As filed with the Securities and Exchange Commission on May 27, 1998.
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 and Brian D. Alprin
Hugh B. Wellons Duane, Morris & Heckscher LLP
Flippin, Densmore, Morse, 1667 K Street, N.W., Suite 700
Rutherford & Jessee Washington, D.C. 20006-1820
300 First Campbell Square (202) 776-7800
Roanoke, Virginia 24011
(540) 510-3000
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 and there is compliance with
General Instruction G, check the following box. [ ]
<TABLE>
<S> <C>
CALCULATION OF REGISTRATION FEE
===================================================================================================================
Title of each class Proposed Proposed maximum Amount of
of securities to be Amount to be maximum offering aggregate offering Registration
registered registered(1) price per unit price(2) Fee
- -------------------------------------------------------------------------------------------------------------------
Common Stock 796,781 shs 10.43 $8,314,843 $2,453
(including associated
rights issued under the
MSBC Preferred Share
Rights Plan)
===================================================================================================================
</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)(2) for the purpose of
calculating the registration fee, with the value of Ballston Common
Stock being exchanged in the transaction for MSBC Common Stock being
based upon the book value of Ballston Common Stock at March 31, 1998,
of $8,314,843, the latest practical date prior to filing.
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 THIS 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.
<PAGE>
BALLSTON BANCORP, INC.
1667 K Street, N.W., Suite 700
Washington, D.C. 20006
________________ ___, 1998
To the Shareholders of
Ballston Bancorp, Inc.
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Annual Meeting") of Ballston Bancorp, Inc. ("Ballston"), the holding
company for The Bank of Northern Virginia ("The Bank"), which will be held on
_____________ ____, 1998 at ____:____ p.m., local time at The Bank of Northern
Virginia, 1010 North Glebe Road, Arlington, Virginia.
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of March 11,
1998, and the related Plan of Merger (collectively, the "Merger Agreement")
pursuant to which Ballston will be merged (the "Merger") with and into
MainStreet BankGroup Incorporated ("MSBC"). Under the terms of the Merger
Agreement, each share of common stock, par value $0.20 per share, of Ballston
will be converted into that fraction of a share of MSBC common stock having a
market value of $12.04, provided that a minimum of 0.4025 shares and a maximum
of 0.4920 shares of MSBC common stock will be issued for each share of Ballston
common stock. Cash will be paid in lieu of the issuance of any fractional
shares.
Danielson Associates Inc., an investment banking firm, has issued its
opinion to your board of directors regarding the fairness from a financial point
of view of the consideration to be received by the shareholders of Ballston
pursuant to the Merger Agreement as of the date of such opinion. A copy of the
opinion is attached as Appendix II to the Proxy Statement/Prospectus.
THE BOARD OF DIRECTORS HAS UNANIMOUSLY (WITH ONE DIRECTOR NOT PRESENT)
APPROVED THE PROPOSED MERGER AND RECOMMENDS THAT SHAREHOLDERS VOTE THEIR SHARES
"FOR" APPROVAL OF THE MERGER. THE AFFIRMATIVE VOTE OF A MAJORITY OF BALLSTON'S
OUTSTANDING SHARES ENTITLED TO VOTE IS NECESSARY TO APPROVE THE MERGER.
ACCORDINGLY, FAILURE TO VOTE, EITHER BY FAILING TO RETURN YOUR PROXY OR FAILING
TO VOTE IN PERSON AT THE ANNUAL MEETING, WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE MERGER.
At the Annual Meeting, you will also be asked to consider and vote upon
the election of directors to serve on the Board of Directors until the next
annual meeting or their successors are elected and qualified or, if earlier,
until consummation of the Merger, and the appointment of Stoy, Malone & Company,
P.C. as the independent auditors of Ballston for 1998 or, if earlier, until
consummation of the Merger.
The accompanying Notice of Annual Meeting of Shareholders and the Proxy
Statement/Prospectus describe the matters to be acted upon at the Annual
Meeting. Shareholders are urged to review carefully the attached Proxy
Statement/Prospectus, including the Appendices, which together describe the
Merger and its terms and conditions in detail.
Sincerely,
Robert F. Kelleher
Chairman of the Board, President and Chief
Executive Officer
i
<PAGE>
BALLSTON BANCORP, INC.
1667 K Street, N.W., Suite 700
Washington, D.C. 20006
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON _____________ ___, 1998
To the Holders of Common Stock of Ballston Bancorp, Inc.
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the "Annual
Meeting") of Ballston Bancorp, Inc. ("Ballston") will be held on ________ ___,
1998, at ___:___ p.m., local time at The Bank of Northern Virginia, 1010 North
Glebe Road, Arlington, Virginia. The Annual Meeting is for the purpose of
considering and voting upon the following matters, each of which is set forth
more completely in the accompanying Proxy Statement/Prospectus:
1. To approve the Agreement and Plan of Merger, dated as of March 11, 1998, and
the related Plan of Merger (collectively, the "Merger Agreement") pursuant to
which Ballston will be merged (the "Merger") with and into MainStreet BankGroup
Incorporated ("MSBC"). Under the terms of the Merger Agreement, each share of
common stock, par value $0.20 per share, of Ballston will be converted into that
fraction of a share of MSBC common stock having a market value of $12.04,
provided that a minimum of 0.4025 shares and a maximum of 0.4920 shares of MSBC
common stock will be issued for each share of Ballston common stock. Cash will
be paid in lieu of issuance of fractional shares. The Merger Agreement is
attached as Appendix I and is described in the accompanying Proxy
Statement/Prospectus.
2. To elect the directors to serve until the 1999 annual meeting of shareholders
or their successors have been elected and qualified or, if earlier, until the
consummation of the Merger.
3. To ratify the appointment of Stoy, Malone & Company, P.C., to serve as
independent auditors of Ballston for the fiscal year ending December 31, 1998
or, if earlier, until the consummation of the Merger.
4. To transact such other business as may properly come before the Annual
Meeting or any adjournment or postponement thereof.
Only shareholders of record at the close of business on the record
date, _____________ _____, 1998, are entitled to notice of and to vote at the
Annual Meeting and any adjournments thereof. The affirmative vote of the holders
of a majority of outstanding Ballston Common Stock entitled to vote is necessary
to approve the Merger. Accordingly, failure to vote, either by failing to return
your proxy or failing to vote in person at the Annual Meeting, will have the
same effect as a vote against the Merger. We urge you to execute and return the
enclosed proxy as soon as possible to ensure that your shares will be
represented at the Annual Meeting. Your proxy may be revoked in the manner
described in the accompanying Proxy Statement/Prospectus at any time before it
has been voted at the Annual Meeting.
By Order of the Board of Directors
Brian D. Alprin
Treasurer and Secretary
Washington, D.C.
______________ ____, 1998
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS THAT YOU VOTE FOR THE
PROPOSAL STATED ABOVE. PLEASE SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS
POSSIBLE, WHETHER OR NOT YOU PLAN TO ATTEND THE ANNUAL MEETING IN PERSON. YOU
MAY REVOKE YOUR PROXY AT ANY TIME BEFORE IT IS VOTED AT THE ANNUAL MEETING.
ii
<PAGE>
Proxy Statement/Prospectus
Proxy Statement
of
BALLSTON BANCORP, INC.
For a Annual Meeting of Shareholders
To Be Held on ___________ ____, 1998
MAINSTREET BANKGROUP INCORPORATED
Prospectus
Up to 796,781 Shares of Common Stock, $5.00 Par Value Per Share
This combined Proxy Statement and Prospectus ("Proxy
Statement/Prospectus") is being furnished to the holders of common stock, $0.20
par value per share ("Ballston Common Stock") of Ballston Bancorp, Inc., a
Delaware corporation ("Ballston"), in connection with the solicitation of
proxies by the Board of Directors of Ballston ("Ballston's Board" or, the
"Board") for use at the Annual Meeting of Shareholders of Ballston to be held on
____________, ____, 1998, at ___:___ p.m., local time at The Bank of Northern
Virginia, 1010 North Glebe Road, Arlington, Virginia, or at any adjournments or
postponements thereof (the "Annual Meeting"). This Proxy Statement/Prospectus
and accompanying form of proxy ("Proxy") are first being mailed to shareholders
of Ballston as of ___________ ____, 1998 (the "Record Date") on or about
_________ ____, 1998.
At the Annual Meeting, you will be asked to consider and vote upon a
proposal to approve the Agreement and Plan of Merger, dated as of March 11,
1998, and the related Plan of Merger (collectively, the "Merger Agreement")
pursuant to which Ballston will be merged (the "Merger") with and into
MainStreet BankGroup Incorporated ("MSBC"). Under the terms of the Merger
Agreement, each share of common stock, par value $0.20 per share, of Ballston
will be converted into that fraction of a share of MSBC common stock having a
market value of $12.04, provided that a minimum of 0.4025 shares and a maximum
of 0.4920 shares of MSBC common stock will be issued for each share of Ballston
Common Stock (the "Exchange Ratio"). Cash will be paid in lieu of the issuance
of any fractional shares. For a more detailed description of the terms of the
Merger, see "Proposal I - The Merger."
At the Annual Meeting, you will also be asked to consider and vote upon
the election of directors to serve on the Board of Directors until the next
annual meeting or their successors are elected and qualified or, if earlier,
until consummation of the Merger, and the appointment of Stoy, Malone & Company,
P.C. as the independent auditors of Ballston for 1998 or, if earlier, until
consummation of the Merger.
This Proxy Statement also constitutes a prospectus of MSBC with respect
to up to 796,781 shares of MSBC common stock, $5.00 par value per share ("MSBC
common stock"), that will be issued in connection with the Merger.
THE SHARES OF MSBC COMMON STOCK TO BE ISSUED PURSUANT TO THE MERGER
AGREEMENT HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION NOR HAS THE COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
THE SHARES OF MSBC COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS
ACCOUNTS, DEPOSITS OR OTHER OBLIGATIONS OF A BANK OR SAVINGS ASSOCIATION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENTAL AGENCY.
THE DATE OF THIS PROXY STATEMENT/PROSPECTUS IS ______________, 1998.
iii
<PAGE>
This Proxy Statement/Prospectus does not cover any resale of the
securities to be received by shareholders of Ballston upon consummation of the
proposed transaction, and no person is authorized to make any use of this Proxy
Statement/Prospectus in connection with any such resale.
No persons have been authorized to give any information or to make any
representations other than those contained in this Proxy Statement/Prospectus or
incorporated by reference herein in connection with the solicitation of proxies
or the offering of securities made hereby and, if given or made, such
information or representations must not be relied upon as having been authorized
by MSBC or Ballston. This Proxy Statement/Prospectus does not constitute an
offer to sell, or a solicitation of an offer to buy, any securities, or the
solicitation of a proxy, in any jurisdiction to or from any person to whom it is
not lawful to make any such offer or solicitation in such jurisdiction. Neither
the delivery of this Proxy Statement/Prospectus nor any distribution of
securities made hereunder shall, under any circumstances, create an implication
that there has been any change in the affairs of MSBC or Ballston since the date
hereof. All information contained in this Proxy Statement/Prospectus relating to
Ballston and its subsidiary has been supplied by Ballston and all information
contained in this Proxy Statement/Prospectus relating to MSBC and its
subsidiaries has been supplied by MSBC.
AVAILABLE INFORMATION
MSBC is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy statements, information statements and other
information with the Securities and Exchange Commission (the "Commission"). Such
reports, proxy statements, information statements and other information, when
filed, can be inspected and copied at the public reference facilities maintained
by the Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549
and the Commission's Regional offices in New York (7 World Trade Center, Suite
1300, New York, New York 10048) and Chicago (Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661). The Commission maintains a Web
site that contains reports, proxy and information statements and other
information regarding registrants that file electronically with the Commission
and the address of such site is http://www.sec.gov. In addition, the common
stock of MSBC is listed on the Nasdaq Stock Market and reports, proxy statements
and other information concerning MSBC can be inspected at the offices of the
National Association of Securities Dealers, Inc., 1735 K Street, N.W.,
Washington, D.C. 20006.
MSBC has filed with the Commission a registration statement on Form S-4
under the Securities Act of 1933, as amended (the "Securities Act"), in respect
to the MSBC common stock to be issued in the Merger (the "Registration
Statement"). As permitted by the rules and regulations of the Commission, this
Proxy Statement/Prospectus omits certain information, exhibits and undertakings
contained in the Registration Statement. For such information, reference is made
to the Registration Statement and the exhibits filed as a part thereof or
incorporated by reference therein.
iv
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents or portions of documents filed by MSBC with the
Commission are hereby incorporated by reference into and made a part of this
Proxy Statement/Prospectus.
1. Annual Report on Form 10-K for the fiscal year ended December 31,
1997.
2. Quarterly Report on Form 10-Q for the fiscal quarter ended March 31,
1998.
3. Current Reports on Form 8-K dated March 5, 1998, March 13, 1998 and
March 13, 1998.
4. The description of the MSBC Preferred Share Rights Plan contained on
Form 8-K filed pursuant to Section 12(g) of the Exchange Act on
January 19, 1990, including all amendments thereto and reports filed
under the Exchange Act for the purpose of updating such description.
All documents filed by MSBC pursuant to Section 13(a), 13(c), 14 or
15(d) of the Exchange Act after the date of this Proxy Statement/Prospectus and
prior to the date of the Ballston Annual Meeting shall be deemed to be
incorporated by reference into this Proxy Statement/Prospectus and to be a part
hereof from the respective dates of filing of such documents. Any statement
contained in a document incorporated or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this Proxy
Statement/Prospectus to the extent that a statement contained herein, or in any
other subsequently filed document that is also incorporated or deemed
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 this Proxy Statement/Prospectus.
This Proxy Statement/Prospectus (including information included or
incorporated by reference herein) contains certain forward-looking statements
with respect to the financial condition, results of operations, plans,
objectives, future performance and businesses of each of MSBC and Ballston.
These forward-looking statements involve certain risks and uncertainties.
Factors that may cause actual results to differ materially from those
contemplated by such forward-looking statements include, among others, the
following possibilities: (1) competitive pressure in the banking industry
increases significantly; (2) changes in the interest rate environment reduce
margins; (3) general economic conditions, either nationally or regionally, are
less favorable than expected, resulting in, among other things, a deterioration
in credit quality; (4) changes occur in the regulatory environment; (5) changes
occur in business conditions and inflation; and (6) changes occur in the
securities markets.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THE MSBC DOCUMENTS ARE
AVAILABLE (WITHOUT CHARGE) UPON WRITTEN REQUEST TO REBECCA J. JENKINS, EXECUTIVE
VICE PRESIDENT AND SECRETARY, MAINSTREET BANKGROUP INCORPORATED, 200 EAST CHURCH
STREET, MARTINSVILLE, VIRGINIA 24112. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, ANY REQUESTS MUST BE RECEIVED BY ____________ ____, 1998.
v
<PAGE>
<TABLE>
TABLE OF CONTENTS
Page
----
<S> <C>
AVAILABLE INFORMATION.........................................................................................................iv
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE..............................................................................v
SUMMARY........................................................................................................................1
The Companies...............................................................................................................1
Ballston Annual Meeting.....................................................................................................1
Time, Date, Place and Purpose.............................................................................................1
Record Date; Vote Required................................................................................................2
Stock Held By Ballston Affiliates.........................................................................................2
THE MERGER..................................................................................................................2
Effective Date..............................................................................................................2
Merger Consideration........................................................................................................2
Exchange of Certificates; Delivery of MSBC Common Stock and Payment for Fractional Shares...................................3
Opinion of Ballston's Financial Advisor.....................................................................................3
Federal Income Tax Consequences.............................................................................................3
Accounting Treatment........................................................................................................3
Conditions to the Merger....................................................................................................3
Effect of the Merger on Shareholders' Rights................................................................................4
Rights of Dissenting Shareholders...........................................................................................4
Interests of Certain Persons in the Merger..................................................................................4
COMPARATIVE MARKET AND STOCK PRICE INFORMATION.................................................................................4
COMPARATIVE PER SHARE INFORMATION..............................................................................................5
COMPARATIVE PER SHARE DATA.....................................................................................................6
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA..................................................................................7
MAINSTREET BANKGROUP INCORPORATED SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA................................................8
BALLSTON BANCORP, INC. SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA..........................................................10
INTRODUCTION..................................................................................................................11
BALLSTON ANNUAL MEETING.......................................................................................................11
Record Date; Vote Required.................................................................................................11
Proxies; Revocation; Solicitation..........................................................................................12
PROPOSAL I - THE MERGER.......................................................................................................12
General....................................................................................................................13
Background of the Merger...................................................................................................13
Reasons for the Merger.....................................................................................................14
Opinion of Ballston's Financial Advisor....................................................................................16
Conditions to Consummation of the Merger; Waiver...........................................................................18
No Solicitation of Transactions............................................................................................19
Stock Option Agreement.....................................................................................................19
MSBC's Acquisition Program.................................................................................................20
Exchange Ratio Termination.................................................................................................20
Termination................................................................................................................21
Federal Income Tax Consequences............................................................................................21
Exchange of Certificates; Payment for Fractional Shares....................................................................22
Accounting Treatment.......................................................................................................23
Regulatory Approvals.......................................................................................................23
Interests of Certain Persons in the Merger.................................................................................23
Resales by Affiliates......................................................................................................25
Rights of Dissenting Shareholders..........................................................................................26
vi
<PAGE>
Description of MSBC Capital Stock..........................................................................................27
Common Stock...............................................................................................................27
Trust Preferred Offering...................................................................................................29
Comparative Rights of Shareholders.........................................................................................29
DESCRIPTION OF THE COMPANIES..................................................................................................36
MainStreet BankGroup Incorporated..........................................................................................36
Ballston Bancorp, Inc......................................................................................................36
PROPOSAL II - ELECTION OF DIRECTORS...........................................................................................36
Meetings and Committees of the Ballston Board..............................................................................38
Board Compensation.........................................................................................................38
Executive Compensation.....................................................................................................38
Profit Sharing and Savings Plan............................................................................................39
Certain Transactions with Ballston.........................................................................................39
PROPOSAL III - RATIFICATION OF APPOINTMENT OF AUDITORS........................................................................39
EXPERTS.......................................................................................................................39
LEGAL MATTERS.................................................................................................................40
OTHER MATTERS.................................................................................................................40
APPENDICES
Appendix I - Agreement and Plan of Merger
Appendix II - Opinion of Financial Advisor
Appendix III - Rights of Dissenting Shareholders
Appendix IV - Ballston Bancorp, Inc.
</TABLE>
vii
<PAGE>
SUMMARY
The following is a brief summary of the matters to be considered at the
Annual Meeting. This summary is not intended to be complete and is qualified in
its entirety by reference to, and should be read in conjunction with, the
detailed information, including the Appendices hereto, contained or incorporated
by reference herein. A copy of the Merger Agreement is attached as Appendix I to
this Proxy Statement/Prospectus. Shareholders are urged to read carefully the
entire Proxy Statement/Prospectus. As used in this Proxy Statement/Prospectus,
the terms "MSBC" and "Ballston" refer to such corporations, respectively, and
where the context requires such corporations and their subsidiaries on a
consolidated basis.
The Companies
MSBC
MSBC is a multi-bank holding company headquartered in Martinsville,
Virginia, with total assets of $2.0 billion and total shareholders' equity of
$155.3 million at March 31, 1998. Organized in 1977, MSBC through its eleven
affiliate banks (the "MainStreet Banks"), and MainStreet Trust Company, National
Association, a nationally chartered trust company (the "Trust Company"), engages
in a general banking business and, through its eleven affiliate banks, 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.
MSBC's principal executive offices are located at 200 East Church Street,
Martinsville, Virginia 24112 and its telephone number is (540) 666-6724. MSBC
common stock is traded on Nasdaq National Stock Market under the symbol "MSBC."
See "Incorporation of Certain Information By Reference," for additional
information about MSBC.
Ballston
Ballston is a one-bank holding company headquartered in Washington,
D.C., with total assets of $75.7 million and total stockholders' equity of $8.3
million at March 31, 1998. Organized in 1987, Ballston operates through its
wholly-owned subsidiary, The Bank of Northern Virginia ("The Bank"), which
operates as a commercial bank in Arlington and Falls Church, Virginia. The
Bank's primary business consists of attracting deposits from the general public
and originating loans that are secured by residential properties as well as
originating commercial real estate and consumer loans. Ballston's principal
executive offices are located at 1667 K Street, N.W., Suite 700, Washington,
D.C. 20006 and its telephone number is (202) 776-7800. See "Description of
Ballston."
Ballston Annual Meeting
Time, Date, Place and Purpose
The Annual Meeting will be held on , 1998 at : p.m. local time at The
Bank of Northern Virginia, 1010 North Glebe Road, Arlington, Virginia, to
consider and vote upon a proposal to approve the Merger Agreement and the
transactions contemplated thereby. A copy of the Merger Agreement is attached
hereto as Appendix I.
1
<PAGE>
Record Date; Vote Required
The record date ("Record Date") for determining Ballston shareholders
entitled to notice of and to vote at the Annual Meeting is , 1998. The presence
in person or by proxy of the holders of forty percent (40%) of the total number
of issued and outstanding shares of Ballston Common Stock is necessary to
constitute a quorum at the Annual Meeting. Assuming a quorum is present, an
affirmative vote of at least a majority of the outstanding shares is necessary
to approve the Merger Agreement. As of the Record Date, the directors and
executive officers and their affiliates beneficially own approximately 48.5% of
Ballston Common Stock. In addition, an affirmative vote of a plurality of the
votes cast is necessary to elect the directors and an affirmative vote of the
majority of the votes cast is necessary for the ratification of auditors. In the
event a quorum is not present or there are insufficient votes to approve any
proposal, the Annual Meeting may be adjourned from time to time by a majority of
those present in person or by proxy in order to permit, as appropriate, further
solicitation of proxies by the Ballston Board.
Stock Held By Ballston Affiliates
The directors and executive officers of Ballston and their affiliates
beneficially owned, as of the Record Date, 784,716 shares, or 48.5%, of Ballston
Common Stock. The directors and executive officers of Ballston have all
indicated that they will vote their shares of Ballston Common Stock in favor of
the proposal to approve the Merger Agreement.
THE MERGER
Effective Date
The Merger is expected to be consummated late in the second quarter or
early in the third 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
"Effective Date"). Ballston and MSBC each has the right, acting unilaterally, to
terminate the Agreement should the Merger not be completed by September 30,
1998. See Proposal I - "The Merger - Termination."
Merger Consideration
Under the terms of the Merger Agreement, each outstanding share of
Ballston Common Stock has been valued at $12.04. The number of shares to be
delivered for each share of Ballston Common Stock will be determined by dividing
$12.04 by the average of the mean between the bid price and the asked price as
reported on the Nasdaq National Stock Market for each of the 20 trading days
preceding the tenth calendar day prior to the Effective Date (the "Average MSBC
Share Price"). If such quotient is less than 0.4025, the Exchange Ratio shall be
0.4025 and if such quotient is more than 0.4920, the Exchange Ratio shall be
0.4920. The Exchange Ratio will be adjusted to reflect any consolidation,
split-up, other subdivisions or combinations of MSBC common stock, any dividend
payable in MSBC common stock, or any capital reorganization involving the
reclassification of MSBC common stock. See "Proposal I - The Merger - General."
2
<PAGE>
On , 1998, the most recent date for which it was practicable to obtain
market price data prior to the printing of this Proxy Statement/Prospectus, the
closing sales price per share of MSBC common stock was .
Exchange of Certificates; Delivery of MSBC Common Stock and Payment for
Fractional Shares
As soon as practicable after the Effective Date, MSBC shall cause
Registrar and Transfer Company, Post Office Box 1010, Cranford, New Jersey,
acting as the exchange agent (the "Exchange Agent"), to mail to each Ballston
shareholder (other than dissenting shareholders) a letter of transmittal and
instructions for use in order to surrender the certificates formerly
representing shares of Ballston Common Stock. Cash (without interest) will be
paid to Ballston shareholders in lieu of the issuance of any fractional shares
in an amount equal to the fraction of a share of MSBC common stock to which such
shareholder would otherwise be entitled multiplied by the Average MSBC Share
Price. See "Proposal I - The Merger - Exchange of Certificates; Payment for
Fractional Shares."
Opinion of Ballston's Financial Advisor
Ballston engaged Danielson Associates Inc. ("Danielson") to render
financial advisory and investment banking services in connection with Ballston
management's decision to explore various methods to enhance Ballston shareholder
value. Pursuant to such engagement, Danielson has evaluated the fairness of the
consideration to be received by Ballston shareholders pursuant to the Merger.
Danielson has delivered to Ballston an opinion dated March 11, 1998, stating
that, as of such date, based on its review and assumptions and subject to the
limitations described therein, the merger consideration was fair, from a
financial point of view, to Ballston's shareholders. A copy of Danielson's
opinion is attached as Appendix II to this Proxy Statement/Prospectus and should
be read in its entirety. See "Proposal I - The Merger - Opinion of Ballston's
Financial Advisor."
Federal Income Tax Consequences
It is anticipated that the Merger will be a tax-free reorganization for
federal income tax purposes. Ballston's shareholders will receive MSBC common
stock for their Ballston Common Stock under the terms of the Merger Agreement.
Upon this conversion, Ballston's shareholders will generally recognize no gain
or loss. Upon receipt of cash for fractional shares of Ballston Common Stock,
Ballston's shareholders will recognize gain, but not in an amount in excess of
cash received. See "Proposal I - The Merger - Federal Income Tax Consequences."
Accounting Treatment
The Merger, when consummated, will be accounted for under the pooling
of interests method of accounting. See "Proposal I - The Merger - Accounting
Treatment."
Conditions to the Merger
Consummation of the Merger is subject, among other things, to the
approval of the Merger Agreement by the requisite vote of Ballston shareholders
and the receipt of all requisite regulatory approvals and satisfaction of other
conditions contained in the Merger Agreement. See "Proposal I - The Merger -
Conditions to the Merger."
3
<PAGE>
Effect of the Merger on Shareholders' Rights
If the Merger Agreement is approved, Ballston's shareholders will
become shareholders of MSBC, and their rights as shareholders of MSBC will be
determined by the Virginia Corporation Code ("Virginia Code") and by MSBC's
Articles of Incorporation and Bylaws. The rights of Ballston shareholders are
currently governed by the Delaware General Corporation Law ("DGCL") and by
Ballston's Certificate of Incorporation and Bylaws. See "Proposal I - The Merger
- - Effect of the Merger on Shareholders' Rights."
Rights of Dissenting Shareholders
Ballston's shareholders are entitled to exercise dissenters' rights
under Section 262 of the DGCL in connection with the proposal to approve the
Merger Agreement. See "Proposal I - The Merger - Rights of Dissenting
Shareholders."
Interests of Certain Persons in the Merger
Certain members of Ballston's management and Board of Directors have
interests in the Merger in addition to their interests as shareholders. See
"Proposal I - The Merger - Interests of Certain Persons in the Merger."
COMPARATIVE MARKET AND STOCK PRICE INFORMATION
MSBC common stock is quoted on the Nasdaq National Market under the
symbol "MSBC." The table below sets forth, for the fiscal quarter indicated, the
high and low sales prices for MSBC common stock and the dividends per share
declared on such stock in each quarter. The dividends per share have been
restated to reflect the acquisition of Regency Financial Shares, Inc. which was
accounted for using the pooling of interests method of accounting. No assurance
can be given as to the market price of MSBC common stock at, or after, the
Effective Date.
Cash
Dividends
Sales Price ($)(1) Paid ($)
-------------------- --------
High Low
---- ---
1996
Quarter Ended March 31 17.00 12.75 .10
Quarter Ended June 30 17.00 15.50 .10
Quarter Ended September 30 19.50 16.25 .12
Quarter Ended December 31 19.50 16.75 .15
1997
Quarter Ended March 31 23.25 18.00 .13
Quarter Ended June 30 28.00 18.75 .13
Quarter Ended September 30 29.50 24.75 .16
Quarter Ended December 31 30.25 26.375 .15
1998
Quarter Ended March 31 31.875 26.75 .15
Quarter Ended June 30
(through May ____, 1998)
(1) Per share data and historical stock prices have been adjusted for a
two-for-one stock split (in the form of a stock dividend) effective
March 4, 1996.
4
<PAGE>
Ballston is not listed or quoted on any exchange or automatic quotation
system and no institution makes a market in Ballston stock. Ballston paid cash
dividends per share of $0.025 on March 15, 1998. In 1996 and 1997, Ballston
declared and paid cash dividends of $.07 and $.08, respectively.
On March 10, 1998, the last trading day before the public announcement
of the Merger Agreement, the reported closing sales price of MSBC common stock
was $ 29.3125. On , 1998, the most recent date for which it was practicable to
obtain market price data prior to the printing of this Proxy
Statement/Prospectus, the reported closing sales price per share of MSBC common
stock was $ .
No assurance can be given as to what MSBC average stock price will be
during the actual Pricing Period or as to what the market price of the shares of
MSBC common stock will be at the time the Merger is consummated. Ballston
shareholders are encouraged to obtain current market quotations for MSBC common
stock. No assurance can be given as to the market price of MSBC common stock at
or after the Effective Date.
COMPARATIVE PER SHARE INFORMATION
The following table presents historical and pro forma per share data
for MSBC, restated for the pooling of interests with Regency Financial Corp.
which was completed in the first quarter of 1998, and historical and equivalent
pro forma per share data for Ballston. The pro forma combined amounts give
effect to an assumed Exchange Ratio of .4025 shares of MSBC Common Stock for
each share of Ballston Common Stock (based on the last sale price of MSBC Common
Stock on March 31, 1998 of $31.50). The equivalent pro forma Bank share amounts
allow comparison of historical information about one share of Ballston Common
Stock to the corresponding data about what one share of Ballston 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 .4025 (ratably
apportioned). As discussed in "Proposal I -- The Merger -- General," the final
Exchange Ratio will be determined based on the average MSBC Share Price as
reported on the Nasdaq National Market for each of the 20 trading days preceding
the tenth calendar day prior to the Effective Date. The following table is based
on the assumption that all issued and outstanding shares of Ballston Common
Stock are converted into shares of MSBC Common Stock. The Merger is reflected
under the pooling of interests method of accounting and pro forma information is
derived accordingly.
The per share data included in the following table should be read in
conjunction with the consolidated financial statements of MSBC incorporated by
reference herein and the financial statements of Ballston included herein 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.
5
<PAGE>
<TABLE>
COMPARATIVE PER SHARE DATA
<CAPTION>
As Of Or For Three Months As Of Or For Years
Ended March 31, Ended December 31,
--------------- ------------------
<S> <C>
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
Book Value GAAP Per Share at Period End: (4) (6)
BankGroup Historical $11.65 $9.68 $10.72 $9.66 $8.77
Ballston Historical 5.13 4.75 5.10 4.69 4.31
Proforma Combined per BankGroup Common Share (1) 11.70 9.78 10.82 9.76 8.87
Equivalent Proforma per Bank Common Share 4.71 3.94 4.36 3.93 3.57
Cash Dividends Declared per Share: (4) (6)
BankGroup Historical 0.15 0.13 0.57 0.47 0.34
Ballston Historical 0.03 0.02 0.08 0.07 0.06
Proforma Combined per BankGroup Common Share (2) 0.15 0.12 0.53 0.45 0.33
Equivalent Proforma per Bank Common Share 0.06 0.05 0.21 0.18 0.13
Net Income Per Share: (4) (5) (6)
BankGroup Historical 0.38 0.34 1.35 1.38 1.17
Ballston Historical 0.06 0.10 0.48 0.46 0.38
Proforma Combined per BankGroup Common Share (3) 0.37 0.34 1.34 1.36 1.16
Equivalent Proforma per Bank Common Share 0.15 0.14 0.54 0.55 0.47
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Proforma combined book value per MSBC common share represents combined
common shareholders' equity amounts, divided by pro forma combined
period-end common shares outstanding.
(2) Pro forma combined dividends per MSBC common share represent combined
common dividends declared, divided by pro forma combined average common
shares outstanding.
(3) Pro forma combined net income per MSBC common share represents combined
net income available to common shareholders, divided by pro forma combined
average common shares outstanding.
(4) MSBC's and Ballston's 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 diluted shares. Common stock
equivalents were utilized in the calculation of diluted shares. The common
stock equivalents for MSBC were common stock options.
(6) All MSBC share and per share data have been restated to reflect a 2-for-1
stock split in the form of a stock dividend to shareholders of record on
March 4, 1996.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
The following pages present selected financial information for the
years 1993 through 1997 and the three months ended March 31, 1997 and 1998 for
MSBC and Ballston, which will be merged with and into MSBC pursuant to the
Merger Agreement. The following summary regarding MSBC and Ballston should be
read in conjunction with the consolidated financial statements of MSBC and
Ballston and notes thereto, respectively. In the opinion of management of MSBC
and Ballston, all adjustments (which include normal recurring accruals) that are
necessary for a fair presentation for such periods or dates for their respective
information have been made.
7
<PAGE>
<TABLE>
MAINSTREET BANKGROUP INCORPORATED
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in Thousands, Except per Share Data)
<CAPTION>
At Or For The Year
Ended December 31,
----------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
<S> <C>
STATEMENT OF INCOME:
Interest income...................... $ 115,425 $ 98,201 $ 85,414 $ 73,356 $ 70,057
Interest expense..................... 58,779 44,775 38,404 30,310 29,837
---------- ---------- ---------- -------- ---------
Net interest income.................. 56,646 53,426 47,010 43,046 40,220
Provision for loan losses............ 4,011 3,451 1,725 3,476 2,115
Non-interest income.................. 13,726 11,617 9,069 2,187 7,273
Non-interest expense................. 40,952 37,254 34,290 33,568 32,549
---------- ---------- ---------- -------- ---------
Income before income taxes .......... 25,409 24,338 20,064 8,189 12,829
Income tax expense................... 8,152 7,685 5,934 1,157 3,167
---------- ---------- ---------- -------- ---------
Net income........................... $ 17,257 $ 16,653 $ 14,130 $ 7,032 $ 9,662
========== ========== ========== ========= ========
PER SHARE DATA:
Net income basic..................... $ 1.44 $ 1.39 $ 1.26 $ .65 $ .90
Net income diluted................... 1.44 1.38 1.17 .62 .85
Net book value....................... 10.72 9.57 8.69 7.02 7.42
Dividends............................ .57 .49 .35 .30 .27
STATEMENT OF CONDITION:
Total assets ........................ $1,716,410 $1,358,127 $1,129,600 $ 990,169 $ 954,529
Securities available for sale........ 673,526 339,136 216,504 127,166 203,967
Securities held to maturity.......... 72,243 97,922 117,052 158,130 85,771
Loans, net of unearned income........ 878,777 829,979 714,453 632,971 556,855
Allowance for loan losses............ 11,786 10,903 9,605 9,547 9,329
Deposits............................. 998,862 940,691 898,777 867,735 831,413
Borrowed Funds....................... 574,033 294,123 118,658 37,892 33,920
Shareholders' equity................. 128,652 114,069 103,632 76,595 80,221
SELECTED PERFORMANCE RATIOS:
Return on average assets ............ 1.17% 1.37% 1.35% .72% 1.06%
Return on average shareholders' equity 13.98 15.11 15.88 8.79 12.49
Net interest margin.................. 4.13 4.72 4.89 4.88 4.81
Dividend payout ratio................ 39.58 35.25 27.78 46.15 30.00
Average shareholders' equity to
average total assets............ 8.33 9.04 8.49 8.22 8.45
Allowance for loan losses to total
loans, net of unearned income.. 1.34 1.31 1.34 1.51 1.68
Allowance for loan losses to non-
performing loans................ 189.24 171.65 162.99 201.29 174.50
</TABLE>
8
<PAGE>
<TABLE>
The following unaudited selected financial data for MSBC has been
restated to reflect the acquisition of Regency Financial Shares, Inc. on March
10, 1998 which was accounted for using the pooling of interests method of
accounting.
RESTATED SELECTED FINANCIAL DATA
(In Thousands, Except Per Share Data and Ratios) (Unaudited) (Unaudited)
Three Months Ended March 31 Years Ended December 31
----------------------------- -------------------------------------------
1998 1997 1997 1996 1995
---- ---- ---- ---- ----
<S> <C>
SUMMARY OF OPERATIONS
Interest Income $ 36,069 $ 27,863 $ 121,304 $ 103,623 $ 90,411
Interest Expense 19,802 13,690 61,554 47,162 40,597
----------- ----------- ----------- ----------- -----------
Net Interest Income 16,267 14,173 59,750 56,461 49,814
Provision for Loan Losses 1,084 963 4,652 3,510 1,813
----------- ----------- ----------- ----------- -----------
Net Interest Income After Provision for
Loan Losses 15,183 13,210 55,098 52,951 48,001
Noninterest Income 3,776 3,964 13,879 11,782 9,196
Noninterest Expense 11,767 10,919 43,727 39,282 36,066
----------- ----------- ----------- ----------- -----------
Income Before Income Taxes 7,192 6,255 25,250 25,451 21,131
Income Tax Expense 2,294 1,971 8,152 8,054 6,297
----------- ----------- ----------- ----------- -----------
NET INCOME $ 4,898 $ 4,284 $ 17,098 $ 17,397 $ 14,834
=========== =========== =========== =========== ===========
PER SHARE DATA (1) Net Income:
Basic $ 0.38 $ 0.34 $ 1.36 $ 1.38 $ 1.26
Diluted 0.38 0.34 1.35 1.38 1.17
Cash Dividends 0.15 0.13 0.57 0.47 0.34
Net Book Value 11.65 9.68 10.72 9.66 8.77
DAILY AVERAGES
Total Assets $ 1,969,111 $ 1,451,550 $ 1,554,578 $ 1,283,437 $ 1,106,749
Interest-Earning Assets 1,863,960 1,369,457 1,470,357 1,220,725 1,045,449
Securities Available for Sale 778,197 392,411 477,650 276,562 193,431
Securities Held to Maturity 65,542 87,672 81,204 107,569 131,308
Loans, Net of Unearned Income 992,677 882,329 901,480 817,957 705,779
Allowance for Loan Losses 13,538 11,744 12,124 10,881 10,171
Deposits 1,151,325 1,001,745 1,032,179 966,865 928,857
Interest-Bearing Liabilities 1,626,189 1,178,382 1,265,599 1,026,909 882,876
Shareholders' Equity 157,240 124,793 130,505 116,901 94,729
AT PERIOD END
Total Assets $ 2,014,648 $ 1,506,855 $ 1,794,242 $ 1,430,125 $ 1,192,398
Interest-Earning Assets 1,886,546 1,415,534 1,700,604 1,341,213 1,129,519
Securities Available for Sale 806,877 420,925 693,957 353,398 231,002
Securities Held to Maturity 57,103 92,886 72,243 97,922 117,052
Loans, Net of Unearned Income 998,699 886,740 925,718 878,160 756,471
Allowance for Loan Losses 13,832 12,097 12,375 11,496 10,129
Deposits 1,191,437 1,035,450 1,063,732 1,000,084 951,661
Interest-Bearing Liabilities 1,649,202 1,222,052 1,493,030 1,157,232 938,671
Shareholders' Equity 155,281 121,628 135,719 121,137 109,955
RATIOS
Return on Average Assets 1.01 % 1.20 % 1.10 % 1.36 % 1.34 %
Return on Average Shareholders's Equity 12.63 13.92 13.10 14.88 15.66
Average Shareholders's Equity to Average
Assets 7.99 8.60 8.39 9.11 8.56
Efficiency Ratio 57.40 61.67 58.77 56.93 59.29
Net Interest Margin (2) 3.61 4.29 4.15 4.73 4.89
CREDIT QUALITY RATIOS
Allowance for Loan Losses to Nonperforming Loans 140.06 % 189.58 % 160.76 % 178.54 % 171.27 %
Allowance for Loan Losses to Nonperforming
Assets (3) 117.06 166.72 132.89 153.01 129.78
Allowance for Loan Losses to Period-End
Loans, Net of Unearned Income 1.39 1.36 1.34 1.31 1.34
Net Charge-Offs to Average Loans, Net of
Unearned Income 0.24 0.17 0.42 0.26 0.24
s 9
<PAGE>
BALLSTON BANCORP, INC.
SUMMARY CONSOLIDATED FINANCIAL AND OTHER DATA
(Dollars in Thousands, Except per Share Data)
<CAPTION>
(Unaudited)
At Or For The Three At Or For The Year
Months Ended March 31, Ended December 31,
---------------------- --------------------------------------------------------
(Unaudited)
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
STATEMENT OF INCOME:
Interest income...................... $ 1,430 $ 1,394 $ 5,663 $ 5,480 $ 5,119 $ 4,099 $ 3,167
Interest expense..................... 583 567 2,279 2,225 1,903 1,351 935
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income.................. 847 827 3,384 3,255 3,216 2,748 2,232
Provision for loan losses............ 15 15 18 12 120 297 180
Other income......................... 95 117 598 365 341 365 368
Other expenses....................... 704 675 2,776 2,475 2,496 2,371 2,192
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes and
cumulative effect of accounting
change.......................... 223 254 1,188 1,133 941 445 228
Income taxes......................... 118 90 417 392 319 138 85
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of
accounting change............... 105 164 771 741 622 307 143
Cumulative effect of change in
accounting for income taxes..... - - - - - - 445
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income........................... $ 105 $ 164 $ 771 $ 741 $ 622 $ 307 $ 588
========== ========== ========== ========== ========== ========== ==========
Comprehensive income................. $ 91 $ 130 $ 792 $ 736 $ 650 $ 277 $ 588
========== ========== ========== ========== ========== ========== ==========
PER SHARE DATA:
Net income per common share (1)...... $ 0.06 $ 0.10 $ 0.48 $ 0.46 $ 0.38 $ 0.19 $ 0.36
Book value........................... 5.13 4.75 5.10 4.69 4.31 3.96 3.83
Dividends............................ 0.025 0.020 0.08 0.07 0.06 0.04 -
Weighted average number of common
shares.......................... 1,619,474 1,619,474 1,619,474 1,619,474 1,624,248 1,636,974 1,636,974
STATEMENT OF CONDITION:
Total assets......................... $ 75,675 $ 71,475 $ 80,336 $ 78,580 $ 68,104 $ 61,041 $ 54,274
Investment securities available for sale 4,158 4,209 3,849 8,246 1,054 1,505 *
Investment securities held to maturity 15,486 14,223 12,283 15,576 16,373 14,628 *
Loans, net of unearned income........ 40,504 42,229 41,293 42,750 39,616 37,168 34,440
Allowance for loan losses............ 617 628 602 613 652 529 461
Deposits............................. 58,440 57,255 65,044 63,424 55,100 47,593 40,397
Borrowed funds....................... 8,344 5,976 6,571 7,141 5,302 6,681 7,312
Stockholders' equity................. 8,315 7,699 8,264 7,602 6,979 6,476 6,265
SELECTED PERFORMANCE RATIOS:
Return on average assets............. 0.54% 0.88% 0.97% 1.06% 0.97% 0.53% 1.24%
Return on average stockholders' equity 5.07 8.59 9.72 10.21 9.33 4.86 10.20
Net interest margin.................. 4.67 4.83 4.86 5.02 5.40 5.23 5.27
Dividend payout ratio................ 41.67 20.00 16.67 15.30 15.70 21.35 -
Average stockholders' equity to
average total assets............ 10.63 10.20 9.98 10.56 10.52 11.24 12.73
Allowance for loan losses to total loans 1.52 1.48 1.46 1.43 1.64 1.42 1.33
Allowance for loan losses to non-
performing loans................ 204.30 ** 147.33 315.98 187.90 423.20 113.55
</TABLE>
(1) Effective December 31, 1997, Ballston adopted Statement of Financial
Accounting Standards No. 128, "Earnings per Share." The adoption of this
statement had no effect on Ballston.
* As of December 31, 1993, Ballston did not categorize its investment
securities as "available for sale" or "held to maturity." The total of
investment securities was approximately $11.0 million.
** As of March 31, 1997, Ballston did not have any nonperforming loans.
10
<PAGE>
INTRODUCTION
This Proxy Statement/Prospectus is being furnished to Ballston
Shareholders in connection with the solicitation of proxies by the Ballston
Board for use at the Ballston Annual Meeting to be held on ________________
____________________ ___, 1998, at The Bank of Northern Virginia, 1010 North
Glebe Road, Arlington, Virginia, at : p.m. local time or at any adjournments
thereof. The purpose of the Annual Meeting is to consider and vote upon a
proposal to approve the Merger Agreement and the transactions contemplated
thereby, as more fully set forth in the Notice of Annual Meeting accompanying
this Proxy Statement/Prospectus.
The Board of Directors of Ballston unanimously (with one director not
present) approved the Merger Agreement and recommends that Ballston Shareholders
vote FOR its approval.
BALLSTON ANNUAL MEETING
Record Date; Vote Required
The Board of Directors of Ballstons has fixed the close of business on
, 1998, as the Record Date for determining shareholders entitled to notice of
and to vote at the Annual Meeting, and accordingly, only holders of Ballston
Common Stock of record at the close of business on that day will be entitled to
notice of and vote at the Annual Meeting. The number of shares of Ballston
Common Stock outstanding on the Record Date was 1,619,474, each of such shares
being entitled to one vote. As of the Record Date, the directors and executive
officers and their affiliates beneficially owned approximately 48.5% of Ballston
Common Stock.
The presence in person or by proxy of the holders of forty percent
(40%) of the total number of issued and outstanding shares of Ballston Common
Stock is necessary to constitute a quorum at the Annual Meeting. As to the
approval of the Merger Agreement, by checking the appropriate box, a shareholder
may: (i) vote "FOR" approval of the Merger Agreement; (ii) vote "AGAINST"
approval of the Merger Agreement; or (iii) "Abstain." Because the affirmative
vote of the holders of at least a majority of the outstanding shares is required
to approve the Merger Agreement and the transaction contemplated thereby,
abstentions and a failure to vote will have the effect of a vote against the
Merger Agreement. In addition, brokers who hold shares in street name for
individuals who are the beneficial owners of such shares are prohibited from
giving a Proxy to vote shares held for such individuals on the Merger Agreement
without specific instructions from such individuals. The failure of such
individuals to provide specific instruction with respect to their shares of
Ballston Common Stock to their broker will have the effect of a vote against the
Merger Agreement.
As to the election of directors, the Proxy being provided by the
Ballston Board enables a Ballston shareholder to vote for the election of the
nominees proposed by the Ballston Board, or to withhold authority to vote for
one or more of the nominees being proposed. Directors are elected by a plurality
of the votes cast at the Annual Meeting without regard to broker non-votes or
proxies as to which authority to vote for one or more of the nominees being
proposed is withheld.
As to the ratification of independent auditors, by checking the
appropriate box, a shareholder may: (i) vote "FOR" the item, (ii) vote "AGAINST"
the item, or (iii) vote to "ABSTAIN" on such item. The affirmative vote of the
majority of the votes cast is required for the ratification of independent
auditors, without regard to broker non-votes or, proxies marked "ABSTAIN" as to
that matter. Unless required by law, all other matters that may properly come
before the Annual Meeting shall be determined by a majority of those votes cast
by shareholders without regard to broker non-votes or proxies marked "ABSTAIN"
as to that matter.
11
<PAGE>
The directors and executive officers of Ballston (including certain of
their related interests) beneficially own, as of the Record Date, and are
entitled to vote at the Annual Meeting 48.5% of the issued and outstanding
shares of Ballston Common Stock.
Proxies; Revocation; Solicitation
If the Proxy is properly executed and returned to Ballston in time to
be voted at the Ballston Annual Meeting, the shares represented thereby will be
voted in accordance with the instructions marked thereon. Ballston proxies that
are executed, but as to which no instructions have been marked, will be voted
FOR the approval of the Merger Agreement. Should any other matter properly come
before the Ballston Annual Meeting, the persons named as proxies in the Ballston
proxy, acting by a majority of those proxies present, will have discretionary
authority to vote on such matters in accordance with their judgment. However, no
proxy which is voted "against" the proposal to approve and adopt the Merger
Agreement will be voted in favor of any such adjournment or postponement. As of
the time of the preparation of this Proxy Statement/Prospectus, the Ballston
Board does not know of any matter, other than those matters referred to in the
Ballston Notice of Annual Meeting of Shareholders, to be presented for action at
the Ballston Annual Meeting.
The cost of soliciting proxies will be borne by Ballston. In addition
to use of the mails, proxies may be solicited personally or by telephone,
telecopier or telegraph by officers, directors or employees of Ballston, who
will not be specially compensated for such solicitation activities.
A proxy may be revoked by the person giving the proxy at any time prior
to the close of voting. Prior to the Annual Meeting a proxy may be revoked by
filing with the Secretary of Ballston at Ballston Bancorp, Inc., 1667 K Street,
N.W., Suite 700, Washington, D.C. 20006, a written revocation or a duly executed
proxy bearing a later date. During the Annual Meeting a proxy may be revoked by
filing a written revocation or a duly executed proxy bearing a later date with
the Secretary of the Annual Meeting prior to the close of voting or by attending
the Annual Meeting and voting in person. Any shareholder of record may attend
the Annual Meeting and vote in person, whether or not a proxy has previously
been given.
If a person holding Ballston Common Stock in street name wishes to vote
such Ballston Common Stock at the Annual Meeting, the person must obtain from
the nominee holding the Ballston Common Stock in street name a properly executed
"legal proxy" identifying the individual as a Ballston shareholder, authorizing
the Ballston shareholder to act on behalf of the nominee at the Annual Meeting
and identifying the number of shares with respect to which the authorization is
granted.
PROPOSAL I - THE MERGER
The following information concerning the Merger, insofar as it relates
to matters contained in the Merger Agreement, is qualified in its entirety by
reference to the full text of the Merger Agreement which is attached as Appendix
I to this Proxy Statement/Prospectus and is incorporated by reference.
12
<PAGE>
General
On March 11, 1998, MSBC and Ballston entered into the Merger Agreement
which provides for the Merger of Ballston with and into MSBC. Under the terms of
the Merger Agreement, each outstanding share of Ballston Common Stock has been
valued at $12.04. The number of shares to be delivered for each share of
Ballston Common Stock will be determined by dividing $12.04 by the Average MSBC
Share Price as reported on the Nasdaq National Stock Market for each of the 20
trading days preceding the tenth calendar day prior to the Effective Date. If
such quotient is less than 0.4025, the Exchange Ratio shall be 0.4025 and if
such quotient is more than 0.4920, the Exchange Ratio shall be 0.4920. Cash will
be paid in lieu of the issuance of any fractional shares. The Exchange Ratio
will be adjusted to reflect any consolidation, split-up, other subdivisions or
combinations of MSBC common stock, any dividend payable in MSBC common stock, or
any capital reorganization involving the reclassification of MSBC common stock.
Ballston has agreed that prior to the Effective Date, it will operate
its business substantially as presently operated and in the ordinary course, and
consistent with such operations will use reasonable efforts to preserve intact
its present business operation and keep available its present officers and
employees material to its business and operations.
Background of the Merger
In recent years, a number of banks, bank holding companies, and other
interested parties have contacted Ballston and suggested exploring the
possibility of a merger or acquisition. In general, however, the Ballston Board
considered a merger or acquisition to be either premature or not in the best
interests of Ballston. As a result, the Board elected not to pursue such
preliminary expressions of interest and instead focused on a strategy of
internal growth, with inconsistent and ultimately limited results.
The Board and management of Ballston have followed, however, the trend
in the banking industry generally and, more specifically, in The Bank's Northern
Virginia market area, towards increasing levels of competition and significant
consolidation. Ballston recognizes that the larger entities that result from
such consolidations may acquire substantial competitive advantages, including
greater diversity in their loan portfolios, improved access to capital and
funding and the ability to spread costs of new products, services and research
and development over a wider customer base.
During the first quarter of 1997 Ballston received an unsolicited
overture from Abigail Adams National Bancorp, Inc. ("AANB"), which resulted in
subsequent discussions between Ballston and AANB concerning shareholder welfare,
cultural affinities, and other considerations. At the conclusion of these
discussions, on June 23, 1997, Ballston signed a definitive agreement to merge
with and into a subsidiary of AANB (the "AANB Merger"). However, at the Special
Meeting of Shareholders of AANB held on December 31, 1997, the shareholders of
AANB failed to approve the AANB Merger and, as a result, the definitive
agreement between Ballston and AANB was terminated.
During early January 1998, following the termination of the definitive
agreement between Ballston and AANB, a financial institution in the Washington,
D.C. metropolitan area contacted an officer of Ballston regarding a possible
affiliation with Ballston. In light of this expression of interest and the
likelihood of receiving other expressions of interest in a possible affiliation,
management of Ballston retained Danielson to provide financial and business
advice regarding the strategic future of Ballston. As discussed with Danielson,
the primary criterion of management and the Board for any possible strategic
decision, including affiliation with a financial institution, was the
maximization of the long-term value of Ballston to its shareholders.
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During the remainder of the month of January, Danielson and Robert F.
Kelleher, Chairman of the Board, President and Chief Executive Officer of
Ballston, each were contacted by several other financial institutions in the
Washington, D.C. metropolitan area, regarding a possible affiliation with
Ballston. Between January 29 and February 5, 1998, Danielson met with
representatives of each of the financial institutions that had expressed
interest in establishing an affiliation with Ballston, including several that
Danielson had identified, and Danielson requested all submissions of interest to
be received by February 17, 1998.
On February 11, 1998, Danielson met with the Board and identified and
analyzed the financial institutions that had expressed an interest in a possible
affiliation with Ballston. Between February 14 and 17, 1998, Danielson received
several formal submissions of interest from various institutions (the
"interested parties"), including one from MSBC. On February 18, 1998, the Board
met with its legal counsel and financial advisor to discuss the submissions of
interest, while management and its advisors continued to engage in discussions
with several interested parties. As a result of these discussions, MSBC agreed
to revise its initial submission of interest, subject to satisfactory completion
of its remaining due diligence, to include financial terms more favorable to
Ballston. For the reasons discussed below under "Reasons for the Merger," the
Board instructed management and Danielson to pursue further negotiations with
MSBC. Between March 5 and 8, 1998, representatives of MSBC conducted additional
due diligence of Ballston and, upon completion of that review, MSBC negotiated a
form of definitive merger agreement with Ballston.
On March 11, the Board reviewed the proposal of MSBC and met with
Danielson and Ballston's legal counsel to discuss and review the final proposal
and terms of the Merger Agreement. Danielson presented a detailed analysis of
the final proposal to the Board and provided its oral opinion that the Exchange
Ratio was fair to Ballston's shareholders from a financial point of view.
On the basis of a variety of factors discussed below under "Reasons for
the Merger," including the opinion from Danielson that the MSBC proposal was
fair to Ballston's shareholders from a financial point of view, the Board
concluded that accepting MSBC's offer was in the best interest of Ballston and
its shareholders. Accordingly, for all of the reasons discussed above, on March
11, 1998, Ballston's Board unanimously (with one Board member not present)
accepted MSBC 's offer and authorized execution of the Merger Agreement.
Reasons for the Merger
In reaching its conclusion to approve the Merger Agreement, the Board
considered a number of factors. The Board did not assign any relative or
specific weights to the factors considered. Among other things, the Board
considered: (i) the Merger consideration in relation to the book value, assets
and earnings of Ballston and MSBC; (ii) information concerning the financial
condition, results of operations and prospects of Ballston and MSBC, including
the return on assets and return on equity; (iii) the financial terms of other
recent business combinations in the banking industry; and (iv) the opinion of
Danielson as to the fairness of the Merger consideration to Ballston's
shareholders from a financial point of view.
The Board believes that the terms of the Merger Agreement, which are
the product of arms-length negotiations between MSBC and Ballston, are in the
best interest of Ballston and its shareholders. In the course of reaching its
determination, the Board consulted with legal counsel with respect to its legal
duties, the terms of the Merger Agreement and the issues related thereto; with
its financial advisor with respect of the financial aspects and fairness of the
transaction; and with senior management of MSBC regarding, among other things,
retention of Ballston employees, customer service and depth of MSBC management.
In reaching its determination to approve the Merger Agreement, the Board
considered various factors it deemed material, including:
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(a) The Board analyzed information with respect to the financial
condition, results of operations, businesses and prospects of Ballston and MSBC.
In this regard, the Board analyzed the options of having Ballston effect a
transaction with a third party or continue on a stand-alone basis. The range of
values on the basis of a combination with a third party were determined
generally to exceed the present value of Ballston shares on a stand-alone basis
under business strategies which could be reasonably implemented by Ballston.
(b) The Board considered the oral opinion (which was subsequently
confirmed in writing) of Danielson that, as of March 11, 1998, the Exchange
Ratio was fair to Ballston's shareholders from a financial point of view. See
"Opinion of Ballston's Financial Advisor."
(c) The Board considered the current operating environment, including,
but not limited to, the continued consolidation activity and increasing
competition in the banking and financial services industries, the prospect for
further changes in these industries, and the importance of being able to
capitalize on developing opportunities in these industries. This information has
been periodically reviewed by the Board at its regular board meetings and was
also discussed between the Board and Ballston's various advisors.
(d) The Board considered the other terms of the Merger Agreement,
including the tax-free nature of the transaction.
(e) The Board considered the detailed financial analyses and other
information with respect to Ballston and MSBC discussed, as well as the Board's
own knowledge of Ballston and MSBC and their respective businesses. In this
regard, the latest publicly-available financial and other information for MSBC
was analyzed, including a comparison to publicly available financial and other
information for other similar institutions.
(f) The Board considered the value of Ballston Common Stock if Ballston
continued as a stand-alone entity compared to the effect of Ballston combining
with MSBC in light of the factors summarized above and the current economic and
financial environment, including, but not limited to, other possible strategic
alternatives, the results of the contacts and discussions between Ballston,
MSBC, and Danielson and various third parties and the belief of the Board and
management that the Merger offered the best transaction available to Ballston
and its shareholders.
(g) The Board considered the likelihood of the Merger being approved by
the appropriate regulatory authorities, including factors such as market share
analysis, Community Reinvestment Act rating at that time and the estimated pro
forma financial impact of the Merger on MSBC.
The merger consideration of approximately $12.04 per share for each
outstanding share of Ballston Common Stock in the form of MSBC common stock,
subject to adjustment under certain conditions, represents an exchange premium
of approximately 2.4 times Ballston's book value at December 31, 1997.
The foregoing discussion of the information and factors considered by
the Board is not intended to be exhaustive, but constitutes the material factors
considered by the Board. In reaching its determination to approve and recommend
the Merger Agreement, the Board did not assign any relative or specific weights
to the foregoing factors, and individual directors may have weighted factors
differently. After deliberating with respect to the Merger and the other
transactions contemplated by the Merger Agreement, considering, among other
things, the matters discussed above and the opinion of Danielson referred to
above, the Board approved and adopted the Merger Agreement as being in the best
interests of Ballston and its shareholders.
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Opinion of Ballston's Financial Advisor
Ballston retained Danielson to provide financial and business advice
regarding the strategic future of Ballston. Danielson is regularly engaged in
the valuation of banks, bank holding companies, and thrifts in connection with
mergers, acquisitions, and other securities transactions and has knowledge of,
and experience with, the Mid-Atlantic banking markets and banking organizations
operating in those markets. Danielson was selected by Ballston because of its
knowledge of, expertise with, and reputation in the financial services industry.
In such capacity, Danielson reviewed the Merger Agreement with respect
to the pricing and other terms and conditions of the Merger, but the decision as
to accepting the offer was ultimately made by the Board. Danielson rendered its
oral opinion to the Ballston Board, which it subsequently confirmed in writing,
that as of the date of such opinion, the financial terms of the MSBC offer were
"fair" to Ballston and its shareholders. No limitations were imposed by the
Ballston Board upon Danielson with respect to the investigation made or
procedures followed by it in arriving at its opinion.
In arriving at its opinion, Danielson (a) reviewed certain business and
financial information relating to Ballston and MSBC, including MSBC's annual
report for the fiscal year ended December 31, 1997, Ballston's unaudited
financial statements for December 31, 1997, and call report data from 1989 to
1996 including quarterly reports for 1997; (b) discussed the past and current
operations, financial condition and prospects of Ballston with its senior
executives; (c) analyzed the pro forma impact of the merger on MSBC's earnings
per share, capitalization, and financial ratios; (d) reviewed the reported
prices and trading activity for the MSBC common stock and compared them to
similar bank holding companies; (e) reviewed and compared the financial terms,
to the extent publicly available, with comparable transactions; (f) reviewed the
Merger Agreement and certain related documents; and (g) considered such other
factors as were deemed appropriate.
Danielson did not obtain any independent appraisal of assets or
liabilities of Ballston or MSBC or their respective subsidiaries. Further,
Danielson did not independently verify the information provided by Ballston or
MSBC and assumed the accuracy and completeness of all such information.
In arriving at its opinion, Danielson performed a variety of financial
analyses. Danielson believes that its analyses must be considered as a whole and
that consideration of portions of such analyses and the factors considered
therein, without considering all the factors and analyses, could create an
incomplete view of the analyses and the process underlying Danielson's opinion.
The preparation of a fairness opinion is a complex process involving subjective
judgments and is not necessarily susceptible to partial analysis and summary
description.
In its analyses, Danielson made certain assumptions with respect to
industry performance, business and economic conditions, and other matters, many
of which were beyond Ballston's or MSBC's control. Any estimates contained in
Danielson's analyses are not necessarily indicative of future results of value,
which may be significantly more or less favorable than such estimates. Estimates
of the value of companies do not purport to be appraisals or necessarily reflect
the prices at which companies or their securities may actually be sold.
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The following is a summary of selected analyses considered by Danielson
in connection with its opinion letter.
Pro Forma Merger Analyses. Danielson analyzed the changes in the amount of
earnings and book value represented by the receipt of about $19.5 million for
all of the outstanding shares of Ballston Common Stock, which will be paid in
MSBC common stock. The analysis evaluated, among other things, possible dilution
in earnings and capital per share for MSBC common stock.
Specifically, Danielson determined that based upon MSBC's current
announced transactions which include Regency Financial Shares, Inc. ("Regency")
and Ballston, MSBC had on a historic basis diluted its 1997 earnings per share
by approximately $0.04 per share or 2.8%. Similarly, Danielson determined that
based upon Regency and Ballston and a December 31, 1997 financial date, MSBC
will benefit from $0.06 per share in accretion to equity per share, or .5%
accretion.
Comparable Companies. Danielson compared Ballston's (a) tangible capital of
10.31% of assets as of December 31, 1997, (b) 1.74% of assets nonperforming as
of December 31, 1997, and (c) net operating income of 1.77% of average assets
for 1997, with the medians for selected Virginia banks, which Danielson deemed
comparable. These banks included Community Bank of Northern Virginia, The
Horizon Bank of Virginia, Rockingham Heritage Bank, Virginia Commerce Bank, N.A.
and Virginia Heartland Bank. Their medians as of September 30, 1997 or for the
first nine months of 1997, annualized, were (a) tangible capital of 8.37% of
assets, (b) .96% of assets nonperforming, and (c) net operating income of 1.65%
of average assets.
Danielson also compared MSBC's (a) stock price as of March 9, 1998
equal to 20.1 times earnings and 271% of book, (b) dividend yield based on
trailing four quarters as of December 31, 1997 and stock price as of March 9,
1998 of 2.07%, (c) tangible capital as of December 31, 1997 of 7.46% of assets,
(d) nonperforming assets as of December 31, 1997 equal to .46% of total assets,
(e) return on average assets during the trailing four quarters ended December
31, 1997 of 1.24% and (f) return on average equity during the same period of
13.98%, with the medians for selected banks and bank holding companies that
Danielson deemed to be comparable to MSBC. The selected institutions included
F&M Bancorp, F&M National Corporation, FCNB Corp., First Charter Corporation,
First United Corporation, LSB Bancshares, Inc., Mason-Dixon Bancshares, Inc.,
Provident Bankshares Corp., Sandy Spring Bancorp, Inc., Triangle Bancorp, Inc.
and Union Bankshares Corp. The comparable medians were (a) stock price equal to
21.1 times earnings and 282% of book, (b) dividend yield of 1.90%, (c) tangible
capital of 9.43% of assets, (d) .64% of assets nonperforming, (e) return on
average assets of 1.26% and (f) return on average equity of 12.64%. Danielson
also compared other income, expense, and balance sheet information of such
companies with similar information about MSBC.
Comparable Transaction Analysis. Danielson compared the consideration to be paid
in the merger to the latest twelve months earnings and equity capital of
Ballston with earnings and capital multiples paid in acquisitions of
Mid-Atlantic banks in 1997 and 1998 through the opinion date. Of these, the most
applicable recent transactions included United Bankshares' purchase of First
Patriot Bank, F&M National Corporation's purchases of Peoples Bank of Virginia
and the Bank of Alexandria, Community Bancshares buying County Bank-Chesterfield
and MSBC's purchases of Regency Financial Shares, Inc., Tysons Financial
Corporation and Commerce Bank Corporation. At the time Danielson made its
analysis, the consideration to be paid in the merger was 235% of Ballston's
December 31, 1997 book value and 23.5 times Ballston's earnings in 1997 after
adjustments were made to exclude unusual and one-time revenues and expenses.
This compares to the median multiples of 256% of book value and 18.7 times
earnings for the most applicable comparable acquisitions and 21.2 times earnings
and 275% of book for all Mid-Atlantic bank acquisitions in 1997.
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Other Analysis. In addition to performing the analyses summarized above,
Danielson also considered the general market for bank and thrift mergers, the
historical financial performance of Ballston and MSBC, the deposit market shares
of both companies, and the general economic conditions and prospects of those
companies.
In examining the historical financial performance for Ballston and
MSBC, Danielson utilized publicly-available financial data of Ballston and MSBC
from 1988 and 1989, respectively, through December 31, 1997. This analysis
included among other things consideration of asset growth and change, capital
growth and change, revenue and expense ratio analysis and loan and deposit mix
change.
In examining Ballston's market, Danielson utilized branch deposit
information as of June 30, 1997 and adjusted for mergers in process, to
determine that Ballston held a 1.7% deposit market share in Arlington County.
This analysis also showed Ballston to be one of only three locally-owned
community banks operating in this market area. Danielson also utilized available
office space data to establish that Arlington County and Ballston have 26.2
million and 4.2 million square feet of office space available as of June 30,
1996.
Danielson also considered in its analysis the markets served by MSBC,
which include eleven Virginia counties, four of Virginia's independent cities
and one Maryland county. MSBC does not currently have any presence in Arlington.
No company or transaction used in the analysis is identical to Ballston
or MSBC. Accordingly, an analyses of the results of the foregoing is not
mathematical; rather it involves complex considerations and judgments concerning
differences in financial and operating characteristics of the companies and
other factors that could affect the public trading values of the company or
companies to which they are being compared.
The summary set forth above does not purport to be a complete
description of the analyses and procedures performed by Danielson in the course
of arriving at its opinions. The full text of the opinion of Danielson dated as
of March 11, 1998, which sets forth assumptions made and matters considered, is
attached hereto as Appendix II of this Proxy Statement/Prospectus. Ballston
shareholders are urged to read this opinion in its entirety. Danielson's opinion
is directed only to the consideration to be received by Ballston shareholders in
the Merger and does not constitute a recommendation to any Ballston shareholder
as to how any such shareholder should vote at the shareholders meeting.
Ballston has agreed to pay Danielson a transaction fee in connection
with the Merger, a substantial portion of which is contingent upon the
consummation of the Merger. Under the terms of the Danielson agreement, Ballston
has agreed to pay Danielson a transaction fee equal to 0.5% of the aggregate
transaction price, of which approximately 25% has been paid and the remainder is
payable upon closing of the transaction. Danielson has also received a fee of
$10,000 for rendering its fairness opinion, which amount will be credited
against the balance of the transaction fee payable to Danielson upon
consummation of the Merger. Ballston has also agreed to reimburse Danielson for
its reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify Danielson and its affiliates and their respective partners,
directors, officers, employees, agents, and controlling persons against certain
expenses and liabilities, including liabilities under securities laws. In regard
to the failed AANB Merger, Danielson was paid fees of approximately $13,000.
Conditions to Consummation of the Merger; Waiver
The Merger will occur only if holders of at least a majority of the
outstanding shares of Ballston Common Stock approve the Merger Agreement.
Consummation of the Merger is subject to the satisfaction of certain other
conditions, including (i) receipt of the approval by the Federal Reserve Board
and the SCC; (ii) representations and warranties of MSBC and Ballston contained
in the Merger Agreement being true and correct on the effective date; (iii)
receipt by MSBC of a letter from each person who is deemed to be an "affiliate"
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of Ballston, concerning transactions in the stock of Ballston and MSBC before
and after the Merger; (iv) continued effectiveness of the registration statement
filed with the absence of any pending or threatened stop order proceedings with
respect thereto; and (v) no order, decree or injunction of any court or agency
of competent jurisdiction that enjoins or prohibits consummation of the Merger.
The obligations of MSBC and Ballston to consummate the Merger is
subject to the satisfaction or waiver of certain additional conditions,
including without limitation the following: (i) any inaccuracies in the
representations and warranties of the other party contained in the Merger
Agreement or in any document delivered pursuant thereto; (ii) the receipt of all
general government approvals (other than approval by the Federal Reserve Board
and the SCC); (iii) receipt of an auditors' report as to the consolidated
financial position and results of operations of the other party; (iv) receipt of
an opinion, dated at the Effective Date, from the other party's legal counsel;
(v) receipt of a tax opinion regarding the tax free nature of the Merger from
Flippin, Densmore, Morse, Rutherford & Jessee, A Profssional Corporation; (vi)
Blue Sky law approvals, permits and other authorizations necessary to consummate
the Merger; (vii) the receipt of an opinion from Coopers & Lybrand L.L.P. that
the Merger will qualify for pooling of interests accounting treatment; and (vii)
the receipt of a fairness opinion by Danielson, at the time the Proxy Statement
is mailed.
Prior to the Effective Date, any provision of the Merger Agreement may
be (i) waived by the party benefited from the provision or (ii) amended or
modified at any time (including with respect to the structure of the
transaction), except that after the approval of the Merger by the Ballston
shareholders, the merger consideration to be received by the Ballston
shareholders may not be decreased.
No Solicitation of Transactions
Pursuant to the Merger Agreement, Ballston and its directors, officers,
employees, representatives or agents may not, directly or indirectly, take any
action to solicit, support or encourage any offer or proposal from any other
person to acquire Ballston or its assets or shares of Ballston Common Stock, or
engage in negotiations with or provide information to such person with respect
to such offer or proposal. In connection with any unsolicited bona fide written
proposal, Ballston may engage in such negotiations or provide information if the
Board of Directors of Ballston concludes, after receipt of legal advice from its
counsel, that their fiduciary duties to the shareholders of Ballston so require.
Ballston will immediately notify MSBC if any such negotiations occur, if such
information is provided, or if such offer or proposal is made, and will keep
MSBC informed of any such negotiations, offers, proposals, or transactions.
Stock Option Agreement
In connection with the Merger Agreement, MSBC and Ballston entered into
a Stock Option Agreement, dated as of March 11, 1998 (the "Option Agreement").
Specifically, the Option Agreement provides that MSBC shall have the option to
purchase up to 322,275 of the authorized, but unissued, shares of Ballston's
Common Stock at a price of $8.64 per share. The Option Agreement provides that
MSBC has an option to purchase Ballston Common Stock only upon the occurrence of
the following events: (i) Ballston 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 Ballston;
or (ii) a third party acquires beneficial ownership or the right to acquire
beneficial ownership of 25% or more of outstanding Ballston Common Stock. MSBC's
right to exercise the Option Agreement has not been triggered as of the date of
this Proxy Statement/Prospectus.
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MSBC's Acquisition Program
MSBC has expanded its market area and increased its market share
through both internal growth and strategic acquisitions. Since December 31,
1997, MSBC has acquired approximately $191.6 million in assets and approximately
$145.0 million in deposits through two bank acquisitions. On February 28, 1998,
MSBC completed the acquisition of Tysons Financial Corporation, the holding
company of Tysons National Bank, with three offices in Northern Virginia. At
March 31, 1998, Tysons Financial Corporation had total assets of $119.5 million
and $98.5 million in deposits. Additionally, on March 10, 1998, MSBC completed
the acquisition of Regency Financial Shares, Inc., the holding company of
Regency Bank, with three offices in the Richmond, Virginia area. At March 31,
1998, Regency Bank had total assets of $81.6 million and $69.2 million in
deposits. Additional opportunities may exist for MSBC to acquire financial
institutions or to acquire assets and deposits that will allow MSBC to enter new
markets or increase market share in existing markets. MSBC may also pursue
acquisition opportunities in strategic markets where its managerial, operational
and capital resources will enhance the performance of acquired institutions and,
after the date of this Proxy Statement/Prospectus, may enter into agreements to
acquire one or more financial institutions. In this regard, acquisitions
typically involve the payment of a premium over book value and market values,
and therefore some dilution of MSBC's book value and net income per common share
may occur in connection with any future transaction.
Exchange Ratio Termination
The Merger Agreement contains a provision that permits Ballston to
terminate the Merger Agreement if there is a decline in the Average MSBC Share
Price that is not coincidental with a significant decline in the stock prices of
certain financial institutions' holding companies unless MSBC is willing to
increase the consideration it will pay for Ballston Common Stock by adjusting
the Exchange Ratio. Generally, Ballston will have the right to terminate the
Merger Agreement if both (i) the Average MSBC Share Price is less than $24.47
and (ii) the decline is at least 10% greater than the decline of the other
institutions.
This provision specifically provides that Ballston may terminate the
Merger Agreement during the ten day period commencing on the Determination Date
(defined below) preceding the Effective Date, if both of the following
conditions are satisfied (i) the average share price is less than $24.47; and
(ii) if the First Percentage (defined below) exceeds the Second Percentage
(defined below) by at least ten (10) percentage points.
If Ballston elects to exercise this termination right, it must give
prompt written notice to MSBC following its election. During the seven day
period beginning when MSBC receives notice from Ballston, MSBC has the option to
avoid a termination of the Merger Agreement by electing to increase the merger
consideration. The increase would occur by adjusting the Exchange Ratio to a
number that would provide shareholders of Ballston with stock of MSBC equal in
market value to $12.04 per share of Ballston Common Stock held by such
shareholders. If MSBC makes this election, it must give prompt written notice to
Ballston of its election and the consideration to be received. As a result, no
termination will occur and the Merger Agreement will otherwise remain in effect
in accordance with its terms.
The following terms have the meanings indicated below:
"Determination Date" means the tenth calendar day prior to the
Effective Date.
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"First Percentage" means the percentage resulting from: (a) taking the
remainder ("First Remainder") obtained by subtracting the Average MSBC Share
Price from $27.19; and (b) dividing the First Remainder by the Average MSBC
Share 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 Share Price ("Recent SNL Bank Index")
from the SNL Southeast Bank Index reported most recently prior to or on February
13, 1998; and (b) dividing the Second Remainder by the Recent SNL Bank Index.
Termination
In addition to terminating the Merger Agreement based upon a decline in
MSBC's common stock price described above, the Merger Agreement may be
terminated at any time prior to the effective date, whether before or after its
approval by the shareholders of Ballston: (i) by mutual consent of MSBC and
Ballston; (ii) by either MSBC or Ballston if any representation or warranty is
breached by the other party or if there has been a material breach by the other
party of any of the covenants or agreements, as set forth in the Merger
Agreement, that has not been cured within 30 days of giving written notice of
the breach; (iii) by either MSBC or Ballston, in the event that the Merger is
not consummated by September 30, 1998; (iv) by either MSBC or Ballston, in the
event the Merger is not approved by the shareholders of Ballston; (v) by either
MSBC or Ballston, in the event the Merger is not approved by the Federal Reserve
Board or the SCC; and (vi) by Ballston, if its Board of Directors concludes,
after receipt of written legal advice from its counsel, that the Board's
fiduciary duties to the Ballston shareholders require the Board to recommend
another acquisition proposal to its shareholders after determining that such
proposal is superior in value to the shareholders to the transaction
contemplated by the Merger Agreement, and Ballston gives at least three business
days prior notice to MSBC of termination.
In the event of a termination of the Merger Agreement, the Merger
Agreement shall thereafter become void and subject to certain specific
provisions of the Merger Agreement dealing with confidentiality of information
and expenses, and no party shall be relieved or released from any liability
arising out of a breach of any provisions of the Merger Agreement, except as to
the payment of certain expenses by the non-breaching party.
Federal Income Tax Consequences
MSBC and Ballston have received an opinion from Flippin, Densmore,
Morse, Rutherford & Jessee, A Professional Corporation, counsel for MSBC, dated
the date of this Proxy Statement/Prospectus, to the effect that, for federal
income tax purposes:
1. The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code. Ballston and MSBC will each qualify as a "party to a
reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by MSBC or Ballston as a result
of the Merger.
3. No gain or loss will be recognized by Ballston shareholders as a
result of the exchange of Ballston Common Stock solely for MSBC common stock
(including any fractional share interest) pursuant to the Merger, except that
gain or loss will be recognized on the receipt of cash, if any, received in lieu
of a fractional share of MSBC common stock.
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4. Cash received by a Ballston shareholder in lieu of a fractional
share of MSBC common stock will be treated as having been received as full
payment in exchange for such fractional share pursuant to Section 302(a) of the
Code. Such shareholder will recognize gain or loss equal to the difference
between the amount of cash received and the shareholder's basis in that
fractional share, and such gain or loss will be capital gain or loss if the
fractional share would have been a capital asset in the hands of the
shareholder.
5. A dissenting shareholder who receives solely cash in exchange for
his Ballston Common Stock will be treated as receiving a distribution in
redemption of his Ballston Common Stock, subject to the provisions and
limitations of Section 302 of the Code.
6. The aggregate tax basis of MSBC common stock (including any
fractional share interest) received in the Merger by Ballston shareholders who
exchange their Ballston Common Stock solely for shares of MSBC common stock will
be the same as the aggregate tax basis of Ballston Common Stock surrendered in
exchange therefor.
7. The holding period of MSBC common stock received by Ballston
shareholders will include the period during which Ballston Common Stock
surrendered in exchange therefor was held by such Ballston shareholders,
provided the Ballston Common Stock was held as a capital asset on the date of
the exchange.
The opinion is based on certain customary assumptions and
representations made by duly authorized officers of MSBC and Ballston. The
opinion is not binding on the Internal Revenue Service, any tax authority or any
court. No assurance can be given that a position contrary to that expressed in
the opinion will not be asserted by the Internal Revenue Service or any tax
authority or that such contrary position will not prevail. The opinion does not
address all aspects of federal income taxation that may be relevant to
particular holders of Ballston Common Stock and the opinion may not be
applicable to holders of Ballston Common Stock that are not citizens or
residents of the United States or to holders of options or warrants. The opinion
does not address the effect of any applicable foreign, state, local or other tax
laws. Receipt of substantially the same opinion as of the Merger Effective Date
is a condition to consummation of the Merger.
The tax consequences to any particular shareholder may depend on the
shareholder's circumstances. Ballston shareholders are urged to consult their
own tax advisors with regard to foreign, state and local tax consequences.
Exchange of Certificates; Payment for Fractional Shares
After the Effective Date, each holder of a certificate theretofore
representing outstanding shares of Ballston Common Stock, upon surrender of such
certificate to Registrar and Transfer Company, Post Office Box 1010, Cranford,
New Jersey (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
MSBC common stock for which shares of Ballston Common Stock theretofore
represented by the certificate or certificates so surrendered shall have been
exchanged as provided plus cash in lieu of any fractional shares. Until so
surrendered, each outstanding certificate which, prior to the Effective Date,
represented Ballston Common Stock will be deemed for all corporate purposes of
MSBC to evidence ownership of the number of full shares of MSBC common stock
into which the shares of Ballston Common Stock represented thereby were
converted, together with a right to cash in lieu of any fractional shares. Until
such outstanding certificates formerly representing Ballston Common Stock are
surrendered, no dividend payable to holders of record of MSBC common stock for
any period as of the date subsequent to the Effective Date shall be paid to the
holder of such outstanding certificates in respect thereof. After the Effective
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Date there shall be no further registry of transfer on the records of Ballston
of shares of Ballston Common Stock. If a certificate representing such shares is
presented to the Exchange Agent, it shall be canceled and exchanged for a
certificate representing the shares of MSBC common stock as herein provided.
MSBC will also issue a certificate in exchange for shares evidenced by lost
certificate(s) provided the record owner thereof provides MSBC with such
substantiation, indemnification and security as MSBC should reasonably require.
Upon surrender of certificates of Ballston Common Stock in exchange for
MSBC common stock, there shall be paid to the record holder of the certificates
of MSBC common stock issued in exchange therefor (i) the amount of dividends
theretofore paid with respect to such full shares of MSBC common stock as of any
date subsequent to the 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 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.
As soon as practicable after the Effective Date, cash (without
interest) will be paid to Ballston shareholders in lieu of the issuance of any
fractional shares in an amount equal to the fraction of a share of MSBC common
stock to which such shareholders would be entitled multiplied by the Average
MSBC Share Price.
Accounting Treatment
The Merger will be accounted for as a "pooling of interests" under
generally accepted accounting principles.
Regulatory Approvals
The Merger is subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act") and the SCC. Applications have
been filed by MSBC with the Federal Reserve and the SCC. There can be no
assurance that the approval of the Federal Reserve or the SCC will be obtained
or as to the timing or conditions of such approvals.
Interests of Certain Persons in the Merger
As set forth below, certain members of Ballston's management and Board
of Directors have interests in the Merger in addition to their interests as
shareholders.
Indemnification; Liability Insurance. MSBC agrees that for the period
of the relevant statute of limitations but in no event less than six years
following the Effective Date, it shall cause Ballston and any successor thereto
to indemnify and hold harmless any person who has rights to indemnification from
Ballston to the same extent and on the same conditions as such person is
entitled to indemnification pursuant to Ballston's Bylaws as in effect on the
date of the Merger Agreement, to the extent legally permitted to do so, with
respect to matters occurring on or prior to the Effective Date (regardless of
whether a claim is asserted in connection therewith on or prior to the Effective
Date or thereafter). MSBC shall use its reasonable best efforts to provide
coverage to the officers and directors of Ballston under MSBC'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
MSBC.
Employee Benefits. Upon consummation of the Merger, as soon as
administratively practicable, employees of Ballston 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. Employees of
Ballston shall be given full credit for past service with Ballston for purposes
of eligibility and vesting in the MSBC 401(k) plan.
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Resales by Affiliates
The shares of MSBC common stock issued to Ballston's shareholders upon
consummation of the Merger have been registered under the Securities Act, but
such registration does not cover resales by affiliates of Ballston
("Affiliates"). MSBC common stock received and beneficially owned by those
shareholders who are deemed to be Affiliates may be resold without registration
as provided for by Rule 145 under the Securities Act, or as otherwise permitted.
The term "Affiliate" is defined to include any person who, directly or
indirectly, controls, or is controlled by, or is under common control with
Ballston at the time the Merger Agreement is submitted for approval by a vote of
holders of Ballston's Common Stock. Generally, this definition includes
executive officers, directors and 10% shareholders of Ballston and The Bank.
Each Affiliate who desires to resell MSBC common stock received in the Merger
must sell such MSBC common stock either (i) pursuant to an effective
registration statement under the Securities Act; (ii) in accordance with the
applicable provisions of Rule 145 under the Securities Act; or (iii) in a
transaction which, in the opinion of counsel for such affiliates or as described
in a "no-action" or interpretive letter from the staff of the Securities and
Exchange Commission, in each case reasonably satisfactory in form and substance
to MSBC, to the effect that such resale is exempt from the registration
requirements of the Securities Act.
Rule 145(d) requires that persons deemed to be affiliates resell their
MSBC common stock pursuant to certain of the requirements of Rule 144 under the
Securities Act if such MSBC common stock is sold within the first year after the
receipt thereof. After one year, if such person is not an affiliate of MSBC and
MSBC is current in the filing of its periodic securities law reports, a former
affiliate of Ballston may freely resell the MSBC common stock received in the
Merger without limitation. After two years from the issuance of the MSBC common
stock, if such person is not an affiliate of MSBC at the time of sale or for at
least three months prior to such sale, such person may freely resell such MSBC
common stock, without limitation, regardless of the status of MSBC's periodic
securities law reports.
Commission guidelines regarding qualifying for the pooling-of-interests
method of accounting also limit sales of stock of the acquiring company and
acquired company by affiliates of either company in a business combination.
Commission guidelines also indicate that the pooling-of-interests method of
accounting will generally not be challenged on the basis of sales by affiliates
of the acquired or acquiring company if they do not dispose of any shares of the
corporation whose shares they own or shares of a corporation whose shares they
receive in connection with a merger during the period beginning 30 days before
the Merger and ending when financial results covering at least 30 days of
post-merger operations of the combined operations have been published.
Each Affiliate has delivered to MSBC a letter pursuant to which such
person agreed, among other things, not to offer to sell, transfer or otherwise
dispose of any of the shares of MSBC common stock distributed to him or her
pursuant to the Merger except (i) with respect to Affiliates of Ballston, in
compliance with Rule 145 under the Securities Act, or in a transaction that, in
the opinion of counsel reasonably satisfactory to MSBC, is otherwise exempt from
the registration requirements of the Securities Act, and (ii) with respect to
Affiliates of each of Ballston and MSBC, in compliance with Commission
guidelines regarding qualifying for pooling-of-interests accounting treatment.
MSBC may place restrictive legends on certificates representing MSBC common
stock issued to all persons who are deemed to be "Affiliates" under Rule 145.
The certificates of MSBC common stock issued to Affiliates in the Merger may
contain an appropriate restrictive legend, and appropriate stop transfer orders
may be given to the transfer agent for such certificates.
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Rights of Dissenting Shareholders
Under Section 262 of the DGCL, a copy of which is included as Appendix
III to this Proxy Statement/Prospectus, each holder of Ballston Common Stock
will be entitled to dissent and demand an appraisal of the "fair value" of
Ballston Common Stock held thereby if, prior to the vote at the Ballston
Meeting, such Ballston Shareholder files with Ballston a written demand for
appraisal and does not vote in favor of the Merger. Within ten days after the
Effective Date, MSBC shall notify each Ballston shareholder exercising appraisal
rights in compliance with Section 262 of the date that the Merger has become
effective. At any time within 60 days after the Effective Date, any shareholder
shall have the right to withdraw demand for appraisal and to accept the terms
offered upon the Merger. A written demand for appraisal should be sent to
Ballston Bancorp, Inc., 1667 K Street, N.W., Suite 700, Washington, D.C. 20006,
Attn: Brian D. Alprin, Secretary. Any Ballston shareholder who fails to comply
with the requirements described above will be bound by the terms of the Merger.
Within 120 days after the Effective Date, MSBC or any Ballston
shareholder who has perfected appraisal rights in accordance with Section 262 of
the DGCL may file a petition with the Delaware Court of Chancery (the "Court")
demanding a determination of the value of the stock of all such shareholders. If
no petition is filed within such time, the dissenting shareholders' appraisal
rights shall terminate. At the hearing on such petition, the Court shall
determine the Ballston shareholders who have complied with Section 262 and who
have become entitled to appraisal rights. The Court may require that the
shareholders submit their certificates of stock, if any, to the Register in
Chancery for notation thereon of the pendency of the appraisal proceedings, and
if any shareholder fails to comply with such direction, the Court may dismiss
the proceedings as to such shareholder. MSBC has informed Ballston that it does
not intend to file such a petition with the Court in the event that any Ballston
shareholder has perfected appraisal rights.
After determining the shareholders entitled to an appraisal, the Court
shall appraise the shares as to their fair value. In determining their fair
value, the Court shall take into account all relevant factors exclusive of any
element of value arising from the accomplishment or expectation of the Merger.
The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by MSBC to the shareholders entitled to such payment. The
costs of the proceedings may be determined by the Court and assessed against
either MSBC or the shareholders, or both. The value determined by the Court may
be the same as, more than, or less than the merger consideration Ratio to be
paid pursuant to the Merger Agreement.
The Delaware Supreme Court has stated that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Court will also determine the amount of
interest, if any, to be paid upon the amounts to be received by persons whose
shares of Ballston Common Stock have been appraised. The costs of the action may
be determined by the Court and taxed upon the parties as the Court deems
equitable in the circumstances. The Court may also order that all or a portion
of the expenses incurred by any holder of shares of Ballston Common Stock in
connection with an appraisal, including, without limitation, reasonable
attorneys' fees and the fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all of the shares of
Ballston Common Stock entitled to appraisal.
From and after the Effective Date, no Ballston shareholder who has
demanded appraisal rights is entitled to vote such stock for any purpose or to
receive payment of any dividends or other distributions on the stock, provided,
however, that if no petition for an appraisal is filed within the allotted time
or if such shareholder withdraws his demand for appraisal within 60 days of the
Effective Date or, thereafter, with written approval of Ballston, then the right
of appraisal shall cease.
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The foregoing summary of the rights of shareholders requesting
appraisal contains material information relating to the exercise of appraisal
rights but does not purport to be a complete statement of the procedures to be
followed by Ballston shareholders desiring to exercise their rights requesting
appraisal. The preservation and exercise of appraisal rights are conditioned on
strict adherence to the applicable provisions of Section 262 of the DGCL. Each
Ballston shareholder desiring to exercise appraisal rights should refer to
Section 262 of the DGCL for a complete statement of the shareholder's rights and
the steps which must be followed in connection with the exercise of those
rights.
For further information relating to the exercise of appraisal rights,
see Appendix III to this Proxy Statement/Prospectus.
Description of MSBC Capital Stock
MSBC is presently authorized to issue 20,000,000 shares of common
stock, par value $5.00 per share, and 1,000,000 shares of preferred stock. As of
March 31, 1998, there were 13,330,991 shares of MSBC common stock issued and
outstanding and no shares of preferred stock were outstanding. MSBC common stock
is traded in the over-the-counter market and quoted on the Nasdaq National
Market under the symbol "MSBC." At March 31, 1998, there were approximately
3,665 holders of record.
The following summary description of capital stock of MSBC is qualified
in its entirety by reference to MSBC's Articles of Incorporation, a copy of
which has been incorporated by reference as an exhibit to the Registration
Statement.
Common Stock
Holders of MSBC 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 MSBC common stock. Dividends may be paid to the holders of MSBC
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 MainStreet Banks and the Trust Company.
Payment of dividends to MSBC by the Banks and Trust Company, without prior
regulatory approval, is also subject to various state and federal regulatory
limitations. In addition, MSBC's ability to pay dividends may be limited by its
obligations under a trust preferred offering (the "Trust Preferred Offering")
described below. Holders of common stock have no conversion, redemption,
cumulative voting or preemptive rights. All outstanding shares of MSBC common
stock are, and the shares of MSBC common stock to be issued in the Merger will
be, when issued, duly and validly issued, fully paid and nonassessable.
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. 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 stockholders, or
discourage or make more difficult an attempt to acquire control of MSBC. MSBC's
board of directors has designated a series of 1,000,000 shares of series A
preferred stock, no shares of which have been issued. The series A preferred
stock was created in connection with the shareholder rights agreement described
below.
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MSBC Preferred Share Rights Plan
Pursuant to a rights agreement (the "MSBC Preferred Share Rights Plan")
dated as of January 18, 1990, MSBC distributed as a dividend one right (the
"MSBC Right" or "MSBC Rights") for each outstanding share of MSBC common stock.
The number of MSBC Rights associated with each share of MSBC common stock
outstanding as of June 30, 1993 was adjusted proportionately for the
five-for-four stock split effective July 30, 1993 and the two-for-one stock
split effective March 15, 1996. Each MSBC 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
MSBC Rights will become exercisable only if a person or group acquires or
announces a tender offer for 15% or more of the outstanding MSBC common stock.
When exercisable, MSBC may issue a share of MSBC common stock in exchange for
each MSBC Right other than those held by such person or group. If a person or
group acquires 30% or more of the outstanding MSBC common stock, each MSBC 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 MSBC, MSBC
common stock, having a market value equal to twice the MSBC Rights exercise
price. If MSBC is acquired in a merger or other business combination or if 50%
of its earnings power is sold, each MSBC 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 MSBC Rights exercise price. The MSBC
Rights will expire on January 18, 2000, and may be redeemed by MSBC 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 MSBC common stock, (i) the MSBC Rights will be
evidenced by the MSBC common stock certificates and will be transferred with and
only with such MSBC common stock certificates, and (ii) the surrender for
transfer of any certificate for MSBC common stock will also constitute the
transfer of the MSBC Rights associated with the MSBC common stock represented by
such certificate. MSBC 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 MSBC 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 MSBC Right that is the subject of a purported transfer to any such person
will be null and void.
The MSBC 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 MSBC Rights will cause substantial
dilution to any person or group that acquires more than 15% of the outstanding
shares of MSBC common stock if certain events thereafter occur without the MSBC
Rights having been redeemed. Because of these provisions, it is unlikely that
any person or group will proposed an acquisition transaction that is not
approved by the board of directors. Thus, the MSBC Rights could have the effect
of discouraging acquisition transactions not approved by the board of directors.
The MSBC Rights do not interfere with any merger or other business combination
approved by the board of directors and shareholders because the MSBC Rights are
redeemable with the concurrence of a majority of the "Continuing Directors,"
defined as directors in office when the MSBC Preferred Share Rights Plan was
adopted or any person added thereafter to the Board with the approval of the
Continuing Directors.
The foregoing description of the MSBC Preferred Share Rights Plan does
not purport to be complete and is qualified in its entirety by reference to the
terms of the MSBC Preferred Share Rights Plan, which is more fully described on
Form 8-K filed January 19, 1990, which is incorporated herein by reference.
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Trust Preferred Offering
In November, 1997, MSBC created a special purpose subsidiary, MSBC
Capital Trust I, to issue approximately $50 million of trust preferred
securities. The issuance of these securities was completed on November 19, 1997,
and the proceeds were used to purchase approximately $50 million of junior
subordinated debentures issued by MSBC. The proceeds received by MSBC from the
sale of the junior subordinated debentures are expected to be used to increase
its capital to support recent and pending acquisitions and for other general
corporate purposes. MSBC has guaranteed the trust preferred securities and is
obligated under the junior subordinated debentures. Accordingly, no dividend may
be paid to holders of MSBC common stock until interest payments are made under
the junior subordinated debentures.
Comparative Rights of Shareholders
There are significant differences between the corporation laws of
Virginia and Delaware and the organizational documents of MSBC and Ballston. As
a Virginia corporation, MSBC is subject to the provisions of the Virginia Stock
Corporation Act (the "VSCA"). Ballston is a Delaware corporation and is
therefore subject to the DGCL. Shareholders of Ballston, whose rights are
governed by Ballston's certificate of incorporation ("Ballston's Certificate")
and Ballston's bylaws ("Ballston Bylaws") and by the DGCL will become
shareholders of MSBC upon consummation of the Merger. Accordingly, the rights of
the Ballston shareholders as shareholders of MSBC will then be governed by the
MSBC articles of incorporation ("MSBC Articles"), MSBC bylaws ("MSBC Bylaws"),
and the VSCA.
The VSCA and the DGCL differ in several respects. It is not practical
to summarize all of such differences in this Proxy Statement/Prospectus, but
some of the principal differences which could affect the rights of shareholders
materially are discussed below. This summary is qualified in its entirety by
reference to the articles or certificate of incorporation and bylaws of each
corporation and the VSCA and the DGCL.
Authorized Capital. MSBC Articles authorizes the issuance of (i) 20,000,000
shares of common stock, of which 13,330,991 shares, $5.00 par value, were issued
and outstanding as of March 31, 1998 and (ii) 1,000,000 shares of preferred
stock, without par value, of which no shares were issued and outstanding as of
March 31, 1998. MSBC 's Articles authorize the MSBC board of directors (the
"MSBC Board"), without shareholder approval, to fix the preferences, limitations
and relative rights of the preferred stock and to establish series of such
preferred stock and determine the variations between each series. If any shares
of preferred stock are issued, the rights of holders of MSBC common stock would
be subject to the rights and preferences conferred to holders of such preferred
stock. In addition, the preferred stock could be used in a manner which would
discourage or make more difficult an attempt to acquire control of MSBC. See "--
MSBC Rights Agreement."
Ballston's Certificate authorizes the issuance of (i) 3,000,000 shares
of common stock, of which 1,619,474 shares, $.20 par value, were issued and
outstanding as of March 31, 1998 and 500,000 shares of serial preferred stock,
$.20 par value, of which no shares were issued and outstanding as of March 31,
1998. Ballston's Certificate authorizes the Ballston Board, without shareholder
approval, to fix the preferences, limitations and relative rights of the
preferred stock and to establish series of such preferred stock and determine
the variations between each series. Similar to the MSBC Articles, if any shares
of preferred stock are issued, the rights of holders of Ballston Common Stock
would be subject to the rights and preferences conferred to holders of such
preferred stock.
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The holders of both MSBC common stock and Ballston Common Stock have
one vote for each share held on any matter presented for consideration by the
shareholders. Neither the holders of MSBC common stock nor Ballston Common Stock
are entitled to cumulative voting in the election of directors.
Preemptive Rights. The common stock shareholders of MSBC and Ballston do not
have preemptive rights, and each of the MSBC Board and the Ballston Board has
the authority to issue additional shares without first obtaining the approval of
existing shareholders and without first offering such shares to existing
shareholders for purchase. Following the proposed merger, MSBC common stock will
continue to be available for issuance by the MSBC Board when and as the MSBC
Board determines, for the purpose of raising capital, in acquiring other
businesses, and for other appropriate purposes.
Directors; Vacancies and Removal of Directors. Under the VSCA, the number of
directors of a corporation may be fixed in the articles of incorporation or
bylaws of a corporation. The MSBC Bylaws provide that the MSBC Board shall
consist of 12 persons. All of the MSBC directors are elected each year. Any
vacancy occurring on the MSBC Board, 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 MSBC
Board. However, the VSCA provides that, when the bylaws fix the number of
directors, the Board may only increase or decrease that number by 30% or less
without shareholder action. 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 MSBC Board
shall shorten the term of any incumbent director. Subject to the rights of the
holders of any 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.
Under the DGCL, the number of directors of a corporation, absent a
provision in the certificate to the contrary, may be fixed by, or in the manner
provided by, the bylaws. The Ballston Bylaws provide that the Ballston Board
shall consist of not less than one nor more than 25 persons. The Ballston Board
currently consists of 7 persons, which all are elected each year. Any vacancy
occurring on the Ballston Board, other than a vacancy resulting from an increase
of more than five persons, may be filled by the affirmative vote of a majority
of the remaining directors, though less than a quorum of the Ballston Board. In
addition, any vacancy, including one created from an increase in the number of
directors, may be filled at a meeting called for such purpose, by vote of the
shareholders. Directors so chosen shall hold office for a term expiring at the
next following annual meeting of shareholders at which directors are elected.
Subject to the rights of the holders of any preferred stock outstanding, any
director may be removed by the affirmative vote of the holders of at least a
majority of outstanding voting shares.
Power to Call Special Shareholders' Meetings. Under the VSCA, a special meeting
of shareholders may be called by the board of directors or by any other person
authorized to do so in the certificate of incorporation or the bylaws. The MSBC
Bylaws provide that a special meeting of shareholders may be called by the
Chairman, the Vice-Chairman, the President or a majority of the directors.
Under the DGCL, a special meeting of shareholders may be called by the
board of directors or by any other person authorized to do so in the certificate
of incorporation or the bylaws. The Ballston Bylaws provide that special
meetings of shareholders may be called by the Ballston Board, by the Chairman of
the Ballston Board, or, if there is none, by the President. Shareholders are not
permitted to call a special meeting or to require that the Board call a special
meeting of shareholders.
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Director Nomination. MSBC's Bylaws provide that any nomination for director made
by a shareholder must be made in writing to the Secretary of MSBC 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 MSBC 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 MSBC if so elected. There is no requirement in the MSBC Articles or
MSBC Bylaws that directors of MSBC own any capital stock of MSBC. There are also
no residency or meeting attendance requirements applicable to directors of MSBC.
The Ballston Bylaws in respect to nominations are substantially similar
to MSBC Bylaws except that any nomination for director made by a shareholder
must be made in writing to the Secretary of Ballston not later than the close of
business on the tenth day following the date on which notice of such meeting is
first given to shareholders. Neither the Ballston Certificate nor the Ballston
Bylaws require directors of Ballston to own any capital stock of Ballston, nor
do they impose residency or meeting attendance requirements.
Shareholder Proposals.
MSBC's Bylaws provide that at any meeting of shareholders of MSBC, only
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 MSBC by December 1 of the year
preceding 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 MSBC's books, of the shareholder proposing such business, (c)
the class and number of shares of MSBC'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 the shareholders except in
accordance with the procedures set forth in MSBC Bylaws.
Ballston's Bylaws in respect to shareholder proposals are substantially
similar to MSBC Bylaws except that written notice by a shareholder that wishes
to bring business before a meeting must be received by the Secretary not later
than the close of business on the tenth day following the date on which notice
of such meeting is first given to shareholders.
Shareholder Inspection Rights; Shareholder Lists. 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 or she gives the corporation written notice of his or her
demand at least five business days before the date on which he or she 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 the shareholder gives the corporation
written notice of his or her demand at least five business days before the date
on which he or she 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.
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As permitted under the DGCL, the Ballston Bylaws permit any
shareholder, in person or by attorney or other agent, upon written demand
stating the purpose thereof, to examine, in person or by agent or attorney, at
any reasonable time or times, for any proper purpose, Ballston's books and
records of accounts, minutes and record of shareholders, and to make extracts
therefrom.
Shareholder Voting. 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
most amendments to the articles of incorporation, any plan of merger or
consolidation, any plan of share exchange, or any sale of substantially all of
the assets of a corporation not in the ordinary course of business. The VSCA
does permit such an amendment or transaction to be approved by as few as a
majority of the votes cast, if the articles of incorporation so state. The VSCA
does not require a shareholder vote of the surviving corporation in a share
exchange or in a merger (unless the corporation provides otherwise in its
articles of incorporation) if (i) the merger agreement does not amend the
existing certificate of incorporation; (ii) each share of the surviving
corporation outstanding before the merger is an identical outstanding share
after the merger; and (iii) the number of shares to be issued by the surviving
corporation in the merger does not exceed directly, or upon conversion thereof,
20% of the common stock outstanding immediately prior to the merger. In
addition, 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, as discussed hereunder,
"Anti-Takeover Provisions."
Under the DGCL, mergers and consolidations generally require the
approval of the holders of a majority of the capital stock entitled to vote
thereon. The DGCL does not require a shareholder vote of the surviving
corporation in a merger (unless the corporation provides otherwise in its
certificate of incorporation) if (i) the merger agreement does not amend the
existing certificate of incorporation; (ii) each share of the surviving
corporation outstanding before the merger is an identical outstanding or
treasury share after the merger; and (iii) the number of shares to be issued by
the surviving corporation in the merger does not exceed directly, or upon
conversion thereof, 20% of the common stock outstanding immediately prior to the
merger. In addition, the DGCL also specifies additional voting requirements for
transactions that would cause an acquiring person's voting power to meet or
exceed specified thresholds. However, such provisions under the DGCL are not
applicable to Ballston. See "Anti-Takeover Provisions."
Anti-Takeover Provisions. In addition to the Shareholder's Rights Plan created
by MSBC, as discussed hereunder, certain provisions of the VSCA may discourage
an attempt to acquire control of MSBC.
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
Stockholder") by the holders of at least two-thirds of the remaining voting
shares. Affiliated Transactions 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
Stockholder, or any reclassification, including a reverse stock split,
recapitalization, or merger of the corporation with its subsidiaries which
increases the percentage of voting shares owned beneficially by an Interested
Stockholder by more than 5%.
For three years following the time that an Interested Stockholder
becomes an owner of 10% of the outstanding voting shares, a Virginia corporation
cannot engage in an Affiliated Transaction with such Interested Stockholder
without approval of two-thirds of the voting shares other than those shares
beneficially owned by the Interested Stockholder, and majority approval of the
"Disinterested Directors." A Disinterested Director is a member of the MSBC
Board who was (i) a member on the date on which an Interested Stockholder became
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<PAGE>
an Interested Stockholder and (ii) 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
Stockholder.
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 Stockholder 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 Stockholder whose acquisition of
shares making such a person an Interested Stockholder 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
Stockholder, 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. MSBC 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 the
three thresholds (20%, 33_% or 50%) have no voting rights unless granted by a
majority vote of shares not owned by the acquiring person. 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.
The Ballston Bylaws contain certain provisions that may limit
shareholder voting rights. These provisions provide for noncumulative voting for
directors and limit the calling of special meetings. In addition, certain
provisions under the DGCL may be deemed to have an anti-takeover effect.
However, because Ballston's Common Stock is neither traded on a national
securities market nor Nasdaq, nor is the Ballston Common Stock held of record by
more than 2,000 shareholders, such provisions of the DGCL are not applicable to
Ballston.
Shareholder Rights Agreement. MSBC has issued the MSBC Rights and is party to
the MSBC Preferred Share Rights Plan. The MSBC Rights have certain anti-takeover
effects and will cause substantial dilution to a person or a group that attempts
to acquire MSBC on terms not approved by the MSBC board. See "Description of
MSBC Capital Stock - MSBC Rights Plan." The Ballston Board has not adopted a
shareholders rights plan.
Amendment of Articles or Certificate and Bylaws. 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 most amendments to the articles of incorporation. The
VSCA does permit such an amendment or transaction to be approved by as few as a
majority of the votes cast, if the articles of incorporation so state. The VSCA
and MSBC's Bylaws provide, in most cases, that the MSBC board of directors may,
by a majority vote, amend its bylaws.
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<PAGE>
Under the DGCL, the certificate of incorporation may be amended if the
amendment is adopted by the board and is approved by an affirmative vote of the
holders of a majority of the outstanding stock entitled to vote on the amendment
by each voting group entitled to vote hereon. There are no provisions in
Ballston's Certificate which modify the statutory requirements for amendment of
the certificate. Under the DGCL, the bylaws may be amended only by the
shareholders, unless the corporation's certificate of incorporation also confers
the power to amend the bylaws on the directors. As permitted under the DGCL,
Ballston's Certificate authorizes the Ballston Board to adopt, amend or repeal
the Ballston Bylaws. The Ballston Bylaws may be amended by action of a majority
of the Ballston Board or by a vote of the holders of 60% of the issued and
outstanding Ballston Common Stock. The stockholders of Ballston may provide that
certain Bylaws may not be amended, altered or repealed except by a specified
percentage of interest of the stockholders or of a particular class of
stockholders.
Director Liability and Indemnification. The VSCA provides that in any proceeding
brought by or in the right of a corporation or brought by or on behalf of
shareholders of the corporation, the damages assessed against an officer or
director arising out of a single transaction, occurrence or course of conduct
may not exceed the lesser of (i) the monetary amount, including the elimination
of liability, specified in the articles of incorporation or, if approved by the
shareholders, in the bylaws as a limitation on or elimination of the liability
of the officer or director, or (ii) the greater of (a) $100,000 or (b) the
amount of cash compensation received by the officer or director from the
corporation during the twelve months immediately preceding the act or omission
for which liability was imposed. The liability of an officer or director is not
limited under the VSCA or a corporation's articles of incorporation and bylaws
if the officer or director engaged in willful misconduct or a knowing violation
of the criminal law or of any federal or state securities law. The MSBC Articles
eliminate officers and directors liability for monetary damages and maximize
indemnification, except in cases of willful misconduct or knowing violation of
criminal or securities law.
Under the DGCL, a corporation's certificate of incorporation may
contain a provision eliminating or limiting the personal liability of directors
to the corporation or its shareholders for monetary damages for breach of
fiduciary duty as a director, but such provision may not eliminate or limit the
liability of a director for (i) any breach of the director's duty of loyalty to
the corporation or its shareholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) wilful
or negligent payment of unlawful dividends or stock purchases or redemptions, or
(iv) any transaction from which the director derived an improper personal
benefit. The Ballston Certificate provides, to the fullest extent permitted by
the DGCL, that a director shall not be liable to the corporation or its
shareholders for monetary damages for a breach of fiduciary duty.
The provisions of the VSCA and the DGCL are substantially similar with
respect to indemnification of officers and directors. Under the VSCA and DGCL, a
corporation may indemnify any officer or director who was or is a party to any
action, suit, or proceeding by reason of the fact that he is or was a director
or officer of the corporation by, among other things, a majority vote of a
quorum consisting of directors who were not parties to such action, suit, or
proceeding, provided that such officer or director acted in good faith and in a
manner he reasonably believed to be in or not opposed to the best interests of
the corporation.
The Ballston Bylaws provide for indemnification of officers and
directors to the fullest extent permitted by the DGCL. The Ballston Bylaws also
provide for the advance of expenses incurred by a director or officer in
defending a proceeding, subject to an undertaking by such director or officer to
repay such amount should it be determined that he is not entitled to be
indemnified by Ballston. These provisions are substantially similar to
provisions of the MSBC Articles.
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<PAGE>
Dividends and 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 MSBC Articles 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.
The DGCL generally allows dividends to be paid out of surplus of the
corporation or, if there is no surplus, out of the net profits of the
corporation for the current fiscal year or the prior fiscal year. The directors
of a Delaware corporation are prohibited from making distributions to
shareholders except in the manner provided by the DGCL. In case of any wilful or
negligent violation of the provisions of the DGCL governing distributions, the
directors under whose administration the violation occurred (except for those
directors who dissented) are, for a period of six years, jointly and severally
liable to the corporation and, in the event of the corporation's insolvency or
dissolution, to its creditors for the full amount of the distribution unlawfully
made.
In addition to the above limitations set forth in the VSCA, there are
various regulatory requirements which are applicable to bank holding companies.
MSBC relies primarily on the ability of its subsidiaries to pay dividends to
MSBC in order for it, in turn, to pay dividends to MSBC shareholders. The
dividends payable by MSBC banking subsidiaries are dependent upon their earnings
and profitability and must be in compliance with certain federal and state
banking law requirements. Following consummation of the proposed Merger,
dividends received by MSBC's shareholders will continue to be dependent upon the
payment of dividends by its banking subsidiaries. Also, MSBC has senior
liabilities pursuant to guarantees of the Junior Subordinated Debentures and
Capital Securities of MainStreet Capital Trust I. See "Description of Capital
Stock of MSBC."
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 the MSBC's Articles which modify the statutory requirements for
dissolution under the VSCA.
The DGCL generally provides that a corporation's board of directors may
propose dissolution for submission to shareholders and that a majority of the
whole board of directors must approve such resolution to be authorized. The
dissolution also must be approved by the holders of a majority of the
outstanding shares entitled to vote on the proposal. Dissolution of a
corporation may also be authorized without action of the directors if all the
shareholders entitled to vote thereon shall consent in writing. There are no
provisions in the Ballston's Certificate or Ballston's Bylaws which would modify
the statutory requirements for dissolution under the DGCL.
Appraisal Rights and Rights of Dissenting Shareholders. Under both the VSCA and
the DGCL, a shareholder of a corporation participant in certain major corporate
transactions may, under varying circumstances, be entitled to appraisal rights
pursuant to which such shareholder may receive cash in the amount of the "fair
value" of his or her shares, as determined by a court, in lieu of the
consideration he or she would otherwise receive in the transaction. However, the
VSCA further 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. Because MSBC has more than 2,000 record shareholders,
shareholders of MSBC generally do not have rights to dissent from mergers,
consolidations and certain other corporate transactions to which MSBC is a
party. For a description of certain provisions of the DGCL regarding appraisal
rights see "Rights of Dissenting Shareholders" and Appendix III to this Proxy
Statement/Prospectus.
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<PAGE>
DESCRIPTION OF THE COMPANIES
MainStreet BankGroup Incorporated
MSBC is a multi-bank holding company headquartered in Martinsville,
Virginia, with total assets of $2.0 billion and total shareholders' equity of
$155.3 million at March 31, 1998. Organized in 1977, MSBC through its eleven
affiliate banks (the "MainStreet Banks"), and MainStreet Trust Company, National
Association, a nationally chartered trust company (the "Trust Company"), engages
in a general banking business and, through its eleven affiliate banks, 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.
In November 1997, MSBC created a Delaware statutory business trust
subsidiary ("MainStreet Capital Trust I") which issued approximately $50 million
of trust preferred securities. MainStreet Capital Trust I, then in turn, used
the proceeds from the sale of the trust securities to acquire Junior
Subordinated Debentures of MSBC which have the same rate, payment of dividends
and maturity.
Ballston Bancorp, Inc.
Ballston is a one-bank holding company headquartered in Washington, D.C.,
with total assets of $75.7 million and total stockholders' equity of $8.3
million at March 31, 1998. Organized in 1987, Ballston operates through its
wholly-owned subsidiary, The Bank of Northern Virginia ("The Bank"), which
operates as a commercial bank in Arlington and Falls Church, Virginia. The
Bank's primary business consists of attracting deposits from the general public
and originating loans that are secured by residential properties as well as
originating commercial real estate and consumer loans.
PROPOSAL II - ELECTION OF DIRECTORS
The Ballston Board is composed of seven members. The bylaws of Ballston
require that the Board of Directors shall be elected annually. The nominees set
forth below are being elected for a term expiring in 1999 or, if earlier, until
the consummation of the Merger.
It is intended that the persons named in the proxies solicited by the
Ballston Board will vote for the election of the named nominees. If any nominee
is unable to serve, the shares represented by all valid proxies will be voted
for the election of such substitute as the Ballston Board may recommend. At this
time, the Ballston Board knows of no reason why any nominee might be unavailable
to serve.
Pursuant to Article II, Section 19 of the Ballston's Bylaws,
nominations, other than those made by or at the direction of the Ballston's
Board, shall be made pursuant to a notice in writing to the Secretary of
Ballston that is delivered to, or mailed and received at, the principal
executive offices of Ballston not later than the close of business on the tenth
day following the date on which notice of such meeting is first given to
stockholders. Under the Ballston Bylaws, a shareholder's notice must set forth
certain specific information about the person whom the shareholder proposes to
nominate for election as a director and about the shareholder giving the notice.
If such a nomination is properly made, ballots will be provided for use by
shareholders at the annual meeting bearing the name of such nominee or nominees.
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<PAGE>
The following table sets forth information with respect to the nominees
and their name, age, principal occupation during the past five years, the year
he or she first became a director, the year in which his or her current term
will expire and the number of shares and percentage of Ballston Common Stock
beneficially owned on the Record Date. The table also sets forth, as of the
Record Date, the ownership of shares of Ballston Common Stock by each
shareholder known to Ballston to beneficially own more than 5% of the Ballston
Common Stock outstanding.
<TABLE>
<CAPTION>
<S> <C>
Shares
Year Common
Position with Ballston and first Stock Percent
Age principal occupation during the elected beneficially of
Name (1) past five years. Director owned class
- -----------------------------------------------------------------------------------------------------------------------
Mary E. Fricano, 67 Director of Ballston Bancorp, Inc.; 1997 28,182 1.7
President of 1314 1/2Inc. (real estate
investments); Investor.
Kenneth M. Haggerty, Vice Chairman and Director of Ballston 1987 22,182 1.4 (2)
D.D.S., 73 Bancorp, Inc.; Vice President-Business
Development, Secretary, Cashier and
Director of The Bank of Northern
Virginia; Chairman and President of
Kenneth M. Haggerty, D.D.S., F.I.C.D.,
P.C. (consulting services); Banker and
Consultant.
Robert F. Kelleher, 64 Chairman, President, Chief Executive 1987 100,100 6.2 (5)
Officer and Director of Ballston Bancorp,
Inc.; Chairman and Chief Executive
Officer of The Bank of Northern
Virginia since 1998; President and
Director of The Bank of Northern
Virginia since 1988; since 1982, partner
of Connecticut/Atlantic Partnership (real
estate investments).
John E. Kilcarr, 64 Director of Ballston Bancorp, Inc.; 1997 200 -- (4)
Principal of Law Office of
John E. Kilcarr; Attorney.
Helena B. Metzger, 63 Director of Ballston Bancorp, Inc.; 1994 451,893 27.9 (3)
Director of The Bank of Northern
Virginia; Investor.
Paul A. Owens, 73 Director of Ballston Bancorp, Inc.; 1997 200 -- (4)
Principal of Law Offices of Paul A.
Owens (legal services); Attorney.
Edward D. Soma, M.D., 67 Director of Ballston Bancorp, Inc.; 1993 155,459 9.6 (2)
Chairman and Director of Diagnostic
Medical Imaging, P.A.. (medical
services); Partner of Clinical Radi-
ologists Medical Imaging, P.A. (medical
services); Radiologist.
All Executive Officers and Directors as a group (8 persons) 784,716 48.5
Woodlawn Foundation, Inc. 113,288 7.0 (6)
</TABLE>
(1) At December 31, 1997.
(2) Includes shares of Ballston Common Stock held directly as well as by
spouses or minor children, in trust, and other indirect ownership, over
which shares the individuals effectively exercise sole or shared voting and
investment power, unless otherwise indicated.
(3) Includes shares held in the name of the estate of Mrs. Metzger's husband of
which she is executrix and shares held as trustee for the benefit of her
two adult children. Mrs. Metzger disclaims beneficial ownership of 2,436
shares. Mrs. Metzger's address is 1667 K Street N.W., Suite 700,
Washington, D.C. 20006.
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<PAGE>
(4) Less than 1%.
(5) Mr. Kelleher's address is 1667 K Street N.W., Suite 700, Washington, D.C.
20006.
(6) Woodlawn Foundation, Inc's address is 524 North Avenue, New Rochelle, New
York 10801. Woodlawn Foundation, Inc. is not a director or executive
officer of Ballston.
Meetings and Committees of the Ballston Board
Ballston's Board conducts its business through meetings of the Board.
During the fiscal year ended December 31, 1997, the Ballston Board held 4
regular meetings and 5 special meetings. No director of Ballston attended fewer
than 75% of the total meetings of the Ballston Board and committee meetings on
which such Board member served during the period. The Ballston Board does not
have an audit committee, nominating committee or compensation committee.
Ballston's full Board of Directors selects the nominees for election as
directors in accordance with the Ballston's Bylaws. While the Ballston Board
will consider nominees recommended by stockholders, it has not actively
solicited recommendations from the Ballston's shareholders for nominees nor,
subject to the procedural requirements set forth in the Ballston's Bylaws,
established any procedures for this purpose.
Board Compensation
During 1997, members of the Ballston Board received a fee of $250 per
each Board meeting attended. For the year ended December 31, 1997, total
aggregate fees paid by Ballston to its directors were $11,000.
Executive Compensation
The following table sets forth the cash and non-cash compensation
concerning the executive officers of Ballston or The Bank. No other executive
officer of either Ballston or The Bank had a salary or bonus during the years
ended December 31, 1997 and 1996 that exceeded $100,000 for services rendered in
all capacities to Ballston or The Bank. Mr. Burroughs resigned from The Bank on
December 31, 1997.
<TABLE>
<CAPTION>
Name and Other Annual All Other
Principal Position Fiscal Year Salary($) Compensation ($)(1) Compensation ($)
------------------ ----------- --------- ------------------- ----------------
<S> <C>
Robert F. Kelleher 1997 146,522 -- 10,912 (2)
Chairman of the Board
President and Chief 1996 136,056 -- 10,835 (3)
Executive Officer of
Ballston
Fred A. Burroughs, III 1997 175,000 -- 8,104 (2)
Chairman and Chief
Executive Officer 1996 175,000 -- 8,106 (3)
of The Bank
</TABLE>
(1) Aggregate value does not exceed the lesser of $50,000 or 10% of the
named executive officer's (i) total salary for the year; (ii) payments
of above-market preferential earnings on deferred compensation; (iii)
payments of earnings with respect to long term incentive plans prior to
settlement or maturity; (iv) tax payment reimbursements; or (v)
preferential discounts on stocks.
37
<PAGE>
(2) For Mr. Kelleher, consists of a contribution of $6,830 for health
insurance and a matching contribution of $4,082 to the profit sharing
and savings plan. For Mr. Burroughs, consists of a contribution of
$3,604 for health insurance and a matching contribution of $4,500 to
the profit sharing and savings plan.
(3) For Mr. Kelleher, consists of a contribution of $6,750 for health
insurance and a matching contribution of $4,085 to the profit sharing
and savings plan. For Mr. Burroughs, consists of a contribution of
$3,606 for health insurance and a matching contribution of $4,500 to
the profit sharing and savings plan.
Profit Sharing and Savings Plan
The Bank has adopted an Employees Profit Sharing and Savings Plan (the
"Plan") effective January 1, 1990. Employees of The Bank who have completed one
year of service and are at least twenty-one years old are eligible for
participation in the Plan. Participants may direct The Bank to contribute up to
15 percent of their pre-tax income through payroll deductions. The Bank will
provide a matching contribution of from 25 to 100 percent of the participant's
contribution, depending upon years of service. The matching scheme is applicable
only to the first 6 percent of the participant's pre-tax income. The Board of
Directors of The Bank may, at its own discretion from year to year, vote to
cause additional contributions to be made to the Plan for all employees.
Employees may also make after-tax contributions of up to 15 percent of their
after-tax income. The amounts, within certain limitations, remain non-taxable to
the employee until distribution.
All Plan assets are held by QUADs Trust, Frederick, Maryland as Trustee
and invested in one or more of four mutual funds administered by the
Massachusetts Mutual insurance group. The participant directs the Trustee among
investment options. The Trustee has no discretion with respect to the investment
options. A participant's account is payable upon his or her retirement or upon
the earlier occurrence of certain defined disabilities, death or termination of
employment. The amount payable upon the occurrence of such events is subject to
a vesting schedule under which an employee becomes fully vested in the
contributions of The Bank after six years of service.
Certain Transactions with Ballston
The Bank, like many financial institutions, has followed a policy of
granting various types of loans to officers, directors, and employees. The loans
have been made in the ordinary course of business and on substantially the same
terms, including interest rates and collateral, as those prevailing at the time
for comparable transactions with The Bank's other customers, and do not involve
more than the normal risk of collectibility, or present other unfavorable
features.
PROPOSAL III - RATIFICATION OF APPOINTMENT OF AUDITORS
Stoy, Malone & Company, P.C. was Ballston's independent auditors for
the 1997 fiscal year. The Board presently intends to renew Ballston's
arrangement with Stoy, Malone & Company, P.C. to be its independent auditors for
the fiscal year ending December 31, 1998, or, if earlier, until consummation of
the Merger, subject to ratification by Ballston shareholders. A representative
of Stoy, Malone & Company, P.C. is not expected to be present at the Annual
Meeting. The Board of Directors recommends that shareholders vote "FOR" the
ratification of the appointment of auditors.
EXPERTS
The consolidated financial statements of MSBC as of December 31, 1997
and 1996, and for each of the years in the three year period ended December 31,
1997, have been incorporated by reference herein and in the Registration
Statement in reliance upon the report of Coopers & Lybrand L.L.P., independent
certified public accountants, incorporated by reference herein and upon the
authority of said firm as experts in accounting and auditing.
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<PAGE>
The consolidated financial statements of Ballston as of December 31,
1997 and 1996, and for each of the years in the two year period ended December
31, 1997, included herein have been audited by Stoy, Malone & Company, P.C.,
independent auditors, as stated in their report appearing herein, and have been
so included in reliance upon the report of such firm given upon their authority
as experts in accounting and auditing.
LEGAL MATTERS
The validity of MSBC common stock to be issued to Ballston Shareholders
pursuant to the Merger and certain other legal matters in connection with the
Merger will be passed upon for MSBC by Flippin, Densmore, Morse, Rutherford &
Jessee, A Professional Corporation, Roanoke, Virginia.
OTHER MATTERS
As of the date of this Proxy Statement, management of Ballston know of
no other business that will come before the Annual Meeting. Should any other
matters properly come before the Annual Meeting, the proxy in the enclosed form
confers upon the person or persons designated to vote the shares discretionary
authority to vote the same with respect to any other matter in accordance with
the direction of the Ballston Board.
39
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF MERGER
AMONG
MAINSTREET BANKGROUP INCORPORATED
AND
BALLSTON BANCORP, INC.
MARCH 11, 1998
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of the 11th day of March, 1998
(this "Plan"), by and among MainStreet BankGroup Incorporated, a Virginia
corporation ("MSBC"), and Ballston Bancorp, Inc., a Delaware corporation
("Ballston").
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 13,307,083 shares of MSBC Common Stock and no shares of
MSBC Preferred Stock, respectively, are issued and outstanding as of the date
hereof. MSBC has eleven (11) 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; First National Bank of Clifton Forge, a national banking
association; Commerce Bank Corporation, a Maryland bank; Tysons National Bank, a
national banking association and Regency Bank, a Virginia bank (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 two wholly owned nonbanking
subsidiaries, 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 Tysons Financial Corporation, a
Virginia corporation ("TFC"), holder of one hundred percent of the outstanding
shares of Tysons National Bank. The MSBC Bank Subsidiaries, MSBC Trust
Subsidiary, and TFC are individually referred to as an "MSBC Subsidiary" and
collectively as "MSBC Subsidiaries".
(B) Ballston. Ballston is a corporation duly organized and existing in
good standing under the laws of the State of Delaware, with its principal
executive offices located at 1667 K Street, N.W., Suite 700, Washington, D.C.
20006, 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. Ballston's only subsidiary is The Bank of Northern
Virginia ("BNV"). As of the date hereof, Ballston has 500,000 authorized shares
of Preferred Stock, each of $0.20 par value, none of which were issued and
outstanding as of the date hereof, and 2,500,000 authorized shares of Common
Stock, each of $0.20 par value ("Ballston Common Stock"), of which 1,619,474
shares were issued and outstanding as of the date hereof, (no other class of
capital stock being authorized). The holders of Ballston Common Stock have no
preemptive rights. Ballston Common Stock is not 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) BNV. BNV is a corporation duly organized and existing in good
standing under the laws of the Commonwealth of Virginia, is qualified to do
business as a bank in Virginia and is a member bank of the Federal Reserve
System. BNV's headquarters are located at 1010 North Glebe Road, Arlington,
Virginia 22201 BNV has 4,500 shares of common stock, $1,000 par value per share
("BNV Common Stock") authorized (no other class of capital stock being
authorized), of which 3,350 shares are issued and outstanding as of the date
hereof, all of which are held of record and beneficially by Ballston. There are
no shares of BNV 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 BNV Common
Stock and no commitment to grant any such options or share appreciation rights.
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With respect to Ballston, any reference herein to "Subsidiary" or
"Subsidiaries" refers to BNV and, with respect to MSBC, any reference to
"Subsidiary" refers to any MSBC Subsidiary and any reference to "Subsidiaries"
refers to the MSBC Subsidiaries, jointly and severally (unless the context
otherwise requires).
(D) Rights, Etc. Except as Previously Disclosed by MSBC 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 by MSBC, 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 by
Ballston and except for shares reserved pursuant to the Stock Option Agreement
(as hereinafter defined), there are no shares of Ballston Common Stock
authorized and reserved for issuance and Ballston 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 Ballston any such shares, and no securities,
warrants or obligations representing any such rights are outstanding.
(E) This Transaction. The Boards of Directors of MSBC and Ballston,
respectively, deem it advisable and in the best interests of MSBC and Ballston
and their stockholders that Ballston be acquired by MSBC through a merger of
Ballston into MSBC pursuant to this Plan.
(F) Stock Option Agreement. As a condition and inducement to MSBC's
willingness to enter into this Plan, Ballston has agreed that simultaneously
with its entry into this Plan Ballston shall enter into a Stock Option Agreement
with MSBC ("Stock Option Agreement") in the form attached hereto as Exhibit E
pursuant to which Ballston shall grant to MSBC an option ("Option") to purchase,
under certain circumstances, shares of Ballston Common Stock.
(G) Approvals. The Board of Directors of each of MSBC and Ballston has
approved and adopted, at meetings of each of such Board of Directors, this Plan
and the Stock Option Agreement and has authorized the execution of such
instruments in counterparts by a member of the Office of the Chairman of MSBC
and by the Chairman, President and Chief Executive Officer or the Vice Chairman
or any other officer of Ballston designated by either of them, respectively, and
any further modifications to such instruments as may be agreed by an officer
authorized to execute this Plan and the Stock Option Agreement and not
inconsistent with the authorizations of their respective Board of Directors. At
the meeting of the Ballston Board of Directors, the Board of Directors of
Ballston recommended the Plan as so executed to its shareholders.
(H) NASDAQ. Trading of the MSBC Common Stock is presently reported on
the National Association of Securities Dealers ("NASD") Automated Quotations
System National Market System ("Nasdaq National Market").
Ballston Common Stock is not traded on any established exchange or market.
(I) Benefits of Plan. MSBC and Ballston 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 (as
hereinafter defined) 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
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enable them to expand the market for their banking and related financial
services; (5) Ballston shareholders who will become MSBC shareholders in the
Merger will benefit from the larger and more diverse shareholder base of MSBC
and enhanced liquidity of their equity investments; and (6) no gain or loss
generally will be recognized by stockholders of Ballston who receive shares of
MSBC Common Stock in exchange for their shares of Ballston 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) Ballston shall merge into MSBC (the "Merger"), the separate
existence of Ballston shall cease and MSBC (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 MSBC, and the Bylaws of the Continuing Corporation
shall be those of MSBC. The officers and directors of MSBC 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"). As soon as reasonably practicable after
the satisfaction or waiver, if permissible, of the conditions to the Merger as
set forth in Article VI, the parties shall cause the Merger Effective Date to
occur by executing and filing (i) the Articles of Merger containing a Plan of
Merger in substantially the form of Exhibit A1 hereto (the "Plan of Merger") in
accordance with the relevant provisions of the Virginia Stock Corporation Act
("VSCA"), and (ii) the Certificate of Merger in substantially the form of
Exhibit A2 (the "Certificate of Merger") in accordance with section 252 of the
General Corporation Law of the State of Delaware (the "DGCL"). 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 the Friday of the week
following the satisfaction of the conditions set forth in Paragraphs (A), (B)
and (C) of Article VI, or on such other date as the parties may mutually agree,
but no later than the Merger Effective Date. Prior to the Merger Closing, MSBC
and Ballston shall deliver to the Virginia Corporation Authority (as hereinafter
defined), the Articles of Merger including the Plan for pre-approval.
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II. MERGER CONSIDERATION
(A) 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.
(B) Outstanding Ballston Common Stock. Each share (excluding shares
held by Ballston, BNV or by MSBC or by any of the MSBC Subsidiaries, in each
case other than in a fiduciary or custodial capacity or as a result of debts
previously contracted (the "Excluded Shares")) of Ballston 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 (the "Exchange Ratio")
obtained (subject to the next following sentence) by dividing $12.04 by the
average of the bid price and the asked price per share for MSBC Common Stock as
reported on the Nasdaq National Market for each of the twenty (20) trading days
preceding the tenth calendar day prior to the Merger Effective Date ("Average
MSBC Share Price") (which, together with cash required to be paid for fractional
shares under Section II(D) is referred to as the "Merger Consideration"). If the
ratio computed in accordance with the immediately preceding sentence is less
than 0.4025, the Exchange Ratio shall be 0.4025, and if the ratio computed in
accordance with the immediately preceding sentence is greater than 0.4920, the
Exchange Ratio shall be 0.4920.
(C) Stockholder Rights; Stock Transfers. On the Merger Effective Date,
holders of Ballston Common Stock shall cease to be, and shall have no rights as,
stockholders of Ballston other than the right to receive the Merger
Consideration. After the Merger Effective Date, there shall be no transfers on
the stock transfer books of Ballston or the Continuing Corporation of the shares
of Ballston Common Stock which were issued and outstanding immediately prior to
the Merger becoming effective.
(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 Ballston 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.
(E) Exchange Procedures. As promptly as practicable after the Merger
Effective Date, MSBC shall send or cause to be sent to each former stockholder
of Ballston of record immediately prior to the Merger Effective Date transmittal
materials for use in exchanging such stockholder's certificates of Ballston for
the Merger Consideration. Any fractional share checks which a Ballston
stockholder shall be entitled to receive in exchange for such stockholder's
shares of Ballston 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 Ballston Common Stock will be delivered to such
stockholder only upon delivery to MSBC (or to whomever MSBC shall designate in
the transmittal materials) 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 Ballston 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 Ballston Common Stock
are converted, regardless of whether such holders have exchanged their
certificates representing Ballston Common Stock for certificates representing
MSBC Common Stock in accordance with the provisions of this Plan.
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(F) Shares Held by Ballston or MSBC. All Excluded Shares shall be
canceled and retired at the Merger Effective Date and no consideration shall be
issued in exchange therefor.
(G) 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
whose primary purpose is the acquisition for value of a going concern or in
connection with a dividend reinvestment plan or a grant of stock or stock
options to one or more employees or directors or the exercise of any such
options) and the record date therefor shall be prior to the Merger Effective
Date, the Exchange Ratio shall be proportionately adjusted by multiplying it by
a fraction the numerator of which is the number of shares of MSBC Common Stock
outstanding immediately after such transaction and the denominator of which is
the number of shares of MSBC Common Stock outstanding immediately before such
transaction.
(H) Dividends. Ballston 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.
III. ACTIONS PENDING MERGER
A. Ballston Actions. From the date hereof until the earlier of the
Merger Effective Date or termination under Article VII, without the prior
written consent or approval of MSBC:
1. Forbearances. Ballston will not and will cause its Subsidiary not
to:
(a) Stock Distributions. Make, declare or pay any dividend
other than cash dividends on Ballston Common Stock or BNV Common Stock, as the
case may be, consistent with past practice and in an amount not greater than the
last previous cash dividend declared prior hereto by Ballston or BNV,
respectively, as Previously Disclosed, 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 or custodial
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, any additional shares
of its 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 it 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;
(b) Employment Contracts. Enter into any employment contracts
with, increase the rate of compensation of (except in accordance with existing
policy consistent with past practice and Previously Disclosed or required by 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;
(c) Employee Benefit Plans. Enter into or modify (except as
may be required by applicable law) 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;
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(d) Asset Disposition. Sell, lease or otherwise dispose of or
grant or allow to arise an encumbrance, lien or security interest on any
property or assets or discontinue using any assets or properties or discontinue
any business or operations except in the ordinary course of business consistent
with past practice 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 or custodial capacity or
securitization transactions, in each case in the ordinary course of business
consistent with past practice);
(e) Constituent Documents. Amend or restate its Certificate of
Incorporation or Bylaws as delivered to MSBC in connection with this Plan;
(f) Material Transactions. (a) Settle any litigation or legal
proceeding brought by or against it or claim of or against it (involving
individually or in the aggregate more than $50,000) or (b) enter into any
material transaction or make any material commitment relating to its assets,
business, operations or properties (including but not limited to any acquisition
thereof), otherwise than as contemplated hereby or in the ordinary course of
business consistent with past practice and in any case obligating it to expend
after the Merger Effective Date more than $50,000 in all such transactions; (c)
incur any indebtedness for borrowed money or assume, guarantee, endorse or
otherwise become responsible for the obligations of any person or entity except
in the ordinary course of business consistent with past practice; (d) make any
material investment in or purchase any material securities of any person or
entity; or (e) cancel or allow any of its existing insurance policies to lapse;
(g) Actions Not in Ordinary Course. Take any action not in the ordinary
course of business consistent with past practice;
(h) Accounting. Alter in any way the manner in which it has
regularly and customarily maintained its books of account and records, or change
any of its accounting principles or methods by which such principles are applied
for tax, regulatory or reporting purposes, except as required by law or by
generally accepted accounting principles.
(i) Agreements. Agree to take any of the foregoing actions.
2. Conduct of Business. Ballston will and will cause its Subsidiary to:
(a) Ordinary Course. Conduct its business and operations only
in the ordinary and usual course and in a manner consistent with past practices
and use reasonable efforts to preserve intact its present business organization
and keep available its present officers and employees material to its business
and operations.
(b) Notification. Notify MSBC (i) of any emergency or change
in the normal conduct of the Business, (ii) of any event, occurrence, fact,
condition, change or effect that, individually or in the aggregate, has or is
reasonably expected to have a Material Adverse Effect or breach of a
representation or warranty set forth in Article (IV) or a covenant or agreement
set forth in this Article V which has or is reasonably expected to have a
Material Adverse Effect and (iii) of the threat or initiation of any litigation
against it.
IV. REPRESENTATIONS AND WARRANTIES
Ballston hereby represents and warrants to MSBC and MSBC hereby
represents and warrants to Ballston as follows:
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(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
and existing leasehold interest in all of the material properties and assets
thereof reflected as owned or leased in its balance sheet as of December 31,
1997, and included in the MSBC Reports and Ballston Reports (as hereinafter
defined) and in all material properties and assets acquired or leased by it or
its respective Subsidiaries, since December 31, 1997. In the case of Ballston
and its Subsidiary only, none of its properties is subject to any mortgage,
pledge, lien, security interest, encumbrance, restriction or charge of any kind
or any provision terminating or altering or giving the right to terminate or
alter the terms and conditions of its use and enjoyment thereof on account of
any change of control or ownership 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 Ballston 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. In the case of Ballston,
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 Ballston, 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; or (3) except as Previously Disclosed, create a
right of termination, default in or change in terms and conditions of use or
enjoyment of any real or personal property it uses in its business.
(F) MSBC Reports. In the case of MSBC only, and except as Previously
Disclosed, (1) MSBC's 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 are hereinafter referred to as
its "MSBC 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 MSBC 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
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or equivalent statements in the MSBC 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) Ballston Reports. In the case of Ballston only, it has Previously
Disclosed to MSBC copies of (1) Ballston's Consolidated Financial Statements,
for the years ended December 31, 1994, 1995, 1996 and 1997; (2) BNV's
"Consolidated Report of Condition and Income" for the years ended December 31,
1994, December 31, 1995, December 31, 1996 and December 31, 1997 and for any
subsequent period(s) as delivered to the appropriate bank regulatory authority;
(3) all other reports and documents filed with or sent to any federal or state
regulatory authority by it or BNV during 1996, 1997 and 1998 (as of the date of
this Agreement); and (4) to the extent not prohibited by law, all reports of any
state or federal regulatory authority relating to it or BNV and received during
or relating to matters in 1996, 1997 or 1998 (as of the date of this Agreement)
(all of the foregoing reports and documents are hereinafter referred to as
"Ballston Reports"). Ballston represents and warrants to MSBC: (a) that, as of
their respective dates, the Ballston Reports referred to in (1) and (2) above
are accurate and complete and fairly present the financial position of the
entity or entities to which they relate and each of the statements of income and
changes in stockholders' equity and cash flows or equivalent statements
(including any related notes and schedules thereto) 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; (b) that the Ballston Statements referred to in (1) have been
prepared in accordance with generally accepted accounting principles,
consistently applied; and (c) that, as of their respective dates the Ballston
Reports referred to in (2) and (3) above complied in all material respects with
all legal and regulatory requirements applicable thereto and no additional
reports or documents or amendments to previously filed reports or documents were
required to be filed by Ballston with any federal or state regulatory authority
during such periods except as Previously Disclosed.
(H) Material Events. Except as Previously Disclosed, no event(s),
occurrence(s), condition(s), or circumstance(s), whether known or unknown, has
or have occurred which has or is reasonably likely to have at any future time
(individually or in the aggregate) a Material Adverse Effect on it.
(I) Litigation. Except as Previously Disclosed, no litigation,
proceeding or controversy before any court or governmental agency and no
mediation or arbitration is pending which has or is reasonably likely to have at
any future time a Material Adverse Effect on it and, to the best of its
knowledge, no such litigation, proceeding, controversy, mediation or arbitration
has been threatened and no claim has been asserted which could lead to such
litigation, proceeding, controversy, mediation or arbitration.
(J) Material Contracts. Except as Previously Disclosed 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 in whole or part 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
Danielson Associates, Inc., who has acted as financial advisor to Ballston.
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(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"), except as
Previously Disclosed has received a favorable determination letter from the
Internal Revenue Service, and it has no knowledge of any circumstances likely to
result in the revocation 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.
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(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 it nor any Subsidiary is 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
the conduct of its business, or in any manner relates to its capital adequacy,
its credit or reserve policies or its management, nor has it 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 Ballston only, it has no subsidiaries
other than BNV, all of the outstanding shares of which are validly issued, fully
paid and nonassessable (except pursuant to 12 USC ss. 55 or comparable state
law, if any) 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 are validly issued, fully paid and nonassessable (except pursuant to 12
USC ss. 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 and Loan and Lease Loss Reserve. Ballston has
Previously Disclosed a list of the loans, extensions of credit or other assets
of BNV that were classified by the examiners of the Federal Reserve Board
("FRB") or by the Bureau of Financial Institutions of the Virginia State
Corporation Commission ("Virginia Bank Regulator") in its last respective
preceding examination ("BNV Asset Classification") and has Previously Disclosed
a list of its loans and extensions of credit by BNV in the respective initial
principal amount of $10,000 or more, any payment of which is, as of the date so
disclosed, delinquent ("BNV Delinquent Loan List"). The BNV Asset Classification
and the BNV Delinquent Loan List are, respectively, accurate and complete in all
material respects and no loans, extensions of credit or other assets (or
portions thereof) that have been classified as of the respective date of the BNV
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 BNV Asset Classification other than
amounts of loans, extensions of credit or other assets that were charged off by
BNV prior to the respective date of the BNV Asset Classification. BNV's loan and
lease loss reserve as Previously Disclosed to MSBC are reasonably believed by
Ballston and BNV to be adequate as of the date thereof and no event(s),
occurrence(s), condition(s) or circumstance(s) has or have occurred which have
had, will have, or are reasonably likely (individually or in the aggregate) to
have the effect of rendering such loan and lease loss reserve inadequate or
causing a material addition to the reserve to be made.
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(R) Affiliates. In the case of Ballston 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 Ballston 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 Ballston Common Stock 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 Ballston 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 section 203 of
the DGCL.
(V) Approval of This Transaction. In the case of Ballston 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 Certificate of Incorporation or Bylaws or, except
as granted hereunder or under the Stock Option Agreement or as Previously
Disclosed, under any agreement (including but not limited to any rights
contingent on a merger or change in control in any lease or employment
agreement); or (3) except as set forth in Paragraphs (B) and (C) of Article VI,
and Section 8 of the Stock Option Agreement, 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 Ballston 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;
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(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 (W): "to its knowledge" means the actual knowledge of or actual notice
(which if pursued with due care would lead to actual knowledge) to any officer
of Ballston, any information contained in the business records of Ballston and,
with respect to any "Loan Property", any information contained in a Phase I or
Phase II environmental assessment furnished to Ballston; "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,
directive, ordinance, rule, regulation, code, by law, license, permit,
authorization, approval, consent, legal doctrine, order, judgment, decree,
injunction, requirement or agreement with any governmental entity, legally
binding policy or guideline relating to (i) the protection, preservation or
restoration of the indoor or ambient environment or natural resources
(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, including, 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.
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(X) Taxes. Except as Previously Disclosed, to 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 and state 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 December 31, 1996, 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, (4) the amounts accrued for Taxes in the
Ballston Reports and the MSBC Reports are sufficient for the payment of all
Taxes of that company and its Subsidiary, whether or not disputed, which are
properly accruable, (5) all Taxes due with respect to completed and settled
examinations have been paid in full or properly reserved, (6) 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 the Ballston Reports or in the MSBC 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 and there are
no agreements by it or its Subsidiary for the extension of time for the
assessment of any Taxes.
(Y) Legal Compliance. Except as Previously Disclosed, it and its
Subsidiaries are in compliance with all applicable laws, statutes, rules,
regulations, ordinances, orders, decrees, or resolutions of any governmental
authority or agency or court relating or applicable to the conduct of their
respective businesses, operations, employment practices or relating to the
ownership or use of their respective properties which either alone or in the
aggregate have or are reasonably likely to 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
Ballston, by BNV, in each case in full compliance with the law, including but
not limited to, Regulation O of the 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 rights to
tradenames, trademarks, service marks, patents, patent rights, copyrights,
whether domestic or foreign (as well as applications, registrations or
certificates therefor, inventions, trade secrets, proprietary processes,
software and other intellectual property rights ("Intellectual Property"), and
all other 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 or, in any case, subject it to liability of
$50,000 or more, individually or in the aggregate.
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(BB) Liabilities. Except to the extent reflected or reserved against in
the MSBC Reports, as to MSBC and its Subsidiaries, and in the Ballston Reports,
as to Ballston and BNV, and except as Previously Disclosed, 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. Except as Previously Disclosed, it has
no shareholder who owns of record or beneficially 10% or more of the outstanding
shares of Ballston 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 Ballston
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
ownership of such shares within 60 days.
(DD) Option Shares. In the case of Ballston 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 Ballston 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) 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.
(GG) Pooling of Interests. It has taken no action that would cause the
Merger to fail to qualify for pooling of interests accounting treatment.
(HH) Year 2000. It has Previously Disclosed: (1) the amount it and its
Subsidiaries have spent or budgeted to be spent for Year 2000 related
remediation; (2) it and its Subsidiaries' Year 2000 plan relating to their
business, their operations (including operating systems) and their relationships
with customers, suppliers, vendors and borrowers and the present status of the
plan's completion; and (3) any anticipated Year 2000 problems of which they have
knowledge which individually or in the aggregate have or are likely to have a
Material Adverse Effect.
V. COVENANTS
Ballston hereby covenants to MSBC, and MSBC hereby covenants to
Ballston, that:
(A) Reasonable Best Efforts to Complete Merger. Subject to the terms
and conditions of this Plan, it shall use its reasonable 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, 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 Ballston and MSBC shall use, and shall cause their respective Subsidiaries to
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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
Ballston, 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. Notwithstanding the foregoing, in the event
that one party hereto notifies the other party pursuant to Paragraph (B) of
Article VII that a breach has occurred in this Plan, either party shall have the
option of suspending its obligations under this Paragraph or Paragraph (O) of
this Article until such time as the breach has been cured.
(B) Ballston Proxy Statement. In the case of Ballston 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 Ballston
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 Ballston Common Stock and at all times
thereafter up to and including the meeting of Ballston 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 Ballston 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) it shall use its best efforts to solicit and obtain votes of
the holders of Ballston 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 Ballston 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 Ballston relating to Ballston 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 Ballston,
promptly after MSBC receives notice thereof, of the time when the Registration
Statement has become effective or any supplement or amendment has been filed and
becomes effective 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.
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(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, properties and records to the extent permitted by law and to its
officers, employees, counsel and accountants, authorizing each of them to
discuss fully with the other party's representatives all matters related to this
Plan, the transactions contemplated hereby and the condition, operations,
business, assets or properties of such party. During such period, it shall also
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. The foregoing process is herein
referred to as "due diligence". No due diligence by any party or the results
thereof 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.
(2) Each party hereto agrees not to use any information
obtained in due diligence for any purpose unrelated to its evaluation of the
transactions contemplated by this Plan and the Stock Option Agreement. If the
Merger is not consummated, each party will hold all information and documents
obtained in due diligence in confidence (as provided in Paragraph (F) of Article
VIII) except to the extent that disclosure to a third party is for the purpose
of assisting in the assessment of such information or documents for purposes of
evaluating this Plan and its consummation (in which case reasonable steps shall
be taken to preserve the confidentiality thereof) and in any event 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. 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 Ballston only, from and including
the date of this Plan until the Merger Effective Date or the termination of this
Plan pursuant to its terms, (1) it shall not, and shall direct the officers,
directors, employees and other persons affiliated with it and 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 in connection with an unsolicited bona fide written
proposal) 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; (3) shall instruct its officers, directors, agents, advisors
and affiliates to refrain from doing any of the foregoing; and (4) shall furnish
to MSBC copies of all documents reviewed or received by it in connection with
any inquiries, proposals, negotiations and discussions referred to in Subsection
(G)(2).
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(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 reasonable
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 Ballston only, it will use its best
efforts to cause each person who may be deemed to be an "affiliate" of it for
purposes of Rule 145 under the Securities Act, no later than thirty (30) days
after the date hereof (and within ten (10) days after any person becomes an
"affiliate" thereafter), to execute and deliver to MSBG a letter agreement in
the form attached hereto as Exhibit B restricting the disposition of such
affiliate's shares of Ballston Common Stock and the shares of MSBC Common Stock
to be received by such person in exchange for such person's shares of Ballston
Common Stock.
(K) Ballston's Policies and Practices. In the case of Ballston only:
Ballston shall and shall cause its Subsidiary to use its best efforts to modify
and change its credit, investment, asset-liability management, risk management,
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. Additionally, Ballston hereby agrees to accrue
all investment banking, legal and accounting costs associated with this Plan and
the transactions contemplated hereby between the date of this Plan and the
anticipated Effective Date. Except as provided in the immediately preceding
sentence, Ballston 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 Ballston 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 Ballston shall and shall cause its Subsidiary
to make such modifications and changes not later than immediately prior to the
Merger Effective Date. Ballston's representations, warranties and covenants
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 Ballston 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 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, Section 203 of the DGCL.
(M) Ballston Special Shareholder Rights. In the case of Ballston 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 or
Bylaws of Ballston or under any agreement (including any lease, credit, or
employment, severance or officer, director or employee compensation agreement or
plan) to which Ballston is a party (other than as Previously Disclosed by
Ballston); 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.
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(N) Shareholder Approval. In the case of Ballston, 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 December 31, 1997, in a manner that affects
holders of Ballston Common Stock in a disproportionate manner.
(O) Notice of Adverse Events. It shall promptly (but in any event
within ten days after discovering the same) notify the other party hereto in
writing of any event(s), occurrence(s), condition(s) or circumstance(s) which
alone or in the aggregate results or is reasonably likely to result in the
inaccuracy of any warranty or representation or warranty or the material breach
of any covenant or agreement in this Plan of the party discovering the same.
(P) Government Applications. In the case of MSBC only, it shall
promptly prepare and submit an application to the FRB and the Virginia Bank
Regulator 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 Ballston 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 Ballston, 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
Ballston 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 Ballston.
(Q) Environmental Tests. Ballston 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 Ballston.
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
Ballston.
(B) Specific Regulatory Approval. Procurement of the approval by the
FRB and the Virginia Bank Regulator 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 (including but not limited to approval of
Articles of Merger by the Virginia Corporation Authority) 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 Ballston of the transactions contemplated by this Plan so as to render
inadvisable the consummation of the Merger.
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(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. Ballston 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 Ballston 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 Ballston. MSBC shall have received from
Stoy, Malone & Company, P.C., 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 Ballston's financial
position and results of operations, which letters shall be based upon customary
specified procedures undertaken by such firm.
(G) MSBC Legal Opinion. Ballston shall have received an opinion, dated
the Merger Effective Date, of Flippin, Densmore, Morse, Rutherford & Jessee,
P.C., counsel for MSBC, in form and substance reasonably satisfactory to
Ballston, which shall cover the matters contained in Exhibit C hereto.
(H) Ballston Legal Opinion. MSBC and its directors and officers who
sign the Registration Statement shall have received an opinion, dated the Merger
Effective Date of Duane, Morris & Heckscher, LLP, in form and substance
reasonably satisfactory to MSBC, which shall cover the matters contained in
Exhibit D hereto.
(I) MSBC Representations and Warranties. (1) No matter, event,
circumstance, occurrence, condition, or other action or failure of action which
was discovered by Ballston in its due diligence or of which Ballston was or
should have been notified pursuant to Subsection V(O) and which in either case
creates reasonable uncertainty as to the accuracy of any representation or
warranty of MSBC or the breach of any covenant or agreement of MSBC in this Plan
and with respect to which MSBC has been notified in writing shall be unresolved
to the reasonable satisfaction of Ballston; (2) 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 for any such representations and warranties made as of a specified date,
which shall be true and correct as of such date; and (3) 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 Ballston 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) Ballston Representations and Warranties. (1) No matter, event,
circumstance, occurrence, condition, or other action or failure of action which
was discovered by MSBC in its due diligence or of which MSBC was or should have
been notified pursuant to Subsection V(O) and which in either case creates
reasonable uncertainty as to the accuracy of any representation or warranty of
Ballston or the breach of any covenant or agreement of Ballston in this Plan and
with respect to which Ballston has been notified in writing shall be unresolved
to the reasonable satisfaction of MSBC; (2) each of the representations and
warranties contained herein of Ballston 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 for any such representations and warranties made as of a specified
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date, which shall be true and correct as of such date; and (3) each and all of
the agreements and covenants of Ballston 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 Ballston 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 Ballston shall have
received an opinion from Flippin, Densmore, Morse, Rutherford & Jessee, PC to
the effect that (1) the Merger will constitute and qualify as a reorganization
within the meaning of Section 368(a) of the Code and that Ballston and MSBC will
each be a party in that reorganization within the meaning of Section 368(b) of
the Code, and (2) no gain or loss will be recognized by stockholders of Ballston
on the exchange of Ballston Common Stock solely for shares of MSBC Common Stock
except that gain or loss may be recognized on the receipt of cash in lieu of
fractional share interests of MSBC Common Stock. In rendering their opinion,
counsel may require and rely upon representations contained in certificates of
officers of MSBC, Ballston and others.
(N) Affiliate Letters. MSBC shall have received from each person who
may be deemed an "affiliate" of Ballston for purposes of Rule 145 under the
Securities Act an executed letter agreement in the form attached hereto as
Exhibit B.
(O) Ballston Fairness Opinion. At the time the Proxy Statement is
mailed to the holders of shares of Ballston Common Stock, the Board of Directors
of Ballston shall have received an opinion from Danielson Associates, Inc., that
the Exchange Ratio is fair to the shareholders of Ballston from a financial
point of view.
(P) Pooling. MSBC and Ballston shall have received a letter, dated as
of the Merger Effective Date, in form and substance reasonably acceptable to
MSBC, from Coopers & Lybrand to the effect that the Merger will qualify for
pooling of interests accounting treatment.
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) or (P) 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) or (O) of this Article VI
shall only constitute conditions if asserted by Ballston.
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 Ballston.
(B) On Breach. By MSBC or Ballston, in the event (1) any representation
or warranty contained herein made by the other party is breached and the 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, or (2) a material breach
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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.
(C) Failure to Consummate on Time. By MSBC or Ballston, in the event
that the Merger is not consummated by September 30, 1998.
(D) Failure to Obtain Certain Approvals. By MSBC or Ballston, 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; or (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.
(E) Failure to Execute Stock Option Agreement. By MSBC, upon the
failure of Ballston to execute and deliver to MSBC the Stock Option Agreement,
contemporaneously with the execution of this Plan.
(F) Possible Adjustment in Exchange Ratio. By Ballston during the ten
(10) day period commencing on the Determination Date (as hereinafter defined) if
both of the following conditions are satisfied:
(1) if the Average MSBC Share Price is less than $24.47; 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 Ballston 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 Ballston Common
Stock by adjusting the Exchange Ratio, to equal a quotient, the numerator of
which is $24.47 multiplied by the Exchange Ratio (as then in effect) with
respect to Ballston Common Stock, and the denominator of which is the Average
MSBC Share Price. If MSBC makes the election contemplated by the immediately
preceding sentence, it shall give prompt written notice to Ballston of such
election, 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 shall have been so modified) and any references in this Plan
to "Exchange Ratio" shall thereafter be deemed to refer to the Exchange Ratio as
adjusted pursuant to this Paragraph (F).
For purposes of this Paragraph (F) the following terms shall have the
meanings indicated:
"Determination Date" means the tenth calendar day prior to the Merger
Effective Date.
"First Percentage" means the percentage resulting from: (a) taking the
remainder ("First Remainder") obtained by subtracting the Average MSBC Share
Price from $27.19; and (b) dividing the First Remainder by the Average MSBC
Share 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 Share Price ("Recent SNL Bank Index")
from the SNL Southeast Bank Index reported most recently prior to or on February
13, 1998; and (b) dividing the Second Remainder by the Recent SNL Bank Index.
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(G) Fiduciary Duty. By Ballston, if its board of directors (on written
advice of counsel that such recommendation is necessary to comply with their
fiduciary duty) shall have determined to recommend an acquisition proposal to
its stockholders after determining that such acquisition proposal is superior in
value to the stockholders to the transaction contemplated by the Plan, and
Ballston gives MSBC at least three business days' prior notice of its intention
to effect such termination pursuant to this Paragraph.
VIII. OTHER MATTERS.
(A) Survival. If the Merger Effective Date occurs, the agreements of
the parties in Paragraph (F) of Article II, and Paragraphs (A), (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), (D), (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 or approved in the manner authorized by their respective Boards of Directors
and executed in the same manner as this Plan, except that, after the vote by the
stockholders of Ballston, the consideration to be received by the stockholders
of Ballston for each share of Ballston Common Stock shall not be decreased
except as expressly provided herein.
(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 pursuant to Section
VII(B) on account of a breach by one party (so long as the other party is not
also in breach), 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). In the event that the Plan is terminated pursuant to
Article VII(B), the total documented out-of-pocket costs, expenses, and fees
(excluding only investment banking fees) incurred by the other party (regardless
of whether incurred before or after the execution of this Plan), so long as such
other party shall not also be in breach, in connection with and arising out of
the Merger and other transactions contemplated by this Plan shall be paid by the
breaching party and the breaching party shall promptly make such reimbursement
to the non-breaching party as is necessary to effectuate the same.
(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.
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(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, 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 Ballston, to:
Ballston Bancorp, Inc.
1667 K Street, N.W., Suite 700
Washington, D.C. 20006
Attn: Robert F. Kelleher
Chairman, President and Chief Executive Officer
Copy to:
Brian D. Alprin, Esq.
Duane, Morris & Hecksher, LLP
1667 Street, N.W., Suite 700
Washington, D.C. 20006
(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) except as otherwise expressly defined herein the term
"knowledge" when used with respect to a party shall mean (a) the actual
knowledge or constructive knowledge assuming due inquiry after notice, of any
Vice President or equivalent or superior officer or (b) the actual knowledge or
constructive knowledge of any other officer or employee to the extent of his
actual participation in or review of such matters for purposes of this Agreement
and the consummation of the transactions contemplated hereby; or (c) information
set forth in the books and records of such party;
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(2) the term "Material Adverse Effect," when applied to a
party, shall mean an event, occurrence, condition or circumstance (including
without limitation the making of any provisions for possible loan and lease
losses or other reserves, classification of assets, loan or credit problems,
costs and expenses associated with Year 2000, investment losses or write-downs,
legal proceedings, violations of law, assertions of claims (including claims
related to Intellectual Property), write-downs of other real estate and taxes)
which, in any case, (i) has or is reasonably likely at any future time to have
individually or in the aggregate a material adverse effect on the financial
condition, results of operations, assets, liquidity, operations or business of
the party and its Subsidiaries, taken as a whole, or (ii) has impaired or is
reasonably likely to impair materially 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; and provided 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 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;
(4) the term "including" shall mean in all cases except as
otherwise expressly indicated "including but not limited to".
(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 Ballston and BNV 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 only, employees of Ballston and BNV shall be given full
credit for prior service with Ballston and BNV 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 Ballston or BNV on the one
hand and any individual current or former director, officer or employee thereof
on the other hand, copies of which have been Previously Disclosed by Ballston to
MSBC.
(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 and it shall cause any
successor thereto to indemnify and hold harmless any person who has rights to
indemnification from Ballston and it shall cause BNV as its Subsidiary and any
successor there to indemnify and hold harmless any person who has rights to
indemnification from BNV to the same extent and on the same conditions as such
person is entitled to indemnification pursuant to Ballston's or BNV's respective
Certificate or Articles of Incorporation and bylaws or applicable board
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resolutions as in effect on the date of this Plan as Previously Disclosed, 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 MSBG or its
Subsidiary may be required to effectuate any such indemnification, MSBC shall
cause the Continuing Corporation or, if applicable, such Subsidiary 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 MSBC and BNV, respectively,
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). MSBC
shall have no obligation to maintain directors and officers liability insurance
under this Section if MSBC determines in good faith that (a) such insurance is
not reasonably available; or (b) the premium costs for such insurance is
disproportionate to the amount of coverage provided, (c) the incremental premium
costs for such coverage exceed 175% of the amount per annum Ballston and BNV
paid in its last full fiscal year, or (d) the coverage provided by such
insurance is limited by exclusives so as to provide an insufficient benefit (it
being understood that if such exclusives are not materially greater than those
in effect for MSBC as of December 31, 1997, this clause (d) cannot be invoked).
(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 Ballston 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.
(M) Alternative Structure. Notwithstanding anything to the contrary
contained in this Plan, subject to the final sentence of this Section (M), MSBC
may, at its sole option, elect to either (a) form a separate subsidiary
corporation and merge it into Ballston or Ballston into it such that MSBC shall
be the sole shareholder of the surviving corporation, or (b) convert this Plan
to an exchange of Ballston Common Stock for MSBC Common Stock, instead of a
merger, on the same terms and conditions contained herein (except for such
conversion); provided, however, that MSBC may not make such an election if it
would result in failure to satisfy the condition set forth in either Section (M)
or (P) of Article VI. In the event MSBC makes an election pursuant to the prior
sentence, Ballston shall take all actions reasonably requested by MSBC
(including without limitation using its best efforts to obtain any requisite
corporate and stockholder approvals in connection therewith). In the event that
MSBC makes an election pursuant to the first sentence of this Section (M), the
parties hereto agree promptly to amend this Plan as MSBC may reasonably deem
necessary or appropriate. If MSBC reasonably determines that the Merger cannot
be effected pursuant to this Plan (other than pursuant to this Section (M)) and
MSBC also reasonably determines that the transactions contemplated by this Plan
can be effected if one or more of the actions contemplated by this Section (M)
are taken, then MSBC shall elect to take one or more of the actions contemplated
by this Section (M); provided, however, that MSBC shall not be required to take
any such action if the taking of such action is, in MSBC's reasonable judgment,
reasonably likely to result in the failure of any of the conditions set forth in
Article VI.
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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/ Michael Brenan
Michael Brenan
Chief Executive Officer
Ballston Bancorp, Inc.
By: /s/ Robert F. Kelleher
Robert F. Kelleher
Chairman, President and Chief
Executive Officer
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APPENDIX II
March 11, 1998
Board of Directors
Ballston Bancorp Inc.
1110 N. Glebe Road, Suite 1080
Arlington, Virginia 22201
Dear Board Members:
Set forth herein is the opinion of Danielson Associates Inc.
("Danielson Associates") as to the "fairness" of the offer by MainStreet
BankGroup, Inc. ("MainStreet"), a bank holding company domiciled in
Martinsville, Virginia to acquire all of the shares of the common stock of
Ballston Bancorp, Inc. ("Ballston" or the "Bank") of Arlington, Virginia. The
"fair" value is defined as the price at which all of the shares of Ballston's
common stock would change hands between a willing seller and a willing buyer
with each having had a reasonable knowledge of the relevant facts. In opining as
to the "fairness" of the offer, it also must be determined if the MainStreet
common stock to be exchanged for Ballston's common stock is "fairly" valued.
In preparing this opinion, the Bank's market has been analyzed; its
business and prospects have been reviewed; and its performance has been compared
with banks in similar markets. In addition, any unique characteristics have been
considered.
This opinion is based partly on data supplied to Danielson Associates
by Ballston, and it relies on some public information, all of which is believed
to be reliable, but neither the completeness nor accuracy of such information
can be guaranteed. In particular, the opinion assumes that there are no
significant asset quality problems beyond what is stated in recent reports to
regulatory agencies.
In determining the "fair" sale value of Ballston, the emphasis has been
placed on prices paid for banks with similar financial, structural and market
characteristics. These prices were related to Ballston's net income, which is
the most important factor in determining its "fair" sale value.
The "fair" market value of the MainStreet common stock to be exchanged
for Ballston stock has been determined by a comparison with other similar bank
and bank holding company stocks and included no in-person due diligence of
MainStreet. This comparison showed the MainStreet stock to be "fairly" valued.
Based on this analysis, the "fair" sale value of Ballston is $15.7 to
$16.7 million, or $9.20 to $10.19 per share. Thus, MainStreet's offer of $19.5
million, or $12.04 per share, is a "fair" offer from a financial point of view
for Ballston and its shareholders.
Respectfully submitted,
/s/ Arnold G. Danielson
Arnold G. Danielson
Chairman
Danielson Associates Inc.
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APPENDIX III
SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
Section 262. Appraisal rights
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which stock,
or depository receipts in respect thereof, at the record date fixed to determine
the Stockholders entitled to receive notice of and to vote at the meeting of
Stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the Stockholders of the surviving
corporation as provided in subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series of
stock of a constituent corporation if the holders thereof are required by the
terms of an agreement of merger or consolidation pursuant to ss.ss. 251, 252,
254, 257, 258, 263 and 264 of this title to accept for such stock anything
except:
a. Shares of stock of the corporation surviving or resulting from such
merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts in
respect thereof, which shares of stock or depository receipts at the effective
date of the merger or consolidation will be either listed on a national
securities exchange or designated as a national market system security on an
interdealer quotation system by the National Association of Securities Dealers,
Inc. or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. of this paragraph; or
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d. Any combination of the shares of stock, depository receipts and cash
in lieu of fractional shares or fractional depository receipts described in the
foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall be
available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a meeting of
Stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its Stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of his
shares shall deliver to the corporation, before the taking of the vote on the
merger or consolidation, a written demand for appraisal of his shares. Such
demand will be sufficient if it reasonably informs the corporation of the
identity of the stockholder and that the stockholder intends thereby to demand
the appraisal of his shares. A proxy or vote against the merger or consolidation
shall not constitute such a demand. A stockholder electing to take such action
must do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or resulting
corporation shall notify each stockholder of each constituent corporation who
has complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, each constituent corporation, either before the effective
date of the merger or consolidation or within ten days thereafter, shall notify
each of the holders of any class or series of stock of such constituent
corporation who are entitled to appraisal rights of the approval of the merger
or consolidation and that appraisal rights are available for any or all shares
of such class or series of stock of such constituent corporation, and shall
include in such notice a copy of this section; provided that, if the notice is
given on or after the effective date of the merger or consolidation, such notice
shall be given by the surviving or resulting corporation to all such holders of
any class or series of stock of a constituent corporation that are entitled to
appraisal rights. Such notice may, and, if given on or after the effective date
of the merger or consolidation, shall, also notify such Stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such notice,
demand in writing from the surviving or resulting corporation the appraisal of
such holder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such holder's shares. If such notice
did not notify Stockholders of the effective date of the merger or
consolidation, either (i) each such constituent corporation shall send a second
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notice before the effective date of the merger or consolidation notifying each
of the holders of any class or series of stock of such constituent corporation
that are entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such a
second notice to all such holders on or within 10 days after such effective
date; provided, however, that if such second notice is sent more than 20 days
following the sending of the first notice, such second notice need only be sent
to each stockholder who is entitled to appraisal rights and who has demanded
appraisal of such holder's shares in accordance with this subsection. An
affidavit of the secretary or assistant secretary or of the transfer agent of
the corporation that is required to give either notice that such notice has been
given shall, in the absence of fraud, be prima facie evidence of the facts
stated therein. For purposes of determining the Stockholders entitled to receive
either notice, each constituent corporation may fix, in advance, a record date
that shall be not more than 10 days prior to the date the notice is given,
provided, that if the notice is given on or after the effective date of the
merger or consolidation, the record date shall be such effective date. If no
record date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the day on
which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such Stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
his written request for such a statement is received by the surviving or
resulting corporation or within 10 days after expiration of the period for
delivery of demands for appraisal under subsection (d) hereof, whichever is
later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all Stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the Stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
Stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the Stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
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(h) After determining the Stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
Stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to Stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting Stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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APPENDIX IV
BALLSTON BANCORP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
Ballston does not engage in any substantial business activity other than as a
bank holding company that owns all of the issued and outstanding stock of The
Bank, its principal asset. Unless otherwise noted, the following discussion
relates to Ballston and The Bank on a consolidated basis, collectively referred
to as Ballston. Ballston engages in community banking activities by accepting
deposits and investing such funds primarily in a variety of loans. These
community banking activities primarily include providing commercial loans, real
estate mortgage loans, real estate construction loans and, to a lesser extent,
consumer loans. Ballston also maintains an investment securities portfolio.
Ballston's lending and investing activities are funded primarily by deposits.
The largest component of Ballston's net income is net interest income.
Consequently, Ballston's earnings are primarily dependent on its net interest
income, which is determined by (i) the difference between rates of interest
earned on interest-earning assets and rates paid on interest-bearing liabilities
(interest rate spread), and (ii) the relative amounts of interest-earning assets
and interest-bearing liabilities. Ballston's net income is also affected by its
provision for loan losses, other income, other expenses, and income taxes.
OVERVIEW
On June 23, 1997, Ballston signed a definitive agreement to merge with and into
a subsidiary of Abigail Adams National Bancorp, Inc. ("AANB"). Because of the
pendency of that merger, Ballston's strategy to expand its operations, through
the active pursuit of investments in securities, loan originations, and deposit
growth, was not pursued as actively as in prior periods. The merger was not
approved at the Special Meeting of Shareholders of AANB on December 31, 1997 and
as a result, the definitive agreement between Ballston and AANB was terminated.
The 1997 pre-tax earnings were reduced by $263,000 as a result of the expenses
related to that merger.
On March 11, 1998, Ballston signed a definitive agreement to merge with and into
MSBC. It is anticipated that the transaction will close no later than the third
quarter of 1998 and such transaction is expected to be accounted for by the
pooling-of-interests method of accounting.
In April 1998, a new branch office (the "new branch") was opened in Falls
Church, Virginia. Ballston believes, although there is no assurance, that the
new branch
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will result in the growth of its loan portfolio and deposit base. Ballston
expects its other expenses may increase in 1998 due to the costs associated with
the opening of the new branch.
COMPARISON OF DECEMBER 31, 1997 WITH DECEMBER 31, 1996
FINANCIAL CONDITION
Total assets increased $1,756,000 or 2.2%, to $80,336,000 at December 31, 1997
from $78,580,000 at December 31, 1996. The increase was primarily attributable
to a $13,182,000 or 224.5% increase in cash and cash equivalents, which was
partially offset by decreases in investment securities of $7,689,000 or 32.3%,
interest bearing deposits with financial institutions of $1,775,000 or 41.6%,
loans of $1,446,000 or 3.4%, and foreclosed real estate held for sale of
$514,000 or 45.7%. Total liabilities increased $1,094,000 or 1.5% to $72,073,000
at December 31, 1997 from $70,979,000 at December 31, 1996. This increase was
primarily due to increases in deposits of $1,621,000 or 2.6%, and securities
sold under repurchase agreements of $279,000 or 5.0%, which were partially
offset by a decrease in advances from Federal Home Loan Bank of $850,000 or
55.5%.
Nonperforming Assets. The following table sets forth information regarding
nonperforming assets as of the dates indicated. Ballston had no loans
categorized as troubled debt restructurings.
December 31, December 31,
1997 1996
------------ ------------
(In Thousands)
Loans accounted for on a nonaccrual basis $ 211 $ 15
Accruing loans that are contractually past
due 90 days or more 198 179
-------- --------
Total 409 194
Foreclosed real estate held for sale 610 1,124
-------- -------
Total nonperforming assets $1,019 $1,318
====== ======
Foreclosed Real Estate Held for Sale. Real estate acquired by Ballston as a
result of foreclosure is classified as foreclosed real estate held for sale
("Foreclosed Real Estate") until such time it is sold. When Foreclosed Real
Estate is acquired, it is recorded at the lower of its fair value or the unpaid
principal balance of the related loan.
Allowance for Losses on Loans and Foreclosed Real Estate. It is the policy of
management to provide for losses on unidentified loans in its portfolio in
addition to classified loans. A provision for loan losses is charged to
operations based on management's evaluation of the potential losses that may be
incurred in Ballston's loan portfolio. Management also periodically performs
valuations of Foreclosed Real Estate and establishes an allowance to reduce book
values of the properties to their net realizable values when necessary. As of
December 31, 1997 and 1996, there was no allowance for losses on Foreclosed Real
Estate. The following table sets forth information with respect to Ballston's
allowance for loan losses for the years indicated.
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<TABLE>
<CAPTION>
<S> <C>
Year Ended December 31,
------------------------
1997 1996
---- ----
(Dollars In Thousands)
Allowance for loan losses, beginning of year $613 $652
---- ----
Provision for loan losses 18 12
---- ----
Chargeoffs:
Commercial 19 -
Real estate - mortgage - 52
Consumer 11 2
---- ----
Total chargeoffs 30 54
---- ----
Recoveries:
Commercial 1 1
Consumer - 2
---- ----
Total recoveries 1 3
---- ----
Net chargeoffs 29 51
---- ----
Allowance for loan losses, end of year $602 $613
==== ====
Net loans charged off as a percent of average
loans outstanding 0.07% 0.13%
==== ====
The following table sets forth the allocation of Ballston's allowance for loan
losses by loan category and the percent of loans in each category to total loans
receivable at the dates indicated. The portion of the loan loss allowance
allocated to each loan category does not represent the total available for
future losses that may occur within the loan category since the total loan loss
allowance is a valuation applicable to the entire loan portfolio.
<CAPTION>
December 31, December 31,
1997 1996
------------ ------------
(Dollars In Thousands)
Amount Percent Amount Percent
------ ------- ------ -------
Balance at end of year applicable to:
Commercial $113 18.8% $163 28.4%
Real estate - construction 17 2.8 66 10.7
Real estate - mortgage 460 76.4 368 58.4
Consumer 12 2.0 16 2.5
---- ---- ---- ----
Total $602 100.0% $613 100.0%
==== ===== ==== =====
</TABLE>
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RESULTS OF OPERATIONS
Net income for 1997 was $771,000 or $.48 per share in comparison to $741,000 or
$.46 per share for 1996. As discussed in the Overview section, net income for
1997 was negatively impacted as a result of $263,000 of pre-tax merger related
expenses in regard to the AANB proposed merger transaction. Without these
special merger related expenses, net income after taxes would have approximated
$944,000.
Net Interest Income. Ballston's net interest income was relatively flat for
1997. Net interest income increased $129,000 or 4.0%, to $3,384,000 for 1997
from $3,255,000 for 1996. The increase was primarily the result of a $2,448,000
or 16.2% increase in the relative amount of interest-earning assets over
interest-bearing liabilities during 1997 versus 1996, which more than offset a
22 basis point net decrease to 3.75% in the yield on interest-earning assets
over the rate paid on interest-bearing liabilities.
Provision for Loan Losses. The provision for loan losses increased $5,900 or
49.2%, to $17,900 for 1997 from $12,000 for 1996. Management regularly performs
an analysis to identify the inherent risk of loss in its loan portfolio. This
analysis includes evaluation of the collectibility of the loan portfolio,
including the nature of the portfolio, credit concentrations, trends in
historical loss experience, specific impaired loans, and economic conditions.
Management will continue to monitor its allowance for loan losses and future
adjustments to the allowance through the provision for loan losses as economic
conditions dictate. Although the allowance for loan losses is maintained at a
level that management considers to be adequate to provide for the risk of loss
in Ballston's loan portfolio, there can be no assurance that future losses will
not exceed estimated amounts or that additional provisions for loan losses will
not be required in future periods.
Other Income. Other income increased $234,000 or 64.0% for 1997 from $365,000
for 1996. The majority of the increase was the result of the recognition of
$191,000 in gain on sale of foreclosed real estate. In addition, other income
exclusive of service charges on deposit accounts and gain on sale of foreclosed
real estate increased $71,000 or 42.9%, to $236,000 for 1997 from $165,000 for
1996. This increase was primarily a result of Ballston instituting a policy to
charge non-bank customers, on a per transaction basis, a fee for their use of
Ballston's ATM machines. Service charges on deposit accounts decreased $28,000
or 14.0% to $172,000 for 1997 from $200,000 for 1996. Such decrease was
primarily the result of a decrease in non-sufficient fund fees. This decrease
was not the result of Ballston's change in collection policy on such fees but
rather the result of fewer customer accounts requiring such charges.
Other Expenses. Other expenses increased $302,000 or 12.2%, to $2,776,000 for
1997 from $2,475,000 for 1996. The increase was primarily attributable to other
operating expenses increasing $300,000 or 34.9% to $1,161,000 for 1997 from
$861,000 for 1996. This increase was primarily due to $263,000 of merger related
expenses in connection with the AANB proposed merger transaction. Occupancy
expense increased $42,000 or 19.7%, to $254,000 for 1997 from $212,000 for 1996.
As discussed in the Overview Section, Ballston opened a new branch office in
Falls Church, Virginia in April 1998. Beginning in May 1997, Ballston commenced
paying rent of approximately $4,200 a month on this new site, which accounted
for most of the increase. Salaries and employee benefits decreased $47,000 or
3.9%, to $1,169,000 for 1997 from $1,216,000 for 1996. The decrease was
primarily the result of the departure of two executive officers and three
employees in the second and third quarters of 1997.
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COMPARISON OF MARCH 31, 1998 WITH DECEMBER 31, 1997
FINANCIAL CONDITION
Total assets decreased $4,661,000 or 5.8%, to $75,675,000 at March 31, 1998 from
$80,336,000 at December 31, 1997. The decrease was primarily attributable to
decreases of $7,734,000 or 40.6% in cash and cash equivalents and $804,000 or
2.0% in loans, which were partially offset by increases in interest bearing
deposits with financial institutions of $389,000 or 15.6% and investment
securities of $3,512,000 or 21.8%. Total liabilities decreased $4,713,000 or
6.5% to $67,360,000 at March 31, 1998 from $72,073,000 at December 31, 1997.
This decrease was primarily due to a decrease in deposits of $6,604,000 or
10.2%, which was partially offset by an increase in securities sold under
repurchase agreements of $1,773,000 or 30.1%.
Nonperforming Assets. As of March 31, 1998, loans accounted for on a nonaccrual
basis totaled $207,000 versus $211,000 as of December 31, 1997. As of March 31,
1998, accruing loans that are contractually past due 90 days or more totaled
$95,000 versus $198,000 as of December 31, 1997. Ballston had no loans
categorized as troubled debt restructurings as of March 31, 1998.
COMPARISON OF THE THREE MONTHS ENDED MARCH 31, 1998
WITH THE THREE MONTHS ENDED MARCH 31, 1997
RESULTS OF OPERATIONS
Net income for the three months ended March 31, 1998 was $105,000 or $.06 per
share in comparison to $164,000 or $.10 per share for the three months ended
March 31, 1997. Net income for the three months ended March 31, 1998 was
negatively impacted as a result of $163,000 of pre-tax merger related expenses.
Without these special merger related expenses, net income after taxes would have
approximated $251,000.
Net Interest Income. Ballston's net interest income was relatively flat for the
three months ended March 31, 1998 as compared to the three months ended March
31, 1997. Net interest income increased $20,000 or 2.3%, to $847,000 for the
three months ended March 31, 1998 from $827,000 for the three months ended March
31, 1997. The increase was primarily the result of a $2,463,000 or 17.0%
increase in the relative amount of interest-earning assets over interest-bearing
liabilities during the three months ended March 31, 1998 versus the three months
ended March 31, 1997, which more than offset a 26 basis point net decrease to
3.69% in the yield on interest-earning assets over the rate paid on
interest-bearing liabilities.
Provision for Loan Losses. The provision for loan losses remained constant for
the three months ended March 31, 1998, as compared to the same period for the
prior year. The allowance for loan losses totaled $617,000 at March 31, 1998.
Other Income. Other income decreased $22,000 or 19.1% for the three months ended
March 31, 1998 from $117,000 for the three months ended March 31, 1997.
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Other Expenses. Other expenses increased $28,000 or 4.2% for the three months
ended March 31, 1998 from $675,000 for the three months ended March 31, 1997.
The increase was primarily attributable to merger expenses of $163,000 for the
three months ended March 31, 1998, which was partially offset by a decrease in
salaries and employee benefits of $123,000 or 37.2% for the three months ended
March 31, 1998 from $330,000 for the three months ended March 31, 1997. The
decrease in salaries and employee benefits was primarily the result of the
departure of two executive officers and three employees in the second and third
quarters of fiscal 1997.
YEAR 2000 ISSUE
A great deal of information has been disseminated about the global computer
crash that may occur in the year 2000. Many computer programs that can only
distinguish the final two digits of the year entered (a common programming
practice) are expected to read entries for the year 2000 as the year 1900 and
compute payment, interest or delinquency based on the wrong date, or are
expected to be unable to compute payment, interest or delinquency. Rapid and
accurate data processing is essential to the operations of Ballston. Data
processing is also essential to most other financial institutions and many other
companies. All of the significant data processing of Ballston that could be
affected by this problem is provided by a third party service bureau. The
service bureau has advised Ballston that it expects to resolve this potential
problem before the year 2000. However, if the service bureau is unable to
resolve this potential problem in time, Ballston would likely experience
significant data processing delays, mistakes or failures. These delays, mistakes
or failures could have a significant adverse impact on the financial condition
and results of operations of Ballston. It is currently anticipated that costs to
Ballston associated with the year 2000 issue will not be significant.
LIQUIDITY AND CAPITAL RESOURCES
The primary sources of funds are deposits, repayments of loans and
mortgage-backed securities, maturities of investment securities and
interest-bearing deposits with financial institutions, cash provided by
operations and advances from FHLB. While scheduled repayments of loans and
mortgage-backed securities, and maturities of investment securities and
interest-bearing deposits with financial institutions are predictable sources of
funds, deposit flows and loan prepayments are greatly influenced by the general
level of interest rates, economic conditions and competition. Ballston uses its
cash flows to fund existing and future loan commitments, to fund maturing
certificates of deposit and demand deposit withdrawals, to invest in other
interest-earning assets, to maintain liquidity and to meet operating expenses.
At March 31, 1998 and December 31, 1997, Ballston had $10,936,000 and
$10,452,000, respectively, in approved loan commitments, for which it
anticipates that it will have the funds necessary to meet these obligations
through the sources of funds mentioned above. The amount of time deposits at
March 31, 1998 which is scheduled to mature during the twelve months ending
March 31, 1999 is $20,705,000. The amount of time deposits at December 31, 1997
which is scheduled to mature in 1998 is $21,310,000. Management believes that by
evaluating competitive instruments and pricing in its market area, it can manage
and control maturing deposits so that a substantial amount of such deposits is
retained in Ballston.
6
<PAGE>
During the three months ended March 31, 1998 , Ballston experienced a net cash
outflow from financing activities of $4,872,000, primarily due to a net decrease
in deposits of $6,604,000, which was partially offset by a net increase in
securities sold under repurchase agreements of $1,773,000. Ballston's investing
activities during the three months ended March 31, 1998 resulted in a net cash
outflow of $3,161,000, primarily due to the purchase of investment securities of
$6,908,000, which was partially offset by proceeds from the maturities of
investment securities of $2,846,000 and the net decrease in loans of $789,000.
In addition, Ballston experienced positive cash flows from operating activities
during the three months ended March 31, 1998 of $298,000.
Net cash provided by operating activities increased $203,000 for 1997 from
$612,000 for 1996. The increase was attributable to changes in various operating
assets and liabilities in the normal course of business. Net cash provided by
investing activities for 1997 totaled $11,447,000, an increase of $23,387,000
from 1996 when $11,940,000 was used in investing activities. The increase was
primarily attributable to a decrease in interest bearing deposits with financial
institutions of $1,775,000 for 1997 as compared to an increase in such deposits
of $2,386,000 for 1996, a decrease in purchases of investment securities of
$11,403,000, an increase in proceeds from maturities of investment securities of
$3,000,000, and a decrease in loans of $1,488,000 for 1997 as compared to an
increase in loans of $3,275,000 for 1996. Net cash provided by financing
activities for 1997 totaled $920,000 as compared to $10,050,000 for 1996. The
decrease of $9,130,000 was primarily the result of smaller increases for 1997 as
compared to 1996 of $6,703,000 in deposits and $1,772,000 in securities sold
under repurchase agreements.
7
<PAGE>
<TABLE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>
<S> <C>
March 31, March 31,
1998 1997
------------ ------------
ASSETS (Unaudited) (Unaudited)
Cash and due from banks $ 1,968,781 $ 1,944,562
Federal funds sold 9,351,283 4,459,589
------------ -----------
Cash and cash equivalents 11,320,064 6,404,151
Interest bearing deposits with financial institutions 2,877,850 2,573,937
Investment securities 19,643,807 18,431,959
Loans, net 39,887,251 41,600,906
Bank premises and equipment, net 620,719 539,661
Accrued interest receivable 353,575 408,036
Foreclosed real estate held for sale 595,316 1,094,473
Other assets 376,053 421,900
------------ -----------
Total assets $75,674,635 $71,475,023
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $12,715,130 $10,558,926
NOW accounts 10,533,276 8,772,218
Savings 13,362,849 14,093,931
Time, $100,000 and over 13,926,372 8,837,226
Other time 7,902,503 14,993,095
------------ -----------
Total deposits 58,440,130 57,255,396
Borrowed funds:
Securities sold under repurchase agreements 7,662,569 5,294,763
Advances from Federal Home Loan Bank 681,000 681,000
Accrued interest and other liabilities 576,093 544,766
------------ -----------
Total liabilities 67,359,792 63,775,925
------------ -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.20 par value, 500,000 shares authorized,
none issued and outstanding - -
Common stock, $.20 par value, 2,500,000 shares
authorized, 1,619,474 shares issued and outstanding 323,895 323,895
Surplus 6,631,306 6,631,306
Retained earnings 1,359,211 785,107
Accumulated other comprehensive income:
Unrealized holding gain on securities, net of tax 431 (41,210)
------------ -----------
Total stockholders' equity 8,314,843 7,699,098
------------ -----------
Total liabilities and stockholders' equity $75,674,635 $71,475,023
=========== ===========
See Notes to Unaudited Consolidated Financial Statements
8
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF INCOME AND RETAINED EARNINGS
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
------------- ------------
(Unaudited) (Unaudited)
Interest income:
Interest and fees on loans $ 951,890 $ 979,541
Interest on investment securities:
U.S. Treasury securities 39,111 61,966
U.S. Government agencies and corporations 219,348 239,919
Other 8,731 10,167
Interest on federal funds sold 174,688 63,918
Interest on deposits with financial institutions 36,314 38,742
------------- -------------
Total interest income 1,430,082 1,394,253
------------- -------------
Interest expense:
Interest on deposits 472,079 481,405
Interest on borrowed funds 111,166 85,407
------------- -------------
Total interest expense 583,245 566,812
------------- -------------
Net interest income 846,837 827,441
Provision for loan losses 15,000 15,000
------------- -------------
Net interest income after provision for loan losses 831,837 812,441
------------- -------------
Other income:
Service charges on deposit accounts 32,478 46,539
Other 62,211 70,556
------- ------
Total other income 94,689 117,095
Other expenses:
Salaries and employee benefits 207,467 330,280
Occupancy expense 69,113 55,110
Furniture and equipment expenses 36,858 42,016
Merger expenses 163,461 -
Other operating expenses 226,993 248,048
------------- -------------
Total other expenses 703,892 675,454
------------- -------------
Income before income taxes 222,634 254,082
Income taxes 117,471 89,885
------------- -------------
NET INCOME 105,163 164,197
Retained earnings:
Balance, beginning of period 1,294,535 653,300
Cash dividends (40,487) (32,390)
------------- -------------
Balance, end of period $ 1,359,211 $ 785,107
============= =============
Net income per common share $ .06 $ .10
===== =====
See Notes to Unaudited Consolidated Financial Statements
9
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
---------- ---------
(Unaudited) (Unaudited)
Net income $ 105,163 $ 164,197
---------- ---------
Other comprehensive income (loss):
Unrealized holding loss on securities (20,838) (52,018)
Income tax benefit 7,085 17,686
---------- ---------
Total other comprehensive income (loss) (13,753) (34,332)
---------- ---------
COMPREHENSIVE INCOME $ 91,410 $ 129,865
========== =========
See Notes to Unaudited Consolidated Financial Statements
10
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
------------- ------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 105,163 $ 164,197
Adjustments to reconcile net income to net cash provided
by operating activities:
Deferred income taxes (19,084) (21,705)
Accretion and amortization of discounts and premiums, net (19,450) 8,557
Provision for loan losses 15,000 15,000
Depreciation and amortization on bank premises and equipment 26,512 29,704
Decrease (increase) in accrued interest receivable 14,940 (11,514)
Decrease in other assets 56,735 56,243
Increase in accrued interest and other liabilities 118,504 131,226
------------- ------------
Net cash provided by operating activities 298,320 371,708
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest bearing deposits with
financial institutions (389,113) 1,689,441
Purchases of investment securities held-to-maturity (5,403,044) -
Proceeds from maturities of investment securities held-to-maturity 1,846,492 1,000,000
Principal collected on investment securities held-to-maturity 377,628 348,359
Purchases of investment securities available-for-sale (1,505,300) (31,900)
Proceeds from maturities of investment securities available-for-sale 1,000,000 4,000,000
Principal collected on investment securities available-for-sale 171,305 12,571
Net decrease in loans 789,165 521,735
Purchase of bank premises and equipment (47,910) (14,143)
------------- ------------
Net cash provided by (used in) investing activities (3,160,777) 7,526,063
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in deposits (6,604,249) (6,168,390)
Net increase (decrease) in securities sold under
repurchase agreements 1,773,036 (315,445)
Repayments of Federal Home Loan Bank advances - (850,000)
Cash dividends paid (40,487) (32,390)
------------- ------------
Net cash used in financing activities (4,871,700) (7,366,225)
------------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (7,734,157) 531,546
CASH AND CASH EQUIVALENTS:
Beginning of period 19,054,221 5,872,605
------------- ------------
End of period $ 11,320,064 $ 6,404,151
============= ============
</TABLE>
See Notes to Unaudited Consolidated Financial Statements
11
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated financial
statements reflect all adjustments (which include normal recurring adjustments)
necessary to present fairly the financial position as of March 31, 1998 and
1997, and the results of operations, comprehensive income and cash flows for the
three months ended March 31, 1998 and 1997. These unaudited consolidated
financial statements should be read in conjunction with the consolidated
financial statements and notes for the year ended December 31, 1997. The results
of operations for the three months ended March 31, 1998 are not necessarily
indicative of the operating results which may be achieved for the full fiscal
year.
NOTE 2 - MERGER:
On March 11, 1998, Ballston entered into the Agreement and Plan of Merger, and
the related Plan of Merger (collectively, the "Merger Agreement") pursuant to
which Ballston will be merged (the "Merger") with and into MainStreet BankGroup
Incorporated ("MSBC"). Under the terms of the Merger Agreement, each share of
common stock, par value $0.20 per share, of Ballston will be converted into that
portion of a share of MSBC common stock having a market value of $12.04,
provided that a minimum of 0.4025 share and a maximum of 0.4920 share of MSBC
common stock will be issued for each share of Ballston common stock.
Consummation of the Merger is subject, among other things, to the approval of
the Merger Agreement by the requisite vote of Ballston shareholders and the
receipt of all requisite regulatory approvals and satisfaction of other
conditions contained in the Merger Agreement. It is anticipated that the Merger
will be accounted for as a pooling of interests under generally accepted
accounting principles.
In connection with the Merger Agreement, MSBC and Ballston entered into a Stock
Option Agreement, dated as of March 11, 1998 (the "Option Agreement"). The
Option Agreement provides that MSBC shall have the option to purchase up to
322,275 of the authorized, but unissued, shares of Ballston's common stock at a
price of $8.64 per share, only upon the occurrence of certain specified events.
Ballston has agreed to pay a transaction fee in connection with the Merger to an
investment banking firm. Under the terms of the agreement, the fee is equal to
0.5% of the aggregate transaction price. A substantial portion of the fee is
contingent upon the consummation of the Merger. Fees to that firm for the three
months ended March 31, 1998 totaled $34,375 and are included in merger expenses.
NOTE 3 - NET INCOME PER COMMON SHARE:
Net income per common share is computed using the weighted average number of
common shares outstanding during the year. The weighted average number of shares
was 1,619,474 for the three months ended March 31, 1998 and 1997.
12
<PAGE>
NOTE 4 - INCOME TAXES:
Income tax expense differs from that computed at the statutory Federal income
tax rate for the three months ended March 31, 1998, primarily due to certain
merger related expenses not being deductible for income tax purposes.
NOTE 5 - NEW ACCOUNTING PRONOUNCEMENTS:
Statement of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" was issued in June 1997. This statement is effective for fiscal years
beginning after December 15, 1997 and reclassification of financial statements
for earlier periods provided for comparative purposes is required. This
statement establishes standards for reporting and display of comprehensive
income and its components in the financial statements. The objective of the
statement is to report a measure of all changes in equity of an enterprise that
results from transactions and other economic events of the period other than
transactions with owners. Ballston adopted this statement in the first quarter
of 1998, and has included its comprehensive income in a separate financial
statement as part of its unaudited consolidated financial statements.
NOTE 6 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Three Months Three Months
Ended Ended
March 31, March 31,
1998 1997
----------- ------------
Cash paid for:
Interest on deposits $ 499,928 $ 435,308
Interest on borrowed funds 111,436 88,894
Income taxes 5,231 24,796
13
<PAGE>
BALLSTON BANCORP, INC.
AND SUBSIDIARY
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 1997 and 1996
14
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
AUDITED CONSOLIDATED FINANCIAL STATEMENTS
C O N T E N T S
Page
----
Independent Auditors' Report 16
Consolidated Statements of Condition 17
Consolidated Statements of Income 18
Consolidated Statements of Changes in Stockholders' Equity 19
Consolidated Statements of Cash Flows 20
Notes to Consolidated Financial Statements 21 - 33
15
<PAGE>
Independent Auditors' Report
To the Board of Directors and Shareholders of
Ballston Bancorp, Inc.
We have audited the accompanying consolidated statements of condition of
Ballston Bancorp, Inc. and Subsidiary as of December 31, 1997 and 1996, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the Corporations' 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 Ballston Bancorp,
Inc. and Subsidiary as of December 31, 1997 and 1996, and the results of their
operations and their cash flows for the years then ended in conformity with
generally accepted accounting principles.
STOY, MALONE & COMPANY, P.C.
Bethesda, Maryland
January 26, 1998
16
<PAGE>
<TABLE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CONDITION
<CAPTION>
<S> <C>
December 31, December 31,
1997 1996
------------ ------------
ASSETS
Cash and due from banks $ 2,979,221 $ 2,247,261
Federal funds sold 16,075,000 3,625,344
------------ ------------
Cash and cash equivalents 19,054,221 5,872,605
Interest bearing deposits with financial institutions 2,488,737 4,263,378
Investment securities 16,132,276 23,821,565
Loans, net 40,691,416 42,137,641
Bank premises and equipment, net 599,321 555,222
Accrued interest receivable 368,515 396,522
Foreclosed real estate held for sale 610,316 1,124,383
Other assets 391,619 408,841
------------ ------------
Total assets $ 80,336,421 $ 78,580,157
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Deposits:
Demand $12,595,875 $10,792,315
NOW accounts 16,594,682 14,522,875
Savings 13,153,753 14,180,324
Time, $100,000 and over 14,631,242 14,689,867
Other time 8,068,827 9,238,405
------------ ------------
Total deposits 65,044,379 63,423,786
Borrowed funds:
Securities sold under repurchase agreements 5,889,533 5,610,208
Advances from Federal Home Loan Bank 681,000 1,531,000
Accrued interest and other liabilities 457,589 413,540
------------ ------------
Total liabilities 72,072,501 70,978,534
------------ ------------
COMMITMENTS AND CONTINGENCIES (Notes 8 and 11)
STOCKHOLDERS' EQUITY:
Preferred stock, $.20 par value, 500,000 shares authorized,
none issued and outstanding - -
Common stock, $.20 par value, 2,500,000 shares
authorized, 1,619,474 shares issued and outstanding 323,895 323,895
Surplus 6,631,306 6,631,306
Retained earnings 1,294,535 653,300
Net unrealized holding gain (loss), net of tax 14,184 (6,878)
------------ ------------
Total stockholders' equity 8,263,920 7,601,623
------------ ------------
Total liabilities and stockholders' equity $ 80,336,421 $ 78,580,157
============ ============
The Notes to Consolidated Financial Statements are an integral part of these
statements.
17
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------ ------------
Interest income:
Interest and fees on loans $ 4,072,513 $ 3,972,316
Interest on investment securities:
U.S. Treasury securities 223,611 165,739
U.S. Government agencies and corporations 875,568 884,874
Other 43,608 68,199
Interest on federal funds sold 305,542 284,994
Interest on deposits with financial institutions 142,634 104,173
------------ ------------
Total interest income 5,663,476 5,480,295
------------ ------------
Interest expense:
Interest on deposits 1,908,996 1,925,810
Interest on borrowed funds 370,062 299,241
------------ ------------
Total interest expense 2,279,058 2,225,051
------------ ------------
Net interest income 3,384,418 3,255,244
Provision for loan losses 17,927 12,000
------------ ------------
Net interest income after provision for loan losses 3,366,491 3,243,244
------------ ------------
Other income:
Service charges on deposit accounts 171,526 199,531
Gain on sale of foreclosed real estate 190,712 -
Other 235,917 165,099
------------ ------------
Total other income 598,155 364,630
------------ ------------
Other expenses:
Salaries and employee benefits 1,168,584 1,215,569
Occupancy expense 254,033 212,281
Furniture and equipment expenses 192,217 185,657
Other operating expenses 1,161,406 861,203
------------ ------------
Total other expenses 2,776,240 2,474,710
------------ ------------
Income before income taxes 1,188,406 1,133,164
Income taxes 417,614 391,991
------------ ------------
NET INCOME $ 770,792 $ 741,173
============ ============
Net income per common share $ .48 $ .46
===== =====
The Notes to Consolidated Financial Statements are an integral part of these
statements.
18
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1997 and 1996
<CAPTION>
Net
Unrealized Total
Holding Stock-
Common Retained Gain (Loss), holders'
Stock Surplus Earnings Net of Tax Equity
-------------- --------------- --------------- ------------- ---------------
Balance, January 1, 1996 $323,895 $6,631,306 $ 25,490 $ (1,539) $ 6,979,152
Net income - - 741,173 - 741,173
Cash dividends - $.07
per share - - (113,363) - (113,363)
Net change in unrealized
holding gain (loss), net of tax - - - (5,339) (5,339)
-------- ---------- ----------- ---------- -----------
Balance, December 31, 1996 323,895 6,631,306 653,300 (6,878) 7,601,623
Net income - - 770,792 - 770,792
Cash dividends - $.08
per share - - (129,557) - (129,557)
Net change in unrealized
holding gain (loss), net of tax - - - 21,062 21,062
-------- ---------- ----------- ---------- -----------
Balance, December 31, 1997 $323,895 $6,631,306 $1,294,535 $ 14,184 $ 8,263,920
======== ========== ========== ========= ===========
The Notes to Consolidated Financial Statements are an integral part of these
statements.
19
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<CAPTION>
Year Ended Year Ended
December 31, December 31,
1997 1996
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 770,792 $ 741,173
Adjustments to reconcile net income to net
cash provided by operating activities:
Deferred income taxes
(2,987) 18,525
Accretion and amortization of discounts and premiums, net 27,457 5,737
Provision for loan losses 17,927 12,000
(Gain) loss on sale of foreclosed real estate (190,712) 1,167
Depreciation and amortization on bank premises and equipment 110,455 116,139
Decrease (increase) in accrued interest receivable 28,007 (31,503)
Decrease in other assets 9,359 57,871
Increase (decrease) in accrued interest and other liabilities 44,049 (309,487)
------------- ------------
Net cash provided by operating activities 814,347 611,622
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Net decrease (increase) in interest bearing deposits with
financial institutions 1,774,641 (2,386,491)
Purchases of investment securities held-to-maturity (155,262) (4,050,492)
Proceeds from maturities of investment securities held-to-maturity 2,000,000 2,950,000
Principal collected on investment securities held-to-maturity 1,418,232 1,893,373
Purchases of investment securities available-for-sale (7,551,202)
(43,050)
Proceeds from maturities of investment securities available-for-sale 4,300,000 350,000
Principal collected on investment securities available-for-sale 173,824 -
Net decrease (increase) in loans 1,488,298 (3,275,247)
Purchase of bank premises and equipment (154,554) (35,350)
Proceeds from sales of foreclosed real estate 603,755 101,578
Payments received on foreclosed real estate 41,024 64,197
------------- ------------
Net cash provided by (used in) investing activities 11,446,908 (11,939,634)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase in deposits 1,620,593 8,323,461
Net increase in securities sold under repurchase agreements 279,325 2,051,679
Advances from Federal Home Loan Bank - 288,000
Repayments of Federal Home Loan Bank advances (850,000) (500,000)
Cash dividends paid (129,557) (113,363)
------------- ------------
Net cash provided by financing activities 920,361 10,049,777
------------- ------------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,181,616 (1,278,235)
CASH AND CASH EQUIVALENTS:
Beginning of year 5,872,605 7,150,840
------------- ------------
End of year $ 19,054,221 $ 5,872,605
============= ============
</TABLE>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
20
<PAGE>
BALLSTON BANCORP, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES:
A summary of significant accounting policies of Ballston Bancorp, Inc. and
Subsidiary (the "Corporations") is as follows:
BASIS OF ACCOUNTING:
The accompanying consolidated financial statements are prepared in accordance
with generally accepted accounting principles and conform to general practices
within the banking industry.
PRINCIPLES OF CONSOLIDATION:
The accompanying consolidated financial statements include the accounts of
Ballston Bancorp, Inc. ("Ballston") and its wholly-owned subsidiary, The Bank of
Northern Virginia ("The Bank"). All significant intercompany transactions and
balances have been eliminated.
NATURE OF OPERATIONS:
Ballston was organized under the laws of the State of Delaware to serve as a
bank holding company. The Bank operates as a commercial bank in Arlington,
Virginia. Its primary deposit base and principal real estate lending market
includes Arlington and the surrounding area in Northern Virginia.
USE OF ESTIMATES:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of income and expenses during the reporting period. Actual
results could differ from those estimates.
Material estimates that are particularly susceptible to significant change
relate to the determination of the allowance for loan losses and the valuation
of real estate acquired in connection with foreclosures or in satisfaction of
loans. In connection with the determination of the allowance for loan losses and
the valuation of foreclosed real estate, management obtains independent
appraisals for significant properties. While management uses available
information to recognize losses on loans and foreclosed real estate, future
additions to the allowance may be necessary based on changes in local economic
conditions. Federal, state and local governments employ a significant portion of
the Northern Virginia area labor force. Adverse changes in economic conditions
could have a direct impact on the collectibility of The Bank's loan portfolio
and the recovery of a substantial portion of the carrying amount of foreclosed
real estate. In addition, regulatory agencies, as an integral part of their
examination process, periodically review The Bank's allowance for loan losses
and valuation of foreclosed real estate. 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. Because of these factors, it
is reasonably possible that the allowance for loan losses and the valuation of
foreclosed real estate may change materially in the near term.
21
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES: (Cont'd.)
CASH AND CASH EQUIVALENTS:
For financial reporting purposes, cash and cash equivalents includes cash on
hand, amounts due from banks (including cash items in process of clearing), and
federal funds sold. Cash flows from interest bearing deposits with financial
institutions, loans, deposits and securities sold under repurchase agreements
are reported net.
INVESTMENT SECURITIES:
Held-to-maturity securities are those securities which the Corporations have the
ability and intent to hold until maturity and are carried at amortized cost.
Available-for-sale securities represent those securities not classified as
held-to-maturity and are stated at fair value. Unrealized holding gains and
losses, net of the related deferred tax effect, are reported as a separate
component of stockholders' equity.
Premiums and discounts on investments in debt securities are amortized over
their contractual lives. The method of amortization results in a constant
effective yield on those securities which approximates the interest method.
Realized gains and losses are included in income and are determined by the
specific-identification method.
LOANS:
Loans are stated at the amount of unpaid principal reduced by unearned fees and
an allowance for loan losses.
The allowance for loan losses is maintained at a level which, in management's
judgment, is adequate to absorb credit losses inherent in the loan portfolio.
The amount of the allowance is based on management's evaluation of the
collectibility of the loan portfolio, including the nature of the portfolio,
credit concentrations, trends in historical loss experience, specific impaired
loans, and economic conditions. Allowances for impaired loans are generally
determined based on collateral values or the present value of estimated cash
flows. The allowance for loan losses is increased by a provision for loan
losses, which is charged to expense, and reduced by charge-offs, net of
recoveries.
Interest is accrued daily on the outstanding balances. Accrual of interest is
discontinued on a loan when management believes, after considering collection
efforts and other factors, that the borrower's financial condition is such that
collection of interest is doubtful.
Loan origination fees and certain direct origination costs are capitalized and
recognized as an adjustment of the yield on the related loan.
FORECLOSED REAL ESTATE HELD FOR SALE:
Foreclosed real estate held for sale, includes properties acquired through
foreclosure or in full or partial satisfaction of the related loan. Foreclosed
real estate is initially recorded at the lower of fair value, less estimated
selling costs, or cost, at the date of foreclosure. After foreclosure,
valuations are periodically performed by management and the assets are stated at
the lower of carrying value or fair value, less estimated selling costs.
22
<PAGE>
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES: (Cont'd.)
BANK PREMISES AND EQUIPMENT:
Bank premises and equipment is stated at cost less accumulated depreciation and
amortization. Leasehold improvements are amortized on the straight-line method
over the shorter of the estimated useful lives of the improvements or the terms
of the related leases. Furniture and equipment is depreciated on the
straight-line method over the estimated useful lives of the assets.
ADVERTISING:
Advertising costs are expensed as incurred. These expenses amounted to $9,758
and $14,843 for the years ended December 31, 1997 and 1996, respectively, and
are included in other operating expenses in the consolidated statements of
income.
INCOME TAXES:
The Corporations file a consolidated Federal income tax return. Deferred tax
assets and liabilities are recognized for the expected future tax consequences
of temporary differences between the carrying amounts and the tax bases of
assets and liabilities. As changes in tax laws or rates are enacted, deferred
tax assets and liabilities are adjusted through the provision for income taxes.
NET INCOME PER COMMON SHARE:
Effective December 31, 1997, Ballston adopted Statement of Financial Accounting
Standards No. 128, "Earnings per Share". The adoption of this statement had no
effect on Ballston. Net income per common share is computed using the weighted
average number of common shares outstanding during the year. The weighted
average number of shares was 1,619,474 for both 1997 and 1996.
OFF-BALANCE-SHEET FINANCIAL INSTRUMENTS:
In the ordinary course of business, The Bank has entered into off-balance-sheet
financial instruments consisting of commitments to extend credit and standby
letters of credit. Such financial instruments are recorded in the financial
statements when they become payable.
NOTE 2 - INVESTMENT SECURITIES:
A summary of investment securities is as follows:
23
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Gross Gross
Amortized Unrealized Unrealized Fair Carrying
Cost Gains Losses Value Value
----------- -------- -------- ----------- -----------
December 31, 1997
Available-for-sale:
Debt securities:
U.S. Treasury securities $ 999,587 $ - $ 212 $ 999,375 $ 999,375
U.S. Government agencies
and corporations 498,699 989 - 499,688 499,688
Mortgage-backed securities 1,869,195 20,714 - 1,889,909 1,889,909
----------- -------- -------- ----------- -----------
3,367,481 21,703 212 3,388,972 3,388,972
Equity securities 460,050 - - 460,050 460,050
----------- -------- -------- ----------- -----------
3,827,531 21,703 212 3,849,022 3,849,022
----------- -------- -------- ----------- -----------
Held-to-maturity:
Debt securities:
U.S. Treasury securities 2,504,737 35,107 - 2,539,844 2,504,737
U.S. Government agencies
and corporations 3,599,071 32,758 7,821 3,624,008 3,599,071
State and political
subdivisions 154,878 5,823 - 160,701 154,878
Mortgage-backed securities 6,024,568 166,610 28,405 6,162,773 6,024,568
----------- -------- -------- ----------- -----------
12,283,254 24O,298 36,226 12,487,326 12,283,254
----------- -------- -------- ----------- -----------
Total $16,110,785 $262,001 $ 36,438 $16,336,348 $16,132,276
=========== ======== ======== =========== ===========
December 31, 1996
Available-for-sale:
Debt securities:
U.S. Treasury securities $ 4,990,425 $ - $ 5,185 $ 4,985,240 $ 4,985,240
U.S. Government agencies
and corporations 498,438 - 3,908 494,530 494,530
Corporate securities 301,650 - 1,327 300,323 300,323
Mortgage-backed securities 2,048,745 - - 2,048,745 2,048,745
----------- -------- -------- ----------- -----------
7,839,258 - 10,420 7,828,838 7,828,838
Equity securities 417,000 - - 417,000 417,000
----------- -------- -------- ----------- -----------
8,256,258 - 10,420 8,245,838 8,245,838
----------- -------- -------- ----------- -----------
Held-to-maturity:
Debt securities:
U.S. Treasury securities 3,005,695 34,007 486 3,039,216 3,005,695
U.S. Government agencies
and corporations 5,098,991 41,714 29,075 5,111,630 5,098,991
Mortgage-backed securities 7,471,041 59,477 102,688 7,427,830 7,471,041
----------- -------- -------- ----------- -----------
15,575,727 135,198 132,249 15,578,676 15,575,727
----------- -------- -------- ----------- -----------
Total $23,831,985 $135,198 $142,669 $23,824,514 $23,821,565
=========== ======== ======== =========== ===========
</TABLE>
24
<PAGE>
<TABLE>
NOTE 2 - INVESTMENT SECURITIES: (Cont'd.)
The amortized cost and fair value of debt securities at December 31, 1997 by
contractual maturity, are shown below. Maturities may differ from contractual
maturities in mortgage-backed securities because the mortgages underlying the
securities may be called or repaid without any penalties. Therefore, these
securities are not included in the maturity categories in the following maturity
summary.
<CAPTION>
<S> <C>
Available-for-Sale Held-to-Maturity
------------------ ----------------
Amortized Amortized
Cost Fair Value Cost Fair Value
---------- ---------- ----------- -----------
Due in one year or less $ 999,587 $ 999,375 $ 2,499,896 $ 2,503,388
Due from one year to five years -- -- 3,303,912 3,360,559
Due from five years to ten years 498,699 499,688 -- --
Due after ten years -- -- 454,878 460,606
Mortgage-backed securities 1,869,195 1,889,909 6,024,568 6,162,773
---------- ---------- ----------- -----------
Total $3,367,481 $ 3,388,972 $12,283,254 $12,487,326
========== =========== =========== ===========
</TABLE>
There were no sales of investment securities during the years ended December 31,
1997 and 1996.
The change in unrealized holding gain (loss) during the years ended December 31,
1997 and 1996 consisted of the following:
1997 1996
-------- --------
Balance, beginning of year $ (6,878) $ (1,539)
Unrealized gain (loss) on available-for-sale securities 31,911 (8,091)
Related deferred taxes (10,849) 2,752
-------- --------
Balance, end of year $ 14,184 $ (6,878)
======== ========
At December 31, 1997 and 1996, investment securities with a carrying value of
approximately $10,328,000 and $12,400,000, respectively, were pledged to secure
securities sold under repurchase agreements and public deposits as required or
permitted by law.
25
<PAGE>
NOTE 3 - LOANS:
The composition of net loans is as follows at December 31:
1997 1996
----------- -----------
Time and demand $ 8,997,057 $12,162,325
Real estate 31,617,419 29,611,223
Consumer 773,248 1,077,778
----------- -----------
41,387,724 42,851,326
Less: Unearned fees 94,009 100,954
Allowance for loan losses 602,299 612,731
----------- -----------
Loans, net $40,691,416 $42,137,641
=========== ===========
Loans with fixed interest rates amounted to approximately $18,439,000 and
$16,966,000 at December 31, 1997 and 1996, respectively. Variable rate loans
totaled approximately $22,949,000 and $25,885,000 at December 31, 1997 and 1996,
respectively.
The Bank had nonaccrual loans of approximately $211,000 and $15,000 at December
31, 1997 and 1996, respectively. Nonaccrual loans had the effect of reducing
interest income by approximately $5,000 and $100 for the years ended December
31, 1997 and 1996, respectively. Interest income on these loans, which is
recorded only when received, amounted to approximately $14,000 for the year
ended December 31, 1997. There was no interest received on nonaccrual loans for
the year ended December 31, 1996.
Loans with a carrying value of approximately $3,100,000 and $3,800,000 were
pledged to secure advances from the Federal Home Loan Bank at December 31, 1997
and 1996, respectively.
NOTE 4 - ALLOWANCE FOR LOAN LOSSES:
Changes in the allowance for loan losses were as follows during the year ended
December 31:
1997 1996
--------- ---------
Balance, beginning of year $ 612,731 $ 652,157
Provision charged to expense 17,927 12,000
--------- ---------
630,658 664,157
Losses charged to allowance, net of recoveries (28,359) (51,426)
--------- ---------
Balance, end of year $ 602,299 $ 612,731
========= =========
26
<PAGE>
NOTE 5 - BANK PREMISES AND EQUIPMENT:
The major classes of bank premises and equipment and the total accumulated
depreciation and amortization are as follows at December 31:
1997 1996
---------- ----------
Leasehold improvements $ 791,063 $ 750,005
Furniture and equipment 784,778 671,282
---------- ----------
1,575,841 1,421,287
Less accumulated depreciation and amortization 976,520 866,065
---------- ----------
Bank premises and equipment, net $ 599,321 $ 555,222
========== ==========
NOTE 6 - DEPOSITS:
The scheduled maturities of time deposits are as follows as of December 31,
1997:
Year ending December 31:
1998 $21,310,307
1999 750,301
2000 540,972
2001 50,000
2002 48,489
-----------
Total $22,700,069
===========
NOTE 7 - BORROWED FUNDS:
Securities sold under repurchase agreements generally mature within one to four
days from the transaction date and totaled $5,889,533 and $5,610,208 at December
31, 1997 and 1996, respectively. The maximum amount of outstanding agreements at
any month end during the years ended December 31, 1997 and 1996 was $7,031,485
and $5,851,760, respectively. The average end of month outstanding agreements
were $5,559,666 and $4,396,943 during the years ended December 31, 1997 and
1996, respectively. All investment securities underlying these agreements were
under The Bank's control.
At December 31, 1997 and 1996, The Bank had outstanding advances from the
Federal Home Loan Bank totaling $681,000 and $1,531,000, respectively.
Weighted-average interest rates on these advances were 7.75% and 6.10% at
December 31, 1997 and 1996, respectively.
27
<PAGE>
NOTE 7 - BORROWED FUNDS: (Cont'd.)
Future maturities of borrowed funds are as follows at December 31, 1997:
Amount
-----------
Year ending December 31:
1998 $ 5,889,533
After 2002 681,000
-----------
Total $ 6,570,533
===========
As described in Note 2, certain investment securities are pledged to secure
borrowed funds.
NOTE 8 - OPERATING LEASES:
The Corporations have operating leases for office, retail, and storage space and
equipment. These leases are noncancelable and expire during 1998-2003. The
office, retail and storage space leases require minimum annual rental payments
plus an adjustment based on 30% of the increase in the Consumer Price Index. In
addition, the leases provide for the Corporations to pay their proportionate
share of operating expense increases. The retail space leases contain renewal
options.
The following is a schedule by years of future minimum rental payments
applicable to the leases described above, as of December 31, 1997:
Year ending December 31:
1998 $ 229,988
1999 216,744
2000 173,677
2001 164,277
2002 130,360
Thereafter 37,801
---------
Total $ 952,847
=========
The following schedule indicates the composition of total rent expense for the
years ended December 31:
1997 1996
--------- ---------
Minimum rentals $ 212,365 $ 169,326
Contingent rentals 25,587 27,819
--------- ---------
Total $ 237,952 $ 197,145
========= =========
28
<PAGE>
NOTE 9 - INCOME TAXES:
The components of income tax expense for the years ended December 31, 1997 and
1996 were as follows:
1997 1996
--------- ---------
Current $ 420,601 $ 373,466
Deferred (2,987) 18,525
--------- ---------
Total $ 417,614 $ 391,991
========= =========
As of December 31, 1997, Ballston had approximately $1,500,000 of net operating
loss carryforwards for state income tax purposes which are available to offset
future state taxable income of Ballston. These carryforwards expire beginning
2004 through 2012.
Components of the Corporations' deferred tax assets are as follows at December
31:
<TABLE>
<CAPTION>
<S> <C>
1997 1996
--------- ---------
Deferred tax assets:
Unearned fees $ 4,879 $ 13,351
Allowance for loan losses 204,782 208,328
Net unrealized holding loss - 3,543
Accumulated depreciation and amortization 50,954 35,949
Net operating loss carryforwards for state income
tax purposes 91,613 74,941
--------- ---------
352,228 336,112
Less valuation allowance 91,613 74,941
--------- ---------
Total deferred tax assets 260,615 261,171
Deferred tax liabilities:
Net unrealized holding gain 7,307 -
--------- ---------
Net deferred tax assets $ 253,308 $ 261,171
========= =========
</TABLE>
The net deferred tax assets are included in other assets in the consolidated
statements of condition. Management has adopted a policy to maintain a valuation
allowance to completely offset any deferred tax asset resulting from possible
future realization of net operating loss carryforwards for state income tax
purposes.
NOTE 10 - RETIREMENT PLAN:
The Bank has a defined contribution 401(k) retirement plan which covers
employees that meet certain age and length of service requirements. Under this
plan, The Bank will match the employees' contributions up to 6% of the
employees' compensation. For the years ended December 31, 1997 and 1996, The
Bank's contribution amounted to $18,000 and $25,314, respectively.
29
<PAGE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES:
FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK:
The Bank 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. Those instruments involve, to varying degrees, elements of credit
risk not recognized in the consolidated statements of condition. The contract
amounts of those instruments reflect the extent of involvement The Bank has in
particular classes of financial instruments.
The Bank's exposure to credit loss in the event of nonperformance by the other
party to the financial instrument for commitments to extend credit and standby
letters of credit is represented by the contractual amount of those instruments.
The Bank uses the same credit policies in making commitments and conditional
obligations as it does for on-balance-sheet instruments.
A summary of The Bank's commitments as of December 31, 1997 and 1996 is as
follows:
1997 1996
----------- ------------
Commitments to extend credit $10,452,000 $ 10,794,000
Standby letters of credit 944,000 1,002,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Since commitments frequently expire without being
drawn upon, the total commitment amounts do not necessarily represent future
cash requirements. The Bank evaluates each customer's credit worthiness on a
case-by-case basis. The amount of collateral obtained, if deemed necessary by
The Bank upon extension of credit, is based on management's credit evaluation of
the party. Collateral held varies, but may include accounts receivable,
marketable securities, inventory, property and equipment, residential real
estate and income-producing commercial properties.
Standby letters of credit are conditional commitments issued by The Bank to
guarantee the performance of a customer to a third party. Those guarantees are
primarily issued to support public and private borrowing arrangements and
generally expire within one year from issuance. The credit risk involved in
issuing letters of credit is essentially the same as that involved in extending
loan facilities to customers. Collateral held varies as specified above and is
required in instances which The Bank deems necessary.
LITIGATION:
The Corporations occasionally are defendants in certain claims and legal actions
arising in the ordinary course of business. It is the opinion of management that
the disposition of these matters will not have a material adverse effect on the
Corporations' financial position.
30
<PAGE>
NOTE 11 - COMMITMENTS AND CONTINGENCIES: (Cont'd.)
OTHER:
The Corporations have an ongoing program designed to ensure that their
operational and financial systems will not be adversely affected by the year
2000 software failures due to processing errors arising from calculations using
the year 2000 data. While the Corporations believe they are doing everything
technologically possible to assure year 2000 compliance, they are to some extent
dependent upon vendor cooperation. The Corporations are requiring vendors of
their computer systems and software to represent that the products provided are
or will be year 2000 compliant and have planned a program of testing for
compliance. It is recognized that any year 2000 compliance failures could result
in additional expense to the Corporations.
The Bank has a contract with an entity, whereby such entity will perform certain
processing work necessary to The Bank's operations for a period of five years
expiring in 2000. The contract provides for automatic five-year renewals until
it is terminated. There are no minimum annual fees.
NOTE 12 - RELATED PARTY TRANSACTIONS:
The Corporations have had, and may be expected to have in the future,
transactions in the ordinary course of business with stockholders, directors,
officers and affiliated entities in which they are principal owners, all of
which have been, in the opinion of management, on the same terms as those
prevailing at the time for comparable transactions with others.
Loans with related parties totaled $3,095,108 and $3,628,012 at December 31,
1997 and 1996, respectively.
Professional fees were paid to firms in which stockholders of Ballston are
principals. These fees totaled $283,401 and $66,859 for the years ended December
31, 1997 and 1996, respectively.
NOTE 13 - STOCK OPTION AGREEMENTS:
In 1992, Ballston granted options to purchase 75,000 shares of its common stock
to two key employees of The Bank. The options could only be exercised if certain
performance measures were met by The Bank or if there was a change in control of
Ballston or The Bank, as defined in the agreements. The exercise price of the
options was $3.76 per share. These options expired August 17, 1997 without being
exercised.
NOTE 14 - DIVIDEND RESTRICTIONS:
Banking regulations limit the amount of dividends that may be paid by The Bank
without prior regulatory approval. At December 31, 1997, The Bank had retained
earnings of approximately $2,071,000 available for the payment of dividends.
31
<PAGE>
NOTE 15 - REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements administered by
federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary actions by
regulators that, if undertaken, could have a direct material effect on The
Bank's financial statements. Under capital adequacy guidelines and the
regulatory framework for prompt corrective action, The Bank must meet specific
capital guidelines that involve quantitative measures of The Bank's assets,
liabilities, and certain off-balance-sheet items as calculated under regulatory
accounting practices. The Bank's capital amounts and classification are also
subject to qualitative judgments by the regulators about components, risk
weightings, and other factors.
Quantitative measures established by regulation to ensure capital adequacy
require The Bank to maintain minimum amounts and ratios (set forth in the table
below) of Total and Tier I Capital (as defined in the regulations) to
risk-weighted assets (as defined), and of Tier 1 Capital (as defined) to average
assets (as defined). Management believes, as of December 31, 1997, that The Bank
meets all capital adequacy requirements to which it is subject.
The most recent notification from the Board of Governors of the Federal Reserve
System categorized The Bank as well capitalized under the regulatory framework
for prompt corrective action. To be categorized as well capitalized, The Bank
must maintain minimum total risk-based, Tier I risk-based, and Tier I leverage
ratios as set forth in the table. There are no conditions or events since that
notification that management believes have changed The Bank's category.
The Bank's actual capital amounts and ratios are also presented in the table.
<TABLE>
<CAPTION>
<S> <C>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
-------------------- ------------------ --------------------
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1997: ---------- ----- ---------- ----- ---------- -----
Total Capital (to Risk-Weighted Assets) $8,270,000 17.72% >$3,733,000 >8.00% >$4,666,000 >10.00%
- - - -
Tier I Capital (to Risk-Weighted Assets) 7,687,000 16.47% > 1,866,000 >4.00% > 2,800,000 > 6.00%
- - - -
Tier I Capital (to Risk-Average Assets) 7,687,000 10.71% > 2,871,000 >4.00% > 3,589,000 > 5.00%
- - - -
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets) $7,497,000 15.97% >$3,756,000 >8.00% >$4,695,000 >10.00%
- - - -
Tier I Capital (to Risk-Weighted Assets) 6,910,000 14.72% > 1,878,000 >4.00% > 2,817,000 > 6.00%
- - - -
Tier I Capital (to Risk-Average Assets) 6,910,000 9.90% > 2,792,320 >4.00% > 3,490,400 > 5.00%
- - - -
</TABLE>
32
<PAGE>
NOTE 16 - SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Year Ended Year Ended
December 31, December 31,
1997 1996
----------- -----------
Cash paid for:
Interest on deposits $ 1,888,396 $ 1,891,446
Interest on borrowed funds 373,549 301,015
Income taxes 421,008 675,398
Transfer from loans to foreclosed real estate - 89,286
NOTE 17 - SUBSEQUENT EVENT (UNAUDITED):
On March 11, 1998, Ballston entered into the Agreement and Plan of Merger, and
the related Plan of Merger (collectively, the "Merger Agreement") pursuant to
which Ballston will be merged (the "Merger") with and into MainStreet BankGroup
Incorporated ("MSBC"). Under the terms of the Merger Agreement, each share of
common stock, par value $0.20 per share, of Ballston will be converted into that
portion of a share of MSBC common stock having a market value of $12.04,
provided that a minimum of 0.4025 share and a maximum of 0.4920 share of MSBC
common stock will be issued for each share of Ballston common stock.
Consummation of the Merger is subject, among other things, to the approval of
the Merger Agreement by the requisite vote of Ballston shareholders and the
receipt of all requisite regulatory approvals and satisfaction of other
conditions contained in the Merger Agreement. It is anticipated that the Merger
will be accounted for as a pooling of interests under generally accepted
accounting principles.
In connection with the Merger Agreement, MSBC and Ballston entered into a Stock
Option Agreement, dated as of March 11, 1998 (the "Option Agreement"). The
Option Agreement provides that MSBC shall have the option to purchase up to
322,275 of the authorized, but unissued, shares of Ballston's common stock at a
price of $8.64 per share, only upon the occurrence of certain specified events.
Ballston has agreed to pay a transaction fee in connection with the Merger to an
investment banking firm. Under the terms of the agreement, the fee is equal to
0.5% of the aggregate transaction price. A substantial portion of the fee is
contingent upon the consummation of the Merger.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Officers and Directors
MSBC's Articles of Incorporation implement the provisions of the VSCA,
which provide for the indemnification of MSBC's directors and officers in a
variety of circumstances, which may include indemnification for liabilities
under the Securities Act. 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. MSBC'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. MSBC also
carries insurance on behalf of directors, officers, employees or agents that may
cover liabilities under the Securities Act. In addition, the VSCA and MSBC's
Articles of Incorporation eliminate the liability of a director or officer of
MSBC 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 March 11, 1998, between MSBC
and Ballston (attached as Appendix I to the Proxy
Statement/Prospectus, filed as part of this registration statement.)
3(i) Articles of Incorporation of MSBC (incorporated herein by reference to
Form 8-A filed electronically on March 18, 1996, file No. 0-08622)
3(ii) Bylaws of MSBC (incorporated herein by reference to Form 10-K (file
No.: 0-08622) filed electronically on March 26, 1998)
4 MSBC Preferred Share Rights Plan (incorporated by reference to Form
8-K, dated January 18, 1990).
5 Opinion and consent of Flippin, Densmore, Morse, Rutherford & Jessee,
A Professional Corporation
8 Opinion and consent of Flippin, Densmore, Morse, Rutherford & Jessee,
A Professional Corporation, with respect to tax consequences of the
Merger
10 (iii)(b)(6)
1. Material Contracts of MSBC for Michael R. Brenan, James E.
Adams and Rebecca J. Jenkins (incorporated by reference to
Registrant's Form 10-K for the fiscal year ended December 31,
1997)
II-1
<PAGE>
2. Material Contracts of MSBC for S. Richard Bagby, James H.
Campbell, William S. Clark, James W. Clement, Larry A. Heaton,
William D. Kerr, Kenneth E. Lust, Reba H. Mandeville, John D.
Meade, III, Beverly L. Mitchell, William O. Turner, R. Bruce
Valley, Mark J. Wenick and John L. Wynne (incorporated by
reference to Registrant's Form 10-K for the fiscal year ended
December 31, 1997).
21 Statement of subsidiaries of MSBC (incorporated herein by reference to
Registrant's Form 10-K for the fiscal year ended December 31, 1997)
23(a) Consent of Coopers & Lybrand L.L.P.
23(b) Consent of Stoy, Malone & Company, P.C.
23(c) Consent of Danielson Associates Inc.
23(d) Consent of Flippin, Densmore, Morse, Rutherford & Jessee (included in
Exhibit 5)
23(e) Consent of Flippin, Densmore, Morse, Rutherford & Jessee (included in
Exhibit 8)
24 Power of Attorney of Officers and Directors of MSBC
99(a) Form of Proxy of Ballston Bancorp, Inc.
(b) Report, Opinion or Appraisal -- (Opinion of Danielson Associates Inc.
attached as Appendix II to the Proxy Statement/Prospectus, filed as
part of this registration statement)
Item 22. Undertakings
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration
statement:
(i) To include any prospectus required by Section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events
arising after the effective date of the registration
statement (or the most recent post-effective
amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the
information set forth in the registration statement;
(iii) To include any material information with respect to
the plan of distribution not previously disclosed in
the registration statement or any material change to
such information in the registration statement.
(2) That for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment
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.
(3) To remove from registration by means of a post-effective
amendment any of the securities being registered which remain
unsold at the termination of the offering.
II-2
<PAGE>
(b) The registrant hereby undertakes:
(1) 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.
(2) 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.
(3) The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning
a transaction, and Ballston Bancorp, Inc. being acquired
involved therein, that was not the subject of and included in
the registration statement when it became effective.
(4) 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 May 27, 1998.
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 May 27, 1998.
II-3
<PAGE>
<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/ 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/ Alfred J. T. Byrne Director*
- -------------------------------------
Alfred J. T. Byrne
/s/ C. Leland Bassett Director*
- -------------------------------------
C. Leland Bassett
</TABLE>
II-4
<PAGE>
*By Rebecca J. Jenkins, Attorney-in-Fact
/s/ Rebecca J. Jenkins
- -------------------------------------
Rebecca J. Jenkins
Date: May 27, 1998
II-5
Exhibits 5 and 23(d)
Flippin, Densmore, Morse, Rutherford & Jessee, A Professional Corporation
300 First Campbell Square
Roanoke, Virginia 24011
(540) 510-3000
May 27, 1998
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 796,781 shares of its common stock ("Common Stock") pursuant to that certain
Agreement and Plan of Merger dated March 11, 1998 (the "Merger Agreement")
between the Company and Ballston Bancorp, Inc. ("Ballston"). 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 Ballston. 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.
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,
A PROFESSIONAL CORPORATION
Exhibit 8 and 23(e)
May 27, 1998
Ballston Bancorp, Inc.
1667 K Street, N.W., Suite 700
Washington, DC 20006
MainStreet BankGroup Incorporated
200 E. Church Street
Martinsville, VA 24112-5409
Re: Opinion with Respect to Certain Federal Income Tax Consequences
of the Merger of Ballston Bancorp, Inc. into MainStreet
BankGroup Incorporated
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger of Ballston Bancorp, Inc., a Delaware
corporation ("Ballston"), with and into MainStreet BankGroup Incorporated, a
Virginia corporation ("MainStreet") pursuant to an Agreement and Plan of Merger
dated as of March 11, 1998 by and between MainStreet and Ballston (the
"Agreement").
Pursuant to the Agreement and the Plan of Merger (the "Plan") attached
as Annex 1 to Exhibit A to the Agreement, and subject to various regulatory
approvals, Ballston will be merged with and into MainStreet in accordance with
the provisions of, and with the effect provided in, the Virginia Stock
Corporation Act (the "Merger"). As a result of the Merger, MainStreet will
become the parent holding company of The Bank of Northern Virginia, the banking
subsidiary of Ballston, as well as MainStreet's current subsidiary banks, all of
which will continue to conduct their businesses in substantially the same manner
as prior to the Merger. At the effective date of the Merger, and pursuant to the
Plan, each share of common stock of Ballston ("Ballston Common Stock") will be
exchanged for and converted into that number of shares of common stock of
MainStreet ("MainStreet Common Stock") having an aggregate market value equal to
$12.04 as determined pursuant to the Agreement, plus cash in lieu of issuing
fractional shares of MainStreet Common Stock.
In connection with the preparation of this opinion, we have examined
such documents concerning the Merger as we have deemed necessary. We have based
our conclusions on the Internal Revenue Code of 1986 (the "Code") and the
regulations promulgated pursuant thereto, each as amended from time to time and
in effect as of the date hereof, as well as existing judicial and administrative
interpretations thereof. As to various questions of fact material to our
opinion, we have relied upon the representations made in the Agreement as well
as the additional representations made to us by duly authorized officers of
MainStreet and Ballston set forth below.
In connection with the proposed Merger, the following additional
representations have been made to us by duly authorized officers of MainStreet
and Ballston and relied upon by us in the preparation of this opinion:
A. The fair market value of MainStreet Common Stock received by
Ballston shareholders will be approximately equal to the fair market value of
Ballston Common Stock surrendered in exchange therefor, and the exchange ratio
used in such exchange is the result of arm's length negotiations.
B. MainStreet has no plan or intention to sell or otherwise dispose of
any of the assets of Ballston to be transferred to MainStreet in the Merger,
except for dispositions made in the ordinary course of business or transfers
described in Section 368(a)(2)(C) of the Code.
C. MainStreet, Ballston and Ballston's shareholders will each will pay
their own expenses, if any, incurred in connection with the Merger.
D. Following the Merger, MainStreet will continue the historic business
of Ballston or use a significant portion of Ballston's historic business assets
in a business. Following the Merger, The Bank of Northern Virginia or a member
of MainStreet's "qualified group" (as defined in Regulation 1.368-1(d)(4)(ii))
will continue The Bank of Northern Virginia's historic business or use a
significant portion of The Bank of Northern Virginia's historic business assets
in a business.
E. Neither MainStreet nor any person related to MainStreet (as defined
in Regulation 1.368-1(e)(3)) has any plan or intention to redeem or reacquire
any of its stock to be issued in the Merger.
F. The liabilities of Ballston that will be assumed by MainStreet as a
result of the Merger and the liabilities to which Ballston's assets are subject
were incurred in the ordinary course of business.
G. There is no intercorporate indebtedness existing between MainStreet
and Ballston that was issued, acquired or will be settled at a discount.
H. On the effective date of the Merger, the fair market value of the
assets of Ballston transferred to MainStreet in the Merger will equal or exceed
the sum of Ballston's liabilities assumed by MainStreet plus the amount of
liabilities to which the Ballston assets are subject.
I. None of the shares of MainStreet Common Stock, cash in lieu of
fractional shares or other property received by any shareholder-employee in
exchange for Ballston Common Stock pursuant to the Merger constitutes or is
intended as compensation for services rendered, nor is considered separate
consideration for, or allocable to, any employment agreement or relationship.
None of the compensation to be received by any shareholder-employee of Ballston
after the effective date of the Merger will be separate consideration for, or
allocable to, any of such shareholder-employee's Ballston Common Stock. In
addition, any compensation paid to any shareholder-employee of Ballston will
constitute and be intended as compensation for services actually rendered and
bargained for at arm's length, and will be commensurate with amounts paid to
third parties bargaining at arm's length for similar services.
J. No two parties to the Merger are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
K. Ballston is not under the jurisdiction of a court in a Title 11 or
similar case within the meaning of Section 368(a)(3)(A) of the Code.
L. Cash paid to Ballston shareholders in lieu of issuing fractional
shares of MainStreet Common Stock will be paid solely for the purpose of
avoiding the expense and administrative inconvenience of issuing fractional
shares, will not be separately bargained for consideration and will represent
only a mechanical rounding off of the number of shares of MainStreet Common
Stock to be issued to Ballston shareholders. The total cash consideration that
will be paid in the Merger to Ballston shareholders instead of issuing
fractional shares of MainStreet Common Stock will not exceed one percent of the
total consideration that will be issued in the Merger to Ballston shareholders
in exchange for their shares of Ballston Common Stock. The fractional share
interests of each Ballston shareholder will be aggregated, and no Ballston
shareholder will receive cash in an amount equal to or greater than the value of
one full share of MainStreet Common Stock.
Based upon the foregoing and subject to the limitations expressed
herein, we are of the opinion that for federal income tax purposes:
1. The Merger will constitute a "reorganization" within the meaning of
Section 368(a) of the Code. Ballston and MainStreet will each qualify as a
"party to a reorganization" within the meaning of Section 368(b) of the Code.
2. No gain or loss will be recognized by MainStreet or Ballston as a
result of the Merger.
3. No gain or loss will be recognized by Ballston shareholders as a
result of the exchange of Ballston Common Stock solely for MainStreet Common
Stock (including any fractional share interest) pursuant to the Merger, except
that gain or loss will be recognized on the receipt of cash, if any, received in
lieu of a fractional share of MainStreet Common Stock.
4. Cash received by a Ballston shareholder in lieu of a fractional
share of MainStreet Common Stock will be treated as having been received as full
payment in exchange for such fractional share pursuant to Section 302(a) of the
Code. Such shareholder will recognize gain or loss equal to the difference
between the amount of cash received and the shareholder's basis in that
fractional share, and such gain or loss will be capital gain or loss if the
fractional share would have been a capital asset in the hands of the
shareholder.
5. A dissenting Ballston shareholder who receives solely cash in
exchange for his Ballston Common Stock will be treated as receiving a
distribution in redemption of his Ballston Common Stock, subject to the
provisions and limitations of Section 302 of the Code.
6. The aggregate tax basis of shares of MainStreet Common Stock
(including any fractional share interest) received in the Merger by Ballston
shareholders who exchange their Ballston Common Stock solely for shares of
MainStreet Common Stock will be the same as the aggregate tax basis of Ballston
Common Stock surrendered in exchange therefor.
7. The holding period of MainStreet Common Stock received by Ballston
shareholders will include the period during which Ballston Common Stock
surrendered in exchange therefor was held by such Ballston shareholders,
provided the Ballston Common Stock was held as a capital asset on the date of
the exchange.
This opinion is based upon the provisions of the Code, as interpreted
by regulations, administrative rulings, and case law, all in effect as of the
date hereof and all of which are subject to change or differing interpretations,
which changes or interpretations may be retroactively applied. A change in the
authorities upon which our opinion is based could affect our conclusions. This
opinion is not binding upon the Internal Revenue Service, any tax authority or
any court. No assurance can be given that a position contrary to that expressed
herein will not be asserted by the Internal Revenue Service or any other tax
authority. Our opinion is limited to certain Federal income tax consequences of
the Merger set forth herein. This opinion may not be applicable to holders of
Ballston Common Stock that are not citizens or residents of the United States or
to holders of options or warrants, nor does this opinion address the effect of
any applicable foreign, state, local or other tax laws.
<PAGE>
This opinion is provided in connection with the Merger as required by
Section VI(M) of the Agreement, is solely for the benefit of MainStreet,
Ballston and Ballston shareholders, and may not be relied upon in any other
manner or by any other person. This opinion may not be disclosed to any other
person or used in any other manner without the prior written consent of the
undersigned. We consent to the filing of this opinion as an exhibit to the
Registration Statement.
Very truly yours
FLIPPIN, DENSMORE, MORSE
RUTHERFORD & JESSEE,
A PROFESSIONAL CORPORATION
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 16,
1998 on our audits of the consolidated financial statements of MainStreet
BankGroup Incorporated as of December 31, 1997 and 1996, and for each of the
years in the three year period ended December 31, 1997, which report is included
in the Annual Report on Form 10-K for the year ended December 31, 1997, which is
incorporated by reference. We also consent to the reference to our firm under
the caption "Experts."
COOPERS & LYBRAND L.L.P.
Greensboro, North Carolina
May 26, 1998
Exhibit 23(b)
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of MainStreet BankGroup
Incorporated on Form S-4 of our report dated January 26, 1998, on the
consolidated financial statements of Ballston Bancorp, Inc. and Subsidiary for
the years ended December 31, 1997 and 1996, appearing in the Proxy
Statement/Prospectus, which is part of this Registration Statement.
We also consent to the reference to us under the heading "Experts" in such Proxy
Statement/Prospectus.
STOY, MALONE & COMPANY, P.C.
Bethesda, Maryland
May 27, 1998
Exhibit 23(c)
[Daniel Associates Inc. Letterhead]
CONSENT OF DANIELSON ASSOCIATES INC.
We hereby consent to the reference in the Proxy Statement/Prospectus
forming a part of this Registration Statement on Form S-4 of MainStreet
BankGroup Incorporated to our opinion, dated March 11, 1998, and to our firm,
respectively, and to the inclusion of such opinion as an annex to the Proxy
Statement/Prospectus.
DANIELSON ASSOCIATES INC.
By /s/Arnold G. Danielson
---------------------------------
Arnold G. Danielson
Chairman
Rockville, Maryland
May 27, 1998
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 March 11, 1998, by and among the Corporation and Ballston Bancorp,
Inc., a Virginia corporation, 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 Corporation respecting 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 29th day of
April, 1998.
/s/ James E. Adams (SEAL)
James E. Adams
/s/ W. Christopher Beeler, Jr. (SEAL)
W. Christopher Beeler, Jr.
/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/ Dr. William O. McCabe, Jr. (SEAL)
Dr. William O. McCabe, Jr.
/s/ Albert L. Prillaman (SEAL)
Albert L. Prillaman
/s/ Alfred J. T. Byrne (SEAL)
Alfred J. T. Byrne
/s/ C. Leland Bassett (SEAL)
C. Leland Bassett
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 James E. Adams,
W. Christopher Beeler, Jr., Michael R. Brenan, William L. Cooper, III, Billy P.
Craft, Phillip W. Dean, I. Patricia Henry, Larry E. Hutchens, Dr. William O.
McCabe, Jr., Albert L. Prillaman, Alfred J. T. Byrne and C. Leland Bassett whose
names are signed to the foregoing writing bearing date the 29th day of April,
1998, this day personally appeared before me and acknowledged the same in my
City and State aforesaid.
GIVEN under my hand and seal this 29th day of April, 1998.
/s/ Gayle F. Gilley
Notary Public
My Commission Expires:
12/31/2000
Exhibit 99(a)
REVOCABLE PROXY
Ballston Bancorp, Inc.
1667 K Street, N.W., Suite 700
Washington, D.C., 20006
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints , with full power of substitution to act as
proxy for the undersigned to vote all the shares of common stock of Ballston
Bancorp, Inc. ("Ballston Common Stock") which the undersigned would be entitled
to vote at the Annual Meeting of Shareholders to be held , , 1998 at : p.m.,
local time at The Bank of Northern Virginia, 1010 North Glebe Road, Arlington,
Virginia.
THIS SIGNED PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE
SPECIFIED, THIS SIGNED PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS STATED. IF
ANY OTHER BUSINESS IS PRESENTED AT THE ANNUAL MEETING, INCLUDING MATTERS
RELATING TO THE CONDUCT OF THE ANNUAL MEETING, THIS SIGNED PROXY WILL BE VOTED
BY SUCH PERSON NAMED IN THIS PROXY IN HIS BEST JUDGMENT. AT THE PRESENT TIME,
THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE PRESENTED AT THE ANNUAL
MEETING.
The undersigned hereby revokes any and all proxies heretofore given with respect
to the undersigned's shares of Ballston Common Stock.
THIS PROXY IS CONTINUED ON THE REVERSE SIDE
PLEASE COMPLETE, DATE AND SIGN ON THE REVERSE SIDE
AND RETURN PROXY PROMPTLY
1. To approve the Agreement and Plan of Merger, dated as of March 11, 1998, and
the related Plan of Merger (collectively, the "Merger Agreement") pursuant to
which Ballston will be merged (the "Merger") with and into MainStreet BankGroup
Incorporated ("MSBC"). Under the terms of the Merger Agreement, each share of
common stock, par value $0.20 per share, of Ballston will be converted into that
fraction of a share of MSBC common stock having a market value of $12.04,
provided that a minimum of 0.4025 shares and a maximum of 0.4920 shares of MSBC
common stock will be issued for each share of Ballston common stock. Cash will
be paid in lieu of issuance of fractional shares.
FOR AGAINST ABSTAIN
---- ---- ----
2. To elect the directors to serve until the 1999 Annual Meeting of Shareholders
or their successors have been elected and qualified or, if earlier, until the
consummation of the Merger (mark only one).
<TABLE>
<S> <C>
FOR WITHHELD
(all nominees listed below (all nominees listed below)
except as directed to the
contrary below)
Mary E. Fricano ____ ____
Kenneth M. Haggerty, D.D.S. ____ ____
Robert F. Kelleher ____ ____
John E. Kilcarr ____ ____
Helena B. Metzger ____ ____
Paul A. Owens ____ ____
Edward D. Soma, M.D. ____ ____
</TABLE>
(Instruction: To withhold authority to vote for any individual nominee, write
that nominee's name on the space provided below)
3. To ratify the appointment of Stoy, Malone & Company, P.C., to serve as
independent auditors of Ballston for the fiscal year ending December 31, 1998
or, if earlier, until consummation of the Merger.
FOR AGAINST ABSTAIN
---- ---- ----
[ ] Please mark this box if you plan to attend the Annual Meeting.
Please mark, date and sign your name as it appears hereon and return in the
enclosed envelope. When signing as an agent, attorney, executor, administrator,
trustee, or guardian, please give title as such. If signer is a corporation,
please sign full corporate name by authorized officer and attach corporate seal.
For joint account, each joint owner should sign.
Date ______________________, 1998
SIGNATURE ______________________________
SIGNATURE ______________________________
