facilities with its customers, including commitments to
extend credit at a future date and letters of credit. Details of the commitments
of this nature may be found in Note (12) of Tysons' December 31, 1996
Consolidated Financial Statements, Financial Instruments with Off Balance Sheet
Risk. Since many of the commitments can be expected to expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements.
Average liquid assets were 39.4% of average deposits for 1996, as
compared to 35.4% for 1995. Liquidity levels increased during 1996 as funds were
maintained in liquid assets to be available for volatility in escrow type
deposit accounts. Average loans were 69.0% of average deposits for 1996, as
compared to 72.0% for 1995. Average deposits were 97.9% of average earning
assets for 1996 as opposed to 99.2% for 1995. As noted in Table 16: "Maturity
Schedule of Selected Loans," approximately $48,368,000, or 83.7%, of the loan
portfolio consisted of commercial loans and real estate loans. Of this amount,
$44,468,000, or 92.0%, matures within one year.
Table 16: "Maturity Distribution and Yields of Investment Securities"
indicates that $1,001,000, or 26.9%, of held-to-maturity investment securities
and $846,000, or 7.7%, of available-for-sale investment securities mature within
one year or less. Available-for-sale investment securities totaled $11,041,000
and $4,966,000 as of December 31, 1996 and 1995, respectively.
Table 16: Maturity Distribution and Yields of Investment Securities
- -------------------------------------------------------------------
<TABLE>
<CAPTION>
As of December 31, 1996
-----------------------
Available-for-sale Held-to-maturity
------------------ -----------------
(dollars in thousands) Book Book
- ----------------------- Value Yield Value Yield
----- ----- ----- -----
<S> <C>
U.S. Treasury:
One year or less $ -- -- $ 751 5.82%
Over one through five years -- -- 748 5.98%
----------- --------
Total U.S. Treasury $ -- -- $1,499 5.90%
U.S. Government Agencies:
- -------------------------
Over one through five years $ -- -- $ 250 6.81%
Over five through ten years 1,117 6.96% -- --
Over ten years 986 7.07% -- --
------- --------
Total U.S. Government Agencies $ 2,103 7.01% $ 250 6.81%
Mortgage-backed Securities of
- -----------------------------
Government Sponsored Enterprises:
- ---------------------------------
One year or less $ 568 6.83% $ 250 5.17%
Over one through five years 3,860 6.85% 686 5.91%
Over five through ten years 1,055 6.98% 289 4.98%
Over ten years 2,677 6.97% 3 4.70%
------- --------
Total U.S. government-sponsored enterprises $ 8,160 6.90% $1,228 5.54%
Other Securities:
- -----------------
One year or less $ 278 5.04% $ -- --
Over one through five years 500 7.01% 750 6.46%
------- ------
Total other securities $ 778 6.31% $ 750 6.46%
Total investment securities $11,041 6.63% $3,727 5.95%
======= ======
</TABLE>
Business of Tysons
The Bank
General. The Bank operates as a national banking association
incorporated under the laws of the United States and is subject to examination
by the OCC. Deposits in the Bank are insured by the FDIC up to a maximum amount
(generally $100,000 per depositor, subject to aggregation rules). The OCC and
the FDIC regulate or monitor all areas of the Bank's operations, including
security devices and procedures, adequacy of capitalization and loss reserves,
loans, investments, borrowings, deposits, mergers, issuances of securities,
payment of dividends, interest rate risk management, establishment of branches,
corporate reorganizations, maintenance of books and records and adequacy of
staff training to carry on safe lending and deposit gathering practices. The OCC
requires the Bank to maintain certain capital ratios and imposes limitations on
the Bank's aggregate investment in real estate, bank premises and furniture and
fixtures. The Bank is currently required by the OCC to prepare quarterly reports
on the Bank's financial condition and to conduct an annual audit of its
financial affairs in compliance with minimum standards and procedures prescribed
by the OCC. See "Regulation and Supervision."
Primary Market Area. The Bank draws most of its customer deposits and
conducts most of its lending transactions from and within a primary service area
in the Tysons Corner/Reston corridor in Fairfax County, Virginia. The large
cosmopolitan population that lives and works in this corridor and in surrounding
suburbs, as well as the area's accessibility, make retailing a significant
enterprise. High technology firms are also located within this corridor. These
firms include businesses engaged in operations research, computer programming
and information management. The Bank actively targets and solicits relationships
from the professional staff employed by these enterprises. The corridor also
attracts a significant amount of professional firms, including accounting and
law firms. The Bank actively solicits banking relationships with these firms as
well as their professional staff.
The Bank acquired an additional branch located in Reston, Virginia, in
May 1995. The Reston area is experiencing increases in its large residential
community and growing commercial business sectors which are expected to
contribute to the overall growth of the Bank.
On September 30, 1996, the Bank opened its third branch location in
McLean, Virginia. The McLean branch is located along a main commuter route to
Washington, D.C. The communities around the branch are a mixture of small
commercial businesses and professional service firms as well as residential
areas.
On July 10, 1997, the Bank opened its fourth branch in Fairfax City,
Virginia, located near Tysons Corner. The Fairfax City branch is located at the
intersection of two major commuter routes and is surrounded by several shopping
centers. The immediate area is retail with a significant amount of professional
and service related business.
Banking Services. The Bank engages in general commercial banking
business with particular emphasis on the needs of professionals, entrepreneurs
and small to medium-size businesses located in its primary service area. The
Bank offers a comprehensive range of banking services that are generally offered
by other full service banks and savings and loan associations. Such services
include commercial and personal checking accounts, Automated Teller Machine
("ATM") card services for the MOST, Cirrus and Exchange ATM networks, savings
accounts and other time deposits including individual retirement accounts and
certificates of deposit. The transaction accounts and time deposits are tailored
to the Bank's principal market area at rates competitive to those offered in the
area. The Bank solicits these accounts from individuals, businesses,
professional firms and public and governmental organizations. The Bank is not
currently dependent upon a single depositor or borrower the loss of which would
have a material adverse effect on the Bank.
The Bank also provides loans to businesses, including both secured and
unsecured short-term loans for working capital purposes, term loans for fixed
assets and expansion needs such as real estate acquisition and improvements,
real estate construction loans and other commercial loans suitable to the needs
of its business customers. Loans to individuals which are offered by the Bank
include short-term mortgage loans, home equity loans and installment loans for
personal use such as education and personal investments, or for the purchase of
automobiles or other consumer items. The Bank also acts as an issuing agent for
U.S. savings bonds, travelers' checks and cashier's checks. In addition, the
Bank offers its customers bank-by-mail and direct deposit services, safe deposit
services, wire transfer services and a courier service which picks up non-cash
customer deposits.
Lending Activities
General. At September 30, 1997, the Bank's net loan portfolio totaled
$61,396,000, representing approximately 62.6% of its total assets of
$98,002,000. The categories of loans in the Bank's portfolio are commercial,
both commercial and residential real estate, real estate construction and
consumer. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Composition of Loan Portfolio."
Commercial Loans. The Bank originates secured and unsecured loans for
business purposes. Additionally, commercial business loans are made to provide
short-term working capital and acquisition capital to businesses in the forms of
lines of credit and term loans which may be secured by accounts receivable,
inventory, equipment or other assets. At September 30, 1997, $18,577,000 or
29.9% of the Bank's total gross loan portfolio consisted of commercial business
loans. The financial condition and cash flow of commercial borrowers are closely
monitored by the submission of corporate financial statements, personal
financial statements, income tax returns and other documents. The frequency of
submissions of required information depends upon the size and complexity of the
credit and the collateral which secures the loan. It is also the Bank's general
policy to obtain personal guarantees from the principals of its business
borrowers.
Commercial Real Estate Loans. The Bank also originates commercial loans
secured by real estate. At September 30, 1997, $16,573,000 or 26.6% of the
Bank's total gross loan portfolio consisted of commercial real estate loans.
Such loans are primarily secured by owner-occupied office condominiums, retail
buildings and warehouses and general purpose business space. Although terms
vary, the Bank's commercial real estate loans generally have maturities of five
years or less.
Residential Real Estate Loans. The Bank originates adjustable and
fixed-rate residential mortgage loans, home equity loans and personal loans
secured by residential real estate in order to provide a full range of products
to its customers. Home equity loans are originated by the Bank for typically up
to 80% of the appraised value, less the amount of any existing prior liens on
the property. Home equity loans generally have maximum terms of 15 years and the
interest rate is generally adjustable. The Bank secures these loans with
mortgages on the borrowers' homes (generally a second mortgage). At September
30, 1997, $15,481,000 or 24.9% of the Bank's total gross loan portfolio
consisted of loans secured by residential real estate.
Consumer Loans. The Bank offers a variety of consumer loans in order to
provide a full range of financial services to its customers. The consumer loans
offered by the Bank include loans that are secured by personal property,
including automobiles. At September 30, 1997, $10,136,000 or 16.3% of the Bank's
total gross loan portfolio consisted of consumer loans.
Construction Loans. The Bank originates loans for construction of
single family homes to builders and individuals. These loans are generally
secured by the land on which the homes are to be built. The Bank limits its
lending to one speculative loan outstanding to one builder. Loans generally are
to be owner occupied or have a sales contract in existence. At September 30,
1997, $1,462,000 or 2.3% of the Bank's total gross loan portfolio consisted of
construction loans.
Credit Administration. The Bank employs extensive written policies and
procedures to enhance management of credit risk. The loan portfolio is managed
under a specifically defined credit process. This process includes formulation
of a portfolio management strategy, guidelines for underwriting standards and
risk assessment, procedures for on-going identification and management of credit
deterioration, and regular portfolio reviews to estimate loss exposure and to
ascertain compliance with the Bank's policies. The Bank's loan approval policies
provide for various levels of individual officer lending authority. In general,
lending authority currently granted by the Bank to any one individual is
$100,000. A combination of approvals from certain officers may lend up to an
aggregate of $200,000. The Board's Loan Committee is authorized to approve loans
up to the Bank's internal lending limit of $1,000,000 at September 30, 1997, and
the approval of the full Board of Directors is required for loans which exceed
the Bank's internal lending limit up to the Bank's legal lending limit of
$1,276,000 at September 30, 1997.
A major element of credit risk management is the diversification of
risk. Bank's objective is to maintain a diverse but well-balanced loan portfolio
to minimize the impact of any single event or set of circumstances.
Concentration parameters are based upon individual risk factors, industry
categories, policy constraints, economic conditions, origination sources,
collateral and products. The Bank generally does not make loans outside its
market area unless the borrower has an established relationship with the Bank
and conducts its principal business operations within the Bank's market area.
Consequently, the Bank and its borrowers are directly affected by the economic
conditions prevailing in its market area. However, given the diversity and
balance within the Bank's loan portfolio, management does not believe that there
is any significant aggregation or concentration of loans related to any one
industry, client or sector which would adversely impact the overall performance
of the Bank's loan portfolio.
In the liquidation or other resolution by any receiver of a bank
insured by the FDIC, the claims of depositors have priority over the general
claims of other creditors. Hence, in the event of the liquidation or other
resolution of a banking subsidiary of BankGroup or Tysons, the general claims of
BankGroup or Tysons, respectively, as creditor of such banking subsidiary would
be subordinate to the claims of the depositors of such banking subsidiary, even
if the claims of BankGroup or Tysons were not by their terms so subordinated.
Competition
The Bank encounters strong competition among financial institutions in
the northern Virginia and metropolitan Washington, D.C. area for both loans and
deposits. Competition also exists with savings and loan associations, credit
unions, finance companies, securities firms, mutual funds and insurance
companies. Principal competitors include other community commercial banks and
larger financial institutions with branches in the Bank's primary service area.
This intense competition is expected to continue as bank mergers and
acquisitions of smaller banks into larger institutions in the Washington, D.C.
metropolitan area may be expected to continue for the foreseeable future.
The areas of business activities in which banking and non-bank
institutions may engage have been expanding in recent years. Consequently, to
the extent that other banks and financial institutions engage in such
activities, the competition for deposits and loans has increased and may be
expected to increase in the future.
Employees
Tysons conducts its operations through its subsidiary, the Bank.
Consequently, Tysons has no employees. At September 30, 1997, the Bank had 37
full-time employees and 3 part-time employees.
Description of Property
Tysons', as well as the Bank's, main office is located on the ground
floor of a 14 story office building in a two building office park at 8200
Greensboro Drive in McLean, Virginia. Tysons occupies approximately 11,450
square feet of space on the ground floor and the eleventh floor pursuant to a
lease with 8200 Greensboro Associates, which lease will expire in April 2003.
The Bank's second branch in Reston occupies approximately 2,000 square feet of
space on the ground level of a multi-story office complex. The term of the
Reston branch lease was renegotiated in 1996. The new term is from April 1, 1997
through March 31, 2002. The lease term for the Bank's third branch in McLean is
from September 1, 1996 through August 31, 2003. This location occupies
approximately 1,900 square feet at ground level in a shopping center corner
building. The lease term for Bank's fourth branch in Fairfax City is from July
8, 1997 through September 30, 2002. This lease occupies approximately 3,000
square feet of space at ground level in the corner position of a shopping
center.
In management's opinion, facilities are adequate for the present and
near term needs of Tysons and the Bank. See Note (7) to Tysons' December 31,
1996 Consolidated Financial Statements, Commitments and Contingencies, for
information relating to commitments under the long-term lease.
Legal Proceedings
Neither Tysons nor the Bank is a party to, nor is any of their property
the subject of, any material pending legal proceedings incidental to the
business of Tysons and its subsidiary other than those arising in the ordinary
course of business. Although the amount of any ultimate liability with respect
to such matters cannot be determined, in the opinion of management, any such
liability will not have a material adverse effect on the consolidated financial
position or results of operations of Tysons.
VOTING INFORMATION
This Proxy Statement/Prospectus is furnished in connection with the
solicitation of proxies by Tysons Board, to be voted at Tysons Shareholder
Meeting to be held at Tysons' main office at 8200 Greensboro Drive, Suite 100,
McLean, Virginia, on January 30, 1998, at 10:00 a.m., Eastern Time and at any
adjournment thereof. At Tysons Shareholder Meeting, shareholders will consider
and vote upon the Agreement and the Plan, pursuant to which MB Corp., a Virginia
corporation and a wholly owned subsidiary of BankGroup, will merge into Tysons,
as a result of which Tysons will survive the Merger and become a subsidiary of
BankGroup. Only shareholders of record of Tysons at the close of business on
December 29, 1997 are entitled to notice of and to vote at Tysons Shareholder
Meeting. This Proxy Statement/Prospectus is being mailed to all such holders of
record of Tysons Common Stock on or about __________ __, 1997.
Holders of Tysons Common Stock are entitled to one vote for each share
standing in such holder's name on the books of Tysons. The affirmative vote of
the holders of at least two-thirds of the outstanding shares entitled to vote is
required for approval of the Agreement and the Plan.
Under rules of the National Association of Securities Dealers, Inc.,
the proposal to adopt the Agreement and the Plan is considered a
"non-discretionary item" whereby brokerage firms may not vote in their
discretion on behalf of their clients if such clients have not furnished voting
instructions. Abstentions and such broker "non-votes" will be considered in
determining the presence of a quorum at the Special Meeting but will not be
counted as a vote cast for a proposal. Because the proposal to adopt the
Agreement and the Plan is required to be approved by the holders of two-thirds
of the outstanding shares of Tysons Common Stock, abstentions and broker
"non-votes" will have the same effect as a vote against this proposal.
The proxies solicited hereby, if properly signed and returned via mail
or facsimile and not revoked prior to their use, will be voted in accordance
with the instructions given thereon by the shareholders. If no instructions are
so specified, the proxies will be voted FOR the Agreement and the Plan. Any
shareholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing written notice of revocation addressed to William C.
Sellery, Jr., Secretary, Tysons Financial Corporation, 8200 Greensboro Drive,
Suite 100, McLean, Virginia 22102; (ii) submitting a duly executed proxy bearing
a later date; or (iii) appearing at Tysons Shareholder Meeting and notifying the
Secretary of his or her intention to vote in person. Attendance at the Special
Meeting will not, in and of itself, constitute revocation of a proxy. Proxies
solicited by this Proxy Statement/Prospectus may be exercised only at Tysons
Shareholder Meeting and any adjournment of Tysons Shareholder Meeting and will
not be used for any other meeting.
The accompanying proxy is being solicited by Tysons Board. The cost of
such solicitation will be borne by Tysons. In addition to the use of the mails,
proxies may be solicited by personal interview, telephone or telecopy by
directors, officers and employees of Tysons or BankGroup without additional
compensation. Arrangements may also be made with brokerage houses and
custodians, nominees and fiduciaries for forwarding of solicitation material to
beneficial owners of stock held of record by such persons and obtaining proxies
from the beneficial owners of Tysons Common Stock entitled to vote at the
Special Meeting, and Tysons will reimburse such persons for their reasonable
expenses incurred in doing so.
Under Virginia law, the purpose of the meeting must be included in the
notice of the special meeting. Only business within the purpose described in the
meeting notice may be conducted at the special meeting.
As of the Record Date, directors and executive officers of Tysons and
their affiliates beneficially owned a total of 254,245 shares (representing
23.7% of the outstanding shares of Tysons' Common Stock). See "Ownership of
Certain Beneficial Owners of Tysons Stock."
For the reasons described below, Tysons Board has adopted the Agreement
and the Plan, believes the Merger is in the best interest of Tysons and its
shareholders and recommends that shareholders of Tysons vote FOR approval of the
Agreement and the Plan. In making its recommendation, Tysons' Board considered,
among other things, the opinion of Scott & Stringfellow that the terms of the
Agreement were fair from a financial point of view to Tysons' shareholders. See
"Summary -- Recommendation of the Tysons Board; Reasons for the Merger," and "--
Opinion of Financial Advisor."
THE MERGER
The detailed terms of the Merger are contained in the Agreement,
attached as Annex A to this Proxy Statement/Prospectus. The following discussion
describes the more important aspects of the Merger and the terms of the
Agreement. This description is not complete and is qualified by reference to the
Agreement which is incorporated by reference herein.
Background of the Merger
In 1996, a Goals Committee of the Tysons Board was formed to explore on
behalf of the Board the concept of affiliating with another bank and/or other
strategic alternatives. The Goals Committee first met with representatives of
BankGroup in February 1997 to discuss a possible affiliation. The Goals
Committee met again with representatives of BankGroup on July 8, 1997 to further
discuss the possibility of an affiliation. In mid-July, 1997 the Executive
Committee met with Michael Brenan, the Chief Executive Officer of BankGroup to
discuss the possible terms of an affiliation. The Tysons Board engaged Scott &
Stringfellow to serve as its financial advisor and to assist in the negotiations
with BankGroup. On July 14, 1997, BankGroup preliminarily proposed an exchange
ratio based on a value of $17.00 per share of Tysons Common Stock and $25.00 per
share of BankGroup Common Stock.
On July 14, 1997, the Tysons Board met to consider the BankGroup offer
and authorized Tysons to provide BankGroup with financial information and to
commence negotiations. BankGroup then commenced its preliminary financial due
diligence on July 22, 1997, after which it adjusted its offer to reflect the
Exchange Ratio described herein. On July 22, 1997, the Tysons Board met to
consider the revised offer. At such meeting, Scott & Stringfellow stated that it
believed the terms of the Agreement were fair from a financial point of view to
the shareholders of Tysons. During the next several days, the terms of the
definitive merger agreement and related agreements were finally negotiated. On
July 25, 1997, the Tysons Board met to consider the Agreement and stock option
to be granted to BankGroup in connection with the Agreement. Scott &
Stringfellow presented the Tysons Board with its analysis of the proposed
affiliation and indicated that the terms of the Agreement were fair from a
financial point of view to the Tysons shareholders. The Board also considered a
number of factors, including the terms and conditions of the Merger, its tax
free nature, the dividend payment histories of Tysons and BankGroup and the
liquidity of their respective stocks, and the strength and prospects of
BankGroup and its common stock. The Tysons Board unanimously approved the
Agreement, Plan and Stock Option.
On July 25, 1997, the BankGroup Board unanimously approved the
Agreement and Plan.
Opinion of Financial Advisor
Tysons has retained Scott & Stringfellow to act as its financial
advisor in connection with rendering a fairness opinion with respect to the
Merger. Scott & Stringfellow is a full service investment banking and brokerage
firm headquartered in Richmond, Virginia, that provides a broad array of
services to corporations, financial institutions, individuals and state and
local governments. Scott & Stringfellow actively works with financial
institutions in Virginia, North Carolina, the District of Columbia, Maryland and
West Virginia on these and other matters. As part of its investment banking
practice, it is continually engaged in the valuation of financial institutions
and their securities in connection with mergers and acquisitions, negotiated
underwritings, and secondary distributions of listed and unlisted securities.
Scott & Stringfellow was selected by the Tysons Board based upon its expertise
and reputation in providing valuation and merger and acquisition and advisory
services to financial institutions. Scott & Stringfellow's analysts follow and
publish reports about Tysons and BankGroup.
On July 25, 1997, Scott & Stringfellow delivered a written opinion
("Opinion") to Tysons Board that as of such date, the terms of the Agreement
were fair from a financial point of view to Tysons shareholders. Such Opinion
was updated as of the date of this Proxy Statement/Prospectus. No instructions
or limitations were given or imposed by Tysons Board upon Scott & Stringfellow
with respect to the investigations made or procedures followed by them in
rendering the Opinion.
The full text of the Opinion, which sets forth the assumptions made,
matters considered and limits on the review undertaken, is set forth and
attached hereto in Annex B to this Proxy Statement/Prospectus and is
incorporated herein by reference. Tysons shareholders are urged to read the
Opinion in its entirety. The following is a summary of certain analyses
performed by Scott & Stringfellow which were the bases of such Opinion.
In developing its Opinion, Scott & Stringfellow reviewed and analyzed:
(i) the Agreement; (ii) the Registration Statement and this Proxy
Statement/Prospectus; (iii) Tysons' audited financial statements for the three
years ended December 31, 1996; (iv) Tysons' unaudited financial statements for
the nine months ended September 30, 1997 and 1996, and other internal
information relating to Tysons prepared by Tysons' management; (v) information
regarding the trading market for Tysons' Common Stock and the BankGroup Common
Stock and the price ranges within which the respective stocks have traded; (vi)
the relationship of prices paid to relevant financial data such as net worth,
earnings, deposits and assets in certain bank and bank holding company mergers
and acquisitions in Virginia in recent years; (vii) BankGroup's annual reports
to shareholders and its audited financial statements for the three fiscal years
ended December 31, 1996; and (viii) BankGroup's unaudited financial statements
for the nine months ended September 30, 1997 and 1996 and other internal
information relating to BankGroup prepared by BankGroup's management. Scott &
Stringfellow has discussed with members of Tysons' and BankGroup's management
past and current business operations, the background of the Merger, the reasons
and basis for the Merger, results of regulatory examinations, and the business
and future prospects of Tysons and BankGroup individually and as a combined
entity, as well as other matters relevant to its inquiry. Scott & Stringfellow
has conducted such other studies, analysis and investigations particularly of
the banking industry, and considered such other information as it deemed
appropriate, the material portion of which is described below. Finally, Scott &
Stringfellow also took into account its assessment of general economic, market
and financial conditions and its experience in other transactions, as well as
its experience in securities valuations and knowledge of the commercial banking
industry generally.
Scott & Stringfellow relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it and discussed with it for purposes of its Opinion. With respect to
financial forecasts reviewed by Scott & Stringfellow in rendering its Opinion,
Scott & Stringfellow assumed that such financial forecasts were reasonably
prepared on the basis reflecting the best currently available estimates and
judgment of the managements of Tysons and BankGroup as to the future financial
performance of Tysons and BankGroup, respectively. Scott & Stringfellow did not
make an independent evaluation or appraisal of the assets or liabilities of
Tysons and BankGroup nor was it furnished with any such appraisal.
Scott & Stringfellow evaluated the financial terms of the transaction
using standard valuation methods, including a discounted cash flow analysis, a
market comparable analysis, a comparable acquisition analysis, and a dilution
analysis.
Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of Tysons Common Stock. Among other things, Scott & Stringfellow
considered a range of asset and earnings growth for Tysons of between 8.00% and
10.00% and a required equity capital level of 8.00% of total assets. A range of
discount rates from 11.50% to 13.50% was applied to the cash flows resulting
from the projections during the first five years and the residual values. The
residual values were estimated by capitalizing the projected final year earnings
by the discount rates, less the projected long-term growth rate of Tysons'
earnings. The discount rates, growth rates and capital levels were chosen based
on what Scott & Stringfellow, in its judgment, considered to be appropriate
taking into account, among other things, Tysons' past and current financial
performance and conditions, the general level of inflation, rates of return for
fixed income and equity securities in the marketplace generally and particularly
in the banking industry. The discounted cash flow analysis indicated a reference
range of $7.92 to $11.07 per share for Tysons Common Stock. These values compare
to the value of $14.50 per share of consideration for each share of Tysons
Common Stock. Accordingly, the present value of Tysons Common Stock was
calculated at less than the value of the consideration to be received from
BankGroup pursuant to the Agreement.
Comparable Acquisition Analysis. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data such as tangible net
worth, assets, deposits and earnings in 17 community bank and community bank
holding company mergers and acquisitions in Virginia since January 1, 1995,
representing all such transactions known to Scott & Stringfellow to have
occurred during this period with the proposed Merger and found the consideration
to be received from BankGroup to be within the relevant pricing ranges
acceptable for such recent transactions. Specifically, based upon transactions
announced in Virginia since January 1, 1995, other than the Merger, the average
price to tangible book value in these transactions is 2.30x, compared with 2.05x
for the Merger; the average price to earnings ratio was 19.36x, compared with
24.58x for the Merger; the average deal price to deposits was 24.52 compared
with 24.51% for the Merger; the average deal price to assets was 21.20%,
compared with 21.54% for the Merger; and the average tangible book premium to
core deposits was 15.69%, compared to 14.80% for the Merger. For purposes of
computing the information with respect to the Merger, $14.50 per share of
consideration for each share of Tyson Common Stock was used.
Analysis of BankGroup and Bank Peer Group. Scott & Stringfellow
analyzed the performance and financial condition of BankGroup relative to the
Bank Peer Group consisting of Crestar Financial Corp., F&M National Corp., First
Virginia Banks, Mason-Dixon Bankshares, Mercantile Bankshares, Provident
Bankshares and Union Bankshares. Certain financial information compared was,
among other things, information relating to tangible equity to assets, loans to
deposits, net interest margin, nonperforming assets, total assets, and
efficiency ratio. Additional valuation information compared for the trailing
twelve month period ended September 30, 1997, and stock prices as of December10,
1997, was (i) price to tangible book value ratio which was 2.62x for BankGroup,
compared to an average of 2.86x for the Bank Peer Group, (ii) price to last
twelve months earnings ratio which was 18.58x for BankGroup, compared to an
average of 21.01x for the Bank Peer Group; (iii) return on average assets which
was 1.25% for BankGroup, compared to an average of 1.28% for the Bank Peer
Group; (iv) return on average equity which was 14.89% for BankGroup, compared to
an average of 13.60% for the Bank Peer Group; and (v) a dividend yield of 2.18%
for BankGroup, compared to an average of 2.10% for the Bank Peer Group. Overall,
in the opinion of Scott & Stringfellow, BankGroup's operating performance and
financial condition were comparable to the Bank Peer Group average and
BankGroup's market value was reasonable when compared to the Bank Peer Group.
Dilution Analysis. Based upon publicly available financial information
on Tysons and BankGroup, Scott & Stringfellow considered the effect of the
transaction on BankGroup and Tysons. The immediate effect on BankGroup, assuming
pretax cost savings and revenue enhancements of $170,000, was to decrease
earnings per share by $0.05 or 3.03% and to increase tangible book value per
share by $0.11 or 1.02%. The effect on Tysons under the same assumptions is to
increase dividends per share to $0.32 and to increase the July 15, 1997 market
value of Tysons of $13.00 per share to $14.50. This dilution analysis does not
take into account the long-term benefits for the combined companies resulting
from the combination. Scott & Stringfellow concluded from this analysis that the
transaction would have a positive effect on the Tysons and Tysons Common Stock
shareholders in that, historical dividends per share and the market value per
share of BankGroup Common Stock to be received by Tysons shareholders would
represent an increase, after giving effect of the exchange ratio. See "Summary
- -- Comparative Per Share Data."
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by Scott &
Stringfellow to the Tyson Board or of the analyses performed by Scott &
Stringfellow. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefor, such an opinion is not readily susceptible to summary
description. Accordingly, notwithstanding the separate factors discussed above,
Scott & Stringfellow believes that its analyses must be considered as a whole
and that selecting portions of its analysis and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its Opinion. As a whole, these various
analyses contributed to Scott & Stringfellow's opinion that the terms of the
Agreement are fair from a financial point of view to the Tysons' shareholders.
Pursuant to the engagement between Tysons and Scott & Stringfellow, in
exchange for its services, Scott & Stringfellow will receive a fee equal to
0.50% of the total market value of the consideration received by Bank
shareholders, which equates to a fee of approximately $90,000 and is payable at
closing.
Merger Effective Date
Subject to the terms and conditions set forth herein, including receipt
of all required regulatory approvals, the Merger shall become effective at the
time the SCC issues a certificate of merger reflecting the Merger (the "Merger
Effective Date"). The Merger Effective Date is expected to occur in the first
quarter of 1998. Either Tysons or BankGroup may terminate the Agreement if the
Merger has not been consummated by March 31, 1998.
Until the Merger Effective Date, Tysons shareholders will retain their
rights as shareholders to vote on matters submitted to them by Tysons Board.
Lock-Up Option
In addition to the Agreement, Tysons and BankGroup have entered into an
agreement, dated as of July 25, 1997 providing for BankGroup to have an option
to purchase the Common Stock of Tysons under certain conditions (the "Lock-up
Option"). Specifically, the Lock-up Option provides that BankGroup shall have
the option to purchase 19.9% of the issued and outstanding shares of Tysons'
Common Stock at a price of $13.50 per share. The Lock-up Option is exercisable
only under limited circumstances.
The Lock-up Option provides that BankGroup has an option to purchase
Tysons Common Stock only upon the occurrence of the following events: (i)
Tysons enters into an agreement with a third party to engage in a merger,
consolidation, sale of substantially all of its assets, or sale of
securities representing 20% or more of the voting power of Tysons; or (ii)
a third party acquires beneficial ownership or the right to acquire
beneficial ownership of 25% or more of outstanding Tysons Common Stock.
BankGroup's right to exercise the Lock-up Option has not been triggered as
of the date of this Proxy Statement/Prospectus.
Determination of Exchange Ratio; Exchange of Tysons Common Stock
for BankGroup Common Stock
Each share of Tysons Common Stock issued and outstanding at the Merger
Effective Date shall, and without any action by the holder thereof, be converted
into a number of shares of BankGroup Common Stock equal to the quotient of
$14.50 divided by the average of the bid/ask price for BankGroup Common Stock as
reported on the Nasdaq National Market System for the 20 trading days preceding
the later to occur of (i) such approval(s) contemplated by Paragraph A of
Article VI of the Agreement and (ii) the expiration of the latest financial
institution regulatory approvals (but not the associated statutory waiting
periods) contemplated by Paragraph B of Article VI of the Agreement. If such
quotient is less than 0.507, the Exchange Ratio shall be 0.507. If such quotient
is greater than 0.620, the Exchange Ratio shall be 0.620. All such shares of
BankGroup Common Stock shall be validly issued, fully paid and nonassessable.
The Exchange Ratio at the Merger Effective Date shall be adjusted to
reflect any consolidation, split-up, other subdivisions or combinations of
BankGroup Common Stock, any dividend payable in BankGroup Common Stock, or any
capital reorganization involving the reclassification of BankGroup Common Stock
subsequent to the date of the Agreement.
After the Merger Effective Date, each holder of a certificate
theretofore representing outstanding shares of Tysons Common Stock, upon
surrender of such certificate to the American Stock Transfer & Trust Company
(which shall act as exchange agent) (the "Exchange Agent"), accompanied by a
Letter of Transmittal shall be entitled to receive in exchange therefor a
certificate or certificates representing the number of full shares of BankGroup
Common Stock for which shares of Tysons Common Stock theretofore represented by
the certificate or certificates so surrendered shall have been exchanged as
provided plus cash in lieu of any fractional share. Until so surrendered, each
outstanding certificate which, prior to the Merger Effective Date, represented
Tysons Common Stock will be deemed to evidence the right to receive the number
of full shares of BankGroup Common Stock into which the shares of Tysons Common
Stock represented thereby may be converted, and, after the Merger Effective
Date, will be deemed for all corporate purposes of BankGroup to evidence
ownership of the number of full shares of BankGroup Common Stock into which the
shares of Tysons Common Stock represented thereby were converted. Until such
outstanding certificates formerly representing Tysons Common Stock are
surrendered, no dividend payable to holders of record of BankGroup Common Stock
for any period as of any date subsequent to the Merger Effective Date shall be
paid to the holder of such outstanding certificates in respect thereof. After
the Merger Effective Date there shall be no further registry of transfer on the
records of Tysons of shares of Tysons Common Stock. If a certificate
representing such shares is presented to the Exchange Agent, it shall be
canceled and exchanged for a certificate representing shares of BankGroup Common
Stock as herein provided. BankGroup will also issue a certificate in exchange
for shares evidenced by lost certificate(s) provided the record owner thereof
provides BankGroup with such substantiation, indemnification and security as
BankGroup may reasonably require.
Upon surrender of certificates of Tysons Common Stock in exchange for
BankGroup Common Stock, there shall be paid to the recordholder of the
certificates of BankGroup Common Stock issued in exchange thereof (i) the amount
of dividends theretofore paid with respect to such full shares of BankGroup
Common Stock as of any date subsequent to the Merger Effective Date which have
not yet been paid to a public official pursuant to abandoned property laws and
(ii) at the appropriate payment date the amount of dividends with a record date
after the Merger Effective Date, but prior to surrender, and payment date
subsequent to surrender. No interest shall be payable with respect to such
dividends upon surrender of outstanding certificates.
Business of Tysons Pending the Merger
Tysons has agreed that prior to the Merger Effective Date, it will
operate its business substantially as presently operated and in the ordinary
course, and, consistent with such operation, will use its best efforts to
preserve intact its present business organization and relationships with persons
having business dealings with it. The Agreement contains a description of
certain specified actions to be taken or refrained from by Tysons in satisfying
this undertaking.
Tysons further has agreed that, prior to the Merger Effective Date, it
will consult and reasonably cooperate with BankGroup regarding credit,
investment, litigation and real estate valuation policies and practices
(including loan classifications and levels of reserves), all with the objective
of becoming consistent on a mutually satisfactory basis with BankGroup and
generally accepted accounting principles prior to the Merger Effective Date. See
Paragraph (K) of Article V of the Agreement.
Conditions to Consummation of the Merger
Consummation of the Merger is conditioned upon the approval of the
holders of at least two-thirds of the outstanding Tysons Common Stock entitled
to vote at Tysons Shareholder Meeting. The Merger must be approved by the
Federal Reserve Board and the SCC, applications for which have been or will be
filed and approvals for which are expected to be received. The balance of a loan
made to the ESOP from Richard Schwartz must be repaid and holders of certain
warrants and options must agree to exercise or exchange such warrants and
options. See "The Merger -- Interests of Certain Persons in the Merger." The
obligations of Tysons and BankGroup to consummate the Merger are further
conditioned upon the satisfaction of terms and conditions contained in the
Agreement usual for transactions of this type, including continued accuracy of
certain representations and warranties made by Tysons and BankGroup, the absence
of material adverse change in Tysons' and BankGroup's businesses and the receipt
of legal and accounting opinions. See Article VI of the Agreement.
Termination
The Agreement will be terminated, and the Merger abandoned, if
shareholders of Tysons do not approve the Agreement and the Plan.
Notwithstanding such approval by such shareholders, the Agreement also may be
terminated at any time prior to the Merger Effective Date by mutual consent,
upon breach of the Agreement, if the Merger is not effective by March 31, 1998,
and upon the occurrence of certain other events specified in the Agreement. See
Article VII of the Agreement.
Operations After the Merger
After consummation of the Merger, Tysons will continue generally to
conduct the business presently conducted by Tysons.
Interests of Certain Persons in the Merger
Certain members of the Tysons Board and Tysons management may be deemed
to have interests in the Merger in addition to their interests as shareholders
of Tysons generally. These include, among other things, indemnification of ESOP
Trustees, indemnification and directors' and officers' liability insurance for
Tysons directors and officers, eligibility of Tysons employees for certain
BankGroup employee benefits, the impact of the Merger under Terrie G. Spiro's
employment agreement, the repayment of a loan to the ESOP from a member of the
Tysons Board, exchange of Tysons Directors Options in return for shares of
BankGroup Common Stock, conversion of Tysons ISOs into options with respect to
BankGroup Common Stock and the requirement to exercise or exchange the Tysons
Warrants. In each case, Tysons Board was aware of their potential interests, and
considered them, among other matters, in approving the Agreement and the
transactions contemplated thereby.
The Directors of the Bank are expected to continue to serve on the
Bank's Board and Board Committees. Such directors are expected to continue to
receive fees for serving as members of the Bank's Board of Directors and its
Committees.
The ESOP owes Richard Schwarz $325,000 in respect of a loan he made to
the ESOP to fund the ESOP's purchases of Tysons Common Stock. Tysons is
required under the Agreement to repay or cause such loan to be repaid prior to
the Merger Effective Date. See "-- Employee Benefits."
In October 1996, Ms. Spiro and Tysons executed a new employment
agreement which was amended on April 21, 1997 (the "Employment Agreement"). The
following is a summary of the material terms of the Employment Agreement. The
term of employment was deemed to have commenced January 1, 1996 and continues
for a period of four years unless terminated. After completion of the initial
four years, the agreement will automatically be extended for an additional year,
and shall thereafter be extended on a year-to-year basis unless either party
gives six months prior notice of intention to terminate, subject to the
provisions set forth below following a change in control. According to the terms
of the Employment Agreement, Ms. Spiro received a base salary of $130,000 in
1996 (increased to $140,000 for 1997) and benefits including, but not limited
to, individual contributory health insurance, term life insurance policy, the
cost of annual dues to one country club and one dining club membership. Ms.
Spiro's Employment Agreement entitles her to receive incentive stock options
annually based upon certain performance objectives. The Employment Agreement
also provides for incentive bonus compensation if, during each calendar year,
the Bank meets certain performance objectives, including but not limited to: (i)
asset quality; (ii) asset growth; and (iii) net income before taxes. In the
event of a hostile takeover or a change in control of Tysons or the Bank, Tysons
will pay to Ms. Spiro an amount equal to two times base salary and bonuses.
Tysons maintains a key-person insurance policy on the life of Ms. Spiro.
Upon the occurrence of a change in control such as the Merger, in the
event of termination of Ms. Spiro's employment by either party for certain
permitted specified reasons set forth in the Employment Agreement, Tysons or the
Bank shall pay to Ms. Spiro an amount equal to 2.0 multiplied by the sum of (i)
her annual base compensation at the rate in effect immediately prior to the
change in control, and (ii) the most recent annual "short term performance
bonus" (as defined in the Employment Agreement) paid or payable to Ms. Spiro,
the full fiscal year ended prior to the fiscal year during which a change in
control occurred. Such payment shall be reduced as necessary to eliminate the
imposition of certain taxes to such payment, in accordance with the provisions
of the Employment Agreement.
Tysons has agreed to indemnify the Trustees of the ESOP in
connection with their service as fiduciaries.
Other than as set forth above and elsewhere herein, no director or
executive officer of Tysons or BankGroup has any direct or indirect material
interest in the Merger, except in the case of directors and executive officers
of Tysons insofar as ownership of Tysons Common Stock, Tysons Warrants and
Directors Options might be deemed such an interest.
Indemnification; Liability Insurance
BankGroup agrees that for the period of the relevant statute of
limitations but in no event less than six years following the Merger Effective
Date, it shall cause Tysons and any successor thereto to indemnify and hold
harmless any person who has rights to indemnification from Tysons to the same
extent and on the same conditions as such person is entitled to indemnification
pursuant to Tysons' Bylaws as in effect on the date of the Agreement, to the
extent legally permitted to do so, with respect to matters occurring on or prior
to the Merger Effective Date (regardless of whether a claim is asserted in
connection therewith on or prior to the Merger Effective Date or thereafter), as
detailed in Paragraph K of Article VIII of the Agreement. BankGroup shall use
its reasonable best efforts to provide coverage to the officers and directors of
Tysons under BankGroup's policy or policies of directors' and officers'
liability insurance on the same or substantially similar terms then in effect
for the directors and officers of BankGroup as further detailed in Paragraph K
of Article VIII of the Agreement.
Tysons has agreed to indemnify the Trustees of the ESOP in
connection with their service as fiduciaries.
Additionally, Tysons shall have the power to indemnify its directors
and officers against liability for acts or omissions before the Merger Effective
Date to the extent permitted under Virginia law.
Employee Benefits
Upon consummation of the Merger, as soon as administratively
practicable employees of Tysons shall be entitled to participate in BankGroup's
pension, severance, benefit and similar plans on the same terms and conditions
as employees of BankGroup and its subsidiaries. Employees of Tysons shall be
given full credit for past service with Tysons for purposes of eligibility and
vesting in the BankGroup 401(k) plan. BankGroup shall cause Tysons to honor in
accordance with their terms as in effect on the date hereof, or as amended after
the date hereof with the prior written consent of BankGroup, all employment,
severance, consulting and other compensation contracts and agreements executed
in writing by both Tysons on the one hand and any individual current or former
director, officer or employee thereof on the other hand.
In addition to a 401(k) plan, Tysons Financial Corporation also
presently maintains the Tysons Financial Corporation ESOP. A loan for $500,000
was made in June 1994 by the Trustees of the ESOP Trust from Richard Schwartz to
acquire shares of Tysons Common Stock at the then fair market value (the "ESOP
Loan"). Each year Tysons contributes sufficient funds to the ESOP to make
scheduled payments under the ESOP Loan. The acquired shares are held as
collateral for the ESOP Loan and released for allocation to participating
employees' ESOP accounts as payments are made on the loan. As of December 8,
1997, the principal balance of the ESOP Loan was $325,000.
The Agreement provides that Tysons is to cause the ESOP Loan to be
repaid in full prior to the closing of the Merger, after Tysons and BankGroup
agree that the Merger will close and notification is provided by BankGroup that
all conditions necessary for the Merger to close have occurred. The ESOP will be
terminated as soon as practicable following the Merger.
Exchange of Tysons Warrants
Each holder of Tysons Warrants shall be asked to enter into a written
agreement with Tysons, reasonably acceptable to BankGroup, to cause a
termination of its Warrants effective as of immediately prior to the Merger
Closing. It is expected that such holders, as of immediately prior to the Merger
Closing, will have either exercised their warrants or exchanged them for that
number of shares of Tysons' Common Stock equal to the percentage obtained by
applying the Warrant Exchange Ratio.
Exchange of Directors Options
As of a date which is no later than 30 days before the Merger Closing,
Tysons shall enter into a written agreement with each holder of a Directors
Option for the express benefit of and reasonably satisfactory to BankGroup to
exchange such Directors Options as of the Merger Closing, in full satisfaction
of the optionee's rights under such Directors Option that number of shares of
BankGroup Common Stock equal to the quotient obtained by dividing (y) the Strike
Price by (z) the Option Ratio. If the Option Ratio computed in accordance with
the immediately preceding sentence is less than the Bottom Ratio, the Option
Ratio shall be the Bottom Ratio; if the Option Ratio computed in accordance with
the immediately preceding sentence is greater than the Top Ratio, the Option
Ratio shall be the Top Ratio.
Conversion of ISOs
As of the Merger Closing, all ISOs to purchase shares of Tysons Common
Stock which are then outstanding and unexercised shall automatically be
converted into and become options with respect to BankGroup Common Stock
adjusted to reflect the Exchange Ratio, and subject to the BankGroup Stock
Option Plan.
<PAGE>
Certain Federal Income Tax Consequences
The following discussion summarizes certain Federal income tax
consequences of the Merger to holders of Tysons Common Stock. The
discussion does not address all aspects of Federal income taxation that
may be relevant to particular holders of Tysons Common Stock and may not
be applicable to holders of Tysons Common Stock that are not citizens or
residents of the United States or to holders of Options or Warrants, nor
does the discussion address the effect of any applicable foreign, state,
local or other tax laws. This discussion assumes that holders of Tysons
Common Stock hold such shares as capital assets within the meaning of
section 1221 of the Code. EACH HOLDER OF TYSONS COMMON STOCK, OPTIONS OR
WARRANTS SHOULD CONSULT HIS OR HER OWN TAX ADVISOR AS TO THE PARTICULAR
TAX CONSEQUENCES TO HIM OR HER OF THE MERGER, INCLUDING THE
APPLICABILITY AND EFFECT OF FOREIGN, STATE, LOCAL AND OTHER TAX LAWS.
In the opinion of Venable, Baetjer, Howard & Civiletti, LLP, counsel to
Tysons, under current law the Merger will qualify as a reorganization under
section 368(a) of the Code, and Tysons and BankGroup will each be a party to the
reorganization within the meaning of section 368(b) of the Code. In rendering
such opinion, counsel has relied upon certain representations regarding, among
other things, the lack of previous dealings between Tysons and BankGroup, the
existing and future ownership of Tysons Common Stock and BankGroup Common Stock,
and the future business plans for BankGroup.
As a tax-free reorganization, the Merger will have the following
Federal income tax consequences for holders of Tysons Common Stock, Tysons and
BankGroup:
1. No gain or loss will be recognized by holders of Tysons Common Stock
as a result of the exchange of Tysons Common Stock pursuant to the Merger,
except that gain or loss will be recognized on the receipt of cash, if any,
received in lieu of fractional shares. Any cash received by a holder of Tysons
Common Stock in lieu of a fractional share will be treated as received in
exchange for such fractional share and not as a dividend, and any gain or loss
recognized as a result of the receipt of such cash will be capital gain or loss
equal to the difference between the cash received and the portion of the
holder's basis in Tysons Common Stock allocable to such fractional share
interest.
2. A holder who exchanges his or her shares of Tysons Common Stock for
BankGroup Common Stock will have an aggregate tax basis in the shares of
BankGroup Common Stock (including any fractional share interest, but reduced for
any amount allocable to fractional share interests for which cash is received)
equal to his or her tax basis in the shares of Tysons Common Stock exchanged
therefor.
3. A holder's holding period for shares of BankGroup Common Stock
(including any fractional share interest) received in the Merger will include
his or her holding period for the shares of Tysons Common Stock exchanged
therefor if they are held as a capital asset at the Merger Effective Date.
4. Neither Tysons nor BankGroup will recognize gain or loss as a result
of the Merger.
Dissenters' Appraisal Rights
Under the Virginia Stock Corporation Act (the "VSCA"), a stockholder
does not have appraisal rights in certain circumstances, including a merger, if
such stockholder's stock is listed on a national exchange or is designated on
the Nasdaq System. As Tysons Common Stock is traded on the Nasdaq SmallCap
Market under the symbol "TYFC" and as Tysons stockholders will not receive
anything other than cash or shares of BankGroup Common Stock in the merger,
dissenters' appraisal rights will not be available with respect to the merger.
TYSONS BOARD UNANIMOUSLY RECOMMENDS A VOTE FOR THE AGREEMENT AND THE PLAN.
MAINSTREET BANKGROUP INCORPORATED
General
BankGroup is a multi-bank holding company headquartered in
Martinsville, Virginia, with total assets of $1.5 billion at September 30, 1997.
Organized in 1977, BankGroup through its nine affiliate banks (the "BankGroup
Banks"), and MainStreet Trust Company, National Association, a nationally
chartered trust company ("Trust Company") engages in a general banking business
and provides a broad spectrum of full-service banking and trust services to
consumers, businesses, institutions and governments, including accepting demand,
savings and time deposits; making commercial, personal, installment, mortgage
and construction loans; issuing letters of credit; and providing discount
brokerage, trust services, bank-card services, mortgage banking and investment
services.
The BankGroup Banks seek customers whose total financial requirements
they can serve. As a result, most of the BankGroup Banks' business customers are
small and medium-sized entities. While BankGroup considers this middle market to
be its primary business market, BankGroup's lead bank, Piedmont Trust Bank
("Piedmont"), has banking relationships with many of the larger textile and
furniture manufacturing companies located in its market area.
Principal markets served are the City of Martinsville and Henry County;
the Town of Hillsville and City of Galax, and Carroll and Grayson Counties; the
Towns of Ferrum and Rocky Mount and Franklin County; the Town of Forest, City of
Lynchburg, and Bedford, Campbell and Amherst Counties; the Town of Stuart and
Patrick County; the Towns of Saltville and Chilhowie and Smyth County, the Towns
of Mechanicsville and Ashland and Hanover and Henrico Counties; and the City of
Clifton Forge and Allegheny, Bath and northern Botetourt Counties, Virginia and
contiguous areas. BankGroup's affiliate Banks operate a total of 38 offices.
BankGroup continually seeks acquisition opportunities for banks and
bank related financial institutions. BankGroup's acquisition philosophy permits
the BankGroup Banks to operate as separately chartered banks with their
historical names and board of directors. BankGroup believes that this philosophy
maintains community loyalty at the Banks and has a positive effect on operating
performance. BankGroup seeks to capitalize on the local identity of the
BankGroup Banks while providing the services and efficiencies of a larger bank
holding company.
During 1994, BankGroup moved to a centralized approach in management,
providing direction to the BankGroup Banks and performing selected services in
the compliance, data processing, financial management, human resources,
investment, accounting, marketing, mortgage, trust and audit areas. The
BankGroup Banks are still permitted to approve loans up to a certain credit
limit, above which central credit administration must consent. The BankGroup
Banks also still must approve investments and other activities consistent with
past practices and the needs of their communities. To coordinate the activities
of the BankGroup Banks and to maintain internal controls, BankGroup utilizes a
planning and budgeting process which involves BankGroup officers, presidents of
the BankGroup Banks, and principal department heads. Performance targets and
budget goals are developed for each Bank on an annual basis, with financial and
operating results reported and reviewed periodically during the year.
During 1997, BankGroup organized Trust Company to offer fiduciary
services in all the markets served by its affiliate banks and elsewhere. This
centralized approach to fiduciary services allows BankGroup affiliates to offer
to the customer a broader array of more sophisticated products more efficiently
and effectively than could otherwise be accomplished.
During 1997, BankGroup also organized a statutory business trust
subsidiary under Delaware law: MainStreet Capital Trust I ("MSBC Trust").
BankGroup is the owner of all of the beneficial interests represented by the
common securities of the MSBC Trust. The capital securities of the MSBC Trust
are held by investors. The MSBC Trust exists for the exclusive purpose of
issuing securities and investing the proceeds in approximately $50,000,000
junior subordinated deferrable interest debentures to be issued by BankGroup and
certain other limited activities.
The BankGroup Banks
Piedmont Trust Bank. Piedmont was incorporated in 1921 under the laws
of Virginia. Piedmont's main office is in the City of Martinsville, a commercial
center in southwest Virginia, and it has five branches in Martinsville and Henry
County. Its primary service area has a population of approximately 72,400 and
its economy is oriented toward the textile, furniture and prebuilt housing
industries. Piedmont is insured by the FDIC and is supervised and examined by
the Federal Reserve Board and the SCC. It engages in a general commercial
banking business and offers the range of banking services that can be expected
of a banking organization of its size. Piedmont is the largest bank in the
Martinsville trade area with total assets of approximately $543.8 million,
deposits of approximately $322.2 million and loans, net of unearned income, of
approximately $348.0 million at September 30, 1997.
Bank of Carroll. Bank of Carroll ("Carroll"), incorporated in 1971
under the laws of Virginia, was acquired by BankGroup in 1977. At September 30,
1997, it had total assets of approximately $72.2 million. Its main office is
located in Hillsville, Carroll County, Virginia, and it has branches in Cana and
Galax, Virginia. Its primary service area has a population of approximately
34,000. Carroll is supervised and examined by the Federal Reserve Board and the
SCC and engages in a general commercial banking business.
Bank of Ferrum. Bank of Ferrum ("Ferrum"), incorporated in 1917 under
the laws of Virginia and converted during the 1920's to a national bank, was
acquired by BankGroup in 1981. As of June 1, 1995, Ferrum converted its charter
to a state bank under the laws of Virginia. When Ferrum converted to a state
charter on June 1, 1995, the name changed from First National Bank of Ferrum to
Bank of Ferrum. At September 30, 1997, it had total assets of approximately
$136.1 million. Its main banking office is located at Ferrum, Virginia, with
branches at Oak Level and two offices located in Rocky Mount, Virginia. Ferrum
currently has an office under construction in Franklin County at Smith Mountain
Lake. Its primary service area has a population of approximately 43,000. Ferrum
is supervised and examined by the Federal Reserve Board and the SCC and engages
in a general commercial banking business.
First Community Bank. First Community Bank ("Community"), incorporated
in 1978 under the laws of Virginia, was acquired by BankGroup in 1983. At
September 30, 1997, it had total assets of approximately $157.4 million.
Community's main office is located in Forest, Virginia, and it operates six
branches in the Lynchburg and Forest area. Its primary service area has a
population of approximately 130,000. Community is regulated by the Federal
Reserve Board and the SCC. Retail and commercial banking services are provided
for customers in Forest, Bedford, Campbell and Amherst Counties and the City of
Lynchburg, Virginia.
The First Bank of Stuart. The First Bank of Stuart ("Stuart") was
incorporated in 1920 as a national bank and acquired by BankGroup in 1986.
Stuart converted its charter to a state bank and began operating as a state
banking corporation on September 1, 1995. When Stuart was converted to a state
charter on September 1, 1995, the name changed from The First National Bank of
Stuart to The First Bank of Stuart. At September 30, 1997, it had total assets
of approximately $157.8 million. Its main office is located in Stuart, Virginia,
and it has five other offices all located in Patrick County, Virginia. It's
primary service area has a population of approximately 17,600. Stuart is the
largest bank in Patrick County. Stuart is regulated by the Federal Reserve Board
and the SCC.
The First Community Bank of Saltville. The First Community Bank of
Saltville ("Saltville") was established in 1903 as a state bank under the laws
of Virginia and was incorporated in 1918 as a national bank and acquired by
BankGroup in 1986. As of August 1, 1995, Saltville completed its conversion from
a national bank to a Virginia banking corporation. When Saltville converted to a
state charter on August 1, 1995, the name changed from The First National Bank
of Saltville to First Community Bank of Saltville. At September 30, 1997, it had
total assets of approximately $136.3 million. Its main office is located in
Saltville, Virginia, and it has two other offices located in Smyth County.
Saltville is the third largest of the four banks in Smyth County. Its primary
service area has a population of approximately 33,300. Saltville engages in a
general commercial banking business and is regulated by the Federal Reserve
Board and the SCC.
The First National Bank of Clifton Forge. The First National Bank of
Clifton Forge ("Clifton Forge") was incorporated as a national bank in 1901 and
was acquired in 1996. At September 30, 1997, it had total assets of $127.0
million. Its primary service area has a population of 22,600 and includes the
city of Clifton Forge and Alleghany, Bath and northern Botetourt counties in
Virginia. Clifton Forge is supervised and examined by the OCC and engages in
general commercial banking business.
Hanover Bank. Hanover Bank ("Hanover") was incorporated under the laws
of Virginia in 1988 and was acquired in 1996. At September 30, 1997, it had
assets of $144.6 million. Hanover's main office is located in Mechanicsville,
and it has four branches in Hanover and Henrico counties. Its primary service
area has a population of 305,000. Hanover engages in general commercial banking
business and is supervised and examined by the Federal Reserve Board and the
SCC.
MainStreet Trust Company, National Association. Trust Company was
incorporated as a national banking association in 1997 with its business limited
to trust and related fiduciary services. At September 30, 1997, it had assets in
excess of $736.2 million under management including substantially all of the
trust assets of Piedmont which were transferred to Trust Company on January 1,
1997. Its primary service area includes the markets of all its affiliate banks.
Trust Company is supervised and examined by the OCC and engages solely in the
provision of trust and fiduciary services.
Commerce Bank Corporation. Commerce Bank Corporation ("Commerce") was
incorporated under the laws of Maryland in 1987, commenced business in 1989 and
was acquired in 1997. At September 30, 1997, it had assets of $90.1 million.
Commerce's main office and three branches are located in Prince George County,
Maryland. It's primary service area is Prince George's County, Maryland.
Commerce is supervised and examined by the Federal Reserve Board and the
Maryland Division of Financial Regulation.
Recent Developments
On October 27, 1997, BankGroup announced that it had reached an
agreement to acquire Regency Financial Shares, Inc., ("Regency") a Virginia
corporation, located in Richmond, Virginia, subject to shareholder and
regulatory approval. Under the terms of the agreement, BankGroup agreed to pay
shareholders of Regency the equivalent of $13.00 per share for each share of
Regency's Common Stock outstanding. The transaction is valued at approximately
$18.2 million, which will be paid in BankGroup Common Stock. The exchange ratio
will be determined during a measurement period prior to the consummation of the
transaction which is expected around February 28, 1998, or as soon thereafter as
practicable. The transaction will be treated as a pooling of interests.
In addition, it is a condition of the merger that Regency's outstanding
7,000 directors' options be exercised or that each holder of a directors' option
agree to the redemption of their directors' options for that number of shares of
BankGroup Common Stock equal to the quotient obtained by dividing (y) the
difference between $13.00 minus the respective strike price for such option by
(z) the average BankGroup share price. It is also a condition of closing that
every holder of an option granted to employees of Regency to purchase Regency
Common Stock shall agree to accept the conversion of such option with respect to
BankGroup Common Stock as contemplated in the merger agreement between BankGroup
and Regency.
Regency has one wholly owned subsidiary, Regency Bank ("RB") located in
the city of Richmond, Virginia. RB's main office and two branches are located in
Richmond and Midlothian, Virginia. At September 30, 1997, Regency reported total
assets of $75.0 million.
After the execution of the Agreement and Plan of Merger, Tysons
reported to BankGroup the existence of borrower misconduct involving a small
portion of its loan portfolio. Relying substantially on assurances from
Tysons' management and statements by Tysons' outside auditors, BankGroup
decided to proceed with the transaction. Any statements made by the
auditors were not based on any procedures performed for purposes of the
Merger, although the auditors performed for their own purposes certain
limited procedures with respect to certain elements of Tysons' loan
portfolio. Although the ultimate exposure which may arise from these
events cannot be predicted with certainty at this time, Tysons and
BankGroup believe that such exposure would not result in a material
adverse impact on their consolidated financial position.
PRICE RANGE OF BANKGROUP COMMON STOCK AND DIVIDENDS
BankGroup Common Stock is traded in the over-the-counter market and is
quoted on the Nasdaq National Market system under the symbol "MSBC." The
following table sets forth for the periods indicated the high and low closing
prices per share of BankGroup Common Stock as reported on the Nasdaq National
Market system, and the cash dividends paid per share of BankGroup Common Stock.
Information in the table gives effect to a 5-for-4 stock split in the form of a
stock dividend effective July 15, 1993 and a 2-for-1 stock split in the form of
a stock dividend effective March 4, 1996.
<TABLE>
<CAPTION>
Price Range
-----------
High Low Dividends
----- ---- ----------
<S> <C>
1995
First Quarter $11.750 $ 9.375 $.08
Second Quarter 13.125 11.000 .10
Third Quarter 13.125 11.875 .09
Fourth Quarter 13.750 12.625 .10
1996
First Quarter 17.00 12.75 .11
Second Quarter 17.00 15.50 .11
Third Quarter 19.50 16.25 .13
Fourth Quarter 19.50 16.75 .14
1997
First Quarter 23.25 18.00 .14
Second Quarter 28.00 18.75 .14
Third Quarter 29.50 24.75 .14
</TABLE>
As of September 30, 1997 there were approximately 3,524 holders of record of the
outstanding shares of BankGroup Common Stock.
The payment of future dividends will depend upon future earnings of
BankGroup, its financial condition and other relevant factors, including the
amount of dividends payable to BankGroup by the BankGroup Banks. Various federal
and state laws, regulations and policies limit the ability of BankGroup's
subsidiary banks to pay dividends to BankGroup, which affects BankGroup's
ability to pay dividends to shareholders. See "Regulation and Supervision."
TYSONS FINANCIAL CORPORATION
Description of Business
Tysons was incorporated in Virginia on December 29, 1989 as a bank
holding company to own and control all of the capital stock of the Bank. The
Bank commenced its operations on July 1, 1991 in its primary service area in
Fairfax County, Virginia. The headquarters of Tysons and the Bank are located in
an area known as Tysons Corner. Tysons Corner is approximately 13 miles due west
of Washington, D.C. and within 20 to 30 minutes from other locations such as
Dulles International Airport, Washington National Airport and suburban Maryland.
The Bank also operates three additional branches located in Reston, McLean and
Fairfax City, Virginia. At September 30, 1997, Tysons had total assets of $98.0
million, total loans, net of unearned income, of $62.1 million, total deposits
of $86.6 million and stockholders' equity of $8.7 million.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market Information
Tysons' Common Stock, par value $5.00 per share trades on the Nasdaq
SmallCap Market under the symbol "TYFC." Tysons became listed on the Nasdaq
SmallCap Market with its offering in May 1996. Prior to this offering, trades in
Tysons' stock occurred infrequently on a local basis and generally involved a
relatively small number of shares. Based on information made available to it,
Tysons believes that the selling price for the Tysons' Common Stock ranged as
set forth on the following table.
1995 January 1, 1996 - April 30, 1996
---- --------------------------------
$6.50 - $8.25 $6.875 - $7.125
Based on the Nasdaq SmallCap Market information the selling price for the Tysons
Common Stock ranged as set forth on the following table.
<TABLE>
<S> <C>
May 1, 1996 - July 1, 1996 - Oct. 1, 1996 - Jan. 1, 1997 - Apr. 1, 1997 - July 1, 1997 -
June 30, 1996 Sept. 30, 1996 Dec. 31, 1996 Mar. 31, 1997 June 30, 1997 Sept. 30, 1997
- ------------- -------------- ------------- ------------- ------------- ---------------
$8.50 - $9.75 $8.00 - $9.75 $9.00 - $10.75 $10.50 - $12.75 $10.75 - $14.00 $12.87 - $15.00
</TABLE>
Holders
As of September 30, 1997, there were approximately 1,001 holders of
record of the Tysons Common Stock and 1,071,119 shares of Tysons Common Stock
issued and outstanding. In addition, as of such date there were 359,735 shares
of Tysons Common Stock issuable pursuant to currently outstanding warrants and
stock options.
Dividends
Tysons has not paid any dividends since its inception. It is
anticipated that earnings will be retained for several years to expand the
Bank's capital base to support asset growth and that no cash dividends will be
paid on Tysons' stock for the foreseeable future. In making any determination
with respect to the payment of dividends in the future, Tysons' earnings,
financial condition and capital requirements will be taken into consideration.
Moreover, the National Bank Act limits dividend payments by national banks,
which in turn could limit Tysons' ability to pay dividends. See also the
discussion under "Regulation and Supervision."
OWNERSHIP BY CERTAIN BENEFICIAL OWNERS OF TYSONS STOCK
Security Ownership of Certain Beneficial Owners and Management
The following information sets forth certain information regarding the
beneficial ownership of Tysons Common Stock as of December 16, 1997, the most
recent practicable date, by each of Tysons' and the Bank's directors and
nominees and by each person known by Tysons to own beneficially more than 5% of
Tysons' voting securities and by the officers and directors of Tysons as a
group, including the number of shares beneficially owned by and percentage
ownership of each such person as of such date.
<TABLE>
<CAPTION>
Number of Percent of
Name of Beneficial Owner Shares Owned (1) Class (2)
<S> <C>
Joel M. Birken 13,550(3) 1.26%
8133 Leesburg Pike
Ninth Floor
Vienna, VA 22182
<PAGE>
Michael Farnum 30,931(4) 2.85%
1138 Swinks Mill Road
McLean, VA 22102
Alben G. Goldstein, M.D. 19,582(5) 1.81%
6305 Castle Place, #2A
Falls Church, VA 22044
Zachary A. Kaye, M.D. 10,036(6) 0.93%
14904 Jefferson Davis Hwy., Suite 408
Woodbridge, VA 22191
Beth W. Newburger 14,504(7) 1.35%
1401 North Oak Street
Arlington, Virginia 22209
J. Patrick Rowland 75,290(8) 6.79%
9435 Lakeside Drive
Vienna, Virginia 22182
Richard Schwartz 46,517(9) 4.26%
880 South Pickett Street
Alexandria, VA 22304
William C. Sellery, Jr. 62,818(10) 5.70%
1619 Montmorency Drive
Vienna, Virginia 22182
Terrie G. Spiro 43,142(11) 3.90%
8200 Greensboro Drive, Suite 100
McLean, VA 22102
St. Clair J. Tweedie 41,117(12) 3.77%
2665 Marcey Road
Arlington, VA 22207
Tysons Financial ESOP Trust 57,171(13) 5.34%
8200 Greensboro Drive
McLean, VA 22102
Nicholas L. Van Nelson 63,429(14) 5.81%
1023 15th Street, NW
Washington, DC 20005
Stephen A. Wannall 11,800(15) 1.10%
3025 Hamaker Court, Ste. 401
Fairfax, VA 22031
Officers and directors as a group of 16 441,256(16) 35.06%
</TABLE>
(1) Information relating to beneficial ownership of Tysons Common Stock is based
upon "beneficial ownership" concepts set forth in rules of the SEC under Section
13(d) of the Exchange Act. Under these rules, a person is deemed to be a
"beneficial owner" of a security if that person has or shares "voting power,"
which includes the power to vote or direct the voting of such security, or
"investment power," which includes the power to dispose or to direct the
disposition of such security. A person is also deemed to be a beneficial owner
of any security of which that person has the right to acquire beneficial
ownership within sixty days. Beneficial ownership may include spouses, minor
children and other relatives residing in the same household, and trusts,
partnerships, corporations or deferred compensation plans which are affiliated
with the principal. Included in the amount of shares beneficially owned are
shares issuable upon the exercise of stock purchase warrants that were issued to
the organizers of the Bank and Tysons. Tysons Warrants entitle the holder of
such warrants to purchase Tysons Common Stock at $10.00 per share at any time
during the term of the warrant. Tysons Warrants became exercisable on January 2,
1992, and have a term of ten years from July 1, 1991, the date the Bank opened
for business. In the event of a capital call upon the Bank, the OCC will require
the Tysons Warrants to be exercised at a price not less than current book value
or be forfeited.
(2) Percent is calculated by treating shares subject to options or warrants held
by the named individual for whom the percentage is calculated which are
exercisable within the next 60 days as if outstanding, but treating shares
subject to warrants or options held by others as not outstanding.
(3) Includes options to purchase 1,500 shares.
(4) Includes warrants to purchase 4,054 shares and options to purchase
9,500 shares.
(5) Includes warrants to purchase 5,160 shares and options to purchase
4,350 shares.
(6) Includes warrants to purchase 3,686 shares and options to purchase
1,350 shares.
(7) Includes warrants to purchase 4,054 shares and options to purchase
1,450 shares.
(8) Includes warrants to purchase 14,743 shares and options to purchase
22,350 shares.
(9) Includes warrants to purchase 10,688 shares and options to purchase
10,350 shares.
(10) Includes warrants to purchase 14,743 shares and options to purchase
15,300 shares.
(11) Includes warrants to purchase 8,485 shares and options to purchase
25,205 shares.
(12) Includes warrants to purchase 14,743 shares and options to purchase
5,300 shares.
(13) The shares of Tysons Common Stock held in the ESOP Trust consist of shares
which are allocated to accounts of participating employees and unallocated
shares which will be released to participants' accounts each year as payments
are made on a loan used to acquire the stock. The shares are voted by the ESOP
Trustees, who are Terrie G. Spiro, President and Chief Executive Officer and
Director, and Janet Valentine, Chief Financial and Accounting Officer. Pursuant
to the documents governing the ESOP, each participant in the ESOP is entitled to
direct the Trustees as to the manner in which the Tysons Common Stock which is
allocated to such participant's account is to be voted. The Trustees are to vote
all unallocated shares of Tysons Common Stock and all allocated shares for which
timely participant instructions are not received in direct proportion to the
shares of allocated Tysons Common Stock for which timely voting instructions are
received from participants.
(14) Includes warrants to purchase 9,214 shares and options to purchase
10,100 shares.
(15) Includes options to purchase 1,500 shares.
(16) Includes total warrants of 82,356 and stock options of 104,655 of which
all are outstanding.
Vote Required to Approve Matters
The affirmative vote of at least two-thirds of all the votes entitled
to be cast is required for approval of the Agreement and the Plan.
Votes cast by proxy or in person at the meeting will be tabulated by
the inspector of elections appointed for the meeting. Proxies marked with
abstentions as to any proposal, and abstentions on any proposal by shareholders
present at the meeting, will be treated as present and entitled to vote for
purposes of determining the existence of a quorum and will have the practical
effect of a negative vote as to that proposal. In the event of a broker non-vote
(i.e., a proxy from brokers marked to indicate that such persons have not
received instructions from the beneficial owner or other persons entitled to
vote shares as to the vote on a particular matter with respect to which the
brokers or nominees do not have discretionary power to vote) with respect to any
issue, the proxy will not be counted as present for purposes of determining the
existence of a quorum and will count as a vote against the proposal.
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
BankGroup and Tysons. 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 shareholders of bank holding companies such as BankGroup.
References to "BankGroup Banks" means the current subsidiary banks of BankGroup.
References to "Banks" means all BankGroup Banks and Tysons Bank. For purposes of
the Regulation and Supervision section only, "Tysons Bank" means Tysons National
Bank.
Beginning with the enactment of the Financial Institutions Reform,
Recovery and Enforcement Act of 1989 ("FIRREA") and following with the Federal
Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), numerous
additional regulatory requirements have been placed on the banking industry in
the past six years, and additional changes have been proposed. The operations of
BankGroup, Tysons and their subsidiary banks may be affected by legislative
changes and the policies of various regulatory authorities. Neither BankGroup
nor Tysons is able to predict the nature or the extent of the effect on its
business and earnings that fiscal or monetary policies, economic control, or new
federal or state legislation may have in the future.
Bank Holding Companies
As bank holding companies registered under the Bank Holding Company Act
of 1956, as amended (the "BHCA"), BankGroup and Tysons are subject to regulation
by the Federal Reserve Board. The Federal Reserve Board 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.
With certain limited exceptions, the BHCA requires every bank holding
company to obtain the prior approval of the Federal Reserve before: (i)
acquiring substantially all the assets of any bank, (ii) acquiring direct or
indirect ownership or control of any voting shares of any bank if after such
acquisition it would own or control more than 5% of the voting shares of such
bank (unless it already owns or controls the majority of such shares), or (iii)
merging or consolidating with another bank holding company.
In addition, and subject to certain exceptions, the BHCA and the
Federal Change in Bank Control Act, together with regulations thereunder,
require Federal Reserve Board approval (or, depending on the circumstances, no
notice of disapproval) prior to any person or company acquiring "control" of a
bank holding company, such as Tysons. Control is conclusively presumed to exist
if an individual or company acquires 25% or more of any class of voting
securities of the bank holding company. With respect to corporations with
securities registered under the Exchange Act, under Federal Reserve Board
regulations control will be rebuttably presumed to exist if a person acquires at
least 10% of any class of voting securities of the corporation. The regulations
provide a procedure for challenge of the rebuttable control presumption. Tysons
registered its stock under the Exchange Act with its stock offering in May 1996.
Under the BHCA, BankGroup and Tysons are generally prohibited from
engaging in, or acquiring direct or indirect control of more than 5% of the
voting shares of any company engaged in non-banking activities, unless the
Federal Reserve, by order or regulation, has found those activities to be so
closely related to banking or managing or controlling banks as to be a proper
incident thereto. Some of the activities that the Federal Reserve has determined
by regulation to be proper incidents to the business of banking include making
or servicing loans and certain types of leases, engaging in certain insurance
and securities brokerage activities, performing certain data processing
services, acting in certain circumstances as a fiduciary or investment or
financial advisor, owning savings associations and making investments in certain
corporations or projects designed primarily to promote community welfare.
In accordance with Federal Reserve Board policy, BankGroup and Tysons
are expected to act as a source of financial strength and commit resources to
their respective subsidiary Banks. Under the BHCA, the Federal Reserve Board may
require a bank holding company to terminate any activity or relinquish control
of a non-bank subsidiary (other than a non-bank subsidiary of a bank) upon the
Federal Reserve Board's determination that such activity or control constitutes
a serious risk to the financial soundness or stability of any subsidiary
depository institution of the bank holding company. Further, federal bank
regulatory authorities have additional discretion to require a bank holding
company to divest itself of any bank or non-bank subsidiary if the agency
determines that divestiture may aid the depository institution's financial
condition.
In the liquidation or other resolution by any receiver of a bank
insured by the FDIC, the claims of depositors have priority over the general
claims of other creditors. Hence, in the event of liquidation or other
resolution of a banking subsidiary of BankGroup or Tysons, the general claims of
BankGroup or Tysons, respectively, as creditor of such banking subsidiary would
be subordinated to the claims of the depositors of such banking subsidiary, even
if the claims of BankGroup or Tysons were not by their terms so subordinated.
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 as a result of the default
of a commonly controlled insured depository institution or for any assistance
provided by the FDIC to 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 Savings
Association Insurance Fund (the "SAIF") or the Bank Insurance Fund ("BIF") or
both. The FDIC's claim for reimbursement is superior to claims of shareholders
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.
Federal law permits bank holding companies from any state to acquire
bank and bank holding companies located in any other state. Effective June 1,
1997, the law allowed 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 adopted early "opt-in" legislation that allowed interstate bank mergers
as of July 1, 1995. 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 acquirer.
BankGroup and Tysons are registered under bank holding company laws of
Virginia. Accordingly, BankGroup, Tysons and their respective subsidiary banks
are subject to further regulation and supervision by the SCC.
A registered bank holding company must provide the SCC with information
regarding the financial condition, operations, management and intercompany
relationships of the holding company and its subsidiaries. The SCC may also
require additional information it deems necessary to keep itself informed about
whether the provisions of Virginia law and the regulations and orders issued
thereunder by the SCC have been complied with, and may make examinations of any
bank holding company and its subsidiaries.
Under the Virginia banking laws, it is unlawful without the prior
approval of the SCC for any Virginia bank holding company to acquire direct or
indirect ownership or control of more than 5% of the voting securities of any
bank or other bank holding company.
Capital Regulations
The federal bank regulatory authorities have adopted risk-based capital
guidelines for banks and bank holding companies that are designed to make
regulatory capital requirements more sensitive to differences in risk profile
among banks and bank holding companies, account for off-balance sheet exposure
and minimize disincentives for holding liquid assets. The resulting capital
ratios represent qualifying capital as a percentage of total risk-weighted
assets and off-balance sheet items. The guidelines are minimums, and the federal
regulators have noted that banks and bank holding companies contemplating
significant expansion programs should not allow expansion to diminish their
capital ratios and should maintain ratios well in excess of the minimums. The
current guidelines require all bank holding companies and federally-regulated
banks to maintain a minimum risk-based total capital ratio equal to 8%, of which
at least 4% must be Tier 1 capital. Tier 1 capital includes common shareholders'
equity, qualifying perpetual preferred stock and minority interests in equity
accounts of consolidated subsidiaries, but excludes goodwill and most other
intangibles and excludes the allowance for loan and lease losses. Tier 2 capital
includes the excess of any preferred stock not included in Tier 1 capital,
mandatory convertible securities, hybrid capital instruments, certain qualifying
subordinated debt and intermediate term-preferred stock, and general reserves
for loan and lease losses up to 1.25% of risk-weighted assets.
Under these guidelines, banks' and bank holding companies' assets are
given risk-weights of 0%, 20%, 50% and 100%. In addition, certain off-balance
sheet items are given credit conversion factors to convert them to asset
equivalent amounts to which an appropriate risk-weight will apply. These
computations result in the total risk-weighted assets. Most loans are assigned
to the 100% risk category, except for first mortgage loans fully secured by
residential property and, under certain circumstances, residential construction
loans, both of which carry a 50% rating. Most investment securities are assigned
to the 20% category, except for municipal or state revenue bonds, which have a
50% rating, and direct obligations of or obligations guaranteed by the United
States Treasury or United States Government agencies, which have a 0% rating. On
September 6, 1996, the OCC revised its risked-based capital rules to supplement
and adjust its risk-based capital ratios for certain banks whose trading
activity equals 10% or more of total assets or $1 billion or more. These new
rules became effective January 1, 1997, but compliance is not required until
January 1, 1998. As of September 30, 1997, neither Tysons Bank nor the BankGroup
subsidiaries regulated by the OCC conduct trading activities and therefore are
not required to comply with these rules.
The federal bank regulatory authorities have also implemented a
leverage ratio, which is Tier 1 capital as a percentage of average total assets
less intangibles, to be used as a supplement to the risk-based guidelines. The
principal objective of the leverage ratio is to place a constraint on the
maximum degree to which a bank holding company may leverage its equity capital
base. The minimum required leverage ratio for top-rated institutions is 3%, but
most institutions are required to maintain an additional cushion of at least 100
to 200 basis points.
FDICIA established a new capital-based regulatory scheme designed to
promote early intervention for troubled banks and requires the FDIC to choose
the least expensive resolution of bank failures. The new capital-based
regulatory framework contains five categories of compliance with regulatory
capital requirements, including "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." To qualify as a "well capitalized" institution, a bank or
bank holding company must have a leverage ratio of no less than 5%, a Tier 1
risk-based ratio of no less than 6% and a total risk-based capital ratio of no
less than 10%, and the bank must not be under any order or directive from the
appropriate regulatory agency to meet and maintain a specific capital level. As
of September 30, 1997, Tysons' leverage ratio was 8.66%, its Tier 1 risk-based
ratio was 11.18% and its total risk-based capital ratio was 12.23%. As of
September 30, 1997, Tysons was "well capitalized."
The Tier 1 and total capital to risk-weighted asset ratios of BankGroup
as of September 30, 1997 were 13.68% and 14.94%, respectively, exceeding the
minimums required. The Tier 1 capital leverage ratio of BankGroup as of
September 30, 1997, was 8.09%.
Under the FDICIA regulations, the applicable agency can treat an
institution as if it were in the next lower category if the agency determines
(after notice and an opportunity for hearing) that the institution is in an
unsafe or unsound condition or is engaging in an unsafe or unsound practice. The
degree of regulatory scrutiny of a financial institution will increase, and the
permissible activities of the institution will decrease, as it moves downward
through the capital categories. Institutions that fall into one of the three
undercapitalized categories may be required to (i) submit a capital restoration
plan; (ii) raise additional capital; (iii) restrict their growth, interest rates
on deposits and other activities; (iv) improve their management; (v) eliminate
management fees; or (vi) divest themselves of all or part of their operations.
Bank holding companies controlling financial institutions can be called upon to
boost the institutions' capital and to partially guarantee the institution's
performance under their capital restoration plans. As of September 30, 1997 and
December 31, 1996, BankGroup, Tysons and their respective subsidiary banks met
regulatory minimum capital requirements.
In August of 1995, the federal bank regulatory agencies revised their
capital adequacy guidelines to provide explicitly for consideration of interest
rate risk in the overall determination of a bank's minimum capital requirement.
The intended effect is to ensure that banking institutions effectively measure
and monitor their interest rate risk and that they maintain adequate capital for
the risk. A banking institution deemed to have excessive interest rate risk
exposure may be required to maintain additional capital. This revision in the
capital adequacy guidelines has not had a material adverse effect on BankGroup
or Tysons to date, and BankGroup and Tysons do not believe that it will have a
material adverse effect on either of them, respectively.
FDICIA also requires each federal bank regulatory agency to revise its
risk-based capital standards to ensure that those standards take adequate
account of interest rate risk, concentration of credit risk and the risks of
nontraditional activities, as well as reflect the actual performance and
expected risk of loss on multi-family mortgages. Rules have been promulgated
with respect to concentration of credit risk and the risks of non-traditional
activities, and also as to the risk of loss on multi-family mortgages. In August
1995, the federal bank regulatory agencies revised their risk-based capital
standards to provide explicitly for consideration of interest rate risk in the
overall determination of a bank's minimum capital requirement. BankGroup does
not expect any of these rules and revisions in the capital adequacy guidelines,
either individually or in the aggregate, to have a material impact on its
capital requirements. However, the risk-based capital guidelines, as they may be
further developed and changed, could adversely affect an institution's capital
position and subject it to more stringent regulatory requirements.
Limits on Dividends and Other Payments
BankGroup.
BankGroup is a legal entity separate and distinct from its subsidiary
institutions. Most of BankGroup's revenues come from dividends paid by the
BankGroup Banks. Each of the Banks (with the exception of Clifton Forge) is a
state member bank of the Federal Reserve System. As a result, the Banks (with
the exception of Clifton Forge) are regulated by the Federal Reserve Board and
the SCC. Clifton Forge and Trust Company are national banking associations and
are regulated by the OCC, and in addition, Clifton Forge is a member bank of the
Federal Reserve System and regulated by the Federal Reserve Board. There are
various regulatory limitations applicable to the payment of dividends by the
BankGroup Banks as well as the payment of dividends by BankGroup to its
shareholders. Under laws of Virginia applicable to the BankGroup Banks (with the
exception of Clifton Forge), 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. National banking associations like Clifton
Forge and Trust Company are permitted to pay dividends out of undivided profits
but until their surplus equals their capital, dividends are generally prohibited
unless at least a tenth of their net income for the preceding half year (if the
dividend is a quarterly or semiannual dividend) or for the preceding two
consecutive half year periods (if the dividend is an annual dividend) have been
carried into surplus. In the case of Clifton Forge, Trust Company and BankGroup,
the payment of dividends may also be limited by other factors, such as
requirements to maintain capital above regulatory guidelines. Under existing
supervisory practices, at September 30, 1997, the BankGroup Banks could have
paid additional dividends of $23.7 million without obtaining prior regulatory
approval. The Trust Company began its operations in 1997 and is not in a
position to pay a dividend without prior regulatory approval. Bank regulatory
agencies have authority to prohibit any BankGroup Bank, Trust Company or
BankGroup from engaging in an unsafe or unsound practice in conducting their
business. The payment of dividends, depending upon the financial condition of
the BankGroup Bank in question, Trust Company or BankGroup, 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 shareholders 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 FDICIA, insured depository institutions such as the BankGroup
Banks 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 BankGroup
Banks current financial condition, BankGroup does not expect that this provision
will have any impact on its ability to obtain dividends from the BankGroup
Banks.
In addition to limitations on dividends, the Banks are limited in the
amount of loans and other extensions of credit that may be extended to
BankGroup, and any such loans or extensions of credit are subject to collateral
security requirements. Generally, up to 10% of each Bank's regulatory capital,
surplus, undivided profits, allowance for loan losses and contingency reserves
may be loaned to BankGroup. As of September 30, 1997, approximately $13.0
million of credit was available to BankGroup under this limitation.
Tysons
The principal source of Tysons' cash revenues comes from dividends
received from Tysons Bank. The amount of dividends that may be paid by Tysons
Bank to Tysons depends on Tysons Bank's earnings and capital position and is
limited by federal law, regulations and policies. In addition, the Federal
Reserve Board has stated that bank holding companies should refrain from or
limit dividend increases or reduce or eliminate dividends under circumstances in
which the bank holding company fails to meet minimum capital requirements or in
which its earnings are impaired.
As a national bank, the Tysons Bank may not pay dividends from its
paid-in-capital. All dividends must be paid out of undivided profits then on
hand, after deducting expenses, including reserves for losses and bad debts. In
addition, a national bank is prohibited from declaring a dividend on its shares
of common stock until its surplus equals its stated capital, unless there has
been transferred to surplus no less than one-tenth of the bank's net profits of
the preceding two consecutive half-year periods (in the case of an annual
dividend). The approval of the OCC is required if the total of all dividends
declared by a national bank in any calendar year exceeds the total of its net
profits for that year combined with its retained net profits for the preceding
two years, less any required transfers to surplus. Under FDICIA, Tysons Bank may
not pay a dividend if, after paying the dividend, Tysons Bank would be
undercapitalized. See "Regulation and Supervision -- Capital Regulations."
Supervision of State Banks
BankGroup Banks are supervised and regularly examined by the Federal
Reserve Board and the SCC except that Clifton Forge is regulated by the OCC
because it is a national banking association. Trust Company is regulated by the
OCC because it is chartered as a national banking association, although its
business is limited to the operation of a trust company. The BankGroup Banks and
Trust Company are also subject to various requirements and restrictions under
federal and (except for Clifton Forge) 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 BankGroup Banks. Federal
and state fiduciary laws and regulations affect the operations of Trust Company.
In addition to the impact of regulation, the BankGroup Banks are affected
significantly by actions of the Federal Reserve Board in attempting to control
the money supply and the availability of credit.
Supervision by Risk of National Banks
In 1994, the OCC began to examine banks pursuant to a Supervision by
Risk program. Both Tysons Bank and Clifton Forge are subject to Supervision by
Risk examinations. Supervision by Risk requires examiners to determine how
certain existing or emerging issues facing the bank or the banking industry
affect the nature and extent of risks on that bank. This program leaves to bank
management the responsibility of controlling risks, and the OCC assesses how
well management has performed over time. Banks must measure the quantity of
risk, the quality of risk management, the level of supervisory concern and the
direction of risk.
Community Reinvestment Act
The Banks also are 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. Until July 1, 1997, each
financial institution's efforts in meeting community credit needs were evaluated
as part of the examination process pursuant to twelve assessment factors.
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 became fully effective on July 1,
1997, emphasizes an institution's performance in meeting community credit needs.
Institutions are 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 BankGroup's business
practices, it is not anticipated that any changes will be material. BankGroup's
Banks have attained either an "outstanding" or "satisfactory" rating on their
most recent CRA performance evaluations, and Tysons Bank received a
"satisfactory" CRA rating during its last CRA examination on January 3, 1995.
Deposit Insurance
As institutions with deposits insured by BIF, the Banks also are
subject to insurance assessments imposed by the FDIC. Currently, a risk-based
assessment schedule imposes assessments on BIF deposits, ranging from -0- for
well capitalized institutions to .27% of deposits for undercapitalized
institutions. All banks in BankGroup currently are assessed as well capitalized.
Based upon Tysons Bank's current risk classification, Tysons Bank is now
required to pay a BIF assessment of $0.04 per $100 of domestic deposits.
As a result of the Deposit Insurance Funds Act of 1996, a separate levy
is assessed on all BIF- and SAIF-assessable deposits to bear the cost of bonds
sold by the Financing Corporation ("FICO") for 1987-1989 in support of the
former Federal Savings and Loan Insurance Corporation. The 1996 law makes the
FDIC the collection agent for FICO. The FICO rates, subject to quarterly
adjustment, are not tied to the FDIC risk classification.
For 1997, the FICO rate has ranged from .013% to .0126% of deposits.
Safety and Soundness Regulations
The federal banking agencies have broad powers under current 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." See "Regulation and Supervision -- Capital Regulations."
Transactions with Affiliates and Insiders
The Banks are subject to the provisions of Section 23A of the Federal
Reserve Act, which places limits on the amount of loans or extensions of credit
to, or investments in, or certain other transactions with, affiliates including
BankGroup and Tysons. In addition, limits are placed on the amount of advances
to third parties collateralized by the securities or obligations of affiliates.
Most of these loans and certain other transactions must be secured in prescribed
amounts. The Banks are also subject to the provisions of Section 23B of the
Federal Reserve Act that, among other things, prohibit an institution from
engaging in transactions with certain affiliates unless the transactions are on
terms substantially the same, or at least as favorable to such institution or
its subsidiaries, as those prevailing at the time for comparable transactions
with non-affiliated companies. The Banks are subject to restrictions on
extensions of credit to executive officers, directors, certain principal
shareholders and their related interests. Such extensions of credit (i) must be
made on substantially the same terms, including interest rates and collateral,
as those prevailing at the time for comparable transactions with third parties,
and (ii) must not involve more than the normal risk of repayment or present
other unfavorable features.
Other Regulations
Interest and certain other charges collected or contracted for by the
Banks are subject to state usury laws and certain federal laws concerning
interest rates. The Banks' loan operations are also subject to certain federal
laws applicable to credit transactions, such as the federal Truth-In-Lending Act
governing disclosures of credit terms to consumer borrowers, the Home Mortgage
Disclosure Act of 1975 requiring financial institutions to provide information
to enable the public and public officials to determine whether a financial
institution is fulfilling its obligation to help meet the housing needs of the
community it serves, the Equal Credit Opportunity Act prohibiting discrimination
on the basis of race, creed or other prohibited factors in extending credit, the
Fair Credit Reporting Act of 1978, as amended, governing the use and provision
of information to credit reporting agencies, the Fair Debt Collection Act
governing the manner in which consumer debts may be collected by collection
agencies, and the rules and regulations of the various federal agencies charged
with the responsibility of implementing such federal laws. The deposit
operations of the Banks also are subject to the Right to Financial Privacy Act,
which imposes a duty to maintain confidentiality of consumer financial records
and prescribes procedures for complying with administrative subpoenas of
financial records, the Electronic Funds Transfer Act and Regulation E issued by
the Federal Reserve Board to implement that act, which govern automatic deposits
to and withdrawals from deposit accounts and customers' rights and liabilities
arising from the use of ATMs and other electronic banking services, and the
Truth-in Savings Act, which requires accurate disclosures of certain items
related to deposit accounts such as annual percentage yield ("APY"), duration of
APY, minimum balance requirements and information about fees and penalties.
Uniform Financial Institution Ratings System ("UFIRS")
UFIRS is a supervisory rating system used by the federal regulatory
agencies to evaluate the soundness of depository institutions on a uniform
basis. The agencies have implemented this system through CAMEL ratings that
evaluate banks according to five factors: capital adequacy, asset quality,
management, earnings and liquidity. Sensitivity to market risk was added as a
sixth factor, effective January 1, 1997. The rating system is now referred to as
CAMELS.
Governmental Monetary Policies and Economic Controls
BankGroup and Tysons are affected by monetary policies of regulatory
agencies, including the Federal Reserve Board, which regulates the national
money supply in order to mitigate recessionary and inflationary pressures. Among
the techniques available to the Federal Reserve Board are engaging in open
market transactions in United States Government securities, changing the
discount rate on bank borrowings, changing reserve requirements against bank
deposits and limiting interest rates that banks may pay on time and savings
deposits. These techniques are used in varying combinations to influence the
overall growth of bank loans, investments and deposits. Their use may also
affect interest rates charged on loans or paid on deposits. The effect of
governmental policies on the earnings of BankGroup and Tysons cannot be
predicted; however, modest short-term changes should have little effect so long
as BankGroup and Tysons maintain their current interest sensitivity gap
position.
Recent Legislative Developments
From time to time, various bills are introduced in the United States
Congress with respect to the regulation of financial institutions. Certain of
these proposals, if adopted, could significantly change the regulation of banks
and the financial services industry. In particular, Congress is currently
considering financial services legislation that would, among other things,
substantially amend the Glass-Steagall Act and the BHCA, statutes that restrict
the ability of banks and bank holding companies to engage in certain activities,
including the underwriting of and dealing in various securities, and affiliating
with entities not engaged in activities related to the business of banking. The
proposed legislation would permit banks to affiliate with securities firms and
insurance companies and permit limited affiliations between banks and any
commercial entity, subject to certain restrictions including the size of the
entities. These proposals also provide for the abolition of separate and
distinct charters for banks and savings associations. If such statutory reform
is enacted, it could cause a significant change in the financial services
industry and expand the ability of BankGroup and Tysons and their subsidiary
banks to offer a broader range of financial products. BankGroup and Tysons
cannot predict whether any of these proposals will be adopted or, if adopted,
how these proposals would affect BankGroup or Tysons.
DESCRIPTION OF CAPITAL STOCK OF BANKGROUP
BankGroup has authority to issue 1,000,000 shares of Preferred Stock,
of which no shares are issued and outstanding, and 20,000,000 shares of Common
Stock, of which 11,396,976 shares were issued and outstanding as of July 31,
1997 held by approximately 3,524 holders of record. BankGroup Common Stock is
traded in the over-the-counter market and quoted on The Nasdaq National Market
System under the symbol "MSBC".
The following summary description of capital stock of BankGroup is
qualified in its entirety by reference to BankGroup's Articles of Incorporation,
a copy of which has been incorporated by reference as an exhibit to the
Registration Statement.
Preferred Stock
The Board of Directors, without further action by the shareholders, is
authorized to designate and issue in series Preferred Stock and to fix as to any
series the dividend rate, redemption prices, preferences on dissolution, the
terms of any sinking fund, conversion rights, voting rights, and any other
preferences or special rights and qualifications. Holders of the Preferred
Stock, if and when issued, will be entitled to vote as required under applicable
Virginia law. Such law includes provisions for the voting of the Preferred Stock
in the case of any amendment to the Articles of Incorporation affecting the
rights of holders of Preferred Stock, the payment of certain stock dividends,
merger or consolidation, sale of all or substantially all of BankGroup's assets,
and dissolution. The Board of Directors without shareholder approval can issue
Preferred Stock with voting and conversion rights which would adversely affect
the voting power of the common shareholders. In addition, the Preferred Stock
could be used in a manner which would discourage or make more difficult an
attempt to acquire control of BankGroup. BankGroup's Board of Directors has
designated a series of 1,000,000 shares of Participating Convertible Preferred
Stock, Series A (the "Series A Preferred Stock"), no shares of which have been
issued. The Series A Preferred Stock was created in connection with the
shareholder rights plan described below.
BankGroup Common Stock
Holders of BankGroup Common Stock are entitled to one vote per share on
each matter to be voted upon by the shareholders. Directors are elected by a
vote of the holders of BankGroup Common Stock. Dividends may be paid to the
holders of BankGroup Common Stock when, as and if declared by the Board of
Directors out of funds legally available for such purposes. The principal source
of funds for dividend payments is dividends received from the Banks. Payment of
dividends to BankGroup by the Banks and Trust Company, without prior regulatory
approval, is also subject to various state and federal regulatory limitations.
Holders of Common Stock have no conversion, redemption, cumulative voting or
preemptive rights. There is no sinking fund obligation with respect to the
BankGroup Common Stock. In the event of any liquidation, dissolution or winding
up of BankGroup, after payment or provision for payment of the debts and other
liabilities and the preferential amounts to which the holders of Preferred
Stock, if any, are entitled, the holders of BankGroup Common Stock will be
entitled to share ratably in any remaining assets.
All outstanding shares of BankGroup Common Stock are, and the shares of
BankGroup Common Stock to be issued in the Merger will be, when issued, duly and
validly issued, fully paid and nonassessable.
Rights
Pursuant to a Rights Agreement (the "Rights Agreement") dated as of
January 18, 1990, BankGroup distributed as a dividend one Right for each
outstanding share of BankGroup Common Stock. The number of Rights associated
with each share of BankGroup Common Stock outstanding as of June 30, 1993 was
adjusted proportionately for the five-for-four stock split effected in the form
of a stock dividend paid July 30, 1993 and the two-for-one stock split effected
in the form of a stock dividend paid March 15, 1996. Each Right entitles the
holder to buy fractional shares of Participating Cumulative Preferred Stock,
Series A, par value $5.00 per share, at an exercise price of $24, subject to
adjustment. The Rights will become exercisable only if a person or group
acquires or announces a tender offer for 15% or more of the outstanding
BankGroup Common Stock. When exercisable, BankGroup may issue a share of
BankGroup Common Stock in exchange for each Right other than those held by such
person or group. If a person or group acquires 30% or more of the outstanding
BankGroup Common Stock, each Right will entitle the holder, other than the
acquiring person, upon payment of the exercise price, to acquire Preferred Stock
or, at the option of BankGroup, BankGroup Common Stock, having a market value
equal to twice the Right's exercise price. If BankGroup is acquired in a merger
or other business combination or if 50% of its earnings power is sold, each
Right will entitle the holder, other than the acquiring person, to purchase
securities of the surviving company having a market value equal to twice the
Right's exercise price. The Rights will expire on January 18, 2000, and may be
redeemed by BankGroup at any time prior to the tenth day after an announcement
that a 10% position has been acquired, unless such time period has been extended
by the Board of Directors.
Until such time as a person or group acquires or announces a tender
offer for 15% or more of the BankGroup Common Stock, (i) the Rights will be
evidenced by the BankGroup Common Stock certificates and will be transferred
with and only with such BankGroup Common Stock certificates, and (ii) the
surrender for transfer of any certificate for BankGroup Common Stock will also
constitute the transfer of the Rights associated with the BankGroup Common Stock
represented by such certificate. Rights may not be transferred, directly or
indirectly (i) to any person or group that has acquired, or obtained the right
to acquire, beneficial ownership of 10% or more of the Rights (an "Acquiring
Person"), (ii) to any person in connection with a transaction in which such
person becomes an Acquiring Person or (iii) to any affiliate or associate of any
such person. Any Right that is the subject of a purported transfer to any such
person will be null and void.
The Rights can be expected to have certain anti-takeover effects if an
acquisition transaction not approved by the Board of Directors is proposed by a
person or group. In such event, the Rights will cause substantial dilution to
any person or group that acquires more than 15% of the outstanding shares of
Common Stock of BankGroup if certain events thereafter occur without the Rights
having been redeemed. For example, if thereafter such acquiring person acquires
30% of BankGroup's outstanding Common Stock, or effects a business combination
with BankGroup, the Rights permit shareholders to acquire securities having a
value equal to twice the amount of the purchase price specified in the Rights,
but rights held by such "acquiring person "are void to the extent permitted by
law and may not be exercised. Further, other shareholders may not transfer
rights to such "acquiring person" above his or her 15% ownership threshold.
Because of these provisions, it is unlikely that any person or group will
propose an acquisition transaction that is not approved by the Board of
Directors. Thus, the Rights could have the effect of discouraging acquisition
transactions not approved by the Board of Directors. The Rights do not interfere
with any merger or other business combination approved by the Board of Directors
and shareholders because the rights are redeemable with the concurrence of a
majority of the "Continuing Directors," defined as directors in office when the
Rights Agreement was adopted or any person added thereafter to the Board with
the approval of the Continuing Directors.
<PAGE>
Virginia Stock Corporation Act
The VSCA contains provisions governing "Affiliated Transactions." These
provisions, with several exceptions discussed below, require approval of
material acquisition transactions between a Virginia corporation and any holder
of more than 10% of any class of its outstanding voting shares (an "Interested
Shareholder") by the holders of at least two-thirds of the remaining voting
shares. Affiliated Transactions subject to this approval requirement include
mergers, share exchanges, material dispositions of corporate assets not in the
ordinary course of business, any dissolution of the corporation proposed by or
on behalf of an Interested Shareholder, or any reclassification, including
reverse stock splits, recapitalization or merger of the corporation with its
subsidiaries which increases the percentage of voting shares owned beneficially
by an Interested Shareholder by more than 5%.
For three years following the time that an Interested Shareholder
becomes an owner of more than 10% of the outstanding voting shares, a Virginia
corporation cannot engage in an Affiliated Transaction with such Interested
Shareholder without approval of two-thirds of the voting shares other than those
shares beneficially owned by the Interested Shareholder, and majority approval
of the "Disinterested Directors." A Disinterested Director means, with respect
to a particular Interested Shareholder, a member of BankGroup's Board of
Directors who was (1) a member on the date on which an Interested Shareholder
became an Interested Shareholder and (2) recommended for election by, or was
elected to fill a vacancy and received the affirmative vote of, a majority of
the Disinterested Directors then on the Board. At the expiration of the three
year period, the statute requires approval of Affiliated Transactions by
two-thirds of the voting shares other than those beneficially owned by the
Interested Shareholder.
The principal exceptions to the special voting requirement apply to
transactions proposed after the three year period has expired and require either
that the transaction be approved by a majority of the corporation's
Disinterested Directors or that the transaction satisfy the fair-price
requirements of the statute. In general, the fair-price requirement provides
that in a two-step acquisition transaction, the Interested Shareholder must pay
the shareholders in the second step either the same amount of cash or the same
amount and type of consideration paid to acquire the Virginia corporation's
shares in the first step.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder whose acquisition of
shares making such person an Interested Shareholder was approved by a majority
of the Virginia corporation's Disinterested Directors.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the statute provides that, by affirmative vote of a
majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation can adopt an amendment to its articles of
incorporation or bylaws providing that the Affiliated Transactions provisions
shall not apply to the corporation. BankGroup has not "opted out" of the
Affiliated Transactions provisions.
Virginia law also provides that shares acquired in a transaction that
would cause the acquiring person's voting strength to meet or exceed any of
three thresholds (20%, 33 and 1/3% or 50%) have no voting rights unless granted
by a majority vote of shares not owned by the acquiring person or any officer or
employee-director of the Virginia corporation. This provision empowers an
acquiring person to require the Virginia corporation to hold a special meeting
of shareholders to consider the matter within 50 days of its request.
Reports to Shareholders
BankGroup furnishes shareholders with written annual reports containing
consolidated financial statements audited by an independent certified public
accountant and with written quarterly reports containing an unaudited balance
sheet at the end of each of the first three quarterly periods and an income
statement for the period from the beginning of the current fiscal year to the
end of such quarterly period.
Transfer Agent
Registrar and Transfer Company, Post Office Box 1010, Cranford, New
Jersey 07016, is transfer agent for BankGroup Common Stock.
COMPARATIVE RIGHTS OF SHAREHOLDERS
At the Merger Effective Date, shareholders of Tysons will become
shareholders of BankGroup, and their rights as shareholders will be determined
by BankGroup's Articles of Incorporation and Bylaws and the VSCA. The following
is a summary of the material differences in the rights of shareholders of
BankGroup and Tysons. This summary does not purport to be a complete discussion
of, and is qualified in its entirety by reference to, the governing law and the
Articles of Incorporation and Bylaws of each entity.
Capitalization
Tysons. Tysons' Articles of Incorporation authorize the issuance of up
to 10,000,000 shares of common stock, par value $5.00 per share, 1,071,119 of
which were issued and outstanding as of September 30, 1997.
BankGroup. BankGroup's authorized capital is described under
"Description of BankGroup Capital Stock."
Amendment of Articles or Bylaws
Tysons. Under the VSCA, Tyson's Articles may be amended if the
amendment is adopted by Tyson's Board and approved by a vote of the holders of
more than two-thirds of the vote entitled to be cast on the amendment by each
voting group entitled to vote thereon.
Tysons' Bylaws provide that such Bylaws may be altered, amended or
repealed by the Tysons Board by affirmative vote of a majority of all directors
then holding office. Any Bylaws adopted by the Tysons Board may be altered,
amended or repealed, and new Bylaws adopted, by the shareholders. The
shareholders may proscribe that any Bylaw or Bylaws adopted by them will not be
altered, amended or repealed by Tysons Board.
BankGroup. As permitted by the VSCA, BankGroup's Articles provide that,
unless a greater vote is required by law, by BankGroup's Articles or by a
resolution of the Board of Directors, BankGroup's Articles may be amended if the
amendment is adopted by the Board of Directors and approved by a vote of the
holders of a majority of the votes entitled to be cast on the amendment by each
voting group entitled to vote thereon.
BankGroup's Bylaws generally provide that the Board of Directors may,
by a majority vote, amend its Bylaws.
Required Shareholder Vote for Certain Actions
Tysons. The VSCA generally requires the approval of a majority of a
corporation's Board of Directors and the holders of more than two-thirds of all
the votes entitled to be cast thereon by each voting group entitled to vote on
any plan of merger or consolidation, plan of share exchange or sale of
substantially all of the assets of a corporation not in the ordinary course of
business. The VSCA also specifies additional voting requirements for Affiliated
Transactions and transactions that would cause an acquiring person's voting
power to meet or exceed specified thresholds.
Director Nominations
Tysons. Tysons' Bylaws provide that nominations for directors, other
than those made by or on behalf of the existing management of Tysons, must be
made by a shareholder who is entitled to vote for the nominee at the subject
election, must be in writing, and must be delivered or mailed to the president
of Tysons not less than 120 days in advance of the date of Tysons' proxy
statement released to shareholders in connection with the previous year's annual
meeting of shareholders. Such notification must include with respect to each
proposed nominee: (i) the name, age and business and residence addresses; (ii)
the principal place of business or occupation during the last five years; (iii)
any affiliation with or material interest in Tysons or any person or entity
having an interest materially adverse to Tysons and any transaction involving
Tysons. The notification must also include the name and residence address of the
notifying shareholder; the number of shares of common stock of Tysons owned by
the notifying shareholder; and the sworn or certified statement of the
shareholder that the nominating shareholder is entitled to vote for the election
of the nominee at the subject meeting, that the nominee has consented to being
nominated, and that the shareholder believes the nominee will stand for election
and serve if elected.
Notwithstanding the foregoing, if Tysons or any banking subsidiary of
Tysons is subject to the requirements of Section 914 of FIRREA, then no person
may be nominated by a shareholder for election as a director of any meeting of
shareholders unless the shareholder furnishes the written notice required above
to the secretary of Tysons at least 60 days prior to the date of the meeting and
the nominee has received regulatory approval to serve as a director prior to the
date of the meeting. The chairman of any meeting of shareholders at which one or
more directors are to be elected may disregard any nomination not made in
accordance with the foregoing, and upon the chairman's instructions, the vote
tellers will disregard all votes cast for such nominees. The chairman of any
such meeting, for good cause shown and with proper regard for the orderly
conduct of business at the meeting, may waive in whole or in part the operation
of the foregoing.
A director must be a natural person 18 years of age or older
and a United States citizen, but need not be a Virginia resident. There
is no meeting attendance requirement applicable to directors of Tysons.
Tysons' directors are subject to the National Bank Act which requires
that every director of a bank holding company which owns a national bank
must own in his or her own right shares of stock in such bank holding
company having an aggregate par value equal to $1,000.
BankGroup. BankGroup's Bylaws provide that any nomination for director
made by a shareholder must be made in writing to the Secretary of BankGroup not
less than 90 days prior to the meeting of shareholders at which directors are to
be elected. Any such shareholder's notice shall include (i) the name and address
of the shareholder and of each person to be nominated, (ii) a representation
that the shareholder is a holder of record of stock of BankGroup entitled to
vote at such meeting and intends to appear in person or by proxy at the meeting
to nominate each person specified, (iii) a description of all arrangements or
understandings between the shareholder and each nominee and any other person
(naming such person) pursuant to which the nomination is made by the
shareholder, (iv) such other information regarding each nominee as would be
required to be included in a proxy statement filed pursuant to the proxy rules
of the SEC had the nominee been nominated by the Board, and (v) the consent of
each nominee to serve as a director of BankGroup if so elected.
There is no requirement in the Articles or Bylaws that directors of
BankGroup own any capital stock of BankGroup. There are also no residency or
meeting attendance requirements applicable to directors of BankGroup.
Directors and Classes of Directors; Vacancies and Removal of Directors
Tysons. Pursuant to Tysons' Articles of Incorporation and Bylaws, the
number of directors may be fixed and determined from time to time by resolution
of the Tysons Board or by resolution of the shareholders at any annual or
special meeting of the shareholders. The Tysons Board currently has fixed the
number of directors at 11. Tysons' Articles of Incorporation and Bylaws provide
for staggered terms for the Tysons Board. The Tysons Board has been divided into
three classes, with each class to be as nearly equal in number as possible, so
that after their initial terms, approximately one-third of the directors are
elected to a three-year term at each annual shareholders meeting.
Except in the case of a vacancy, Tysons' directors will be elected by a
plurality of votes cast by the shares entitled to vote in the election at the
annual meeting of shareholders in which a quorum is present. The entire Board or
any individual director may be removed from office with or without cause by the
affirmative vote of the holders of a majority of the shares entitled to vote at
an election of directors. A director may be removed by the shareholders only at
a meeting called for that purpose and the meeting notice must state such
purpose. A vacancy occurring in the Tysons Board through death, written
resignation, retirement, disqualification or removal may be filled by the
affirmative vote of a majority of the directors remaining in office though less
than a quorum of the Tysons Board. The term of a director elected by the Tysons
Board to fill a vacancy expires at the next shareholders' meeting at which
directors are elected.
BankGroup. The number of Directors is set forth in BankGroup's Bylaws.
The Board currently has fixed the number of directors at 12. Any vacancy
occurring on the Board of Directors, including a vacancy resulting from an
increase in the number of Directors, may be filled by the affirmative vote of a
majority of the remaining directors, though less than a quorum of the Board of
Directors. Directors so chosen shall hold office for a term expiring at the next
following annual meeting of shareholders at which directors are elected. No
decrease in the number of directors constituting the Board of Directors shall
shorten the term of any incumbent director. Subject to the rights of the holders
of preferred stock then outstanding, any director may be removed by the
affirmative vote of the holders of at least two-thirds of outstanding voting
shares.
Anti-Takeover Provisions
For a description of certain provisions of the VSCA which may be deemed
to have an anti-takeover effect or BankGroup or Tysons, see "Description of
BankGroup Capital Stock -- Virginia Stock Corporation Act." The voting
requirements of Sections 13.1-725 et. al. of Article 14 of the VSCA with respect
to affiliated transactions do not apply to the Merger as a result of the Merger
having been approved by a majority of the disinterested directors of Tysons.
Section 13.1-728.1 of the VSCA does not apply because Tysons is a party to the
Agreement.
Preemptive Rights
Neither the Shareholders of BankGroup nor the Shareholders of Tysons
has preemptive rights. Thus, if additional shares of BankGroup Common Stock,
BankGroup preferred stock or Tysons Common Stock are issued, holders of such
stock, to the extent they do not participate in such additional issuance of
shares, would own proportionately smaller interests in a larger amount of
outstanding capital stock.
<PAGE>
Assessment
All outstanding shares of Tysons Common Stock are fully paid and
nonassessable.
All shares of BankGroup Common Stock presently issued are, and those to
be issued pursuant to the Agreement will be, fully paid and nonassessable.
Conversion; Redemption; Sinking Fund
Neither BankGroup Common Stock nor Tysons Common Stock is convertible,
redeemable or entitled to any sinking fund.
Liquidation Rights
The VSCA generally provides that a corporation's board of directors may
propose dissolution for submission to shareholders and that to be authorized,
the dissolution must be approved by the holders of more than two-thirds of all
votes entitled to be cast on the proposal, unless the articles of incorporation
of the corporation require a greater or lesser vote. There are no provisions in
BankGroup's or Tysons' Articles of Incorporation, respectively, which would
modify the statutory requirements for dissolution under the VSCA.
Dividends and Other Distributions
The VSCA generally provides that a corporation may make distributions
to its shareholders unless, after giving effect to the distribution, (i) the
corporation would not be able to pay its debts as they become due in the usual
course of business or (ii) the corporation's total assets would be less than the
sum of its total liabilities plus (unless the articles of incorporation permit
otherwise, which BankGroup's and Tysons' Articles of Incorporation,
respectively, do not) the amount that would be needed, if the corporation were
to be dissolved at the time of the distribution, to satisfy the preferential
rights upon dissolution of shareholders whose preferential rights are superior
to those receiving the distribution. These requirements are applicable to Tysons
and BankGroup as Virginia corporations.
In addition to the limitations set forth in the VSCA, there are various
regulatory requirements which are applicable to distributions by bank holding
companies. For a description of the regulatory limitations on distributions by
Tysons and BankGroup, see "Regulation and Supervision -- Limits on Dividends and
Other Payments."
Indemnification
Tysons. Tysons' Bylaws provide that Tysons has the power to indemnify
any person, his heirs, executors, or administrators, who was or is a party or
who is threatened to be made a party to any proceeding (other than an action by
or in the right of Tysons), by reason of the fact that he is or was a director,
officer, employee, or agent of Tysons or is or was serving at the request of
Tysons as a director, officer, partner, trustee, employee, or agent of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise, against judgments, penalties, fines,
settlements or reasonable expenses (including attorneys' fees) incurred by him
in connection with such action, suit or proceeding, if: (i) he conducted himself
in good faith and believed (a) in the case of conduct in his official capacity
with Tysons, that his conduct was in its best interest and (b) in all other
cases, that his conduct was at least not opposed to its best interests; and (ii)
in the case of any criminal proceeding, he had no reasonable cause to believe
his conduct was unlawful.
Tysons may elect not to indemnify any person who was or is a party or
who is threatened to be made a party to any threatened, pending, or completed
action or suit by, or in the right of, Tysons to procure a judgment in its
favor, by reason of the fact that he is or was a director, officer, employee, or
agent of Tysons or is or was serving at the request of the corporation as a
director, officer, partner, trustee, employee, or agent of another foreign or
domestic corporation, partnership, joint venture, trust, employee benefit plan,
or other enterprise, against reasonable expenses (including attorneys' fees)
incurred by him in connection with: (i) a proceeding by or in the right of
Tysons in which he was adjudged liable to Tysons; or (ii) any other proceeding
charging improper personal benefit to him, whether or not involving action in
his official capacity, in which he was adjudged liable on the basis that
personal benefit was improperly received by him. To the extent that a director,
officer, employee, or agent of Tysons entirely prevails, on the merits or
otherwise, in defense of any action, suit, or proceeding referred to above, or
in defense of any claim, issue, or matter therein, he will be indemnified
against reasonable expenses (including attorneys' fees) incurred by him in
connection therewith.
Any non-mandatory indemnification (unless ordered by a court) will be
made by Tysons only as authorized in the specific case, upon a determination
that indemnification is proper in the circumstances because the person has met
the applicable standard of conduct. Such determination will be made: (i) by the
Tysons Board by a majority vote of a quorum consisting of directors who were not
parties to such action, suit, or proceeding; (ii) if such a quorum is not
obtainable, by majority vote of a committee duly designated by the Tysons Board,
(in which designation directors who are parties may participate), consisting
solely of two or more directors not at the time parties to the proceeding; (iii)
by special legal counsel selected by the Tysons Board or its committee or if a
quorum of the Tysons Board cannot be obtained and a committee cannot be
designated, selected by majority vote of the full Tysons Board, in which
selection directors who are parties may participate; or (iv) by the
shareholders, but shares owned by or voted under the control of directors who
are at the time parties to the proceeding may not be voted on the determination.
Tysons has agreed to indemnify the Trustees of the ESOP in connection
with their service as fiduciaries.
BankGroup. To the full extent permitted by the VSCA and any other
applicable law, BankGroup shall indemnify a director or officer of BankGroup who
is or was a party to any proceeding by reason of the fact that he is or was such
a director or officer or is or was serving at the request of the corporation,
partnership, joint venture, trust, employee benefit plan or other enterprise.
The Board of Directors is empowered, by majority vote of a quorum of
disinterested directors, to contract in advance to indemnify any director or
officer.
Shareholder Proposals
Tysons. Tysons' Bylaws provide that if any of its shareholder notifies
Tysons that such shareholder intends to present a proposal for action at a
forthcoming shareholders meeting and requests that Tysons include the proposal
in its proxy statement and such shareholder complies with all the requirements
of Rule 14a-8 promulgated under the Exchange Act, Tysons shall consider
inclusion of such proposal in the proxy statement unless it determines that the
proposal is inappropriate for consideration by the shareholders at the meeting.
BankGroup. BankGroup's Bylaws provide that at any meeting of
shareholders of BankGroup, only that business that is properly brought before
the meeting may be presented to and acted upon by the shareholders. To be
properly brought before the meeting, business must be brought (a) by or at the
direction of the Board of Directors or (b) by a shareholder who has given
written notice of business he expects to bring before the meeting to the
Secretary of BankGroup not less than 90 days prior to the meeting. A
shareholder's notice to the Secretary shall set forth as to each matter the
shareholder proposes to bring before the meeting (a) a brief description of the
business to be brought before the meeting and the reasons for conducting such
business at the meeting, (b) the name and address, as they appear on BankGroup's
books, of the shareholder proposing such business, (c) the class and number of
shares of BankGroup's stock beneficially owned by the shareholder, and (d) any
material interest of the shareholder in such business. No business shall be
conducted at a meeting of shareholders except in accordance with the procedures
set forth in BankGroup's Bylaws.
Shareholder Inspection Rights; Shareholder Lists
Tysons and BankGroup. Under the VSCA, the shareholder of a Virginia
corporation is entitled to inspect and copy certain books and records, including
the articles of incorporation and bylaws of the corporation if he gives the
corporation written notice of his or her demand at least five business days
before the date on which he wishes to inspect and copy. The shareholder of a
Virginia corporation is entitled to inspect and copy certain other books and
records, including a list of shareholders, minutes of any meeting of the board
of directors and accounting records of the corporation, if (i) the shareholder
has been a shareholder of record for at least 6 months immediately preceding his
or her written demand or is the holder of at least 5% of the corporation's
outstanding shares, (ii) the shareholder's demand is made in good faith and for
a proper purpose, (iii) the shareholder describes with reasonable particularity
the purpose of the request and the records desired to be inspected and (iv) the
records are directly connected with the stated purpose, and if he gives the
corporation written notice of his or her demand at least five business days
before the date on which he wishes to inspect and copy. The VSCA also provides
that a corporation shall make available for inspection by any shareholder during
usual business hours, at least 10 days before each meeting of shareholders, a
complete list of the shareholders entitled to vote at such meeting.
Shareholder Rights Plan
Tysons. Tysons does not have a shareholder rights plan.
BankGroup. For a description of a shareholder rights plan which has
been adopted by BankGroup, see "Description of Capital Stock of BankGroup --
Rights."
Dissenters' Appraisal Rights
Tysons. Under the VSCA, a stockholder does not have appraisal rights in
certain circumstances, including a merger, if such stockholder's stock is listed
on a national exchange or is designated on the Nasdaq System. As Tysons Common
Stock is traded on the Nasdaq SmallCap Market under the symbol "TYFC" and as
Tysons stockholders will not receive anything other than cash or shares of
BankGroup Common Stock in the merger, dissenters' appraisal rights will not be
available with respect to the merger.
BankGroup. The provisions of Article 15 of the VSCA which provide
shareholders of a Virginia corporation the right to dissent from, and obtain
payment of the fair value of their shares in the event of, mergers,
consolidations and certain other corporate transactions are applicable to
BankGroup as a Virginia corporation. However, because BankGroup has more than
2,000 record shareholders, shareholders of BankGroup generally do not have
rights to dissent from mergers, consolidations and certain other corporate
transactions to which BankGroup is a party because Article 15 of the VSCA
provides that holders of shares of a Virginia corporation which has shares
listed on a national securities exchange or which has at least 2,000 record
shareholders are not entitled to dissenters' rights unless certain requirements
are met.
RESALE OF BANKGROUP COMMON STOCK
BankGroup Common Stock issuable in the Merger has been registered under
the 1933 Act, thereby allowing such shares to be traded freely and without
restriction by those holders of Tysons Common Stock who receive such shares
following consummation of the Merger and who are not deemed to be "affiliates"
(as defined under the 1933 Act, but generally including directors, certain
executive officers and 10% or more shareholders) of Tysons or BankGroup.
EXPERTS
The consolidated financial statements of BankGroup and its subsidiaries
for the years ended December 31, 1996 and 1995, and the combination of the
previously reported financial statements for the year ended December 31, 1994,
incorporated in this Proxy Statement/Prospectus by reference to BankGroup's
Annual Report on Form 10-K for the year ended December 31, 1996 have been so
incorporated in reliance upon the report of Coopers & Lybrand L.L.P.,
independent accountants, incorporated herein by reference, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated statements of income, changes in shareholders' equity
and cash flows of BankGroup and its subsidiaries for the year ended December 31,
1994 (not presented herein) prior to their restatement to reflect the 1996
poolings of interests as described in Note 2 of the Notes to the December 31,
1996 consolidated financial statements, included in BankGroup's annual report on
Form 10-K for the year ended December 31, 1996, have been incorporated by
reference herein and in the registration statement in reliance upon the report
of KPMG Peat Marwick LLP, independent certified public accountants, incorporated
by reference herein, and upon the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Hanover and subsidiary (prior
to their restatement to reflect the 1996 poolings of interests with BankGroup)
for the year ended December 31, 1994 included in this Prospectus and the
Registration Statement have been audited by Deloitte & Touche LLP, independent
auditors, as stated in their report appearing herein and elsewhere in the
Registration Statement, and are included in reliance upon the report of such
firm given their authority as experts in accounting and auditing.
The financial statements of Clifton Forge (prior to their restatement
to reflect the 1996 poolings of interests with BankGroup) for the year ended
December 31, 1994, have been incorporated by reference in this Proxy
Statement/Prospectus in reliance upon the report of Persinger & Company, L.L.C.,
independent auditors, incorporated herein by reference from BankGroup's 1996
Annual Report on Form 10-K given the authority of said firm as experts in
accounting and auditing.
The consolidated financial statements of Tysons and subsidiary as of
December 31, 1996 and 1995 and for each of the years then ended included herein
and in the Registration Statement have been so included in reliance upon the
report of KPMG Peat Marwick LLP, independent certified public accountants,
appearing elsewhere herein, and upon the authority of said firm as experts in
accounting and auditing.
LEGAL OPINIONS
The legality of BankGroup Common Stock to be issued in the Merger will
be passed on by Flippin, Densmore, Morse, Rutherford & Jessee, Roanoke,
Virginia. A condition to consummation of the Merger is the delivery to BankGroup
and Tysons by Venable, Baetjer, Howard & Civiletti, LLP of an opinion concerning
certain federal income tax consequences of the Merger. See "The Merger --
Certain Federal Income Tax Consequences."
OTHER MATTERS
As of the date of this Proxy Statement/Prospectus, Tysons Board does
not know of any other matters to be presented for action at the Tysons
Shareholder Meeting other than procedural matters incident to the conduct of the
meeting. If any other matters not now known are properly brought before Tysons
Shareholder Meeting, the persons named in the accompanying proxy will vote such
proxy in accordance with his or her judgment.
By Order of the Board of Directors,
-------------------------------------------
Corporate Secretary
<PAGE>
INDEX TO FINANCIAL STATEMENTS
TYSONS FINANCIAL CORPORATION FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995
AND THE NINE MONTHS AND THREE MONTHS ENDED SEPTEMBER 30, 1997 AND 1996
Page No.
--------
Annual Financial Statements:
Independent Auditors' Report F-2
Consolidated Statements of Financial Condition
as of December 31, 1996 and 1995 F-3
Consolidated Statements of Operations for the
years ended December 31, 1996 and 1995 F-4
Consolidated Statements of Changes in Stockholders'
Equity for the years ended December 31, 1996 and 1995 F-5
Consolidated Statements of Cash Flows for the
years ended December 31, 1996 and 1995 F-6
Notes to Consolidated Financial Statements F-7
Interim Financial Statements:
Consolidated Statements of Financial Condition as of
September 30, 1997 and December 31, 1996 F-26
Consolidated Statements of Operations for the nine and
three months periods ended September 30, 1997 and 1996 F-27
Consolidated Statements of Cash Flows for the nine
months ended September 30, 1997 and 1996 F-28
Note to Consolidated Financial Statements F-29
<PAGE>
Independent Auditors' Report
The Board of Directors
Tysons Financial Corporation:
We have audited the accompanying consolidated statements of financial condition
of Tysons Financial Corporation and subsidiary as of December 31, 1996 and 1995,
and the related consolidated statements of operations, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tysons Financial
Corporation and subsidiary as of December 31, 1996 and 1995, and the results of
their operations and their cash flows for the years then ended, in conformity
with generally accepted accounting principles.
KPMG Peat Marwick LLP
January 24, 1997
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
December 31, 1996 and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
ASSETS 1996 1995
- ---------------------------------------------------------------------------------------------------
<S> <C>
Cash and due from banks (note 6) $ 6,814,233 5,489,076
Federal funds sold (note 13) 6,810,371 8,910,000
Interest-bearing deposits in other banks 100,000 100,000
Investment securities available-for-sale, at fair value (note 3) 11,040,897 4,965,773
Investment securities held-to-maturity, at cost, fair value of
$3,734,415 in 1996 and $5,300,167 in 1995 (note 3) 3,726,535 5,273,850
Loans, net (note 4) 56,982,848 43,774,810
Property and equipment, net 499,977 319,845
Premium paid for deposits acquired (note 2) 982,067 1,108,471
Accrued interest receivable and other assets 879,782 669,474
- ---------------------------------------------------------------------------------------------------
$ 87,836,710 70,611,299
- ---------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- ---------------------------------------------------------------------------------------------------
Liabilities:
Deposits:
Noninterest-bearing demand $ 20,113,231 17,618,859
NOW and money market accounts 37,956,032 26,945,735
Savings 2,438,259 3,215,240
Certificates of deposit, under $100,000 13,672,085 14,575,624
Certificates of deposit, $100,000 and over 4,374,231 3,137,699
- ---------------------------------------------------------------------------------------------------
Total deposits 78,553,838 65,493,157
Accrued interest payable and other liabilities 642,787 552,673
Long-term debt (notes 8 and 11) 375,000 425,000
- ---------------------------------------------------------------------------------------------------
Total liabilities 79,571,625 66,470,830
- ---------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, par value $5; 10,000,000 shares authorized;
1,071,119 and 668,619 shares issued and outstanding at
December 31, 1996 and 1995, respectively (notes 9 and 10) 5,355,595 3,343,095
Additional paid-in capital 4,035,209 3,071,860
ESOP Trust, 42,878 and 48,595 shares at
December 31, 1996 and 1995, respectively(note 11) (375,000) (425,000)
Accumulated deficit (802,960) (1,864,784)
Unrealized gain on investment securities available-for-sale 52,241 15,298
- ---------------------------------------------------------------------------------------------------
Total stockholders' equity 8,265,085 4,140,469
- ---------------------------------------------------------------------------------------------------
Commitments and contingencies (notes 7 and 12)
$ 87,836,710 70,611,299
- ---------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- --------------------------------------------------------------------------------------------------------
<S> <C>
Interest income:
Loans $ 4,878,836 3,620,751
Investment securities:
Available-for-sale 522,406 238,986
Held-to-maturity 261,413 290,491
Federal funds sold 606,997 301,564
Deposits in other banks 5,952 8,662
- --------------------------------------------------------------------------------------------------------
Total interest income 6,275,604 4,460,454
- --------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
NOW and money market accounts 1,026,113 636,423
Savings accounts 90,922 118,976
Certificates of deposit, under $100,000 859,579 579,103
Certificates of deposit, $100,000 and over 206,727 136,861
Interest on federal funds purchased and repurchase agreements 2,667 2,123
Interest on long-term debt (note 8) 41,441 48,964
- --------------------------------------------------------------------------------------------------------
Total interest expense 2,227,449 1,522,450
- --------------------------------------------------------------------------------------------------------
Net interest income 4,048,155 2,938,004
Provision for loan losses (note 4) 172,193 393,580
- --------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,875,962 2,544,424
Noninterest income 280,488 339,226
Noninterest expense 3,168,644 2,566,052
- --------------------------------------------------------------------------------------------------------
Income before income taxes 987,806 317,598
Income tax benefit (74,018) (250,000)
- --------------------------------------------------------------------------------------------------------
Net income $ 1,061,824 567,598
- --------------------------------------------------------------------------------------------------------
Net income per share $ 1.23 0.92
- --------------------------------------------------------------------------------------------------------
Weighted average shares outstanding 857,436 616,926
- --------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------------
Unrealized
gain (loss)
Additional on
Common paid-in ESOP Accumulated investment
Shares stock capital trust deficit securities Total
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Balance, December 31, 1994 668,619 $ 3,343,095 3,071,860 (475,000) (2,432,382) (121,881) 3,385,692
ESOP Trust (note 11) - - - 50,000 - - 50,000
Net income - - - - 567,598 - 567,598
Unrealized gain on investment
securities available-for-sale - - - - - 137,179 137,179
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1995 668,619 3,343,095 3,071,860 (425,000) (1,864,784) 15,298 4,140,469
ESOP Trust (note 11) - - - 50,000 - - 50,000
Net income - - - - 1,061,824 - 1,061,824
Issuance of common stock 402,500 2,012,500 963,349 - - - 2,975,849
Unrealized gain on investment
securities available-for-sale - - - - - 36,943 36,943
- --------------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1996 1,071,119 $ 5,355,595 4,035,209 (375,000) (802,960) 52,241 8,265,085
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY Consolidated Statements of Cash
Flows Years ended December 31, 1996 and 1995
<TABLE>
<CAPTION>
1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 1,061,824 567,598
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 228,843 167,471
Provision for loan losses 172,193 393,580
Income tax benefit (74,018) (250,000)
Compensation expense for ESOP Trust 52,988 50,000
Increase in accrued interest receivable and other assets (210,308) (409,423)
Increase in accrued interest payable and other liabilities 90,114 291,997
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 1,321,636 811,223
- ----------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (10,408,528) (1,891,809)
Purchases of held-to-maturity securities (995,000) (2,960,241)
Proceeds from maturities and principal payments of
available-for-sale securities 4,373,925 514,396
Proceeds from maturities and principal payments of
held-to-maturity securities 2,549,624 2,464,166
Net decrease in interest-bearing deposits in banks - 200,000
Acquisition of deposits net of assets and cash acquired - 5,846,618
Purchase of property and equipment (285,321) (101,821)
Net increase in loan portfolio (13,317,338) (7,172,268)
- ----------------------------------------------------------------------------------------------------------
Net cash used in investing activities (18,082,638) (3,100,959)
- ----------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 2,975,849 -
Net increase in deposits 13,060,681 10,497,172
Proceeds from long-term debt issuance - -
Funding of ESOP Trust - -
Repayments of long-term debt (50,000) (50,000)
- ----------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 15,986,530 10,447,172
- ----------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (774,472) 8,157,436
Cash and cash equivalents, beginning of year 14,399,076 6,241,640
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $13,624,604 14,399,076
- ----------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 2,214,273 1,451,528
Income taxes paid 721 -
- ----------------------------------------------------------------------------------------------------------
</TABLE>
In 1995, the Company acquired loans of $13,032,431, equipment of $43,965, other
assets of $19,828, and assumed deposits of $20,101,513 and liabilities of
$26,649. The Company paid a premium of $1,185,320 for deposits acquired.
See accompanying notes to consolidated financial statements.
<PAGE>
(1) Organization and Summary of Significant Accounting Policies
Tysons Financial Corporation (the "Company") was incorporated
December 29, 1989 under the laws of the Commonwealth of Virginia as a
holding company whose activities consist of investment in its wholly
owned subsidiary, Tysons National Bank (the "Bank"). In connection with
the formation of the Company, 10,000,000 shares of $5 par value stock
were authorized and 668,619 shares were originally issued. The Bank
commenced regular operations on July 1, 1991 as a national banking
association primarily supervised by the Office of the Comptroller of
the Currency. The Bank is a member of the Federal Reserve System and
the Federal Deposit Insurance Corporation.
Basis of Financial Statement Presentation
The financial statements have been prepared on the accrual basis
and in conformity with generally accepted accounting principles. In
preparing the financial statements, management is required to make
estimates and assumptions that affect the reported amounts of assets
and liabilities as of the date of the balance sheet and revenues and
expenses for the period. Actual results could differ significantly from
those estimates.
Consolidation
The consolidated financial statements include the accounts of
the Company and the Bank. All significant intercompany accounts and
transactions have been eliminated in consolidation.
Cash and Cash Equivalents
For purposes of reporting cash flows, the Company has defined
cash and cash equivalents as those amounts included in cash and due
from banks and federal funds sold.
Investment Securities
The Company classifies its debt and marketable equity securities
in one of three categories: trading, available-for-sale, or
held-to-maturity. Trading securities are bought and held principally
for the purpose of selling them in the near term. Held-to-maturity
securities are those securities for which the Company has the ability
and intent to hold until maturity. All other securities not classified
as trading or held-to-maturity are classified as available-for-sale.
The Company does not engage in trading activities and, accordingly, has
no trading portfolio.
Available-for-sale securities are recorded at fair value.
Unrealized holding gains and losses on available-for-sale securities
are excluded from earnings and reported as a separate component of
stockholders' equity until realized. A decline in the market value of
any available-for-sale or held-to-maturity security below cost that is
deemed other than temporary is charged to earnings, resulting in the
establishment of a new cost basis for the security.
Held-to-maturity securities are recorded at cost, adjusted for
the amortization or accretion of premiums or discounts. Premiums and
discounts are amortized or accreted over the life of the related
security as an adjustment to yield using the effective interest method.
Dividend and interest income are recognized when earned. Realized gains
and losses for securities classified as available-for-sale and
held-to-maturity are included in earnings and are derived using the
specific identification method for determining the cost of securities
sold.
Prepayment of the mortgages securing the collateralized mortgage
obligations may affect the maturity date and yield to maturity. The
Company uses actual principal prepayment experience and estimates of
future principal prepayments in calculating the yield necessary to
apply the effective interest method.
Income Recognition on Loans
Interest on loans is credited to income as earned on the
principal amount outstanding. When, in management's judgment, the full
collectibility of principal or interest on a loan becomes uncertain,
that loan is placed on nonaccrual. Any accrued but uncollected interest
on nonaccrual loans is charged against current income. Interest income
is then recognized as cash is received.
Interest accruals are resumed on such loans only when they are
brought fully current with respect to principal and interest and when,
in the judgment of the management, the loans have demonstrated a new
period of performance and are estimated to be fully collectible as to
both principal and interest.
Allowance for Loan Losses
The allowance for loan losses is a valuation allowance available
for losses incurred on loans. It is established through charges to
earnings in the form of provisions for loan losses. Loan losses are
charged to the allowance for loan losses when a determination is made
that collection is unlikely to occur. Recoveries are credited to the
allowance at the time of recovery.
Prior to the beginning of each year, and quarterly during the
year, management estimates whether the allowance for loan losses is
adequate to absorb losses that can be anticipated in the existing
portfolio. Based on these estimates, an amount is charged to the
provision for loan losses to adjust the allowance to a level determined
to be adequate to absorb currently anticipated losses.
Management's judgment as to the level of future losses on
existing loans is based on management's internal review of the loan
portfolio, including an analysis of the borrowers' current financial
position, the consideration of current and anticipated economic
conditions and their potential effects on specific borrowers, an
evaluation of the existing relationships among loans, potential loan
losses, and the present level of the loan loss allowance; and results
of examinations by independent consultants. In determining the
collectibility of certain loans, management also considers the fair
value of any underlying collateral. In addition, various regulatory
agencies, as an integral part of their examination process,
periodically review the Bank's allowance for loan losses. Such agencies
may require the Bank to recognize additions to the allowance based on
their judgments about information available to them at the time of
their examination.
Loan Fees
Loan origination fees and direct loan origination costs are
deferred and amortized as an adjustment to yield over the life of the
loan.
Property and Equipment
Property, leasehold improvements, and equipment are stated at
cost, less accumulated depreciation and amortization. Amortization of
leasehold improvements is computed using the straight-line method over
the estimated useful lives of the improvements or the lease term,
whichever is shorter. Depreciation of property and equipment is
computed using the straight-line method over their estimated useful
lives ranging from 3 to 25 years.
Income Taxes
Deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities
and their respective tax bases and operating loss and tax credit
carryforwards. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or
settled. Deferred tax assets are recognized subject to management's
judgment that realization of the asset is more likely than not.
Income Per Common Share
Income per common share is computed by dividing net income by
the weighted average number of common and common equivalent shares
(using the treasury stock method) outstanding during the year. Shares
held by the ESOP Trust are included in the income per common share
calculation as they become committed to be released. Common equivalent
shares include stock options and warrants and are therefore considered
in earnings per share calculations if dilutive.
<PAGE>
New Accounting Standards
In March 1995, the Financial Accounting Standards Board (FASB)
issued Statement of Financial Accounting Standards (SFAS) No. 121,
Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed Of, which was effective in 1996. SFAS No. 121
requires that assets to be held and used be evaluated for impairment
whenever events or circumstances indicate that the carrying value may
not be recoverable. SFAS No. 121 also requires that assets to be
disposed of be reported at the lower of cost or fair value less selling
costs. Implementation of SFAS No. 121 did not have a material impact on
the Company's results of operations or financial position.
In May 1995, the FASB issued SFAS No. 122, Accounting for
Mortgage Servicing Rights, which became effective in 1996. SFAS No. 122
provides accounting for mortgage servicers that sell or securitize
loans and retain servicing rights. The Company does not sell or
securitize mortgage loans and therefore implementation of SFAS No. 122
does not have a material impact.
In October 1995, the FASB issued SFAS No. 123, Accounting for
Stock-Based Compensation, which became effective in 1996. SFAS No. 123
encourages companies to record an expense for all stock compensation
awards based on fair value at grant date; however, companies may elect
to continue to follow the accounting standards existing prior to SFAS
No. 123 with the additional requirement that they disclose pro forma
net income and earnings per share as if they had adopted the expense
recognition provisions of SFAS No. 123. The Company follows the
existing accounting standards for these plans.
Reclassifications
Certain amounts for 1995 have been reclassified to conform to
the presentation for 1996.
(2) Acquisition
On May 12, 1995, the Company acquired certain assets and
deposits from Suburban Bank of Virginia, N.A., including its Reston,
Virginia branch, comprising approximately $13,000,000 of loans and
$20,100,000 of deposits. All assets acquired and liabilities assumed
were recorded at fair value at the date of acquisition.
The Company paid a premium of approximately $1,200,000 for the
deposits acquired. This premium is being amortized on a straight-line
basis over 10 years based on management's estimate of the life of
deposits acquired. The Company reviews the unamortized balance of the
premium on a quarterly basis for possible impairment when events or
changed circumstances may affect the underlying basis of the
liabilities assumed. Amortization of the premium was $126,404 in 1996.
(3) Investment Securities
The carrying value and fair value of investment securities
held-to-maturity at December 31, 1996 and 1995, are as follows:
<TABLE>
<CAPTION>
1996 1995
--------------------- --------------------
Carrying Fair Carrying Fair
(dollars in thousands) value value value value
- -------------------------------------------------------------------------------------------------------------------
<S> <C>
U.S. Treasury securities $ 1,499 1,505 1,472 1,482
Obligations of U.S. government agencies 250 251 250 253
Mortgage-backed securties of government sponsored enterprises 1,228 1,227 2,302 2,305
Other corporate securities 750 752 1,250 1,260
- --------------------------------------------------------------------------------------------------------------------
$ 3,727 3,735 5,274 5,300
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value and fair value of held-to-maturity
investment securities at December 31, 1996 and 1995, by
contractual maturity are shown in the following table. Expected
maturities may differ from contractual maturities because many
issuers have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
1996 1995
--------------------- --------------------
Carrying Fair Carrying Fair
(dollars in thousands) value value value value
- ----------------------------------------------------------------------------------
<S> <C>
Maturing within 1 year $ 1,001 1,001 1,303 1,308
After 1 but within 5 years 2,434 2,444 3,473 3,495
After 5 but within 10 years 289 287 289 289
After 10 years 3 3 209 208
- -----------------------------------------------------------------------------------
$ 3,727 3,735 5,274 5,300
- -----------------------------------------------------------------------------------
</TABLE>
Gross unrealized losses in investment securities
held-to-maturity at December 31, 1996 and 1995 were $4,735 and $5,569,
respectively. Gross unrealized gains were $12,615 and $31,886 at
December 31, 1996 and 1995, respectively. There were no sales or
transfers of held to maturity securities during the years ended
December 31, 1996 and 1995.
The carrying value and amortized cost of available-for-sale
securities at December 31, 1996 and 1995, are shown below. Because
available-for-sale securities are marked-to market, the carrying value
is equal to fair value.
<TABLE>
<CAPTION>
1996 1995
-------------------------- -----------------------
Carrying Amortized Carrying Amortized
(dollars in thousands) value cost value cost
- -------------------------------------------------------------------------------------------------------------------------
<S> <C>
Obligations of U.S. government agencies $ 2,103 2,078 1,577 1,565
Mortgage-backed securities of government sponsored enterprises 8,161 8,106 2,985 2,981
Other corporate securities 777 778 404 404
- -----------------------------------------------------------------------------------------------------------------------
Total $ 11,041 10,962 4,966 4,950
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
The carrying value and amortized cost of available-for-sale
investment securities by contractual maturity at December 31, 1996 and
1995, are shown below. Expected maturities may differ from contractual
maturities because many issuers have the right to call or prepay
obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION
1996 1995
--------------------------- ------------------------
Carrying Amortized Carrying Amortized
(dollars in thousands) value cost value cost
- -----------------------------------------------------------------------------------------------------
<S> <C>
Maturing within 1 year $ 568 564 248 250
After 1 but within 5 years 4,360 4,335 1,417 1,407
After 5 but within 10 years 2,172 2,153 1,891 1,887
After 10 years 3,663 3,632 1,256 1,252
Marketable equity securities 278 278 154 154
- --------------------------------------------------------------------------------------------------
Total $ 11,041 10,962 4,966 4,950
- --------------------------------------------------------------------------------------------------
</TABLE>
Gross unrealized losses in the available-for-sale securities at
December 31, 1996 and 1995 were $1,612 and $14,712, respectively. Gross
unrealized gains were $80,765 and $30,010 at December 31, 1996 and
1995, respectively.
There were no sales or transfers of available-for-sale
securities during the years ended December 31, 1996 and 1995.
Securities with carrying values of $747,145 and $661,371 at
December 31, 1996 and 1995, respectively, were pledged to secure
Treasury tax and loan payments and for other purposes as required by
law.
As a member of the Federal Reserve System, the Bank is required
to hold stock in the Federal Reserve Bank of Richmond. This stock is
carried at cost since no active trading markets exist.
<PAGE>
(4) Loans Receivable
The loan portfolio at December 31, 1996 and 1995 consists of the
following:
(dollars in thousands) 1996 1995
- ----------------------------------------------------------------------
Commercial $ 17,308 14,352
Real estate - commercial 13,872 12,311
Real estate - residential 12,933 9,225
Real estate - construction 4,254 1,991
Consumer 9,390 6,639
- -----------------------------------------------------------------------
Gross loans 57,757 44,518
Unearned income (80) (159)
- -----------------------------------------------------------------------
Loans, net unearned income 57,677 44,359
Allowance for loan losses (694) (584)
- -----------------------------------------------------------------------
Loans, net $ 56,983 43,775
- -----------------------------------------------------------------------
Analysis of the activity in the allowance for loan losses is as
follows:
(dollars in thousands) 1996 1995
- ----------------------------------------------------------------------
Balance, beginning of year $ 585 298
Provision for loan losses 172 394
Loans charged off (88) (107)
Recoveries 25 -
- ---------------------------------------------------------------------
Balance, end of year $ 694 585
- ---------------------------------------------------------------------
Loans on which the accrual of interest has been discontinued or
reduced amounted to $193,246 and $265,661 at December 31, 1996 and
1995, respectively. Interest lost on these nonaccrual loans was
approximately $6,598 for 1996 and $13,465 for 1995.
At December 31, 1996, the Company had three impaired loans with
unpaid principal balances of $182,000. The loans are on nonaccrual and
there is $16,000 in related impairment reserves against these loans.
The average balance of impaired loans during 1996 was $140,000 which
had an average impairment reserve of $20,000. There was one impaired
loan with an unpaid principal balance of $266,000 at December 31, 1995.
This loan was on nonaccrual, but had no related impairment reserve. The
average balance of impaired loans during 1995 was $334,000 which had an
average impairment reserve of $26,000.
All of the Bank's loans, commitments and standby letters of
credit have been granted to customers located in the Washington, D.C.
metropolitan area. The concentrations of credit by type of loan are set
forth above. The Bank, as a matter of policy, does not extend credit,
net of participated amounts, to any single borrower or group of related
borrowers in excess of $1,000,000.
(5) Income Taxes
Deferred income tax assets and liabilities are recognized for
differences between financial statement and tax bases of assets and
liabilities that will result in future tax consequences. A valuation
allowance is required to reduce deferred tax assets to an amount more
likely than not realizable.
Based upon the profitability of the Company in 1995 and 1996,
and projected profitability of the Company in 1997, management
reassessed the need for a valuation allowance and management considers
that all of the benefit is more likely than not to be realized.
The provision for income tax for the years ended December 31,
1996 and 1995 consists of:
(dollars in thousands) 1996 1995
- ----------------------------------------------------------------------
Current income tax expense $ 16 -
Deferred income tax benefit (90) (250)
- ----------------------------------------------------------------------
Income tax benefit $ (74) (250)
- ----------------------------------------------------------------------
[The remainder of this page is intentionally left blank]
<PAGE>
A reconciliation of tax at the statutory federal tax rate to the income
tax provision is presented below for the years ended December 31, 1996 and 1995:
(dollars in thousands) 1996 1995
- -------------------------------------------------------------------------
Tax applicable to total income at statutory rate $ 336 108
Adjustments due to:
Nondeductible expenses 7 5
Change in valuation allowance (408) (363)
Other (9) -
- -------------------------------------------------------------------------
Income tax benefit $ (74) (250)
- -------------------------------------------------------------------------
Deferred tax assets and liabilities consist of the following at
December 31, 1996 and 1995:
(dollars in thousands) 1996 1995
- ---------------------------------------------------------------------
Alternative minimum tax carryforward $ 15 -
Premium paid for deposits acquired 22 9
Bad debt expense 196 148
Amortization - 28
Net operating loss carryforward 134 510
Other 7 -
- ---------------------------------------------------------------------
Gross deferred tax assets 374 695
Less - valuation allowance - (408)
- ---------------------------------------------------------------------
Depreciation 35 37
Unrealized gain on securities available-for-sale 27 -
- ---------------------------------------------------------------------
Gross deferred tax liabilities 62 37
- ---------------------------------------------------------------------
Net deferred tax assets $ 312 250
- ---------------------------------------------------------------------
At December 31, 1996, the Company had completely used its net
operating loss carryforward for financial statement purposes.
(6) Regulatory Matters
The Bank, as a national bank, is subject to the dividend
restrictions set forth by the Comptroller of the Currency. Under such
restrictions, the Bank may not, without the prior approval of the
Comptroller of the Currency, declare dividends in excess of the sum of
the current year's earnings (as defined) plus the retained earnings (as
defined) from the prior two years. At December 31, 1996 and 1995, there
were no net earnings against which dividends could be charged.
The Bank is required to maintain a minimum average reserve
balance with the Federal Reserve Bank. The average amount of the
required reserve was $754,269 and $1,046,000 for 1996 and 1995,
respectively.
As a member of the Federal Reserve Bank system, the Bank is
required to subscribe to shares of $100 par value Federal Reserve Bank
stock equal to 6 percent of the Bank's capital and surplus. The Bank is
required to pay for one-half of the subscription. The remaining amount
is subject to call when deemed necessary by the Board of Governors of
the Federal Reserve.
The Federal Deposit Insurance Corporation Improvement Act of
1991 ("FDICIA") requires the regulators to stratify institutions into
five quality tiers based upon their relative capital strengths and to
increase progressively the degree of regulation over the weaker
institutions, limits the pass through deposit insurance treatment of
certain types of accounts, adopts a "truth in savings" program, calls
for the adoption of risk-based premiums on deposit insurance and
requires the Bank to observe insider credit underwriting products no
less strict than those applied to comparable noninsider transactions.
At December 31, 1996 and 1995, the Company and its subsidiary
bank met all regulatory capital requirements. The key measures of
capital are: (1) Tier I capital (stockholders' equity less certain
deductions) as a percent of total risk adjusted assets; (2) Tier I
capital as a percent of total assets, and (3) total capital (Tier I
capital plus the allowance for loan losses up to certain limitations)
as a percent of total risk adjusted assets. The capital ratios for the
Bank at December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
Analysis of Capital
-------------------------------------------------------------------------
(dollars in thousands) Required Required Actual Actual Excess Excess
Amount % Amount % Amount %
------------ ----------- ----------- ----------- ------------ -----------
<S> <C>
As of December 31, 1996
Tier 1 risk-based capital ratio $ 2,516 4.00% $ 7,231 11.50% $ 4,715 7.50%
Total risk-based capital ratio $ 5,032 8.00% $ 7,925 12.60% $ 2,893 4.60%
Tier 1 leverage ratio $ 2,504 3.00% $ 7,231 8.66% $ 4,727 5.66%
As of December 31, 1995
Tier 1 risk-based capital ratio $ 1,873 4.00% $ 3,436 7.34% $ 1,563 3.34%
Total risk-based capital ratio $ 3,745 8.00% $ 4,021 8.59% $ 276 0.59%
Tier 1 leverage ratio $ 1,887 3.00% $ 3,436 5.46% $ 1,549 2.46%
</TABLE>
(7) Commitments and Contingencies
The Bank entered into a lease for office space at its current
location for a term of ten years beginning May 1993. This lease is
subject to 3 percent annual increases, as well as allocations of real
estate taxes and certain operating expenses. In addition, the Company
has two additional branch leases also subject to annual increases as
well as allocations of real estate taxes and operating expenses.
Minimum future rental payments under the noncancelable operating
leases, as of December 31, 1996 for each of the next five years and in
the aggregate, are as follows:
(dollars in thousands)
Year ending December 31, Amount
--------------------------------------------------------
1997 $ 315
1998 357
1999 366
2000 375
2001 384
Thereafter 412
--------------------------------------------------------
$ 2,209
--------------------------------------------------------
The total rent expense was $209,039 and $162,286 in 1996 and
1995, respectively.
(8) Related-Party Transactions
Officers, directors, employees and their related business
interests are loan customers in the ordinary course of business. In
management's opinion, these loans are made on substantially the same
terms, including interest rates and collateral, as those prevailing at
the time for comparable loans with other persons and do not involve
more than normal risk of collectibility or present other unfavorable
features.
Analysis of activity for loans to related parties is as follows:
(dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------
Balance, beginning of year $ 1,081 558
New loans 236 659
Loans paid off or paid down (208) (136)
- ----------------------------------------------------------------------------
Balance, end of year $ 1,109 1,081
- ----------------------------------------------------------------------------
Effective January 1, 1993, the Company established an Employee
Stock Ownership Plan (ESOP), as further described in Note 11. During
June 1994, the Company purchased 32,949 and 22,222 shares of its common
stock from several of the Company's current and former directors,
respectively, at $8.75 per share, for the ESOP.
The loan used to fund the ESOP was provided by a director of the
Company in the original amount of $500,000. As of December 31, 1996 the
outstanding balance of the loan was $375,000. In management's opinion,
the loan is at market terms. The loan requires quarterly principal
payments of $12,500, quarterly interest payments at prime plus 2
percent, and a balloon payment for the remaining principal balance on
June 1, 1998.
<PAGE>
(9) Stock Warrants
Associated with the Company's initial public offering, the
organizers were granted one warrant for each share of common stock
purchased for cash in the offering. The stock purchase warrants entitle
the holder of the warrants to purchase Company stock at $10 per share,
at any time during the term of the warrant. The warrants expire on July
1, 2001.
In the event of a capital call upon the Bank, the Office of the
Comptroller of the Currency will require the Company stock warrants to
be exercised at a price no less than current book value or the warrants
will be forfeited. The Company had 228,250 stock warrants issued and
outstanding at December 31, 1996. No warrants have been exercised.
(10) Stock Option Plan
In 1992, the stockholders approved a stock option plan that
provides for incentive stock options, non-qualified stock options, and
restricted stock. The plan was amended and restated in 1996 to effect
certain technical changes in connection with revisions to Rule 16b-3
promulgated under the Securities Exchange Act of 1934 as amended. A
designated committee of the Board of Directors is authorized to grant
options to employees, officers, directors and advisory board members. A
total of 160,058 shares of common stock have been reserved for this
plan. All options are immediately exercisable and expire 10 years from
the grant date.
At December 31, 1996, the Company had the stock-based
compensation plan described above. The Company applies APB Opinion No.
25 and related Interpretations in accounting for its plan. Accordingly,
no compensation cost has been recognized for its stock option plan. Had
compensation cost for the Company's stock-based compensation plan been
recorded consistent with FASB Statement No. 123, the Company's net
income and earnings per share would have been reduced to the pro forma
amounts indicated as follows:
<TABLE>
<CAPTION>
December 31,
(dollars in thousands except per share data) 1996 1995
-------------------------------------------------------- -------- --------
<S> <C>
Net income As reported $1,062 $ 568
Pro forma $ 565 $ 550
Primary earnings per share As reported $ 1.23 $ .92
Pro forma $ .66 $ .89
</TABLE>
The fair value of each option grant was estimated on the date of
grant using the Bloomberg option-pricing model with the following
assumptions for both years; risk-free interest rate of 5.25 percent;
dividend yield of zero percent; expected life of ten years and
volatility of 25 percent.
A summary of the status of the Company's performance-based stock
option plan as of December 31, 1995 and 1996 and changes during the
years ended on those dates is presented below:
<TABLE>
<CAPTION>
for the years ended December 31,
1996 1995
--------------------------------------------------
Weighted Weighted
average average
exercise exercise
Performance Options Shares price Shares price
----------------------------------------------------------------------------------------------
<S> <C>
Outstanding at beginning of the year 12,500 $8.75 6,000 $8.75
Granted 109,830 $9.19 6,500 $8.75
Exercised 0 0 0 0
Forfeited 3,000 $8.71 0 0
Outstanding at end of year 119,330 $9.18 12,500 $8.75
Options exercisable at year-end 119,330 $9.18 12,500 $8.75
Weighted average fair value of
options granted during the year $4.54 $4.33
Weighted average remaining contractual life 9.9 years 9 years
</TABLE>
As of December 31, 1996, the 119,330 performance options under the
plan, have exercise prices between $8.50 and $11.00.
(11) Employee Stock Ownership Plan
The Company has established the Employee Stock Ownership Plan
and Trust (ESOP) which became effective on January 1, 1993, for
employees of the Bank who have at least one year of credited service
and have attained the age of twenty-one (21). The ESOP is to be funded
by the Bank's annual contributions made in cash or common stock.
Contributions to the plan are made at the discretion of the Board of
Directors. Shares purchased by the ESOP are held in a suspense account
for allocation among the participants as the loan is repaid. As
described in note 8, during 1994 the ESOP purchased 57,171 shares of
company stock using $500,000 of funds borrowed from a director of the
Company. Compensation expense relating to the ESOP for 1996 and 1995
was $52,988 and $50,000, respectively. No dividends have been declared
on the Company's stock; therefore dividends had no effect on the
compensation expense relating to the ESOP. As of December 31, 1996,
14,293 shares have been allocated to participants. The fair value of
unearned shares at December 31, 1996 is approximately $460,939.
Contributions to the ESOP and shares released from the suspense
account are allocated among the participants on the basis of salary in
the year of allocation. Benefits become 20 percent vested after the
third year of credited service, with an additional 20 percent vesting
each year thereafter until 100 percent vesting after seven years. For
any year in which the aggregate of benefits to key employees exceeds 60
percent of the aggregate benefits accrued to non-key employees,
benefits allocated to participants in that year will become 20 percent
vested after two years, increasing to 100 percent after 6 years.
Forfeitures will be reallocated annually among remaining participating
employees. Benefits may be payable upon retirement, separation from
service, disability or death.
(12) Financial Instruments with Off Balance Sheet Risk
The Company is a party to financial instruments with
off-balance-sheet risk in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit and standby letters of credit and
financial guarantees. Commitments to extend credit are agreements to
lend to a customer so long as there is no violation of any condition
established in the contract. Commitments usually have fixed expiration
dates up to one year or other termination clauses and may require
payment of a fee. Since many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Standby letters of credit are conditional commitments issued by
the Company to guarantee the performance of the contractual obligations
by a customer to a third party. The majority of these guarantees extend
until satisfactory completion of the customer's contractual
obligations. All standby letters of credit outstanding at December 31,
1996, are collateralized.
Those instruments represent obligations of the Company to extend
credit or guarantee borrowings, therefore, they are not recorded on the
consolidated statements of financial condition. The rates and terms of
these instruments are competitive with others in the market in which
the Company operates. Almost all of these instruments as of December
31, 1996 have floating rates, therefore significantly mitigating the
market risk.
Those instruments may involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
consolidated statements of financial condition. Credit risk is defined
as the possibility of sustaining a loss because the other parties to a
financial instrument fail to perform in accordance with the terms of
the contract. The Company's maximum exposure to credit loss under
standby letters of credit and commitments to extend credit is
represented by the contractual amounts of those instruments.
<TABLE>
<CAPTION>
Contractual
(dollars in thousands) amount
- ----------------------------------------------------------------------------------
<S> <C>
Financial instruments whose contract amounts represent potential
credit risk:
Commitments to extend credit $ 17,330
Standby letters of credit $ 222
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1997, the Company did not have any financial
instruments whose contractual amounts exceed the amount of credit risk.
The Company uses the same credit policies in making commitments
and conditional obligations as it does for on-balance-sheet
instruments. The Company evaluates each customer's creditworthiness on
a case-by-case basis and requires collateral to support financial
instruments when deemed necessary. The amount of collateral obtained
upon extension of credit is based on management's evaluation of the
counterparty. Collateral held varies but may include deposits held by
the Company; marketable securities; accounts receivable; inventory;
property, plant and equipment; and income-producing commercial
properties.
(13) Significant Concentrations of Credit
At December 31, 1996, the Company had federal funds sold to
three correspondent banks totaling approximately $6,810,000, each of
which had a balance of $453,000 or more. These are overnight
investments and are rolled-over on a daily basis. The Company does not
normally require collateral for this type of investment.
(14) Noninterest Expenses
Non interest expenses consist of the following:
(dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------
Salaries and employee benefits $ 1,567 1,276
Occupancy and equipment 394 299
Office and operations expenses 355 287
Data processing 259 226
Legal and professional fees 305 224
Business development 122 114
Amortization of premium paid for deposits 126 77
Deposit insurance 41 63
- ----------------------------------------------------------------------------
$ 3,169 2,566
- ----------------------------------------------------------------------------
(15) Disclosures of Fair Value of Financial Instruments
The assumptions used and the estimates disclosed represent
management's best judgment of appropriate valuation methods. These
estimates are based on pertinent information available to management as
of December 31, 1996. In certain cases, fair values are not subject to
precise quantification or verification and may change as economic and
market factors, and management's evaluation of those factors change.
Although management uses its best judgment in estimating the
fair value of these financial instruments, there are inherent
limitations in any estimation technique. Therefore, these fair value
estimates are not necessarily indicative of the amounts that the
Company would realize in a market transaction. Because of the wide
range of valuation techniques and the numerous estimates which must be
made, it may be difficult to make reasonable comparisons of the
Company's fair value information to that of other financial
institutions. It is important that the many uncertainties discussed
above be considered when using the estimated fair value disclosures and
to realize that because of these uncertainties, the aggregate fair
value amount should in no way be construed as representative of the
underlying value of the Company.
Fair Value of Financial Instruments
The following summarizes the significant methodologies and
assumptions used in estimating the fair values presented in the
accompanying table.
Cash and Cash Equivalents
The carrying amount of cash and cash equivalents was used as a
reasonable estimate of fair value.
Investments
Fair values of the Company's investment portfolio were based
on actual quoted prices or prices quoted for similar financial
instruments.
Loans
To determine the fair market value for loans, the loan
portfolio was segmented based on loan type, credit quality and
maturities. For certain variable rate loans with no
significant credit concerns and frequent repricings, estimated
fair values are based on current carrying values. The fair
values of other loans are estimated using discounted cash flow
analysis, using interest rates that were offered as of
December 31, 1996 for loans with similar terms to borrowers of
similar credit quality.
Deposits
The fair value of deposits with no stated maturity is equal to
the amount payable on demand. The fair value of certificates
of deposit are estimated using discounted cash flow analysis
using interest rates that were offered as of December 31,
1996.
Long-Term Debt
As described in Note 8, the long-term debt is variable rate at
market terms; therefore, the carrying amount was used as a
reasonable estimate of fair value.
Commitments
The fair value of these financial instruments is based on the
credit quality and relationship, fees, interest rates,
probability of funding, compensating balance and other
convenants or requirements. These commitments generally have
fixed expiration dates expiring within one year. Many
commitments are expected to, and typically do, expire without
being drawn upon. The rates and terms of these instruments are
competitive with others in the market in which the Company
operates. The carrying amounts are reasonable estimates of the
fair value of these financial instruments. The carrying
amounts of these instruments are zero at December 31, 1996.
Fair Value of Financial Instruments as of December 31, 1996
<TABLE>
<CAPTION>
December 31, 1996
---------------------------------
Carrying Estimated
(dollars in thousands) Amount Fair Value
- -----------------------------------------------------------------------------------------
<S> <C>
Financial assets:
Cash and cash equivalents $ 13,625 13,625
Investments 14,767 14,775
Loans 56,983 56,955
Financial liabilities:
Noninterest-bearing demand deposits 20,113 20,113
NOW and money market accounts 37,956 37,956
Savings 2,438 2,438
Certificates of deposit 18,046 17,751
Long-term debt 375 375
Commitments $ - -
- -----------------------------------------------------------------------------------------
</TABLE>
(16) Holding Company Only Financial Statements
Balance Sheets as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(dollars in thousands)
ASSETS 1996 1995
- -----------------------------------------------------------------------------------
<S> <C>
Assets:
Cash $ 50 12
Federal funds sold 384 -
Prepaids and other assets 10 -
Investment in subsidiary bank 8,182 4,560
- -------------------------------------------------------------------------------------
Total assets $ 8,626 4,572
- -------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------------
Liabilities:
Long term debt $ 375 425
Other liabilities 38 6
- -------------------------------------------------------------------------------------
Total liabilities 413 431
- -------------------------------------------------------------------------------------
Stockholders' equity
Common stock 5,356 3,343
Additional paid-in capital 4,035 3,072
Employee stock ownership plan trust (375) (425)
Retained earnings (803) (1,849)
- -------------------------------------------------------------------------------------
Total stockholders' equity 8,213 4,141
- -------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 8,626 4,572
- -------------------------------------------------------------------------------------
</TABLE>
Statements of Operations for the years ended December 31, 1996
and 1995:
<TABLE>
<CAPTION>
1996 1995
- ------------------------------------------------------------------------------------
<S> <C>
Income:
Equity in undistributed earnings of subsidiary $ 1,070 576
Interest income 10 -
- ------------------------------------------------------------------------------------
Total income 1,080 576
Expenses 18 8
- ------------------------------------------------------------------------------------
Total expenses 18 8
- ------------------------------------------------------------------------------------
Net income (loss) $ 1,062 568
- ------------------------------------------------------------------------------------
</TABLE>
<PAGE>
Statements of Cash Flows for the years ended December 31, 1996 and 1995:
<TABLE>
<CAPTION>
(dollars in thousands) 1996 1995
- ----------------------------------------------------------------------------------------
<S> <C>
Operating activities:
Net income $ 1,062 568
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of subsidiary (1,070) (576)
Compensation expense for ESOP trust 53 50
Other 18 -
- ----------------------------------------------------------------------------------------
Net cash provided by operating activities 63 42
- ----------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock 2,976 -
Increased investment in subsidiary (2,567) -
Payments on ESOP trust debt (50) (50)
- ----------------------------------------------------------------------------------------
Net cash provided ( used) by financing activities 359 (50)
- ----------------------------------------------------------------------------------------
Increase (decrease) in cash 422 (8)
Cash and cash equivalents, beginning of year 12 20
- ----------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $ 434 12
- ----------------------------------------------------------------------------------------
</TABLE>
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Financial Condition
<TABLE>
<CAPTION>
(unaudited)
September 30, December 31,
Assets 1997 1996
- ----------------------------------------------------------------------------------------------------------------
<S> <C>
Cash and due from banks $ 7,102,156 $ 6,814,233
Federal funds sold 12,863,118 6,810,371
Interest-bearing deposits in other banks 100,000 100,000
Investment securities available-for-sale, at fair value 12,008,120 11,040,897
Investment securities held-to-maturity, at cost, fair
value of $1,962,535 in 1997 and $3,734,415 in 1996 1,955,272 3,726,535
Loans, net 61,396,300 56,982,848
Property and equipment, net 732,437 499,977
Premium paid for deposits acquired 883,265 982,067
Accrued interest receivable and other assets 961,817 879,782
- -------------------------------------------------------------------------------------------------------------
Total Assets $ 98,002,485 $ 87,836,710
=============================================================================================================
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Noninterest-bearing demand $ 21,379,354 $ 20,113,231
NOW and money market accounts 27,046,046 37,956,032
Savings 1,909,616 2,438,259
Certificates of deposit, under $100,000 22,036,565 13,672,085
Certificates of deposit, $100,000 and over 14,247,810 4,374,231
- -------------------------------------------------------------------------------------------------------------
Total deposits 86,619,391 78,553,838
Accrued interest payable and other liabilities 499,175 642,787
Federal funds purchased and repurchase agreements 1,797,367 -
Long-term debt 337,500 375,000
- -------------------------------------------------------------------------------------------------------------
89,253,433 79,571,625
- -------------------------------------------------------------------------------------------------------------
Common stock, par value $5; 10,000,000 shares authorized;
1,071,119 shares issued and outstanding at June 30, 1997 and
December 31, 1996 5,355,595 5,355,595
Additional paid-in capital 4,051,325 4,035,209
ESOP Trust, 38,591 shares in 1997 and 42,878 shares in 1996 (337,500) (375,000)
Accumulated deficit (342,759) (802,960)
Unrealized gain on investment securities available-for-sale 22,391 52,241
- -------------------------------------------------------------------------------------------------------------
Total Stockholders' Equity 8,749,052 8,265,085
- -------------------------------------------------------------------------------------------------------------
Total Liabilities and Stockholders' Equity $ 98,002,485 $ 87,836,710
=============================================================================================================
</TABLE>
<PAGE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Nine months Nine months Three months Three months
ended ended ended ended
(Unaudited) September 30, September 30, September 30, September 30,
1997 1996 1997 1996
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Interest Income:
Loans $ 4,298,290 $ 3,553,777 $ 1,495,524 $ 1,285,824
Investment securities:
Available-for-sale 495,068 325,955 162,060 144,528
Held-to-maturity 118,397 204,661 34,178 65,036
Federal funds sold 234,493 501,043 149,423 173,576
Deposits in other banks 4,442 4,512 1,554 1,440
- -----------------------------------------------------------------------------------------------------------------------------
Total interest income 5,150,690 4,589,948 1,842,739 1,670,404
- -----------------------------------------------------------------------------------------------------------------------------
Interest expense:
Interest on deposits:
NOW and money market accounts 724,745 739,311 223,856 289,463
Savings accounts 51,193 69,981 16,301 23,670
Certificates of deposit, under $100,000 723,046 663,146 329,046 214,814
Certificates of deposit, $100,000 and over 263,543 149,363 138,818 54,189
Interest on short-term borrowings 49,054 1,856 20,031 1,413
Interest on long-term debt 27,997 31,618 9,078 10,174
- -----------------------------------------------------------------------------------------------------------------------------
Total interest expense 1,839,578 1,655,275 737,130 593,723
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income 3,311,112 2,934,673 1,105,609 1,076,681
Provision for loan losses 103,102 125,060 32,267 73,000
- -----------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 3,208,010 2,809,613 1,073,342 1,003,681
Non-interest income:
Service charge income 129,505 140,748 47,609 48,275
Other income 75,617 75,319 20,307 10,510
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest income 205,122 216,067 67,916 58,785
- -----------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and employee benefits 1,288,366 1,200,447 445,343 412,738
Occupancy, equipment and depreciation 451,540 275,067 195,013 83,824
Operations expense 481,368 390,961 174,167 143,997
Administration expense 492,464 530,333 138,154 161,962
- -----------------------------------------------------------------------------------------------------------------------------
Total non-interest expense 2,713,738 2,396,808 952,677 802,521
- -----------------------------------------------------------------------------------------------------------------------------
Net income before income taxes 699,394 628,872 188,581 259,945
Income tax expense (benefit) 239,193 (202,823) 57,393 (30,823)
- -----------------------------------------------------------------------------------------------------------------------------
Net income $ 460,201 $ 831,695 $ 131,188 $ 290,768
- -----------------------------------------------------------------------------------------------------------------------------
Net income per weighted average share $ 0.42 1.04 $ 0.12 $ 0.28
Weighted average shares outstanding 1,107,703 800,818 1,131,889 1,025,857
Net income per fully diluted weighted ave share $ 0.41 $ 1.04 $ 0.12 $ 0.28
Fully diluted weighted ave shares outstanding 1,133,513 800,818 1,134,942 1,025,857
</TABLE>
TYSONS FINANCIAL CORPORATION AND SUBSIDIARY
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
(Unaudited) Nine months Nine months
ended ended
September 30, 1997 September 30, 1996
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Cash flows from operating activities:
Net income $ 460,201 $ 831,695
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization 223,416 177,914
Provision for loan losses 103,102 125,060
Income tax benefit - (202,823)
Compensation expense for ESOP Trust 53,616 37,500
Increase in accrued interest receivable and other assets (82,035) (335,194)
(Decrease) increase in accrued interest payable and other liabilities (143,612) 25,100
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 614,688 659,252
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchases of available-for-sale securities (6,739,441) (8,408,568)
Purchases of held-to-maturity securities - (995,000)
Proceeds from maturities and principal payments of
available-for-sale securities 5,713,566 2,249,009
Proceeds from maturities and principal payments of
held-to-maturity securities 1,757,658 2,354,723
Purchase of property and equipment (344,972) (147,376)
Net increase in loan portfolio (4,486,249) (8,188,617)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (4,099,438) (13,135,829)
- ------------------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Issuance of common stock - 3,012,034
Net increase in deposits 8,065,553 22,270,474
Net increase in other borrowed funds 1,797,367 -
Repayments of long term debt (37,500) (37,500)
- ------------------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 9,825,420 25,245,008
- ------------------------------------------------------------------------------------------------------------------------------
Net (decrease) increase in cash and cash equivalents 6,340,670 12,768,431
Cash and cash equivalents, beginning of period 13,624,604 14,399,076
- ------------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of period $ 19,965,274 $ 7,167,507
- ------------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Interest paid $ 1,763,623 $ 1,631,774
Income taxes paid $ 15,421 $ 721
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
(1) RECENT DEVELOPMENT
On July 25, 1997, the Company entered into an agreement and plan of
merger with MainStreet BankGroup Incorporated ("MainStreet") pursuant to which
all of the outstanding stock of the Company will be converted into the right to
receive common stock of MainStreet at the exchange ratio provided for in the
agreement and plan of merger. The consummation of the merger is subject to
regulatory and shareholder approval and the satisfaction of various other
customary conditions to closing. Upon consummation of the merger, the Company
will continue as a wholly owned subsidiary of MainStreet.
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF MERGER
among
MAINSTREET BANKGROUP INCORPORATED
and
TYSONS FINANCIAL CORPORATION
July 25, 1997
<PAGE>
Table of Contents
Recitals
(A) MSBC................................................................1
(B) Tysons..............................................................1
(C) The Holding Company.................................................2
(D) TNB.................................................................2
(E) Rights, Etc.........................................................2
(F) This Transaction....................................................3
(G) Stock Option Agreement..............................................3
(H) Approvals...........................................................3
(I) NASDAQ..............................................................3
(J) Benefits of Plan....................................................3
I. The Merger
(A) The Continuing Corporation..........................................3
(B) Rights, Etc. .......................................................4
(C) Liabilities.........................................................4
(D) Articles of Incorporation; Bylaws; Directors;
Officers of Continuing Corporation...............................4
(E) Merger Closing; Merger Effective Date...............................4
II. Merger Consideration
(A) Outstanding Holding Company Common Stock............................4
(B) Outstanding MSBC Common Stock.......................................5
(C) Outstanding Tysons Common Stock.....................................5
(D) Stockholder Rights; Stock Transfers.................................5
(E) Fractional Shares...................................................5
(F) Exchange Procedures.................................................5
(G) Shares Held by Tysons or MSBC.......................................6
(H) Anti-Dilution Provisions............................................6
(I) Dividends...........................................................6
(J) ISO's and Stock Appreciation Rights.................................6
III. Actions Pending Merger
(A) Tysons Actions......................................................7
(1) Stock Distributions.........................................7
(2) Employment Contracts.......................................7
(3) Employee Benefit Plans.....................................7
(4) Asset Disposition..........................................7
(5) Constituent Documents......................................8
(6) Material Transactions......................................8
(7) Actions Not in Ordinary Course.............................8
(8) Agreements.................................................8
IV. Representations and Warranties
(A) Recitals ...........................................................8
(B) Capitalization......................................................8
(C) General Corporate Power and Ownership of Properties.................8
(D) Specific Corporate Authority........................................8
(E) No Default..........................................................9
(F) Financial Reports...................................................9
(G) Regulatory Reports..................................................9
(H) Material Events....................................................10
(I) Litigation.........................................................10
(J) Material Contracts.................................................10
(K) Commissions........................................................10
(L) ERISA ..........................................................10
(M) Regulatory Approvals...............................................11
(N) Agreements with Bank Regulators....................................11
(O) Subsidiaries.......................................................12
(P) Collective Bargaining Contracts....................................12
(Q) Classified Assets..................................................12
(R) Affiliates.........................................................12
(S) Insurance Policies.................................................12
(T) MSBC Stock.........................................................13
(U) Takeover Laws......................................................13
(V) Approval of This Transaction.......................................13
(W) Environmental Laws.................................................13
(X) Taxes ..........................................................15
(Y) Legal Compliance...................................................15
(Z) Certain Interests..................................................15
(AA) Licenses 16
(BB) Liabilities........................................................16
(CC) Ten Percent Shareholders...........................................16
(DD) Option Shares......................................................16
(EE) Articles and Bylaws................................................16
(FF) Dissenters Rights..................................................17
(GG) MSBC Shareholder Approval..........................................17
V. Covenants
(A) Best Efforts to Complete Merger....................................17
(B) Tysons Proxy Statement.............................................17
(C) Registration Statement Contents....................................18
(D) Effectiveness of Registration Statement............................18
(E) Public Announcements...............................................18
(F) Review of Information..............................................18
(G) No Solicitation....................................................19
(H) Filing of Registration Statement...................................19
(I) Blue Sky...........................................................19
(J) Affiliates.........................................................19
(K) Tysons' Policies and Practices.....................................20
(L) State Takeover Laws................................................20
(M) Tysons Special Shareholder Rights..................................20
(N) Shareholder Approval...............................................20
(O) Best Efforts for Merger............................................20
(P) Government Applications............................................21
(Q) Environmental Tests................................................21
(R) Listing of MSBC Common Stock.......................................21
(S) Execution of Plan by Holding Company...............................21
(T) Tysons Directors Options...........................................21
(U) Tysons Warrants....................................................22
(V) Payment of ESOP Loan...............................................22
VI. Conditions to Consummation of the Merger
(A) Shareholder Approval...............................................22
(B) Specific Regulatory Approval.......................................22
(C) General Governmental Approval......................................22
(D) No Countervening Orders............................................23
(E) Accountants' Reports as to MSBC....................................23
(F) Accountants' Reports as to Tysons..................................23
(G) MSBC Legal Opinion.................................................23
(H) Tysons Legal Opinion...............................................23
(I) MSBC Representations and Warranties................................23
(J) Tysons Representations and Warranties..............................23
(K) Registration Statement Effectiveness...............................24
(L) Blue Sky Approvals.................................................24
(M) Tax Free Reorganization Opinion....................................24
(N) Listing of MSBC Common Stock.......................................24
(O) Affiliate Letters..................................................24
(P) Tysons Fairness Opinion............................................24
(Q) Exercise of Tysons Warrants........................................25
(R) Tysons Directors Options...........................................25
(S) ISO's..............................................................25
<PAGE>
VII. Termination
(A) Mutual Consent.....................................................25
(B) On Breach..........................................................25
(C) Failure to Consummate on Time......................................26
(D) Failure to Obtain Certain Approvals................................26
(E) Failure to Execute Stock Option Agreement..........................26
(F) Possible Adjustment in Exchange Ratio and Option Ratio.............26
VIII. Other Matters
(A) Survival...........................................................27
(B) Waiver, Amendment..................................................27
(C) Counterparts.......................................................28
(D) Governing Law......................................................28
(E) Fees and Expenses..................................................28
(F) Confidentiality....................................................28
(G) Notices............................................................28
(H) Definitions........................................................29
(I) Entire Understanding...............................................30
(J) Benefit Plans......................................................30
(K) Indemnification....................................................30
(L) Acquisition of MSBC................................................31
Exhibits
A. Articles of Merger
Annex 1 - Plan of Merger
B. Tysons Affiliate's Letter
C. Opinion of MSBC Counsel
D. Opinion of Tysons Counsel
E. Stock Option Agreement
<PAGE>
Definition Index
Defined Term Location
Average MSBC Share Price..................................................II(C)
Blue Sky Laws..............................................................V(F)
TNB Asset Classification..................................................IV(P)
TNB Delinquent Loan List..................................................IV(P)
Code......................................................................IV(L)
Continuing Corporation.....................................................I(A)
Employees.................................................................IV(L)
Environmental Law.........................................................IV(V)
ERISA.....................................................................IV(L)
ERISA Affiliate...........................................................IV(L)
ERISA Plans...............................................................IV(L)
Exchange Act..........................................................Recital B
Exchange Ratio............................................................II(C)
Excluded Shares...........................................................II(C)
Federal Securities Laws...................................................IV(Q)
Financial Reports.........................................................IV(F)
FRB.......................................................................IV(Y)
Hazardous Material........................................................IV(V)
Holding Company.......................................................Recital A
Holding Company Common Stock..........................................Recital C
Knowledge...............................................................VIII(H)
Loan Property.............................................................IV(V)
Material Adverse Effect.................................................VIII(H)
Meeting....................................................................V(B)
Merger.....................................................................I(A)
Merger Closing.............................................................I(E)
Merger Effective Date......................................................I(E)
MSBC.....................................................................Page 1
MSBC Bank Subsidiary..................................................Recital A
MSBC Common Stock.....................................................Recital A
MSBC Preferred Stock..................................................Recital A
MSBC Subsidiaries.....................................................Recital A
MSBC Trust Subsidiary.................................................Recital A
NASDAQ/NMS............................................................Recital I
NASD/SCM..............................................................Recital I
OCC.......................................................................IV(P)
Option.....................................................................I(G)
Option Shares............................................................IV(CC)
Participation Facility....................................................IV(V)
Pension Plan..............................................................IV(L)
Plan.....................................................................Page 1
Plan of Merger.............................................................I(E)
Previously Disclosed....................................................VIII(H)
Proxy Statement............................................................V(B)
Registration Statement.....................................................V(B)
Regulatory Reports........................................................IV(G)
SEC...................................................................Recital B
Securities Act............................................................IV(Q)
Securities Laws............................................................V(F)
Stock Option Agreement................................................Recital G
Tax Returns...............................................................IV(W)
Taxes.....................................................................IV(W)
10% Ownership............................................................IV(BB)
TNB...................................................................Recital B
TNB Common Stock......................................................Recital D
Tysons...................................................................Page 1
Tysons Common Stock...................................................Recital B
Tysons Warrants.......................................................Recital B
Virginia Corporation Authority.............................................I(E)
Warrant Redemption Ratio.................................................VI (S)
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 25th day of July, 1997
(this "Plan"), by and among MainStreet BankGroup Incorporated, a Virginia
corporation ("MSBC"), and Tysons Financial Corporation, a Virginia corporation
("Tysons").
RECITALS:
(A) MSBC. MSBC is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Virginia, with its principal
executive offices located in Martinsville, Virginia. As of the date hereof, MSBC
has 20,000,000 authorized shares of Common Stock, each of $5.00 par value ("MSBC
Common Stock"), and 1,000,000 authorized shares of Preferred Stock, each of
$5.00 par value ("MSBC Preferred Stock") (no other class of capital stock being
authorized), of which 11,373,417 shares of MSBC Common Stock and no shares of
MSBC Preferred Stock, respectively, are issued and outstanding as of June 30,
1997. MSBC has eight (8) wholly owned bank subsidiaries: Piedmont Trust Bank, a
Virginia bank; Bank of Ferrum, a Virginia bank; Bank of Carroll, a Virginia
bank; First Community Bank, a Virginia bank; The First Bank of Stuart, a
Virginia bank; First Community Bank of Saltville, a Virginia bank; Hanover Bank,
a Virginia bank; and First National Bank of Clifton Forge, a national banking
association (each of which is referred to as a "MSBC Bank Subsidiary" and all of
which are referred to as "MSBC Bank Subsidiaries"). In addition, MSBC has one
wholly owned nonbanking subsidiary, MainStreet Trust Company chartered as a
limited purpose national banking association to engage in the business of a
trust company and businesses incidental thereto ("MSBC Trust Subsidiary") and
one corporation, MB Corp. (the "Holding Company"), incorporated under Virginia
law, which will become a wholly owned subsidiary of MSBC. The MSBC Bank
Subsidiaries, MSBC Trust Subsidiary and the Holding Company (upon formation) are
individually referred to as an "MSBC Subsidiary" and collectively as "MSBC
Subsidiaries".
(B) Tysons. Tysons is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Virginia, with its principal
executive offices located at 8200 Greensboro Drive, Suite 100, McLean, Virginia
and is authorized to do business as a bank holding company under the federal
Bank Holding Company Act of 1956, as amended, and Chapter 13 of the Virginia
Banking Act. Tysons' only subsidiary is Tysons National Bank ("TNB"). TNB is a
national banking association organized under the laws of the United States. As
of the date hereof, Tysons has 10,000,000 authorized shares of Common Stock,
each of $5.00 par value ("Tysons Common Stock"), of which 1,071,119 shares were
issued and outstanding as of June 30, 1997 (no other class of capital stock
being authorized) and warrants to purchase up to 228,250 shares of Tysons Common
Stock at $10.00 per share, which expire on July 1, 2001, if unexercised, of
which 228,250 are outstanding as of the date of this Agreement ("Tysons
Warrants"). The holders of Tysons Common Stock have no preemptive rights. Tysons
Common Stock is subject to the provisions of Section 12, 13, 14(a), 14(c),
14(d), 15(d) and 16 of the Securities Exchange Act of 1934, as amended,
(together with the rules and regulations of the Securities and Exchange
Commission ("SEC") promulgated thereunder, the "Exchange Act").
(C) The Holding Company. The Holding Company is a corporation duly
organized and existing in good standing under the laws of the Commonwealth of
Virginia, having 5,000 authorized shares of common stock, no par value ("Holding
Company Common Stock") (no other class of capital stock being authorized) of
which as of the Merger Closing 1,000 shares will be issued and outstanding, all
of which shall be held of record and beneficially by MSBC.
(D) TNB......TNB is a wholly owned subsidiary of Tysons. TNB's
headquarters are located at 8200 Greensboro Drive, Suite 100, McLean, Virginia
22102. TNB has 10,000,000 shares of common stock, $5.00 par value per share
("TNB Common Stock") authorized (no other class of capital stock being
authorized), of which 575,000 shares are issued and outstanding as of June 30,
1997, and are held of record and beneficially by Tysons. There are no shares of
TNB Common Stock authorized and reserved for issuance and there is no commitment
to authorize, issue or sell any such shares or any other securities, warrants or
obligations convertible into or exchangeable for, or giving any right to
subscribe for or acquire any such shares and no securities, warrants or
obligations representing any such rights are outstanding. There are no options
or share appreciation rights authorized or granted for TNB Common Stock and no
commitment to grant any such options or share appreciation rights.
With respect to Tysons, any reference herein to "Subsidiary" or
"Subsidiaries" refers to TNB and, with respect to MSBC, any reference to
"Subsidiary" refers to any MSBC Subsidiary and to "Subsidiaries" refers to the
MSBC Subsidiaries, jointly and severally (unless the context otherwise
requires).
(E) Rights, Etc. Except as Previously Disclosed or except in connection
with the transactions contemplated by this Plan, there are no shares of MSBC
Common Stock or MSBC Preferred Stock authorized and reserved for issuance, and
MSBC has no commitment to authorize, issue or sell any such shares or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from MSBC, any such shares and no
securities or obligations representing any such rights are outstanding. Except
as Previously Disclosed, MSBC has not granted or made any commitment to grant
any options or share appreciation rights with respect to the MSBC Common Stock
or MSBC Preferred Stock. Except as Previously Disclosed and except for shares
reserved pursuant to the Stock Option Agreement (as hereinafter defined) and the
Tysons Warrants, there are no shares of Tysons Common Stock authorized and
reserved for issuance and Tysons has no commitment to authorize, issue or sell
any such shares, or any other securities, warrants or obligations convertible
into or exchangeable for, or giving any right to subscribe for or acquire from
Tysons any such shares, and no securities, warrants or obligations representing
any such rights are outstanding. Except for options granted to employees and
officers in such capacity to purchase Tysons Common Stock ("ISO's") and options
granted to directors in such capacity to purchase Tysons' Common Stock
("Directors Options"), all as Previously Disclosed, Tysons has not granted or
made any commitment to grant any options or share appreciation rights with
respect to Tysons Common Stock. The ISO's and Directors Options are collectively
referred to as the "Tysons Options".
(F) This Transaction. The Boards of Directors of MSBC and Tysons,
respectively, deem it advisable and in the best interests of MSBC and Tysons and
their stockholders that Tysons be acquired by MSBC through a merger of Holding
Company into Tysons pursuant to this Agreement and Plan of Merger.
(G) Stock Option Agreement. As a condition and inducement to MSBC's
willingness to enter into this Plan, Tysons has agreed that prior to 5:00 p.m.,
on July 25, 1997, Tysons shall enter into a Stock Option Agreement with MSBC
("Stock Option Agreement") in the form attached hereto as Exhibit E pursuant to
which Tysons shall grant to MSBC an option ("Option") to purchase, under certain
circumstances, shares of Tysons Common Stock.
(H) Approvals. The Board of Directors of each of MSBC and Tysons has
approved and adopted, at meetings of each of such Board of Directors, this Plan
and the Stock Option Agreement and has authorized, subject to such further
modifications as may be agreed by a member of the Office of the Chairman of MSBC
and by the President of Tysons, respectively, not inconsistent herewith, the
execution hereof in counterparts. At the meeting of the Tysons Board of
Directors, the Board of Directors of Tysons recommended the Plan as so executed
to its shareholders.
(I) NASDAQ. Trading of the MSBC Common Stock is presently reported on
the National Association of Securities Dealers ("NASD") Quotations System
National Market System("NASDAQ/NMS"). Trading of the Tysons Common Stock is
presently reflected on NASD's Small Cap Market ("NASD/SCM"). The Tysons Warrants
and the Tysons Options are not traded on any established market.
(J) Benefits of Plan. MSBC and Tysons believe the Plan and its
consummation are in the respective best interests of each corporation and its
shareholders for the following reasons, among others: (1) the Merger will allow
them to provide banking and related financial services more effectively and
efficiently; (2) the Merger will expand the range of banking and related
financial services which they can provide; (3) the Merger will enhance the
safety and soundness of their operations; (4) the Merger will enable them to
expand the market for their banking and related financial services; (5) the
Merger will expand the number and diversity of Tysons' shareholder base and
enhance the liquidity of equity investments in Tysons; and (6) no gain or loss
generally will be recognized by stockholders of Tysons who receive shares of
MSBC Common Stock in exchange for their shares of Tysons Common Stock.
NOW, THEREFORE, in consideration of their mutual promises and
obligations, the parties hereto adopt and make this Plan and prescribe the terms
and conditions thereof and the manner and basis of carrying it into effect,
which shall be as follows:
I. THE MERGER
(A) The Continuing Corporation. On the Merger Effective Date (as
hereinafter defined), the Holding Company shall merge into Tysons (the
"Merger"), the separate existence of the Holding Company shall cease and Tysons
(the "Continuing Corporation") shall survive.
(B) Rights, Etc. Upon consummation of the Merger, the Continuing
Corporation shall thereupon and thereafter possess all of the rights,
privileges, immunities and franchises, of a public as well as of a private
nature, of each of the merging corporations; and all property, real, personal
and mixed, and all debts due on whatever account, and all other choses in
action, and all and every other interest, of or belonging to or due to each of
the corporations so merged, shall be deemed to be vested in the Continuing
Corporation without further act or deed; and the title to any real estate or any
interest therein, vested in any of such corporations, shall not revert or be in
any way impaired by reason of the Merger as provided by the laws of the
Commonwealth of Virginia.
(C) Liabilities. Upon consummation of the Merger, the Continuing
Corporation shall thenceforth be responsible and liable for all the liabilities,
obligations and penalties of each of the corporations so merged.
(D) Articles of Incorporation; Bylaws; Directors; Officers of
Continuing Corporation. The Articles of Incorporation of the Continuing
Corporation shall be those of the Holding Company, and the Bylaws of the
Continuing Corporation shall be those of the Holding Company. The officers and
directors of Tysons in office immediately prior to the Merger becoming effective
shall be the officers and directors of the Continuing Corporation, who shall
hold office until such time as their successors are elected and qualified in
accordance with the Articles and Bylaws of the Continuing Corporation.
(E) Merger Closing; Merger Effective Date. The Merger shall become
effective on the date and time the Virginia State Corporation Commission
("Virginia Corporation Authority") issues a certificate of merger reflecting the
Merger (the "Merger Effective Date"). Unless otherwise agreed upon in writing by
the chief executive officers of MSBC and Tysons, subject to the conditions to
the obligations of the parties to effect the Merger as set forth in Article VI,
the parties shall use their reasonable efforts to cause the Merger Effective
Date to occur on an end of the month date as soon as practicable following the
satisfaction of the conditions set forth in Paragraphs (A), (B) and (C) of
Article VI but in no event before December 31, 1997. All documents required by
the terms of this Agreement to be delivered at or prior to consummation of the
Merger will be exchanged by the parties at the closing of the Merger (the
"Merger Closing"), which shall be held on such date as MSBC shall designate to
Tysons and which is reasonably acceptable to Tysons after the satisfaction of
the condition set forth in Paragraphs (A), (B) and (C) of Article VI but no
later than the Merger Effective Date. Prior to the Merger Closing, Holding
Company and Tysons shall execute and deliver to the Virginia Corporation
Authority, Articles of Merger containing a Plan of Merger in substantially the
form of Exhibit A hereto (the "Plan of Merger") for approval.
II. MERGER CONSIDERATION
(A) Outstanding Holding Company Common Stock. The shares of Holding
Company Common Stock issued and outstanding immediately prior to the Merger
Effective Date, on and after the Merger Effective Date, shall be converted
automatically into that number of shares of common stock of the Continuing
Corporation issued and outstanding immediately prior to the Merger Effective
Date and shall constitute the only issued and outstanding shares of common stock
of the Continuing Corporation.
(B) Outstanding MSBC Common Stock. The shares of MSBC Common Stock
issued and outstanding immediately prior to the Merger Effective Date shall, on
and after the Merger Effective Date, remain issued and outstanding shares of
MSBC Common Stock.
(C) Outstanding Tysons Common Stock. Each share (excluding shares held
by Tysons or by MSBC or by any of the MSBC Subsidiaries, in each case other than
in a fiduciary capacity or as a result of debts previously contracted (the
"Excluded Shares")) of Tysons Common Stock issued and outstanding immediately
prior to the Merger Effective Date shall, by virtue of the Merger, automatically
and without any action on the part of the holder thereof on the Merger Effective
Date, become and be converted into the right to receive that number of shares of
MSBC Common Stock obtained by dividing the Negotiated Price per Tysons Common
Share by the average of the bid/asked price per share for MSBC Common Stock
("Average MSBC Share Price") as reported on the NASDAQ/NMS for each of the
twenty (20) trading days preceding the later to occur of (i) the shareholder
approvals contemplated by Paragraph A of Article VI and (ii) the financial
institutions regulatory approvals (but not the associated statutory waiting
periods) contemplated by Paragraph B of Article VI. If the Exchange Ratio
computed in accordance with the immediately preceding sentence is less than
.507, the Exchange Ratio shall be .507, and if the Exchange Ratio computed in
accordance with the immediately preceding sentence is greater than .620, the
Exchange Ratio shall be .620 ("Exchange Ratio"). The Negotiated Price per Tysons
Common Share is $14.50.
(D) Stockholder Rights; Stock Transfers. On the Merger Effective Date,
holders of Tysons Common Stock shall cease to be, and shall have no rights as,
stockholders of Tysons other than to receive the Merger consideration provided
under Paragraph (C) above. After the Merger Effective Date, there shall be no
transfers on the stock transfer books of Tysons or the Continuing Corporation of
the shares of Tysons Common Stock which were issued and outstanding immediately
prior to the Merger becoming effective.
(E) Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of MSBC Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger; instead, MSBC
shall pay to each holder of Tysons Common Stock who would otherwise be entitled
to a fractional share an amount in cash determined by multiplying such
fractional share by the Average MSBC Share Price.
(F) Exchange Procedures. As promptly as practicable after the Merger
Effective Date, MSBC shall send or cause to be sent to each former stockholder
of Tysons of record immediately prior to the Merger Effective Date transmittal
materials for use in exchanging such stockholder's certificates of Tysons for
the consideration set forth in Paragraph (C) above. Any fractional share checks
which a Tysons stockholder shall be entitled to receive in exchange for such
stockholder's shares of Tysons Common Stock, and any dividends paid on any
shares of MSBC Common Stock, that such stockholder shall be entitled to receive
prior to the delivery to MSBC of such stockholder's certificates representing
all of such stockholder's shares of Tysons Common Stock will be delivered to
such stockholder only upon delivery to MSBC of the certificates representing all
of such shares (or indemnity satisfactory to MSBC, in its judgment, if any of
such certificates are lost, stolen or destroyed). No interest will be paid on
any such fractional share checks or dividends which the holder of such shares
shall be entitled to receive upon such delivery. After the Merger Effective
Date, to the extent permitted by law, former stockholders of record of Tysons
shall be entitled to vote at any meeting of holders of MSBC Common Stock, the
number of whole shares of MSBC Common Stock into which their respective shares
of Tysons Common Stock are converted, regardless of whether such holders have
exchanged their certificates representing Tysons Common Stock for certificates
representing MSBC Common Stock in accordance with the provisions of this Plan.
(G) Shares Held by Tysons or MSBC. Each of the shares of Tysons Common
Stock and any Tysons Warrants held by Tysons, TNB, MSBC or any MSBC Subsidiary,
in each case other than in a fiduciary capacity or as a result of debts
previously contracted, shall be canceled and retired at the Merger Effective
Date and no consideration shall be issued in exchange therefor.
(H) Anti-Dilution Provisions. In the event MSBC changes the number of
shares of MSBC Common Stock issued and outstanding prior to the Merger Effective
Date as a result of a stock split, stock dividend, recapitalization or similar
transaction with respect to the outstanding MSBC Common Stock (but not including
shares issued in connection with a merger, share exchange or similar
transaction) and the record date therefor shall be prior to the Merger Effective
Date, the Exchange Ratio shall be proportionately adjusted.
(I) Dividends. Tysons shareholders shall not under any circumstances be
entitled to any dividend (cash or otherwise) declared by MSBC with a record date
prior to the Merger Effective Date.
(J) ISO's and Stock Appreciation Rights. From and after the Merger
Effective Date, all ISO's to purchase shares of Tysons Common Stock which are
then outstanding and unexercised, shall be converted into and become options
with respect to MSBC Common Stock, and MSBC shall assume each such option and
right, in accordance with the terms of the plan and agreement by which it is
evidenced. From and after the Merger Effective Date, (i) each such ISO assumed
by MSBC may be exercised solely for shares of MSBC Common Stock, (ii) the number
of shares of MSBC Common Stock subject to each ISO shall be equal to the number
of shares of Tysons Common Stock subject to such ISO immediately prior to the
Merger Effective Date multiplied by the Exchange Ratio, and (iii) the per share
exercise price under each such ISO shall be adjusted by dividing the per share
exercise price of each such ISO by the Exchange Ratio, and rounding to the
nearest cent. The maximum number of shares of Tysons Common Stock which are
issuable upon exercise of such ISO's as of the date hereof are Previously
Disclosed. No stock appreciation rights are outstanding and unexercised as of
the date hereof.
<PAGE>
III. ACTIONS PENDING MERGER
A. Tysons Actions. Without the prior written consent or approval of a
proper officer of MSBC, Tysons will not and will cause its Subsidiary not to:
(1) Stock Distributions. Make, declare or pay any dividend other than
cash dividends on Tysons Common Stock or TNB Common Stock, as the case may be,
consistent with past practice and in an amount not greater than the last
previous cash dividend paid prior hereto by Tysons or TNB, respectively, or
declare or make any distribution on, or directly or indirectly combine, redeem,
reclassify, purchase or otherwise acquire, any shares of its capital stock
(other than in a fiduciary capacity in the ordinary course of its business and
consistent with past practice or in connection with stock received on a debt
previously contracted basis) or authorize the creation or issuance of, or issue
(except as may be required to comply with Tysons' obligations under the Tysons
Warrants or Tysons Options), any additional shares of it capital stock, or any
options, calls, warrants or commitments relating to its capital stock or any
securities or obligations convertible into or exchangeable for, or giving any
person any right to subscribe for or acquire from its shares of its capital
stock or any securities or obligations convertible into or exchangeable for
shares of its capital stock, or issue any long-term debt;
(2) Employment Contracts. Enter into any employment contracts with,
increase the rate of compensation of (except in accordance with existing policy
consistent with past practice or pursuant to any agreement existing and as in
effect on the date hereof and Previously Disclosed), or pay or agree to pay any
bonus to, any of its directors, officers or employees, except in accordance with
plans or agreements existing and as in effect on the date hereof and Previously
Disclosed;
(3) Employee Benefit Plans. Enter into or modify (except as may be
required by applicable law to change the voting provisions of the Tysons
Financial Corporation Employee Stock Ownership Plan ("Tysons ESOP") to comply
with the provisions of this Agreement) any pension, retirement, stock option,
stock purchase, savings, profit sharing, deferred compensation, consulting,
bonus, group insurance or other employee benefit, incentive or welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect of any
of its directors, officers or other employees, including without limitation
taking any action that accelerates (1) the vesting or exercise of any benefits
payable thereunder, or (2) the right to exercise any employee stock options or
stock appreciation rights outstanding thereunder;
(4) Asset Disposition. Dispose of, grant an encumbrance against or
discontinue any portion of its assets, business operations or properties, which
is material to Tysons or TNB or merge or consolidate with, or acquire all or any
substantial portion of, the business or property of any other entity (except
foreclosures, acquisitions of control in its fiduciary capacity or
securitization transactions, in each case in the ordinary course of business
consistent with past practice);
(5) Constituent Documents. Amend its Articles of Incorporation or
Bylaws as delivered to MSBC in connection with this Plan;
(6) Material Transactions. (a) Settle any material litigation or (b)
enter into any material transaction or make any material commitment relating to
its assets and business, otherwise than as contemplated hereby or in the
ordinary course of business consistent with past practice;
(7) Actions Not in Ordinary Course. Take any other action not in
the ordinary course of business consistent with past practice; or
(8) Agreements. Agree to take any of the foregoing actions (except to
the extent Tysons' Board of Directors is required to authorize any such
agreement on behalf of Tysons in order to comply with the directors' fiduciary
duties as advised in writing by counsel).
IV. REPRESENTATIONS AND WARRANTIES
Tysons hereby represents and warrants to MSBC and, upon Holding
Company's execution of this Agreement, to Holding Company, and MSBC hereby
represent and warrant to Tysons and Holding Company upon its execution of this
Agreement hereby represents and warrants as applicable to MSBC, as follows:
(A) Recitals. The facts set forth in the Recitals of this Plan with
respect to it and its respective Subsidiaries are true and correct;
(B) Capitalization. The outstanding shares of it and its respective
Subsidiaries are validly issued and outstanding, fully paid and nonassessable,
and subject to no preemptive rights;
(C) General Corporate Power and Ownership of Properties. It and its
respective Subsidiaries have the corporate power and authority to carry on their
respective business as now being conducted and to own all of their respective
material properties and assets and have good and marketable title to or a valid
leasehold interest in all of the material properties and assets thereof
reflected as owned or leased in its balance sheet as of December 31, 1996, and
included in the Financial Reports (as hereinafter defined) and in all material
properties and assets acquired or leased by it or its respective Subsidiaries,
since December 31, 1996. In the case of Tysons and its Subsidiary only, none of
such properties is subject to any mortgage, pledge, lien, security interest,
encumbrance, restriction or charge of any kind except: (1) mechanic's,
carrier's, worker's or similar liens arising in the ordinary course of business;
(2) as Previously Disclosed; (3) imperfections of title, if any, none of which
is material in amount or materially detracts from the value or impairs the
existing use of the property subject thereto or the operations of Tysons or its
Subsidiary; and (4) liens of current taxes not due and payable;
(D) Specific Corporate Authority. Subject to any necessary receipt of
approval by its stockholders and the regulatory approvals referred to in
Paragraphs (B) and (C) of Article VI, this Plan has been authorized by all
necessary corporate action of it and is a valid and binding agreement of it
enforceable against it in accordance with its terms, subject to (1) bankruptcy,
insolvency and other laws of general applicability relating to or affecting
creditors' rights; and (2) general equity principles and, in the case of Tysons,
it represents and warrants to MSBC that the Stock Option Agreement has been
authorized by all necessary corporate action of it and is a valid and binding
agreement of it enforceable against it in accordance with its terms subject only
to conditions (1) and (2) in the immediately preceding sentence.
(E) No Default. The execution, delivery and performance of this Plan
and, in the case of Tysons, the Stock Option Agreement and the consummation of
the transactions contemplated hereby and thereby by it, will not constitute: (1)
a breach of violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, franchise or agreement,
indenture, instrument or authorization applicable to, of or held by it or its
Subsidiaries, or to which it, its Subsidiaries or its or its Subsidiaries'
respective properties are subject or bound, which breach, violation or default
is reasonably likely to have a Material Adverse Effect on it; or (2) a breach or
violation of, or a default under, its or its Subsidiaries' respective Articles
of Incorporation or Bylaws;
(F) Financial Reports. Except as Previously Disclosed, (1) its Annual
Report on Form 10-K, for the fiscal year ended December 31, 1996, and all other
documents filed or to be filed subsequent to December 31, 1996 under Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act in the form filed with the SEC,
all of which have been Previously Disclosed (all of the foregoing reports and
documents of MSBC and Tysons, respectively, are hereinafter referred to as its
"Financial Reports") did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading; and each of the balance sheets in or
incorporated by reference into the Financial Reports (including the related
notes and schedules thereto) fairly presents and will fairly present the
financial position of the entity or entities to which it relates as of its date
and each of the statements of income and changes in stockholders' equity and
cash flows or equivalent statements in the Financial Reports (including any
related notes and schedules thereto) fairly presents and will fairly present the
results of operations, changes in stockholders' equity and changes in cash
flows, as the case may be, of the entity or entities to which it relates for the
periods set forth therein, in each case in accordance with generally accepted
accounting principles consistently applied, except as may be noted therein,
subject to normal and recurring year-end audit adjustments in the case of
unaudited statements;
(G) Regulatory Reports. In the case of Tysons only, it has Previously
Disclosed to MSBC copies of (1) TNB's "Annual Report of Condition and Income" on
Form FFIEC 033, as delivered to the appropriate bank regulatory authority for
the years ended December 31, 1994, December 31, 1995, and December 31, 1996 and
for the period ending March 31, 1997; and (2) all other material reports and
documents filed with or sent to any federal or state regulatory authority by it
or TNB during 1995, 1996 and 1997; and (3) to the extent not prohibited by law,
all reports of any state or federal regulatory authority relating to it or TNB
and received during or relating to matters in 1995, 1996 or 1997 (all of the
foregoing reports and documents are hereinafter referred to as "Regulatory
Reports"). Tysons represents and warrants to MSBC that, as of their respective
dates the Regulatory Reports referred to in (1) and (2) above complied in all
material respects with all legal and regulatory requirements applicable thereto
and the Regulatory Reports referred to in (1) above are accurate in all material
respects and fairly present the financial condition and income of the reporting
entity for the period(s) covered thereby.
(H) Material Events. Except as Previously Disclosed, since December 31,
1996, no event has occurred which is reasonably likely to have a Material
Adverse Effect on it;
(I) Litigation. Except as Previously Disclosed, no litigation,
proceeding or controversy before any court or governmental agency is pending
which is reasonably likely to have a Material Adverse Effect on it and, to the
best of its knowledge, no such litigation, proceeding or controversy has been
threatened;
(J) Material Contracts. Except as Previously Disclosed or as previously
disclosed in the Financial Reports and except for this Plan and the Stock Option
Agreement, neither it nor any Subsidiary is bound by any material contract (as
to it and its Subsidiaries taken as a whole) to be performed after the date
hereof;
(K) Commissions. All negotiations relative to this Plan and the
transactions contemplated hereby have been carried on by it directly with the
other parties hereto and no action has been taken by it that would give rise to
any valid claim against any party hereto for a brokerage commission, finder's
fee or other like payment, excluding a fee in an amount Previously Disclosed to
be paid to Scott & Stringfellow, who have acted as financial advisors to Tysons;
(L) ERISA. Except as Previously Disclosed:
(1) all "employee benefit plans" within the meaning of
Section 3(3) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), covering employees or former employees of it and/or its Subsidiaries
(the "Employees") are Previously Disclosed, true and complete copies of which
have been made available to the other party;
(2) all employee benefit plans covering Employees, to the
extent subject to ERISA (the "ERISA Plans"), are in compliance with ERISA,
except for failure to so comply which are not reasonably likely, individually or
in the aggregate, to have a Material Adverse Effect on it; each ERISA Plan which
is an "employee pension benefit plan" within the meaning of Section 3(2) of
ERISA ("Pension Plan") and which is intended to be qualified under Section
401(a) of the Internal Revenue Code of 1986, as amended (the "Code"), has either
(a) received a favorable determination letter from the Internal Revenue Service,
or (b) is or will be the subject of an application for a favorable determination
letter, and it is not aware of any circumstances likely to result in the
revocation or denial of any such favorable determination letter; there is no
pending or, to the best of its knowledge, threatened litigation relating to the
ERISA Plans which is reasonably likely, individually or in the aggregate, to
have a Material Adverse Effect on it; and neither it nor any Subsidiary has
engaged in a transaction with respect to any ERISA Plan that, assuming the
taxable period of such transaction expired as of the date hereof, would subject
it or the Subsidiary to a tax or penalty imposed by either Section 4975 of the
Code or Section 502(i) of ERISA in an amount which is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on it;
(3) no liability under Subtitle C or D of Title IV of
ERISA has been or is expected to be incurred by it or any Subsidiary with
respect to any ongoing, frozen or terminated "single-employer plan", within the
meaning of Section 4001(a)(15) of ERISA, currently or formerly maintained by any
of them or any entity which is considered one "employer" with it or any
Subsidiary under Section 4001(a)(14) of ERISA or Section 414 of the Code (an
"ERISA Affiliate"), which liability is reasonably likely to have a Material
Adverse Effect on it; neither it nor any Subsidiary has incurred and does not
expect to incur any withdrawal liability with respect to a multiemployer plan
under Subtitle E of Title IV of ERISA; and to its knowledge no notice of a
"reportable event" within the meaning of Section 4043 of ERISA for which the
30-day reporting requirement has not been waived, has been required to be filed
for any Pension Plan or the Pension Plan of an ERISA Affiliate within the
12-month period ending on the date hereof;
(4) during the current plan year and the immediately
preceding three plan years of such ERISA Plan, all contributions required to be
made under the terms of any ERISA Plan of it or an ERISA Affiliate have been
timely made; and no pension plan of it or an ERISA Affiliate has an "accumulated
funding deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA which is reasonably likely, individually or in
the aggregate, to have a Material Adverse Effect on it;
(5) under each Pension Plan which is a single-employer
plan, as of the last day of the most recent plan year ended prior to the date
hereof, the actuarially determined present value of all "benefit liabilities",
within the meaning of Section 4001(a)(16) of ERISA (as determined on the basis
of the actuarial assumptions contained in the ERISA Plan's most recent actuarial
valuation) did not exceed the then current value of the assets of such ERISA
Plan, and there has been no material adverse change in the financial position of
such ERISA Plan since the last day of the most recent plan year; and
(6) there are no material current or projected
liabilities for retiree health or life insurance benefits;
(M) Regulatory Approvals. It knows of no reason why the regulatory
approvals referred to in Paragraphs (B) and (C) of Article VI should not be
obtained without the imposition of any condition of the type referred to in the
proviso following such Paragraph (C).
(N) Agreements with Bank Regulators. Except as Previously Disclosed
neither MSBC or Tysons, respectively, are a party to any written agreement or
memorandum of understanding with, or a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or a recipient of
any extraordinary supervisory letter from, any bank regulator which restricts
materially the conduct of its business, or in any manner relates to its capital
adequacy, its credit or reserve policies or its management, nor has either party
been advised by any bank regulator that it is contemplating issuing or
requesting any such order, decree, agreement, memorandum of understanding,
extraordinary supervisory letter, commitment letter or similar submission.
(O) Subsidiaries. In the case of Tysons only, it has no subsidiaries
other than TNB, all of the outstanding shares of which are validly issued, fully
paid and nonassessable (except pursuant to 12 USC (beta) 55) and are owned by it
free and clear of all liens, claims, encumbrances and restrictions on transfer
whatsoever. In the case of MSBC only, its only Subsidiaries are the MSBC
Subsidiaries, all of the outstanding shares of which (with the exception of the
Holding Company as of the date hereof) are validly issued, fully paid and
nonassessable (except pursuant to 12 USC (beta) 55 or comparable state law) and
are owned by it free and clear of all liens, claims, encumbrances and
restrictions on transfer whatsoever.
(P) Collective Bargaining Contracts. Neither it nor any Subsidiary is a
party to or is bound by any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization or is the
subject of a proceeding asserting that it or the Subsidiary has committed an
unfair labor practice (within the meaning of the National Labor Relations Act)
or seeking to compel it or the Subsidiary to bargain with any labor organization
as to wages and conditions of employment. There is not any strike or other labor
dispute involving it or any Subsidiary and to the best of its knowledge none is
threatened. It is not aware of any activity involving the employees of it or any
Subsidiary seeking to certify a collective bargaining unit or engaging in any
other organization activity;
(Q) Classified Assets. Tysons has Previously Disclosed a list of the
loans, extensions of credit or other assets of TNB that were classified by the
examiners of the Office of the Comptroller of the Currency ("OCC") in its last
respective preceding examination ("TNB Asset Classification") and has Previously
Disclosed a list of its loans and extensions of credit by TNB in the respective
initial principal amount of $50,000 or more, any payment of which is, as of the
date so disclosed, delinquent ("TNB Delinquent Loan List"). The TNB Asset
Classification and the TNB Delinquent Loan List are, respectively, accurate and
complete in all material respects and no amounts of loans, extensions of credit
or other assets that have been classified as of the respective date of the TNB
Asset Classification by any regulatory examiner as "Other Loans Specially
Mentioned", "Substandard", "Doubtful", "Loss", or words of similar import are
excluded from the amounts disclosed in the TNB Asset Classification as of the
respective date thereof other than amounts of loans, extensions of credit or
other assets that were charged off by TNB prior to the respective date of the
TNB Asset Classification;
(R) Affiliates. In the case of Tysons only, except as Previously
Disclosed, to the best of its knowledge, there is no person who, as of the date
of this Plan, may be deemed to be an "affiliate" of it as that term is used in
Rule 145 under the Securities Act of 1933, as amended (together with the rules
and regulations thereunder, the "Securities Act"; hereinafter the Securities Act
and the Exchange Act are referred to as the "Federal Securities Laws");
(S) Insurance Policies. In the case of Tysons only, it has made
available to MSBC correct and complete copies of all of its or its Subsidiary's
insurance policies respecting the properties, operations, liabilities, officers,
directors and employees thereof, all of which are in full force and effect or
provide coverage to it or its Subsidiary and their respective officers,
directors and employees.
(T) MSBC Stock. In the case of MSBC only, the shares of MSBC Common
Stock to be issued in exchange for shares of Tysons Common Stock and for the
Directors Options upon consummation of the Merger and upon exercise of the ISO's
after the Merger Effective Date will have been duly authorized and, when issued
in accordance with the terms of this Plan, will be validly issued, fully paid
and nonassessable and subject to no preemptive rights;
(U) Takeover Laws. In the case of Tysons only, it has taken all
necessary action to exempt the transactions contemplated by this Plan and the
Stock Option Agreement from, or the transactions contemplated by this Plan and
the Stock Option Agreement are otherwise exempt from, any applicable state
takeover laws in effect as of the date of this Plan, including, without
limitation, Articles 14 and 14.1 of the Virginia Stock Corporation Act.
(V) Approval of This Transaction. In the case of Tysons only, it has
taken all action so that the entering into of this Plan and the Stock Option
Agreement and the consummation of the transactions contemplated hereby and
thereby (including without limitation the Merger) or any other action or
combination of actions, or any other transactions, contemplated hereby or
thereby do not and will not (1) require a vote of stockholders (other than as
set forth in Paragraph (A) of Article VI); or (2) result in the grant of any
rights to any person under its Articles of Incorporation or Bylaws or, except as
Previously Disclosed, under any agreement; or (3) except as set forth in
Paragraphs (B) and (C) of Article VI, and Section 8 of the Stock Option
Agreement and except for consents required to be obtained from the holders of
Tysons Warrants and Tysons Options, require any consent or approval under any
law, rule, regulation, judgment, decree, order, governmental permit or license
or, except as Previously Disclosed, the consent or approval of any other party
to any agreement, indenture or instrument; or (4) restrict or impair in any way
the ability of MSBC to exercise the rights granted hereunder or under the Stock
Option Agreement.
(W) Environmental Laws. As to Tysons only, (1) To its knowledge, it,
its Subsidiary, the Participation Facilities and the Loan Properties (each as
defined below) are, and have been, in compliance with all Environmental Laws (as
defined below), except for instances of noncompliance which are not reasonably
likely, individually or in the aggregate, to have a Material Adverse Effect on
it;
(2) there is no proceeding pending or, to its knowledge,
threatened before any court, governmental agency or board or other forum in
which it, its Subsidiary, or any Participation Facility has been, or with
respect to threatened proceedings, reasonably would be expected to be, named as
a defendant or potentially responsible party (a) for alleged noncompliance
(including by any predecessor) with any Environmental Law or (b) relating to the
release or threatened release into the environment of any Hazardous Material (as
defined below), whether or not occurring at or on a site owned, leased or
operated by it, its Subsidiary or any Participation Facility, except for such
proceedings pending or threatened that are not reasonably likely, individually
or in the aggregate, to have a Material Adverse Effect on it;
(3) to its knowledge, there is no proceeding pending or
threatened before any court, governmental agency or board or other forum in
which any Loan Property, it or its Subsidiary is or with respect to threatened
proceedings, reasonably would be expected to be, named as a defendant or
potentially responsible party (a) for alleged noncompliance (including by any
predecessor) with any Environmental Law or (b) relating to the release or
threatened release into the environment of any Hazardous Material, except for
such proceedings pending or threatened that are not reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect on it;
(4) to its knowledge, there is no reasonable basis for
any proceeding of a type described in subparagraphs (2) or (3) above;
(5) to its knowledge, during the period of its or its
Subsidiary's (a) ownership or operation of any of their respective current
properties, (b) participation in the management of any Participation Facility,
or (c) holding of a security interest in a Loan Property, there have been no
releases of Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan Property, except for such releases that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it;
(6) to its knowledge, prior to the period of its or its
Subsidiary's: (a) ownership or operation of any of their respective current
properties, (b) participation in the management of any Participation Facility,
or (c) holding of a security interest in a Loan Property, there were no releases
of Hazardous Material in, on, under or affecting any such property,
Participation Facility or Loan Property, except for such releases that are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect on it;
(7) the following definitions apply for purposes of this
Paragraph (V): "to its knowledge" means the actual knowledge of any officer of
Tysons, any information contained in the business records of Tysons and, with
respect to any "Loan Property", any information contained in a Phase I or Phase
II environmental assessment furnished to Tysons; "Loan Property" means any
property owned by it or its Subsidiary or in which it or its Subsidiary holds a
security interest, and, where required by the context, includes the owner or
operator of such property, but only with respect to such property;
"Participation Facility" means any facility in which it or its Subsidiary
participates in the management and, where required by the context, includes the
owner or operator or such property, but only with respect to such property;
"Environmental Law" means (a) any federal, state and local law, statute,
ordinance, rule, regulation, code, license, permit, authorization, approval,
consent, legal doctrine, order, judgment, decree, injunction, requirement or
agreement with any governmental entity, relating to (i) the protection,
preservation or restoration of the environment (including, without limitation,
air, water vapor, surface water, groundwater, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, or (ii) the exposure to, or the use, storage,
recycling, treatment, generation, transportation, processing, handling,
labeling, production, release or disposal of Hazardous Material, in each case as
amended and as now in effect and includes, without limitation, the federal
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act, the Federal Water Pollution
Control Act of 1972, the federal Clean Air Act, the Federal Clean Water Act, the
Federal Resource Conservation and Recovery Act of 1976 (including the Hazardous
and Solid Waste Amendments thereto), the Federal Solid Waste Disposal Act and
the Federal Toxic Substances Control Act, and the Federal Insecticide, Fungicide
and Rodenticide Act, the Federal Occupational Safety and Health Act of 1970,
each as amended and as now in effect, and (b) any common law or equitable
doctrine (including, without limitation, injunctive relief and tort doctrines
such as negligence, nuisance, trespass and strict liability) that may impose
liability or obligations for injuries or damages due to, or threatened as a
result of, the presence of or exposure to any Hazardous Material; "Hazardous
Material" means any substance presently listed, defined, designated or
classified as hazardous, toxic, radioactive or dangerous, or otherwise
regulated, under any Environmental Law, whether by type or quantity, and
includes, without limitation, any oil or other petroleum product, toxic waste,
pollutant, contaminant, hazardous substance, toxic substance, hazardous waste,
special waste or petroleum or any derivative or by-product thereof, radon,
radioactive material, asbestos, asbestos containing material, urea formaldehyde
foam insulation, lead and polychlorinated biphenyl;
(X) Taxes. Except as Previously Disclosed, to the best of its knowledge
(1) all reports and returns with respect to Taxes (as defined below) that are
required to be filed by or with respect to it or its Subsidiaries, including
without limitation consolidated federal income tax returns of it and its
Subsidiaries (collectively, the "Tax Returns"), have been duly filed, or
requests for extensions have been timely filed and have not expired, for periods
ended on or prior to June 30, 1997, and on or prior to the date of the most
recent fiscal year end immediately preceding the Merger Effective Date, except
to the extent all such failures to file, taken together, are not reasonably
likely to have a Material Adverse Effect on it, and such Tax Returns were true,
complete and accurate in all material respects, (2) all material taxes (which
shall mean federal, state, local or foreign income, gross receipts, windfall
profits, severance, property, production, sales, use, license, excise,
franchise, employment, withholding or similar taxes imposed on the income,
properties or operations of it and its Subsidiaries, together with any interest,
additions, or penalties with respect thereto and any interest in respect of such
additions or penalties, collectively the "Taxes") shown to be due on the Tax
Returns have been paid in full, (3) all Taxes due with respect to completed and
settled examinations have been paid in full, (4) no issues have been raised by
the relevant taxing authority in connection with the examination of any of the
Tax Returns which are reasonably likely to result in a determination that would
have a Material Adverse Effect on it, except as reserved against in its
Financial Reports, and (5) no waivers of statutes of limitations (excluding such
statutes that relate to years currently under examination by the Internal
Revenue Service) have been given by or requested with respect to any Taxes of it
or its Subsidiaries;
(Y) Legal Compliance. Except as Previously Disclosed, it and its
Subsidiaries are in substantial compliance with all applicable laws relating to
their respective business or employment practices or the ownership of their
respective properties and are in substantial compliance with each applicable
law, ordinance, order, decree or resolution of any governmental entity
applicable to the conduct thereof or the ownership of the properties thereto in
each case which either alone or in the aggregate have or would have a Material
Adverse Effect on it.
(Z) Certain Interests. Except in arm's length transactions pursuant to
normal commercial terms and conditions, no executive officer or director of it
or its Subsidiaries has any material interest in any property, real or personal,
tangible or intangible, used in or pertaining to the business of it and its
Subsidiaries, except for the usual rights of a shareholder in it; no such person
is indebted to it, except for normal business expense advances and for loans
made, in the case of MSBC, by an MSBC Bank Subsidiary, and in the case of
Tysons, by TNB, in each case in full compliance with the law, including but not
limited to, Regulation O of the Board of Governors of the Federal Reserve System
("FRB") and in the ordinary course of business; and it is not indebted to such
person except for amounts due under normal and disclosed compensation
arrangements or reimbursement of ordinary business expenses.
(AA) Licenses. It and its Subsidiaries have in effect all approvals,
authorizations, consents, licenses, clearances, and orders of and registrations
with all governmental and regulatory authorities the failure to have and comply
with which either alone or in the aggregate would have a Material Adverse Effect
on it.
(BB) Liabilities. Except to the extent reflected or reserved against in
its Financial Reports and except as Previously Disclosed or incurred in the
ordinary course of business since the date of its most recent Financial Report,
it and its Subsidiaries have no material liability or obligation of any nature
whether accrued, absolute, contingent or otherwise and whether due or to become
due;
(CC) Ten Percent Shareholders. It has no shareholder who owns of record
or beneficially 10% or more of the outstanding shares of Tysons Common Stock, or
MSBC Common Stock, as the case may be, and there is no person known to it who,
directly or indirectly, through any contract, arrangement, understanding,
relationship or otherwise has or shares (1) voting power which includes the
power to vote or to direct the voting of, such shares and/or (2) investment
power, which includes the power to dispose or to direct the disposition, of 10%
or more of the outstanding shares of Tysons Common Stock or MSBC Common Stock,
as the case may be (all of the foregoing, "10% Ownership"). There is no person
to its knowledge who, directly or indirectly, has created or uses a trust,
proxy, power of attorney, pooling arrangement or any other contract, arrangement
or device with the purpose or effect of divesting such person of 10% Ownership
or preventing the vesting of 10% Ownership. A person shall also be deemed to be
a beneficial owner for purposes of the foregoing if that person has the right to
acquire beneficial of such shares within 60 days;
(DD) Option Shares. In the case of Tysons only, the Option Shares (as
defined in the Stock Option Agreement) when issued upon exercise of the Option,
will be validly issued, fully paid and nonassessable and subject to no
preemptive rights.
(EE) Articles and Bylaws. In the case of Tysons only, true, correct and
current copies of its and its Subsidiary's Articles of Incorporation (or
Association) and bylaws have been delivered to MSBC.
(FF) Dissenters Rights. In the case of Tysons only, the holders of
shares of Tysons Common Stock have no dissenters rights of appraisal in
accordance with Article 15 of the Virginia Stock Corporation Act.
(GG) MSBC Shareholder Approval. In the case of MSBC, the approval of
the Merger by the holders of shares of MSBC Common Stock is not required.
V. COVENANTS
Tysons hereby covenants to MSBC, and MSBC hereby covenants to Tysons,
that:
(A) Best Efforts to Complete Merger. Subject to the terms and
conditions of this Plan, it shall use its best efforts in good faith to take, or
cause to be taken, all actions, and to do, or cause to be done, all things
necessary, proper or desirable, or advisable under applicable laws, as promptly
as practicable so as to permit consummation of the Merger within the time
contemplated by this Agreement and to otherwise enable consummation of the
transactions contemplated hereby and by the Stock Option Agreement and shall
cooperate fully with the other parties hereto to that end (it being understood
that any amendments to the Registration Statement (as hereinafter defined) or a
resolicitation of proxies as a consequence of an acquisition agreement by MSBC
shall not violate this covenant), including (1) using its best efforts to lift
or rescind any order adversely affecting its ability to consummate the
transactions contemplated herein and in the Stock Option Agreement and to cause
to be satisfied the conditions referred to in Article VI and in the Stock Option
Agreement, and each of Tysons and MSBC shall use, and shall cause their
respective Subsidiaries to use, their respective best efforts to obtain all
consents (governmental or other) necessary or desirable for the consummation of
the transactions contemplated by this Plan and the Stock Option Agreement; and
(2) in the case of Tysons, cooperating with MSBC in supplying such information
as MSBC may reasonably request in connection with any public offerings of
securities by MSBC prior to the Merger Effective Date;
(B) Tysons Proxy Statement. In the case of Tysons only, (1) it shall
promptly prepare and provide to MSBC prior to its filing and mailing a proxy
statement (the "Proxy Statement") to be mailed to the holders of Tysons Common
Stock in connection with the Merger and to be filed by MSBC in a registration
statement (the "Registration Statement") with the SEC, which shall conform to
all applicable legal requirements; (2) without limiting the foregoing, at the
time such Proxy Statement or any amendment or supplement thereto is mailed to
holders of Tysons Common Stock and at all times thereafter up to and including
the meeting of Tysons shareholders referred to in Subparagraph (3) of this
Paragraph (B), the Proxy Statement and such amendments and supplements will
comply in all material respects with the provisions (to the extent applicable)
of the Exchange Act and will not contain any untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary to
make the statements contained therein not misleading; provided, however, in no
event shall any party hereto be liable for any untrue statement of a material
fact or omission to state a material fact in the Proxy Statement made in
reliance upon, and in conformity with, written information concerning another
party furnished by such other party specifically for use in the Proxy Statement;
(3) it shall hold a special meeting (the "Meeting") of the holders of Tysons
Common Stock as soon as practicable after the Registration Statement has become
effective for purposes of voting upon this Plan, the Plan of Merger and the
Merger contemplated hereby and thereby, and (4) subject to the fiduciary duties
of the Board of Directors of Tysons (as advised in writing by its counsel), it
shall use its best efforts to solicit and obtain votes of the holders of Tysons
Common Stock in favor of the above proposals and shall once, at MSBC's request,
recess or adjourn the Meeting for a period not exceeding ten days (unless Tysons
consents to a longer period) if such recess or adjournment is deemed by MSBC to
be necessary or desirable;
(C) Registration Statement Contents. When the Registration Statement or
any post-effective amendment or supplement thereto shall become effective, and
at all times subsequent to such effectiveness, up to and including the date of
the Meeting, such Registration Statement and all amendments or supplements
thereto, with respect to all information set forth therein furnished or to be
furnished by Tysons relating to Tysons and its Subsidiary and by MSBC relating
to MSBC and the MSBC Subsidiaries (1) will comply in all material respects with
the provisions of the Securities Act and any other applicable statutory or
regulatory requirements, and (2) will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein not misleading; provided,
however, in no event shall any party hereto be liable for any untrue statement
of a material fact or omission to state a material fact in the Registration
Statement made in reliance upon, and in conformity with, written information
concerning another party furnished by such other party specifically for use in
the Registration Statement. In connection with the preparation of the
Registration Statement and related Prospectus/Proxy Statement, each will
cooperate with the other and will furnish the information concerning itself
required by law to be included therein;
(D) Effectiveness of Registration Statement. MSBC will advise Tysons,
promptly after MSBC receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed or
of the issuance of any stop order or the suspension of the qualification of the
MSBC Common Stock for offering or sale in any jurisdiction, of the initiation or
threat of any proceeding for any such purpose, or of any request by the SEC for
the amendment or supplement of the Registration Statement or for additional
information;
(E) Public Announcements. It agrees that, unless approved by the other
party hereto in advance, it will not issue any press release or written
statement for general circulation relating to the transactions contemplated
hereby, except as otherwise required by law or applicable NASD or stock exchange
rule;
(F) Review of Information. (1) Upon reasonable notice, it shall afford
the other party hereto, and its officers, employees, counsel, accountants and
other authorized representatives, access, during normal business hours
throughout the period prior to the Merger Effective Date, to all of its
properties, books contracts, commitments and records to the extent permitted by
law and, during such period, it shall furnish promptly to the other party hereto
(a) a copy of each material report, schedule and other document filed by it
pursuant to the requirements of the Federal Securities Laws or any state laws,
rules and regulations regulating the issuance, sale or exchange of securities or
the markets in which any of the foregoing occurs ("Blue Sky Law(s)" which
together with the Federal Securities Laws are hereinafter referred to as the
"Securities Laws") or banking laws, and (b) all other information concerning its
business, properties and personnel as the other parties hereto may reasonably
request, provided that no investigation pursuant to this Paragraph (F) by any
party shall affect or be deemed to modify or waive any representation or
warranty made by any other party hereto or the conditions to the obligation of
the first party to consummate the transactions contemplated by the Plan; and (2)
each party hereto will not use any information obtained pursuant to this
Paragraph (F) for any purpose unrelated to the consummation of the transactions
contemplated by this Plan and the Stock Option Agreement and, if the Merger is
not consummated, will hold all information and documents obtained pursuant to
this paragraph in confidence (as provided in Paragraph (F) of Article VIII)
unless and until such time as such information or documents become publicly
available other than by reason of any action or failure to act by such party or
as it is advised by counsel that any such information or document is required by
law or applicable NASD or stock exchange rule to be disclosed, and in the event
of the termination of this Plan, each party will, upon request by the other
party, deliver to the other all documents so obtained by it or destroy such
documents;
(G) No Solicitation. In the case of Tysons only, (1) it shall not, and
shall direct the officers, directors, employees and other persons affiliated
with it or any investment banker, attorney, accountant or other representative
of it, not to, directly or indirectly, solicit or encourage inquiries or
proposals with respect to, or (except as required by the fiduciary duties of its
Board of Directors as advised in writing by its counsel) furnish any nonpublic
information relating to or participate in any negotiations or discussion
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, it or any merger or other
business combination with it other than as contemplated by this Plan; (2) shall
notify MSBC immediately if any such inquiries or proposals are received by, or
any such negotiations or discussions are sought to be initiated with, it; and
(3) shall instruct its officers, directors, agents, advisors and affiliates to
refrain from doing any of the foregoing;
(H) Filing of Registration Statement. In the case of MSBC only, it
shall, as promptly as practicable following the date of this Plan, prepare and
file the Registration Statement with the SEC and MSBC shall use its best efforts
to cause the Registration Statement to be declared effective as soon as
practicable after the filing thereof;
(I) Blue Sky. In the case of MSBC only, it shall use its best efforts
to obtain, prior to the effective date of the Registration Statement, all
necessary Blue Sky Law permits and approvals, provided that MSBC shall not be
required by virtue thereof to submit to general jurisdiction in any state;
(J) Affiliates. In the case of Tysons only, it will cause each person
who may be deemed to be an "affiliate" of it for purposes of Rule 145 under the
Securities Act to execute and deliver to in the form attached hereto as Exhibit
B restricting the disposition of such affiliate's shares of Tysons Common Stock
and the shares of MSBC Common Stock to be received by such person in exchange
for such person's shares of Tysons' Common Stock;
(K) Tysons' Policies and Practices. In the case of Tysons only: Tysons
shall and shall cause its Subsidiary to use its best efforts to modify and
change its credit, investment, litigation, and real estate valuation policies
and practices (including loan classifications and levels of reserves) prior to
the Merger Closing so as to be consistent on a mutually satisfactory basis with
those of MSBC and generally accepted accounting principles. Tysons shall not be
required to modify or change any policies or practices, however, until (x)
satisfaction of the conditions set forth in Paragraphs (A), (B) and (C) of
Article VI, (y) such time as Tysons and MSBC shall reasonably agree that the
Merger Closing will occur prior to public disclosure of such modifications or
changes in regular periodic earnings releases or periodic reports filed with the
SEC or other applicable governmental authority available to the public, and (z)
such time as MSBC acknowledges in writing that all conditions to MSBC's
obligation to consummate the Merger (and MSBC's rights to terminate this Plan)
have been waived or satisfied; provided, however, that in all circumstances
Tysons shall and shall cause its Subsidiary to make such modifications and
changes not later than immediately prior to the Merger Effective Date. Tysons'
representations, warranties and covenants and contained in the Plan shall not be
deemed to be untrue or breached in any respect for any purpose as a consequence
of any modifications or changes undertaken solely on account of this Paragraph
(K);
(L) State Takeover Laws. In the case of Tysons only, it shall not take
any action that would cause the transactions contemplated by this Plan and/or
the Stock Option Agreement to be subject to any applicable state takeover
statute in effect as of the date of this Plan and shall take all necessary steps
to exempt (or ensure the continued exemption of) the transactions contemplated
by this Plan and the Stock Option Agreement from, or if necessary challenge the
validity or applicability of, any applicable state takeover law, as now or
hereafter in effect, including, without limitation, Articles 14 and 14.1 of the
Virginia Stock Corporation Act;
(M) Tysons Special Shareholder Rights. In the case of Tysons only: (1)
it shall take all necessary steps to ensure that the entering into of this Plan
and the Stock Option Agreement and the consummation of the transactions
contemplated hereby and thereby (including without limitation the Merger and the
exercise of the Option) and any other action or combination of actions, or any
other transactions contemplated hereby or thereby do not and will not result in
the grant of any rights to any person under the Articles of Incorporation of
Bylaws of Tysons or under any agreement to which Tysons is a party (other than
as Previously Disclosed); or (2) it shall not restrict or impair in any way the
ability of MSBC to exercise the rights granted hereunder or under the Stock
Option Agreement;
(N) Shareholder Approval. In the case of Tysons, only, it shall not
adopt any plan or other arrangement granting any rights to any shareholders that
would adversely affect in any way MSBC's rights under this Plan or the Stock
Option Agreement and, in the case of MSBC only, it shall not amend the terms of
its Participating Cumulative Preferred Stock, Series A, of which 100,000 shares
are authorized but unissued as of March 31, 1997, in a manner that affects
holders of Tysons Common Stock in a disproportionate manner;
(O) Best Efforts for Merger. Subject to the terms of this
Agreement, it undertakes and agrees to use its best efforts to cause the Merger
to be effected;
(P) Government Applications. In the case of MSBC only, it shall
promptly prepare and submit an application to the FRB and the Virginia State
Corporation Commission for approval of the Merger and promptly make all
appropriate filings to secure all other approvals, consents and rulings which
are necessary for the consummation of the Merger by MSBC. Both MSBC and Tysons
will use their best efforts to obtain and will cooperate with each other in
making applications for such approvals or other actions advisable in the
reasonable judgment of MSBC, with the consent of Tysons, such consent not to be
unreasonably withheld, to consummate the Merger including, but not limited to,
promptly furnishing information relating to it and its Subsidiaries required to
be set forth therein; provided, however, that any approval shall not require a
change which materially adversely impacts the economic or business benefits to
either MSBC or Tysons of the transactions contemplated by this Plan so as to
render inadvisable the consummation of the Merger in the reasonable opinion of
the Board of Directors of either MSBC or Tysons;
(Q) Environmental Tests. Tysons and its Subsidiary will allow MSBC to
conduct, through designated representatives, environmental and engineering tests
provided that no test or information discovered pursuant thereto shall be deemed
to affect or modify or waive any representation or warranty made by Tysons;
(R) Listing of MSBC Common Stock. MSBC will use its best efforts, prior
to the Merger Effective Date, to cause the shares of the MSBC Common Stock to be
issued to Tysons shareholders in connection with the consummation of the Plan,
to be listed on the NASDAQ/NMS, upon official notice of issuance.
(S) Execution of Plan by Holding Company. Upon the incorporation of the
Holding Company and its due organization subsequent to the date of this
Agreement and prior to Merger Closing, MSBC shall cause the Holding Company by a
duly authorized officer to execute this Plan.
(T) Tysons Directors Options. Not less than thirty days prior to the
Merger Closing each holder of a Directors Option shall have entered into a
written agreement with Tysons for the express benefit of and reasonably
satisfactory to MSBC agreeing to accept as of the Merger Closing in full
satisfaction of the optionee's rights under such Directors Option that number of
shares of MSBC Common Stock equal to the quotient obtained by dividing (y) the
difference between $14.50 minus the price per share at which the optionee could
have exercised his option rights under the terms of his Directors Option
("Strike Price"), by (z) the Average MSBC Share Price ("Option Ratio"). If the
Option Ratio computed in accordance with the immediately preceding sentence is
less than the ratio ("Bottom Ratio") obtained by dividing (y) the difference
between $14.50 minus the Strike Price, by (z) $28.60, the Option Ratio shall be
the Bottom Ratio; if the Option Ratio computed in accordance with the
immediately preceding sentence is greater than the ratio ("Top Ratio") obtained
by dividing (y) the difference between $14.50 minus the Strike Price, (z) by
$23.40, the Option Ratio shall be the Top Ratio. As of the Merger Closing, the
optionees with respect to all outstanding Directors Options shall by agreement
be entitled to receive from MSBC only the shares of MSBC Common Stock as
provided in the agreements executed in accordance with this Paragraph and shall
have no further rights under the terms of their Directors Options.
(U) Tysons Warrants. Tysons shall enter into an agreement with each
holder of Tysons Warrants, reasonably acceptable to MSBC, by which such holder
shall agree to exchange each Tysons Warrant at least 30 days prior to the Merger
Closing for a number of shares of Tysons Common Stock per Warrant equal to the
percentage obtained by dividing (y) the difference between $14.50 minus the
strike price per Warrant by, (z) $14.50.
(V) Payment of ESOP Loan. Prior to the Merger Closing, Tysons shall pay
or cause to be paid and satisfy in full that certain promissory note dated June,
1994, in the initial principal amount of $500,000, payable to the order of
Richard Schwartz and issued by Tysons Financial Corporation Employee Stock
Ownership Plan and Trust and cause to be discharged in full all obligations
under that certain Term Loan Agreement dated as of June, 1994, pursuant to which
such promissory note was issued; provided, however, Tysons shall not be
obligated to do so until the (x) satisfaction of the conditions set forth in
Paragraphs (A), (B), and (C) of Article VI, (y) such time as Tysons and MSBC
shall reasonably agree that the Merger Closing will occur prior to the public
disclosure of such action in regular public earnings releases or periodic
reports filed with the SEC; and (z) such time as MSBC acknowledges in writing
that the conditions to MSBC's obligation to consummate the Merger (and MSBC's
rights to terminate this Plan) have been waived or satisfied.
VI. CONDITIONS TO CONSUMMATION OF THE MERGER.
Consummation of the Merger is conditioned upon:
(A) Shareholder Approval. Approval of the Merger and the other
transactions contemplated hereby (including any actions contemplated by
Paragraph (L) of Article VIII) by the requisite vote of the stockholders of
Tysons;
(B) Specific Regulatory Approval. Procurement of the approval by the
FRB and the Virginia State Corporation Commission of the Merger and procurement
of all other regulatory consents and approvals applicable to financial
institutions and their holding companies and satisfaction of all other
regulatory requirements applicable to financial institutions and their holding
companies necessary for consummation of the Merger, and the expiration of the
statutory waiting periods relating thereto.
(C) General Governmental Approval. Procurement of all other
governmental consents and approvals and satisfaction of all other requirements
prescribed by law which are necessary to the consummation of the Merger;
provided, however, that no approval or consent in Paragraph (B) or (C) of this
Article VI shall have imposed any condition or requirement which would
materially adversely impact the economic or business benefits to either MSBC or
Tysons of the transactions contemplated by this Plan so as to render inadvisable
the consummation of the Merger;
(D) No Countervening Orders. There shall not be in effect any order,
decree or injunction of any court or agency of competent jurisdiction that
enjoins or prohibits consummation of the Merger;
(E) Accountants' Reports as to MSBC. Tysons and its directors shall
have received from Coopers & Lybrand letters, dated the date of or shortly prior
to (i) the mailing of the Proxy Statement, and (ii) the Merger Effective Date,
in form and substance satisfactory to Tysons with respect to MSBC's consolidated
financial position and results of operations, which letters shall be based upon
customary specified procedures undertaken by such firm;
(F) Accountants' Reports as to Tysons. MSBC shall have received from
KPMG Peat Marwick, LLP, dated the date of or shortly prior to (1) the mailing of
the Proxy Statement, (2) the public offerings of any securities by MSBC prior to
the Merger Effective Date, and (3) the Merger Effective Date, in form and
substance satisfactory to MSBC with respect to Tyson's financial position and
results of operations, which letters shall be based upon customary specified
procedures undertaken by such firm;
(G) MSBC Legal Opinion. Tysons shall have received an opinion, dated
the Merger Effective Date, of Flippin, Densmore, Morse, Rutherford & Jessee,
P.C., counsel for MSBC and the Holding Company, in form reasonably satisfactory
to Tysons, which shall cover the matters contained in Exhibit C hereto;
(H) Tysons Legal Opinion. MSBC and its directors and officers who sign
the Registration Statement shall have received an opinion, dated the Merger
Effective Date of Venable, Baetjer and Howard, LLP in form reasonably
satisfactory to MSBC, which shall cover the matters contained in Exhibit D
hereto;
(I) MSBC Representations and Warranties. (1) Each of the
representations and warranties contained herein of MSBC shall be true and
correct as of the date of this Plan and upon the Merger Effective Date with the
same effect as though all such representations and warranties had been made on
the Merger Effective Date, except (a) for any such representations and
warranties made as of a specified date, which shall be true and correct as of
such date, (b) as expressly contemplated by this Plan, or (c) for
representations and warranties (other than the representations and warranties
set forth in Paragraph (A) of Article IV, which shall be true and correct in all
material respects) the inaccuracies of which relate to matters that,
individually or in the aggregate, do not materially adversely affect the Merger
and the other transactions contemplated by this Plan, and (2) each and all of
the agreements and covenants of MSBC to be performed and complied with pursuant
to this Plan and the other agreements contemplated hereby prior to the Merger
Effective Date shall have been duly performed and complied with in all material
respects, and Tysons shall have received a certificate or certificates signed by
the Chief Executive Officer and Chief Financial Officer of MSBC dated the Merger
Effective Date, to such effect;
(J) Tysons' Representations and Warranties. (1) Each of the
representations and warranties contained herein of Tysons shall be true and
correct as of the date of this Plan and upon the Merger Effective Date with the
same effect as though all such representations and warranties had been made on
the Merger Effective Date, except (a) for any such representations and
warranties made as of a specified date, which shall be true and correct as of
such date, (b) as expressly contemplated by this Plan, or (c) for
representations and warranties (other than the representations and warranties
set forth in Paragraph (A) of Article IV, which shall be true and correct in all
material respects) the inaccuracies of which relate to matters that,
individually or in the aggregate, do not materially adversely affect the Merger
and the other transactions contemplated by this Plan, and (2) each and all of
the agreements and covenants of Tysons to be performed and complied with
pursuant to this Plan and the other agreements contemplated hereby prior to the
Merger Effective Date shall have been duly performed and complied with in all
material respects, and MSBC shall have received a certificate signed by the
Chief Executive Officer and the Chief Financial Officer of Tysons dated the
Merger Effective Date, to such effect;
(K) Registration Statement Effectiveness. The Registration Statement
shall have become effective and no stop order suspending the effectiveness of
the Registration Statement shall have been issued and no proceedings for that
purpose shall have been initiated or threatened by the SEC or any other
regulatory authority;
(L) Blue Sky Approvals. MSBC shall have received all Blue Sky Law
approvals, permits and other authorizations necessary to consummate the Merger;
(M) Tax Free Reorganization Opinion. MSBC and Tysons shall have
received an opinion from Venable, Baetjer and Howard, LLP to the effect that (1)
the acquisition of Tysons Common Stock by MSBC and the Merger constitutes a
reorganization under Section 368 of the Code, and (2) no gain or loss will be
recognized by stockholders of Tysons who receive shares of MSBC Common Stock in
exchange for their shares of Tysons Common Stock except that gain or loss may be
recognized as to cash received in lieu of fractional share interests and, in
rendering their opinion, may require and rely upon representations contained in
certificates of officers of MSBC, Tysons and others;
(N) Listing of MSBC Common Stock. The shares of MSBC Common Stock
issuable pursuant to the Merger shall have been approved for listing on the
NASDNAQ/NMS, subject to official notice of issuance;
(O) Affiliate Letters. MSBC shall have received from each affiliate of
Tysons the affiliates letter referred to in Paragraph (J) of Article V;
(P) Tysons Fairness Opinion. At the time the Proxy Statement is mailed
to the holders of shares of Tysons Common Stock and on the Merger Effective
Date, the Board of Directors of Tysons shall have received an opinion from Scott
& Stringfellow that the terms of the Merger are fair to the shareholders of
Tysons from a financial point of view;
(Q) Exercise of Tysons Warrants. As of a date which is no later than 30
days before the Merger Closing, each and every Tysons Warrant shall have been
exercised and no Tysons Warrants shall be issued and outstanding;
(R) Tysons Directors Options. Each optionee with respect to each Tysons
Directors Option shall by written agreement with Tysons for the express benefit
of MSBC be entitled to receive from MSBC only the shares of MSBC Common Stock
provided in Paragraph T of Article V.
(S) ISO's. As of a date which is no later than 30 days before the
Merger Closing, each and every holder of an ISO to purchase shares of Tysons
Common Stock, to the extent legally necessary to allow such conversion, shall
have entered into a written agreement with Tysons for the express benefit of and
reasonably acceptable to MSBC obligating such holder to accept the conversion of
such ISO stock options with respect to MSBC Common Stock as contemplated by
Paragraph (J) of Article II hereof.
provided, however, that a failure to satisfy any of the conditions set
forth in the proviso following Paragraph (C) or in Paragraph (F), (H),
(J), (L), (M), (O), (Q), (R), or (S) of this Article VI shall only
constitute conditions if asserted by MSBC and a failure to satisfy any
of the conditions set forth in the proviso following Paragraph (C),
Paragraph (E), (G), (I), (M), (N) or (P) of this Article VI shall only
constitute conditions if asserted by Tysons.
VII. TERMINATION.
This Plan may be terminated prior to the Merger Effective Date, either
before or after receipt of required stockholder approval:
(A) Mutual Consent. by the mutual consent of MSBC and Tysons, if
the Board of Directors of each so determines by vote of a majority of the
members of its entire Board;
(B) On Breach. By MSBC or Tysons, if its Board of Directors so
determines by vote of a majority of the members of its entire Board, in the
event of (1) a breach by the other party of any representation or warranty
contained herein, which breach cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching party of such
breach and which breaches, individually or in the aggregate, materially
adversely affect the Merger and the other transactions contemplated by this
Plan, or (2) a material breach by the other party of any of the covenants or
agreements contained herein, which breach cannot be or has not been cured within
thirty (30) days after the giving of written notice to the breaching party of
such breach; provided, however, that a breach can only be asserted as a basis
for termination pursuant to this paragraph (B) by a party who is not itself at
such time in breach hereof and provided, further, that termination under this
Paragraph (B) shall not relieve any party from liability under Paragraph (E) of
Article VIII;
(C) Failure to Consummate on Time. By MSBC or Tysons, if its Board of
Directors so determines by vote of a majority of the members of its entire
Board, in the event that the Merger is not consummated by March 31, 1998, and
provided, further, that termination under this Paragraph (C) shall not relieve
any party from liability under Paragraph (E) of Article VIII;
(D) Failure to Obtain Certain Approvals. By MSBC or Tysons, if its
Board of Directors so determines by a vote of a majority of the members of its
entire Board, in the event that (1) any common stockholder approval contemplated
by Paragraph (A) of Article VI is not obtained at a meeting or meetings called
for the purpose of obtaining such approval; (2) if any regulatory approval
contemplated by Paragraph (B) of Article VI to the extent necessary to
consummate the Merger legally, is finally and unconditionally denied; provided,
however, that termination under this Paragraph (D) shall not relieve any party
from liability under Paragraph (E) of Article VIII.
(E) Failure to Execute Stock Option Agreement. By MSBC if, prior to
5:00 p.m. on June 25, 1997, Tysons does not execute and deliver to MSBC the
Stock Option Agreement.
(F) Possible Adjustment in Exchange Ratio and Option Ratio. By Tysons
by vote of a majority of the members of its entire Board during the ten (10) day
period commencing on the Determination Date if both of the following conditions
are satisfied:
(1) if the Average MSBC Determination Price for MSBC
Common Stock on the Determination Date is less than $23.40; and
(2) if the First Percentage exceeds the Second
Percentage by at least ten (10) percentage points;
subject, however, to the immediately following four sentences. If Tysons elects
to exercise its termination right pursuant to Paragraph (F) of Article VII, it
shall give prompt written notice to MSBC (provided that such notice of election
to terminate may be withdrawn at any time within the aforementioned ten (10) day
period). During the seven (7) day period commencing with its receipt of such
notice, MSBC shall have the option of increasing the consideration to be
received by the holders of Tysons Common Stock (including shares to be acquired
pursuant to ISO's)and by optionees with respect to Tysons Directors Options by
adjusting the Exchange Ratio and Option Ratio, respectively, to equal a
quotient, the numerator of which is $23.40 multiplied by the Exchange Ratio (as
then in effect) with respect to Tysons Common Stock and the Option Ratio (as
then in effect) with respect to the Directors Options and in either case the
denominator of which is the Average MSBC Determination Price. If MSBC makes the
election contemplated by the immediately preceding sentence, it shall give
prompt written notice to Tysons of such election and the revised Exchange Ratio
and Option Ratio, whereupon no termination shall have accrued pursuant to this
Paragraph (F) and the Plan shall remain in effect in accordance with its terms
(except as the Exchange Ratio or Option Ratio shall have been so modified) and
any references in this Plan to "Exchange Ratio" or "Option Ratio" shall
thereafter be deemed to refer to the Exchange Ratio or Option Ratio as adjusted
pursuant to this Paragraph (F).
For purposes of this Paragraph (F) the following terms shall have the
meanings indicated:
"Average MSBC Determination Price" means the average of the bid/asked
price for MSBC Common Stock as reported on the NASDAQ/NMS for the 20 consecutive
full trading days preceding the Determination Date.
"Determination Date" means the tenth day prior to the Merger Closing.
"First Percentage" means the percentage resulting from: (a) taking the
remainder ("First Remainder") obtained by subtracting the Average MSBC
Determination Price from $27.875 (the average of the bid and asked prices of
MSBC Common Stock as reported on the NASDAQ/NMS on July 22, 1997; and (b)
dividing the First Remainder by the Average MSBC Determination Price.
"Second Percentage" means the percentage resulting from: (a) taking the
remainder ("Second Remainder") obtained by subtracting the SNL Southeast Bank
Index reported most recently prior to the last trading day in the measuring
period for calculating the Average MSBC Determination Price ("Recent SNL Bank
Index") from the SNL Southeast Bank Index at July 22, 1997; and (b) dividing the
Second Remainder by the Recent SNL Bank Index.
VIII. OTHER MATTERS.
(A) Survival. If the Merger Effective Date occurs, the agreements of
the parties in Paragraph (H) of Article II, and Paragraphs (A), (C), (D), (F),
(I), (J) and (K) of this Article VIII shall survive the Merger Effective Date;
all other representations, warranties, agreements and covenants contained in
this Plan shall be deemed to be conditions of the Merger and shall not survive
the Merger Effective Date. If this Plan is terminated prior to the Merger
Effective Date, the agreements and representations of the parties in Paragraph
(K) of Article IV, Paragraphs (F)(2) of Article V and Paragraphs (A), (E), (F)
and (I) of this Article VIII shall survive such termination. In the event of the
termination and abandonment of this Plan pursuant to the provisions of Article
VII, this Plan shall become void and have no effect, except (1) as provided in
the immediately preceding sentence; and (2) no party shall be relieved or
released from any liability arising out of a breach of any provisions of this
Plan except as provided in Paragraph (E) of this Article.
(B) Waiver, Amendment. Prior to the Merger Effective Date, any
provision of this Plan may be (1) waived by the party benefited by the
provision, or (2) amended or modified at any time (including the structure of
the transaction), by an agreement in writing among the parties hereto approved
by their respective Boards of Directors and executed in the same manner as this
Plan, except that, after the vote by the stockholders of Tysons, the
consideration to be received by the stockholders of Tysons for each share of
Tysons Common Stock shall not be decreased (except in accordance with Section 4
of the Plan of Merger).
(C) Counterparts. This Plan may be executed in one or more
counterparts, each of which shall be deemed to constitute an original. This Plan
shall become effective when one counterpart has been signed by each party
hereto.
(D) Governing Law. This Plan shall be governed by, and interpreted in
accordance with, the laws of the State of Virginia.
(E) Fees and Expenses. In the event that the Plan is terminated in
accordance with the provisions of Article VII otherwise than on account of a
breach by MSBC or Tysons, each party shall bear its own costs, expenses and fees
in connection with and arising out of the Merger and the other transactions
contemplated by this Plan (including, without limitation, amounts paid or
payable to investment bankers, to counsel and accountants, and to governmental
and regulatory agencies).
(F) Confidentiality. Except as otherwise provided in Paragraph (F)(2)
of Article V, each of the parties hereto and their respective agents, attorneys
and accountants will maintain the confidentiality of all information provided in
connection herewith which has not been publicly disclosed.
(G) Notices. All notices, requests and other communications hereunder
to a party shall be in writing and shall be deemed to have been duly given when
delivered by hand, telegram or facsimile (confirmed in writing) to such party at
its address set forth below or such other address as such party may specify by
notice to the parties hereto.
If to MSBC or Holding Company, to:
MainStreet BankGroup Incorporated
200 E. Church Street
Martinsville, VA 24112-5409
Attn: Michael Brenan,
Chief Executive Officer
Copy to:
Douglas W. Densmore, Esq.
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
Drawer 1200
Roanoke, Virginia 24006
If to Tysons, to:
Tysons Financial Corporation
8200 Greensboro Drive
Suite 100
McLean, Virginia 22102
Attn: Terrie G. Spiro
President
Copy to:
Elizabeth R. Hughes
Venable, Baetjer & Howard, LLP
1800 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201
(H) Definitions. Any term defined anywhere in this Plan shall have the
meaning ascribed to it for all purposes of this Plan (unless expressly noted to
the contrary). In addition:
(1) the term "knowledge" when used with respect to a party
shall mean the knowledge, after due inquiry, of any "Executive Officer" of such
party as such term is defined in FRB Regulation O;
(2) the term "Material Adverse Effect," when applied to a
party, shall mean an event, occurrence or circumstance (including without
limitation (a) the making of any provisions for possible loan and lease losses,
write-downs of other real estate and taxes and (b) any breach of a
representation or warranty by such party) which, in either case, (i) has or is
reasonably likely to have a material adverse effect on the financial position,
results of operations or business of the party and its subsidiaries, taken as a
whole, or (ii) would materially impair the party's ability to perform its
obligations under this Plan or the consummation of the Merger and the other
transactions contemplated by this Plan; provided, however, that, solely for
purposes of measuring whether an event, occurrence or circumstance has a
material adverse effect on such party's results of operations, the term "results
of operations" shall mean net interest income plus non-interest income (less
securities gains) less gross expenses (excluding provisions for possible loan
and lease losses, write-downs of other real estate and taxes); and provided,
further, that material adverse effect and material impairment shall not be
deemed to include the impact of (x) changes in banking and similar laws of
general applicability or interpretations thereof by courts or governmental
authorities, (y) changes in generally accepted accounting principles or
regulatory accounting requirements applicable to banks and bank holding
companies generally and (z) the effects of Merger on the operating performance
of the parties to this Plan;
(3) the term "Previously Disclosed" by a party shall mean
information set forth in a written disclosure letter that is delivered by that
party to the other party contemporaneously with the execution of this Plan and
specifically designated as information "Previously Disclosed" pursuant to this
Plan; provided, further, the mere inclusion of an item in a disclosure letter
shall not be deemed an admission by a party that such item represents a material
exception of fact, event or circumstances or that such item is reasonably likely
to result in a Material Adverse Effect.
(I) Entire Understanding. This Plan represents the entire understanding
of the parties hereto with reference to the transactions contemplated hereby and
supersede any and all other oral or written agreements heretofore made. Nothing
in this Plan expressed or implied, is intended to confer upon any person, other
than the parties hereto or their respective successors, any rights, remedies,
obligations or liabilities under or by reason of this Plan, other than as
provided in Paragraph (K) below.
(J) Benefit Plans. Upon consummation of the Merger, as soon as
administratively practicable employees of Tysons shall be entitled to
participate in MSBC's pension, severance, benefit and similar plans on the same
terms and conditions as employees of MSBC and its Subsidiaries. With respect to
the MSBC 401(k) plan, employees of Tysons shall be given full credit for prior
service with Tysons with respect to eligibility for and vesting in such plan.
MSBC shall cause the Continuing Corporation to honor in accordance with their
terms as in effect on the date hereof, or as amended after the date hereof with
the prior written consent of MSBC, all employment, severance, consulting and
other compensation contracts and agreements Previously Disclosed to MSBC and
executed in writing by both Tysons or TNB on the one hand and any individual
current or former director, officer or employee thereof on the other hand,
copies of which have previously been delivered by Tysons to MSBC. In no event
shall the immediately preceding sentence apply to Tyson's Employee Stock
Ownership Plan which MSBC presently intends to terminate as soon as practicable
after the Merger Effective Date.
(K) Indemnification. (1) In the case of MSBC only, it agrees that for
the period of the relevant statute of limitations but in no event less than
six-years following the Merger Effective Date, it shall cause the Continuing
Corporation and any successor thereto to indemnify and hold harmless any person
who has rights to indemnification from Tysons to the same extent and on the same
conditions as such person is entitled to indemnification pursuant to Tysons'
Bylaws as in effect on the date of this Plan, to the extent legally permitted to
do so, with respect to matters occurring on or prior to the Merger Effective
Date (regardless of whether a claim is asserted in connection therewith on or
prior to the Merger Effective Date or thereafter). Without limiting the
foregoing, in any case in which approval by the Continuing Corporation may be
required to effectuate any such indemnification, MSBC shall cause the Continuing
Corporation to direct, at the election of the party to be indemnified, that the
determination of any such approval shall be made by independent counsel mutually
agreed upon between MSBC and the indemnified party. MSBC shall use its
reasonable best efforts to provide coverage to the officers and directors of the
Continuing Corporation under MSBC policy or policies of director and officers
liability insurance on the same or substantially similar terms then in effect
for the directors and officers of MSBC and the Continuing Corporation shall
reimburse MSBC for the additional premium incurred by it in connection with
providing such coverage; (2) If MSBC or any of its successors or assigns shall
consolidate with or merge into any other entity and shall not be the continuing
or surviving entity of such consolidation or merger or shall transfer all or
substantially all of its assets to any entity, then and in each case, proper
provisions shall be made so that the successors and assigns of MSBC shall assume
the obligations set forth in this Paragraph (K)(1). MSBC shall pay all
reasonable costs, including attorneys' fees, that may be incurred by any
Indemnified Party in enforcing the indemnity and other obligations provided for
in this Paragraph (K)(1).
(L) Acquisition of MSBC. In the event that MSBC is acquired through a
merger, share exchange or other business combination in which it is not the
surviving entity, MSBC agrees that it shall make provision by which the acquirer
shall assume this Agreement and the holders of Tysons Common Shares shall be
entitled to receive the same consideration for such shares as the holders of
MainStreet Common Stock received, giving effect to the Exchange Ratio and
appropriate provision shall be made for the holders of Tysons Warrants and
Tysons Options.
IN WITNESS WHEREOF, the parties hereto have caused this instrument to
be executed in counterparts by their duly authorized officers, all as of the day
and year first above written.
MainStreet BankGroup Incorporated
By: /s/ Rebecca J. Jenkins
-------------------------
Rebecca J. Jenkins
Vice President & Secretary
Tysons Financial Corporation
By: /s/ Terrie G. Spiro
----------------------
Terrie G. Spiro
President/Chief Executive Officer
MB Corp.
By:_______________________________
____________________________
President
<PAGE>
Exhibit A
ARTICLES OF MERGER
BETWEEN
TYSONS FINANCIAL CORPORATION
a Virginia corporation
and
MB Corp.
a Virginia Corporation
Pursuant to the provisions of Section 13.1-720 of the Virginia Stock
Corporation Act, Tysons Financial Corporation, a Virginia corporation
("Continuing Corporation") and MB Corp., a Virginia corporation (the
"Disappearing Corporation") hereby execute and deliver the following articles of
merger and set forth:
1. The Plan of Merger (the "Plan") pursuant to which the
Disappearing Corporation will merge into the Continuing
Corporation is attached hereto as Annex 1.
2. The Plan was adopted by the sole shareholder of the
Disappearing Corporation.
3. The Plan was submitted to the shareholders of the Continuing
Corporation by its board of directors in accordance with the
provisions of Chapter 9 of Title 13.1 of the Code of Virginia,
and;
(a) The designation, number of outstanding shares, and
the number of votes entitled to be cast by each
voting group entitled to vote separately on the Plan
were:
No. of
Designation Outstanding Shares No. of Votes
------------ ------------------- ------------
Common
(b) The total number of votes cast for and against the
Plan by each voting group entitled to vote separately
on the Plan were:
Total No. of Votes Total No. of Votes
Voting Group Cast for the Plan Cast Against the Plan
------------ ------------------ ---------------------
Common
4. Pursuant to Section 13.1-606 of the Virginia Stock Corporation
Act, the effective time and date of the merger shall be
_______a.m. on __________.
The undersigned, President, of Tysons Financial Corporation, and
President of MB Corp., each declare that the facts herein stated are
true as of ____________, 1997.
Tysons Financial Corporation
By:________________________________
Terrie G. Spiro
Its: President
MB Corp.
By:________________________________
Michael Brenan
Its: President
<PAGE>
Annex 1
to Exhibit A
PLAN OF MERGER
A. MB Corp. ("MB") is a corporation organized and existing under
the laws of the Commonwealth of Virginia.
B. Tysons Financial Corporation ("Tysons") is a corporation
organized and existing under the laws of the Commonwealth of Virginia.
C. MB and Tysons, their respective Boards of Directors and shareholders
have approved a statutory merger ("Merger") of MB (the "Disappearing
Corporation") with and into Tysons ("the Continuing Corporation").
1. Effective Time. The Merger shall become effective at the time when a
certificate of merger shall have been issued by the State Corporation Commission
of the Commonwealth of Virginia (the "Effective Time") but in no event before
December 31, 1997 and the conditions in Article VI of the Agreement and Plan of
Merger between the Continuing Corporation, the Disappearing Corporation and
MainStreet BankGroup Incorporated ("MSBC") dated as of July 25, 1997 (the
"Agreement") shall have been fulfilled or waived.
2. Merger. At the Effective Time, the Disappearing Corporation shall be
merged with and into the Continuing Corporation in accordance with the
provisions of Article 12 of the Virginia Stock Corporation Act. The Continuing
Corporation shall be and continue in existence as the surviving corporation and
the separate corporate existence of the Disappearing Corporation shall cease.
3. Effect of Merger on Outstanding Shares. The manner of converting or
cancelling the shares of the Disappearing Corporation and of the Continuing
Corporation shall, by virtue of the Merger, and without any action on the part
of the holders thereof be as follows:
(A) The shares of the Disappearing Corporation issued and outstanding
as of the Effective Time shall be converted into the shares of common stock of
the Continuing Corporation issued and outstanding as of the Effective Time and
shall constitute the only issued and outstanding shares of common stock of the
Continuing Corporation.
(B) Each share of the common stock, $5.00 par value per share, of
Tysons ("Tysons Common Stock") shall be converted into the right to receive that
number of shares of the common stock, $5.00 par value per share, of MainStreet
BankGroup Incorporated ("MSBC Common Stock") obtained by dividing the Negotiated
Price per share of Tysons Common Stock by the average of the bid/asked price per
share for the MSBC Common Stock as reported on the National Association of
Securities Dealers Quotations System National Market System ("NASDAQ/NMS) for
each of the twenty (20) trading days preceding the later to occur of (i) the
approval of the Merger and the other transactions contemplated by the Agreement
by the shareholders of Tysons; and (ii) the financial institution regulatory
approvals (but not the statutory waiting periods) necessary for the consummation
of the Merger and the other transactions contemplated by the Agreement. If the
Exchange Ratio computed in accordance with the immediately preceding sentence is
less than .507, the Exchange Ratio shall be .507, and if the Exchange Ratio
computed in accordance with the immediately preceding sentence is greater than
.620, the Exchange Ratio shall be .620. ("Exchange Ratio"). The Negotiated Price
per share of Tysons Common Stock is $14.50.
(C) Stockholder Rights; Stock Transfers. As of the Effective Time,
holders of the shares of Tysons Common Stock shall cease to be, and shall have
no rights as, stockholders of Tysons, other than to receive the Merger
consideration provided under Paragraph (A) above, and the consideration provided
in Paragraph (D) below. After the Effective Time, there shall be no transfers on
the stock transfer books of Tysons or the Surviving Corporation of the shares of
Tysons Common Stock which were issued and outstanding immediately prior to the
Effective Time.
(D) Fractional Shares. Notwithstanding any other provision hereof, no
fractional shares of MSBC Common Stock and no certificates or scrip therefor, or
other evidence of ownership thereof, will be issued in the Merger; instead, MSBC
shall pay to each holder of Tysons Common Stock who would otherwise be entitled
to a fractional share an amount in cash determined by multiplying such
fractional share by the average of the last bid/asked price of MSBC Common Stock
on the last trading day prior to the Effective Time, as reported on the
NASDAQ/NMS (as reported by The Wall Street Journal).
(E) Exchange Procedures. As promptly as practicable after the Effective
Time, MSBC shall send or cause to be sent to each former holder of Tysons Common
Stock of record immediately prior to the Effective Time transmittal materials
for use in exchanging such stockholder's certificates of Tysons Common Stock for
the consideration set forth in Paragraphs (A) and (D) above. Any fractional
share checks which a Tysons stockholder shall be entitled to receive in exchange
for such stockholder's shares of Tysons Common Stock, and any dividends paid on
any shares of MSBC Common Stock that such stockholder shall be entitled to
receive prior to the delivery to _________________ (the "Exchange Agent") of
such stockholder's certificates representing all of such stockholder's share of
Tysons Common Stock will be delivered to such stockholder only upon delivery to
the Exchange Agent of the certificates representing all of such shares (or
indemnity satisfactory to MSBC and the Exchange Agent, in their judgment, if any
of such certificates are lost, stolen or destroyed). No interest will be paid on
any such fractional share checks or dividends to which the holder of such shares
shall be entitled to receive upon such delivery. After the Effective Time, to
the extent permitted by law, former stockholders of record of Tysons shall be
entitled to vote at any meeting of holders of MSBC Common Stock the number of
whole shares of MSBC Common Stock into which their respective shares of Tysons
Common Stock entitle them, regardless of whether such holders have exchanged
their Tysons Common Stock for certificates representing MSBC Common Stock in
accordance with the provisions of this Plan of Merger.
(F) Anti-Dilution Provisions. In the event MSBC changes the number of
shares of MSBC Common Stock issued and outstanding prior to the Effective Time
as a result of a stock split, stock dividend, recapitalization or similar
transaction with respect to the outstanding MSBC Common Stock (but not as a
result of a merger, share exchange or similar transaction) and the record date
therefor shall be prior to the Effective Time, the Exchange Ratio shall be
proportionately adjusted.
(G) Excluded Shares. Each of the shares of Tysons Common Stock held by
Tysons, MSBC or any of their respective subsidiaries, in each case other than in
a fiduciary capacity or as a result of debts previously contracted shall be
canceled and retired at the Effective Time.
(H) ISO's. From and after the Effective Time, all stock options granted
to officers, employees of Tysons in such capacity to purchase shares of Tysons
Common Stock which are then outstanding and unexercised, shall be converted into
and become options with respect to MSBC Common Stock, and MSBC shall assume each
option and right, in accordance with the terms of the plan and agreement by
which it is evidenced. From and after the Effective Time, (i) each such ISO
assumed by MSBC may be exercised solely for shares of MSBC Common Stock, (ii)
the number of shares of MSBC Common Stock subject to each ISO shall be equal to
the number of shares of Tysons Common Stock subject to such ISO immediately
prior to the Effective Time multiplied by the Exchange Ratio, and (iii) the per
share exercise price under each such ISO shall be adjusted by dividing the per
share exercise price of each such ISO by the Exchange Ratio, and rounding to the
nearest cent.
(I) Tysons Directors Options. As of the Effective Time, all holders of
options to purchase Tysons Common Stock granted to directors of Tysons in such
capacity ("Directors Options") shall receive in full satisfaction of the
optionee's rights under such Options that number of shares of MSBC Common Stock
equal to the quotient obtained by dividing (x) the difference of $14.50 minus
the price per share at which the optionee could have exercised his option rights
under the terms of the Directors Option ("Strike Price"), by (2) the Average
MSBC Share Price ("Option Ratio"). If the Option Ratio computed in accordance
with the immediately preceding sentence is less than the ratio ("Bottom Ratio")
obtained by dividing (y) the difference of $14.50 minus the Strike Price by, (z)
$28.60, the Option Ratio shall be the Bottom Ratio; if the Option Ratio computed
in accordance with the immediately preceding sentence is greater than the ratio
("Top Ratio") obtained by dividing (y)the difference of $14.50 minus the Strike
Price by, (y) $23.40, the Option Ratio shall be the Top Ratio.
(J) Possible Adjustment in Exchange Ratio and Option Ratio. The
Agreement may be terminated prior to the Effective Time (i) as set forth in 3
below or (ii) either before or after approval by the stockholders of Tysons, by
Tysons by vote of a majority of the members of its entire Board during the ten
(10) day period commencing on the Determination Date if both of the following
conditions are satisfied:
(1) if the Average MSBC Determination Price for MSBC
Common Stock on the Determination Date is less than $23.40; and
(2) if the First Percentage exceeds the Second
Percentage by at least ten (10) percentage points;
subject, however, to the immediately following four sentences. If Tysons elects
to exercise its termination right pursuant to clause (ii), it shall give prompt
written notice to MSBC (provided that such notice of election to terminate may
be withdrawn at any time within the aforementioned ten (10) day period). During
the seven (7) day period commencing with its receipt of such notice, MSBC shall
have the option of increasing the consideration to be received by the holders of
Tysons Common Stock (including shares to be acquired pursuant to ISO's) and by
optionees with respect to Tysons Directors Options by adjusting the Exchange
Ratio and Option Ratio, respectively, to equal a quotient, the numerator of
which is $23.40 multiplied by the Exchange Ratio (as then in effect) with
respect to Tysons Common Stock and the Option Ratio (as then in effect) with
respect to the Directors Options and the denominator of which in either case is
the Average MSBC Determination Price. If MSBC makes an election contemplated by
the immediately preceding sentence, it shall give prompt written notice to
Tysons of such election and the revised Exchange Ratio and Option Ratio,
whereupon no termination shall have accrued pursuant to clause (ii) and the
Agreement shall remain in effect in accordance with its terms (except as the
Exchange Ratio and Option Ratio shall have been so modified) and any references
in this Plan to "Exchange Ratio" and "Option Ratio" shall thereafter be deemed
to refer to the Exchange Ratio and Option Ratio as adjusted pursuant to this
Subparagraph (J). For purposes of this Paragraph (J) the following terms shall
have the meanings indicated:
"Average MSBC Determination Price" means the average of the bid/asked
price for MSBC Common Stock as reported on the NASDAQ/NMS for the 20 consecutive
full trading days preceding the Determination Date.
"Determination Date" means the tenth day prior to the Merger Closing.
"First Percentage" means the percentage resulting from: (a) taking the
remainder ("First Remainder") obtained by subtracting the Average MSBC
Determination Price from $22.875 (the average of the bid and asked prices of
MSBC Common Stock as reported on the NASDAQ/NMS on July 22, 1997; and (b)
dividing the First Remainder by the Average MSBC Determination Price.
"Second Percentage" means the percentage resulting from: (a) taking the
remainder ("Second Remainder") obtained by subtracting the SNL Southeast Bank
Index reported most recently prior to the last trading day in the measuring
period for calculating the Average MSBC Price ("Recent SNL Bank Index") from the
SNL Southeast Bank Index at July 22, 1997; and (b) dividing the Second Remainder
by the Recent SNL Bank Index.
"Merger Closing" means an end of the month date designated by MSBC and
reasonably acceptable to Tysons after the satisfaction of the conditions to the
Merger set forth in Paragraphs (A), (B) and (C) of Article VI of the Agreement
but no later than the Effective Time or before December 31, 1997.
(K) Tysons Warrants. As of the Merger Closing no warrants to purchase
Tysons Common Stock shall be outstanding and unexercised.
3. Termination of Abandonment. In addition to the termination
provisions set forth above, this Plan of Merger shall terminate and the Merger
be abandoned at any time prior to the Effective Time if the Agreement is
terminated in accordance with its terms.
4. Amendment. Pursuant to Section 13.1-718(I) of the Virginia Stock
Corporation Act, the Board of Directors of MSBC and Tysons reserve the right to
amend this Plan of Merger at any time prior to the issuance by the Virginia
State Corporation Commission of the certificate of merger; provided, however,
that any such amendment made subsequent to the submission of this Plan of Merger
to the shareholders of Tysons, may not: (i) alter or change the amount or kind
of shares, securities, cash, property or rights to be received in exchange for
or in conversion of all or any of the shares of any class or series of such
corporation; (ii) alter or change any of the terms and conditions of this Plan
of Merger if such alteration or change would adversely affect the shares of any
class or series of such corporation; or (iii) alter or change any term of the
articles of incorporation of any corporation (except as provided herein) whose
shareholders must approve this Plan of Merger.
5. Articles of Incorporation and Bylaws. The Articles of Incorporation
and Bylaws of the Disappearing Corporation in effect at the Effective Time shall
continue (until amended or repealed as provided by applicable law) to be the
Articles of Incorporation and Bylaws of the Continuing Corporation after the
Effective Time.
6. Officers and Directors. The officers and directors of the Continuing
Corporation immediately prior to the Effective Time together with such
additional officers and directors as may thereafter be elected, shall be the
officers and directors of the Continuing Corporation after the Effective Time to
serve, in accordance with the Bylaws of the Continuing Corporation until their
successors are duly elected and qualified or their earlier death, resignation or
removal.
<PAGE>
EXHIBIT B
Form of Tysons Affiliate's Letter
_______________, 19__
MainStreet BankGroup Incorporated
address
Gentlemen:
Pursuant to the terms of the Agreement and Plan of Merger, dated as of
___________, 1997, by and between MainStreet BankGroup Incorporated, a Virginia
corporation ("MSBC"), MB Corporation, a Virginia corporation (the "Holding
Company") and Tysons Financial Corporation ("Tysons"), (the "Agreement"), the
Holding Company, a wholly owned subsidiary of MSBC, shall merge with and into
Tysons (the "Merger"). As a result of the Merger the undersigned may receive
shares of Common Stock, $5.00 par value per share, of MSBC ("MSBC Common
Stock"). The undersigned would receive such shares in exchange for shares owned
by the undersigned of Common Stock, $5.00 par value per share, of Tysons.
The undersigned hereby represents, warrants to, and covenants with,
MSBC that in the event the undersigned receives any MSBC Common Stock as a
result of the Merger:
(A) The undersigned shall not make any sale, transfer or other
disposition of the MSBC Common Stock in violation of the Securities Act
of 1933, as amended, or the rules and regulations thereunder (the
"Act").
(B) The undersigned has carefully read this letter and
discussed its requirements and other applicable limitations upon the
undersigned's ability to sell, transfer or otherwise dispose of MSBC
Common Stock to the extent the undersigned felt necessary, with the
undersigned's counsel or counsel for Tysons.
(C) The undersigned will not sell, transfer or otherwise
dispose of MSBC Common Stock issued to the undersigned in the Merger
unless (i) such sale, transfer or other disposition has been registered
under the Act, (ii) such sale, transfer or other disposition is made in
conformity with the provisions of Rule 145 under the Act (as such rule
may be hereafter from time to time be amended), or (iii) in the opinion
of counsel in form and substance reasonably acceptable to MSBC, in
which counsel for MSBC concurs, or in a "no-action" letter obtained by
the undersigned from the staff of the Securities and Exchange
Commission (the "Commission"), a determination is made that such sale,
transfer or other disposition will not violate or is otherwise exempt
from registration under the Act.
(D) The undersigned understands that MSBC is under no
obligation to register the sale, transfer or other disposition of
shares of MSBC Common Stock by the undersigned or on the undersigned's
behalf under the Act or to take any other action necessary in order to
make compliance with an exemption from such registration available.
(E) The undersigned also understands that stop transfer
instructions will be given to MSBC's transfer agent with respect to
MSBC Common Stock owned by the undersigned and that there will be
placed on the certificates for the MSBC Common Stock issued to the
undersigned, or any substitutions therefor, a legend stating in
substance:
"The shares represented by this certificate were
issued in a transaction to which Rule 145(d) under the
Securities Act of 1933 applies. The shares represented by this
certificate may only be transferred in accordance with the
terms of a letter agreement dated __________________, 199___
between the registered holder hereof and MainStreet BankGroup
Incorporated, a copy of which agreement is on file at the
principal offices of MainStreet BankGroup Incorporated."
(F) The undersigned also understands that unless the transfer
by the undersigned of the undersigned's MSBC Common Stock has been
registered under the Act or is a sale made in conformity with the
provisions of Rule 145(d) under the Act, MSBC reserves the right, in
its sole discretion, to place the following legend on the certificates
issued to any transferee of shares from the undersigned:
"The shares represented by this certificate have not
been registered under the Securities Act of 1933 and were
acquired from a person who received such shares in a
transaction to which Rule 145 under the Securities Act of 1933
applies. The shares have been acquired by the holder not with
a view to, or for resale in connection with, any distribution
thereof within the meaning of the Securities Act of 1933 and
may not be offered, sold, pledged or otherwise transferred
except in accordance with an exemption from the registration
requirements of the Securities Act of 1933."
It is understood and agreed that the legends set forth in
paragraphs (E) and (F) above shall be removed by delivery of substitute
certificates without such legend if the undersigned shall have
delivered to MSBC (i) a copy of a "no action" letter from the staff of
the Commission, or an opinion of counsel in form and substance
reasonably satisfactory to MSBC, in which counsel for MSBC concurs, to
the effect that such legend
<PAGE>
is not required for purposes of the Act, or (ii) reasonably
satisfactory evidence or representations that the shares represented by
such certificates are being or have been transferred in a transaction
made in conformity with the provisions of Rule 145(d).
Very truly yours,
----------------------------
Name:
[add below the signatures of all
registered owners (other than nominee) of
shares deemed beneficially owned by the
affiliate]
----------------------------
Name:
----------------------------
Name:
----------------------------
Name:
Acknowledged this ___ day of ___________________, 199___.
MAINSTREET BANKGROUP INCORPORATED
By: ________________________
Name:
Title:
<PAGE>
EXHIBIT C
The opinion of counsel for MainStreet BankGroup Incorporated ("MSBC")
contemplated in Paragraph (G) of Article VI of the Agreement and Plan of Merger
to which this EXHIBIT C is attached (the "Plan") shall be to the following
effect (all terms used herein which are defined in the Plan have the meanings
set forth therein):
(A) MSBC and MB Corporation (the "Holding Company") are each
corporations duly organized and existing in good standing under the laws of the
Commonwealth of Virginia;
(B) MSBC and the Holding Company have the corporate power and authority
to carry on their respective business as it is now being conducted and to own
all their respective material property and assets;
(C) the outstanding shares of capital stock of MSBC and of Holding
Company are validly issued and outstanding, fully paid and nonassessable and
subject to no preemptive rights. Except as Previously Disclosed, there are no
outstanding options, warrants, rights to subscribe to or securities convertible
into shares of MSBC Common Stock. Except for _____________________________,
there are no shares of MSBC Preferred Stock outstanding and except as Previously
Disclosed there are no outstanding options, warrants, rights to subscribe to or
securities or rights convertible into shares of MSBC Preferred Stock.
(D) MSBC and the Holding Company have each taken all required corporate
action to approve and adopt the Plan and the Plan is a valid and binding
agreement of it enforceable against it in accordance with the terms of the Plan,
subject to bankruptcy, insolvency, fraudulent transfer, moratorium and other
laws of general applicability relating to or affecting creditors' rights in
general and to general equity principles (provided, however, that such counsel
need not render any such opinion with respect to any indemnification
provisions);
(E) the execution, delivery and performance of the Plan by MSBC and by
the Holding Company, respectively, did not, and the consummation of the
transactions contemplated thereby by them does not, constitute (i) to the
knowledge of such counsel, a breach or violation of, or a default under, any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of MSBC or any of its
subsidiaries or to which it or any of its subsidiaries is subject, which breach,
violation or default to the knowledge of such counsel would have a Material
Adverse Effect on MSBC or (ii) a breach or violation of or a default under the
Articles of Incorporation or Bylaws of MSBC or of Holding Company; and, (iii) to
such counsel's knowledge, the consummation of the transactions contemplated by
the Plan, does not require any material consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or license or,
except as Previously Disclosed, the material consent or approval of any other
party to any such agreement, indenture or instrument, other than the required
approvals of the appropriate federal and state regulatory authorities, and
required filings under the federal securities laws and under the state "blue
sky" or securities laws which have been made or received and are in full force
and effect;
(F) except as Previously Disclosed or as reflected in the Financial
Reports, (i) to such counsel's knowledge, there is no litigation, proceeding or
controversy before any court or governmental agency pending against MSBC or any
of its subsidiaries with respect to the transactions contemplated by the Plan by
a governmental authority which is reasonably likely to have a Material Adverse
Effect on MSBC and, to the knowledge of such counsel, no such litigation,
proceeding or controversy has been threatened or is contemplated, (ii) neither
MSBC nor any of its subsidiaries is subject to any (as to MSBC and its
subsidiaries taken as a whole) order, decree, agreement, memorandum of
understanding or similar arrangement with, or commitment letter or similar
submission to, any federal or state governmental agency or authority charged
with the supervision or regulation of depository institutions or engaged in the
insurance of deposits which restricts or purports to restrict in any material
respect the conduct of the business of it or any of its subsidiaries or
properties, or in any manner relates to the capital, liquidity, credit policies
or management of it or any of its subsidiaries; and (iii) to the knowledge of
such counsel neither MSBC nor any of its subsidiaries has been advised by any
such regulatory authority that such authority is contemplating issuing or
requesting (or is considering the appropriateness of issuing or requesting) any
such order, decree, agreement, memorandum of understanding, commitment letter or
similar submission;
(G) the regulatory consents set forth in Paragraphs B and C of Article
VI of the Plan, necessary to permit the consummation of the Plan, have been
secured and are in full force and effect;
(H) the Registration Statement and Prospectus included therein, as of
the effective date of the Registration Statement, complied in all material
respects as to form with the provisions of the Federal Securities Laws. Further
such counsel does not believe that, insofar as they relate to MSBC and its
subsidiaries, the Registration Statement and Prospectus, on such effective date,
contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. (Such opinion may state that such counsel does not
assume any responsibility for the accuracy or fairness of the statements
contained in the Registration Statement and Prospectus and that he does not
express any opinion or belief as to material in the Registration Statement
insofar as it includes or reflects any information relating to or supplied by
entities other than MSBC or its subsidiaries or as to any financial statements
or other financial data contained in the Registration Statement and prospectus);
and
(I) the shares of MSBC Common Stock to be issued in exchange for shares
of Tysons Common Stock upon consummation of the Merger have been duly authorized
and, when issued in accordance with the terms of the Plan, will be validly
issued, fully paid and nonassessable and subject to no preemptive rights.
<PAGE>
EXHIBIT D
The opinion of counsel for Tysons Financial Corporation contemplated in
Paragraph (H) of Article VI of the Agreement and Plan of Merger to which this
Exhibit D is attached (the "Plan") shall be to the following effect (all terms
used herein which are defined in the Plan have the meanings set forth therein):
(A) Tysons is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Virginia; and is authorized to do
business in Virginia as a bank holding company within the meaning of the federal
Bank Holding Company Act of 1956, as amended, and Chapter 13 of the Virginia
Banking Act;
(B) Tysons National Bank ("TNB") is a duly organized national banking
association, existing in good standing under the laws of the United States.
(C) Tysons and TNB each have the corporate power and authority to carry
on their respective business as it is now being conducted and to own all their
respective material property and assets;
(D) the authorized capital stock of Tysons consists of 10,000,000
shares of common stock, $5.00 par value per share, of which 1,071,119 shares are
issued and outstanding as of the date hereof and ________ shares are reserved
for issuance as set forth on Schedule I attached hereto; the authorized capital
stock of TNB consists of _______ shares of common stock, $______ par value per
share ("TNB Common Stock"), of which ______ shares are issued and outstanding as
of the date hereof and no shares are reserved for issuance as set forth on
Schedule I attached hereto. The outstanding shares of Tysons Common Stock and
TNB Common Stock have been duly authorized and validly issued and are fully paid
and nonassessable and are subject to no preemptive rights. All of the issued and
outstanding shares of TNB Common Stock are held of record by Tysons. Except for
the warrants described in the next following sentence, there are no outstanding
options, warrants, rights to subscribe to or securities or rights convertible
into shares of Tysons Common Stock (other than the Options) or TNB Common Stock.
Tysons has issued and outstanding as of the date hereof warrants to purchase up
to 347,850 shares of Tysons Common Stock at $10.00 per share. The holders of
these warrants are, as of the date hereof, obligated to redeem them in
accordance with the provisions of Paragraph (S) of Article VI of the Agreement.
(E) Tysons has taken all required corporate action to approve and adopt
the Plan and the Stock Option Agreement, and the Plan and the Stock Option
Agreement are valid and binding agreements of it enforceable against it in
accordance with their respective terms, subject to bankruptcy, insolvency,
fraudulent transfer, moratorium and other laws of general applicability relating
to or affecting creditors' rights in general, and to general equity principles
(provided, however, that such counsel need not render any such opinion with
respect to any indemnification provisions);
(F) the execution, delivery and performance of the Plan and Stock
Option Agreement by Tysons did not, and the consummation of the transactions
contemplated thereby by such agreements does not, constitute or result in (i) to
the knowledge of such counsel, a breach or violation of, or a default under any
law, rule or regulation or any judgment, decree, order, governmental permit or
license, or agreement, indenture or instrument of Tysons or TNB or to which
Tysons or TNB is subject, which breach, violation or default to the knowledge of
such counsel would have a Material Adverse Effect on Tysons or TNB; (ii) a
breach or violation of, or a default under, the Articles of Incorporation or
Bylaws of Tysons or TNB; (iii) to the knowledge of such counsel, the
consummation of the transactions contemplated by the Plan and the Stock Option
Agreement, does not require any material consent or approval under any such law,
rule, regulation, judgment, decree, order, governmental permit or license or,
except as Previously Disclosed, the material consent or approval of any other
party to any such agreement, indenture or instrument, other than the required
approvals or the appropriate federal and state regulatory authorities, and
required filings under the federal securities laws and under the state "blue
sky" or securities laws, and (iv) result in the grant of any rights to any
person under the Articles of Incorporation or Bylaws of Tysons or TNB or, to the
knowledge of such counsel, under any agreement to which Tysons or TNB is a
party;
(G) Tysons has taken all necessary action to exempt the transactions
contemplated by the Plan and the Stock Option Agreement from any applicable take
over, business combination, control share acquisition or similar law in effect
under the laws of the Commonwealth of Virginia as of the date hereof, including
without limitation Articles 14 and 14.1 of the Virginia Stock Corporation Act;
(H) except as Previously Disclosed or as reflected in the Financial
Reports, (i) to such counsel's knowledge, there is no litigation, proceeding or
controversy before any court or governmental agency pending against Tysons or
TNB by a governmental authority which is reasonably likely to have a Material
Adverse Effect on Tysons and, to the knowledge of such counsel, no such
litigation, proceeding or controversy has been threatened or is contemplated,
(ii) except as Previously Disclosed Tysons and TNB are not subject to any order,
decree, agreement, memorandum of understanding or similar arrangement with, or a
commitment letter or similar submission to, any federal or state governmental
agency or authority charged with the supervision or regulation of depository
institutions or engaged in the insurance of deposits which restricts or purports
to restrict in any material respect the conduct of their respective business or
properties, or in any manner relates to their respective capital, liquidity,
credit policies or management; and (iii) to the knowledge of such counsel and
except as Previously Disclosed, Tysons and TNB have not been advised by any such
regulatory authority that such authority is contemplating issuing or requesting
(or is considering the appropriateness of issuing or requesting) any such order,
decree, agreement, memorandum of understanding, commitment letter or similar
submission;
(I) the Proxy Statement (including any documents relating to Tysons and
TNB incorporated by reference therein), as of the mailing date thereof, complied
in all material respects as to form with the requirements of all applicable
laws, rules, and regulations. Further, such counsel does not believe that,
insofar as it relates to Tysons and TNB, the Proxy Statement, on such mailing
date, contained any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading. (Such opinion may state that such counsel does not
assume any responsibility for the accuracy or fairness of the statements
contained in the Proxy Statement and that he does not express any opinion or
belief as to material in the Proxy Statement insofar as it includes or reflects
any information relating to or supplied by entities other than Tysons and TNB or
as to any financial statements or other financial data contained in the Proxy
Statement);
(J) except as Previously Disclosed, to the knowledge of such counsel
there are no persons who may be deemed to be "affiliate" of Tysons within the
meaning of Rule 145 under the Securities Act.
<PAGE>
EXHIBIT E
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of _____________, 1997 (the
"Agreement"), by and between Tysons Financial Corporation ("Issuer"), and
MainStreet BankGroup, Incorporated, a Virginia corporation ("Grantee").
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger dated as of ____________, 1997 (the "Plan"), providing for, among other
things, the merger of Issuer with and into a wholly-owned subsidiary of Grantee,
with Issuer as the surviving corporation; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Plan, Grantee has required that Issuer agree, and Issuer has agreed, to grant
Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the foregoing and the respective
representations, warranties, covenants and agreements set forth herein and in
the Plan, and intending to be legally bound hereby, Issuer and Grantee agree as
follows:
1. Defined Terms. Capitalized terms which are used but not
defined herein shall have the meanings ascribed to such terms in the Plan.
2. Grant of Option. Subject to the terms and conditions set forth
herein, Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to ________ shares (as adjusted as set forth herein) (the "Option
Shares", which shall include the Option Shares before and after any transfer of
such Option Shares) of Common Stock, $5.00 par value per share ("Issuer Common
Stock"), of Issuer at a purchase price per Option Share (the "Purchase Price")
equal to the first closing price per share of Issuer Common Stock following
public announcement of the execution of the Plan as reported on the National
Association of Securities Dealers Small Cap Market ("NASD/SCM").
3. Exercise of Option.
(a) Provided that (i) Grantee shall not be in material breach
of the agreements or covenants contained in this Agreement or the Plan, and (ii)
no preliminary or permanent injunction or other order against the delivery of
shares covered by the Option issued by any court of competent jurisdiction in
the United States shall be in effect, Grantee may exercise the Option, in whole
or in part, at any time and from time to time following the occurrence of a
Purchase Event; provided that the Option shall terminate and be of no further
force and effect upon the earliest to occur of (a) the Merger Effective Date,
(b) termination of the Plan in accordance with the terms thereof prior to the
occurrence of a Purchase Event or a Preliminary Purchase Event (other than a
termination of the Plan by Grantee pursuant to Paragraph (B)(i) or Paragraph
(B)(ii) of Article VII thereof or by Grantee and Issuer pursuant to Paragraph
(A) of Article VII thereof if Grantee shall at that time have been entitled to
terminate the Plan pursuant to Paragraph (B)(i) or Paragraph (B)(ii) of Article
VII thereof (a "Default Termination")); (c) 12 months after the termination of
the Plan by Grantee pursuant to a Default Termination (provided, however, that
if within 12 months after such termination of the Plan a Purchase Event or a
Preliminary Purchase Event shall occur, then notwithstanding anything to the
contrary contained herein (including clause (d) of this sentence), this Option
shall terminate 12 months after the first occurrence of such an event), (d) 12
months after termination of the Plan (other than pursuant to a Default
Termination) following the occurrence of a Purchase Event or a Preliminary
Purchase Event and (e) December 31, 1998 (subject to the proviso in clause (c)
of this sentence); and provided, further, that any purchase of shares upon
exercise of the Option shall be subject to compliance with applicable law,
including, without limitation, the Bank Holding Company Act of 1956, as amended
(the "BHC Act"). The rights set forth in Section 8 shall terminate when the
right to exercise the Option terminates (other than as a result of a complete
exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following
events:
(i) Without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an intention to
authorize, recommend or propose, or entered into an agreement with any person
(other than Grantee or any subsidiary of Grantee) to effect an Acquisition
Transaction (as defined below). As used herein, the term Acquisition Transaction
shall mean (a) a merger, consolidation or similar transaction involving Issuer
or any of its subsidiaries (other than transactions solely between Issuer's
subsidiaries), (b) the disposition, by sale, lease, exchange or otherwise, of
assets of Issuer or any of its subsidiaries or (c) the issuance, sale or other
disposition of (including by way of merger, consolidation, share exchange or any
similar transaction) securities representing 20% or more of the voting power of
Issuer or any of its subsidiaries (any of the foregoing an "Acquisition
Transaction"); or
(ii) any person (other than Grantee or any subsidiary of
Grantee) shall have acquired beneficial ownership (as such term is defined in
Rule 13d-3 promulgated under the Exchange Act of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under the
Exchange Act) shall have been formed which beneficially owns or has the right to
acquire beneficial ownership of, 25% or more of the then outstanding shares of
Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any subsidiary of
Grantee) shall have commenced (as such term is defined in Rule 14d-2 under the
Exchange Act) or shall have filed a registration statement under the Securities
Act, with respect to, a tender offer or exchange offer to purchase any shares of
Issuer Common Stock such that, upon consummation of such offer, such person
would own or control 25% or more of the then outstanding shares of Issuer Common
Stock (such an offer being referred to herein as a "Tender Offer" or an
"Exchange Offer," respectively); or
(ii) the holders of Issuer Common stock shall not have
approved the Plan at the meeting of such stockholders held for the purchase of
voting on the Plan, such meeting shall not have been held or shall have been
canceled prior to termination of the Plan or Issuer's Board of Directors shall
have withdrawn or modified in a manner adverse to Grantee the recommendation of
Issuer's Board of Directors with respect to the Plan, in each case after it
shall have been publicly announced that any person (other than Grantee or any
subsidiary of Grantee) shall have (a) made, or disclosed an intention to make, a
proposal to engage in an Acquisition Transaction, (b) commenced a Tender Offer
or filed a registration statement under the Securities Act with respect to an
Exchange Offer or (c) filed an application (or given a notice), whether in draft
or final form, under the BHC Act, the Bank Merger Act or the Change in Bank
Control Act of 1978, for approval to engage in an Acquisition Transaction.
As used in this Agreement, "person" shall have the meaning specified in Sections
3(a)(9) and 13(d)(3) of the Exchange Act.
(d) In the event Grantee wishes to exercise the Option, it shall
send to Issuer a written notice (the date of which being herein referred to as
the "Notice Date") specifying (i) the total number of Option Shares it intends
to purchase pursuant to such exercise and (ii) a place and date not earlier than
three business days nor later than 15 business days from the Notice Date for the
closing (the "Closing") of such purchase (the "Closing Date"). If prior
notification to or approval oft he Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") or any other regulatory authority is
required in connection with such purchase, Issuer shall cooperate with Grantee
in the filing of the required notice of application for approval and the
obtaining of such approval and the Closing shall occur immediately following
such regulatory approvals (and any mandatory waiting periods).
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Grantee shall (i) pay to Issuer, in
immediately available funds by wire transfer to a bank account designated by
Issuer, an amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date, and (ii) present and surrender this
Agreement to the Issuer at the address of the Issuer specified in Section 12(f)
hereof.
(b) At each Closing, simultaneously with the delivery of
immediately available funds and surrender of this Agreement as provided in
Section 4(a), (i) Issuer shall deliver to Grantee (a) a certificate or
certificates representing the Option Shares to be purchased at such Closing,
which Option Shares shall be free and clear of all liens, claims, charges and
encumbrances of any kind whatsoever and subject to no preemptive rights, and (b)
if the Option is exercised in part only, an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
shares of Issuer Common Stock purchasable hereunder, and (ii) Grantee shall
deliver to Issuer a letter agreeing that Grantee shall not offer to sell or
otherwise dispose of such Option Shares in violation of applicable federal and
state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by
applicable law, certificates for the Option Shares delivered at each Closing
shall be endorsed with a restrictive legend which shall read substantially as
follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND PURSUANT
TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF ______________________. A
COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF WITHOUT CHARGE UPON
RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the SEC, or an opinion of counsel
in form and substance reasonably satisfactory to Issuer and its counsel, to the
effect that such legend is not required for purposes of the Securities Act.
5. Representations and Warranties of Issuer. Issuer hereby represents
and warrants to Grantee as follows:
(a) Due Authorization. Issuer has all requisite corporate
power and authority to enter into this Agreement and, subject to any approvals
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly executed
and delivered by Issuer.
(b) Authorized Stock. Issuer has taken all necessary corporate
and other action to authorize and reserve and to permit it to issue, and, at all
times from the date hereof until the obligation to deliver Issuer Common Stock
upon the exercise of the Option terminates, will have reserved for issuance,
upon exercise of the Option, the number of shares of Issuer Common Stock
necessary for Grantee to exercise the Option, and Issuer will take all necessary
corporate action to authorize and reserve for issuance all additional shares of
Issuer Common Stock or other securities which may be issued pursuant to Section
7 upon exercise of the Option. The shares of Issuer Common Stock to be issued
upon due exercise of the Option, including all additional shares of Issuer
Common Stock or other securities which may be issuable pursuant to Section 7,
upon issuance pursuant hereto, shall be duly and validly issued, fully paid and
nonassessable, and shall be delivered free and clear of all liens, claims,
charges and encumbrances of any kind or nature whatsoever, including any
preemptive rights of any stockholder of Issuer.
6. Representations and Warrants of Grantee. Grantee hereby represents
and warrants to Issuer that:
(a) Due Authorization. Grantee has all requisite corporate
power and authority to enter into this Agreement and, subject to any approvals
or consents referred to herein, to consummate the transactions contemplate
hereby. The execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly executed
and delivered by Grantee.
(b) Purchase Not for Distribution. This Option is not being,
and any Option Shares or other securities acquired by Grantee upon exercise of
the Option will not be, acquired with a view to the public distribution thereof
and will not be transferred or otherwise disposed of except in a transaction
registered or exempt from registration under the Securities Act.
7. Adjustment upon Changes in Capitalization, etc.
(a) In the event of any change in Issuer Common Stock by
reason of a stock dividend, stock split, split-up, recapitalization,
combination, exchange of shares or similar transaction, the type and number of
shares or securities subject to the Option, and the Purchase Price therefor,
shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that Grantee shall received, upon
exercise of the Option, the number and class of shares or other securities or
property that Grantee would have received in respect of Issuer Common Stock of
the Option had been exercised immediately prior to such event, or the record
date therefor, as applicable. If any additional shares of Issuer Common Stock
are issued after the date of this Agreement (other than pursuant to an event
described in the first sentence of this Section 7(a)), the number of shares of
Issuer Common Stock subject to the Option shall be adjusted so that, after such
issuance, it, together with any shares of Issuer Common Stock previously issued
pursuant hereto, equals 19.9% of the number of shares of Issuer Common Stock
then issued and outstanding, without giving effect to any shares subject to or
issued pursuant to the Option.
(b) In the event that Issuer shall enter in an agreement: (i)
to consolidate with or merge into any person, other than Grantee or one of its
subsidiaries, and shall not be the continuing or surviving corporation of such
consolidation or merger, (ii) to permit any person, other than Grantee or one of
its subsidiaries, to merge into Issuer and Issuer shall be the continuing or
surviving corporation, but, in connection with such merger, the then outstanding
shares of Issuer Common Stock shall be changed into or exchanged for stock or
other securities of Issuer or any other person or cash or any other property or
the outstanding shares of Issuer Common Stock immediately prior to such merger
shall after such merger represent less than 50% of the outstanding shares and
share equivalents of the merged company, or (iii) to sell or otherwise transfer
all or substantially all of its assets to any person, other than Grantee or one
of its subsidiaries, then, and in each such case, the agreement governing such
transaction shall make proper provisions so that upon the consummation of any
such transaction and upon the terms and conditions set forth herein, the Grantee
shall receive for each Option Share with respect to which the Option has not
been exercised an amount of consideration in the form of and equal to the per
share amount of consideration that would be received by the holder of one share
of Issuer Common Stock less the Purchase Price (and, in the event of an election
or similar arrangement with respect to the type of consideration to be received
by the holders of Issuer Common Stock, subject to the foregoing, proper
provision shall be made so that the holder of the Option would have the same
election or similar rights as would the holder of the number of shares of Issuer
Common Stock for which the Option is then exercisable).
(c) Issuer shall not enter into any agreement of the type
described in Section 7(b) unless the other party thereto commits to provide the
funding required for Issuer to pay the Section 8 Repurchase Consideration.
8. Repurchase at the Option of Grantee.
(a) Subject to the last sentence of Section 3(a), at the
request of Grantee at any time commencing upon the first occurrence of a
Repurchase Event (as defined in Section 8(d)) and ending 12 months immediately
thereafter, Issuer shall repurchase from Grantee (i) the Option and (ii) all
shares of Issuer Common Stock purchased by Grantee pursuant hereto with respect
to which Grantee then has beneficial ownership. The date on which Grantee
exercises its rights under this Section 8 is referred to as the "Request Date".
Such repurchase shall be at an aggregate price (the "Section 8 Repurchase
Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Grantee
for any shares of Issuer Common Stock acquired pursuant to the Option with
respect to which Grantee then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable
Price (as defined below) for each share of Issuer Common Stock over (y) the
Purchase Price (subject to adjustment pursuant to Section 7), multiplied by the
number of shares of Issuer Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable Price
over the Purchase Price (subject to adjustment pursuant to Section 7) paid (or,
in the case of Option Shares with respect to which the Option has been exercised
but the Closing Date has not occurred, payable) by Grantee for each share of
Issuer Common Stock with respect to which the Option has been exercised and with
respect to which Grantee then has beneficial ownership, multiplied by the number
of such shares.
(b) If Grantee exercises its rights under this Section 8,
Issuer shall, within 10 business days after the Request Date, pay the Section 8
Repurchase Consideration to Grantee in immediately available funds, and
contemporaneously with such payment Grantee shall surrender to Issuer the Option
and the certificates evidencing the shares of Issuer Common Stock purchased
thereunder with respect to which Grantee then has beneficial ownership, and
Grantee shall warrant that it has sole record and beneficial ownership of such
shares and that the same are then free and clear of all liens, claims, charges
and encumbrances of any kind whatsoever. Notwithstanding the foregoing, to the
extent that prior notification to or approval of the Federal Reserve Board or
other regulatory authority is required in connection with the payment of all or
any portion of the Section 8 Repurchase Consideration, Grantee shall have the
ongoing option to revoke its request for repurchase pursuant to Section 8, in
whole or part, or to require that Issuer deliver from time to time that portion
of the Section 8 Repurchase Consideration that it is not then so prohibited from
paying and promptly file the required notice or application for approval and
expeditiously process the same (and each party shall cooperate with the other in
the filing of any such notice or application and the obtaining of any such
approval). If the Federal Reserve Board of any other regulatory authority
disapproves of any part of Issuer's proposed repurchase pursuant to this Section
8, Issuer shall promptly give notice of such fact to Grantee. If the Federal
Reserve Board or other agency prohibits the repurchase in part but not in whole,
then Grantee shall have the right (i) to revoke the repurchase request or (ii)
to the extent permitted by the Federal Reserve Board or other agency, determine
whether the repurchase should apply to the Option and/or Option Shares and to
what extent to each, and Grantee shall thereupon have the right to exercise the
Option as to the number of Option Shares for which the Option was exercisable at
the Request Date less the sum of the number of shares covered by the Option in
respect of which payment has been made pursuant to Section 8(a)(ii) and the
number of shares covered by the portion of the Option (if any) that has been
repurchased. Grantee shall notify Issuer of its determination under the
preceding sentence within five (5) business days of receipt of notice of
disapproval of the repurchase.
Notwithstanding anything herein to the contrary, all of Grantee's
rights under this Section 8 shall terminate on the date of termination of this
Option pursuant to Section 3(a).
(c) For purposes of this Agreement, the "Applicable Price"
means the highest of (i) the highest price per share of Issuer Common Stock paid
for any such share by the person or groups described in Section 8(d)(i), (ii)
the price per share of Issuer Common Stock received by holders of Issuer Common
Stock in connection with any merger or other business combination transaction
described in Section 7(b)(i), 7(b)(ii), or 7(b)(iii), or (iii) the highest
closing sales price per share of Issuer Common Stock reported on the NASD/SCM
(or if transactions in Issuer Common Stock are not reported on the NASD/SCM, the
highest bid price per share as quoted on the principal trading market or
securities exchange on which such shares are traded as reported by a recognized
source chosen by Grantee) during the 60 business days preceding the Request
Date; provided, however, that in the event of a sale of less than all of
Issuer's assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets of
Issuer as determined by a nationally recognized investment banking firm selected
by Grantee, divided by the number of shares of the Issuer Common Stock
outstanding at the time of such sale. If the consideration to be offered, paid
or received pursuant to either of the foregoing clauses (i) or (ii) shall be
other than in cash, the value of such consideration shall be determined in good
faith by an independent nationally recognized investment banking firm selected
by Grantee and reasonably acceptable to Issuer, which determination shall be
conclusive for all purposes of this Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i) any
person (other than Grantee or any subsidiary of Grantee) shall have acquired
beneficial ownership of (as such term is defined in Rule 13d-3 promulgated under
the Exchange Act), or the right to acquire beneficial ownership of, or any
"group" (as such term is defined under the Exchange Act) shall have been formed
which beneficially owns or has the right to acquire beneficial ownership of, 50%
or more of the then outstanding shares of Issuer Common Stock, or (ii) any of
the transactions described in Section 7(b)(i), 7(b)(ii) or 7(b)(iii) shall be
consummated.
(e) In connection with the application of the provisions of
this Section 8, Grantee acknowledges the regulatory and capital matters
Previously Disclosed by Issuer to Grantee.
9. Registration Rights.
(a) Demand Registration Rights. Issuer shall, subject to the
conditions of subparagraph (c) below, if requested by Grantee (or if applicable,
a Grantee Majority), as expeditiously as possible prepare and file a
registration statement under the Securities Act if such registration is
necessary in order to permit the sale or other disposition of any or all shares
of Issuer Common Stock or other securities that have been acquired by or are
issuable to Grantee upon exercise of the Option in accordance with the intended
method of sale or other disposition stated by Grantee in such request, including
without limitation a "shelf" registration statement under Rule 415 under the
Securities Act or any successor provision, and Issuer shall use its best efforts
to qualify such shares or other securities for sale under any applicable state
securities laws.
(b) Additional Registration Rights. If Issuer at any time
after the exercise of the Option proposes to register any shares of Issuer
Common Stock under the Securities Act in connection with an underwritten public
offering of such Issuer Common Stock, Issuer will promptly give written notice
to Grantee (and any permitted transferee) of its intention to do so and, upon
the written request of Grantee (or any such permitted transferee of Grantee)
given within 30 days after receipt of any such notice (which request shall
specify the number of shares of Issuer Common Stock intended to be included in
such underwritten public offering by Grantee (or such permitted transferee)),
Issuer will cause all such shares, the holders of which shall have requested
participation in such registration, to be so registered and included in such
underwritten public offering, provided, however, that Issuer may elect to not
cause any such shares to be so registered (i) if the underwriters in good faith
object for valid business reasons, or (ii) in the case of a registration solely
to implement an employee benefit plan or a registration filed on Form S-4;
provided, further, however, that such election pursuant to (i) may only be made
one time. If some but not all the shares of Issuer Common Stock, with respect to
which Issuer shall have received requests for registration pursuant to this
subparagraph (b), shall be excluded from such registration, Issuer shall make
appropriate allocation of shares to be registered among Grantee and any such
permitted transferee desiring to register their shares pro rata in the
proportion that the number of shares requested to be registered by each such
holder bears to the total number of shares requested to be registered by all
such holders then desiring to have Issuer Common Stock registered for sale.
(c) Conditions to Required Registration. Issuer shall use all
reasonable efforts to cause each registration statement referred to in
subparagraph (a) above to become effective and to obtain all consents or waivers
of other parties which are required therefor and to keep such registration
statement effective, provided, however, that Issuer may delay any registration
of Option Shares required pursuant to subparagraph (a) above for a period not
exceeding 90 days provided Issuer shall in good faith determine that any such
registration would adversely affect an offering or contemplated offering of
other securities by Issuer, and Issuer shall not be required to register Option
Shares under the Securities Act pursuant to subparagraph (a) above:
(i) prior to the earliest of (a) termination of
the Plan pursuant to Article VII thereof, (b) failure to obtain the requisite
stockholder approval pursuant to Paragraph (A) of Article VI of the Plan, and
(c) a Purchase Event or a Preliminary Purchase Event;
(ii) on more than two occasions;
(iii) more than once during any calendar year;
(iv) within 90 days after the effective date of a
registration referred to in subparagraph (b) above pursuant to which the holder
or holders of the Option Shares concerned were afforded the opportunity to
register such shares under the Securities Act and such shares were registered as
requested; and
(v) unless a request therefor is made to Issuer
by the holder or holders of at least 25% or more of the aggregate number of
Option Shares then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain
the effectiveness of any registration statement after the expiration of nine
months from the effective date of such registration statement. Issuer shall use
all reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares, provided, however, that Issuer
shall not be required to consent to general jurisdiction or qualify to do
business in any state where it is not otherwise required to so consent to such
jurisdiction or to so qualify to do business.
(d) Expenses. Except where applicable state law prohibits such
payments, Issuer will pay all expenses (including without limitation
registration fees, qualification fees, blue sky fees and expenses (including the
fees and expenses of counsel), legal expenses including the reasonable fees and
expenses of one counsel to the holders whose Option Shares are being registered,
printing expenses and the costs of special audits or "cold comfort" letters,
expenses of underwriters, excluding discounts and commissions but including
liability insurance if Issuer so desires or the underwriters so require, and the
reasonable fees and expenses of any necessary special experts) in connection
with each registration pursuant to subparagraph (a) or (b) above (including the
related offerings and sales by holders of Option Shares) and all other
qualifications, notifications or exemptions pursuant to subparagraph (a) or (b)
above.
(e) Indemnification. In connection with any registration under
subparagraph (a) or (b) above Issuer hereby indemnifies the holder of the Option
Shares, and each underwriter thereof, including each person, if any, who
controls such holder or underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, losses, claims, damages and liabilities
caused by any untrue, or alleged untrue, statement of a material fact contained
in any registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) or any preliminary prospectus,
or caused by any omission, or alleged omission, to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, except insofar as such expenses, losses, claims, damages or
liabilities of such indemnified party are caused by any untrue statement or
alleged untrue statement that was included by Issuer in any such registration
statement or prospectus or notification or offering circular (including any
amendments or supplements thereto) in reliance upon and in conformity with,
information furnished in writing to Issuer by such indemnified party expressly
for use therein, and Issuer and each officer, director and controlling person of
Issuer shall be indemnified by such holder of the Option Shares, or by such
underwriter, as the case may be, for all such expenses, losses, claims, damages
and liabilities caused by any untrue, or alleged untrue, statement, that was
included by Issuer in any such registration statement or prospectus or
notification or offering circular (including any amendments or supplements
thereto) in reliance upon, and in conformity with, information furnished in
writing to Issuer by such holder or such underwriter, as the case may be,
expressly for such use.
Promptly upon receipt by a party indemnified under this subparagraph
(e) of notice of the commencement of any action against such indemnified party
in respect of which indemnity or reimbursement may be sought against any
indemnifying party under this subparagraph (e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action, but
the failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
subparagraph (e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expenses with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ separate
counsel in any such action and participate in the defense thereof, but the fees
and expenses of such counsel (other than reasonable costs of investigation)
shall be paid by the indemnified party unless (i) the indemnifying party either
agrees to pay the same; (ii) the indemnifying party fails to assume the defense
of such action with counsel satisfactory to the indemnified party, or (iii) the
indemnified party has been advised by counsel that one or more legal defenses
may be available to the indemnifying party that may be contrary to the interest
of the indemnified party, in which case the indemnifying party shall be entitled
to assume the defense of such action notwithstanding its obligation to bear fees
and expenses of such counsel. No indemnifying party shall be liable for any
settlement entered into without its consent, which consent may not be
unreasonably withheld.
If the indemnification provided for in this subparagraph (e) is
unavailable to a party otherwise entitled to be indemnified in respect of any
expenses, losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or liabilities
in such proportion as is appropriate to reflect the relative benefits received
by Issuer, the selling shareholders and the underwriters from the offering of
the securities and also the relative fault of Issuer, the selling shareholders
and the underwriters in connection with the statements or omissions which
resulted in such expenses, losses, claims, damages or liabilities, as well as
any other relevant equitable considerations. The amount paid or payable by a
party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim; provided, however, that in no case shall the holders of the
Option Shares be responsible, in the aggregate, for any amount in excess of the
net offering proceeds attributable to its Option Shares included in the
offering. No person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent misrepresentation. Any
obligation by any holder to indemnify shall be several and not joint with other
holders.
In connection with any registration pursuant to subparagraph (a) or (b)
above, Issuer and each holder of any Option Shares (other than Grantee) shall
enter into an agreement containing the indemnification provisions of this
subparagraph (e).
(f) Miscellaneous Reporting. Issuer shall comply with all
reporting requirements and will do all such other things as may be necessary to
permit the expeditious sale at any time of any Option Shares by the holder
thereof in accordance with and to the extent permitted by any rule or regulation
promulgated by the SEC from time to time, including, without limitation, Rule
144A. Issuer shall at its expense provide the holder of any Option Shares with
any information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Act or the
Exchange Act, or required pursuant to any state securities laws or the rules of
any stock exchange.
(g) Issue Taxes. Issuer will pay all stamp taxes in connection
with the issuance and the sale of the Option Shares and in connection with the
exercise of the Option, and will save Grantee harmless, without limitation as to
time, against any and all liabilities, with respect to all such taxes.
10. Quotation; Listing. If Issuer Common Stock or any other securities
to be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on the NASD/SCM, the National Association of Securities
Dealers Automated Quotation System National Market System ("NASDAQ/NMS") or any
securities exchange, Issuer, upon the request of Grantee, will promptly file an
application, if required, to authorize for quotation or trading or listing the
shares or Issuer Common Stock or other securities to be acquired upon exercise
of the Option on the NASD/SCM, NASDQ/NMS or such other securities exchange and
will use its best efforts to obtain approval, if required, of such quotation or
listing as soon as practicable.
11. Division of Option. This Agreement (and the Option granted hereby)
are exchangeable, without expense, at the option of Grantee, upon presentation
and surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the holder
thereof to purchase in the aggregate the same number of shares of Issuer Common
Stock purchasable hereunder. The terms "Agreement" and "Option" as used herein
include any other Agreements and related Options for which this Agreement (and
the Option granted hereby) may be exchanged. Upon receipt by Issuer of evidence
reasonably satisfactory to it of the loss, theft, destruction or mutilation of
this Agreement, and (in the case of loss, theft or destruction) of reasonably
satisfactory indemnification, and upon surrender and cancellation of this
Agreement, if mutilated, Issuer will execute and deliver a new Agreement of like
tenor and date. Any such new Agreement executed and delivered shall constitute
an additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided in Section 9, each
of the parties hereto shall bear and pay all costs and expenses incurred by it
or on its behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may
be waived at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or supplemented
except upon the execution and delivery of a written agreement executed by the
parties hereto.
(c) Entire Agreement: No Third-Party Beneficiary;
Severability. This Agreement, together with the Plan and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to the
subject matter hereof and (b) is not intended to confer upon any person other
than the parties hereto (other than any transferees of the Option Shares or any
permitted transferee of this Agreement pursuant to Section 12(h)) any rights or
remedies hereunder. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction or a federal or state
regulatory agency to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.
If for any reason such court or regulatory agency determines that the Option
does not permit Grantee to acquire, or does not require Issuer to repurchase,
the full number of shares of Issuer Common Stock as provided in Sections 3 and 8
(as adjusted pursuant to Section 7), it is the express intention of Issuer to
allow Grantee to acquire or to require Issuer to repurchase such lesser number
of shares as may be permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the Commonwealth of Virginia without
regard to any applicable conflicts of law rules.
(e) Descriptive Heading. The descriptive headings contained
herein are for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally,
telecopied (with confirmation) or mailed by registered or certified mail (return
receipt requested) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice):
If to Issuer to:
Tysons Financial Corporation
8200 Greensboro Drive
Suite 100
McLean, Virginia 22102
Attn: Terrie G. Spiro, President
with a copy to:
If to Grantee to:
MainStreet BankGroup Incorporated
200 E. Church Street
Martinsville, Virginia 24112-5409
Attn: Michael Brenan, Chairman
with a copy to:
Douglas W. Densmore, Esq.
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
P.O. Box 1200
Roanoke, Virginia 24006
(g) Counterparts. This Agreement and any amendments hereto may
be executed in two counterparts, each of which shall be considered one and the
same agreement and shall become effective when both counterparts have been
signed, it being understood that both parties need not sign the same
counterpart.
(h) Neither this Agreement nor any of the rights, interest or
obligations hereunder or under the Option shall be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other party, except that Grantee may assign this
Agreement to a wholly owned subsidiary of Grantee and Grantee may assign its
rights hereunder in whole or in part after the occurrence of a Purchase Event.
Subject to the preceding sentence, this Agreement shall be binding upon, inure
to the benefit of and be enforceable by the parties and their respective
successors and assigns.
(i) Further Assurances. In the event of any exercise of the
Option by Grantee, Issuer and Grantee shall execute and deliver all other
documents and instruments and take all other action that may be reasonably
necessary in order to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this
Agreement may be enforced by either party through specific performance,
injunctive relief and other equitable relief. Both parties further agree to
waive any requirement for the securing or posting of any bond in connection with
the obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any failure
to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
ATTEST: Tysons Financial Corporation
By:____________________________ By:_____________________________
Terrie G. Spiro, President
[CORPORATE SEAL]
<PAGE>
ATTEST: MainSteet BankGroup Incorporated
By:___________________________ By:____________________________
Michael Brenan, Chairman
[CORPORATE SEAL]
<PAGE>
ANNEX B
December 19, 1997
Board of Directors
Tysons Financial Corporation
8200 Greensboro Drive
McLean, Virginia 22102
Gentlemen:
You have asked us to render our opinion relating to the fairness, from a
financial point of view, to the shareholders of Tysons Financial Corporation
(ATYFC@) of the terms of an Agreement and Plan of Merger by and between
MainStreet BankGroup Incorporated (AMainStreet@) and TYFC dated July 25, 1997
(the AMerger Agreement@). The Merger Agreement provides for the merger of MB
Corp., a wholly owned subsidiary of MainStreet, with and into TYFC, as a result
of which TYFC will survive and become a subsidiary of MainStreet (the AMerger@)
and further provides that each share of Common Stock of TYFC which is issued and
outstanding immediately prior to the Effective Date of the Merger shall be
converted into a number of shares of MainStreet Common Stock equal to the
quotient of $14.50 divided by the average of the bid/ask sales price per share
for MainStreet Common Stock as reported on the Nasdaq National Market System for
each of the 20 trading days preceding the later to occur of (i) approval by TYFC
shareholders of the Merger Agreement or (ii) receipt of the last of all
regulatory approvals prerequisite to the consummation of the Merger. In no case
will the Exchange Ratio be less than 0.507 or greater than 0.620.
In developing our opinion, we have, among other things, reviewed and analyzed:
(1) the Merger Agreement; (2) TYFC's audited financial statements for the three
years ended December 31, 1996; (3) TYFC's unaudited financial statements for the
nine months ended September 30, 1997 and 1996, and other internal information
relating to TYFC prepared by TYFC's management; (4) information regarding the
trading market for the common stocks of TYFC and MainStreet and the price ranges
within which the respective stocks have traded; (5) the relationship of prices
paid to relevant financial data such as net worth, assets, deposits and earnings
in certain bank and bank holding company mergers and acquisitions in Virginia in
recent years; (6) MainStreet's annual reports to shareholders and its audited
financial statements for the three years ended December 31, 1996; and (7)
MainStreet's unaudited financial statements for the nine months ended September
30, 1997 and 1996, and other internal information relating to MainStreet
prepared by MainStreet's management. We have discussed with members of
management of TYFC and MainStreet the background to the Merger, reasons and
basis for the Merger and the business and future prospects of TYFC and
MainStreet individually and as a combined entity. Finally, we have conducted
such other studies, analyses and investigations, particularly of the banking
industry, and considered such other information as we deemed appropriate.
In conducting our review and arriving at our opinion, we have relied upon and
assumed the accuracy and completeness of the information furnished to us by or
on behalf of TYFC and MainStreet. We have not attempted independently to verify
such information, nor have we made any independent appraisal of the assets of
TYFC or MainStreet. We have taken into account our assessment of general
economic, financial market and industry conditions as they exist and can be
evaluated at the date hereof, as well as our experience in business valuation in
general.
On the basis of our analyses and review and in reliance on the accuracy and
completeness of the information furnished to us and subject to the conditions
noted above, it is our opinion that, as of the date hereof the terms of the
Merger Agreement are fair from a financial point of view to the shareholders of
TYFC Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By:_________________________
Gary S. Penrose
Managing Director, Financial
Institutions Group
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
BankGroup's Articles of Incorporation implement the provisions of the
VSCA, which provide for the indemnification of BankGroup's directors and
officers in a variety of circumstances, which may include indemnification for
liabilities under the Securities Act of 1933. Under sections 13.1-697 and
13.1-702 of the VSCA, a Virginia corporation generally is authorized to
indemnify its directors and officers in civil or criminal actions if they acted
in good faith and believed their conduct to be in the best interests of the
corporation and, in the case of criminal actions, had no reasonable cause to
believe that the conduct was unlawful. BankGroup's Articles of Incorporation
require indemnification of directors and officers with respect to certain
liabilities, expenses and other amounts imposed upon them be reason of having
been a director or officer, except in the case of willful misconduct or a
knowing violation of criminal law. BankGroup also carries insurance on behalf of
directors, officers, employees or agents that may cover liabilities under the
Securities Act of 1933. In addition, the VSCA and BankGroup's Articles of
Incorporation eliminate the liability of a director or officer of BankGroup in a
shareholder or derivative proceeding. This elimination of liability will not
apply in the event of willful misconduct or a knowing violation of the criminal
law or any federal or state securities law. Sections 13.1-692.1 and 13.1-696 to
- -704 of the VSCA are hereby incorporated herein by reference.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibits
2(a) Agreement and Plan of Merger dated as of July 25, 1997, between
BankGroup and Tysons (attached to the Proxy Statement/Prospectus as
Annex A)
3(i) Articles of Incorporation of BankGroup (incorporated herein by
reference to Form 8-A filed electronically on March 18, 1996)
3(ii) Bylaws of BankGroup (incorporated herein by reference to Form 8-A filed
electronically on March 18, 1996)
5 Opinion of Flippin, Densmore, Morse, Rutherford & Jessee with respect
to legality
8 Opinion of Venable, Baetjer, Howard & Civiletti, LLP with respect to
tax consequences of the Merger
<PAGE>
10(a) Stock Warrant Agreement
10(b) Stock Option Agreement
10(c) Employment Agreement
21 Statement of subsidiaries of BankGroup (incorporated herein by
reference to Registrant's Form 10-K for the fiscal year ended December
31, 1996)
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of KPMG Peat Marwick LLP
23(c) Consent of Scott & Stringfellow, Inc.
23(d) Consent of Venable, Baetjer, Howard & Civiletti, LLP (included in
Exhibit 8)
23(e) Consent of KPMG Peat Marwick LLP
23(f) Consent of Deloitte & Touche, LLP
23(g) Consent of Persinger & Company, L.L.C.
23(h) Consent of Flippin, Densmore, Morse, Rutherford & Jessee
(included in Exhibit 5)
24 Powers of Attorney of Officers and Directors of BankGroup
99 Form of Proxy
(a) Form of Proxy
(b) Financial Statement Schedules -- Not Applicable
(c) Report, Opinion or Appraisal -- (Opinion of Scott & Stringfellow, Inc.
attached to the Proxy Statement/Prospectus as Annex B)
(d) Letter to Participants of Tysons ESOP
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes as follows:
1 That prior to any public reoffering of the securities
registered hereunder through the use of a prospectus which is
a part of this registration statement, by any person or party
who is deemed to be an underwriter within the meaning of Rule
145(c), the Registrant undertakes that such reoffering
prospectus will contain the information called for by the
applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the
information called for by the other items of the applicable
form.
2 That every prospectus (i) that is filed pursuant to the
paragraph immediately preceding, or (ii) that purports to meet
the requirements of Section 10(a)(3) of the Act and is used in
connection with an offering of securities subject to Rule 415,
will be filed as part of an amendment to the registration
statement and will not be used until such amendment is
effective, and that, for the purposes of determining any
liability under the Securities Act of 1933, each such
post-effective amendment will be deemed to be a new
registration statement relating to the securities offered
therein, and the offering of such securities at that time will
be deemed to be the initial bona fide offering thereof.
3 Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the
foregoing provisions, or otherwise, the Registrant has been
advised 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. In the
event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of
expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense
of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
(b) The undersigned Registrant hereby undertakes to respond to
requests for information that is incorporated by reference
into the prospectus pursuant to Items 4, 10(b), 11, or 13 of
this form, within one business day of receipt of such request,
and to send the incorporated documents by first-class mail or
other equally prompt means. This includes information
contained in documents filed subsequent to the effective date
of the registration statement through the date of responding
to the request.
(c) The undersigned Registrant hereby undertakes to supply by
means of the post-effective amendment all information
concerning a transaction, and the company being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
(d) The undersigned registrant hereby undertakes that, for
purposes of determining any liability under the Securities Act
of 1933, each filing of the registrant's annual report
pursuant to section 13(a) or section 15(d) of the Securities
Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section
15(d) of the Securities Exchange Act of 1934) that is
incorporated by reference in the registration statement shall
be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona
fide offering thereof.
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 City of
Martinsville, Commonwealth of Virginia, on December 22, 1997.
MAINSTREET BANKGROUP INCORPORATED
(Registrant)
By: /s/ Michael R. Brenan
----------------------------------
Michael R. Brenan, President, Chairman of the
Board and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities indicated
on December 22, 1997.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/ Michael R. Brenan President, Chairman of the Board and Chief
- ------------------------------------ Executive Officer
Michael R. Brenan (Principal Executive Officer)
/s/ James E. Adams Executive Vice President, Chief Financial
- ------------------------------------ Officer and Treasurer (Principal Financial
James E. Adams and Accounting Officer)
/s/ W. Christopher Beeler, Jr. Director*
- ------------------------------------
W. Christopher Beeler, Jr.
/s/ Thomas B. Bishop Director*
- -------------------------------------
Thomas B. Bishop
/s/ William L. Cooper, III Director*
- -------------------------------------
William L. Cooper, III
/s/ Billy P. Craft Director*
- -------------------------------------
Billy P. Craft
/s/ I. Patricia Henry Director*
- -------------------------------------
I. Patricia Henry
/s/ Larry E. Hutchens Director*
- -------------------------------------
Larry E. Hutchens
/s/ William O. McCabe, Jr., MD Director*
- -------------------------------------
William O. McCabe, Jr., MD
/s/ Albert L. Prillaman Director*
- -------------------------------------
Albert L. Prillaman
/s/ Phillip W. Dean Director*
- -------------------------------------
Phillip W. Dean
/s/ George J. Kostel Director*
- -------------------------------------
George J. Kostel
*By Rebecca J. Jenkins, Attorney-in-Fact
/s/ Rebecca J. Jenkins
- -------------------------------------
Rebecca J. Jenkins
Date: December 22, 1997
</TABLE>
<PAGE>
EXHIBIT INDEX
Exhibit
Number Exhibit
(a) Exhibits
2(a) Agreement and Plan of Merger dated as of July 25, 1997, between
BankGroup and Tysons (attached to the Proxy Statement/Prospectus as
Annex A)
3(i) Articles of Incorporation of BankGroup (incorporated herein by
reference to Form 8-A filed electronically on March 18, 1996)
3(ii) Bylaws of BankGroup (incorporated herein by reference to Form 8-A filed
electronically on March 18, 1996)
5 Opinion of Flippin, Densmore, Morse, Rutherford & Jessee with respect
to legality
8 Opinion of Venable, Baetjer, Howard & Civiletti, LLP with respect to
tax consequences of the Merger
10(a) Stock Warrant Agreement
10(b) Stock Option Agreement
10(c) Employment Agreement
21 Statement of subsidiaries of BankGroup (incorporated herein by
reference to Registrant's Form 10-K for the fiscal year ended December
31, 1996)
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of KPMG Peat Marwick LLP
23(c) Consent of Scott & Stringfellow, Inc.
23(d) Consent of Venable, Baetjer, Howard & Civiletti, LLP (included in
Exhibit 8)
23(e) Consent of KPMG Peat Marwick LLP
23(f) Consent of Deloitte & Touche, LLP
23(g) Consent of Persinger & Company, L.L.C.
23(h) Consent of Flippin, Densmore, Morse, Rutherford & Jessee
(included in Exhibit 5)
24 Powers of Attorney of Officers and Directors of BankGroup
99 Form of Proxy
(a) Form of Proxy
(b) Financial Statement Schedules -- Not Applicable
(c) Report, Opinion or Appraisal -- (Opinion of Scott & Stringfellow, Inc.
attached to the Proxy Statement/Prospectus as Annex B)
(d) Letter to Participants of Tysons ESOP
Exhibit 5
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
Roanoke, Virginia 24011
(540) 510-3000
__________________, 1997
Board of Directors
MainStreet BankGroup Incorporated
200 East Church Street
Martinsville, Virginia 24112
MainStreet BankGroup Incorporated
Registration Statement on Form S-4
Ladies and Gentlemen:
We are acting as counsel to MainStreet BankGroup Incorporated (the
"Company") in connection with the registration under the Securities Act of 1933
of 730,016 shares of its common stock ("Common Stock") pursuant to that certain
Agreement and Plan of Merger dated July 25, 1997 (the "Merger Agreement")
between the Company and Tysons Financial Corporation ("Tysons"). The transaction
in which the Common Stock will be issued is described in the Company's
Registration Statement on Form S-4 filed with the Securities and Exchange
Commission and relating to the Company's acquisition of Tysons. In connection
with the filing of the Registration Statement you have requested our opinion
concerning certain corporate matters.
In rendering this opinion, we have relied upon, among other things, our
examination of such records of the Company and certificates of its officers and
of public officials as we have deemed necessary.
Based upon the foregoing, we are of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the Commonwealth of Virginia.
2. The Common Stock has been duly authorized and, when shares of Common
Stock have been issued as described in the Registration Statement, they will be
legally issued, fully paid and nonassessable.
<PAGE>
We consent to the filing of this opinion with the Commission as an
exhibit to the Registration Statement and to the references to us in the
Prospectus included therein.
Very truly yours,
FLIPPIN, DENSMORE, MORSE,
RUTHERFORD & JESSEE
Exhibit 8
[VBH Letterhead]
______________, 1997
Tysons Financial Corporation
8200 Greensboro Drive
McLean, VA 22102
Re: Acquisition of Tysons Financial Corporation
by MainStreet BankGroup Incorporated
Ladies and Gentlemen:
We have acted as counsel to Tysons Financial Corporation, a Virginia
corporation ("Tysons"), in connection with the proposed merger (the "Merger") of
MB Corp., a Virginia Corporation ("MB") and wholly-owned subsidiary of
MainStreet BankGroup Incorporated, a Virginia corporation ("BankGroup") with and
into Tysons, pursuant to the terms of the Agreement and Plan of Merger dated as
of July 25, 1997, (the "Merger Agreement") by and among Tysons, MB and
BankGroup, as described in the Registration Statement on form S-4 as filed by
BankGroup with the Securities and Exchange Commission on ___________, 1997 (the
"Registration Statement"). This opinion is being rendered pursuant to the
requirements of Item 21(a) on Form S-4 under the Securities Act of 1933, as
amended.
In connection with formulating such opinion we have examined such
documents as we deemed appropriate including the Merger Agreement and the
Registration Statement. In our examination, we have assumed the genuiness of all
signatures, the legal capacity of all natural persons, the authenticity of all
documents submitted to us as originals, the conformity to original documents of
all documents submitted to us as certified, conformed, or photostatic copies and
the authenticity of the originals of such copies. This opinion is subject to the
receipt by counsel of certain written representations of Tysons, MB and
BankGroup dated as of the date hereof.
Based upon and subject to the foregoing, the discussion contained in
the Proxy Statement/Prospectus included as part of the Registration Statement
(the "Prospectus") under the caption "Certain Federal Income Tax Consequences,"
except as otherwise indicated, expresses our opinion as to the material Federal
income tax consequences applicable to holders of shares of Tysons' Common Stock.
You should be aware, however, that the discussion under the caption "Certain
Federal Income Tax Consequences" in the Prospectus represents our conclusions as
to the application of existing law to the instant transactions. There can be no
assurance that a contrary position may not be taken by the Internal Revenue
Service.
This opinion is furnished to you solely for use in connection with the
Registration Statement. We hereby consent to the filing of this opinion as an
exhibit to the Registration Statement. We also consent to the references to
Venable, Baetjer, Howard & Civiletti, LLP, under the heading "Certain Federal
Income Tax Consequences" in the Registration Statement and the Proxy
Statement/Prospectus.
Very truly yours,
VENABLE, BAETJER, HOWARD &
CIVILETTI, LLP
Exhibit 10(a)
The Warrant evidenced by this Warrant Agreement has not been registered under
the Securities Act of 1933 and may not be transferred, nor will any assignee or
endorsee hereof be recognized as an owner hereof by the Company for any purpose,
unless an exemption or a registration statement under the Securities Act of 1933
with respect to the Warrant shall be established to the satisfaction of the
Company.
TYSONS FINANCIAL CORPORATION
STOCK WARRANT AGREEMENT
Date
McLean, Virginia
# of Shares
Warrants to purchase ____ shares of common stock (the "Shares") of
TYSONS FINANCIAL CORPORATION, a Virginia business corporation (the "Company"),
are hereby granted to (the "Warrant Holders") at the price determined as herein
provided, subject to the following terms and conditions:
1. Exercise Price. The exercise price per Share subject to the warrants
granted in this agreement (the "Warrants") shall be $10.00, subject to Section 4
below (the "Exercise Price").
2. Exercise of Warrants. The Warrants may be exercised in whole or in
part at any time six months from the later of the date of the opening of Tysons
National Bank (the "Bank") or the date the offering is completed through the
Expiration Date (defined below), subject to Section 4 and the following
conditions:
(a) Expiration of Warrant Term. The Warrants will expire on
the tenth anniversary of the Bank's opening for business (the "Expiration
Date").
(b) Method of Exercise. The Warrants shall be exercisable by a
written notice delivered to the Secretary of the Company which shall:
(i) State the owner's election to exercise the
Warrants, the number of Shares with respect to which it is being exercised, the
person in whose name the stock certificate for such Shares is to be registered,
his address and Social Security Number(or if more than one, the names, addresses
and Social Security Numbers of such persons);
(ii) Contain such representations and agreements as
to the holder's investment intent with respect to such Shares as may be required
by the Company's counsel;
(iii) Be signed by the person or persons entitled to
exercise the Warrants and, if the Warrants are being exercised by any person or
persons other than the original holder hereof, be accompanied by proof
satisfactory to counsel for the Company of the right of such person or persons
to exercise the Warrants; and
(iv) Be in writing and be accompanied by this Stock
Warrant Agreement.
(c) Payment. Payment of the purchase price of any Shares with
respect to which the Warrants are being exercised shall be by certified of bank
cashier's check, or by personal check drawn on funds on deposit with the Bank.
(d) Registration. The certificate or certificates for Shares
as to which the Warrants are being exercised shall be registered in the name of
the person or persons exercising the Warrants.
(e) Partial Exercise. In the event of a partial exercise of
the Warrants, the Company shall either issue a new agreement for the balance of
the stock subject to this Stock Warrant Agreement after such partial exercise,
or it shall conspicuously note hereon the date and number of Shares granted
pursuant to such exercise and the number of Shares thereafter covered by this
Stock Warrant Agreement.
(f) Restrictions on Exercise. The Warrants may not be
exercised (i) if the issuance of the Shares upon such exercise would constitute
a violation of any applicable federal or state securities laws or other law or
regulation or (ii) unless the Company or the holder hereof, as applicable,
obtains any approval or other clearance from any federal or state governmental
agency or body which the Company determines to be necessary or advisable,
including, without limitation, (x) in connection with the Change in Bank Control
Act and (y) from the Federal Reserve Board, the Office of the Comptroller of the
Currency, and any applicable state banking regulatory agency. As a condition to
the exercise of the Warrants, the Company may require the person exercising this
Warrant to make any representation or warranty to the Company as may be required
to comply with any applicable law or regulation, including the Securities Act of
1933 and the Virginia Securities Act.
3. Merger; Dilution. In the event that the number of outstanding Shares
shall be changed into or exchanged for a different number of Shares or class of
stock of the Company, or if the stock of another corporation shall be issued in
exchange for the Shares, by reason of a merger, consolidation, recapitalization,
reclassification, stock split, stock dividend or otherwise, then the total
number of Shares subject to the Warrants or the price payable for Shares under
the Warrants shall be adjusted as follows:
(a) In case the Company shall at any time after the date of
this agreement (i) declare a dividend on the Shares in shares of its capital
stock, (ii) subdivide the outstanding number of Shares, or (iv) issue any shares
of its capital stock by reclassification of the Shares (including any such
reclassification in connection with a consolidation or merger in which the
Company is the continuing corporation), the Exercise Price, and the number and
kind of shares receivable upon exercise, in effect at the time of the record
date for such dividend or of the effective date of such subdivision, combination
or reclassification, shall be proportionately adjusted so that the holder of any
Warrant exercised after such time shall be entitled to receive the aggregated
number and kind of shares which, if such Warrant had been exercised immediately
prior to such time, he would have owned upon such exercise and been entitled to
receive by virtue of such dividend, subdivision, combination or
reclassification. Such adjustment shall be made successively whenever any event
listed above shall occur.
(b) In case the Company shall issue rights or warrants to all
holders of Shares entitling them (for a period expiring within 45 days after the
record date for the determination of shareholders entitled to receive such
rights or warrants) to subscribe for or purchase Shares (or securities
convertible into Shares) at a price per Share (or having a conversion price per
Share, if a security convertible into Shares) less than the current market price
per Share (as defined in subsection (d)) on such record date, the Exercise Price
shall be adjusted by multiplying the Exercise Price in effect immediately prior
to such record date by a fraction, the numerator of which shall be the number of
Shares outstanding on such record date plus the number of Shares which the
aggregate offering price of the total number of Shares so to be offered (or the
aggregate initial conversion price of the convertible securities so to be
offered) would purchase at such current market price and the denominator of
which shall be the number of Shares outstanding on such record date plus the
number of additional Shares to be offered for subscription of purchase (or into
which the convertible securities so to be offered are initially convertible).
Such adjustment shall become effective at the close of business on such record
date; however, to the extent that Shares (or securities convertible into Shares)
are not delivered after the expiration of such rights or warrants, the Exercise
Price shall be readjusted (but only with respect to Warrants exercised after
such expiration) to the Exercise Price which would then be in effect had the
adjustments made upon the issuance of such rights or warrants been made upon the
basis of delivery of only the number of Shares (or securities convertible into
Shares) actually issued. In case any subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company. Shares owned by or held for the account of the Company
or any majority-owned subsidiary shall not be deemed outstanding for the purpose
of any such computation.
(c) In case the Company shall distribute to all holders of
Shares (including any such distribution made in connection with a consolidation
or merger in which the Company is the continuing corporation) evidences of its
indebtedness or assets (other than cash dividends or distributions and dividends
payable in Shares) or subscription rights or warrants (excluding those referred
to in subsection (b)), the Exercise Price shall be adjusted by multiplying the
Exercise Price in effect immediately prior to the record date for the
determination of shareholders entitled to receive such distribution by a
fraction, the numerator of which shall be the current market price per Share (as
defined in subsection (d)) on such record date, less the fair market value (as
determined by the Board of Directors of the Company, whose determination shall
be conclusive; provided, however, that the fair market value of such evidence of
indebtedness, asset, subscription right or warrant that is to be distributed per
Share shall not equal or exceed the current market price per Share) the
evidences of indebtedness or assets so to be distributed or for such
subscription rights or warrants applicable to one Share, and the denominator of
which shall be such current market price per Share.
(d) For the purposes of any computation hereunder, the current
market price per Share shall be as determined by the Board of Directors of the
Company as of the date indicated.
(e) No adjustment in the Exercise Price shall be required if
the amount of such adjustment shall be less than twenty-five cents per Share;
provided, however, that any adjustments which by reason of this subsection (e)
are not required to be made shall be carried forward and taken into account in
any subsequent adjustment. All calculations hereunder shall be made to the
nearest cent or to the nearest one-hundredth of a share, as the case may be.
(f) In any case in which this Stock Warrant Agreement shall
require that an adjustment in the Exercise Price be made effective as of a
record date for a specified event, the Company may elect to defer until the
occurrence of such event issuing to the holder of any Warrant exercised after
such record date the Shares, if any, issuable upon such exercise over and above
the Shares, if any, issuable upon such exercise on the basis of the Exercise
Price in effect prior to such adjustment; provided, however, that the Company
shall deliver to such holder a due bill or other appropriate instrument
evidencing such holder's right to receive such additional Shares upon the
occurrence of the event requiring such adjustment.
(g) Unless the Company shall have exercised its election as
provided in subsection (h) upon each adjustment of the Exercise Price as a
result of the calculations made in subsections (a), (b) or (c) hereunder, each
Warrant outstanding prior to the making of the adjustment in the Exercise Price
shall thereafter evidence the right to purchase, at the adjusted Exercise Price,
that number of Shares (calculated to the nearest hundredth) obtained by: (A)
multiplying the number of Shares purchasable upon exercise of a Warrant prior to
adjustment of the number of Shares, by the Exercise Price in effect prior to
adjustment of the Exercise Price; and (B) dividing the product so obtained by
the Exercise Price in effect after such adjustment of the Exercise Price.
(h) The Company may elect on or after the date of any
adjustments of the Exercise Price to adjust the number of Warrants, in
substitution for any adjustment in the number of Shares purchasable upon the
exercise of a Warrant as provided in subsection (g). Each of the Warrants
outstanding after such adjustment of the number of Warrants shall be exercisable
for one Share. Each Warrant held of record prior to such adjustment of the
number of Warrants shall become that number of Warrants (calculated to the
nearest hundredth) obtained by dividing the Exercise Price in effect prior to
adjustment of the Exercise Price by the Exercise Price in effect after
adjustment of the Exercise Price. The Company shall notify the holders of
Warrants of its election to adjust the number of Warrants indicating the record
date for the adjustment, and, if know at the time, the amount of the adjustment
to be made. This record date may be the date on which the Exercise Price is
adjusted or any day thereafter, but shall be at least 10 days later than the
date of the notice. Upon each adjustment of the number of Warrants pursuant to
this subsection (h) the Company shall, as promptly as practicable, cause to be
distributed to holders of record of Warrants on such record date, Warrant
agreements evidencing the additional Warrants to which such holders shall be
entitled as a result of such adjustment, or, at the option of the Company, shall
cause to be distributed to such holders of record in substitution and
replacement for the Warrant agreements held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Warrant
agreements evidencing all the Warrants to which such holders shall be entitled
after such adjustment.
(i) In case of any capital reorganization of the Company, or
of any reclassification of the Shares (other than a reclassification of the
Shares referred to in subsection (a)) or in case of the consolidation of the
Company with any other corporation or the sale of the properties and assets of
the Company as, or substantially as, an entirety to any other corporation or
entity, each Warrant shall after such capital reorganization, reclassification
of Shares, consolidation, merger or sale be exercisable, upon the terms and
conditions specified in this agreement, for the number of Shares of stock or
other securities, assets or cash to which a holder of the number of Shares
purchasable (at the time of such capital reorganization, reclassification of
Shares, consolidation, merger or sale) upon exercise of such Warrant would have
been entitled upon such capital reorganization, reclassification of Shares,
consolidation, merger or sale; and in any such case, if necessary, the
provisions set forth hereunder with respect to the rights and interests
thereafter of the holders of the Warrants shall be appropriately adjusted so as
to be applicable, as nearly as may reasonably be, to any Shares of stock or
other securities, assets or cash thereafter deliverable on the exercise of the
Warrants. The subdivision or combination of Shares at any time outstanding into
a greater or lesser number of Shares shall not be deemed to be a
reclassification of the Shares for the purposes of this paragraph. The Company
shall not effect any such consolidation, merger or sale, unless prior to or
simultaneously with the consummation thereof the successor corporation (of other
than the Company) resulting from such consolidation or merger or the corporation
purchasing such assets or other appropriate corporation or entity shall assume
the obligation to deliver to the holder of each Warrant such shares of stock,
securities, assets or cash as, in accordance with the foregoing provisions, such
holders may be entitled to purchase and the other obligations under this Stock
Warrant Agreement.
4. Mandatory Exercise; Termination.
(a) If the Company or the Bank is required, by capital
requirements imposed upon the Company or the Bank, as the case may be, by any
applicable statute, rule, regulation, or guideline, to increase its capital,
then pursuant to the procedures in subsections (b) and (c) below, the Warrant
holder shall have the option of either (i) exercising all or such part of the
Warrants as designated by the Company pursuant to subsection (b) below or (ii)
allowing the Warrants to be automatically terminated pursuant to subsection (c)
below.
(b) When the Company or the Bank is required to increase its
capital pursuant to the laws described in subsection (a) above, the Company
shall send a notice (the "Notice") to the Warrant holder (i) specifying the
number of Shares relating to the Warrants for which the Warrants must be
exercised (the "Number") (if less than all Shares relating to Warrants held by
all holders of Warrants of the Company under stock warrant agreements
substantially similar to this Stock Warrant Agreement are required by the
Company, pursuant to similar notice, to be so exercised, the Company shall
specify a number of Shares relating to the Warrants that reflects the
proportionate number of Shares subject to the Warrants in comparison to all of
the Shares subject to Warrants held by all such warrant holders as a group);
(ii) specifying the date prior to which the Warrants must be totally or
partially exercised, as the case may be (the "Deadline"); (iii) specifying the
Exercise Price for the Shares to be purchased pursuant to the Warrants (such
Exercise Price not to be less than current book value per share); and (iv)
stating that the failure of the Warrant holder to exercise the Warrants shall
result in the automatic termination of the Warrants.
(c) Regardless of whether all or less than all of the number
of Shares relating to the Warrants are specified in the Notice, if the Warrant
holder does not exercise the Warrants pursuant to the terms of the Notice, the
Stock Warrant Agreement shall be automatically terminated on the Deadline,
without further act or action by the Warrant holder or the Company, and the
Warrant holder shall deliver this Stock Warrant Agreement to the Company for
cancellation. If the Number is less than the total number of Shares that are
then subject to exercise under the Warrants and the Warrant holder exercises the
Warrants pursuant to the terms of the Notice, the Company shall comply with
Section 2(e) hereof.
5. Restriction on Transferability of Common Stock; Compliance with the
Securities Act of 1933.
(a) The Common Stock issued upon exercise of the Warrant shall
not be transferable except upon the conditions hereinafter specified, which
conditions are intended to insure compliance with the provisions of the
Securities Act of 1933 (or any similar federal statue at the time in effect) and
applicable state securities or blue sky laws in respect of the transfer of the
Common Stock.
(b) Each certificate for shares of Common Stock issued upon
exercise of the Warrant shall bear a legend reading substantially as follows:
THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN
REGISTERED UNDER (a) THE VIRGINIA SECURITIES ACT (THE "VIRGINIA ACT"), (b) ANY
OTHER STATE SECURITIES LAW OR (c) THE FEDERAL SECURITIES ACT OF 1933 (THE
"FEDERAL ACT"). NO SUCH SECURITIES OR ANY PART THEREOF MAY BE OFFERED FOR SALE,
PLEDGED, HYPOTHECATED, SOLD, ASSIGNED OR TRANSFERRED EXCEPT (1) IN A TRANSACTION
WHICH IS EXEMPT FROM REGISTRATION UNDER THE VIRGINIA ACT, ANY OTHER APPLICABLE
STATE SECURITIES LAW, AND THE FEDERAL ACT, OR (2) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE VIRGINIA ACT, ANY OTHER APPLICABLE STATE
SECURITIES LAW, AND THE FEDERAL ACT, OR (3) IN A TRANSACTION WHICH, IN THE
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY'S COUNSEL, IS OTHERWISE IN
COMPLIANCE WITH ANY APPLICABLE STATE SECURITIES LAW AND THE FEDERAL ACT.
(c) The Warrant Holder acknowledges that he has no right to
require the Company or any other person or entity to (i) register under the
Securities Act of 1933 or any state securities or blue sky law any shares of
Common Stock issued upon exercise of this Warrant, or (ii) satisfy the
conditions of Rule 144 or any other rule or provision with respect to the public
sale of such Common Stock.
6. Transfer and Assignment. This Warrant Agreement and all rights
hereunder are neither assignable nor transferable by the Warrant Holder without
the Company's prior written consent and the delivery by the Warrant Holder to
the Company of an option of counsel in form and substance satisfactory to the
Company stating that such transfer or assignment is in compliance with the
Securities Act of 1933, the Virginia Securities Act, and any other applicable
state securities law. More particularly, but without limiting the generality of
the foregoing, the Warrant may not be assigned, transferred (except as
aforesaid), pledged or hypothecated in any way (whether by operation of law or
otherwise) and shall not be subject to execution, attachment or similar process.
Any attempted assignment, transfer, pledge, hypothecation or other disposition
of this Warrant contrary to the provisions hereof shall be without legal effect.
7. Stock Warrant Plan. The Warrants granted under this Stock Warrant
Agreement have been granted in consideration of the payment of the sum of $10.00
per investment unit. The investment unit consists of one Share and a Warrant to
purchase one Share. The Company has allocated the purchase price of the
investment unit as follows: $9.00 for each Share and $1.00 for each Warrant to
purchase one Share.
TYSONS FINANCIAL CORPORATION
BY:____________________________________________
President
(CORPORATE SEAL)
ATTEST:________________________________________
Assistant Secretary
Exhibit 10(b)
Form of Option Agreement - Director
Tysons Financial Corporation 1992 Stock Option Plan, as amended and restated
August 21, 1996
TYSONS FINANCIAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ( "Agreement"), is entered into as of this
______ day of ___________ 19__, to be effective ____________, 1996, ("Date of
Grant") by and between Tysons Financial Corporation, a Virginia corporation (the
"Company"), and ____________________ (the "Optionee").
WHEREAS, the Board of Directors and shareholders of the Company adopted
and subsequently amended and restated a stock option plan known as the "Tysons
Financial Corporation 1992 Stock Option Plan" (the "Plan"); and
WHEREAS, the Board has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
continue to serve on the Board of Directors of the Company for the remainder of
his/her term; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, to enable and encourage stock ownership by Directors,
and also in consideration of the mutual covenants contained herein, the parties
hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
conditions stated herein, the Company hereby evidences its grant to the
Optionee, not in lieu of salary, directors' fees or other compensation, of the
right and option (the "Option") to purchase all or any part of the number of
shares of the Company's Common Stock, par value $5 per share (the "Stock"), set
forth on Schedule A attached hereto and incorporated herein by reference. The
Option shall be exercisable in the amounts and at the time specified on Schedule
A. The Option shall expire and shall not be exercisable after the date specified
on Schedule A or on such earlier date as determined pursuant to Section 8, 9 or
10 hereof. The Option evidenced hereby is not intended to constitute an
incentive stock option as such term is defined under Section 422 of the Code.
3. Purchase Price. The price per share to be paid by the Optionee for
the shares subject to this Option (the "Exercise Price") shall be as specified
on Schedule A.
4. Exercise Terms. The Optionee must exercise the Option for at least
the lesser of 100 shares or the number of shares of Purchasable Stock as to
which the Option remains unexercised. In the event this Option is not exercised
with respect to all or any part of the shares subject to this Option prior to
its expiration, the shares with respect to which this Option was not exercised
shall no longer be subject to this Option.
5. Option Non-Transferable. The Option is non-transferable other than
by will or the laws of descent and distribution or pursuant to a Domestic
Relations Order. During the lifetime of the Optionee, the Option shall be
exercisable only by such Optionee or the transferee under a Domestic Relations
Order (or by such person's guardian or legal representative, should one be
appointed).
6. Notice of Exercise of Option. This Option may be exercised, in whole
or in part, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) delivered or mailed to the Company as
specified in Section 13 hereof to the attention of the President/CEO or such
other officer as the Company may designate. Any such notice shall (a) specify
the number of shares of Stock subject to the Option as to which the Option is
being exercised, (b) contain such information as may be reasonably required
pursuant to Section 12 hereof, and (c) be accompanied by (i) a certified or
cashier's check payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer powers, or
authorization to the Company to withhold shares otherwise issuable upon exercise
of the Option, having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a combination of the
above that, when aggregated, equals the total Exercise Price applicable to such
shares purchased hereunder. Upon receipt of any such Notice of Exercise and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
Subject to such limitations as the Board may determine, the
Company may authorize payment of the Exercise Price, in whole or in part, by
delivery of a properly executed Notice of Exercise, together with irrevocable
instructions, to: (i) a brokerage firm designated by the Optionee and acceptable
to the Company, in the Board's sole discretion, to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Exercise Price
and any withholding tax obligations that may arise in connection with the
exercise, and (ii) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm.
In addition to and at the time of payment of the Exercise
Price, the Optionee shall pay to the Company in cash the full amount of any
federal, state, and local income, employment or other taxes required to be
withheld from the income of such Optionee as a result of such exercise;
provided, however, that in the discretion of the Board, all or any portion of
such tax obligations may, upon the irrevocable election of the Optionee, be paid
by tendering to the Company whole shares of Stock duly endorsed for transfer and
owned by the Optionee, or by authorization to the Company to withhold shares of
Stock otherwise issuable upon exercise of the Option, in either case in that
number of shares having a Fair Market Value on the date of exercise equal to the
amount of such taxes thereby being paid.
7. Adjustment in Option. The number of Shares subject to this Option,
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 5.2 of the Plan.
8. Cessation of Service as Director.
(a) In the event of the cessation of the Optionee's service as a
Director of the Company, other than a termination that is either (i) for cause,
(ii) voluntary resignation on the part of the Optionee and without written
consent of the Company, or (iii) for reasons of death or disability, the
Optionee may exercise this Option at any time within ______________ [15 days/30
days/3 months/1 year] after such cessation to the extent of the number of shares
which were Purchasable hereunder at the date of such termination; but in no
event may such exercise occur after the Expiration Date specified in Schedule A
attached hereto.
(b) In the event of a cessation of the Optionee's service as a Director
that is either (i) for cause or (ii) a voluntary resignation on the part of the
Optionee and without the written consent of the Company, this Option, to the
extent not previously exercised, shall terminate ______________ [immediately/15
days after such cessation/30 days after such cessation] and shall not thereafter
be or become exercisable.
(c) Retirement of the Optionee at the end of the term during which he
or she reaches normal retirement date as prescribed from time to time by the
Company shall be deemed to be a cessation of services with consent for all
purposes of this Option. Voluntary resignation shall include failure to stand
for reelection, other than upon retirement, for all purposes of this Option.
Whether a cessation of services constitutes termination for cause shall be
determined in the sole discretion of the Board. This Option does not confer upon
the Optionee any right with respect to continuance of service as a Director of
the Company.
9. Disabled Optionee. In the event of cessation of services as a
Director because of the Optionee's becoming disabled, as defined in Code Section
22(e)(3) and determined within the sole discretion of the Board, the Optionee
(or his or her personal representative) may exercise this Option at any time
within ______________ [30 days/3 months/1 year] after such cessation to the
extent of the number of shares which were Purchasable hereunder at the date of
such cessation; but in no event may such exercise occur after the Expiration
Date specified in Schedule A attached hereto.
10. Death of Optionee. In the event of the Optionee's death while
serving as a Director of the Company or within 15 days after a cessation of such
services (if such cessation was neither (i) for cause nor (ii) a voluntary
resignation on the part of the Optionee and without the written consent of the
Company), the Optionee's executor, personal representative or the person(s) to
whom the Option shall have been transferred by will or the laws of descent and
distribution, as the case may be, may exercise this Option at any time (a)
within ______________ [30 days/3 months/1 year] following the Optionee's death
or, if earlier, (b) on or before the Expiration Date of this Option. If the
Optionee was a Director of the Company at the time of death, this Option may be
so exercised to the extent of the number of shares that were Purchasable
hereunder at the date of death. If the Optionee's service as a Director ceased
prior to his or her death, this Option may be exercised only to the extent of
the number of shares covered by this Option which were Purchasable hereunder at
the date of such cessation.
11. Date of Grant. This Option was granted by the Board on the date set
forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate any law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission, the Federal Reserve Board and the Office of
the Comptroller of the Currency) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed
by the laws of, the Commonwealth of Virginia.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished shall be deemed
made or accomplished, upon actual delivery thereof to the designated recipient,
or three days after deposit thereof in the United States mail, registered,
return receipt requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the attention of the
President/CEO of the Company at Tysons National Bank, 8200 Greensboro Drive,
Suite 100, McLean, Virginia 22102.
(d) Except as otherwise provided in the Plan, this Agreement may not be
modified except in writing executed by each of the parties hereto.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
TYSONS FINANCIAL CORPORATION OPTIONEE
By: _____________________________ ________________________
Name: Name:
Title: Address:
------------------------
------------------------
ATTEST:
- -----------------------------------------------------------------
Secretary/Assistant Secretary
[SEAL]
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
TYSONS FINANCIAL CORPORATION
AND
------------------------------------------------
Dated: ___________
1. Number of Shares Subject to Option: ________________________ Shares.
2. This Option is not an Incentive Stock Option within the meaning of Code
(beta)422.
3. Option Exercise Price: $____________________ per Share.
4. Date of Grant: ___________________
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all shares on
or after the date hereof.
( ) Options are exercisable with respect to the number of
shares indicated below on or after the date indicated
next to the number of shares:
No. of Shares Vesting Date
------------- ------------
6. Option Expiration Date:
Check One:
( ) All options expire and are void unless exercised on
or before ______________, 19__.
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
No. of Shares Expiration Date
------------- ---------------
<PAGE>
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies Tysons Financial Corporation
(the "Company") of this election to exercise the undersigned's stock option, in
full or part, to purchase __________________ shares (no less than 100, unless
exercising in full) of the Company's common stock, par value $5 per share (the
"Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated
- ------------------------.
Accompanying this Notice is (1) a certified or a cashier's
check in the amount of $____________ payable to the Company, and/or (2)
_______________ shares of the Company's Common Stock presently owned by the
undersigned and duly endorsed or accompanied by stock transfer powers, having an
aggregate Fair Market Value (as defined in the Tysons Financial Corporation 1992
Stock Option Plan) as of the date hereof of $____________________. Such amounts
are equal, in the aggregate, to the purchase price per share set forth in
Schedule A of the Agreement multiplied by the number of shares being purchased
hereby (in each instance subject to appropriate adjustment pursuant to Section 7
of the Agreement).
In the event that the amounts in (1) and (2) above are not
equal, in the aggregate, to the purchase price per share set forth in Schedule A
of the Agreement multiplied by the number of shares being purchased hereby (in
each instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement), I hereby authorize the Company to withhold such number of shares of
the Company's Common Stock otherwise issuable upon this exercise, having an
aggregate Fair Market Value sufficient in amount as of the date hereof to equal
the excess, if any, of such total purchase price over the aggregate amounts in
(1) and (2) above.
IN WITNESS WHEREOF, the undersigned has set his hand and seal,
this ____ day of _______________, 19__.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR, EXECUTOR
OR PERSONAL REPRESENTATIVE]
------------------------------------
Name:
Position (if other than Optionee):
Received by TYSONS FINANCIAL CORPORATION on
___________________________, 199__
By: _________________________________
Exhibit 10(c)
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement") is made by and between
Tysons National Bank (the "Bank"), Tysons Financial Corporation (the "Company")
and Terrie G. Spiro (the "Executive") this 17th day of October, 1996.
RECITALS:
WHEREAS, The Bank and the Company presently employ the Executive as
President and Chief Executive Officer pursuant to an Employment Agreement dated
February 9, 1990, as amended ("Prior Agreement"), which the parties desire to
supersede and replace with this Agreement; and
WHEREAS, The Board of Directors of the Bank (the "Bank Board") and the
Board of Directors of the Company (the "Company Board") recognize that the
Executive's contribution to the growth and success of the Bank since the Bank's
creation has been substantial. The Bank Board and the Company Board desire to
provide for the continued employment of the Executive and to make certain
changes in the Executive's employment arrangements which the Bank Board and the
Company Board have determined will reinforce and encourage the continued
dedication of the Executive to the Bank and the Company and will promote the
best interests of the Bank, the Company and its stockholders.
WHEREAS, The Executive is willing to continue to serve the Bank and the
Company on the terms and conditions herein provided.
NOW THEREFORE, In consideration of the foregoing, the mutual covenants
contained herein, the recitals set forth above, which are hereby incorporated by
reference herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto, intending to
be legally bound, hereby agree as follows:
1. Employment. The Bank and the Company will continue to employ the
Executive, and the Executive shall continue to serve the Bank and the Company,
as President and Chief Executive Officer upon the terms and conditions set forth
herein. The Executive shall have such authority and responsibilities consistent
with her position and which may be set forth in the Bank's or the Company's
bylaws or assigned by the Bank Board or the Company Board from time to time. The
Executive shall devote her full business time, attention, skill and efforts to
the performance of her duties hereunder, except during periods of illness or
periods of vacation and leaves of absence consistent with Bank and/or Company
policy. The Executive may devote reasonable periods to service as a director or
advisor to other organizations, to charitable and community activities, and to
managing her personal investments, provided that such activities do not
materially interfere with the performance of her duties hereunder and are not in
conflict or competitive with, or adverse to, the interests of the Bank and the
Company.
2. Term. Unless earlier terminated as provided herein, the Executive's
employment under this Agreement shall be for an initial term (the "Initial
Term") of four (4) years, commencing as of January 1, 1996, and terminating on
December 31, 1999; provided, however, this Agreement shall be automatically
renewed after the Initial Term for additional term(s) of one (1) year ("Renewal
Terms") unless either party gives the other written notice of non-renewal not
later than six (6) months prior to the expiration of the Initial Term or any
Renewal Term.
3. Compensation and Benefits.
3.1 Base Compensation. The Bank shall pay the Executive a base
annual salary ("Base Compensation") at a rate of not less than $130,000 per
annum commencing January 1, 1996, and not less than $140,000 commencing January
1, 1997, in accordance with the salary payment practices of the Bank. The Bank
Board (upon recommendation of the Personnel and Compensation Committee) shall
review the Executive's Base Compensation at least annually (commencing for
calendar year 1998 and each year thereafter) and may increase the Executive's
Base Compensation if it determines in its sole discretion that an increase is
appropriate. In making such determination, the Bank Board shall review peer
group CEO compensation, and such other factors as the parties may agree upon;
provided however, Base Compensation shall be increased by at least the Consumer
Price Index. As used herein, the Term "Consumer Price Index" shall mean the
"United States Bureau of Labor Statistics, Consumer Price Index for Urban Wage
Earners and Clerical Workers" all items, Washington, D.C. standard Metropolitan
Statistical Area Average (1982-1984 = 100.00) CPI-W, and any revisions of or
substitutes for that Index.
3.2 Directors Fees. The Bank and the Company shall also pay to
the Executive Directors fees on the same basis as other directors of the Bank
and the Company commencing January 1, 1996.
3.3 Short Term Performance Bonus. Provided the Bank achieves
appropriate regulatory ratings for safety and soundness, and based upon the
performance of the Bank in relation to targets for earnings and asset growth
established by the Bank Board, in consultation with the Executive, the Executive
shall be entitled to receive a short term performance bonus ("Short Term
Performance Bonus"), in cash, as a percentage of Base Compensation, payable
within thirty (30) days after the completion of the year end financial
statements as follows, with earnings growth and asset growth carrying a fifty
percent (50%) weight and the payout between 10% and 30% being prorated on the
basis of the percentage of performance level:
payout performance level
------ -----------------
10% 90%
15% 100%
20% 110%
30% 125% or more
For example, if Base Compensation for the year in question was $130,000 and the
Executive's performance level was 95% of asset growth and 105% of earnings
growth, the Short Term Performance Bonus would be $19,500, calculated as
follows:
Target Base Compensation Weight Payout Bonus
- ------ ----------------- ------ ------ -----
Asset Growth ($130,000) x (.5) x (12.5%) = $ 8,125
Earnings ($130,000) x (.5) x (17.5%) = $11,375
-------
Total $19,500
3.4 Long Term Performance Bond. Provided the Bank achieves
appropriate regulatory ratings for safety and soundness, and based upon the
performance of the Bank in relation to targets for earnings and asset growth
established by the Bank Board, in consultation with the Executive, the Executive
shall be entitled to receive a long term performance bonus ("Long Term
Performance Bonus"), in the form of stock options for a dollar amount of shares
calculated as a percentage of Base Compensation, to be awarded within thirty
(30) days after the completion of the year end financial statements as follows,
with earnings growth and asset growth carrying a fifty percent (50%) weight and
the payout between .25 and 1.00 being prorated on the basis of the percentage of
performance level:
payout performance level
------ -----------------
.25 90%
.50 100%
.75 110%
1.00 125% or more
Such stock options shall constitute incentive stock options defined under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
shall be issued under the 1992 Stock Option Plan, as amended as of the issuance
date, or any successor stock option plan or plans (the "Plan"), at an exercise
price equal to the fair market value of the underlying shares at the issuance
date, under terms and conditions substantially in the form of the Stock Option
Grant Agreement attached hereto as Exhibit A.
For example, if Base Compensation for the year in question was $130,000 and at
the time of the award, the price of the shares of common stock was $10 per
share, and the Executive's performance level was 102% of asset growth and 93% of
earnings growth, the Long Term Performance Bonus would be an award of the option
to purchase 5704 shares at $10 per share, calculated as follows:
<PAGE>
Target Base Compensation Weight Payout Bonus
- ------ ----------------- ------ ------ ------
Asset Growth ($130,000) x (.5) x (.55) = $35,750.00
Earnings ($130,000) x (.5) x (.3275) = $21,287.50
----------
Total $57,037.50
Total = $57,037.50 + $10 per share = 5704 option shares
3.5 Grant of Option Upon Execution. Upon execution of this
Agreement, the Company shall grant to the Executive an option ("Execution
Option") to purchase six thousand (6,000) shares of stock of the Company at an
exercise price of Eleven Dollars ($11). The Execution Option shall vest
immediately as to 100% of the shares subject to such Option. Such stock option
shall constitute an incentive stock option under Code section 422, if the
exercise price equals or exceeds the fair market value of the underlying shares
at the issuance date, and shall be issued under the Plan, as amended as of the
issuance date, under the terms and conditions contained in the Stock Option
Grant Agreement attached hereto as Exhibit B, which shall be executed between
the parties as of the date of the execution of this Agreement.
3.6 Other Benefit Plans. The Executive shall continue to
participate in all retirement, welfare, life and health insurance, and other
benefit plans or programs of the Bank now or hereafter applicable to the
Executive or applicable generally to employees of the Bank or to a class of
employees that includes senior executives of the Bank; provided (i) that during
any period during the Term that the Executive is subject to a Disability (as
defined in Paragraph 4.12), the amount of the Executive's compensation provided
under this Paragraph 3 shall be reduced by the sum of the amounts, if any, paid
to the Executive for the same period under any disability benefit or pension
plan of the Bank or the Company; and (ii) that the Executive's participation in
the Plan shall be limited to the participation set forth in paragraphs 3.4 and
3.5, unless otherwise determined by the Bank Board and/or the Company Board.
3.7 Automobile Expenses. The Banks shall continue to provide
to the Executive an automobile owned or leased by the Bank of a make and model
appropriate to the Executive's status or, in lieu thereof, shall provide the
Executive with an annual allowance of not less than $7,500 to partially cover
the cost of the business use of an automobile owned or leased by the Executive.
3.8 Dues Reimbursement. The Bank shall continue to reimburse
the Executive's reasonable expenses for dues for one country club and one dining
club membership held by the Executive. The Bank shall pay the initiation fee for
a membership in the name of Executive in a country club of the Executive's
choice, not to exceed Twenty Thousand Dollars ($20,000) and to be payable in
annual installments not to exceed Seven Thousand Dollars ($7,000). In the event
that Executive terminates this Agreement during the Initial Term (other than a
termination pursuant to Paragraph 4.15), or exercises her right not to renew at
the end of the Initial Term or any Renewal Term; or in the event that the Bank
terminates Executive's employment for Just Cause pursuant to Paragraph 4.13,
Executive shall reimburse the Bank the initiation fee paid by the Bank. Such
reimbursement shall be paid on or before the Termination Date (as defined in
Paragraph 4.3).
3.9 Expense Reimbursement. The Bank shall continue to
reimburse the Executive for travel, seminar, and other expenses related to the
Executive's duties which are incurred and accounted for in accordance with the
historic practices of the Bank.
3.10 Bonus Targets for 1996. For the period January 1, 1996,
through June 30, 1996, the budgetary goals for earnings and asset growth in
connection with the bonus to be paid to Executive after the end of the fiscal
year, shall be the goals heretofore established by the Bank Board for that
period. The bonus for that period shall be determined by the Bank Board upon the
recommendation of the Personnel and Compensation Committee. For the period July
1, 1996, through December 31, 1996, the targets to be used in connection with
Paragraphs 3.3 and 3.4, shall be established by the Bank Board, in consultation
with the Executive, and the bonus for that period will be calculated in
accordance with Paragraphs 3.3 and 3.4.
4. Termination.
4.1 The Executive's employment under this Agreement may be
terminated prior to the end of the Initial Term or any Renewal Term only as
follows:
4.11 Upon the death of the Executive.
4.12 By the Bank due to the Disability of the
Executive upon delivery of a Notice of Termination (as defined
in Paragraph 4.2) to the Executive. As used herein,
"Disability" shall mean the inability of the Executive, due to
illness, accident, or any other physical or mental incapacity,
to fulfill her obligations hereunder for a period of one
hundred eighty (180) consecutive days during the term hereof.
4.13 The Bank or the Company may, by written notice
to the Executive, immediately terminate her employment at any
time, for Just Cause. The Executive shall have no right to
receive compensation or other benefits for any period after
termination for Just Cause. Termination for "Just Cause" shall
mean termination because of, in the good faith determination
of the Company Board and the Bank Board, the Executive's
personal dishonesty, breach of fiduciary duty involving
personal profit, willful failure to perform stated duties,
repeated refusal to carry out the written directions of the
Bank Board or the Company Board, willful violation of any law,
rule or regulation (other than traffic violations or similar
offenses), final cease-and-desist order, or material breach of
any provision of this Agreement. No act, or failure to act, on
the Executive's part shall be considered "willful" unless she
has acted, or failed to act, with an absence of good faith and
without a reasonable belief that her action or failure to act
was in the best interests of the Company or the Bank.
Notwithstanding the foregoing, the Executive shall not be
deemed to have been terminated for Just Cause unless there
shall have been delivered to the Executive a copy of a
resolution duly adopted by the affirmative vote of not less
than a two-thirds (2/3) majority of the entire membership of
the Company Board and the Bank Board at a meeting of such
Boards called and held for such purpose (after reasonable
notice to the Executive and an opportunity for the Executive
to be heard before such Boards), finding that in the good
faith opinion of such Boards the Executive was guilty of
conduct constituting Just Cause and specifying the particulars
thereof in detail.
4.14 By the Bank or the Company, at any time, without
Just Cause, upon delivery of a Notice of Termination (as
defined in paragraph 4.2) to the Executive. No Notice of
Termination shall be given under this section unless there
shall have been a vote of not less than a majority of the
entire membership of the Company Board and the Bank Board at a
meeting of such Boards called and held for that purpose.
4.15 By the Executive for Just Cause by delivering a
Notice of Termination (as hereinafter defined in paragraph
4.2) stating with particularity the reasons for the giving of
the Notice of Termination. Upon receipt of the Notice of
Termination under this paragraph 4.15, the Bank and/or the
Company shall have a thirty (30) day period within which to
cure the circumstances set forth in the Notice of Termination
given by the Executive. As used in this paragraph 4.15, Just
Cause shall mean the occurrence of any of the following events
that have not been consented to in writing by the Executive in
advance: (i) the requirement that the Executive move her
personal residence, or perform her principal executive
functions, more than 35 miles from her primary office; (ii)
the assignment to the Executive of duties and responsibilities
materially different from those normally associated with her
position as referenced in Paragraph 1 hereof; (iii) a failure
to elect or re-elect the Executive to the Bank Board or the
Company Board; or (iv) a material diminution or reduction in
the Executive's responsibilities or authority (including
reporting responsibilities) in connection with her employment
with the Bank.
4.2 "Notice of Termination" shall mean a written notice of
termination from the Bank or the Executive which specifies an effective date of
termination, indicates the specific termination provision in this Agreement
relied upon, and sets forth in reasonable detail the facts and circumstances
claimed to provide a basis for termination of the Executive's employment under
the provision so indicated. A Notice of Termination by the Bank without Just
Cause shall be sufficient if it states that the termination is without Just
Cause without further detail.
4.3 "Termination Date" shall mean, in the case of the
Executive's death, her date of death or the date upon which the employment of
the Executive ceases.
4.4 If the Executive's employment with the Bank and/or the
Company shall be terminated during the Term (i) by reason of the Executive's
death, or (ii) by the Bank and/or the Company for Disability or Just Cause, the
Bank shall pay to the Executive (or in the case of her death, the Executive's
estate) within fifteen (15) days after the Termination Date a lump sum cash
payment equal to all Base Compensation and Directors fees earned through the
Termination Date. If the Termination Date occurs after the end of a fiscal year
but before Executive has received any Short Term and/or Long Term Performance
Bonuses to which she is entitled for that fiscal year pursuant to the provisions
of paragraphs 3.3 and 3.4, then Executive shall also be paid the Long Term and
Short Term Performance Bonuses in accordance with the provisions of Paragraphs
3.3 and 3.4 above. Vested rights of the Executive relating to such matters as
her 401(k) account, ESOP account, qualified pension plan and the like shall not
be effected by such termination, but shall be governed by the terms of such
plans and accounts.
4.5 If the Executive's employment with the Bank and/or the
Company shall be terminated by the Bank and/or the Company without Just Cause
(pursuant to paragraph 4.14), the Executive shall be entitled to the following:
4.51 The Bank and/or the Company shall pay the
Executive (i) in cash within fifteen (15) days after
Termination Date an amount equal to all Base Compensation and
Directors Fees earned through the Termination Date; and (ii)
in the event that the Termination Date occurs after the end of
a fiscal year but before Executive has received any Short Term
and/or Long Term Performance Bonuses to which she is entitled
for that fiscal year pursuant to the provisions of paragraphs
3.3 and 3.4, then Executive shall also be paid the Long Term
and Short Term Performance Bonuses in accordance with the
provisions of Paragraphs 3.3 and 3.4 above.
4.52 For the period from the Termination Date through
the end of the Initial Term or the Renewal Term, the Bank or
the Company shall pay to the Executive in cash at the end of
each regular pay period of the Bank, an amount equal to the
Base Compensation to which Executive is entitled pursuant to
Paragraph 3.1 above; provided, however, in no event shall
Executive be paid under this subsection for a period of less
than twelve months.
4.53 For the period during which the Executive shall
be entitled to payments under Paragraph 4.52 above (the
"Continuation Period"), the Bank shall at its expense continue
on behalf of the Executive and her dependents and
beneficiaries the life insurance, disability, medical, dental
and hospitalization benefits provided to the Executive as of
the Termination Date, or at any time thereafter to other
similarly situated executives who continue in the employ of
the Bank during the Continuation Period. The coverage and
benefits (including deductibles and costs) provided in this
Paragraph 4.53 during the Continuation Period shall be no less
favorable to the Executive and her dependents and
beneficiaries than the benefits available to Executive as of
the Termination Date. The Bank's obligation hereunder with
respect to the foregoing benefits shall be limited to the
extent that the Executive obtains any such benefits pursuant
to a subsequent employer's benefit plans, in which case the
Bank may reduce the coverage of any benefits it is required to
provide the Executive hereunder as long as the aggregate
coverages and benefits of the combined benefit plans is no
less favorable to the Executive than the coverages and
benefits required to be provided hereunder; and
4.54 The Executive shall not be required to mitigate
the amount of any payment provided for in this Agreement by
seeking other employment or otherwise and no such payment
shall be offset or reduced by the amount of any compensation
or benefits provided to the Executive in any subsequent
employment except as provided in Paragraph 4.53.
4.6 The severance pay and benefits provided for in this
Paragraph 4 shall be in lieu of any other severance or termination pay to which
the Executive may be entitled under any Bank severance or termination plan,
program, practice or arrangement, except that termination of Executive's
employment by the Bank and/or the Company without Just Cause within six (6)
months before or upon the occurrence of a Change in Control (as defined in
Paragraph 5.13) or by the Executive after the occurrence of a Change in Control,
as hereinafter defined shall be covered by the provisions of paragraph 5 below
and the provisions of this paragraph 4 shall not apply.
4.7 In the event that the Bank Board and/or the Company Board
elects not to renew Executive's contract pursuant to Paragraph 2, Executive
shall be entitled to Base Compensation, Directors fees, Short Term and Long Term
Performance Bonuses payable from the date of the Notice of Termination pursuant
to paragraph 2 to the end of the Initial Term or Renewal Term, as the case may
be. In addition, Executive shall be entitled to be paid Base Compensation from
the Termination Date for an additional period of six (6) months (the "Post
Expiration Period"). During the Post Expiration Period, the Executive shall be
entitled to the benefits set forth in Paragraph 4.53.
4.8 In the event that the Executive terminates this Agreement
for Just Cause pursuant to Paragraph 4.15, she shall be entitled to be paid her
Base Compensation for an additional period of six (6) months after the
Termination Date.
4.9 This Agreement shall terminate immediately without further
liability or obligation of the Bank or the Company to the Executive (i) if the
Bank is closed or taken over by the Office of the Comptroller of the Currency or
other supervisory authority, including the Federal Deposit Insurance
Corporation; or (ii) if any such supervisory authority should exercise its cease
and desist powers to remove the Executive from office.
5. Change in Control Provisions.
5.1 Definitions. For purposes of this Agreement, the following
terms shall have the following meanings:
5.11 "Base Amount" shall mean the amount of the
Executive's annual Base Compensation at the rate in effect immediately prior to
the Change in Control.
5.12 "Bonus Amount" shall mean the most recent
annual Short Term Performance Bonus paid or payable to the Executive, the full
fiscal year ended prior to the fiscal year during which a Change in Control
occurred.
5.13 "Change in Control" as used herein shall mean
any of the following events:
(A) When the Company or the Bank
acquires actual knowledge that any person (as such term is used in Section 13(d)
and 14(d)(2) of the Securities Exchange Act of 1934 (the "Exchange Act")), other
than an employee benefit plan established or maintained by the Company or the
Bank, is or becomes the beneficial owner (as defined in Rule 13d-3 of the
Exchange Act) directly or indirectly, or record owner of securities of the
Company representing 25% or more of the combined voting power of the Company's
then outstanding securities;
(B) Upon the first purchase of the
Company's common stock pursuant to a tender or exchange offer (other than a
tender or exchange offer made by the Company or an employee benefit plan
established or maintained by the Company or the Bank);
(C) Upon the approval by the Company's
stockholders of (1) a merger or consolidation of the Company with or into
another corporation (other than a merger or consolidation of the definitive
agreement for which provides that at least two-thirds of the directors of the
surviving or resulting corporation immediately after the transaction are
Continuing Directors (as defined herein)), or (2) a sale or disposition of all
or substantially all of the Company's assets;
(D) If during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of either the Company or the Bank (the "Continuing
Directors") cease for any reason to constitute at least a majority thereof;
(E) Upon a sale of (1) common stock of
the Bank if after such sale any person (as defined above), other than the
Company or an employee benefit plan established or maintained by the Company or
the Board, owns a majority of the Bank's common stock or (2) all or
substantially all of the Bank's assets; or
(F) Any other agreement, happening or
device which has substantially the same effect on control of the Company or the
Bank as any of the foregoing.
5.2 Upon termination of Executive's employment upon the
occurrence of a Change in Control of the Bank or the Company, or upon Notice of
Termination given by Executive pursuant to paragraph 5.3, as a consequence of a
Change in Control, the Bank or the Company shall pay to Executive an amount
equal to 2.0 multiplied by the Executive's Base Amount and Bonus Amount,
provided, however, such payment shall be reduced to the extent necessary to
eliminate the imposition of any taxes under Code Sections 280G and 4999 to such
payment, if the amount of such payment thereby received by the Executive on an
after tax basis would be higher than the amount of such payment the Executive
would otherwise receive on an after tax basis had no reduction occurred. In the
event that the Executive is entitled to any payments under this paragraph 5.2
and has already received any payments under the provisions of paragraph 4.5,
such payments already received shall be deducted from any payment due under this
paragraph 5.2.
5.3 Notwithstanding any other provision of this Agreement to
the contrary, the Executive may voluntarily terminate her employment under this
Agreement within six (6) months following a Change in Control of the Company or
the Bank, by giving Notice of Termination and the Executive shall thereupon be
entitled to receive the payment described in Paragraph 5.2 of this Agreement,
upon the occurrence of any of the following events, which have not been
consented to in advance by the Executive in writing: (i) the requirement that
the Executive move her personal residence, or perform her principal executive
functions, more than 35 miles from her primary office as of the date of the
Change in Control; (ii) a material reduction in the Executive's Base
Compensation as in effect on the date of the Change in Control or as the same
may be increased from time to time; (iii) the failure by the Bank and the
Company to continue to provide the Executive with compensation and benefits
provided for under this Agreement, as the same may be increased from time to
time, or with benefits substantially similar to those provided to her under any
of the Executive benefit plans to which the Executive now or hereafter becomes a
participant, or the taking of any action by the Company or the Bank which would
directly or indirectly reduce any of such benefits in a material way or deprive
the Executive of any material fringe benefit enjoyed by her at the time of the
Change in Control, provided that such reduction is not part of a Bank-wide
reduction which affects all employees or all similar situated employees; (iv)
the assignment to the Executive of duties and responsibilities materially
different from those normally associated with her position as referenced in
Paragraph 1 hereof; (v) a failure to elect or re-elect the Executive to the Bank
Board or the Company Board, if the Executive is serving on such Boards on the
date of the Change in Control; or (vi) a material diminution or reduction in the
Executive's responsibilities or authority (including reporting responsibilities)
in connection with her employment with this Bank.
5.4 Any payments made to the Executive pursuant to this
Agreement, or otherwise, are subject to and conditioned upon their compliance
with 12 U.S.C. (beta) 1828(k) and any regulations promulgated thereunder.
6. Trade Secrets; Covenant not-to-compete.
6.1 The Executive shall not, at any time, either during the
Initial Term or any Renewal Term or after the Termination Date, use or disclose
any Trade Secrets of the Bank, except in fulfillment of her duties as the
Executive during her employment, for so long as the pertinent information or
data remain Trade Secrets, whether or not the Trade Secrets are in written or
tangible form. As used herein, "Trade Secrets" shall mean any information,
including but not limited to technical or non-technical data, a formula, a
pattern, a compilation, a program, a device, a method, a technique, a drawing, a
process, financial data, financial plans, product plans, information on
customers, or a list of actual or potential customers or suppliers, which: (i)
derives economic value, actual or potential, from not being generally known to,
and not being readily ascertainable by proper means by, other persons who can
obtain economic value from its disclosure or use, and (ii) is subject of efforts
that are reasonable under the circumstances to maintain its secrecy.
6.2 Upon termination of Executive's employment hereunder, by
the Bank, the Company or the Executive, for any reason, for a period of eighteen
(18) months after the Termination Date (the "Non-Compete Period"), Executive
agrees that she will not engage in banking activities, in which a chartered
state or national bank may at the time legally be engaged, within an area (the
"Territory") comprised of Fairfax, Arlington, Prince William and Loudoun
Counties, including the incorporated cities as situated therein, and the City of
Alexandria in the Commonwealth of Virginia. In the event that the Bank or the
Company opens or acquires a location for its operations in any other
jurisdiction, the county or the District of Columbia in which such location is
opened or acquired shall be added to the Territory. During the Non-Compete
Period, Executive further agrees that she will not directly or indirectly
solicit or provide banking services to customers of the Bank or the Company.
7. Successors; Binding Agreement.
7.1 This Agreement shall be binding upon and shall inure to
the benefit of the Bank, their successors and assigns and the Company and the
Bank shall require any successors and assigns to expressly assume and agree to
perform this Agreement in the same manner and to the same extent that the Bank
would be required to perform if no such succession or assignment had taken
place.
7.2 Neither this Agreement nor any right or interest hereunder
shall be assignable or transferable by the Executive, her beneficiaries or legal
representatives, except by will or by the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal personal representative.
8. Fees and Expenses. The Bank shall pay legal fees and related
expenses incurred by the Executive as a consequence of the negotiation and
execution of this Agreement not to exceed Two Thousand Dollars ($2,000).
9. Notice. For the purposes of this Agreement, notices and all other
communications provided for in the Agreement (including the Notice of
Termination) shall be in writing and shall be deemed to have been duly given
when personally delivered or sent by certified mail, return receipt requested,
postage prepaid, addressed as follows:
<PAGE>
If to the Company:
Tysons Financial Corporation
8200 Greensboro Drive, Suite 100
McLean, Virginia 22102
Attention: Board of Directors
With a copy to: Secretary
If to the Bank:
Tysons National Bank
8200 Greensboro Drive, Suite 100
McLean, Virginia 22102
Attention: Board of Directors
With a copy to: Secretary
If to the Executive:
Terrie G. Spiro
105 Follin Lane, SE
Vienna, Virginia 22180
Any party to this Agreement may change such address for notices by sending to
the parties to this Agreement written notice of a new address for such purpose.
All notices and communications shall be deemed to have been received on the date
of delivery thereof.
10. Settlement of Claims. The Company's and the Bank's obligations to
make the payments provided for in this Agreement and otherwise to perform its
obligations hereunder shall not be affected by any circumstances, including,
without limitation, any set-off, counterclaim, recoupment, defense or other
right which the Company or the Bank may have against the Executive or others.
The Company or the Bank may, however, withhold from any benefits payable under
this Agreement all federal, state, city, or other taxes as shall be required
pursuant to any law or governmental regulation or ruling.
11. Modification and Waiver. No provisions of this Agreement may be
modified, waived or discharged unless such waiver, modification or discharge is
agreed to in writing and signed by the Executive, the Bank, and the Company. No
waiver by any party hereto at any time of any breach by the other party hereto
of, or compliance with, any condition or provision of this Agreement to be
performed by such other party shall be deemed a waiver of similar or dissimilar
provisions or conditions at the same or at any prior or subsequent time.
12. Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the Commonwealth of Virginia without
giving effect to the conflict of laws principles thereof. Any action brought by
any party to this Agreement shall be brought and maintained in a court of
competent jurisdiction in the Commonwealth of Virginia.
13. Severability. The provisions of this Agreement shall be deemed
severable and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the other provisions hereof.
14. Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto and supersedes the Prior Agreement and, except for
option and warrant agreements previously entered into between the Executive and
the Company, any and all prior agreements, if any, understandings and
arrangements, oral or written, between the parties hereto with respect to the
subject matter hereof.
15. Headings. The headings of Paragraphs herein are included solely for
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
16. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the Bank and the Company have caused this Agreement
to be executed and its seal to be affixed hereunto by its officers thereunto
duly authorized, and the Executive has signed and sealed this Agreement,
effective as of the date first above written.
TYSONS NATIONAL BANK
By:________________________________ (SEAL)
J. Patrick Rowland, Chairman of the Board
TYSONS FINANCIAL CORPORATION
By:________________________________ (SEAL)
Richard Schwartz, Chairman of the Board
EXECUTIVE
By:________________________________ (SEAL)
Terrie G. Spiro
<PAGE>
Exhibit A
TYSONS FINANCIAL CORPORATION
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT, is entered into as of this ______ day of
______________, to be effective _________________________, ("Date of Grant") by
and between TYSONS FINANCIAL CORPORATION, a Virginia corporation (the "Company")
and TERRIE G. SPIRO (the "Optionee").
WHEREAS, the Board of Directors and shareholders of the Company adopted
and subsequently amended and restated a stock option plan known as the "Tysons"
Financial Corporation 1992 Stock Option Plan" (the "Plan"); and
WHEREAS, the Board has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company, and.
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Incorporation of the Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
conditions stated herein, the Company hereby evidences its grant to the
Optionee, pursuant to the terms of her employment agreement with the Company, of
the right and option (the "Option") to purchase shall or any part of the number
of shares of the Company's Common Stock, par value $5 per share (the "Stock"),
set forth on Schedule A attached hereto and incorporated herein by reference.
The option shall be exercisable in the amounts and at the time specified on
Schedule A. The Option shall expire and shall not be exercisable after the date
specified on Schedule A or on such earlier date as determined pursuant to
Section 8, 9 or 10 hereof. Schedule A states whether, and with respect to how
many shares, the Option is intended to be an ISO.
3. Purchase Price. The price per share to be paid by the Optionee for
the shares subject to this Option (the "Exercise Price") shall be as specified
on Schedule A, which price shall be an amount not less than the Fair Market
Value (or 110% of Fair Market Value in the case of a more-than-10% owner) of a
share of Stock as of the Date of Grant (as defined in Section 11 below) if the
Option is an ISO.
4. Exercise Terms. The Optionee must exercise the Option for at least
the lesser of 100 shares or the number of shares of Purchasable Stock as to
which the Option remains unexercised. In the event this Option is not exercised
with respect to all of any part of the shares subject to this Option prior to
its expiration, the shares with respect to which this Option was not exercised
shall no longer be subject to this Option.
5. Option Non-Transferable. No ISO shall be transferable other than by
will or the laws of descent and distribution, or pursuant to a Domestic
Relations Order as defined in the Plan. During the lifetime of an Optionee, the
Option shall be exercisable only by such Optionee or the transferee under a
Domestic Relations Order (or by such person's guardian or legal representative,
should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised, in whole
or in part, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) delivered or mailed to the Company as
specified in Section 13 hereof to the attention of the President/CEO or such
other officer as the Company may designate. Any such notice shall (a) specify
the number of shares or Stock subject to the Option as to which the Option is
being exercised, (b) contain such information as may be reasonably required
pursuant to Section 12 hereof, and (c) be accompanied by (i) a certified or
cashier's check payable t the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer powers, or
authorization to the Company to withhold shares otherwise issuable upon exercise
of the Option, having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a combination of the
above that, when aggregated, equals the total Exercise Price applicable to such
shares purchased hereunder. Upon receipt of any such Notice of Exercise and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
Subject to such limitations as the Board may determine, the
Company may authorize payment of the Exercise Price, in whole or in part, by
delivery of a properly executed Notice of Exercise, together with irrevocable
instructions, to: (i) a brokerage firm designated by the Optionee and acceptable
to the Company in the Board's sole discretion, to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Exercise Price
and any withholding tax obligations that may arise in connection with the
exercise, and (ii) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm.
In addition to and at the time of payment of the Exercise
Price, the Optionee shall pay to the Company in cash the full amount of any
federal, state, and local income employment or other taxes required to be
withheld from the income of such Optionee as a result of such exercise;
provided, however, that in the discretion of the Board, all or any portion of
such tax obligations may, upon the irrevocable election of the Optionee, be paid
by tendering to the Company whole shares of Stock duly endorsed for transfer and
owned by the Optionee, or by authorization to the Company to withhold shares of
Stock otherwise issuable upon exercise of the Option, in either case in that
number of shares having a Fair Market Value on the date of exercise equal to the
amount of such taxes thereby being paid.
7. Adjustment in Option. The number of Shares subject to this Option,
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment.
(a) In the event of the termination of the Optionee's
employment with the Company or any of its Subsidiaries, other than a termination
that is either (i) for cause, as defined under any employment agreement then in
effect between the Company and the Optionee, (ii) voluntary on the part of the
Optionee and without written consent of the Company, or (iii) for reasons of
death or disability, the Optionee may exercise this Option at any time within 3
months after such termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination; but in no event may such
exercise occur after the Expiration date specified in Schedule A attached
hereto.
(b) In the event of termination of the Optionee's employment
that is either (i) for cause or (ii) voluntary on the part of the Optionee and
without the written consent of the Company, this Option, to the extent not
previously exercised, shall terminate 15 days after such termination and shall
not thereafter be or become exercisable.
(c) Retirement of the Optionee at the normal retirement date
as prescribed from time to time by the Company or any Subsidiary and termination
as a result of a change of control, as defined in any employment agreement then
in effect between the Company and the Optionee, shall be deemed to be a
termination of employment with consent for all purposes of this Option. This
Option does not confer upon the Optionee any right with respect to continuance
of employment by the Company or by any of its Subsidiaries. This Option shall
not be affected by any change of employment so long as the Optionee continues to
be an employee of the Company or one of its Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because
of the Optionee's becoming disabled, as defined in Code Section 22(e)(e) and
determined within the sole discretion of the Board, the Optionee (or his or her
personal representative) may exercise this Option at any time within one year
after such termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
10. Death of Optionee. In the event of the Optionee's death while
employed by the Company or any of its Subsidiaries or within 15 days after a
termination of such employment (if such termination was neither (i) for cause
nor (ii) voluntary on the part of the Optionee and without the written consent
of the Company), the Optionee's executor, personal representative or the
person(s) to whom the Option shall have been transferred by will of the laws of
descent and distribution, as the case may be, may exercise this Option at any
time (a) within one year following the Optionee's death or, if earlier, (b) on
or before the Expiration Date of this Option. If the Optionee was an employee of
the Company or a Subsidiary at the time of death, this Option may be so
exercised to the extent of the number of shares that were Purchasable hereunder
at the date of death. If the Optionee's employment terminated prior to his or
her death, this Option may be exercised only to the extent of the number of
shares covered by this Option which were Purchasable hereunder at the date of
such termination.
11. Date of Grant. This Option was granted by the Board on the date set
forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate any law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission, the Federal Reserve Board and the Office of
the Comptroller of the Currency) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto
and their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the Common of Virginia.
(c) Any requests or notices to be given hereunder shall be
deemed given, and any elections or exercises to be made or accomplished shall be
deemed made or accomplished, upon actual delivery thereof to the designated
recipient, or three days after deposit thereof in the United States mail,
registered, return receipt requested and postage prepaid, addressed, if to the
Optionee, at the address set forth below and, if to the Company, to the
attention of the President/CEO of the Company at Tysons National Bank, 8200
Greensboro Drive, Suite 100, McLean, Virginia 22102.
(d) Except as otherwise provided in the Plan, this Agreement
may not be modified except in writing executed by each of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
TYSONS FINANCIAL CORPORATION OPTIONEE
By:______________________________ ______________________________
Name: Name:
Title: Address:
______________________________
______________________________
ATTEST:
- -----------------------------------
Secretary/Assistant Secretary
(SEAL)
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
TYSONS FINANCIAL CORPORATION
AND
TERRIE G. SPIRO
Dated:____________________
1. Number of Shares Subject to Option: 6,000 Shares.
2. This Option (Check one) [ ] is [ ] is not an ISO
3. Option Exercise Price. $11.00 per Share. (If an ISO, insert a price
which is at least 100% of the Fair Market Value, or for a more-than-10%
owner, at least 110% of the Fair Market Value.)
4. Date of Grant: _________________, 1996
5. Option Vesting Schedule:
Check one:
( X ) Options are exercisable with respect to all shares on
or after the date hereof
( ) Options are exercisable with respect to the number of
shares indicated below on or after the date indicated
next to the number of shares:
No. of Shares Vesting Date
------------- -------------
6. Option Expiration Date:
Check one:
( X ) All options expire and are void unless exercised on
or before _____________, 2006. (If an ISO, insert a
date that is no later than the day before the 10th
anniversary of the Grant Date or, for an ISO granted
to a more-than-10% owner, the 5th such anniversary.)
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
<PAGE>
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies Tysons Financial Corporation (the
"Company") of this election to exercise the undersigned's stock option, in full
or part, to purchase ___________ shares (no less than 100, unless exercising in
full) to the Company's common stock, par value $5 per share (the "Common
Stock"), pursuant to the Stock Option Agreement (the "Agreement") between the
undersigned and the Company dated
- -----------------------------.
Accompanying this Notice is (1) a certified or a cashier's check in the
amount of $___________ payable to the Company, and/or (2) ___________ shares of
the Company's Common Stock presently owned by the undersigned and duly endorsed
or accompanied by stock transfer powers, having an aggregate Fair Market Value
(as defined in the Tysons Financial Corporation 1992 Stock Option Plan) as of
the date hereof of $______________. Such amounts are equal, in the aggregate, to
the purchase price per share set fourth in Schedule A of the Agreement
multiplied by the number of shares being purchased hereby (in each instance
subject to appropriate adjustment pursuant to Section 7 of the Agreement).
In the event that the amounts in (1) and (2) above are not equal, in
the aggregate, to the purchase price per share set forth in Schedule A of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement), I hereby authorize the Company to withhold such number of shares of
the Company's Common Stock otherwise issuable upon this exercise, having an
aggregate Fair Market Value sufficient in amount as of the date hereto to equal
the excess, if any, of such total purchase price over the aggregate amounts in
(1) and (2) above.
IN WITNESS WHEREOF, the undersigned has set his hand and seal, this
_____ day of _________________, 19___.
OPTIONEE (OR OPTIONEE's ADMINISTRATOR, EXECUTOR OR PERSONAL
REPRESENTATIVE)
Name:
Position (if other than Optionee)
Received by TYSONS FINANCIAL CORPORATION on
___________________________, 199_____
By:_________________________________
<PAGE>
Exhibit B
TYSONS FINANCIAL CORPORATION
STOCK OPTION AGREEMENT
Form of Option Agreement - Director
Tysons Financial Corporation 1992 Stock Option Plan, as amended and restated
August 21, 1996
TYSONS FINANCIAL CORPORATION
NONQUALIFIED STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ( "Agreement"), is entered into as of this
______ day of ___________ 19__, to be effective ____________, 1996, ("Date of
Grant") by and between Tysons Financial Corporation, a Virginia corporation (the
"Company"), and ____________________ (the "Optionee").
WHEREAS, the Board of Directors and shareholders of the Company adopted
and subsequently amended and restated a stock option plan known as the "Tysons
Financial Corporation 1992 Stock Option Plan" (the "Plan"); and
WHEREAS, the Board has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
continue to serve on the Board of Directors of the Company for the remainder of
his/her term; and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, to enable and encourage stock ownership by Directors,
and also in consideration of the mutual covenants contained herein, the parties
hereto agree as follows:
1. Incorporation of Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
conditions stated herein, the Company hereby evidences its grant to the
Optionee, not in lieu of salary, directors' fees or other compensation, of the
right and option (the "Option") to purchase all or any part of the number of
shares of the Company's Common Stock, par value $5 per share (the "Stock"), set
forth on Schedule A attached hereto and incorporated herein by reference. The
Option shall be exercisable in the amounts and at the time specified on Schedule
A. The Option shall expire and shall not be exercisable after the date specified
on Schedule A or on such earlier date as determined pursuant to Section 8, 9 or
10 hereof. The Option evidenced hereby is not intended to constitute an
incentive stock option as such term is defined under Section 422 of the Code.
3. Purchase Price. The price per share to be paid by the Optionee for
the shares subject to this Option (the "Exercise Price") shall be as specified
on Schedule A.
4. Exercise Terms. The Optionee must exercise the Option for at least
the lesser of 100 shares or the number of shares of Purchasable Stock as to
which the Option remains unexercised. In the event this Option is not exercised
with respect to all or any part of the shares subject to this Option prior to
its expiration, the shares with respect to which this Option was not exercised
shall no longer be subject to this Option.
5. Option Non-Transferable. The Option is non-transferable other than
by will or the laws of descent and distribution or pursuant to a Domestic
Relations Order. During the lifetime of the Optionee, the Option shall be
exercisable only by such Optionee or the transferee under a Domestic Relations
Order (or by such person's guardian or legal representative, should one be
appointed).
6. Notice of Exercise of Option. This Option may be exercised, in whole
or in part, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) delivered or mailed to the Company as
specified in Section 13 hereof to the attention of the President/CEO or such
other officer as the Company may designate. Any such notice shall (a) specify
the number of shares of Stock subject to the Option as to which the Option is
being exercised, (b) contain such information as may be reasonably required
pursuant to Section 12 hereof, and (c) be accompanied by (i) a certified or
cashier's check payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer powers, or
authorization to the Company to withhold shares otherwise issuable upon exercise
of the Option, having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a combination of the
above that, when aggregated, equals the total Exercise Price applicable to such
shares purchased hereunder. Upon receipt of any such Notice of Exercise and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
Subject to such limitations as the Board may determine, the
Company may authorize payment of the Exercise Price, in whole or in part, by
delivery of a properly executed Notice of Exercise, together with irrevocable
instructions, to: (i) a brokerage firm designated by the Optionee and acceptable
to the Company, in the Board's sole discretion, to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Exercise Price
and any withholding tax obligations that may arise in connection with the
exercise, and (ii) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm.
In addition to and at the time of payment of the Exercise
Price, the Optionee shall pay to the Company in cash the full amount of any
federal, state, and local income, employment or other taxes required to be
withheld from the income of such Optionee as a result of such exercise;
provided, however, that in the discretion of the Board, all or any portion of
such tax obligations may, upon the irrevocable election of the Optionee, be paid
by tendering to the Company whole shares of Stock duly endorsed for transfer and
owned by the Optionee, or by authorization to the Company to withhold shares of
Stock otherwise issuable upon exercise of the Option, in either case in that
number of shares having a Fair Market Value on the date of exercise equal to the
amount of such taxes thereby being paid.
7. Adjustment in Option. The number of Shares subject to this Option,
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 5.2 of the Plan.
8. Cessation of Service as Director.
(a) In the event of the cessation of the Optionee's service as a
Director of the Company, other than a termination that is either (i) for cause,
(ii) voluntary resignation on the part of the Optionee and without written
consent of the Company, or (iii) for reasons of death or disability, the
Optionee may exercise this Option at any time within ______________ [15 days/30
days/3 months/1 year] after such cessation to the extent of the number of shares
which were Purchasable hereunder at the date of such termination; but in no
event may such exercise occur after the Expiration Date specified in Schedule A
attached hereto.
(b) In the event of a cessation of the Optionee's service as a Director
that is either (i) for cause or (ii) a voluntary resignation on the part of the
Optionee and without the written consent of the Company, this Option, to the
extent not previously exercised, shall terminate ______________ [immediately/15
days after such cessation/30 days after such cessation] and shall not thereafter
be or become exercisable.
(c) Retirement of the Optionee at the end of the term during which he
or she reaches normal retirement date as prescribed from time to time by the
Company shall be deemed to be a cessation of services with consent for all
purposes of this Option. Voluntary resignation shall include failure to stand
for reelection, other than upon retirement, for all purposes of this Option.
Whether a cessation of services constitutes termination for cause shall be
determined in the sole discretion of the Board. This Option does not confer upon
the Optionee any right with respect to continuance of service as a Director of
the Company.
9. Disabled Optionee. In the event of cessation of services as a
Director because of the Optionee's becoming disabled, as defined in Code Section
22(e)(3) and determined within the sole discretion of the Board, the Optionee
(or his or her personal representative) may exercise this Option at any time
within ______________ [30 days/3 months/1 year] after such cessation to the
extent of the number of shares which were Purchasable hereunder at the date of
such cessation; but in no event may such exercise occur after the Expiration
Date specified in Schedule A attached hereto.
10. Death of Optionee. In the event of the Optionee's death while
serving as a Director of the Company or within 15 days after a cessation of such
services (if such cessation was neither (i) for cause nor (ii) a voluntary
resignation on the part of the Optionee and without the written consent of the
Company), the Optionee's executor, personal representative or the person(s) to
whom the Option shall have been transferred by will or the laws of descent and
distribution, as the case may be, may exercise this Option at any time (a)
within ______________ [30 days/3 months/1 year] following the Optionee's death
or, if earlier, (b) on or before the Expiration Date of this Option. If the
Optionee was a Director of the Company at the time of death, this Option may be
so exercised to the extent of the number of shares that were Purchasable
hereunder at the date of death. If the Optionee's service as a Director ceased
prior to his or her death, this Option may be exercised only to the extent of
the number of shares covered by this Option which were Purchasable hereunder at
the date of such cessation.
11. Date of Grant. This Option was granted by the Board on the date set
forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate any law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission, the Federal Reserve Board and the Office of
the Comptroller of the Currency) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto and their
representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be governed
by the laws of, the Commonwealth of Virginia.
(c) Any requests or notices to be given hereunder shall be deemed
given, and any elections or exercises to be made or accomplished shall be deemed
made or accomplished, upon actual delivery thereof to the designated recipient,
or three days after deposit thereof in the United States mail, registered,
return receipt requested and postage prepaid, addressed, if to the Optionee, at
the address set forth below and, if to the Company, to the attention of the
President/CEO of the Company at Tysons National Bank, 8200 Greensboro Drive,
Suite 100, McLean, Virginia 22102.
(d) Except as otherwise provided in the Plan, this Agreement may not be
modified except in writing executed by each of the parties hereto.
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
TYSONS FINANCIAL CORPORATION OPTIONEE
By: _____________________________ ________________________________
Name: Name:
Title: Address:
--------------------------------
--------------------------------
ATTEST:
- -----------------------------------------------------------------
Secretary/Assistant Secretary
[SEAL]
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
TYSONS FINANCIAL CORPORATION
AND
------------------------------------------------
Dated: ___________
1. Number of Shares Subject to Option: ________________________ Shares.
2. This Option is not an Incentive Stock Option within the meaning of Code
(beta)422.
3. Option Exercise Price: $____________________ per Share.
4. Date of Grant: ___________________
5. Option Vesting Schedule:
Check one:
( ) Options are exercisable with respect to all shares on
or after the date hereof.
( ) Options are exercisable with respect to the number of
shares indicated below on or after the date indicated
next to the number of shares:
No. of Shares Vesting Date
6. Option Expiration Date:
Check One:
( ) All options expire and are void unless exercised on
or before ______________, 19__.
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
No. of Shares Expiration Date
<PAGE>
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies Tysons Financial Corporation
(the "Company") of this election to exercise the undersigned's stock option, in
full or part, to purchase __________________ shares (no less than 100, unless
exercising in full) of the Company's common stock, par value $5 per share (the
"Common Stock"), pursuant to the Stock Option Agreement (the "Agreement")
between the undersigned and the Company dated
- ------------------------.
Accompanying this Notice is (1) a certified or a cashier's
check in the amount of $____________ payable to the Company, and/or (2)
_______________ shares of the Company's Common Stock presently owned by the
undersigned and duly endorsed or accompanied by stock transfer powers, having an
aggregate Fair Market Value (as defined in the Tysons Financial Corporation 1992
Stock Option Plan) as of the date hereof of $____________________. Such amounts
are equal, in the aggregate, to the purchase price per share set forth in
Schedule A of the Agreement multiplied by the number of shares being purchased
hereby (in each instance subject to appropriate adjustment pursuant to Section 7
of the Agreement).
In the event that the amounts in (1) and (2) above are not
equal, in the aggregate, to the purchase price per share set forth in Schedule A
of the Agreement multiplied by the number of shares being purchased hereby (in
each instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement), I hereby authorize the Company to withhold such number of shares of
the Company's Common Stock otherwise issuable upon this exercise, having an
aggregate Fair Market Value sufficient in amount as of the date hereof to equal
the excess, if any, of such total purchase price over the aggregate amounts in
(1) and (2) above.
IN WITNESS WHEREOF, the undersigned has set his hand and seal,
this ____ day of _______________, 19__.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR, EXECUTOR
OR PERSONAL REPRESENTATIVE]
------------------------------------
Name:
Position (if other than Optionee):
Received by TYSONS FINANCIAL
CORPORATION on
___________________________, 199__
By: _______________________________
THIS STOCK OPTION AGREEMENT ("Agreement") is entered into as of this
______ day of ______________, to be effective _________________________, ("Date
of Grant") by and between TYSONS FINANCIAL CORPORATION, a Virginia corporation
(the "Company") and TERRIE G. SPIRO (the "Optionee").
WHEREAS, the Board of Directors and shareholders of the Company adopted
and subsequently amended and restated a stock option plan known as the "Tysons
Financial Corporation 1992 Stock Option Plan" (the "Plan"); and
WHEREAS, the Board has granted the Optionee a stock option to purchase
the number of shares of the Company's common stock as set forth below, and in
consideration of the granting of that stock option the Optionee intends to
remain in the employ of the Company, and
WHEREAS, the Company and the Optionee desire to enter into a written
agreement with respect to such option in accordance with the Plan.
NOW, THEREFORE, as an employment incentive and to encourage stock
ownership, and also in consideration of the mutual covenants contained herein,
the parties hereto agree as follows:
1. Incorporation of the Plan. This option is granted pursuant to the
provisions of the Plan and the terms and definitions of the Plan are
incorporated herein by reference and made a part hereof. A copy of the Plan has
been delivered to, and receipt is hereby acknowledged by, the Optionee.
2. Grant of Option. Subject to the terms, restrictions, limitations and
conditions stated herein, the Company hereby evidences its grant to the
Optionee, pursuant to the terms of her employment agreement with the Company, of
the right and option (the "Option") to purchase all or any part of the number of
shares of the Company's Common Stock, par value $5 per share (the "Stock"), set
forth on Schedule A attached hereto and incorporated herein by reference. The
Option shall be exercisable in the amounts and at the time specified on Schedule
A. The Option shall expire and shall not be exercisable after the date specified
on Schedule A or on such earlier date as determined pursuant to Section 8, 9 or
10 hereof. Schedule A states whether, and with respect to how many shares, the
Option is intended to be an ISO.
3. Purchase Price. The price per share to be paid by the Optionee for
the shares subject to this Option (the "Exercise Price") shall be as specified
on Schedule A, which price shall be an amount not less than the Fair Market
Value [or 110% of Fair Market Value in the case of a more-than-10% owner] of a
share of Stock as of the Date of Grant (as defined in Section 11 below) if the
Option is an ISO.
4. Exercise Terms. The Optionee must exercise the Option for at least
the lesser of 100 shares or the number of shares of Purchasable Stock as to
which the Option remains unexercised. In the event this Option is not exercised
with respect to all or any part of the shares subject to this Option prior to
its expiration, the shares with respect to which this Option was not exercised
shall no longer be subject to this Option.
5. Option Non-Transferable. No ISO shall be transferable other than by
will or the laws of descent and distribution, or pursuant to a Domestic
Relations Order as defined in the Plan. During the lifetime of an Optionee, the
Option shall be exercisable only by such Optionee or the transferee under a
Domestic Relations Order (or by such person's guardian or legal representative,
should one be appointed).
6. Notice of Exercise of Option. This Option may be exercised, in whole
or in part, by a written notice (in substantially the form of the Notice of
Exercise attached hereto as Schedule B) delivered or mailed to the Company as
specified in Section 13 hereof to the attention of the President/CEO or such
other officer as the Company may designate. Any such notice shall (a) specify
the number of shares of Stock subject to the Option as to which the Option is
being exercised, (b) contain such information as may be reasonably required
pursuant to Section 12 hereof, and (c) be accompanied by (i) a certified or
cashier's check payable to the Company in payment of the total Exercise Price
applicable to such shares as provided herein, (ii) shares of Stock owned by the
Optionee and duly endorsed or accompanied by stock transfer powers, or
authorization to the Company to withhold shares otherwise issuable upon exercise
of the Option, having a Fair Market Value equal to the total Exercise Price
applicable to such shares purchased hereunder, or (iii) a combination of the
above that, when aggregated, equals the total Exercise Price applicable to such
shares purchased hereunder. Upon receipt of any such Notice of Exercise and
accompanying payment, and subject to the terms hereof, the Company agrees to
issue stock certificates for the number of shares specified in such notice
registered in the name of the person exercising this Option.
Subject to such limitations as the Board may determine, the
Company may authorize payment of the Exercise Price, in whole or in part, by
delivery of a properly executed Notice of Exercise, together with irrevocable
instructions, to: (i) a brokerage firm designated by the Optionee and acceptable
to the Company, in the Board's sole discretion, to deliver promptly to the
Company the aggregate amount of sale or loan proceeds to pay the Exercise Price
and any withholding tax obligations that may arise in connection with the
exercise, and (ii) the Company to deliver the certificates for such purchased
shares directly to such brokerage firm.
In addition to and at the time of payment of the Exercise
Price, the Optionee shall pay to the Company in cash the full amount of any
federal, state, and local income employment or other taxes required to be
withheld from the income of such Optionee as a result of such exercise;
provided, however, that in the discretion of the Board, all or any portion of
such tax obligations may, upon the irrevocable election of the Optionee, be paid
by tendering to the Company whole shares of Stock duly endorsed for transfer and
owned by the Optionee, or by authorization to the Company to withhold shares of
Stock otherwise issuable upon exercise of the Option, in either case in that
number of shares having a Fair Market Value on the date of exercise equal to the
amount of such taxes thereby being paid.
7. Adjustment in Option. The number of Shares subject to this Option,
the Exercise Price and other matters are subject to adjustment during the term
of this Option in accordance with Section 5.2 of the Plan.
8. Termination of Employment.
(a) In the event of the termination of the Optionee's
employment with the Company or any of its Subsidiaries, other than a termination
that is either (i) for cause, as defined under any employment agreement then in
effect between the Company and the Optionee, (ii) voluntary on the part of the
Optionee and without written consent of the Company, or (iii) for reasons of
death or disability, the Optionee may exercise this Option at any time within 3
months after such termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination; but in no event may such
exercise occur after the Expiration Date specified in Schedule A attached
hereto.
(b) In the event of termination of the Optionee's employment
that is either (i) for cause or (ii) voluntary on the part of the Optionee and
without the written consent of the Company, this Option, to the extent not
previously exercised, shall terminate 15 days after such termination and shall
not thereafter be or become exercisable.
(c) Retirement of the Optionee at the normal retirement date
as prescribed from time to time by the Company or any Subsidiary and termination
as a result of a change of control, as defined in any employment agreement then
in effect between the Company and the Optionee, shall be deemed to be a
termination of employment with consent for all purposes of this Option. This
Option does not confer upon the Optionee any right with respect to continuance
of employment by the Company or by any of its Subsidiaries. This Option shall
not be affected by any change of employment so long as the Optionee continues to
be an employee of the Company or one of its Subsidiaries.
9. Disabled Optionee. In the event of termination of employment because
of the Optionee's becoming disabled, as defined in Code Section 22(e)(3) and
determined within the sole discretion of the Board, the Optionee (or his or her
personal representative) may exercise this Option at any time within one year
after such termination to the extent of the number of shares which were
Purchasable hereunder at the date of such termination.
10. Death of Optionee. In the event of the Optionee's death while
employed by the Company or any of its Subsidiaries or within 15 days after a
termination of such employment (if such termination was neither (i) for cause
nor (ii) voluntary on the part of the Optionee and without the written consent
of the Company), the Optionee's executor, personal representative or the
person(s) to whom the Option shall have been transferred by will of the laws of
descent and distribution, as the case may be, may exercise this Option at any
time (a) within one year following the Optionee's death or, if earlier, (b) on
or before the Expiration Date of this Option. If the Optionee was an employee of
the Company or a Subsidiary at the time of death, this Option may be so
exercised to the extent of the number of shares that were Purchasable hereunder
at the date of death. If the Optionee's employment terminated prior to his or
her death, this Option may be exercised only to the extent of the number of
shares covered by this Option which were Purchasable hereunder at the date of
such termination.
11. Date of Grant. This Option was granted by the Board on the date set
forth in Schedule A (the "Date of Grant").
12. Compliance with Regulatory Matters. The Optionee acknowledges that
the issuance of capital stock of the Company is subject to limitations imposed
by federal and state law and the Optionee hereby agrees that the Company shall
not be obligated to issue any shares of Stock upon exercise of this Option that
would cause the Company to violate any law or any rule, regulation, order or
consent decree of any regulatory authority (including without limitation the
Securities and Exchange Commission, the Federal Reserve Board and the Office of
the Comptroller of the Currency) having jurisdiction over the affairs of the
Company. The Optionee agrees that he or she will provide the Company with such
information as is reasonably requested by the Company or its counsel to
determine whether the issuance of Stock complies with the provisions described
by this Section 12.
13. Miscellaneous.
(a) This Agreement shall be binding upon the parties hereto
and their representatives, successors and assigns.
(b) This Agreement is executed and delivered in, and shall be
governed by the laws of, the Common of Virginia.
(c) Any requests or notices to be given hereunder shall be
deemed given, and any elections or exercises to be made or accomplished shall be
deemed made or accomplished, upon actual delivery thereof to the designated
recipient, or three days after deposit thereof in the United States mail,
registered, return receipt requested and postage prepaid, addressed, if to the
Optionee, at the address set forth below and, if to the Company, to the
attention of the President/CEO of the Company at Tysons National Bank, 8200
Greensboro Drive, Suite 100, McLean, Virginia 22102.
(d) Except as otherwise provided in the Plan, this Agreement
may not be modified except in writing executed by each of the parties hereto.
<PAGE>
IN WITNESS WHEREOF, the Board of Directors of the Company has caused
this Stock Option Agreement to be executed on behalf of the Company and the
Company's seal to be affixed hereto and attested by the Secretary or an
Assistant Secretary of the Company, and the Optionee has executed this Stock
Option Agreement under seal, all as of the day and year first above written.
TYSONS FINANCIAL CORPORATION OPTIONEE
By:_________________________ -----------------------
Name: Name:
Title: Address:
-----------------------
-----------------------
ATTEST:
- -----------------------------------
Secretary/Assistant Secretary
[SEAL]
<PAGE>
SCHEDULE A
TO
STOCK OPTION AGREEMENT
BETWEEN
TYSONS FINANCIAL CORPORATION
AND
TERRIE G. SPIRO
Dated:____________________
1. Number of Shares Subject to Option: _____ Shares.
2. This Option (Check one) [X] is [ ] is not an ISO
3. Option Exercise Price. $____ per Share. (If an ISO, insert a price
which is at least 100% of the Fair Market Value, or for a more-than-10%
owner, at least 110% of the Fair Market Value.)
4. Date of Grant: _________________, 1996
5. Option Vesting Schedule:
Check one:
( X ) Options are exercisable with respect to all shares on
or after the date hereof
( ) Options are exercisable with respect to the number of
shares indicated below on or after the date indicated
next to the number of shares:
No. of Shares Vesting Date
6. Option Expiration Date:
Check one:
( X ) All options expire and are void unless exercised on
or before _____________. (If an ISO, insert a date
that is no later than the day before the 10th
anniversary of the Grant Date or, for an ISO granted
to a more-than-10% owner, the 5th such anniversary.)
( ) Options expire and are void unless exercised on or
before the date indicated next to the number of
shares:
<PAGE>
SCHEDULE B
NOTICE OF EXERCISE
The undersigned hereby notifies Tysons Financial Corporation (the
"Company") of this election to exercise the undersigned's stock option, in full
or part, to purchase ___________ shares (no less than 100, unless exercising in
full) of the Company's common stock, par value $5 per share (the "Common
Stock"), pursuant to the Stock Option Agreement (the "Agreement") between the
undersigned and the Company dated _____________________.
Accompanying this Notice is (1) a certified or a cashier's check in the
amount of $___________ payable to the Company, and/or (2) ___________ shares of
the Company's Common Stock presently owned by the undersigned and duly endorsed
or accompanied by stock transfer powers, having an aggregate Fair Market Value
(as defined in the Tysons Financial Corporation 1992 Stock Option Plan) as of
the date hereof of $______________. Such amounts are equal, in the aggregate, to
the purchase price per share set forth in Schedule A of the Agreement multiplied
by the number of shares being purchased hereby (in each instance subject to
appropriate adjustment pursuant to Section 7 of the Agreement).
In the event that the amounts in (1) and (2) above are not equal, in
the aggregate, to the purchase price per share set forth in Schedule A of the
Agreement multiplied by the number of shares being purchased hereby (in each
instance subject to appropriate adjustment pursuant to Section 7 of the
Agreement), I hereby authorize the Company to withhold such number of shares of
the Company's Common Stock otherwise issuable upon this exercise, having an
aggregate Fair Market Value sufficient in amount as of the date hereto to equal
the excess, if any, of such total purchase price over the aggregate amounts in
(1) and (2) above.
IN WITNESS WHEREOF, the undersigned has set his hand and seal,
this _____ day of _________________, 19___.
OPTIONEE [OR OPTIONEE'S
ADMINISTRATOR, EXECUTOR OR
PERSONAL REPRESENTATIVE]
Name:
Position (if other than Optionee):
Received by TYSONS FINANCIAL CORPORATION on
___________________________, 199_____
By:_________________________________
AMENDMENT TO EMPLOYMENT AGREEMENT
THIS AMENDMENT TO EMPLOYMENT AGREEMENT ("Amendment") is effective
this 21st day of April, 1997, by and between TYSONS NATIONAL BANK and TYSONS
FINANCIAL CORPORATION (collectively the "Employer") and TERRIE G.
SPIRO ("Employee").
WHEREAS, Employer and Employee entered into an Employment
Agreement ("Agreement") dated October 17, 1996; and
WHEREAS, Employer and Employee are desirous of amending the
Agreement in accordance with the terms and conditions set forth herein,
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the recitals set forth above, which are hereby incorporated by reference
herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Paragraph 3.3 of the Agreement is hereby deleted in its
entirety and the following shall be substituted in its place:
"3.3 Short Term Performance Bonus. Provided the Bank achieves
appropriate regulatory ratings for safety and soundness, and based upon the
performance of the Bank in relation to annual targets for pre-tax earrings
("Earnings") and growth in total annual average assets ("Asset Growth")
contained in the annual operating budget adopted by the Bank Board, in
consultation with the Executive, the Executive shall be entitled to receive a
short term performance bonus ("Short Term Performance Bonus"), in cash as a
percentage of Base Compensation, payable within thirty (30) days after the
completion of the year and financial statements as follows, with Earnings and
Asset Growth carrying a fifty percent (50%) weight and the payout between 15%
and 30% being prorated on the basis of the percentage of performance level:
payout performance level
------ -----------------
15% 100%
20% 110%
30% 125% or more
For example, assuming that the budget targets for the year in question were
$2,000,000 in Earnings and Asset Growth of $20,000,000 and the actual levels
were $2,100,000 in Earnings (105%) and $20,600,000 in Asset Growth (103%) and
Base Compensation for
<PAGE>
the year in question was $140,000, the Short Term Performance Bonus would be
$23,800, calculated as follows:
<TABLE>
<CAPTION>
Base
Target Compensation Weight Payout Bonus
- -------- --------------- ------- ------- -------
<S> <C>
Asset Growth ($140,000) x (.5) x (16.5%) = $11,550
Earnings ($140,000) x (.5) x (17.5%) = $12,250
-------
Total $23,800"
</TABLE>
2. Paragraph 3.4 of the Agreement is hereby deleted in its
entirety and the following shall be substituted in its place:
"3.4 Long Term Performance Bonus. Provided the Bank achieves
appropriate regulatory ratings for safety and soundness, and based upon the
performance of the Bank in relation to targets for pre-tax earnings ("Earnings")
and growth in total annual average assets ("Asset Growth") contained in the
annual operating budget adopted by the Bank Board, in consultation with the
Executive, the Executive shall be entitled to receive a long term performance
bonus ("Long Term Performance Bonus"), in the form of stock options for a dollar
amount of shares calculated as a percentage of Base Compensation, to be awarded
within thirty (30) days after the completion of the year end financial
statements as follows, with Earnings and Asset Growth carrying a fifty percent
(50%) weight and the payout between .50 and 1.00 being prorated on the basis of
the percentage of performance level:
payout performance level
------- ------------------
.50 100%
.75 110%
1.00 125% or more
Such stock options shall constitute incentive stock options defined under
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code") and
shall be issued under the 1992 Stock Option Plan, as amended as of the issuance
date, or any successor stock option plan or plans (the "Plan"), at an exercise
price equal to the fair market value of the underlying shares at the issuance
date, under terms and conditions substantially in the form of the Stock Option
Grant Agreement attached hereto as Exhibit A.
For example, assuming that the budget targets for the year in question were
$2,000,000 in Earnings and Asset Growth of $20,000,000 and the actual levels
were $2,260,000 in Earnings (113%) and $20,400,000 in Asset Grown (102%), Base
Compensation for the year in question was $140,000, and the price of the shares
of common stock was $12 per share, the Long Term Performance Bonus would be an
award of the option to purchase 7875 shares at $12 per share, calculated as
follows:
<TABLE>
<CAPTION>
Base
Target Compensation Weight Payout Bonus
- ------- ------------- ------ ------ ------
<S> <C>
Asset Growth ($140,000) x (.5) x (.55) = $38,550
Earnings ($140,000) x (.5) x (.80) = $56,000
-------
Total $94,500
</TABLE>
Total = $94,500 + $12 per share = 7875 option shares."
3. Except as set forth herein, all terms and conditions of the
Agreement shall remain in full force and effect.
IN WITNESS WHEREOF, the parties have affixed their hands and seals to
this Amendment on the date first above written.
EMPLOYEE:
----------------------------------
Terrie G. Spiro
EMPLOYER:
TYSONS FINANCIAL CORPORATION
By:_________________________________
Richard Schwartz, Chairman
TYSONS NATIONAL BANK
By:_________________________________
J. Patrick Rowland, Chairman
>
Exhibit 23(a)
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this registration statement of
MainStreet BankGroup Incorporated on Form S-4 of our report dated January 17,
1997, on our audits of the consolidated financial statements of MainStreet
BankGroup Incorporated as of December 31, 1996 and 1995, and for the years then
ended and the combination of the separate financial statements for the year
ended December 31, 1994, which report is included in the Annual Report on Form
10-K. We also consent to the reference to our firm under the caption "Experts."
COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
December 22, 1997
Exhibit 23(b)
CONSENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors
Tysons Financial Corporation:
We consent to the use of our report included herein and to the reference to our
firm under the heading "Experts" in the Proxy Statement/Prospectus.
KPMG PEAT MARWICK LLP
Washington, D.C.
December 22, 1997
Exhibit 23(c)
CONSENT OF INVESTMENT BANKERS
December 22, 1997
Douglas W. Densmore, Esquire
Flippin, Densmore, Morse, Rutherford & Jessee
300 First Campbell Square
Roanoke, Virginia 24011
Gentlemen:
We consent to the use, quotation and summarization in the Registration
Statement on Form S-4 of our fairness opinion dated July 25, 1997, rendered to
the Board of Directors of Tysons Financial Corporation in connection with its
acquisition of Tysons Financial Corporation by MainStreet BankGroup Incorporated
and to the use of our name, and the statements with respect to us, appearing in
the Registration Statement.
Sincerely,
SCOTT & STRINGFELLOW
/s/ Gary S. Penrose
----------------------------
Gary S. Penrose
Managing Director
Financial Institutions Group
Exhibit 23(e)
CONSENT OF KPMG PEAT MARWICK LLP
The Board of Directors
MainStreet BankGroup Incorporated:
We consent to the use of our report incorporated herein by reference and to the
reference to our firm under the heading "Experts" in the Prospectus.
KPMG PEAT MARWICK LLP
Roanoke, Virginia
December 22, 1997
Exhibit 23(f)
INDEPENDENT AUDITORS' CONSENT
We consent to the use and incorporation by reference in this Registration
Statement of MainStreet BankGroup Incorporated on Form S-4 of our report dated
January 12, 1995 relating to the consolidated financial statements of Hanover
Bank and subsidiary, which report is included in the Annual Report on Form 10-K
of MainStreet BankGroup Incorporated for the fiscal year ended December 31, 1994
appearing in the Prospectus, which is a part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Richmond, Virginia
December 22, 1997
Exhibit 23(g)
INDEPENDENT AUDITORS' CONSENT
We consent to the use and incorporation by reference in this Registration
Statement of MainStreet BankGroup Incorporated on Form S-4 of our report dated
January 5, 1996 relating to the consolidated financial statements of The First
National Bank of Clifton Forge, which report is included in the Annual Report on
Form 10-K for the fiscal year ended December 31, 1996.
We also consent to the reference to us under the heading "Experts" in such
Prospectus.
PERSINGER & COMPANY, LLC
Covington, Virginia
December 22, 1997
Exhibit 24
Power of Attorney
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and/or directors of MainStreet BankGroup Incorporated, a Virginia corporation
(the "Corporation"), does hereby constitute and appoint Michael R. Brenan, James
E. Adams and Rebecca J. Jenkins, and each of them (with full power to each of
them to act alone), his true and lawful Attorneys in Fact and Agents for him and
on his behalf and in his name, place and stead in any and all capacities and
particularly as an officer and/or director of the Corporation to sign, execute
and affix his seal thereto and file any of the documents referred to below
relating to the registration in connection with the Agreement and Plan of Merger
dated as of July 25, 1997, by and among the Corporation and Tysons Financial
Corporation, a Virginia corporation, 887,128 shares of its Common Stock and make
changes to any of the documents referred to below and generally to do all such
things in their behalf in their capacities as officers and directors to enable
MainStreet BankGroup Incorporated to comply with the provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission.
A Registration Statement of the Company respecting 887,128
shares of Corporation Common Stock, on Form S-4, under the
Securities Act of 1933, as amended, and any and all amendments
to the Registration statement, including post-effective
amendments, with all exhibits and any and all documents
required to be filed with respect thereto with the Securities
and Exchange Commission and/or any regulatory authority for
any State in the United States of America.
WITNESS the signatures and seals of the undersigned this 20th day of
August, 1997.
/s/ W. Christopher Beeler, Jr. (SEAL)
------------------------------
W. Christopher Beeler, Jr.
/s/ Thomas B. Bishop (SEAL)
---------------------
Thomas B. Bishop
/s/ Michael R. Brenan (SEAL)
-----------------------
Michael R. Brenan
/s/ William L. Cooper, III (SEAL)
---------------------------
William L. Cooper, III
/s/ Billy P. Craft (SEAL)
---------------------
Billy P. Craft
/s/ Phillip W. Dean (SEAL)
--------------------
Phillip W. Dean
/s/ I. Patricia Henry (SEAL)
----------------------
I. Patricia Henry
/s/ Larry E. Hutchens (SEAL)
----------------------
Larry E. Hutchens
/s/ George J. Kostel (SEAL)
---------------------
George J. Kostel
/s/ Dr. William O. McCabe, Jr. (SEAL)
--------------------------------
Dr. William O. McCabe, Jr.
/s/ Albert L. Prillaman (SEAL)
--------------------------
Albert L. Prillaman
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit:
CITY OF MARTINSVILLE )
I, Stephanie Kent, a Notary Public in and for the City of Martinsville,
in the State of Virginia, do hereby certify that W. Christopher Beeler, Jr.,
Thomas B. Bishop, Michael R. Brenan, William L. Cooper, III, Billy P. Craft,
Phillip W. Dean, I. Patricia Henry, Larry E. Hutchens, George J. Kostel,
Dr., William O. McCabe, Jr., and Albert L. Prillaman, whose names are signed to
the foregoing writing bearing date the 20th day of August, 1997, this day
personally appeared before me and acknowledge the same in my City and State
aforesaid.
GIVEN under my hand and seal this 20th day of August, 1997.
/s/ Stephanie Kent
---------------------
Notary Public
My Commission Expires:
March 31, 2000
<PAGE>
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned officers
and/or directors of MainStreet BankGroup Incorporated, a Virginia corporation
(the "Corporation"), does hereby constitute and appoint Michael R. Brenan, James
E. Adams and Rebecca J. Jenkins, and each of them (with full power to each of
them to act alone), his true and lawful Attorneys in Fact and Agents for him and
on his behalf and in his name, place and stead in any and all capacities and
particularly as an officer and/or director of the Corporation to sign, execute
and affix his seal thereto and file any of the documents referred to below
relating to the registration in connection with the Agreement and Plan of Merger
dated as of July 25, 1997, by and among the Corporation and Tysons Financial
Corporation, a Virginia corporation, 887,128 shares of its Common Stock and make
changes to any of the documents referred to below and generally to do all such
things in their behalf in their capacities as officers and directors to enable
MainStreet BankGroup Incorporated to comply with the provisions of the
Securities Act of 1933 and all requirements of the Securities and Exchange
Commission.
A Registration Statement of the Company respecting 887,128
shares of Corporation Common Stock, on Form S-4, under the
Securities Act of 1933, as amended, and any and all amendments
to the Registration Statement, including post-effective
amendments, with all exhibits and any and all documents
required to be filed with respect thereto with the Securities
and Exchange Commission and/or any regulatory authority for
any State in the United States of America.
WITNESS the signature and seal of the undersigned this 17th day of
December, 1997.
/s/ Alfred J. T. Byrne (SEAL)
-----------------------
Alfred J. T. Byrne
<PAGE>
COMMONWEALTH OF VIRGINIA )
) to-wit:
CITY OF MARTINSVILLE )
I, Gayle F. Gilley , a Notary Public in and for the City of
Martinsville, in the State of Virginia, do hereby certify that Alfred J. T.
Byrne, whose name is signed to the foregoing writing bearing date the 17th day
of December, 1997, this day personally appeared before me and acknowledge the
same in my City and State aforesaid.
GIVEN under my hand and seal this 17th day of December, 1997.
/s/ Gayle F. Gilley
---------------------
Notary Public
My Commission Expires:
12/31/2000
Exhibit 99(a)
TYSONS FINANCIAL CORPORATION
REVOCABLE PROXY
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
The undersigned hereby appoints Janet A. Valentine and William C.
Sellery, Jr., either one of whom may act individually and with full power of
substitution, to act as proxies for the undersigned and to vote all shares of
Common Stock of Tysons Financial Corporation ("Tysons") which the undersigned is
entitled to vote at the Special Meeting of Shareholders (the "Special Meeting")
to be held on January 30, 1998, at 10:00 a.m., local time, at 8200 Greensboro
Drive, Suite 100, McLean, Virginia, and at any and all adjournments thereof.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED.
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED AS DIRECTED ON THE
REVERSE SIDE. IF NO DIRECTION IS MADE, THIS PROXY WILL BE VOTED FOR EACH OF THE
PROPOSALS LISTED. IF ANY OTHER BUSINESS IS PROPERLY PRESENTED AT THE SPECIAL
MEETING, THIS PROXY WILL BE VOTED BY THE PROXIES IN THEIR DISCRETION.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE FOR PROPOSAL 1.
1 FOR [ ] AGAINST [ ] ABSTAIN [ ]
Approval and adoption of the Agreement and Plan of Merger dated July
25, 1997 (the "Agreement"), between MainStreet BankGroup Incorporated
("BankGroup), and Tysons, and the related Plan of Merger between Tysons
and MB Corp., providing for the acquisition of Tysons by BankGroup as
described in the Proxy Statement/Prospectus.
2 In their discretion, the proxies are authorized to vote upon such other
business as may properly come before the Special Meeting or any
adjournment thereof.
The undersigned acknowledges receipt prior to the execution of this proxy of a
Notice of Special Meeting of Shareholders dated _____________, 1997, and of a
Proxy Statement/Prospectus dated _______________, 1997.
<PAGE>
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder may sign, but only one signature is
required.
Dated ____________________, 199__ ____________________________________
Signature
------------------------------------
Signature
Please Mark, Sign, Date and Return the Proxy Card
Promptly Using the Enclosed Envelope or Via Facsimile.
Exhibit 99(d)
TO: Participants of the
Tysons Financial Corporation Employee Stock Ownership Plan ("ESOP")
FROM: ESOP Trustee
RE: Agreement and Plan of Merger
Enclosed for your consideration is a copy of a Proxy
Statement/Prospectus which discusses an Agreement and Plan of Merger, dated as
of July 25, 1997, by and between Tysons Financial Corporation ("Tysons") and
MainStreet BankGroup Incorporated ("BankGroup") (the "Agreement") and the
related Plan of Merger between Tysons and MB Corp. (the "Plan"). Under the
Agreement and the Plan, a subsidiary of BankGroup will be merged with and into
Tysons (the "Merger"), as a result of which Tysons will survive the merger and
become a subsidiary of BankGroup. In the Merger, each share of Common Stock of
Tysons ("Company Stock") will be converted into the right to receive shares of
Common Stock of BankGroup, as described in the Proxy Statement/Prospectus.
All holders of Company Stock have received the Proxy
Statement/Prospectus.
AS HOLDER OF RECORD OF COMPANY STOCK HELD UNDER THE ESOP, THE ESOP
TRUSTEE HAS RECEIVED THE PROXY STATEMENT/PROSPECTUS ALONG WITH A NOTICE AND
PROXY CARD IN ORDER TO VOTE THE COMPANY STOCK HELD UNDER THE ESOP TRUST FOR OR
AGAINST THE AGREEMENT AND THE PLAN OR TO ABSTAIN FROM VOTING. YOU ARE ENTITLED
TO INSTRUCT THE TRUSTEE WHETHER TO VOTE THE COMPANY STOCK ALLOCATED TO YOUR
ACCOUNT UNDER THE ESOP FOR OR AGAINST THE AGREEMENT AND THE PLAN OR TO ABSTAIN
FROM VOTING. FURTHER, PURSUANT TO THE ESOP, THE TRUSTEE SHALL VOTE ALL ALLOCATED
COMPANY STOCK FOR WHICH TIMELY PARTICIPANT INSTRUCTIONS ARE NOT RECEIVED AND ALL
UNALLOCATED COMPANY STOCK IN DIRECT PROPORTION TO THE SHARES OF ALLOCATED
COMPANY STOCK FOR WHICH VOTING INSTRUCTIONS ARE TIMELY RECEIVED FROM
PARTICIPANTS.
Accordingly, we request instructions as to whether you wish to vote the
Company Stock allocated to your account under the ESOP for or against the
Agreement and the Plan or whether you wish to abstain from voting.
Please note the following:
1. Company Stock is being valued at $14.50 per share for purposes of the Merger.
2. Your instructions must be received by 12:00 a.m., midnight, New York City
time, on January 23, 1998.
3. The Agreement and the Plan must be approved by the holders of at least
two-thirds of all outstanding shares of Company Stock entitled to vote at the
shareholders meeting regarding the Agreement and the Plan, and abstaining from
voting will have the same effect as a vote against the Agreement and the Plan.
INSTRUCTION FORM
Enclosed with this Notice is an instruction form which you must use to
instruct the Trustee whether to vote the shares of Company Stock allocated to
your account under the ESOP for or against the Agreement and the Plan or whether
to abstain from voting. If you sign, date and return an instruction form but do
not check any box on the form, the Trustee will treat your instruction form as
not providing any instruction to the Trustee regarding the shares of Company
Stock allocated to your account under the ESOP. In accordance with the ESOP, the
Trustee will vote shares for which no timely instructions are received in direct
proportion to allocated shares for which timely participant instructions are
received.
CONFIDENTIALITY
Your voting instructions are to be returned to American Stock Transfer
and Trust Company, Attn: Joe Wolf, 6201-15th Avenue, Brooklyn, New York 11219.
The envelope should be marked as Privileged and Confidential. Mr. Wolf will
instruct the Trustees as to the number of shares of Company Stock to vote for
and against the Agreement and the Plan, and the number to abstain from voting.
However, Mr. Wolf will not inform the Trustees, or anyone at Tysons or
BankGroup, as to what the instructions were from any particular participant.
DEADLINE FOR SUBMITTING OR REVOKING INSTRUCTIONS
IN ORDER TO BE ASSURED THAT YOUR INSTRUCTION TO THE TRUSTEE WILL BE
FOLLOWED, YOUR INSTRUCTION FORM MUST BE COMPLETED, SIGNED, DATED AND RECEIVED BY
THE TRUSTEE NO LATER THAN 12:00 A.M., MIDNIGHT, NEW YORK CITY TIME ON JANUARY
23, 1998. This time is five business days prior to the scheduled shareholder
meeting regarding the Agreement and the Plan to allow the Trustee time to
tabulate votes. REMEMBER TO RETURN YOUR INSTRUCTION FORM TO THE TRUSTEE IN THE
ENCLOSED ENVELOPE, RATHER THAN TO TYSONS, BANKGROUP, OR ANY OTHER PARTY.
Any instruction you furnish to the Trustee will be irrevocable if not
withdrawn by 12:00 a.m., midnight, New York City time on January 23, 1998. This
time is five business days prior to the scheduled shareholder meeting regarding
the Agreement and the Plan. To withdraw any instruction, you should send a
statement to the Trustee at American Stock Transfer and Trust Company, Attn: Joe
Wolf, 6201-15th Avenue, Brooklyn, New York 11219, that you are withdrawing your
prior instruction and requesting another instruction form. You must sign the
statement, enter your Social Security Number and print your name under your
signature.
QUESTIONS
If you have any questions, please contact Janet Valentine, who is one
of the Trustees, at 703-556-6232 during normal business hours.
<PAGE>
TYSONS FINANCIAL CORPORATION
EMPLOYEE STOCK OWNERSHIP PLAN ("ESOP")
INSTRUCTION FORM
INSTRUCTION TO TRUSTEE FOR VOTING ON THE AGREEMENT AND
PLAN OF MERGER DATED AS OF JULY 25, 1997, BY AND BETWEEN
TYSONS FINANCIAL CORPORATION AND MAINSTREET BANKGROUP,
INCORPORATED (THE "AGREEMENT") AND THE RELATED
PLAN OF MERGER BETWEEN TYSONS FINANCIAL CORPORATION
AND MB CORP. (THE "PLAN")
The undersigned ESOP participant hereby instructs the ESOP Trustee to
vote the shares of Common Stock of Tysons Financial Corporation ("Company
Stock") allocated to my ESOP account with respect to the Agreement and the Plan
regarding the proposed merger of Tysons Financial Corporation with a subsidiary
of MainStreet BankGroup, Incorporated (the "Merger") as set forth below:
[X] Please mark your choice like this and sign and date below.
THE TRUSTEE MAKES NO RECOMMENDATIONS AS TO YOUR DECISION HOW TO VOTE SHARES OF
COMPANY STOCK ALLOCATED TO YOUR ACCOUNT UNDER THE ESOP.
[ ] FOR AGREEMENT AND PLAN: Vote the shares of Company Stock allocated to my
account under the ESOP FOR the Agreement and the Plan.
[ ] AGAINST AGREEMENT AND PLAN: Vote the shares of Company Stock allocated to
my account under the ESOP AGAINST the Agreement and the Plan.
[ ] ABSTAIN FROM VOTING: ABSTAIN from voting the shares of Company Stock
allocated to my account under the ESOP.
- ------------------------------------- ------------------------------------
Signature Social Security Number
- ------------------------------------- ------------------------------------
Printed Name Date
PLEASE SIGN, PRINT YOUR NAME AND SOCIAL SECURITY NUMBER, DATE AND MAIL THIS
INSTRUCTION FORM IN THE POSTAGE PREPAID ENVELOPE PROVIDED TO AMERICAN STOCK
TRANSFER AND TRUST COMPANY, ATTN: JOE WOLF, 6201-15TH AVENUE, BROOKLYN, NEW YORK
11219.
