As filed with the Securities and Exchange Commission on March 13, 1998
Registration No. 33-
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1993
------------------------
F&M NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
Virginia 6711 54-0857462
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
</TABLE>
------------------------
9 Court Square
Winchester, Virginia 22601
(540) 665-4200
(Address,including zip code, and telephone number, including area code
of registrant's principal executive office)
------------------------
Alfred B. Whitt
President and Chief Financial Officer
F&M National Corporation
9 Court Square
Winchester, Virginia 22601
(540) 665-4200
(Name, address, including zip code, and telephone number,
including area code of agent for service)
------------------------
Copies to:
<TABLE>
<S> <C>
George P. Whitley, Esq. Wayne A. Whitham, Esq.
LeClair Ryan, A Professional Corporation Williams, Mullen, Christian & Dobbins
707 East Main Street, 11th Floor P.O. Box 1320
Richmond, Virginia 23219 Richmond, Virginia 23210
</TABLE>
------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
------------------------
CALCULATION OF REGISTRATION FEE
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<CAPTION>
Title of each class of securities Amount to be Proposed maximum Proposed maximum Amount of
to be registered registered(1) offering price per share aggregate offering price(2) registration fee
<S> <C>
Common Stock, $2.00 par value 709,275 N/A $8,650.832.50 $2,552.00
</TABLE>
(1) The estimated maximum number of shares to be issued.
(2) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(2) thereunder, on the basis of
the book value of The Bank of Alexandria common stock on December 31, 1997
to be received by the Registrant in exchange for common stock of the
Registrant pursuant to the business combination described in the enclosed
Prospectus/Proxy Statement.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
<PAGE>
F&M NATIONAL CORPORATION
CROSS-REFERENCE SHEET
Pursuant to Rule 404(a) of the Securities Act and Item
501(b) of Regulation S-K, Showing the Location or
Heading in the Prospectus and proxy Statement
of the Information Required by Part I of Form S-4
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
- ----------------------- -------------------------------
<S> <C>
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Cover Page of Prospectus.....................Facing Page of Registration Statement; Cross Reference Sheet
Outside Front Cover Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus...........................................Available Information; Incorporation of Certain Information
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information........................Summary; Comparative Per Share Information; Selected
Financial Data; The Special Meeting; The Merger; Market
Prices and Dividends; The Bank of Alexandria
4. Terms of the Transaction.............................Summary; The Merger; Comparative Rights of Shareholders;
Description of F&M Capital Stock
5. Pro Forma Financial Information......................Not Applicable
6. Material Contacts with the Company
Being Acquired.......................................Not Applicable
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters............................Not Applicable
8. Interests of Named Experts and Counsel...............Eperts; Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities..........................................Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants..........Available Information; Incorporation of Certain Information
by Reference; Summary; Market Prices and Dividends; Business
of F&M; Description of F&M Capital Stock
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Form S-4 Location or Heading in
Item Number and Caption Prospectus and Proxy Statement
- ----------------------- ------------------------------
<S> <C>
11. Incorporation of Certain Information by
Reference............................................Incorporation of Certain Information by Reference
12. Information with Respect to S-2 or S-3
Registrants..........................................Not Applicable
13. Incorporation of Certain Information by
Reference............................................Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants..........................Not Applicable
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies............Not Applicable
16. Information with Respect to S-2 or S-3
Companies............................................Incorporation of Certain Information By Reference; Summary;
Comparative Per Share Information; Selected Financial Data;
Market Prices and Dividends; The Bank of Alexandria
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies............................Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited...................Incorporation of Certain Information by Reference; Summary;
The Special Meeting; The Merger
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer.................................Not Applicable
</TABLE>
[BOA letterhead]
March ___, 1998
Dear Fellow Shareholders:
You are cordially invited to attend a Special Meeting of Shareholders
of The Bank of Alexandria ("BOA") to be held at Belle Haven Country Club, 6023
Ft. Hunt Road, Alexandria, Virginia on Thursday, April 23, 1998 at 10:00 a.m.
At this important meeting, you will be asked to consider and vote on
the Agreement and Plan of Reorganization, dated as of December 12, 1997, and a
related Plan of Merger (collectively, the "Merger Agreement") among BOA, F&M
National Corporation ("F&M") and F&M Bank-Northern Virginia, a subsidiary bank
of F&M headquartered in Fairfax. F&M is a community bank holding company with
consolidated assets of $2.5 billion at December 31, 1997, headquartered in
Winchester Virginia with its principal operations being conducted through eleven
subsidiary banks in Virginia, West Virginia and Maryland and one trust company.
Under the terms of the Merger Agreement, BOA will be merged with F&M
Bank-Northern Virginia (the "Merger"), and each share of common stock of BOA
outstanding immediately prior to consummation of the Merger will be exchanged
for 0.942 shares of common stock of F&M, with cash being paid in lieu of issuing
fractional shares. F&M common stock is listed and traded on the New York Stock
Exchange under the symbol "FMN." It is anticipated that the Merger will become
effective by May 1, 1998.
The exchange of shares (other than for cash in lieu of any fractional
shares) will be a tax-free transaction for federal income tax purposes. Details
of the proposed transaction with F&M are set forth in the accompanying Proxy
Statement/Prospectus, which you are urged to read carefully in its entirety.
Approval of the transaction with F&M requires the affirmative vote of more than
two-thirds of the outstanding shares of common stock of BOA.
Your Board of Directors has retained the investment banking firm of
Scott & Stringfellow, Inc. to act as its financial advisor in connection with
the Merger. As discussed in the accompanying Proxy Statement/Prospectus, Scott &
Stringfellow has delivered to the Board of Directors its written opinion that,
as of this date, the terms of the Merger Agreement are fair from a financial
point of view to our shareholders.
Your Board of Directors has unanimously approved the Merger Agreement
and the transaction with F&M and believes that they are in the best interests of
BOA and our shareholders. Accordingly, the Board unanimously recommends that you
VOTE FOR the Merger Agreement.
We hope you can attend the Special Meeting. Whether or not you plan to
attend, please complete, sign and date the enclosed proxy card and return it
promptly in the enclosed envelope. Your vote is important regardless of the
number of shares you own.
We look forward to seeing you at the Special Meeting.
Sincerely yours,
STEPHEN P. TEES
President and Chief Executive Officer
<PAGE>
THE BANK OF ALEXANDRIA
Alexandria, Virginia
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
April 23, 1998
-------------------------
A Special Meeting of Shareholders of The Bank of Alexandria ("BOA")
will be held on Thursday, April 23, 1998 at 10:00 a.m., at Belle Haven Country
Club, 6023 Ft. Hunt Road, Alexandria, Virginia for the following purposes:
1. To approve the Agreement and Plan of Reorganization, dated as of
December 12, 1997, by and among BOA, F&M National Corporation ("F&M") and F&M
Bank-Northern Virginia and a related Plan of Merger (collectively, the "Merger
Agreement"), providing for the merger of BOA with and into F&M Bank-Northern
Virginia upon the terms and conditions therein (the "Merger"), including, among
other things, that each issued and outstanding share of BOA common stock will be
exchanged for 0.942 shares of F&M common stock, with cash being paid in lieu of
issuing fractional shares. The Merger Agreement is enclosed as Appendix I to the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed February 27, 1998, as the record date
for the Special Meeting, and only holders of record of BOA common stock at the
close of business on that date are entitled to receive notice of and to vote at
the Special Meeting or any adjournments or postponements thereof.
By Order of the Board of Directors
Stephen P. Tees
President and Chief Executive Officer
March ___, 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF THE BANK OF ALEXANDRIA UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE MERGER AGREEMENT.
<PAGE>
THE BANK OF ALEXANDRIA
PROXY STATEMENT
F&M NATIONAL CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
The Bank of Alexandria ("BOA") in connection with the solicitation of proxies by
the Board of Directors of BOA for use at its Special Meeting of Shareholders
(the "Special Meeting") to be held on April 23, 1998, and any postponements or
adjournments thereof.
At the Special Meeting, shareholders will be asked to approve an
Agreement and Plan of Reorganization, dated as of December 12, 1997, among BOA,
F&M National Corporation, a community bank holding company based in Winchester,
Virginia ("F&M"), and F&M Bank-Northern Virginia, a wholly-owned subsidiary bank
of F&M headquartered in Fairfax, and a related Plan of Merger (collectively, the
"Merger Agreement") providing for the merger of BOA with and into F&M
Bank-Northern Virginia (the "Merger") and the exchange of common stock of BOA
("BOA Common Stock") for the common stock of F&M ("F&M Common Stock"). Upon
consummation of the Merger, each outstanding share of BOA Common Stock will be
exchanged for 0.942 shares (the "Exchange Ratio") of F&M Common Stock. Cash will
be paid in lieu of fractional shares. The Merger Agreement also provides for the
conversion upon consummation of the Merger of all stock options outstanding
under BOA's Incentive Stock Option Plan (the "BOA Stock Options") into options
to acquire shares of F&M Common Stock, appropriately adjusted to reflect the
Exchange Ratio. See "The Merger" for a more complete description of the Merger.
A copy of the Merger Agreement is included as Appendix I hereto.
The Board of Directors of BOA unanimously recommends that shareholders
vote to approve the Merger Agreement. Failure to vote is equivalent to voting
against the proposal.
This Proxy Statement/Prospectus also serves as the prospectus of F&M
covering up to approximately 709,275 shares of F&M Common Stock issuable to
shareholders of BOA in connection with the Merger. The Proxy
Statement/Prospectus also constitutes a prospectus of F&M in respect of any
shares of F&M Common Stock that are issuable upon exercise of the BOA Stock
Options following consummation of the Merger.
F&M Common Stock is listed and traded on the New York Stock Exchange
(the "NYSE") under the symbol "FMN." On December 11, 1997, the last business day
prior to the public announcement of the execution of the Merger Agreement, the
last reported sale price of F&M Common Stock on the NYSE Composite Transactions
Reporting System (the "NYSE Composite Tape") was $34.875 and on March ____,
1998, the last practicable date prior to the mailing of this Proxy
Statement/Prospectus, the last reported sale price was _________.
This Proxy Statement/Prospectus is first being mailed to shareholders
of BOA on or about March __, 1998.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY NOR HAS
THE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
THE SHARES OF F&M COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY 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 March___, 1998.
<PAGE>
AVAILABLE INFORMATION
F&M and BOA are subject to the reporting and informational requirements
of the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (the "Exchange Act"), and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission") in the case of F&M and the Federal Deposit
Insurance Corporation (the "FDIC") in the case of BOA. Such reports and other
information filed by F&M with the Commission may be inspected and copied at the
principal office of the Commission at Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and may be inspected at the Commission's Regional
Offices at Northwestern Atrium Center, 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661-2511 and 7 World Trade Center, New York, New York 10048.
Copies of such material can be obtained from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed
rates. Certain of such reports, proxy statements and other information are also
available from the Commission over the Internet at http://www.sec.gov. In
addition, F&M Common Stock is listed and traded on the NYSE. Reports, proxy
statements and other information concerning F&M may be inspected at the offices
of the NYSE, 20 Broad Street, New York, New York 10005. Reports, proxy
statements and other information concerning BOA may be inspected and copied
without charge at the FDIC's Registration and Disclosure Section, 1776 F Street,
N.W., Washington, D.C. 20429.
As permitted by the rules and regulations of the Commission, this Proxy
Statement/Prospectus does not contain all the information set forth in the
Registration Statement on Form S-4, of which this Proxy Statement/Prospectus is
a part, and exhibits thereto (together with the amendments thereto, the
"Registration Statement"), which have been filed by F&M with the Commission
under the Securities Act of 1933 (the "Securities Act") with respect to F&M
Common Stock and to which reference is hereby made for further information.
This Proxy Statement/Prospectus incorporates by reference certain
documents relating to F&M that are not presented herein or delivered herewith.
These documents (other than exhibits to such documents that are not specifically
incorporated by reference in such documents) are available to any person to whom
this Proxy Statement/Prospectus is delivered, without charge, upon written or
oral request directed to F&M's Secretary, 9 Court Square, P.O. Box 2800,
Winchester, Virginia 22604; telephone number (540) 665-4200. In order to ensure
timely delivery of any requested documents, the request should be made by April
____, 1998.
The information contained in this Proxy Statement/Prospectus relating
to F&M has been supplied by F&M, and the information relating to BOA has been
supplied by BOA.
No person has been authorized to make any representations or give any
information not contained in this Proxy Statement/Prospectus or incorporated by
reference herein and, if made or given, such representation or information
should not be relied upon as having been authorized by BOA or F&M. Neither the
delivery of this Proxy Statement/Prospectus nor the issuance of any securities
hereunder shall, under any circumstances, create any implication that there has
been no change in the affairs of BOA or F&M since the date hereof or that the
information contained or incorporated by reference herein is correct as of any
time subsequent to its date.
<PAGE>
INCORPORATION OF CERTAIN INFORMATION BY REFERENCE
The following documents filed with the Commission by F&M (File No.
0-05929) under the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus: (i) F&M's Annual Report on Form 10-K for the year ended
December 31, 1997; and (ii) F&M's Current Reports on Form 8-K, dated
_____________________, 1998.
All documents filed by F&M pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein.
BOA's Annual Report on Form 10-KSB for the year ended December 31, 1997
filed with the FDIC under the Exchange Act is incorporated by reference in this
Proxy Statement/Prospectus and included as Appendix IV hereto. Financial and
other information relating to BOA is set forth in BOA's Annual Report on Form
10-KSB for the year ended December 31, 1997.
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 also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
Also incorporated by reference herein is the Merger Agreement, which is
included as Appendix I to the Proxy Statement/Prospectus.
CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING INFORMATION
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 F&M and BOA. 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.
<PAGE>
TABLE OF CONTENTS
Available Information.........................................................
Incorporation of Certain Information by Reference.............................
Cautionary Statement Concerning Forward-Looking Information...................
Summary.......................................................................
Comparative Per Share Information.............................................
Selected Financial Data.......................................................
The Special Meeting...........................................................
The Merger....................................................................
Terms of the Merger......................................................
Reasons for and Background of the Merger.................................
Opinion of Financial Advisor.............................................
Effective Date...........................................................
Surrender of Stock Certificates..........................................
Conditions to the Merger.................................................
Regulatory Approvals.....................................................
Business Pending the Merger..............................................
Waiver, Amendment and Termination........................................
Resales of F&M Common Stock..............................................
Accounting Treatment.....................................................
Interests of Certain Persons in the Merger...............................
The Option Agreement.....................................................
Certain Federal Income Tax Matters.......................................
Absence of Appraisal.....................................................
Certain Differences in Rights of Shareholders............................
Expenses of the Merger...................................................
Market Prices and Dividends...................................................
The Bank of Alexandria........................................................
General..................................................................
History and Business.....................................................
Competition..............................................................
Business of F&M ..............................................................
History and Business.....................................................
F&M's Acquisition Program................................................
Comparative Rights of Shareholders............................................
Description of F&M Capital Stock..............................................
Experts.......................................................................
Legal Opinions................................................................
Other Matters.................................................................
APPENDICES
I Agreement and Plan of Reorganization and Plan of Merger
II Stock Option Agreement
III Opinion of Scott & Stringfellow, Inc.
IV BOA's Annual Report on Form 10-KSB for the year ended December 31, 1997
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere
in this Proxy Statement/Prospectus. This summary is not intended to be complete
description of all the matters covered in this Proxy Statement/Prospectus and is
subject to and qualified in its entirety by reference to the more detailed
information and financial statements contained elsewhere in this Proxy
Statement/Prospectus including the Appendices hereto and the documents
incorporated herein by reference. A copy of the Merger Agreement is set forth in
Appendix I to this Proxy Statement/Prospectus and reference is made thereto for
a complete description of the terms of the Merger. Shareholders are urged to
read carefully the entire Proxy Statement/Prospectus, including the Appendices.
The Parties
F&M. F&M is a multi-bank holding company headquartered in Winchester,
Virginia. F&M has eleven subsidiary banks (the "Subsidiary Banks") that operate
108 banking offices and offer a full range of banking services principally to
individuals and to small and medium-sized businesses in the Shenandoah Valley of
Virginia, central and northern Virginia, the eastern panhandle of West Virginia,
and the Maryland portion of the Washington D.C. metropolitan area. F&M was
formed in 1969 to serve as the parent holding company of its then sole
subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its organization,
F&M has acquired sixteen banks, which have expanded its market area and
increased its market share in Virginia, West Virginia and Maryland. At December
31, 1997, F&M had total assets of $2.5 billion, total deposits of $2.1 billion
and total shareholders' equity of $247.8 million. F&M's principal executive
offices are located at 9 Court Square, Winchester, Virginia 22601, and its
telephone number is (540) 665-4200. See "Selected Financial Data," and "Business
of F&M."
F&M Common Stock is listed and traded on the NYSE under the symbol
"FMN."
BOA. BOA is a community bank headquartered in Alexandria, Virginia. BOA
opened for business in 1982 and currently operates four banking offices in the
City of Alexandria offering banking services to individuals and small to
medium-sized businesses. Its primary market area is the City of Alexandria and
the surrounding area. At December 31, 1997, BOA had total assets of $75.9
million, total deposits of $67.6 million, and total shareholders' equity of $7.9
million. The principal executive offices of BOA are located at 1717 King Street,
Alexandria, Virginia 22314, and its telephone number is (703) 549-8262. See
"Selected Financial Data" and "The Bank of Alexandria." For additional
information concerning BOA, including the audited financial statements of BOA as
of and for the three years December 31, 1997, see BOA's Annual Report on Form
10-KSB for the year ended December 31, 1997 that is included as Appendix IV to
this Proxy Statement/Prospectus.
The Special Meeting
Time, Place and Purpose. The Special Meeting will be held on
April 23, 1998 at 10:00 a.m. at Belle Haven Country Club, 6023 Ft. Hunt Road,
Alexandria, Virginia 22314. At the Special Meeting, BOA shareholders will
be asked to consider and vote upon a proposal to approve the Merger Agreement,
attached hereto as Appendix I.
Record Date. Only holders of record of BOA Common Stock at the close of
business on February 27, 1998 (the "Record Date"), will be entitled to notice of
and to vote at the Special Meeting. At the record date, there were 595 holders
of record of the 686,619 shares of BOA Common Stock then outstanding and
entitled to vote at the Special Meeting. See "The Special Meeting."
<PAGE>
Terms of the Merger
The Merger Agreement provides that BOA will merge with and into F&M
Bank-Northern Virginia, which will be the surviving corporation of the Merger.
Upon consummation of the Merger, each outstanding share of BOA Common Stock will
automatically and without further action be exchanged for 0.942 shares of F&M
Common Stock (the "Exchange Ratio"). No fractional shares of F&M Common Stock
will be issued. Rather, cash (without interest) will be paid in lieu of any
fractional share interest based on the average of the last sale prices of F&M
Common Stock as reported on the NYSE Composite Transactions Reporting System for
each of the ten consecutive trading days ending on the fifth business day prior
to the Effective Date (as defined herein). The Exchange Ratio will be adjusted
to reflect any stock split, stock dividend, recapitalization or similar
transaction with respect to F&M Common Stock. See "The Merger."
The Merger Agreement further provides for the conversion upon
consummation of the Merger of all stock options held by employees outstanding
under BOA's Incentive Stock Option Plan into options to acquire shares of F&M
Common Stock, appropriately adjusted to reflect the Exchange Ratio. See "The
Merger - Interests of Certain Persons in the Merger."
Recommendation of the Board of Directors of BOA
The Board of Directors of BOA has unanimously approved the Merger and
the Merger Agreement. The Board of Directors believes that the Merger is fair to
and in the best interests of the shareholders of BOA and recommends that
shareholders VOTE FOR the Merger and the Merger Agreement. In deciding to adopt
the Merger Agreement and approve the transactions contemplated therein, the BOA
Board considered a number of factors, including the financial condition, results
of operations, and future prospects of BOA and F&M. See "The Merger Background
of and Reasons for the Merger."
Opinion of Financial Advisor
Scott & Stringfellow, Inc. has served as financial advisor to BOA in
connection with the Merger and has rendered its opinion to the BOA Board that
the Exchange Ratio of 0.942 shares of F&M Common Stock for each share of BOA
Common Stock is fair from a financial point of view to the BOA shareholders. For
additional information concerning Scott & Stringfellow and its opinion, see "The
Merger - Opinion of Financial Advisor" and the opinion of Scott & Stringfellow
attached as Appendix III to this Proxy Statement/Prospectus.
Vote Required
Approval of the Merger Agreement requires the affirmative vote of the
holders of more than two-thirds of the shares of BOA Common Stock outstanding at
the Record Date. As of the Record Date, directors and executive officers of BOA
and their affiliates beneficially owned 204,815 shares of BOA Common Stock, or
approximately 29.8% of the shares of BOA Common Stock outstanding on such date
(exclusive of shares of BOA Common Stock subject to options). The directors and
executive officers of BOA have indicated their intention to vote their shares of
BOA Common Stock in favor of the Merger. See "The Special Meeting - Vote
Required." The Board of Directors of F&M has approved the Merger Agreement.
Approval of the Merger Agreement of F&M shareholders is not required by
applicable law or regulation.
<PAGE>
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, and broker "non-votes" will have the same
effect as a vote against approval of the Merger Agreement.
Effective Date
If the Merger is approved by the requisite vote of the BOA
shareholders, all required governmental and other consents and approvals are
obtained and the other conditions to the Merger are either satisfied or waived
(as permitted), the Merger will be consummated and made effective at the date
and time set forth on the Certificate of Merger issued by the Virginia State
Corporation Commission (the "Effective Date"). The Merger is expected to be made
effective on or about May 1, 1998. F&M and BOA each has the right, acting
unilaterally, to terminate the Merger Agreement should the Merger not be
consummated by July 31, 1998. See "The Merger - The Effective Date."
Distribution of Stock Certificates and Payment for Fractional Shares
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each BOA shareholder a letter of transmittal and
instructions for use in order to surrender the certificates representing shares
of BOA Common Stock in exchange for certificates representing shares of F&M
Common Stock. Cash (without interest) will be paid to BOA shareholders in lieu
of the issuance of any fractional shares. See "The Merger - Surrender of Stock
Certificates."
Certain Federal Income Tax Consequences
The Merger is intended to be a tax-free reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended.
Generally, no gain or loss should be recognized for federal income tax purposes
by BOA shareholders as a result of the Merger, except with respect to any cash
received in lieu of fractional share interests. A condition to consummation of
the Merger is the receipt of an opinion from LeClair Ryan, legal counsel for
F&M, as to the qualification of the Merger as a tax-free reorganization and
certain other federal income tax consequences of the Merger.
All shareholders should carefully read the discussion of the material
federal income tax consequences of the proposed Merger under "The Merger -
Certain Federal Income Tax Consequences" and are urged to consult with their own
tax advisors as to the federal, state, and local tax consequences in their
particular circumstances.
Interests of Certain Persons in the Merger
Certain members of BOA's management, as well as certain members of the
BOA Board of Directors, have interests in the Merger in addition to their
interests as shareholders of BOA. These include, among other things, provisions
in the Merger Agreement relating to indemnification of directors and officers of
BOA, the treatment of outstanding options with respect to BOA Common Stock,
change of control employment agreements with F&M, and eligibility for certain
F&M employee benefits. In each case, the BOA Board was aware of these potential
interests, and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
<PAGE>
Indemnification. F&M has generally agreed to indemnify, for a period of
six years after the Effective Date, the officers and directors of BOA against
certain liabilities arising prior to the Effective Date of the Merger. F&M has
also agreed to provide directors' and officers' liability insurance for the
present officers and directors of BOA for a period of three years after the
Effective Date.
Directors of F&M Bank-Northern Virginia. At least six of the current
directors of BOA will become directors of F&M Bank-Northern Virginia upon
consummation of the Merger or as soon thereafter as practicable.
Stock Options and Warrants. Certain officers and employees of BOA hold
stock options under BOA's 1993 Stock Option Plan to acquire an aggregate of
66,283 shares of BOA Common Stock at exercise prices ranging from $8.67 to
$13.38 per share. Such options, to the extent not exercised prior to the
Effective Date, will be converted into options to acquire shares of F&M Common
Stock, appropriately adjusted to reflect the Exchange Ratio.
Agreements with Messrs. Tees and Lucas. The Merger Agreement provides
that F&M will enter into change-in-control employment agreements with Messrs.
Tees and Lucas on terms similar to those in effect for certain of the senior
executive officers of the Subsidiary Banks, or such other employment
arrangements agreed to by the parties. F&M has agreed to assume and honor
the employment agreements between BOA and Messrs. Tees and Lucas, respectively,
with certain modifications, based on the agreement that the Merger will not
constitute a "change of control" of BOA, as defined in the agreements. The
change of control provision was not waived by Messrs. Tees and Lucas with
respect to any future change of control of F&M. Under the terms of the
agreements, if either Messrs. Tees or Lucas is terminated following a change
of control in F&M, or if either is terminated "without cause" or resigns for
"good reason" (as defined in the agreement), or is asked to move more than 35
miles from BOA's main office, the officer will be entitled to receive a 12
month severance payment equal to his annual base salary in effect at that time
and will continue to receive certain employee benefits for that 12 month period.
See "The Merger - Interests of Certain Persons in the Merger" and "The
Merger - Terms of the Merger."
Regulatory Approvals
The Merger is subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve") pursuant to Section 18(c)
of the Federal Deposit Insurance Act, and the Virginia State Corporation
Commission (the "Virginia SCC"), and may be subject to the approval of or notice
to other regulatory authorities. Applications have been filed or will promptly
be filed with such agencies. There can be no assurance that the approval of the
Federal Reserve or the Virginia SCC will be obtained or as to the timing or
conditions of such approvals. See "The Merger - Regulatory Approvals."
Conditions to Consummation of the Merger; Termination
Consummation of the Merger is contingent upon the following unwaivable
conditions: (i) receipt of the approval of the shareholders of BOA solicited
hereby; (ii) receipt of all governmental and other consents and approvals
necessary to permit consummation of the Merger; and (iii) satisfaction of
certain other usual conditions, including the receipt of the tax opinion
discussed above. Substantially all of the conditions to consummation of the
Merger may be waived, in whole or in part, to the extent permissible under
applicable law by the party for whose benefit the condition has been imposed,
without the approval of the shareholders of that party. Shareholder and
regulatory approvals, however, may not be waived. See "The Merger -
Representations and Warranties; Conditions to the Merger" and "The Merger -
Regulatory Approvals."
The Merger Agreement may be terminated and the Merger abandoned
notwithstanding shareholder approval (i) by mutual agreement of the Boards of
Directors of F&M and BOA, (ii) by either F&M or BOA if the Effective Date has
not occurred by July 31, 1998, except that the party whose failure to perform
any obligation under the Merger Agreement resulted in the delay may not
terminate as a result of the delay, or (iii) by either BOA or F&M if the
satisfaction in any material respect of one or more conditions to that party's
obligation to consummate the Merger becomes impossible of satisfaction. See "The
Merger - Waivers, Amendment and Termination."
<PAGE>
Option Agreement
As a condition of F&M's entering into the Merger Agreement and to
increase the probability that the Merger will be consummated, BOA and F&M
entered into an Option Agreement, dated as of December 12, 1997 (the "Option
Agreement"). The Option Agreement provides for the acquisition by F&M of up to
136,600 shares of BOA Common Stock (approximately 19.9% of the BOA Common Stock
outstanding as of the date of the Merger Agreement), subject to adjustment, at
an exercise price of $17.50 per share (the "F&M Option"). The Option Agreement
is attached to this Proxy Statement/Prospectus as Appendix II.
Exercise of the F&M Option is permitted only upon the occurrence
of the events and subject to the limitations specified in the Option
Agreement. See "The Merger - The Option Agreement."
Effect of the Merger on the Rights of BOA Shareholders
Upon consummation of the Merger, BOA shareholders will become
shareholders of F&M, and their rights as such will be governed by the Virginia
Stock Corporation Act (the "Virginia SCA") and by the Articles of Incorporation
and Bylaws of F&M. The rights of the shareholders of BOA are different in
certain material respects from the rights of the shareholders of F&M. See
"Comparative Rights of Shareholders."
Accounting Treatment
It is intended that the Merger will be accounted for as a pooling of
interests. It is a condition to F&M's obligation to consummate the Merger that
it receive an opinion from its outside auditors that the Merger will be
accounted for as a pooling of interests. See "The Merger - Accounting
Treatment."
Absence of Dissenters' Rights
Shareholders of BOA will not be entitled to dissent from the Merger and
obtain the judicially determined fair value of their shares of BOA Common Stock
in connection with the Merger. See "The Merger - Absence of Appraisal Rights."
Resales of F&M Common Stock
Shares of F&M Common Stock received in the Merger will be freely
transferable by the holders thereof, except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and major shareholders) of BOA under applicable
federal securities laws. See "The Merger - Resales of F&M Common Stock."
F&M's Acquisition Program
F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. During the ten year period
beginning in 1988, F&M has acquired approximately $1.2 billion in assets and
approximately $1.0 billion in deposits through twelve bank acquisitions.
Management believes there are additional opportunities to acquire financial
institutions or to acquire assets and deposits that will allow F&M to enter new
markets or increase market share in existing markets. Management intends to
pursue acquisition opportunities in strategic markets where its managerial,
operational and capital resources will enhance the performance of acquired
institutions and may, after the date of this Proxy Statement/Prospectus, enter
into agreements to acquire one or more financial institutions.
<PAGE>
On December 1, 1997, F&M entered into an agreement for the acquisition
of Peoples Bank of Virginia, a Virginia chartered bank based in Chesterfield,
Virginia. The acquisition of Peoples Bank of Virginia is subject to the approval
of shareholders of Peoples Bank of Virginia and the appropriate regulatory
agencies and is expected to close on or about April 1, 1998. The acquisition of
Peoples Bank of Virginia is expected to be accounted for as a pooling of
interests for financial reporting purposes and provides for a tax-free exchange
of 2.58 shares of F&M Common Stock for each common share of Peoples Bank of
Virginia. In connection with the proposed acquisition, Peoples Bank of Virginia
granted F&M a stock option representing approximately 19.9% of Peoples Bank of
Virginia outstanding shares. At December 31, 1997, Peoples Bank of Virginia had
301,376 common shares outstanding and 6,842 shares issuable upon outstanding
stock options (excluding the stock option granted to F&M).
Peoples Bank of Virginia is headquartered in Chesterfield, Virginia,
had assets of $80.4 million as of December 31, 1997 and operates four banking
offices in Chesterfield and the surrounding Richmond Metropolitan area. See
"Business of F&M's Acquisition Program."
There can be no assurance that F&M will be able to successfully effect
any additional acquisition activity, or that any such acquisition activity will
have a positive effect on the value of shares of F&M Common Stock.
Market Prices
F&M Common Stock is listed and traded on the NYSE under the symbol
"FMN." BOA Common Stock is not registered on any exchange, traded in the
over-the-counter market, or quoted by The Nasdaq Stock Market. There is
currently no established public market for BOA Common Stock, which has
periodically been sold in a limited number of privately negotiated transactions.
Based on information made available to it, BOA believes that the per share
selling price of BOA Common Stock ranged from $13.375 to $30.375 in 1997. There
may, however, have been other transactions at other prices not known to BOA.
The following table sets forth the last sale price of F&M Common Stock
on the NYSE Composite Transactions List, the most recent sale price of BOA
Common Stock to the best knowledge of BOA, and the equivalent price per share
(as explained below) of BOA as of the close of business on December 11, 1997,
the last business day prior to public announcement of the execution of the
Merger Agreement, and March ___, 1998, the last practicable date prior to the
mailing of this Proxy Statement/Prospectus:
<PAGE>
<TABLE>
<CAPTION>
Market Price Per Share
-----------------------------------------------------------
F&M BOA Equivalent Per
Common Stock Common Stock Share Price (1)
------------ ------------ ----------------
<S> <C>
December 11, 1997............. $34.875 $17.50 $32.85
March __, 1998................
- ---------------
(1) The equivalent per share price of BOA Common Stock at the specified
dates represents the last sale price of a share of F&M Common Stock on
such date multiplied by the Exchange Ratio of 0.942.
Shareholders are advised to obtain current market quotations for F&M
Common Stock. No assurance can be given as to the market price of F&M Common
Stock at or after the Effective Date. See "Market Prices and Dividends."
COMPARATIVE PER SHARE INFORMATION
The table below presents selected comparative unaudited per share
information (i) for F&M on a historical basis and on a pro forma combined basis
assuming the Merger had been effective during the periods presented and
accounted for as a pooling of interests and (ii) for BOA on a historical basis
and on a pro forma equivalent basis. The information shown below should be read
in conjunction with the historical financial statements of F&M and BOA and the
respective notes thereto incorporated herein by reference.
The following information is presented for comparative purposes only
and is not necessarily indicative of the future combined financial position, the
results of the future operations or the actual results or combined financial
position of F&M that would have been achieved had the Merger been consummated as
of the dates or for the periods indicated.
<PAGE>
Year ended
December 31,
----------------------------------
1997 1996 1995
---- ---- ----
<S> <C>
Per Common Share:
Net Income, Basic:
BOA-historical....................... $ .95 $ .89 $ .78
F&M-historical....................... 1.54 1.44 1.27
Pro forma combined...................
BOA pro forma equivalent (1).........
Net Income, Diluted:
BOA-historical....................... $ .95 $ .89 $ .78
F&M-historical....................... 1.53 1.42 1.25
Pro forma combined................... 1.51 1.41 1.24
BOA pro forma equivalent (1)......... 1.42 1.33 1.17
Cash Dividends Declared:
BOA-historical....................... $ -- $ -- $ --
F&M-historical....................... .73 0.69 0.61
Pro forma combined (2)............... .73 0.69 0.61
BOA pro forma equivalent (1)......... .69 0.65 0.57
December 31,
1997
Book Value: ----
BOA-historical....................... $ 11.49
F&M-historical....................... 12.16
Pro forma combined...................
BOA pro forma equivalent (1).........
- -------------------
(1) BOA pro forma equivalent amounts represents F&M's pro forma combined
information multiplied by the Exchange Ratio of 0.942 shares of F&M Common
Stock for each share of BOA Common Stock.
(2) Pro forma dividends per share represent historical dividends paid by F&M.
SELECTED FINANCIAL DATA
The following table presents selected historical financial information
for F&M and BOA. This information is derived from and should be read in
conjunction with the historical financial consolidated statements of F&M and BOA
and the respective notes thereto included in this Proxy Statement/Prospectus or
in documents incorporated herein by reference. For each of F&M and BOA, income
statement information for each of the years ended December 31, 1997, 1996 and
1995, and balance sheet information as of December 31, 1997 and 1996, are based
on, and should be read in conjunction with, the consolidated audited financial
statements of F&M and BOA included or incorporated herein by reference. See
"Incorporation of Certain Information by Reference."
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
F&M National Corporation
Year Ended December 31,
----------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands, except per share data)
<S> <C>
Income Data
Interest income..................... $ 178,589 $ 168,034 $ 158,529 $ 139,806 $ 124,103
Interest expense.................... 75,162 71,231 67,157 53,409 49,142
----------- ----------- ----------- ----------- -----------
Net interest income................. 103,427 96,803 91,372 86,397 74,961
Provision for loan losses........... 5,685 2,050 2,048 2,669 3,295
Noninterest income.................. 27,045 20,745 19,518 18,541 17,634
Noninterest expense................. 78,241 71,105 70,166 67,547 57,678
Income taxes........................ 15,431 15,095 12,841 10,450 9,770
----------- ----------- ----------- ----------- -----------
Net income.......................... $ 31,115 $ 29,298 $ 25,835 $ 24,272 $ 21,852
=========== =========== =========== =========== ===========
Per Share Data
Net income, basic................... $ 1.54 $ 1.44 $ 1.27 $ 1.19 $ 1.12
Net income, diluted................. 1.53 1.42 1.25 1.17 1.11
Cash dividends...................... 0.73 0.69 0.61 0.54 0.58
Book value, end of period........... 12.16 11.32 10.87 9.69 9.65
Average shares outstanding:
Basic............................. 20,235 20,409 20,368 20,381 19,563
Diluted........................... 20,398 20,620 20,641 20,660 19,757
Period End Balances
Assets.............................. $2,520,312 $ 2,303,751 $ 2,207,989 $ 2,020,491 $ 1,940,967
Loans, net of unearned .income 1,543,598 1,439,108 1,296,204 1,209,511 1,120,866
Securities.......................... 638,478 596,993 634,747 590,389 591,003
Deposits............................ 2,137,834 1,966,938 1,882,849 1,754,131 1,693,029
Shareholders' equity................ 247,824 230,723 222,046 195,436 189,039
Performance Ratios
Return on average assets............ 1.30% 1.30% 1.23% 1.21% 1.24%
Return on average equity............ 13.09 12.89 12.18 12.50 12.46
Dividend payout ratio............... 47.45 48.08 42.05 39.52 43.91
Capital Ratios
Leverage............................ 9.55% 9.90% 10.09% 9.72% 10.34%
Risk-based:
Tier 1 capital................... 15.02 15.53 15.94 14.87 15.69
Total capital.................... 16.27 16.78 17.19 16.12 16.94
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
The Bank of Alexandria
Year Ended December 31,
------------------------------------------------------------------------
1997 1996 1995 1994 1993
---- ---- ---- ---- ----
(In thousands except per share data)
<S> <C>
Income Data
Interest income................ $ 6,231 $ 5,263 $ 5,147 $ 4,272 $ 3,994
Interest expense............... 2,558 2,310 2,274 1,669 1,654
----------- ----------- ----------- ----------- ----------
Net interest income............ 3,673 2,934 2,873 2,603 2,340
Provision for loan losses...... 100 58 329 80 99
Noninterest income............. 569 396 417 401 432
Noninterest expense............ 3157 2,417 2,218 2,122 2,806
Income taxes................... 338 300 255 253 (45)
----------- ----------- ----------- ----------- ------------
Net income..................... $ 647 $ 574 $ 488 $ 549 $ (13)
=========== =========== =========== =========== ============
Per Share Data
Net income, basic and diluted.. $ 0.95 $ 0.89 $ 0.78 $ 0.88 $ (0.02)
Cash dividends................. 0.00 0.00 0.00 0.00 0.00
Book value, end of period...... 11.49 11.50 10.64 9.81 8.95
Average shares outstanding,
basic and diluted............ 682 648 623 623 625
Period End Balances
Assets......................... $ 75,859 $ 77,560 $ 67,190 $ 64,830 $ 57,883
Loans, net of unearned income 57,720 48,378 46,005 47,977 38,605
Securities..................... 6,202 8,898 6,254 5,595 6,174
Deposits....................... 67,628 69,912 60,127 52,222 50,963
Shareholders' equity........... 7,889 7,224 6,628 6,110 5,594
Performance Ratios
Return on average assets....... 0.87% 0.86% 0.76% .92% (0.02)%
Return on average equity....... 8.63 8.28 7.59 9.37 (0.23)
Dividend payout ratio.......... 0.00 0.00 0.00 0.00 0.00
Capital Ratios
Leverage....................... 10.63% 10.36% 10.00% 10.20% 9.60%
Risk-based:
Tier 1 capital................. 10.31 9.25 9.90 9.40 9.60
Total capital.................. 13.80 14.12 14.70 10.00 15.90
</TABLE>
<PAGE>
THE SPECIAL MEETING
Date, Place and Time
The Special Meeting will be held at the Belle Haven Country Club, 6023
Ft. Hunt Road, Alexandria, Virginia on Thursday, April 23, 1998 at 10:00 a.m.
Record Date
Only shareholders of record at the close of business on February 27,
1998 (the "Record Date") are entitled to notice of and to vote at the Special
Meeting or any adjournment thereof. At the close of business on the Record Date,
there were 686,619 shares of BOA Common Stock outstanding held by approximately
595 shareholders of record.
Vote Required
Each share of BOA Common Stock outstanding on the Record Date entitles
the holder to cast one vote upon each matter properly submitted at the Special
Meeting. The affirmative vote of the holders of more than two-thirds of the
shares of BOA Common Stock outstanding as of the Record Date, in person or by
proxy, is required to approve the Merger Agreement.
As of the Record Date, directors and executive officers of BOA and
their affiliates, beneficially owned an aggregate of 204,815 shares of BOA
Common Stock, or 29.8% of the shares of BOA Common Stock outstanding on such
date (exclusive of shares of BOA Common Stock subject to outstanding options
that are currently exercisable). Directors and executive officers of BOA have
indicated an intention to vote their shares of BOA Common Stock in favor of the
Merger.
A failure to vote, either by not returning the enclosed proxy or by
checking the "Abstain" box thereon, and broker "non-votes" will have the same
effect as a vote against approval of the Merger Agreement.
Voting and Revocation of Proxies.
Shareholders of BOA are requested to complete, date and sign the
accompanying form of proxy and return it promptly to BOA in the enclosed
envelope. If a proxy is properly executed and returned in time for voting, it
will be voted as indicated thereon. If a proxy is signed and returned without
indicating any voting instructions, shares of BOA Common Stock represented by
the proxy will be voted FOR the Merger Agreement.
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to BOA by executing and delivering a substitute proxy to
BOA or by attending the Special Meeting and voting in person. If a BOA
shareholder desires to revoke a proxy by written notice, such notice should be
mailed for receipt or delivered, on or prior to the meeting date, to Stephen P.
Tees, President, The Bank of Alexandria, 1717 King Street, Alexandria, Virginia
22314.
<PAGE>
Solicitation of Proxies
BOA will bear the costs of this solicitation of proxies. Solicitations
may be made by mail, telephone, telegraph or personally by directors, officers
and employees at BOA, none of whom will receive additional compensation for
performing such services. F&M shall pay all of the expenses of printing and
mailing the Proxy Statement/Prospectus.
Recommendation
The Board of Directors of BOA has unanimously approved the Merger
Agreement and believes that the proposed transaction is fair to and in the best
interests of BOA and its shareholders. The Board of Directors of BOA unanimously
recommends that BOA shareholders VOTE FOR approval of the Merger Agreement.
THE MERGER
The following is a summary description of the material terms of the
Merger, and is qualified in its entirety by reference to the Merger Agreement
which is attached as Appendix I hereto. All holders of BOA Common Stock are
urged to read the Merger Agreement in its entirety.
Terms of the Merger
The Merger Agreement provides that BOA will merge with and into F&M
Bank-Northern Virginia, which will be the surviving corporation of the Merger.
Upon consummation of the Merger, each outstanding share of BOA Common Stock will
automatically and without further action be exchanged for 0.942 shares of F&M
Common Stock. No fractional shares of F&M Common Stock will be issued. Rather,
cash (without interest) will be paid in lieu of any fractional share interest
based on the average of the last sale prices of F&M Common Stock as reported on
the NYSE Composite Transactions Reporting System for each of the ten consecutive
trading days ending on the fifth business day prior to the Effective Date. The
Exchange Ratio will be adjusted to reflect any stock split, stock dividend,
recapitalization or similar transaction with respect to F&M Common Stock.
The Merger Agreement further provides for the conversion upon
consummation of the Merger of all stock options held by employees outstanding
under BOA's Incentive Stock Option Plan into options to acquire shares of F&M
Common Stock, appropriately adjusted to reflect the Exchange Ratio.
All of the directors of BOA, with the exception of Raymond G. Curry and
Norman B. Schrott will become directors of F&M Bank-Northern Virginia upon
consummation of the Merger.
Reasons for and Background of the Merger
On October 9, 1997, Charles E. Curtis, President and Chief Executive
Officer of F&M Bank - Northern Virginia, contacted Edward Semonian, Chairman of
the Board of BOA, to discuss the possible interest of BOA in an affiliation with
F&M. Mr. Semonian subsequently addressed BOA's Board of Directors on the concept
of such an affiliation at a meeting on October 23, 1997.
BOA believed that an affiliation with F&M, as a larger banking
organization, could provide certain benefits. For example, F&M can provide
products and technology to customers that BOA and most small banks cannot
provide at this time, and BOA was faced with the prospect of substantial
expenditures to acquire the necessary technology. In addition, F&M has an array
of products that BOA believes will enable it to better compete with larger
financial institutions, including credit and debit cards, voice response and
trust services. F&M Common Stock also is listed on the New York Stock Exchange,
thereby providing greater liquidity and marketability to BOA's shareholders than
BOA Common Stock, which currently has no established trading market.
<PAGE>
On October 31, 1997, Mr. Semonian and Mr. Curtis met again to discuss
the affiliation and to exchange financial information on their respective
institutions. Mr. Curtis presented a tentative offer for an affiliation, which
BOA's Board of Directors considered during several informal meetings between
November 5, 1997 to November 17, 1997. At a meeting on November 20, 1997, BOA's
Board of Directors, having reviewed the offer and other factors relating to the
proposed affiliation, preliminarily approved the offer and directed the
appropriate officers to pursue further negotiations with F&M.
On December 5, 1997, BOA engaged Scott & Stringfellow, Inc. ("Scott &
Stringfellow") to serve as its financial advisor. On December 12, 1997, a
representative of Scott & Stringfellow reviewed the proposed transaction with
BOA's Board of Directors and delivered the opinion of Scott & Stringfellow that
the Merger is fair to the shareholders of BOA from a financial point of view.
Counsel to BOA also reviewed the terms of the Merger Agreement with the Board of
Directors. The Merger Agreement was approved by BOA's Board of Directors and
executed on behalf of BOA on December 12, 1997.
In deciding to enter into the Merger Agreement, BOA's Board of
Directors considered a number of factors, but did not assign any relative or
specific weights to them. Material factors considered were: the exchange ratio
offered for BOA Common Stock; the cash dividends historically paid on F&M Common
Stock; the financial condition and history of performance of F&M; the well
capitalized position and earnings of F&M; the compatibility of the managements
of the two organizations; the ability of members of BOA's Board of Directors to
remain involved as members of the board of directors of F&M Bank - Northern
Virginia; and the tax-free nature of the Merger to BOA's shareholders to the
extent that they receive F&M Common Stock in exchange for their shares of BOA
Common Stock. BOA's Board of Directors believes that the addition of resources
resulting from the Merger will broaden the range of financial services and
products that BOA offers to consumers and businesses and enhance its ability to
provide credit and other financial products in its market area. In addition,
BOA's Board of Directors believes that the Merger will help provide BOA with the
financial resources needed to meet the competitive challenges arising from
recent and anticipated changes in the banking and financial services industry.
BOA's Board of Directors has concluded that the terms of the Merger
Agreement, which were determined on the basis of arms-length negotiations, are
fair to BOA's shareholders. This conclusion is supported by the opinion of Scott
& Stringfellow, an independent financial advisor, as described below. In
establishing the Exchange Ratio, BOA's Board of Directors also considered the
market value and earnings per share of BOA Common Stock and F&M Common Stock;
information concerning the financial condition, results of operations and the
prospects of BOA and F&M; and the tax-free nature of the Merger to the
shareholders of BOA to the extent that they receive F&M Common Stock in exchange
for their shares of BOA Common Stock.
BOA's Board of Directors believes that the Merger is in the best
interests of BOA and its shareholders. The BOA directors have all committed to
vote shares under their control in favor of the Merger to the extent of their
fiduciary ability. The BOA directors unanimously recommend that BOA's
shareholders vote FOR the approval of the Merger Agreement.
<PAGE>
Opinion of Financial Advisor
In developing its financial fairness opinion (the "Opinion"), Scott &
Stringfellow reviewed and analyzed: (i) the Agreement; (ii) the Registration
Statement and this Proxy Statement/Prospectus; (iii) BOA's audited financial
statements for the three years ended December 31, 1996; (iv) BOA's unaudited
financial statements for the twelve months ended December 31, 1997, and other
internal information relating to BOA prepared by BOA's management; (v)
information regarding the trading market for BOA's Common Stock and the F&M
Common Stock and the price ranges within which the respective stocks have
traded; (vi) the relationship of prices paid to relevant financial data such as
net worth, earnings, deposits and assets in certain bank and bank holding
company mergers and acquisitions in Virginia in recent years; (vii) F&M's
audited financial statements for the three years ended December 31, 1996; and
(viii) F&M's unaudited financial statements for the twelve months ended December
31, 1997, and other internal information relating to F&M prepared by F&M's
management. Scott & Stringfellow has discussed with the respective members of
BOA's and F&M's managements past and current business operations, the background
of the Merger, the reasons and basis for the Merger, results of regulatory
examinations, and the business and future prospects of BOA and F&M individually
and as a combined entity, as well as other matters relevant to its inquiry.
Scott & Stringfellow has conducted such other studies, analysis and
investigations particularly of the banking industry, and considered such other
information as it deemed appropriate, the material portion of which is described
below. Finally, Scott & Stringfellow also took into account its assessment of
general economic, market and financial conditions and its experience in other
transactions, as well as its experience in securities valuations and knowledge
of the commercial banking industry generally.
Scott & Stringfellow relied without independent verification upon the
accuracy and completeness of all of the financial and other information reviewed
by it and discussed with it for purposes of its Opinion. With respect to
financial forecasts reviewed by Scott & Stringfellow in rendering its Opinion,
Scott & Stringfellow assumed that such financial forecasts were reasonably
prepared on the basis reflecting the best currently available estimates and
judgment of the managements of BOA and F&M as to the future financial
performance of BOA and F&M, respectively. Scott & Stringfellow did not make an
independent evaluation or appraisal of the assets or liabilities of BOA and F&M
nor was it furnished with any such appraisal.
Scott & Stringfellow evaluated the financial terms of the transaction
using standard valuation methods, including a discounted cash flow analysis, a
market comparable analysis, a comparable acquisition analysis, and a dilution
analysis.
Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of BOA Common Stock. Among other things, Scott & Stringfellow
considered a range of asset and earnings growth for BOA of between 5.00% and
7.00% and a required equity capital level of 8.00% of total assets. A range of
discount rates from 10.71% to 12.71% was applied to the cash flows resulting
from the projections during the first five years and the residual values. The
residual values were estimated by capitalizing the projected final year earnings
by the discount rates, less the projected long-term growth rate of BOA's
earnings. The discount rates, growth rates and capital levels were chosen based
on what Scott & Stringfellow, in its judgment, considered to be appropriate
taking into account, among other things, BOA's past and current financial
performance and conditions, the general level of inflation, rates of return for
fixed income and equity securities in the marketplace generally and particularly
in the banking industry. The discounted cash flow analysis indicated a reference
range of $13.56 to $17.00 per share for BOA Common Stock. These values compare
to the value of $32.85 per share of consideration for each share of BOA Common
Stock as of December 11, 1997. Accordingly, the present value of BOA Common
Stock was calculated at less than the value of the consideration to be received
from F&M pursuant to the Agreement.
<PAGE>
Comparable Acquisition Analysis. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data such as tangible net
worth, assets, deposits and earnings in 18 community bank and community bank
holding company mergers and acquisitions in Virginia since January 1, 1995,
representing all such transactions known to Scott & Stringfellow to have
occurred during this period with the proposed Merger and found the consideration
to be received from F&M to be within the relevant pricing ranges acceptable for
such recent transactions. Specifically, based upon transactions announced in
Virginia since January 1, 1995, other than the Merger, the average price to
tangible book value in these transactions is 2.30x, compared with 2.80x for the
Merger; the average price to earnings ratio was 19.33x, compared with 41.39x for
the Merger; the average deal price to deposits was 24.52% compared with 35.29%
for the Merger; the average deal price to assets was 21.22%, compared with
31.16% for the Merger; and the average tangible book premium to core deposits
was 15.63%, compared to 26.44% for the Merger. For purposes of computing the
information with respect to the Merger, $32.85 per share of consideration for
each share of BOA Common Stock was used.
Analysis of F&M and Bank Peer Group. Scott & Stringfellow analyzed the
performance and financial condition of F&M relative to a peer group consisting
of Centura Banks, Inc., Crestar Financial Corp., FCNB Corp., F&M Bancorp, First
Virginia Banks, MainStreet BankGroup, Mercantile Bankshares, One Valley Bancorp,
and Union Bankshares (the "Bank Peer Group"). Certain financial information
compared was, among other things, information relating to tangible equity to
assets, loans to deposits, net interest margin, nonperforming assets, total
assets, and efficiency ratio. Additional valuation information compared for the
trailing twelve month period ended September 30, 1997, and stock prices as of
December 11, 1997, was (i) price to tangible book value ratio which was 2.83x
for F&M, compared to an average of 2.68x for the Bank Peer Group, (ii) price to
last twelve months earnings ratio which was 21.81x for F&M, compared to an
average of 20.52x for the Bank Peer Group; (iii) return on average assets which
was 1.32% for F&M, compared to an average of 1.29% for the Bank Peer Group; (iv)
return on average equity which was 13.17% for F&M, compared to an average of
13.80% for the Bank Peer Group; and (v) a dividend yield of 2.24% for F&M,
compared to an average of 2.13% for the Bank Peer Group. Overall, in the opinion
of Scott & Stringfellow, F&M's operating performance and financial condition
were comparable to the Bank Peer Group average and F&M's market value was
reasonable when compared to the Bank Peer Group.
Dilution Analysis. Based upon publicly available financial information
on BOA and F&M, Scott & Stringfellow considered the effect of the transaction on
F&M and BOA. The immediate effect on F&M, assuming pretax cost savings and
revenue enhancements of $100,000, was to decrease earnings per share by $0.02,
or 1.07%, and to decrease book value per share by $0.00, or 0.03%. The effect on
BOA under the same assumptions is to increase dividends per share to $0.70 and
to increase the December 11, 1997 market value of BOA of $17.00 per share to
$32.85. This dilution analysis does not take into account the long-term benefits
for the combined companies resulting from the combination. Scott & Stringfellow
concluded from this analysis that the transaction would have a positive effect
on BOA and BOA Common Stock shareholders in that BOA's historical dividends and
market value per share would increase after giving effect to the exchange ratio
of F&M Common Stock to be received by BOA shareholders. See "Summary --
Comparative Per Share Data."
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by Scott &
Stringfellow to the BOA Board or of the analyses performed by Scott &
Stringfellow. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of these methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to summary
description. Accordingly, notwithstanding the separate factors discussed above,
Scott & Stringfellow believes that its analyses must be considered as a whole
and that selecting portions of its analysis and of the factors considered by it,
without considering all analyses and factors, could create an incomplete view of
the evaluation process underlying its Opinion. As a whole, these various
analyses contributed to Scott & Stringfellow's opinion that the terms of the
Agreement are fair from a financial point of view to the BOA's shareholders.
<PAGE>
Pursuant to the engagement between BOA and Scott & Stringfellow, in
exchange for its services, Scott & Stringfellow will receive a fee of $60,000
which is payable at closing.
Effective Date
If the Merger is approved by the requisite vote of the shareholders of
BOA, all required governmental and other consents are obtained (see "The Merger
Regulatory Approvals") and the other conditions to the Merger are satisfied or
waived (as permitted by the Merger Agreement or applicable law), the Merger will
be consummated and made effective on the date and at the time indicated on the
certificate of merger issued by the Virginia SCC pursuant to the Virginia SCA.
The Effective Date will occur on the first day of the month following the month
in which the conditions specified in the Merger Agreement have been satisfied or
waived. See "The Merger Conditions to the Merger."
It is anticipated that the Effective Date will occur on or about May 1,
1998.
Surrender of Stock Certificates
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each BOA shareholder a letter of transmittal and
instructions for use in order to surrender the certificates representing shares
of BOA Common Stock in exchange for certificates representing shares of F&M
Common Stock.
BOA SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL THEY
RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for BOA Common
Stock, together with a properly completed letter of transmittal, the holder of
such certificates will receive a certificate or certificates representing the
number of shares of F&M Common Stock to which he or she is entitled and, where
applicable, a check for the amount payable in cash in lieu of issuing a
fractional share. Lost, stolen, mutilated or destroyed certificates will be
treated in accordance with the existing procedures of F&M.
Cash (without interest) will be paid to BOA shareholders in lieu of the
issuance of any fractional shares.
After the Effective Date, BOA shareholders will be entitled to vote the
number of shares of F&M Common Stock into which their BOA Common Stock has been
converted, regardless of whether they have surrendered their BOA certificates.
The Merger Agreement provides, however, that no dividend or distribution payable
to the holders of record of F&M Common Stock at or as of any time after the
Effective Date will be paid to the holder of any BOA certificate until such
holder physically surrenders such certificate, promptly after which time all
such dividends or distributions will be paid (without interest).
<PAGE>
Conditions to the Merger
The obligations of F&M and BOA to consummate the Merger are subject to
the following conditions, among, others: approval and adoption of the Merger
Agreement by the requisite shareholder vote; receipt of all necessary regulatory
approvals not conditioned or restricted in a manner that, in the judgment of the
Boards of Directors of F&M or BOA, materially adversely affects the economic or
business benefits of the Merger so as to render inadvisable or unduly burdensome
consummation of the Merger; the absence of certain actual or threatened
proceedings before a court or other governmental body relating to the Merger;
receipt of a fairness opinion from Scott & Stringfellow; and the receipt of an
opinion of counsel as to certain federal income tax consequences of the Merger.
Also, under the terms of the Merger Agreement, F&M agreed that, following the
Effective Date, it will indemnify those persons associated with BOA and its
subsidiaries who are entitled to indemnification as of the Effective Date of the
Merger.
In addition, each party's obligation to effect the Merger, unless
waived, is subject to performance by the other party of its obligations under
the Merger Agreement, the accuracy, in all material respects, of the
representations and warranties of the other party contained therein, and the
receipt of certain opinions and certificates from the other party.
Regulatory Approvals
As indicated above, the consummation of the Merger is conditioned on
the prior approval of the Merger by the Federal Reserve and the Virginia SCA and
any other state or federal regulatory agency having jurisdiction. As of the date
hereof, all regulatory applications have been filed and accepted, but no
approvals have been obtained. Although neither BOA nor F&M know of any reason
that any approval should not be granted, there can be no assurance that
necessary approvals will be obtained, or that any approval will not be
conditioned in a manner which makes consummation of the Merger, in the judgment
of the Board of Directors of F&M or BOA, inadvisable or unduly burdensome.
Business Pending the Merger
Until consummation of the Merger (or termination of the Merger
Agreement), BOA is obligated to operate its businesses only in the ordinary and
usual course, consistent with past practice and to use its best efforts to
maintain its business organizations, employees and business relationships and
retain the services of its officers and key employees. Until consummation of the
Merger (or termination of the Merger Agreement) BOA may not, without the consent
of F&M, among other things: (a) declare or pay dividends on its capital stock;
(b) solicit or encourage inquires or proposals with respect to, furnish any
information relating to, or participate in any negotiations regarding any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, BOA or any business combination with BOA, except
where the failure to do so would constitute a breach of the fiduciary or legal
obligations of the BOA Board of Directors to the shareholders of BOA; (c) amend
its charter or bylaws; (d) issue any capital stock, except upon exercise of
rights or options issued pursuant to existing employee benefits plans, programs
or arrangements or effect any stock split or otherwise change its
capitalization; or (e) purchase or redeem any of its capital stock.
<PAGE>
Pending consummation of the Merger, F&M has agreed that F&M and its
subsidiary banks will operate their respective businesses in the ordinary course
and use best efforts to preserve their respective properties, business and
customer and employee relationships.
Waiver, Amendment and Termination
At any time on or prior to the Effective Date, any term or condition of
the Merger, except for the general conditions set forth in Section 5.1(a) - (d)
of the Merger Agreement, may be waived by the party which is entitled to the
benefits thereof, without shareholder approval, to the extent permitted under
applicable law. The Merger Agreement may be amended at any time prior to the
Effective Date by agreement of the parties whether before or after the Special
Meeting (except that the Exchange Ratio shall not be changed after approval of
the Merger Agreement by the BOA shareholders). Any material change in a material
term of the Merger Agreement would require a resolicitation of BOA's
shareholders. Such a material change would include, but not be limited to, a
change in the tax consequences to BOA's shareholders.
The Merger Agreement may be terminated by F&M or BOA, whether before or
after the approval of the Merger Agreement by the shareholders of BOA: (a) by
mutual consent of BOA and F&M; (b) unilaterally by BOA or F&M, in the event that
the Effective Date has not occurred on or before July 31, 1998, except that the
party whose failure to perform any obligation under the Merger Agreement is the
cause of the delay may not terminate the Merger based upon the delay; or (c)
unilaterally by BOA or F&M if the satisfaction in any material respect of one or
more conditions to the obligation of that party is rendered impossible of
satisfaction. In the event of termination, the Merger Agreement shall become
null and void, except that certain provisions thereof relating to expenses and
confidentiality of information exchanged between the parties shall survive any
such termination.
Resales of F&M Common Stock
All shares of F&M Common Stock received by BOA shareholders in
connection with the Merger will be freely transferable, except that F&M Common
Stock received by persons who are deemed to be "affiliates" of BOA for purposes
of Rule 145 under the Securities Act. To the best knowledge of BOA and F&M, the
only persons who may be deemed to be affiliates of BOA subject to these
limitations are the directors and executive officers of BOA.
Accounting Treatment
It is anticipated that the Merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. Under this method of
accounting, recorded assets and liabilities of F&M and BOA are carried forward
at their previously recorded amounts, income of the combined corporations will
include income of F&M and BOA for the entire fiscal year in which the Merger
occurs, and the reported income of the separate corporations for prior periods
will be combined. No recognition of goodwill in the combination is required of
any party to the Merger.
For the Merger to qualify as a pooling of interests, it must satisfy a
number of conditions including that substantially all of the BOA Common Stock be
exchanged for F&M Common Stock. In the event that any of the conditions to
pooling of interests accounting is not satisfied, then the Merger would not
qualify for pooling of interests accounting treatment, and a condition to the
obligation of F&M to consummate the Merger would not be satisfied. Each of F&M
and BOA have agreed that they will use their respective best efforts to ensure
that the Merger will qualify for pooling of interests accounting treatment. In
addition, affiliates of F&M and BOA have agreed that they will not sell any F&M
Common Stock or BOA Common Stock within 30 days prior to the Effective Date, nor
sell any F&M Common Stock until such time as F&M has published financial results
covering at least 30 days of the combined operations of F&M and BOA after the
Merger.
<PAGE>
Interests of Certain Persons in the Merger
Certain members of BOA's management, as well as certain members of the
BOA Board of Directors, have interests in the Merger in addition to their
interests as shareholders of BOA. These include, among other things, provisions
in the Merger Agreement relating to indemnification of directors and officers of
BOA, the treatment of outstanding options with respect to BOA Common Stock,
change of control employment agreements with F&M, and eligibility for certain
F&M employee benefits. In each case, the BOA Board was aware of these potential
interests, and considered them, among other matters, in approving the Merger
Agreement and the transactions contemplated thereby.
Indemnification. F&M has generally agreed to indemnify, for a period of
six years after the Effective Date, the officers and directors of BOA against
certain liabilities arising prior to the Effective Date of the Merger. F&M has
also agreed to provide directors' and officers' liability insurance for the
present officers and directors of BOA for a period of three years after the
Effective Date.
Directors of F&M Bank-Northern Virginia. At least six of the current
directors of BOA will become directors of F&M Bank-Northern Virginia upon
consummation of the Merger or as soon thereafter as practicable.
Stock Options. Certain officers and employees of BOA hold stock options
under BOA's Incentive Stock Option Plan to acquire aggregate of 66,283 shares of
BOA Common Stock at exercise prices ranging from $8.67 to $13.38 per share. Such
options, to the extent not exercised prior to the Effective Date, will be
converted into options to acquire shares of F&M Common Stock, appropriately
adjusted to reflect the Exchange Ratio.
Agreements with Messrs. Tees and Lucas. The Merger Agreement provides
that F&M will enter into change-in-control employment agreements with Messrs.
Tees and Lucas on terms similar to those in effect for certain of the senior
executive officers of the Subsidiary Banks, or such other employment
arrangements agreed to by the parties. F&M has agreed to assume and honor
the employment agreements between BOA and Messrs. Tees and Lucas, respectively,
with certain modifications, based on the agreement that the Merger will not
constitute a "change of control" of BOA, as defined in the agreements. The
change of control provision was not waived by Messrs. Tees and Lucas with
respect to any future change of control of F&M. Under the terms of the
agreements, if either Messrs. Tees or Lucas is terminated following a change
of control in F&M, or if either is terminated "without cause" or resigns for
"good reason" (as defined in the agreement), or is asked to move more than 35
miles from BOA's main office, the officer will be entitled to receive a 12
month severance payment equal to his annual base salary in effect at that time
and will continue to receive certain employee benefits for that 12 month period.
Employees and Benefit Plans. The Merger Agreement provides that the
officers and employees of BOA will not change as a result of the Merger. As soon
as administratively practicable following the Merger, employees of BOA will be
entitled to participate in the F&M pension, benefit and similar plans on the
same terms and conditions as employees of F&M. Employees of BOA will receive
credit for their years of service to BOA for participation and vesting purposes
only.
The Option Agreement
The Option Agreement was entered into as a condition to F&M's entering
into the Merger Agreement and is intended to increase the probability that the
Merger will be consummated. Exercise of the F&M Option may tend to make the
acquisition of a controlling interest in BOA more expensive to any prospective
acquiror other than F&M, even if such an acquisition would be beneficial to
BOA's shareholders. The existence of the F&M Option is intended to make it less
likely that a prospective acquiror, other than F&M, will seek a business
combination with BOA. The following is a brief summary of the F&M Option and is
qualified in its entirety by reference to the Option Agreement, a copy of which
is attached to this Proxy Statement/Prospectus as Appendix II and incorporated
by reference herein.
<PAGE>
The Option Agreement permits the exercise by F&M of the F&M Option to
acquire up to 136,000 shares of BOA Common Stock at a price of $17.50 per share,
subject to adjustment upon the occurrence of certain events described below. The
shares subject to the F&M Option represent approximately 19.9% of the
outstanding shares of BOA Common Stock as of the date of the Merger Agreement.
F&M may exercise the F&M Option, in whole or in part, at any time or
from time to time, upon or after the occurrence of a "Purchase Event." As used
in the Option Agreement, a "Purchase Event" means:
(a) BOA shall have entered into an agreement with a person
(other than F&M or its affiliates) to: (i) acquire, merge or
consolidate with, or enter into any similar transaction with BOA, (ii)
purchase, lease or otherwise acquire all or substantially all of the
assets of BOA, or (iii) purchase or otherwise acquire (including by way
of merger, consolidation, share exchange or any similar transaction)
securities representing more than 10% of the voting power of BOA;
(b) any person shall have acquired beneficial ownership of
more than 20% of the outstanding shares of BOA Common Stock; or
(c) a bona fide proposal is made by any person (other than F&M
or its affiliates) by public announcement or written communication that
is or becomes the subject of public disclosure to acquire, merge or
consolidate with, or enter into any similar transaction with BOA, and
following such proposal the shareholders of BOA vote not to approve the
Merger Agreement.
BOA is required to notify F&M upon the occurrence of a transaction,
offer or event giving rise to a Purchase Event. In the event F&M wishes to
exercise the F&M Option, it must send BOA written notice specifying (i) the
total number of shares it will purchase and (ii) the place and date not earlier
than three business days nor later than 60 business days after the date on which
such notice is given for the closing of such purchase. If prior notification to,
or approval of, any federal or state regulatory agency is required, F&M will
promptly file the required notice or application for approval and the period of
time that otherwise would run pursuant to such notice period will run instead
from the date on which the last required notification period has expired or has
been terminated or such approvals have been obtained and any requisite waiting
period has passed.
The F&M Option will expire and terminate, to the extent not previously
exercised, upon the earlier of (i) the Effective Date; (ii) the date on which
the Merger Agreement is terminated, other than a termination based upon (a) a
material breach by BOA of any covenant in the Merger Agreement or (b) the
failure of BOA to obtain shareholder approval of the transactions contemplated
by the Merger Agreement by the vote required by applicable law, in either case
following the occurrence of a Purchase Event or (iii) twelve months after the
Merger Agreement is terminated based upon a material breach by BOA of certain
specified covenants or the failure of BOA to obtain shareholder approval of the
transactions contemplated by the Merger Agreement by the vote required under
applicable law, in either case following the occurrence of a Purchase Event.
In the event that BOA's capitalization changes by reason of stock
dividend, split-up merger, recapitalization, combination, exchange of shares or
the like, the number of shares subject to the F&M Option and the purchase price
per share thereof will be adjusted so that the economic value of the F&M Option
remains unaltered.
<PAGE>
Certain Federal Income Tax Matters
The following is a discussion of all material federal income tax
consequences of the Merger under the Internal Revenue Code of 1986, as amended
(the "Code"), to BOA shareholders who receive F&M Common Stock solely in
exchange for BOA Common Stock and cash in lieu of fractional shares. The
discussion does not deal with all aspects of federal taxation that may be
relevant to particular BOA shareholders. Accordingly, because certain tax
consequences of the Merger may vary depending upon the particular circumstances
of each BOA shareholder and other factors, each BOA shareholder is urged to
consult such holder's own tax advisor to determine the particular tax
consequences to such holder of the Merger (including the application and effect
of state and local income and other tax laws).
This summary is based on current law and the advice of LeClair Ryan,
legal counsel to F&M. The advice of LeClair Ryan set forth in this summary is
based on, among other things, certain customary assumptions and representations
relating to certain facts and circumstances of, and the intentions of the
parties to, the Merger. Neither F&M nor BOA has requested a ruling from the
Internal Revenue Service in connection with the Merger. To meet a condition to
consummation of the Merger, F&M and BOA will receive from LeClair Ryan, counsel
to F&M, an opinion as to certain federal income tax consequences of the Merger.
Such opinion is not binding on the Internal Revenue Service.
In the opinion of counsel, the Merger will constitute a tax-free
reorganization under Section 368(a) of the Code, if consummated in the manner
set forth in the Merger Agreement. Accordingly, among other things, in the
opinion of such counsel:
1. The Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code;
2. No gain or loss will be recognized by F&M or BOA as a result of the
Merger;
3. No gain or loss will be recognized by a BOA shareholder to the
extent he or she receives F&M Common Stock solely in exchange for his BOA Common
Stock pursuant to the Merger;
4. The tax basis of the F&M Common Stock received by each BOA
shareholder will be the same as the tax basis of the BOA Common Stock
surrendered in exchange therefor; and
5. The holding period for each share of F&M Common Stock received by
each BOA shareholder in exchange for BOA Common Stock will include the period
for which such shareholder held the BOA Common Stock exchanged therefor,
provided such BOA Common Stock is a capital asset in the hands of such holder at
the Effective Date.
Any cash received by shareholders in lieu of the issuance of fractional
shares could result in taxable income to the shareholders. The receipt of such
cash will generally be treated as a sale or exchange of the stock resulting in
capital gain or loss measured by the difference between the cash received and an
allocable portion of the basis of the stock relinquished. The receipt of such
cash may be treated as a dividend and taxed as ordinary income in certain
limited situations.
<PAGE>
Absence of Appraisal Rights
Under Section 6.1-43 of the Virginia SCA, shareholders of BOA will not
be entitled to dissent from the Merger and obtain the judicially determined fair
value of their shares of BOA.
Certain Differences in Rights of Shareholders
Both F&M and BOA are corporations subject to the provisions of the
Virginia SCA. Shareholders of BOA, whose rights are governed by BOA's Articles
of Incorporation and Bylaws, will, upon consummation of the Merger, become
shareholders of F&M. The rights of the former BOA shareholders will then be
governed by the Articles of Incorporation and Bylaws of F&M.
There are no material differences between the rights of a BOA
shareholder under BOA's Articles of Incorporation and Bylaws, on the one hand,
and the rights of an F&M shareholder under the Articles of Incorporation and
Bylaws of F&M, on the other hand, except as disclosed in the section
"Comparative Rights of Shareholders."
Expenses of the Merger
In general, whether or not the Merger is consummated, BOA and F&M will
pay their own expenses incident to preparing, entering into and carrying out the
Merger Agreement, and preparing and filing the Registration Statement of which
this Proxy Statement/Prospectus is a part, except that F&M will pay the expenses
of printing and mailing this Proxy Statement/Prospectus, and under circumstances
involving willful and material breaches of certain provisions of the Merger
Agreement.
If either party willfully and materially breaches the Merger Agreement,
that party must pay the costs associated with this transaction incurred by the
non-breaching party. If the Merger Agreement is terminated by BOA because it is
not approved by the BOA shareholders, BOA must pay 50% of F&M's costs in this
transaction, up to $50,000.
MARKET PRICES AND DIVIDENDS
Market Prices
F&M. F&M Common Stock is listed and traded on the NYSE under the symbol
"FMN." The following table sets forth the high and low closing sales prices of
F&M Common Stock as reported on the NYSE Composite Transactions List.
<PAGE>
<TABLE>
<CAPTION>
Closing Sales Prices
---------------------------------------------------------------------------
1998 1997 1996
------------------- ----------------------- ------------------------
High Low High Low High Low
---- --- ---- --- ---- ----
<S> <C>
1st Quarter (through March. __)........ $ $ $22.875 $19.625 $19.750 $17.250
2nd Quarter............................ -- -- 26.375 19.875 18.500 16.000
3rd Quarter............................ -- -- 30.438 26.000 19.375 17.250
4th Quarter............................ -- -- 36.250 28.563 21.375 18.125
</TABLE>
The closing price of F&M Common Stock on the NYSE Composite
Transactions List on December 11, 1997, the last full trading day preceding the
public announcement of the execution of the Merger Agreement, was $34.875 per
share. The closing price of F&M Common Stock on the NYSE Composite Transactions
List on March ____, 1998, the latest practicable date prior to the date of the
Proxy Statement/Prospectus was $_____ per share.
BOA. BOA Common Stock is not registered on any exchange, traded in the
over-the-counter market, or quoted by The Nasdaq Stock Market. BOA Common Stock
has periodically been sold in a limited number of privately negotiated
transactions. Based on information made available to it, BOA believes that the
per share selling price of BOA Common Stock ranged from $_______ to $_______
from January 1, 1998 through March ___, 1998; from $13.375 to $30.375 in 1997;
and from $12.375 to $13.125 in 1996. Such prices do not necessarily reflect the
price that would be paid in an active and liquid market. There may, however,
have been other transactions at other prices not known to BOA.
As of December 31, 1997, there were 7,834 record holders of F&M Common
Stock. As of the Record Date, there were 595 record holders of BOA Common Stock.
Dividends
The following tables reflect the cash dividends per share paid during
each quarter on F&M Common Stock for the periods indicated. BOA has not declared
and paid any cash dividends.
The information in the table below concerning F&M may vary for certain
periods from the dividends declared during the quarter in cases where the
dividend was paid in the quarter following its declaration. In addition, the
amounts shown for F&M have not been restated and adjusted to reflect (i) the
acquisitions on October 1, 1996 of Allegiance Banc Corporation, on March 29,
1996 of FB&T Financial Corporation, and on April 6, 1995 of Bank of the Potomac.
See "Selected Financial Data" for such restated dividend information for F&M.
F&M
1997 1996 1995
---- ---- ----
1st Quarter.................................. $0.180 $0.160 $0.150
2nd Quarter.................................. 0.180 0.160 0.150
3rd Quarter.................................. 0.185 0.175 0.150
4th Quarter.................................. 0.185 0.230 0.160
<PAGE>
F&M or F&M Bank-Winchester has paid regular cash dividends for more
than 55 consecutive years.
F&M is a legal entity separate and distinct from its subsidiaries, and
its revenues depend primarily on the payment of dividends from its subsidiary
banks. F&M's subsidiary banks are subject to certain legal restrictions on the
amount of dividends they are permitted to pay to F&M. For example, a Virginia
chartered bank, of which there are nine within the F&M system, is prohibited
from paying a dividend that would impair its paid-in capital. In addition, the
Virginia SCC may limit the payment by any Virginia chartered bank if it
determines that the limitation is in the public interest and is necessary to
ensure the bank's financial soundness.
Under current federal law, insured depository institutions, such as the
Subsidiary Banks, are prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the institution
would become "undercapitalized" (as such term is defined in federal law). Based
on the Subsidiary Banks' current financial condition, F&M does not expect that
this provision will have any impact on its ability to obtain dividends from its
insured depository institution subsidiaries.
As a result of these legal restrictions, there can be no assurance that
dividends would be paid in the future by F&M's bank subsidiaries. The final
determination of the timing, amount and payment of dividends on F&M Common Stock
is at the discretion of F&M's Board of Directors and will depend upon the
earnings of F&M and its subsidiaries, principally its subsidiary banks, the
financial condition of F&M and other factors, including general economic
conditions and applicable governmental regulations and policies.
THE BANK OF ALEXANDRIA
General
Financial and other information relating to BOA is set forth in BOA's
Annual Report on Form 10-KSB for the Year Ended December 31, 1997, a copy of
which is included herewith as Appendix IV. The audited financial statements of
BOA as of December 31, 1997 and 1996 and for each of the three years in the
period ended December 31, 1997 are included in the its Annual Report on Form
10-KSB. See "Available Information" and "Incorporation of Certain Information by
Reference."
History and Business
BOA was organized in 1982. As of December 31, 1997, BOA had total
assets of $75.9 million, total deposits of $67.6 million, and total
shareholder's equity of $7.9 million.
BOA is a locally oriented community bank which seeks to serve the needs
of small and medium size businesses, professionals and consumers in the City of
Alexandria and the surrounding area, which area constitutes BOA's primary
service area. BOA offers a wide range of commercial banking services to
businesses and professionals in its service area, as well as comprehensive
deposit and lending services for consumers. The Bank holds, but does not
exercise, trust powers. BOA's deposits are insured to the fullest extent
provided by law by the Bank Insurance Fund of the Federal Deposit Insurance
Corporation.
BOA operates three branch locations in the City of Alexandria and one
branch in Fairfax County. Each branch has an automated teller machine (ATM).
Additionally, BOA operates four off-premises ATM machines in the City of
Alexandria. At December 31, 1997 BOA employed 36 full-time and 3 part-time
employees.
<PAGE>
Competition
In attracting deposits and making loans, BOA encounters competition
from other institutions, including larger commercial banking organizations,
savings banks, credit unions, other financial institutions and non-bank
financial service companies serving BOA's service area. Competitors include
major financial companies whose substantially greater resources may afford them
a marketplace advantage by enabling them to maintain numerous banking locations
and mount extensive promotional and advertising campaigns. In light of the
deregulation of the financial service industry and the absence of interest rate
controls on deposits, BOA anticipates that it will face continuing competition
from all of these institutions in the future. Additionally, as a result of
recently enacted state and federal legislation regarding reduced restrictions on
interstate banking, BOA may face additional competition from institutions
outside Virginia which may take advantage of such legislation to acquire or
establish banks or branches in Virginia. The interstate banking legislation will
allow commercial banks to branch at a national level through acquisition of
existing commercial banks or bank branches, and/or the opening of new branches.
Additional changes in the financial services industry, including rapid
technology changes, may act as a catalyst for further basic structural change
within the financial services industry and may result in additional competition.
BUSINESS OF F&M
History and Business
F&M was formed in 1969 to serve as the parent holding company of its
then sole subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its
organization, F&M has acquired sixteen banks, which expanded its market area and
increased market share in Virginia and West Virginia. F&M has eleven subsidiary
banks (the "Subsidiary Banks") that operate 108 banking offices offering a full
range of banking services, principally to individuals and small and
middle-market businesses in the Shenandoah Valley, central and northern
Virginia, Southside Virginia, the eastern panhandle of West Virginia, and the
Maryland portion of the Washington, D.C. metropolitan area.
The Subsidiary Banks are community-oriented and offer services
customarily provided by full-service banks, including individual and commercial
demand and time deposit accounts, commercial and consumer loans, residential
mortgages, credit card services and safe deposit boxes. Lending is focused on
individuals and small and middle-market businesses in the local market regions
of the Subsidiary Banks. F&M has consolidated the operations of the trust
departments of its Subsidiary Banks in Virginia in F&M Trust Company. F&M also
operates Big Apple Mortgage which engages in residential mortgage origination
and servicing in the Shenandoah Valley and the eastern panhandle of West
Virginia.
F&M has maintained its community orientation by allowing the Subsidiary
Banks latitude to tailor products and services to meet community and customer
needs. While F&M has preserved the autonomy of its Subsidiary Banks, it has
established system-wide policies governing, among other things, lending
practices, credit analysis and approval procedures, as well as guidelines for
deposit pricing and investment portfolio management. In addition, F&M has
established a centralized loan review team that regularly performs a detailed,
on-site review and analysis of each Subsidiary Bank's loan portfolio to ensure
the consistent application of credit policies and procedures system-wide. One or
more senior holding company officers serve on the board of directors of each
Subsidiary Bank to monitor operations and to serve as a liaison to F&M.
<PAGE>
F&M currently operates in seven market regions: the Shenandoah Valley
and Loudoun County; the eastern panhandle of West Virginia;
Charlottesville/Albemarle County and surrounding areas; Greenville County in
southside Virginia; suburban Richmond, primarily Henrico and Chesterfield
Counties; the northern Virginia area that includes the eastern portions of
Fairfax and Prince William Counties, Loudoun County; the Warrenton and
surrounding Fauquier County area; and Montgomery and Prince George's Counties in
Maryland of the Washington, D.C. suburban area.
At December 31, 1997, F&M had total consolidated assets of
approximately $2.5 billion, total consolidated deposits through its banking
subsidiaries of approximately $2.1 billion and consolidated shareholders' equity
of approximately $247.8 million.
F&M's Acquisition Program
F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. During the ten year period
beginning in 1988, F&M has acquired approximately $1.2 billion in assets and
approximately $1.0 billion in deposits through twelve bank acquisitions.
Management believes there are additional opportunities to acquire financial
institutions or to acquire assets and deposits that will allow F&M to enter new
markets or increase market share in existing markets. Management intends to
pursue acquisition opportunities in strategic markets where its managerial,
operational and capital resources will enhance the performance of acquired
institutions and may, after the date of this Proxy Statement/Prospectus, enter
into agreements to acquire one or more financial institutions.
On December 1, 1997, F&M entered into an agreement for the acquisition
of Peoples Bank of Virginia, a Virginia chartered bank based in Chesterfield,
Virginia. The acquisition of Peoples Bank of Virginia is subject to the approval
of shareholders of Peoples Bank of Virginia and the appropriate regulatory
agencies and is expected to close on or about April 1, 1998. The acquisition of
Peoples Bank of Virginia is expected to be accounted for as a pooling of
interests for financial reporting purposes and provides for a tax-free exchange
of 2.58 shares of F&M Common Stock for each common share of Peoples Bank of
Virginia. In connection with the proposed acquisition, Peoples Bank of Virginia
granted F&M a stock option representing approximately 19.9% of Peoples Bank of
Virginia outstanding shares. At December 31, 1997, Peoples Bank of Virginia had
301,376 common shares outstanding and 6,842 issuable upon outstanding stock
options (excluding the stock option granted to F&M).
Peoples Bank of Virginia is headquartered in Chesterfield, Virginia,
had assets of $80.4 million as of December 31, 1997 and operates four banking
offices in Chesterfield and the surrounding Richmond Metropolitan area.
Management believes there are additional opportunities to acquire
financial institutions or to acquire assets and deposits that will allow F&M to
enter new markets or increase market share in existing markets. Management
intends to pursue acquisition opportunities in strategic markets where its
managerial, operational and capital resources will enhance the performance of
acquired institutions and may, after the date of this Proxy
Statement/Prospectus, enter into agreements to acquire one or more financial
institutions. There can be no assurance that F&M will be able to successfully
effect any additional acquisition activity, or that any such acquisition
activity will have a positive effect on the value of shares of F&M Common Stock.
<PAGE>
For additional information about F&M's business, see "Available
Information" and "Incorporation of Certain Information by Reference."
COMPARATIVE RIGHTS OF SHAREHOLDERS
General
F&M and BOA are corporations subject to the provisions of the Virginia
Stock Corporation Act (the "Virginia SCA"). Shareholders of BOA whose rights are
governed by BOA's Articles of Incorporation and Bylaws and by the Virginia SCA,
will become shareholders of F&M upon consummation of the Merger. The rights of
such shareholders as shareholders of F&M will then be governed by the Articles
of Incorporation and Bylaws of F&M and by the Virginia SCA.
The following is a summary of the material differences in the rights of
shareholders of BOA and F&M. This summary is qualified in its entirety by
reference to the Articles of Incorporation and Bylaws of each corporation and to
the Virginia SCA.
Authorized Capital
F&M. F&M is authorized to issue (i) 30,000,000 shares of Common Stock,
par value $2.00 per share, of which 20,374,957 shares were issued and
outstanding as of December 31, 1997, and (ii) 5,000,000 shares of serial
Preferred Stock, without par value, of which no shares were issued and
outstanding as of December 31, 1997. F&M's Articles of Incorporation authorize
the F&M 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 F&M Common Stock would
be subject to the rights and preferences conferred to holders of such preferred
stock.
See "Description of F&M Capital Stock" for additional information.
BOA. BOA is authorized to issue 1,325,000 shares of BOA Common Stock,
par value $5.00 per share, of which 686,619 shares were issued and outstanding
as of December 31, 1997. BOA does not have an authorized class of preferred
stock.
Dividend Rights
F&M. The holders of F&M Common Stock are entitled to share ratably in
dividends when and as declared by the F&M Board of Directors out of funds
legally available therefor. One of the principal sources of income to F&M is
dividends from its subsidiary banks. For a description of certain restrictions
on the payment of dividends by banks, see "Market Prices and Dividends." F&M's
Articles of Incorporation permit the F&M Board to issue preferred stock with
terms set by the F&M Board, which terms may include the right to receive
dividends ahead of the holders of F&M Common Stock. No shares of preferred stock
are presently outstanding.
BOA. The holders of BOA Common Stock also are entitled to share ratably
in dividends when and as declared by the BOA Board of Directors out of funds
legally available therefor. For a description of certain restrictions on the
payment of dividends by banks, see "Market Prices and Dividends."
<PAGE>
Voting Rights
The holders of both F&M and BOA Common Stock have one vote for each
share held on any matter presented for consideration by the shareholders.
Neither the holders of F&M nor BOA Common Stock are entitled to cumulative
voting in the election of directors.
Directors and Classes of Directors
F&M. All of F&M's directors are elected each year. F&M's Articles of
Incorporation do not include a provision relating to the removal of directors.
Accordingly, the removal of F&M directors is governed by the Virginia SCA which
provides that shareholders may remove directors with or without cause if, in the
case of F&M, the number of votes cast to remove him constitutes a majority of
the outstanding shares of F&M Common Stock.
BOA. All of BOA's directors are elected each year. BOA's Articles of
Incorporation do not include a provision relating to the removal of directors.
Accordingly, the removal of BOA's directors is governed by the Virginia SCA
which provides that shareholders may remove directors with or without cause if
the number of votes cast to remove him constitutes a majority of the outstanding
shares of BOA Common Stock.
Anti-Takeover Provisions
Certain provisions of the Virginia SCA and the Articles of
Incorporation and Bylaws of F&M and may discourage an attempt to acquire control
of F&M that a majority of either corporation's shareholders determined was in
their best interests. These provisions also may render the removal of one or all
directors more difficult or deter or delay corporate changes of control that the
F&M Board did not approve.
Authorized Preferred Stock. The Articles of Incorporation of F&M
authorize the issuance of preferred stock. The F&M Board may, subject to
applicable law and the rules of the NYSE, authorize the issuance of preferred
stock at such times, for such purposes and for such consideration as it may deem
advisable without further shareholder approval. The issuance of preferred stock
under certain circumstances may have the effect of discouraging an attempt by a
third party to acquire control of F&M by, for example, authorizing the issuance
of a series of preferred stock with rights and preferences designed to impede
the proposed transaction.
Supermajority Voting Provisions. The Virginia SCA provides that, unless
a corporation's articles of incorporation provide for a higher or lower vote,
certain significant corporate actions must be approved by the affirmative vote
of the holders of more than two-thirds of the votes entitled to be cast on the
matter. Corporate actions requiring a two-thirds vote include amendments to a
corporation's articles of incorporation, adoption of plans of merger or
exchange, sales of all or substantially all of a corporation's assets other than
in the ordinary course of business and adoption of plans of dissolution
("Fundamental Actions"). The Virginia SCA provides that a corporation's articles
may either increase the vote required to approve Fundamental Actions or may
decrease the required vote to not less than a majority of the votes entitled to
be cast.
The Articles of Incorporation of F&M provide that a Fundamental Action
shall be approved by a vote of a majority of all votes entitled to be cast on
such transactions by each voting group entitled to vote on the transaction,
provided that the transaction has been approved and recommended by at least
two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of 80% or more of all votes entitled
to be cast on such transactions by each voting group entitled to vote on the
transaction.
<PAGE>
The provisions of the Articles of Incorporation of F&M and the Virginia
SCA could tend to make the acquisition of F&M more difficult to accomplish
without the cooperation or favorable recommendation of the F&M.
Shareholder Meetings. Shareholders of F&M may not request that a
special meeting of shareholders be called, while shareholders owning 40% or more
of the issued and outstanding shares of BOA may call a special meeting of
shareholders.
Virginia Anti-Takeover Statutes. Virginia has two anti-takeover
statutes in force, the Affiliated Transaction Statute and the Control Share
Acquisitions Statute.
Affiliated Transactions. The Virginia SCA contains provisions governing
"affiliated transactions" (including, among other various transactions, mergers,
share exchanges, sales, leases, or other dispositions of material assets,
issuances of securities, dissolutions, and similar transactions) with an
"interested shareholder" (generally the beneficial owner of more than 10% of any
class of the corporation's outstanding voting shares). During the three years
following the date a shareholder becomes an interested shareholder, any
affiliated transaction with the interested shareholder must be approved by both
a majority of the "disinterested directors" (those directors who were directors
before the interested shareholder became an interested shareholder or who were
recommended for election by a majority of disinterested directors) and by the
affirmative vote of the holders of two-thirds of the corporation's voting shares
other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated transaction with the interested shareholder if (i) the transaction is
approved by the holders of two-thirds of the corporation's voting shares, other
than shares beneficially owned by the interested shareholder, (ii) the
affiliated transaction has been approved by a majority of the disinterested
directors, or (iii) subject to certain additional requirements, in the
affiliated transaction the holders of each class or series of voting shares will
receive consideration meeting specified fair price and other requirements
designed to ensure that all shareholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia SCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the acquiring person
and officers and directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit the
acquisition of such shares prior to the acquiring person's acquisition thereof.
If authorized in the corporation's articles of incorporation or by-laws, the
statute also permits the corporation to redeem the acquired shares at the
average per share price paid for them if the voting rights are not approved or
if the acquiring person does not file a "control share acquisition statement"
with the corporation within sixty days of the last acquisition of such shares.
If voting rights are approved for control shares comprising more than fifty
percent of the corporation's outstanding stock, objecting shareholders may have
the right to have their shares repurchased by the corporation for "fair value".
<PAGE>
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that have
more than 300 shareholders. Corporations may provide in their articles of
incorporation or bylaws to opt-out of the Control Share Acquisition Statute, but
F&M has not done so.
Director and Officer Exculpation
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director,
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
The Articles of Incorporation of F&M provide that to the full extent
that the Virginia SCA permits the limitation or elimination of the liability of
directors or officers, a director or officer of F&M shall not be liable to F&M
or its shareholders for monetary damages in excess of one dollar ($1.00). There
is no similar provision in the Articles of Incorporation of BOA.
Indemnification
The Articles of Incorporation of F&M provide that to the full extent
permitted by the Virginia SCA and any other applicable law, F&M is required to
indemnify a director or officer of F&M who is or was a party to any proceeding
by reason of the fact that he is or was such a director or officer or is or was
serving at the request of the corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise. The board of directors is empowered,
by majority vote of a quorum of disinterested directors, to contract in advance
to indemnify any director or officer. The Articles of Incorporation of BOA do
not include a provision with respect to the indemnification of officers and
directors.
<PAGE>
DESCRIPTION OF F&M CAPITAL STOCK
F&M is authorized to issue (i) 30,000,000 shares of Common Stock, par
value $2.00 per share, and (ii) 5,000,000 shares of serial Preferred Stock,
without par value, which may be issued in series with such powers, designations,
and rights as may be established from time to time by the Board of Directors. On
December 31, 1997, F&M had issued and outstanding 20,374,957 shares of F&M
Common Stock held by 7,834 shareholders of record. All outstanding shares of F&M
Common Stock are fully paid and nonassessable. No shares of Preferred Stock have
been issued.
Common Stock
Holders of shares of F&M Common Stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
therefor. F&M's ability to pay dividends is dependent upon its earnings and
financial condition of F&M and certain legal requirements. Specifically, the
Federal Reserve has stated that bank holding companies should not pay dividends
except out of current earnings and unless the prospective rate of earnings
retention by the company appears consistent with its capital needs, asset
quality and overall financial condition. In addition, Virginia law precludes any
distribution to shareholders if, after giving it effect, (a) F&M would not be
able to pay its debts as they become due in the usual course of business; or (b)
F&M's total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if F&M were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Upon the liquidation, dissolution or winding up of F&M, whether
voluntary or involuntary, holders of F&M Common Stock are entitled to share
ratably, after satisfaction in full of all liabilities, in all remaining assets
of F&M available for distribution. The dividend and liquidation rights of F&M
Common Stock are subject to the rights of any Preferred Stock that may be issued
and outstanding.
Holders of F&M Common Stock are entitled to one vote per share on all
matters submitted to shareholders. There are no cumulative voting rights in the
election of directors or preemptive rights to purchase additional shares of any
class of F&M's capital stock. Holders of F&M Common Stock have no conversion or
redemption rights. The shares of F&M Common Stock presently outstanding are, and
those shares of F&M Common Stock to be issued in connection with the Merger will
be when issued, fully paid and nonassessable. F&M Common Stock is listed and
traded on the NYSE.
F&M maintains an Employee Stock Purchase Plan (the "ESP Plan")
providing that all F&M employees who have served F&M full time for over twelve
months may purchase shares of F&M Common Stock through payroll deduction. An
eligible employee who wishes to participate elects to contribute from 2% to 15%
of his or her actual adjusted base pay (actual base pay plus overtime and shift
premiums) by payroll deduction. In November, a participant may elect to bring
his or her total actual contribution up to 15% of his or her annual base pay.
Shares are sold by F&M to the ESP Plan fund on behalf of those participating
employees at 85% of the lesser of market value on January 1 or December 31 of
the year. The maximum number of shares is limited for any calendar year to
50,000 plus shares available to be offered but not purchased in prior years. A
total of 142,817 shares of F&M Common Stock have been issued under the ESP Plan
since its inception in 1993. The renewal of the ESP Plan will be presented to
shareholders for their consideration and approval at the 1998 annual meeting.
<PAGE>
Preferred Stock
The Board of Directors of F&M is empowered to authorize the issuance,
in one or more series, of shares of Preferred Stock at such times, for such
purposes and for such consideration as it may deem advisable without shareholder
approval. The Board of Directors is also authorized to fix the designations,
voting, conversion, preference and other relative rights, qualifications and
limitations of any such series of Preferred Stock.
The Board of Directors, without shareholder approval, may authorize the
issuance of one or more series of Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of F&M
Common Stock and, under certain circumstances, discourage an attempt by others
to gain control of F&M.
The creation and issuance of any series of Preferred Stock, and the
relative rights, designations and preferences of such series, if and when
established, will depend upon, among other things, the future capital needs of
F&M, then existing market conditions and other factors that, in the judgment of
the Board of Directors, might warrant the issuance of Preferred Stock.
EXPERTS
The consolidated financial statements of F&M incorporated in this Proxy
Statement/Prospectus by reference to F&M's Annual Report on Form 10-K for the
year ended December 31, 1997 have been so incorporated in reliance upon the
report of Yount, Hyde & Barbour, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in auditing and accounting.
The financial statements of BOA incorporated in this Proxy
Statement/Prospectus by reference to BOA's Annual Report on Form 10-KSB for the
year ended December 31, 1997 and included herein as Appendix IV have been so
incorporated in reliance upon the report of S.B. Hoover & Company, L.L.P.,
independent certified public accountants, incorporated by reference herein, and
upon the authority of such firm as experts in auditing and accounting.
LEGAL OPINIONS
The validity of the shares of F&M Common Stock offered hereby is being
passed upon for F&M by LeClair Ryan, A Professional Corporation, Richmond,
Virginia. LeClair Ryan will deliver an opinion to F&M and BOA concerning certain
federal income tax consequences of the Merger. See "The Merger - Certain Federal
Income Tax Consequences."
Certain matters relating to the Merger will be passed upon for BOA by
Williams, Mullen, Christian & Dobbins, P.C.
OTHER MATTERS
The Board of Directors does not intend to bring any matter before the
Special Meeting other than as specifically set forth in the Notice of Special
Meeting of Shareholders, nor does it know of any matter to be brought before the
Special Meeting by others. If, however, any other matters properly come before
the Special Meeting, it is the intention of each of the proxyholders to vote
such proxy in accordance with the decision of a majority of the BOA Board of
Directors.
<PAGE>
APPENDIX I
AGREEMENT AND PLAN OF REORGANIZATION
AND
PLAN OF MERGER
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
by and among
F&M NATIONAL CORPORATION
F&M BANK-NORTHERN VIRGINIA
and
THE BANK OF ALEXANDRIA
----------------------------
December 12, 1997
----------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
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<S> <C>
ARTICLE 1. THE MERGER AND RELATED MATTERS..................................................................1
1.1 The Merger......................................................................................1
1.2 Conversion of BOA Stock.........................................................................1
1.3 Exchange Procedures.............................................................................2
1.4 Board of Directors of the Continuing Bank.......................................................2
1.5 BOA Stock Options...............................................................................3
1.6 Closing; The Effective Date.....................................................................3
1.7 Definitions.....................................................................................3
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF BOA...........................................................4
2.1 Organization, Standing and Power of BOA.........................................................4
2.2 Organization, Standing and Power of the BOA Subsidiaries........................................4
2.3 Authorized and Effective Agreements.............................................................5
2.4 Capital Structure...............................................................................5
2.5 Rights..........................................................................................6
2.6 Financial Statements; Books and Records; Minute Books...........................................6
2.7 Absence of Material Changes and Events..........................................................6
2.8 Absence of Undisclosed Liabilities..............................................................7
2.9 Legal Proceedings; Compliance with Laws.........................................................7
2.10 Tax Matters.....................................................................................7
2.11 Property........................................................................................7
2.12 Employee Benefit Plans..........................................................................8
2.13 Insurance.......................................................................................9
2.14 Loans; Allowance for Loan Losses................................................................9
2.15 Environmental Matters..........................................................................10
2.16 Takeover Laws..................................................................................11
2.17 Brokers........................................................................................12
2.18 Securities Reports.............................................................................12
2.19 Statements True and Correct....................................................................12
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF F&M..........................................................12
3.1 Organization, Standing and Power...............................................................12
3.2 Organization, Standing and Power of F&M Subsidiaries...........................................13
3.3 Authorized and Effective Agreement.............................................................13
3.4 Capital Structure..............................................................................14
3.5 Financial Statements; Books and Records; Minute Books..........................................14
3.6 Absence of Material Changes or Events..........................................................14
3.7 Absence of Undisclosed Liabilities.............................................................15
3.8 Legal Proceedings; Compliance with Laws........................................................15
3.9 Tax Matters....................................................................................15
3.10 Employee Benefit Plans.........................................................................15
3.11 Insurance......................................................................................16
3.12 Allowance for Loan Losses......................................................................16
3.13 Environmental Matters..........................................................................16
3.14 Securities Reports.............................................................................16
3.15 Statements True and Correct....................................................................17
ARTICLE 4. COVENANTS AND AGREEMENTS.......................................................................17
4.1 Reasonable Best Efforts........................................................................17
4.2 Access to Information; Notice of Certain Matters, Confidentiality..............................17
4.3 Registration Statement; Shareholder Approval...................................................18
4.4 Operation of the Business of BOA...............................................................18
4.5 Operation of the Business of F&M...............................................................20
4.6 No Dividends...................................................................................20
4.7 No Solicitation of Other Offers................................................................20
4.8 Regulatory Filings.............................................................................21
4.9 Public Announcements...........................................................................21
4.10 Accounting Treatment...........................................................................21
4.11 Affiliate Agreements...........................................................................21
4.12 Benefit Plans; Employment Agreement............................................................21
4.13 NYSE Listing...................................................................................21
4.14 Indemnification................................................................................22
4.15 Stock Option Agreement.........................................................................22
ARTICLE 5. CONDITIONS TO THE MERGER.......................................................................22
5.1 General Conditions.............................................................................22
5.2 Conditions to Obligations of F&M...............................................................23
5.3 Conditions to Obligations of BOA...............................................................24
ARTICLE 6. TERMINATION....................................................................................25
6.1 Termination....................................................................................25
6.2 Effect of Termination..........................................................................26
6.3 Survival of Representations, Warranties and Covenants..........................................26
6.4 Fees and Expenses..............................................................................26
ARTICLE 7. GENERAL PROVISIONS.............................................................................27
7.1 Entire Agreement...............................................................................27
7.2 Binding Effect; No Third-Party Rights..........................................................27
7.3 Waiver and Amendment...........................................................................27
7.4 Governing Law..................................................................................27
7.5 Notices........................................................................................28
7.6 Counterparts...................................................................................28
7.7 Severability...................................................................................29
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of December 12, 1997, by and among F&M NATIONAL CORPORATION, a
Virginia corporation ("F&M"), F&M BANK-NORTHERN VIRGINIA, a wholly-owned
Virginia banking subsidiary of F&M ("F&M Bank-Northern Virginia"), and THE BANK
OF ALEXANDRIA, a Virginia banking corporation ("BOA").
WITNESSETH:
WHEREAS, the respective Boards of Directors of F&M and BOA have
approved the affiliation of their companies through the merger of BOA with and
into F&M Bank-Northern Virginia pursuant to and subject to the terms and
conditions of this Agreement and the Plan of Merger in the form attached hereto
as Exhibit A (the "Plan of Merger"); and
WHEREAS, the parties desire to provide for certain conditions,
representations, warranties and agreements in connection with the transactions
contemplated hereby.
NOW, THEREFORE, in consideration of the mutual covenants,
representations, warranties and agreements set forth herein, and intending to be
legally bound hereby, the parties agree as follows:
ARTICLE 1
THE MERGER AND RELATED MATTERS
1.1 The Merger
Subject to the terms and conditions of this Agreement, at the Effective
Date as defined in Section 1.6 hereof, BOA shall be merged with and into F&M
Bank-Northern Virginia pursuant to the Plan of Merger attached hereto as Exhibit
A and made a part hereof (the "Merger"). The separate corporate existence of BOA
shall thereupon cease, and F&M Bank-Northern Virginia will be the surviving
corporation in the Merger and its name shall remain F&M Bank-Northern Virginia
(F&M Bank-Northern Virginia as existing on and after the Effective Date is
sometimes referred to as the "Continuing Bank"). From and after the Effective
Date, the Merger shall have the effect set forth in Section 13.1-721 of the
Virginia Stock Corporation Act (the "VSCA").
<PAGE>
1.2 Conversion of BOA Stock
(a) At the Effective Date, by virtue of the Merger and without any
action on the part of the holders thereof, each share of common stock, par value
$5.00 per share, of BOA ("BOA Common Stock") issued and outstanding immediately
prior to the Effective Date shall cease to be outstanding and shall be converted
into and exchanged for 0.942 shares of common stock, par value $2.00 per share,
of F&M ("F&M Common Stock") pursuant to the terms and conditions set forth in
this Agreement and the Plan of Merger (the "Exchange Ratio").
(b) F&M will issue cash in lieu of fractional shares to the holders of
BOA Common Stock on the basis of the Average Closing Price of F&M Common Stock.
As used herein, "Average Closing Price" shall mean the average closing price of
F&M Common Stock as reported on the New York Stock Exchange for each of the ten
consecutive trading days ending on the fifth business day prior to the Effective
Date.
(c) In the event F&M changes (or establishes a record date for
changing) the number of shares of F&M Common Stock issued and outstanding prior
to the Effective Date as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding F&M
Common Stock and the record date therefor shall be prior to the Effective Date,
appropriate and proportional adjustments will be made to the Exchange Ratio.
1.3 Exchange Procedures
As promptly as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent ("Exchange
Agent"), to send to each former holder of record of BOA Common Stock immediately
prior to the Effective Date transmittal materials for use in exchanging such
shareholder's certificates of BOA Common Stock for the consideration set forth
in Section 2.1 above. Any dividends paid on any shares of F&M Common Stock that
such shareholder shall be entitled to receive prior to the delivery to the
Exchange Agent of such shareholder's certificates representing all of such
shareholder's shares of BOA Common Stock, will be delivered to such shareholder
only upon delivery to the Exchange Agent of the certificates representing all of
such shares (or indemnity satisfactory to F&M and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such dividends to which the holder of such shares
shall be entitled to receive upon such delivery.
1.4 Board of Directors of the Continuing Bank
At the Effective Date, the Board of Directors of the Continuing Bank
shall consist of all the current directors of F&M Bank-Northern Virginia and at
least six of the current directors of BOA designated by BOA and approved by F&M.
<PAGE>
1.5 BOA Stock Options
From and after the Effective Date, all employee stock options to
purchase shares of BOA Common Stock (each, a "BOA Stock Option"), that are then
outstanding and unexercised, shall be converted into and become options to
purchase shares of F&M Common Stock, and F&M shall assume each such BOA Stock
Option in accordance with the terms of the plan and agreement by which it is
evidenced; provided, however, that from and after the Effective Date (i) each
such BOA Stock Option assumed by F&M may be exercised solely to purchase shares
of F&M Common Stock, (ii) the number of shares of F&M Common Stock purchasable
upon exercise of such BOA Stock Option shall be equal to the number of shares of
BOA Common Stock that were purchasable under such BOA Stock Option immediately
prior to the Effective Date multiplied by the Exchange Ratio and rounding down
to the nearest whole share, with cash being paid for any fractional share
interest that otherwise would be purchasable, and (iii) the per share exercise
price under each such BOA Stock Option shall be adjusted by dividing the per
share exercise price of each such BOA Stock Option by the Exchange Ratio, and
rounding down to the nearest cent. The terms of each BOA Stock Option shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, recapitalization or other similar
transaction with respect to F&M Common Stock on or subsequent to the Effective
Date.
1.6 Closing; The Effective Date
The Merger shall become effective on the date and at the time shown on
the Certificate of Merger issued by the Virginia State Corporation Commission
effecting the Merger (the "Effective Date"). Subject to the satisfaction or
waiver of the conditions set forth in Article V, the parties shall use their
reasonable best efforts to cause the Effective Date to occur on the first day of
the month following the month in which the conditions set forth in Article V
have been satisfied or waived in accordance with the terms of this Agreement or
on such other date as the parties may agree in writing. All documents required
by this Agreement to be delivered at or prior to the Effective Date will
exchanged by the parties at the closing of the Merger (the "Merger Closing"),
which shall be held on or before the Effective Date. At or after the Merger
Closing, F&M, F&M Bank-Northern Virginia and BOA shall execute and deliver to
the Virginia State Corporation Commission Articles of Merger containing the Plan
of Merger.
1.7 Definitions
Any term defined in this Agreement and the Plan of Merger shall have
the meaning ascribed to it for purposes of this Agreement. In addition:
(a) The term "Knowledge" means the knowledge, after due inquiry, of any
"Executive Officer" of such party, as such term is defined in Regulation O (12
C.F.R. 215).
(b) The term "Material Adverse Effect" means, with respect to a party,
any effect that (i) has or is reasonably likely to have a material and adverse
effect upon the financial position, results of operations or business of the
party and its subsidiaries, taken as a whole, or (ii) would materially impair
the party's ability to perform its obligations under this Agreement or otherwise
materially threaten or materially impede the consummation of the Merger;
provided that Material Adverse Effect shall not be deemed to include the impact
of (a) changes in banking and similar laws of general applicability or
interpretations thereof by courts or governmental authorities, or (b) changes in
generally accepted accounting principles or regulatory requirements applicable
to financial institutions.
(c) The term "Previously Disclosed" shall mean information set forth in
a schedule (a "Disclosure Schedule", which shall be arranged in sections
corresponding to the sections of this Agreement) from one party to the other
party delivered and dated not later than 5:00 p.m. on December 18, 1997, setting
forth, among other things, items the disclosure of which is necessary or
appropriate in relation to any or all of such party's representations and
warranties. Any matter included, whether aggregated or not, in the BOA Financial
Statements or the F&M Financial Statements, as the case may be, shall be deemed
to be Previously Disclosed.
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF BOA
BOA represents and warrants to F&M as follows:
2.1 Organization, Standing and Power of BOA
BOA is a Virginia chartered banking corporation duly organized, validly
existing and in good standing under the laws of Virginia. BOA has the corporate
power and authority to carry on its business in Virginia as now conducted and to
own and operate its assets, properties and business; and BOA has the corporate
power and authority to execute, deliver and perform its obligations under this
Agreement and the Stock Option Agreement of even date herewith by and between
BOA and F&M, a copy of which is attached hereto as Exhibit B (the "Option
Agreement"), and to consummate the transactions contemplated hereby and thereby.
2.2 Organization, Standing and Power of the BOA Subsidiaries
Each subsidiary of BOA is identified on its Disclosure Schedule (the
"BOA Subsidiaries" and, collectively with BOA, the "BOA Companies") is a duly
organized corporation, validly existing and in good standing under applicable
laws. Each BOA Subsidiary (i) has full corporate power and authority to carry on
its business as now conducted and (ii) is duly qualified to do business in the
states where its ownership or leasing of property or the conduct of its business
requires such qualification and where the failure to so qualify would have a
material adverse effect on BOA on a consolidated basis. The outstanding shares
of capital stock of each of the BOA Subsidiaries are validly issued and
outstanding, fully paid and nonassessable and all such shares are directly or
indirectly owned by BOA free and clear of all liens, claims and encumbrances or
preemptive rights of any person.
<PAGE>
2.3 Authorized and Effective Agreements
(a) Subject to receipt of the approval of the shareholders of BOA of
this Agreement and the Plan of Merger, this Agreement, the Plan of Merger and
the Option Agreement and the transactions contemplated hereby and thereby have
been authorized by all necessary corporate action on the part of BOA on or prior
to the date hereof. This Agreement, the Plan of Merger and the Option Agreement
are valid and legally binding obligations of BOA, enforceable against BOA in
accordance with their respective terms (except as enforceability may be limited
by applicable bankruptcy, insolvency, fraudulent transfer, reorganization,
moratorium and similar laws affecting the enforcement of rights of creditors or
by general principles of equity).
(b) Neither the execution and delivery of this Agreement, the Plan of
Merger and the Option Agreement, nor the consummation of the transactions
contemplated herein or therein, nor compliance by BOA with any of the provisions
hereof or thereof will: (i) conflict with or result in a breach of any provision
of the Articles of Incorporation or Bylaws of BOA; (ii) except as Previously
Disclosed in its Disclosure Schedule, constitute or result in the breach of any
term, condition or provision of, or constitute a default under, or give rise to
any right of termination, cancellation or acceleration with respect to, or
result in the creation of any lien, charge or encumbrance upon, any property or
asset of BOA pursuant to any (A) note, bond, mortgage, indenture, or (B) any
material license, agreement or other instrument or obligation, to which BOA is a
party or by which it or any of its properties or assets may be bound or (iii)
subject to the receipt of all required regulatory and shareholder approvals,
violate any order, writ, injunction, decree, statute, rule or regulation
applicable to BOA.
2.4 Capital Structure
The authorized capital stock of BOA consists of 1,325,000 shares of
common stock, par value $5.00 per share, of which 686,461 shares are issued and
outstanding as of this date. All outstanding shares of BOA Common Stock have
been duly authorized and validly issued, are fully paid and nonassessable and
have not been issued in violation of the preemptive rights of any person. As of
the date hereof, there are options held by employees of BOA that represent
rights to purchase a total of 66,476 shares of BOA Common Stock.
2.5 Rights
As of the date of this Agreement, there are not any shares of capital
stock of BOA reserved for issuance, or any outstanding or authorized options,
warrants, rights, agreements, convertible or exchangeable securities, or other
commitments, contingent or otherwise, relating to its capital stock pursuant to
which BOA is or may become obligated to issue shares of capital stock or any
securities convertible into, exchangeable for, or evidencing the right to
subscribe for, any shares of its capital stock (collectively, "Rights"), except
as contemplated by the Option Agreement and as Previously Disclosed in its
Disclosure Schedule (which shall include copies of the stock option plans and
individual stock option agreements pursuant to which employees of BOA may
exercise stock options).
<PAGE>
2.6 Financial Statements; Books and Records; Minute Books
The BOA Financial Statements (as defined below) fairly present or will
fairly present, as the case may be, the consolidated financial position of BOA
as of the dates indicated and the consolidated results of operations, changes in
shareholders' equity and statements of cash flows for the periods or as of the
dates set forth therein (subject, in the case of unaudited interim statements,
to normal recurring audit adjustments that are not material in amount or effect)
in conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis. The books and records of
the BOA Companies fairly reflect in all material respects the transactions to
which they are a party or by which their properties are subject or bound. Such
books and records have been properly kept and maintained and are in compliance
in all material respects with all applicable legal and accounting requirements.
The minute books of the BOA Companies contain accurate records of all corporate
actions of their respective shareholders and Boards of Directors (including
committees of its Board of Directors). The BOA Financial Statements shall mean
(i) the consolidated statements of financial condition of BOA as of December 31,
1996 and 1995 and the related consolidated statements of income, stockholders'
equity and cash flows for each of the three years ended December 31, 1996
(including related notes and schedules, if any) and (ii) the consolidated
balance sheets of BOA and related consolidated statements of income and
shareholders' equity (including related notes and schedules, if any) with
respect to quarterly periods ended subsequent to December 31, 1996.
2.7 Absence of Material Changes and Events
Since September 30, 1997 and except as Previously Disclosed in its
Disclosure Schedule, there has not been any change in the financial condition or
results of operations of BOA or the BOA Subsidiaries which, individually or in
the aggregate, has had or is reasonably likely to have a Material Adverse
Effect.
2.8 Absence of Undisclosed Liabilities
BOA has not incurred any liability (contingent or otherwise) that is
material to BOA on a consolidated basis or that, when combined with all similar
liabilities, would be material to BOA on a consolidated basis, except as
Previously Disclosed in its Disclosure Schedule or as disclosed in the BOA
Financial Statements and except for liabilities incurred in the ordinary course
of business consistent with past practice since the date of the most recent BOA
Financial Statements.
2.9 Legal Proceedings; Compliance with Laws
Except as Previously Disclosed in its Disclosure Schedule, there are no
actions, suits or proceedings instituted or pending or, to the Knowledge of BOA,
threatened against any of the BOA Companies or against any property, asset,
interest or right of the BOA Companies, or against any officer, director or
employee of the BOA Companies that would, if determined adversely to BOA or any
BOA Subsidiary, have a Material Adverse Effect on BOA on a consolidated basis.
To the Knowledge of BOA, the BOA Companies have complied in all material
respects with all laws, ordinances, requirements, regulations or orders
applicable to its business (including environmental laws, ordinances,
requirements, regulations or orders).
<PAGE>
2.10 Tax Matters
The BOA Companies have filed all federal, state and local tax returns
and reports ("Tax Returns") required to be filed, and all such Tax Returns were
correct and complete in all material respects. All Taxes (as defined below) owed
by the BOA Companies have been paid, are reflected as a liability in the BOA
Financial Statements, or are being contested in good faith and have been
Previously Disclosed in its Disclosure Schedule. Except as Previously Disclosed,
no tax return or report of the BOA Companies is under examination by any taxing
authority or the subject of any administrative or judicial proceeding, and no
unpaid tax deficiency has been asserted against the BOA Companies by any taxing
authority. As used herein, "Taxes" mean all taxes, charges, fees, levies or
other assessments, including, without limitation, all income, gross receipts,
sales, use, ad valorem, goods and services, capital, transfer, franchise,
profits, license, withholding, payroll, employment, employer health, excise,
estimated, severance, stamp, occupation, property or other taxes, custom duties,
fees, assessments or chargers of any kind whatsoever, together with any interest
and any penalties, additions to tax or additional amounts imposed by any taxing
authority.
2.11 Property
Except as Previously Disclosed in its Disclosure Schedule or reserved
against in the BOA Financial Statements, the BOA Companies have good and
marketable title free and clear of all material liens, encumbrances, charges,
defaults or equitable interests to all of the properties and assets, real and
personal, reflected in the balance sheet included in the BOA Financial
Statements as of December 31, 1996 or acquired after such date. To the Knowledge
of BOA, all buildings, and all fixtures, equipment, and other property and
assets that are material to its business, held under leases or subleases, are
held under valid instruments enforceable in accordance with their respective
terms, subject to bankruptcy, insolvency, reorganization, moratorium and similar
laws. To the Knowledge of BOA, the buildings, structures, and appurtenances
owned, leased, or occupied by the BOA Companies are in good operating condition
and in a state of good maintenance and repair and comply with applicable zoning
and other municipal laws and regulations, and there are no latent defects
therein.
2.12 Employee Benefit Plans.
(a) BOA has Previously Disclosed in its Disclosure Schedule all
employee benefit plans and programs, including without limitation: (i) all
retirement, savings and other pension plans; (ii) all health, severance,
insurance, disability and other employee welfare plans; and (iii) all
employment, vacation and other similar plans, all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other employee benefit plans, programs or arrangements, and all employment
or compensation arrangements, in each case for the benefit of or relating to
current and former employees of BOA (collectively, the "BOA Benefit Plans").
<PAGE>
(b) None of the BOA Benefit Plans is a "multi-employer plan" as defined
in section 3(37) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA").
(c) Except as Previously Disclosed in its Disclosure Schedule, all BOA
Benefit Plans are in compliance in all material respects with applicable laws
and regulations, and BOA has administered the BOA Benefit Plans in accordance
with applicable laws and regulations in all material respects.
(d) Each BOA Benefit Plan that is intended to be qualified under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code") has
been determined by the Internal Revenue Service to be so qualified, as reflected
in a current favorable determination letter.
(e) BOA has made available to F&M copies of all BOA Benefit Plans and,
where applicable, summary plan descriptions, and annual reports required to be
filed within the last three years pursuant to ERISA or the Code with respect to
the BOA Benefit Plans.
(f) To the knowledge of BOA, BOA has not engaged in any prohibited
transactions, as defined in Code section 4975 or ERISA section 406, with respect
to any BOA Employee Benefit Plan that is a pension plan as defined in Section
3(2) of ERISA.
(g) There are no actions, suits, investigations or claims pending,
threatened or anticipated (other than routine claims for benefits) with respect
to any BOA Benefit Plans.
(h) No compensation or benefit that is or will be payable in connection
with the transactions contemplated by this Agreement will be characterized as an
"excess parachute payment" within the meaning of Code section 280G. Except as
Previously Disclosed in its Disclosure Schedule, no BOA Benefit Plan contains
any provision which would give rise to any severance, termination or other
payments or liabilities as a result of the transactions contemplated by this
Agreement.
(i) BOA has not established and does not maintain a welfare plan, as
defined in ERISA section 3(1), that provides benefits to an employee at the
expense of BOA after a termination of employment, except as required by the
Consolidated Omnibus Budget Reconciliation Act of 1985.
<PAGE>
2.13 Insurance
Each of the BOA Companies currently maintains insurance in amounts
reasonably necessary for its operations and, to the Knowledge of BOA, similar in
scope and coverage to that maintained by other entities similarly situated.
Since January 1, 1997 and except as Previously Disclosed, none of the BOA
Companies has received any notice of a premium increase or cancellation or a
failure to renew with respect to any insurance policy or bond and, within the
last three fiscal years, none of the BOA Companies has been refused any
insurance coverage sought or applied for, and BOA has no reason to believe that
existing insurance coverage cannot be renewed as and when the same shall expire
upon terms and conditions as favorable as those presently in effect, other than
possible increases in premiums or unavailability of coverage that do not result
from any extraordinary loss experience on the part of the BOA Companies.
2.14 Loans; Allowance for Loan Losses
(a) Except as Previously Disclosed in its Disclosure Schedule, to the
Knowledge of BOA each loan reflected as an asset in the BOA Financial Statements
(i) is evidenced by notes, agreements or evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected, (iii)
is the legal, valid and binding obligation of the obligor and any guarantor,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles, and no defense,
offset or counterclaim has been asserted with respect to any such loan which if
successful could have a Material Adverse Effect, and (iv) in all material
respects was made in accordance with BOA's standard loan policies.
(b) BOA has Previously Disclosed in its Disclosure Schedule the
aggregate amounts as of a recent date of all loans, losses, advances, credit
enhancements, other extensions of credit, commitments and interest-bearing
assets of the BOA Companies that have been classified by any bank examiner
(whether regulatory or internal) as "Other Loans Specially Mentioned," "Special
Mention," "Substandard," "Doubtful," "Loss," "Classified" or words of similar
import, and BOA shall promptly on a periodic basis inform F&M of any such
classification arrived at any time after the date hereof.
(c) The real property classified as other real estate owned ("OREO")
included in non-performing assets is carried net of reserve at the lower of cost
or market value based on independent appraisals.
(d) The allowance for loan losses reflected on the statements of
financial condition included in the BOA Financial Statements, as of their
respective dates, is adequate in all material respects under the requirements of
generally accepted accounting principles and regulatory accounting principles to
provide for reasonably anticipated losses on outstanding loans.
<PAGE>
2.15 Environmental Matters
(a) Except as Previously Disclosed in its Disclosure Schedule, the BOA
Companies are in substantial compliance with all Environmental Laws (as defined
below). BOA has not received any communication alleging that BOA is not in such
compliance and there are no present circumstances that would prevent or
interfere with the continuation of such compliance.
(b) BOA has not received notice of pending, and are not aware of any
threatened, legal, administrative, arbitral or other proceedings, asserting
Environmental Claims (as defined below) or other claims, causes of action or
governmental investigations of any nature, seeking to impose, or that could
result in the imposition of, any material liability arising under any
Environmental Laws upon (i) BOA, (ii) any person or entity whose liability for
any Environmental Claim BOA has or may have retained either contractually or by
operation of law, (iii) any real or personal property owned or leased by BOA, or
any real or personal property which BOA has been, or is, judged to have managed
or to have supervised or to have participated in the management of, or (iv) any
real or personal property in which BOA holds a security interest securing a loan
recorded on the books of BOA. BOA is not subject to any agreement, order,
judgment, decree or memorandum by or with any court, governmental authority,
regulatory agency or third party imposing any such liability.
(c) With respect to all real and personal property owned or leased by
BOA, or all real and personal property which BOA has been, or is, judged to have
managed or to have supervised or to have participated in the management of, BOA
will promptly provide F&M with access to copies of any environmental audits,
analyses and surveys that have been prepared relating to such properties (a list
of which will be Previously Disclosed in its Disclosure Schedule). The BOA
Companies are in compliance in all material respects with all recommendations
contained in any such environmental audits, analyses and surveys.
(d) There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim or other claim or action or governmental investigation that
could result in the imposition of any liability arising under any Environmental
Laws against BOA or against any person or entity whose liability for any
Environmental Claim BOA has or may have retained or assumed either contractually
or by operation of law.
(e) For purposes of this Agreement, the following terms shall have the
following meanings:
(1) "Environmental Claim" means any written notice from any
governmental authority or third party alleging potential liability
(including, without limitation, potential liability for investigatory
costs, clean-up, governmental response costs, natural resources
damages, property damages, personal injuries or penalties) arising out
of, based upon, or resulting from the presence, or release into the
environment, of any Materials of Environmental Concern.
<PAGE>
(2) "Environmental Laws" means all applicable federal, state
and local laws and regulations, including the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended, that relate to pollution or protection of human health or the
environment.
(3) "Materials of Environmental Concern" means pollutants,
contaminants, wastes, toxic substances, petroleum and petroleum
products and any other materials regulated under Environmental Laws.
2.16 Takeover Laws
BOA has taken all action necessary to exempt this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby from the
requirements of any "control share," "fair price," "affiliate transaction" or
other anti-takeover laws and regulations of any state, including without
limitation Sections 13.1-725 through 13.1-728 of the VSCA (because a majority of
BOA's disinterested directors approved such transactions for such purposes prior
to any "determination date" with respect to F&M) and Sections 13.1-728.1 through
13.1-728.9 of the VSCA.
2.17 Brokers
Other than the financial advisory services performed for BOA by Scott &
Stringfellow, Inc. (on terms disclosed to F&M), neither BOA nor any of its
subsidiaries, nor any of their respective officers, directors or employees has
employed any broker, finder or financial advisor or incurred any liability for
any fees or commissions in connection with transactions contemplated by this
Agreement.
2.18 Securities Reports
BOA has filed with the Federal Deposit Insurance Corporation (the
"FDIC") all required forms, reports and documents required under the Exchange
Act. BOA's Annual Report on Form 10-K for the year ended December 31, 1996, and
all other reports, definitive proxy statements or documents filed or to be filed
by it subsequent to December 31, 1996 under Section 13(a), 13(c), 14 or 15(d) of
the Exchange Act, in the form filed, or to be filed, with the FDIC (i) complied
or will comply in all material respects as to form with the applicable
requirements under the Exchange Act and (ii) 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.
<PAGE>
2.19 Statements True and Correct
When the Registration Statement on Form S-4 (the "Registration
Statement") to be filed by F&M with the SEC shall become effective, and at all
times subsequent thereto up to and including the BOA shareholders' meeting
called to vote upon the Merger, such Registration Statement and all amendments
or supplements thereto, with respect to all information set forth therein
furnished by BOA relating to BOA, (i) shall comply in all material respects with
the applicable provisions of the federal and state securities laws, and (ii)
shall 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, in light of the circumstances under which they are made, not
misleading.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF F&M
F&M represents and warrants to BOA as follows:
3.1 Organization, Standing and Power
F&M is a corporation duly organized, validly existing and in good
standing under the laws of the Commonwealth of Virginia. F&M has the corporate
power and authority to carry on its business as now conducted and to own and
operate its assets, properties and business; and each of F&M and F&M
Bank-Northern Virginia has the corporate power and authority to execute, deliver
and perform their respective obligations under this Agreement and to consummate
the transactions contemplated hereby. F&M is duly registered as a bank holding
company under the Bank Holding Company Act of 1956.
3.2 Organization, Standing and Power of F&M Subsidiaries
Each subsidiary of F&M (the "F&M Subsidiaries" and, collectively with
F&M, the "F&M Companies") is a duly organized corporation, validly existing and
in good standing in their respective states of incorporation. Each F&M
Subsidiary (i) has full corporate power and authority to carry on its business
as now conducted and (ii) is duly qualified to do business in the states where
its ownership or leasing of property or the conduct of its business requires
such qualification and where the failure to so qualify would have a material
adverse effect on F&M on a consolidated basis. The outstanding shares of capital
stock of each of the F&M Subsidiaries are validly issued and outstanding, fully
paid and nonassessable and all such shares are directly or indirectly owned by
F&M free and clear of all liens, claims and encumbrances or preemptive rights of
any person.
3.3 Authorized and Effective Agreement
<PAGE>
(a) This Agreement and the Plan of Merger and the transactions
contemplated hereby and thereby have been authorized by all necessary corporate
action on the part of F&M and F&M Bank-Northern Virginia. This Agreement and the
Plan of Merger are valid and legally binding obligations of F&M and F&M
Bank-Northern Virginia, enforceable against each of them in accordance with
their respective terms (except as enforceability may be limited by applicable
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws affecting the enforcement of rights of creditors or by general
principles of equity).
(b) Neither the execution and delivery of this Agreement, the
consummation of the transactions contemplated herein, nor compliance by F&M with
any of the provisions hereof will: (i) conflict with or result in a breach of
any provision of the Articles of Incorporation or Bylaws of F&M or any F&M
Subsidiary; (ii) constitute or result in the breach of any term, condition or
provision of, or constitute a default under, or give rise to any right of
termination, cancellation or acceleration with respect to, or result in the
creation of any lien, charge or encumbrance upon, any property or asset of F&M
or any F&M Subsidiary pursuant to any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation that would have a Material Adverse
Effect on F&M, or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to F&M or any F&M Subsidiary.
3.4 Capital Structure
The authorized capital stock of F&M consists of: (i) 5,000,000 shares
of preferred stock, no par value per share, of which none are issued and
outstanding; and (ii) 30,000,000 shares of common stock, par value $2.00 per
share, of which 20,317,960 shares were issued and outstanding on November 1,
1997. All outstanding shares of F&M Common Stock have been duly issued and are
validly outstanding, fully paid and nonassessable and have not been issued in
violation of the preemptive rights of any person. The shares of F&M Common Stock
to be issued in exchange for shares of BOA Common Stock upon consummation of the
Merger will have been duly authorized and, when issued in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable,
will not be issued in violation of the preemptive rights of any person, and will
be duly registered under the applicable federal and state securities laws.
3.5 Financial Statements; Books and Records; Minute Books
The F&M Financial Statements (as defined below) fairly present or will
fairly present, as the case may be, the consolidated financial position of F&M
as of the dates indicated and the consolidated results of operations, changes in
shareholders' equity and statements of cash flows for the periods or as of the
dates set forth therein (subject, in the case of unaudited interim statements,
to normal recurring audit adjustments that are not material in amount or effect)
in conformity with generally accepted accounting principles applicable to
financial institutions applied on a consistent basis. The books and records of
the F&M Companies fairly reflect in all material respects the transactions to
which each company is a party or by which its properties are subject or bound.
Such books and records have been properly kept and maintained and are in
compliance in all material respects with all applicable legal and accounting
requirements. The minute books of the F&M Companies contain accurate records of
all corporate actions of their respective shareholders and Boards of Directors
(including committees of its Board of Directors). The F&M Financial Statements
shall mean (i) the consolidated balance sheets of F&M as of December 31, 1996
and 1995 and the related consolidated statements of income, shareholders' equity
and cash flows for each of the three years ended December 31, 1996, 1995 and
1994 (including related notes and schedules, if any) and (ii) the consolidated
balance sheets of F&M and related consolidated statements of income,
shareholders' equity and cash flows (including related notes and schedules, if
any) with respect to quarterly periods ended subsequent to December 31, 1996.
<PAGE>
3.6 Absence of Material Changes or Events
Since September 30, 1997, there has not been any change in the
financial condition or results of operations of F&M or the F&M Subsidiaries
which, individually or in the aggregate, has had or is reasonably likely to have
a Material Adverse Effect.
3.7 Absence of Undisclosed Liabilities
Neither F&M nor any F&M Subsidiary has any liability (contingent or
otherwise) that is material to F&M on a consolidated basis or that, when
combined with all similar liabilities, would be material to F&M on a
consolidated basis, except as disclosed in the F&M Financial Statements and
except for liabilities incurred in the ordinary course of business consistent
with past practice since the date of the most recent F&M Financial Statements.
3.8 Legal Proceedings; Compliance with Laws
There are no actions, suits or proceedings instituted or pending or, to
the Knowledge of F&M, threatened against any of the F&M Companies or against any
property, asset, interest or right of any of the F&M Companies or against any
officer, director or employee of any of the F&M Companies that would, if
determined adversely to F&M or any F&M Subsidiary, have a Material Adverse
Effect on F&M on a consolidated basis. To the Knowledge of F&M, the F&M
Companies have complied in all material respects with all laws, ordinances,
requirements, regulations or orders applicable to their respective businesses
(including environmental laws, ordinances, requirements, regulations or orders).
3.9 Tax Matters
The F&M Companies have filed all Tax Returns required to be filed, and
all such Tax Returns were correct and complete in all material respects. All
Taxes owed by the F&M Companies have been paid, are reflected as a liability in
the F&M Financial Statements, or are being contested in good faith and have been
Previously Disclosed in its Disclosure Schedule. Except as Previously Disclosed,
no tax return or report of the F&M Companies is under examination by any taxing
authority or the subject of any administrative or judicial proceeding, and no
unpaid tax deficiency has been asserted against the F&M Companies by any taxing
authority.
<PAGE>
3.10 Employee Benefit Plans
(a) All F&M employee benefit plans are in compliance with the
applicable terms of ERISA and the Code and any other applicable laws, rules and
regulations, the breach or violation of which could result in a material
liability to F&M on a consolidated basis.
(b) No F&M employee benefit plan subject to ERISA that is a defined
benefit pension plan has any "unfunded current liability," as that term is
defined in Section 302(d)(8)(A) of ERISA, and the present fair market value of
the assets of any such plan exceeds the plan's `benefit liabilities,' as that
term is defined in Section 4001(a)(16) of ERISA, when determined under actuarial
factors that would apply if the plan was terminated in accordance with all
applicable legal requirements.
3.11 Insurance
Each of the F&M Companies currently maintains insurance in amounts
reasonably necessary for its operations and, to the Knowledge of F&M, similar in
scope and coverage to that maintained by other entities similarly situated.
Since January 1, 1997, none of the F&M Companies has received any notice of a
premium increase, other than in the ordinary course, or cancellation or a
failure to renew with respect to any insurance policy or bond and, within the
last three fiscal years, none of the F&M Companies has been refused any
insurance coverage sought or applied for, and F&M has no reason to believe that
existing insurance coverage cannot be renewed as and when the same shall expire
upon terms and conditions as favorable as those presently in effect, other than
possible increases in premiums or unavailability of coverage that do not result
from any extraordinary loss experience on the part of the F&M Companies.
3.12 Allowance for Loan Losses
The allowance for loan losses reflected on the balance sheets included
in the F&M Financial Statements, as of their respective dates, is adequate in
all material respects under the requirements of generally accepted accounting
principles and regulatory accounting principles to provide for reasonably
anticipated losses on outstanding loans.
3.13 Environmental Matters
To the Knowledge of F&M, the F&M Companies are in substantial
compliance with all Environmental Laws. None of the F&M Companies has received
any communication alleging that F&M or any F&M Subsidiary is not in such
compliance and, to the Knowledge of F&M, there are no present circumstances that
would prevent or interfere with the continuation of such compliance.
<PAGE>
3.14 Securities Reports
F&M has filed with the SEC all required forms, reports and documents
required under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). F&M's Annual Report on Form 10-K for the year ended December 31, 1996,
and all other reports, definitive proxy statements or documents filed or to be
filed by it subsequent to December 31, 1996 under Section 13(a), 13(c), 14 or
15(d) of the Exchange Act, in the form filed, or to be filed, with the SEC (i)
complied or will comply in all material respects as to form with the applicable
requirements under the Exchange Act and (ii) 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.
3.15 Statements True and Correct
When the Registration Statement to be filed by F&M with the SEC shall
become effective, and at all times subsequent thereto up to and including the
BOA shareholders' meeting called to consider and vote on the approval of the
Merger, such Registration Statement and all amendments or supplements thereto,
with respect to all information set forth therein furnished by F&M relating to
F&M (i) shall comply in all material respects with the applicable provisions of
the federal and state securities laws, and (ii) shall 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, in light
of the circumstances under which they were made, not misleading.
ARTICLE 4
COVENANTS AND AGREEMENTS
4.1 Reasonable Best Efforts
Subject to the terms and conditions of this Agreement, F&M and BOA
agree to use their 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 or
desirable, or advisable under applicable laws, so as to permit consummation of
the Merger as promptly as practicable and shall cooperate fully with the other
party hereto to that end.
4.2 Access to Information; Notice of Certain Matters;
Confidentiality
(a) F&M and BOA each will keep the other advised of all material
developments relevant to its business and to consummation of the transactions
contemplated herein. F&M and BOA each may make or cause to be made such further
investigation of the operational, financial and legal condition of the other as
such party reasonably deems necessary or advisable in connection with the
Merger, provided, however, that such investigation shall not interfere
unnecessarily with normal operations. F&M and BOA agree to furnish the other and
the other's advisors with such financial data and other information with respect
to its business and properties as such other party shall from time to time
reasonably request. No investigation pursuant to this Section 4.2 shall affect
or be deemed to modify any representation or warranty made by, or the conditions
to the obligations to consummate the Merger of, such party hereto.
<PAGE>
(b) F&M and BOA shall give prompt notice to the other of any fact,
event or circumstance known to it that (i) is reasonably likely, individually or
taken together with all other facts, events and circumstances known to it, to
result in any Material Adverse Effect with respect to it or (ii) would cause or
constitute a material breach of any of its representations, warranties,
covenants or agreements contained herein.
(c) Each party shall, and shall cause each of its directors, officers,
attorneys and advisors, to maintain the confidentiality of all information
obtained in such investigation which is not otherwise publicly disclosed by the
other party, such undertaking with respect to confidentiality to survive any
termination of this Agreement. In the event of the termination of this
Agreement, each party shall return to the furnishing party or, at the request of
the furnishing party, destroy and certify the destruction of all confidential
information previously furnished in connection with the transactions
contemplated by this Agreement.
4.3 Registration Statement; Shareholder Approval
(a) F&M and BOA agree to cooperate in the preparation of the
Registration Statement to be filed by F&M with the SEC in connection with the
issuance of F&M Common Stock in the Merger (including the proxy statement and
prospectus and other proxy solicitation materials of F&M and BOA constituting a
part thereof (the "Proxy Statement") and all related documents). F&M and BOA
agree to use all reasonable efforts to cause the Registration Statement to be
declared effective under the Securities Act of 1933, as amended (the "Securities
Act"), as promptly as reasonably practicable after filing thereof. F&M shall
also take any action required to be taken under state securities or "Blue Sky"
laws in connection with the issuance of F&M Common Stock pursuant to the Merger.
(b) BOA shall submit this Agreement and the Plan of Merger to its
shareholders at a special meeting to be held as promptly as practicable after
the Registration Statement is declared effective for the purpose of approving
the Merger. The Board of Directors of BOA shall recommend such approval, and BOA
shall take all reasonable lawful action to solicit such approval by its
shareholders; provided, however, that if the Board of Directors of BOA shall
have reasonably determined in good faith (after consultation with its counsel)
that such recommendation is reasonably likely to constitute a breach of its
fiduciary duties to the shareholders of BOA, then the Board of Directors of BOA
shall not be obligated to recommend the approval of this Agreement and Plan of
Merger.
<PAGE>
4.4 Operation of the Business of BOA
BOA agrees that, except as expressly permitted by this Agreement or
otherwise consented to or approved in writing by F&M, during the period from the
date hereof to the Effective Date:
(a) BOA will conduct its operations only in the ordinary and usual
course of business consistent with past practice (subject, in any event, to the
provisions of paragraph (c) below) and will use its best efforts to keep
available the services of its officers and employees and maintain satisfactory
relationships with customers, suppliers, employees and others having business
relationships with them.
(b) BOA shall not take any action, engage in any transactions or enter
into any agreement which would adversely affect or delay in any material respect
the ability of F&M or BOA to obtain any necessary approvals, consents or waivers
of any governmental authority or third party required for the transactions
contemplated hereby or to perform its covenants and agreements on a timely basis
under this Agreement.
(c) BOA will not:
(1) Other than pursuant to stock options Previously Disclosed
in its Disclosure Schedule and currently outstanding as of the date
hereof: (i) issue, sell or otherwise permit to become outstanding, or
authorize the creation of, any additional shares of capital stock, any
stock appreciation rights or any Rights; (ii) enter into any agreement
with respect to the foregoing; or (iii) permit any additional shares of
capital stock to become subject to new grants of employee stock
options, stock appreciation rights, or similar stock-based employee
rights;
(2) Enter into or amend any written employment agreement,
severance or similar agreements or arrangements with any of its
directors, officers or employees, or grant any salary or wage increase
or increase any employee benefit (including incentive or bonus
payments), except for normal individual increases in compensation to
employees in the ordinary course of business consistent with past
practice;
(3) Enter into or amend (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, welfare contract,
plan or arrangement, or any trust agreement related thereto, in respect
of any directors, officers or employees, including without limitation
taking any action that accelerates the vesting or exercise of any
benefits payable thereunder;
<PAGE>
(4) Incur any obligation or liability (whether absolute or
contingent, excluding suits instituted against it), make any pledge, or
encumber any of its assets, nor dispose of any of its assets in any
other manner, except in the ordinary course of its business and for
adequate value, or as otherwise specifically permitted in this
Agreement;
(5) Change its lending, investment, asset/liability management
or other material banking policies in any material respect, except as
may be required by applicable law;
(6) Alter, amend or repeal its bylaws or articles of
incorporation;
(7) Take any other action which would make any representation
or warranty in Article 2 hereof untrue; or
(8) Agree or commit to do anything prohibited by this
Section 4.4.
4.5 Operation of the Business of F&M
F&M agrees that, except as expressly permitted by this Agreement or
otherwise consented to or approved in writing by BOA, during the period from the
date hereof to the Effective Date:
(a) F&M will and will cause each of the F&M Subsidiaries to conduct
their respective operations only in the ordinary and usual course of business
consistent with past practice and will use its best efforts to preserve intact
their respective business organizations, keep available the services of their
officers and employees and maintain satisfactory relationships with customers,
suppliers, employees and others having business relationships with them.
(b) F&M shall not, and shall not permit any of the F&M Subsidiaries to,
take any action, engage in any transactions or enter into any agreement which
would adversely affect or delay in any material respect the ability of F&M or
BOA to obtain any necessary approvals, consents or waivers of any governmental
authority or third party required for the transactions contemplated hereby or to
perform its covenants and agreements on a timely basis under this Agreement.
4.6 No Dividends
BOA will not declare or pay any cash dividend or make any other
distribution in respect of BOA Common Stock prior to the Effective Date.
4.7 No Solicitation of Other Offers
<PAGE>
Without the prior consent of F&M, BOA shall not, and shall cause its
officers, directors, agents, advisors and affiliates not to, solicit or
encourage inquiries or proposals with respect to, furnish any information
relating to, or participate in any negotiations or discussions concerning, any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, BOA or any business combination with BOA other
than as contemplated by this Agreement. BOA shall promptly (within 24 hours)
notify F&M of its receipt of any such proposal or inquiry, of the substance
thereof, and of the identity of the person making such proposal or inquiry.
4.8 Regulatory Filings
F&M and BOA shall use their reasonable best efforts to prepare and file
as soon as practicable after the date hereof all required applications for
regulatory approval of the Merger. F&M shall use its best efforts to obtain
prompt approval of each required application.
4.9 Public Announcements
Each party will consult with the other before issuing any press release
or otherwise making any public statements with respect to the Merger and shall
not issue any such press release or make any such public statement prior to such
consultations, except as may be required by law.
4.10 Accounting Treatment
F&M and BOA shall each use their best efforts to ensure that the Merger
qualifies for pooling-of-interests accounting treatment.
4.11 Affiliate Agreements
BOA has identified to F&M all persons who were, as of the date hereof,
directors or executive officers of BOA (the "Affiliates"). BOA has delivered a
written letter agreement in the form of Exhibit C hereto from each Affiliate.
4.12 Benefit Plans; Employment Agreements
(a) Upon consummation of the Merger, as soon as administratively
practicable, employees of BOA shall be entitled to participate in the F&M
pension, health and welfare benefit and similar plans on the same terms and
conditions as employees of the F&M Companies, giving effect to years of service
for purposes of eligibility to participate, eligibility for benefits, and
vesting with BOA as if such service were with F&M.
(b) F&M shall enter into severance agreements, effective as of the
Effective Date, with Stephen Tees and John Lucas in the form provided in Exhibit
D hereto or into such other employment arrangements as may be agreed upon prior
to the Closing.
<PAGE>
4.13 NYSE Listing
F&M shall use its reasonable best efforts to list, as of the Effective
Date, on the New York Stock Exchange upon official notice of issuance, the
shares of F&M Common Stock to be issued in the Merger.
4.14 Indemnification
Following the Effective Date and for a period of six years thereafter,
F&M shall indemnify, defend and hold harmless any person who has rights to
indemnification from BOA, to the same extent and on the same conditions as such
person is entitled to indemnification pursuant to applicable law and BOA's
Articles of Incorporation or Bylaws, as in effect on the date of this Agreement,
to the extent legally permitted to do so with respect to matters occurring on or
prior to the Effective Date. Without limiting the foregoing, in any case in
which corporate approval may be required to effectuate any indemnification, F&M
shall direct, at the election of the party to be indemnified, that the
determination of permissibility of indemnification shall be made by independent
counsel mutually agreed upon between F&M and the indemnified party. F&M shall
use its reasonable best efforts to maintain BOA's existing directors' and
officers' liability policy, or some other policy, including F&M's existing
policy, providing at least comparable coverage, covering persons who are
currently covered by such insurance of BOA for a period of three years after the
Effective Date on terms no less favorable than those in effect on the date
hereof.
4.15 Stock Option Agreement
BOA shall grant to F&M an option to acquire such number of shares of
BOA Common Stock that would equate to 19.9% of the issued and outstanding common
stock of BOA as of the date hereof, all in accordance with the Option Agreement.
<PAGE>
ARTICLE 5
CONDITIONS TO THE MERGER
5.1 General Conditions
The respective obligations of each of F&M and BOA to effect the Merger
shall be subject to the fulfillment or waiver at or prior to the Effective Date
of the following conditions:
(a) Corporate Action. All corporate action necessary to authorize the
execution, delivery and performance of this Agreement and consummation of the
transactions contemplated hereby shall have been duly and validly taken,
including without limitation the approval of the shareholders of BOA.
(b) Registration Statement; NYSE Listing. The Registration Statement
shall have been declared effective under the Securities Act, and F&M shall
received all state securities laws or "blue sky" permits and other
authorizations or there shall be exemptions from registration requirements
necessary to issue F&M Common Stock in connection with the Merger, and neither
the Registration Statement nor any such permit or authorization shall be subject
to a stop order or any threatened stop order of the SEC or any state securities
commissioner. The shares of F&M Common Stock to be issued in connection with the
Merger shall have been approved for listing on the New York Stock Exchange.
(c) Regulatory Approvals. F&M and BOA shall have received all
regulatory approvals required in connection with the transactions contemplated
by this Agreement, all notice periods and waiting periods required after the
granting of any such approvals shall have passed, and all such approvals shall
be in effect; provided, however, that no such approvals shall have imposed any
condition or requirement which, in the reasonable opinion of the Boards of
Directors of F&M or BOA, would so materially adversely impact the economic or
business benefits of the transactions contemplated by this Agreement as to
render consummation of the Merger inadvisable or unduly burdensome.
(d) Tax Opinion. F&M and BOA shall have received the opinion of LeClair
Ryan, A Professional Corporation, counsel to F&M, in form and substance
satisfactory to F&M and BOA and dated as of the Effective Date to the effect
that the Merger will constitute a reorganization within the meaning of Section
368(a)(1)(A) of the Code and that no gain or loss will be recognized by the
shareholders of BOA to the extent they receive F&M Common Stock solely in
exchange for their BOA Common Stock in the Merger. In rendering its opinions,
such counsel may rely upon representations contained in certificates of officers
of F&M, BOA and others.
(e) Opinions of Counsel. BOA shall have delivered to F&M and F&M shall
have delivered to BOA opinions of counsel, dated as of the Effective Date, as to
such matters as they may each reasonably request with respect to the
transactions contemplated by this Agreement and in a form reasonably acceptable
to each of them.
<PAGE>
(f) Legal Proceedings. Neither F&M nor BOA shall be subject to any
order, decree or injunction of a court or agency of competent jurisdiction which
enjoins or prohibits the consummation of the Merger.
(g) Accountants' Letters. F&M and BOA shall have received a letter,
dated as of the Effective Date, from Yount, Hyde & Barbour, P.C., satisfactory
in form and substance to F&M and BOA, that the Merger will qualify for
pooling-of-interests accounting treatment.
5.2 Conditions to Obligations of F&M
The obligations of F&M to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of BOA set forth in Article 2 shall be true and correct as of the date of this
Agreement and as of the Effective Date as though made on the Effective Date,
except (i) for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date, (ii) as expressly
contemplated by this Agreement, or (iii) for representations and warranties the
inaccuracies of which relate to matters that, individually or in the aggregate,
do not materially adversely affect the Merger and the other transactions
contemplated by this Agreement.
(b) Performance of Obligations. BOA shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
(c) Officers' Certificate. BOA shall have delivered to F&M a
certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.2(a) and
5.2(b) have been satisfied.
5.3 Conditions to Obligations of BOA
The obligations of BOA to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Effective Date of the following
additional conditions:
(a) Representations and Warranties. The representations and warranties
of F&M set forth in Article 3 shall be true and correct as of the date of this
Agreement and as of the Effective Date as though made on the Effective Date,
except (i) for any such representations and warranties made as of a specified
date, which shall be true and correct as of such date, (ii) as expressly
contemplated by this Agreement, or (iii) for representations and warranties the
inaccuracies of which relate to matters that, individually or in the aggregate,
do not materially adversely affect the Merger and the other transactions
contemplated by this Agreement.
(b) Performance of Obligations. F&M shall have performed in all
material respects all obligations required to be performed by it under this
Agreement prior to the Effective Date.
<PAGE>
(c) Officers' Certificate. F&M shall have delivered to BOA a
certificate, dated the Effective Date and signed by its Chairman or President,
to the effect that the conditions set forth in Sections 5.1(a), 5.1(b), 5.1(c),
5.3(a) and 5.3(b) have been satisfied.
(d) Investment Banking Letter. BOA shall have received an updated
fairness opinion from Scott & Stringfellow, Inc., financial advisor to BOA,
addressed to BOA and dated on or about the date the Proxy Statement is mailed to
shareholders of BOA, to the effect that the terms of the Merger are fair to the
shareholders of BOA from a financial point of view.
ARTICLE 6
TERMINATION
6.1 Termination
This Agreement and the Plan of Merger may be terminated at any time
before the Effective Date, whether before or after approval thereof by the
shareholders of F&M at the F&M Meeting or the shareholders of BOA at the BOA
Meeting, respectively, as provided below:
(a) Mutual Consent. By the mutual consent in writing of F&M and
BOA.
(b) Closing Delay. At the election of either party, evidenced by
written notice, if the Effective Date shall not have occurred on or before July
31, 1998, or such later date as shall have been agreed to in writing by the
parties; provided, however, that the right to terminate under this Section
6.1(b) shall not be available to either party whose failure to perform an
obligation hereunder has been the cause of, or has resulted in, the failure of
the Effective Date to occur on or before such date.
(c) Conditions to F&M Performance Not Met. By F&M upon delivery of
written notice of termination to BOA if any event occurs which renders
impossible the satisfaction in any material respect of one or more of the
conditions to the obligations of F&M to effect the Merger set forth in Sections
5.1 and 5.2, and such noncompliance is not waived by F&M.
(d) Conditions to BOA Performance Not Met. By BOA upon delivery of
written notice of termination to F&M if any event occurs which renders
impossible the satisfaction in any material respect of one or more of the
conditions to the obligations of BOA to effect the Merger set forth in Sections
5.1 and 5.3, and such noncompliance is not waived by BOA.
(e) Review of BOA Disclosure Schedules. By F&M in writing at any time
prior to the close of business on December 23, 1997 if F&M determines in its
sole good faith judgment that, based upon its review and examination of the
Disclosure Schedules delivered by BOA, the financial condition, business or
prospects of BOA are materially adversely different from what was reasonably
expected by F&M after the performance of its due diligence prior to the
execution of this Agreement; provided that F&M shall inform BOA upon such
termination of the reasons for F&M's determination and, provided further, that
this Section 6.1(e) shall not limit in any way the due diligence investigation
of BOA which F&M may perform or otherwise affect any other rights which F&M has
after the date hereof and after December 22, 1997, under the terms of this
Agreement.
<PAGE>
6.2 Effect of Termination
In the event this Agreement is terminated pursuant to Section 6.1
hereof, both this Agreement and the Plan of Merger shall become void and have no
effect, except that (i) the provisions hereof relating to confidentiality, press
releases and expenses set forth in Sections 4.2, 4.9 and 6.4, respectively,
shall survive any such termination and (ii) a termination pursuant to 6.1(c) or
6.1(d) hereof shall not relieve the breaching party from liability for an
uncured intentional breach of any provision of this Agreement giving rise to
such termination.
6.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Agreement and the
Plan of Merger shall not survive the Effective Date and shall be terminated and
extinguished at the Effective Date. From and after the Effective Date, the
parties hereto shall have no liability to the other on account of any breach of
any of those representations, warranties and covenants; provided, however, that
the foregoing clause shall not (i) apply to agreements of the parties which by
their terms are intended to be performed after the Effective Date, and (ii)
shall not relieve any person for liability for fraud, deception or intentional
misrepresentation.
6.4 Fees and Expenses
(a) Except as provided below, each of the parties shall bear and pay
all costs and expenses incurred by it in connection with the transactions
contemplated herein, including fees and expenses of its own financial
consultants, accountants and counsel, except that printing expenses shall be
shared equally between F&M and BOA.
(b) Notwithstanding any provision in this Agreement to the contrary, if
for any reason the Merger is not approved by BOA's shareholders at the BOA
Meeting or any adjournment thereof, then BOA shall reimburse F&M for one-half of
its reasonable out-of-pocket and other expenses incurred by F&M in connection
with entering into this Agreement and the transactions contemplated hereunder,
provided that the maximum amount that BOA shall be responsible to F&M under this
Section 6.4(b) shall be limited to $50,000.
(c) If this Agreement is terminated by F&M or BOA because of a willful
and material breach by the other of any representation, warranty, covenant,
undertaking or restriction set forth herein, and provided that the terminating
party shall not have been in breach (in any material respect) of any
representation and warranty, covenant, undertaking or restriction contained
herein, then the breaching party shall reimburse the other party for all
reasonable out-of-pocket expenses incurred by it in connection with the
transactions contemplated by this Agreement and the enforcement of its rights
hereunder.
<PAGE>
(d) Final settlement with respect to the reimbursement of such fees and
expenses by the parties shall be made within thirty days after the termination
of this Agreement.
ARTICLE 7
GENERAL PROVISIONS
7.1 Entire Agreement
This Agreement contains the entire agreement among F&M and BOA with
respect to the Merger and the related transactions and supersedes all prior
arrangements or understandings with respect thereto.
7.2 Binding Effect; No Third Party Rights
This Agreement shall bind F&M and BOA and their respective successors
and assigns. Other than Section 4.14, nothing in this Agreement is intended to
confer upon any person, other than the parties hereto or their respective
successors, any rights or remedies under or by reason of this Agreement.
7.3 Waiver and Amendment
Any term or provision of this Agreement may be waived in writing at any
time by the party that is, or whose shareholders are, entitled to the benefits
thereof, and this Agreement may be amended or supplemented by a written
instrument duly executed by the parties hereto at any time, whether before or
after the later of the date of the BOA Meeting, except statutory requirements
and requisite approvals of shareholders and regulatory authorities.
7.4 Governing Law
This Agreement shall be governed by, and construed in accordance with,
the laws of the Commonwealth of Virginia without regard to the conflict of law
principles thereof.
<PAGE>
7.5 Notices
All notices or other communications that are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
registered or certified mail, postage prepaid, addressed as follows:
If to F&M:
Alfred B. Whitt
F&M National Corporation
38 Rouss Avenue
P. O. Box 2800
Winchester, Virginia 22604
(Tele: (540) 665-4282)
Copy to:
George P. Whitley, Esquire
LeClair Ryan, A Professional Corporation
707 East Main Street; 11th Floor
Richmond, Virginia 23219
(Tele: (804) 783-2003)
If to BOA:
Stephen Tees
The Bank of Alexandria
1717 King Street
P.O. Box 1727
Alexandria, Virginia 22313-1727
(Tele: (703) 549-8262)
Copy to:
Wayne A. Whitham, Jr.
Williams, Mullen, Christian & Dobbins
1021 East Cary Street
P.O. Box 1320
Richmond, Virginia 23210-1320
(Tele: (804) 783-6473)
7.6 Counterparts
This Agreement may be executed in any number of counterparts, each of
which shall be an original, but such counterparts together shall constitute one
and the same agreement.
<PAGE>
7.7 Severability
In the event that any provision of this Agreement shall be held invalid
or unenforceable by any court of competent jurisdiction, such holding shall not
invalidate or render unenforceable any other provisions hereof. Any provision of
this Agreement held invalid or unenforceable only in part or degree shall remain
in full force and effect to the extent not held invalid or unenforceable.
Further, the parties agree that a court of competent jurisdiction may reform any
provision of this Agreement held invalid or unenforceable so as to reflect the
intended agreement of the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed in counterparts by their duly authorized officers and their corporate
seals to be affixed hereto, all as of the date first written above.
F&M NATIONAL CORPORATION
Winchester, Virginia
By: /s/ Afred B. Whitt
---------------------------
Alfred B. Whitt
Senior Vice President
F&M BANK-NORTHERN VIRGINIA
Fairfax, Virginia
By: /s/ Charles E. Curtis
--------------------------
Charles E. Curtis
President
THE BANK OF ALEXANDRIA
Alexandria, Virginia
By: /s/ Edward Semonian
---------------------------
Edward Semonian
Chairman of the Board
<PAGE>
EXHIBIT A
To the Agreement and
Plan of Reorganization
PLAN OF MERGER
BETWEEN
F&M BANK-NORTHERN VIRGINIA
AND
THE BANK OF ALEXANDRIA
Pursuant to this Plan of Merger ("Plan of Merger"), The Bank of
Alexandria, a Virginia banking corporation ("BOA"), shall merge with and into
F&M Bank-Northern Virginia, a wholly-owned Virginia banking subsidiary of F&M
National Corporation.
ARTICLE I
TERMS OF THE MERGER
1.1 The Merger
Subject to the terms and conditions of the Agreement and Plan of
Reorganization, dated as of December 12, 1997, by and among F&M National
Corporation, a Virginia corporation ("F&M"), F&M Bank-Northern Virginia, and BOA
(the "Agreement"), at the Effective Date BOA shall be merged with and into F&M
Bank-Northern Virginia (the "Merger") in accordance with the provisions of
Virginia law and with the effect specified in Section 13.1-721 of the Virginia
Stock Corporation Act. F&M Bank-Northern Virginia shall be the surviving
corporation of the Merger, and its name shall remain F&M Bank-Northern Virginia
(F&M Bank-Northern Virginia as existing on and after the Effective Date is
sometimes referred to as the "Continuing Bank"). The Merger shall become
effective on such date and time as may be determined in accordance with Section
1.6 of the Agreement (the "Effective Date").
1.2 Articles of Incorporation and Bylaws
The Articles of Incorporation and Bylaws of F&M Bank-Northern Virginia
in effect immediately prior to the consummation of the Merger shall remain in
effect following the Effective Date until otherwise amended or repealed.
<PAGE>
ARTICLE II
MANNER OF CONVERTING SHARES
2.1 Conversion of Shares
Upon and by reason of the Merger becoming effective, no cash shall be
allocated to the shareholders of BOA and stock shall be issued and allocated as
follows:
(a) At the Effective Date, by virtue of the Merger and without any
action on the part of the holders thereof, each share of common stock, par value
$5.00 per share, of BOA ("BOA Common Stock") issued and outstanding immediately
prior to the Effective Date shall cease to be outstanding and shall be converted
into and exchanged for 0.942 shares of common stock, par value $2.00 per share,
of F&M ("F&M Common Stock") pursuant to the terms and conditions set forth in
the Agreement and this Plan of Merger (the "Exchange Ratio").
(b) Each holder of a certificate representing shares of BOA Common
Stock upon the surrender of his BOA stock certificates to the Exchange Agent (as
defined in Section 2.2), duly endorsed for transfer in accordance with Section
2.2 below, will be entitled to receive in exchange therefor a certificate or
certificates representing the number of whole shares of F&M Common Stock that
his shares shall be converted into pursuant to the Exchange Ratio. Each such
holder of BOA Common Stock shall have the right to receive the consideration
described in this Section 2.1 and Section 2.3 upon the surrender of such
certificate in accordance with Section 2.2.
(c) In the event F&M changes (or establishes a record date for
changing) the number of shares of F&M Common Stock issued and outstanding prior
to the Effective Date as a result of a stock split, stock dividend,
recapitalization or similar transaction with respect to the outstanding F&M
Common Stock and the record date therefor shall be prior to the Effective Date,
appropriate and proportional adjustments will be made to the Exchange Ratio.
(d) Each share of common stock of F&M Bank-Northern Virginia issued and
outstanding immediately prior to the Effective Date shall continue unchanged as
an outstanding share of common stock of the Continuing Bank.
(e) From and after the Effective Date, all employee stock options to
purchase shares of BOA Common Stock (each, a "BOA Stock Option"), that are then
outstanding and unexercised, shall be converted into and become options to
purchase shares of F&M Common Stock, and F&M shall assume each such BOA Stock
Option in accordance with the terms of the plan and agreement by which it is
evidenced; provided, however, that from and after the Effective Date (i) each
such BOA Stock Option assumed by F&M may be exercised solely to purchase shares
of F&M Common Stock, (ii) the number of shares of F&M Common Stock purchasable
upon exercise of such BOA Stock Option shall be equal to the number of shares of
BOA Common Stock that were purchasable under such BOA Stock Option immediately
prior to the Effective Date multiplied by the Exchange Ratio and rounding down
to the nearest whole share, with cash being paid for any fractional share
interest that otherwise would be purchasable, and (iii) the per share exercise
price under each such BOA Stock Option shall be adjusted by dividing the per
share exercise price of each such BOA Stock Option by the Exchange Ratio, and
rounding down to the nearest cent. The terms of each BOA Stock Option shall, in
accordance with its terms, be subject to further adjustment as appropriate to
reflect any stock split, stock dividend, recapitalization or other similar
transaction with respect to F&M Common Stock on or subsequent to the Effective
Date. It is intended that the foregoing assumption shall be effected in a manner
that is consistent with the requirements of Section 424 of the Internal Revenue
Code of 1986, as amended (the "Code") as to any BOA Stock Option that is an
"incentive stock option" (as defined in Section 422 of the Code).
<PAGE<
2.2 Manner of Exchange of BOA Common Stock Certificates
As promptly as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent ("Exchange
Agent"), to send to each former holder of record of BOA Common Stock immediately
prior to the Effective Date transmittal materials for use in exchanging such
shareholder's certificates of BOA Common Stock for the consideration set forth
in Section 2.1 above. Any dividends paid on any shares of F&M Common Stock that
such shareholder shall be entitled to receive prior to the delivery to the
Exchange Agent of such shareholder's certificates representing all of such
shareholder's shares of BOA Common Stock, will be delivered to such shareholder
only upon delivery to the Exchange Agent of the certificates representing all of
such shares (or indemnity satisfactory to F&M and the Exchange Agent, in their
judgment, if any of such certificates are lost, stolen or destroyed). No
interest will be paid on any such dividends to which the holder of such shares
shall be entitled to receive upon such delivery.
2.3 No Fractional Shares
No certificates or scrip for fractional shares of F&M Common Stock will
be issued. In lieu thereof, F&M will pay the value of such fractional shares in
cash on the basis of the Average Closing Price of F&M Common Stock. As used
herein, "Average Closing Price" shall mean the average closing price of F&M
Common Stock as reported on the New York Stock Exchange for each of the ten
consecutive trading days ending on the fifth business day prior to the Effective
Date.
2.4 Dividends
No dividend or other distribution payable to the holders of record of
F&M Common Stock at or as of any time after the Effective Date shall be paid to
the holder of any certificate representing shares of BOA Common Stock issued and
outstanding at the Effective Date until such holder physically surrenders such
certificate for exchange as provided in Section 2.2 of this Plan of Merger,
promptly after which time all such dividends or distributions shall be paid
(without interest).
<PAGE>
ARTICLE III
BOARD OF DIRECTORS
At the Effective Date, the Board of Directors of the Continuing Bank
shall consist of all the current directors of F&M Bank-Northern Virginia and at
least six of the current directors of BOA designated by BOA and approved by F&M.
ARTICLE IV
CONDITIONS PRECEDENT
The obligations of F&M, F&M Bank-Northern Virginia and BOA to effect
the Merger as herein provided shall be subject to satisfaction, unless duly
waived, of the conditions set forth in the Agreement.
ARTICLE V
TERMINATION
This Plan of Merger may be terminated at any time prior to the
Effective Date by the parties hereto as provided in Article 6 of the Agreement.
<PAGE>
APPENDIX II
-----------------
STOCK OPTION AGREEMENT
-----------------
<PAGE>
STOCK OPTION AGREEMENT
This STOCK OPTION AGREEMENT, dated as of December 12, 1997 (the "Option
Agreement"), by and between THE BANK OF ALEXANDRIA, a Virginia banking
corporation ("BOA"), and F&M NATIONAL CORPORATION, a Virginia corporation
("F&M").
WITNESSETH
WHEREAS, the Boards of Directors of the parties hereto approved an
Agreement and Plan of Reorganization (the "Reorganization Agreement") and have
adopted a related Plan of Merger, dated as of the date hereof (together referred
to herein as the "Merger Agreements"), providing for the merger of BOA with and
into F&M Bank-Northern Virginia, a wholly-owned Virginia banking subsidiary of
F&M (the "Merger"); and
WHEREAS, as a condition to and as consideration for F&M's entry into
the Merger Agreements and to induce such entry, BOA has agreed to grant to F&M
the option set forth herein to acquire authorized but unissued shares of BOA
Common Stock.
NOW, THEREFORE, in consideration of the premises herein contained, the
parties agree as follows:
1. Definitions
Capitalized terms used but not defined herein and defined in the Merger
Agreements shall have the same meanings as in the Merger Agreements.
2. Grant of Option
Subject to the terms and conditions set forth herein, BOA hereby grants
to F&M an option (the "Option") to acquire up to 136,600 shares of BOA Common
Stock at a price of $17.50 per share (the "Exercise Price") in exchange for the
consideration provided in Section 4 hereof; provided, however, that in the event
BOA issues or agrees to issue any shares of BOA Common Stock (other than as
permitted under the Merger Agreements) at a price less than $17.50 per share (as
adjusted pursuant to Section 6 hereof), the Exercise Price shall be equal to
such lesser price. Notwithstanding anything else in this Option Agreement to the
contrary, the number of shares of BOA Common Stock subject to the Option shall
be reduced if and to the extent necessary so that the number of shares for which
this Option is exercisable shall not exceed 19.9% of the issued and outstanding
shares of BOA Common Stock, before giving effect to the exercise of the Option.
The number of shares of BOA Common Stock that may be received upon the exercise
of the Option is subject to adjustment as set forth herein.
<PAGE>
3. Exercise of Option
(a) Subject to compliance with applicable law and regulation, F&M may
exercise the Option, in whole or part, at any time or from time to time if a
Purchase Event (as defined below) shall have occurred and be continuing.
(b) BOA shall notify F&M promptly in writing of the occurrence of any
transaction, offer or event giving rise to a Purchase Event. If more than one of
the transactions, offers or events giving rise to a Purchase Event is undertaken
or effected by the same person or occurs at the same time, then all such
transactions, offers and events shall give rise only to one Purchase Event,
which Purchase Event shall be deemed continuing for all purposes hereof until
all such transactions are terminated or abandoned by such person and all such
events have ceased or ended.
(c) In the event that F&M wishes to exercise the Option, it shall send
BOA a written notice (the date of which being herein referred to as the "Notice
Date") specifying (i) the total number of shares it will acquire pursuant to
such exercise, and (ii) a place and date not earlier than three business days
nor later than 60 business days from the Notice Date for the closing of such
transaction (the "Closing Date"); provided that if prior notification to or
approval of any federal or state regulatory agency is required in connection
with such acquisition, F&M shall promptly file the required notice or
application for approval and shall expeditiously process the same and the period
of time that otherwise would run pursuant to this sentence shall run instead
from the date on which any required notification period has expired or been
terminated or such approval has been obtained and any requisite waiting period
shall have passed.
(d) The Option shall expire and terminate, to the extent not previously
exercised, upon the earlier of: (i) the Effective Time of the Merger; (ii) upon
termination of the Merger Agreements in accordance with the provisions thereof,
other than a termination based upon, following or in connection with either (A)
a material breach by BOA of a Specified Covenant (as defined below) or (B) the
failure of BOA to obtain shareholder approval of the Merger Agreements by the
vote required under applicable law, in the case that either (A) or (B) follow
the occurrence of a Purchase Event; or (iii) 12 months after termination of the
Merger Agreements based upon a material breach by BOA of a Specified Covenant or
the failure of BOA to obtain shareholder approval of the Merger Agreements by
the vote required under applicable law, in either case following the occurrence
of a Purchase Event.
(e) As used herein, a "Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
(1) BOA, without having received F&M's prior written consent,
shall have entered into an agreement with any person to (i) acquire,
merge or consolidate, or enter into any similar transaction, with BOA,
(ii) purchase, lease or otherwise acquire all or substantially all of
the assets of BOA, or (iii) purchase or otherwise acquire directly from
BOA securities representing 10% or more of the voting power of BOA;
<PAGE>
(2) any person shall have acquired beneficial ownership or the
right to acquire beneficial ownership of 20% or more of the outstanding
shares of BOA Common Stock after the date hereof (the term "beneficial
ownership" for purposes of this Option Agreement having the meaning
assigned thereto in Section 13(d) of the Exchange Act and the
regulations promulgated thereunder); or
(3) any person shall have made a bona fide proposal to BOA by
public announcement or written communication that is or becomes the
subject of public disclosure to acquire BOA by merger, share exchange,
consolidation, purchase of all or substantially all of its assets or
any other similar transaction, and following such bona fide proposal
the shareholders of BOA vote not to approve the Merger Agreements.
(f) As used herein, "Specified Covenant" means any covenant or
agreement contained in the Merger Agreements.
4. Payment and Delivery of Certificates
(a) At the Closing Date, F&M shall tender certified funds in an amount
equal to the aggregate Exercise Price for the number of shares with respect to
which F&M is exercising the Option.
(b) At such closing, BOA shall deliver to F&M a certificate or
certificates representing the number of shares of BOA Common Stock exchanged for
the Exercise Price and F&M shall deliver to BOA a letter agreeing that F&M will
not offer to sell or otherwise dispose of such shares in violation of applicable
law or the provisions of this Option Agreement.
(c) Certificates for BOA Common Stock delivered at a closing hereunder
may be endorsed with a restrictive legend which shall read substantially as
follows:
"The transfer of the shares represented by this
Certificate is subject to certain provisions of an agreement
between the registered holder hereof and The Bank of
Alexandria and to resale restrictions arising under the
Securities Act of 1933, as amended, a copy of which agreement
is on file at the principal office of The Bank of Alexandria.
A copy of such agreement will be provided to the holder
thereof without charge upon receipt by The Bank of Alexandria
of a written request."
<PAGE>
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if F&M shall have delivered to
BOA a copy of a letter from the staff of the Securities and Exchange Commission
(the "Commission"), or an opinion of counsel, in form and substance satisfactory
to BOA, to the effect that such legend is not required for purposes of the
Securities Act of 1933 (the "Securities Act").
5. Representations
BOA hereby represents, warrants and covenants to F&M as follows:
(a) BOA shall at all times maintain sufficient authorized but unissued
shares of BOA Common Stock so that the Option may be exercised without
authorization of additional shares of BOA Common Stock.
(b) The shares to be issued upon due exercise, in whole or in part, of
the Option, when paid for as provided herein, will be duly authorized, validly
issued, fully paid and nonassessable.
6. Adjustment Upon Changes in Capitalization
In the event of any change in BOA Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, exchanges of
shares or the like, the type and number of shares subject to the Option, and the
purchase price per share, as the case may be, shall be adjusted appropriately.
In the event that any additional shares of BOA Common Stock are issued or
otherwise become outstanding after the date of this Option Agreement (other than
pursuant to this Option Agreement or pursuant to the exercise of [warrants or]
options to acquire shares of BOA Common Stock outstanding as of the date of the
Merger Agreements or that may be issued after the date of the Merger Agreements
without constituting a breach thereof), the number of shares of BOA Common Stock
subject to the Option shall be adjusted so that, after such issuance, it equals
19.9% of the number of shares of BOA Common Stock then issued and outstanding
without giving effect to any shares subject or issued pursuant to the Option or
any shares issued pursuant to the exercise of options to acquire shares of BOA
Common Stock outstanding as of the date of the Merger Agreements or that may be
issued after the date of the Merger Agreements without constituting a breach
thereof. Nothing contained in this Section 6 shall be deemed to authorize BOA to
breach any provision of the Merger Agreements.
<PAGE>
7. Registration Rights
BOA shall, if requested by F&M, as expeditiously as possible file a
registration statement on a form of general use under the Securities Act if
necessary in order to permit the sale or other disposition of the shares of BOA
Common Stock that are acquired upon exercise of the Option in accordance with
the intended method of sale or other disposition requested by F&M. F&M shall
provide all information reasonably requested by BOA for inclusion in any
registration statement to be filed hereunder. BOA will use its best efforts to
cause such registration statement first to become effective and then to remain
effective for such period not in excess of 270 days from the date on which such
registration statement first becomes effective as may be reasonably necessary to
effect such sales or other dispositions. The first registration effected under
this Section 7 shall be at BOA's expense except for underwriting commissions and
the fees and disbursements of F&M's counsel attributable to the registration of
such BOA Common Stock. A second registration statement may be requested
hereunder at F&M's expense. In no event shall BOA be required to effect more
than two registrations hereunder. The filing of any registration statement
hereunder may be delayed for such period of time as may reasonably be required
to facilitate any public distribution by BOA of BOA Common Stock. If requested
by F&M, in connection with any such registration, BOA will become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in such underwriting
agreements. Upon receiving any request from F&M or an assignee of F&M under this
Section 7, BOA agrees to send a copy thereof to F&M and to any assignee of F&M
known to BOA, in each case by promptly mailing the same, postage prepaid, to the
address of record of the persons entitled to receive such copies.
8. Severability
If any term, provision, covenant or restriction contained in this
Option Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder of
the terms, provisions and covenants and restrictions contained in this Option
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or regulatory
agency determines that the Option Agreement will not permit the holder to
acquire the full number of shares of BOA Common Stock provided in Section 2
hereof (as adjusted pursuant to Section 6 hereof), it is the express intention
of BOA to allow the holder to acquire, or to require BOA to repurchase to the
extent permitted under applicable law, such number of shares as may be necessary
to comply with such court or regulatory agency's determination of the
permissible number of shares, without any amendment or modification hereof.
9. Miscellaneous
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its behalf
in connection with the transactions contemplated hereunder, including fees and
expenses of its own financial consultants, investment bankers, accountants and
counsel.
(b) Entire Agreement. Except as otherwise expressly provided herein,
this Option Agreement contains the entire agreement between the parties with
respect to the transactions contemplated hereunder and supersedes all prior
arrangements or understandings with respect thereto, written or oral. The terms
and conditions of this Option Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns.
Nothing in this Option Agreement, expressed or implied, is intended to confer
upon any party, other than the parties hereto and their respective successors
and assigns, any rights, remedies, obligations or liabilities under or by reason
of this Option Agreement, except as expressly provided herein.
<PAGE>
(c) Assignment. Neither of the parties hereto may assign any of its
rights or obligations under this Option Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that F&M may assign in whole or in part the Option and other
benefits and obligations hereunder without limitation to any of its wholly-owned
subsidiaries, and F&M may assign in whole or in part the Option and other
benefits and obligations hereunder without limitation in the event a Purchase
Event shall have occurred and F&M shall have delivered to BOA a copy of a letter
from the staff of the Commission, or an opinion of counsel, in form and
substance reasonably satisfactory to BOA, to the effect that such assignment
will not violate the requirements of the Securities Act; provided that prior to
any such assignment, F&M shall give written notice of the proposed assignment to
BOA, and within 24 hours of such notice of a bona fide proposed assignment, BOA
may purchase the Option at a price and on other terms at least as favorable to
F&M as that set forth in the notice of assignment.
(d) Notices. All notices or other communications that are required or
permitted hereunder shall be in writing and sufficient if delivered in the
manner and to the address provided for in or pursuant to Section 7.5 of the
Reorganization Agreement.
(e) Counterparts. This Option Agreement may be executed in any number
of counterparts, and each such counterpart shall be deemed to be an original
instrument, but all such counterparts together shall constitute but one
agreement.
(f) Specific Performance. The parties agree that damages would be an
inadequate remedy for a breach of the provisions of this Option Agreement by
either party hereto and that this Option Agreement may be enforced by either
party hereto through injunctive or other equitable relief.
(g) Governing Law. This Option Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Virginia, without
regard to the conflicts of laws principles thereof.
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed
this Option Agreement as of the day and year first written above.
THE BANK OF ALEXANDRIA
By: /s/ Edward Semonian
----------------------
Edward Semonian
Chairman of the Board
F&M NATIONAL CORPORATION
By: /s/ Alfred B. Whitt
----------------------
Alfred B. Whitt
Senior Vice President
<PAGE>
APPENDIX III
-------------------------------
OPINION OF SCOTT & STRINGFELLOW, INC.
-------------------------------
<PAGE>
March __, 1998
Board of Directors
Bank of Alexandria
1717 King Street
Alexandria, VA 22313
Gentlemen:
You have asked us to render our opinion relating to the fairness, from
a financial point of view, to the shareholders of Bank of Alexandria ("BOA") of
the terms of an Agreement and Plan of Reorganization by and among F&M National
Corporation ("F&M"), F&M Bank-Northern Virginia ("F&M Bank-Northern Virginia")
and BOA dated December 12, 1997 and a related Plan of Merger (collectively the
"Merger Agreement"). The Merger Agreement provides for the merger of BOA with
and into F&M Bank-Northern Virginia (the "Merger") and further provides that
each share of Common Stock of BOA which is issued and outstanding immediately
prior to the Effective Date of the Merger shall be exchanged for 0.942 shares of
F&M Common Stock (the "Exchange Ratio").
In developing our opinion, we have, among other things, reviewed and
analyzed: (1) the Merger Agreement; (2) the Registration Statement and this
Proxy Statement/Prospectus (3) BOA's financial statements for the three years
ended December 31, 1996; (4) BOA's unaudited financial statements for the 12
months ended December 31, 1997, and other internal information relating to BOA
prepared by BOA's management; (5) information regarding the trading market for
the common stocks of BOA and F&M and the price ranges within which the
respective stocks have traded; (6) the relationship of prices paid to relevant
financial data such as net worth, assets, deposits and earnings in certain bank
and bank holding company mergers and acquisitions in Virginia in recent years;
(7) F&M's annual reports to shareholders and its financial statements for the
three years ended December 31, 1996; and (8) F&M's unaudited financial
statements for the 12 months ended December 31, 1997, and other internal
information relating to F&M prepared by F&M's management. We have discussed with
members of management of BOA and F&M the background to the Merger, reasons and
basis for the Merger and the business and future prospects of BOA and F&M
individually and as a
<PAGE>
Board of Directors
Bank of Alexandria
Alexandria, Virginia 22313
Page 2
combined entity. Finally, we have conducted such other studies, analyses and
investigations, particularly of the banking industry, and considered such other
information as we deemed appropriate.
In conducting our review and arriving at our opinion, we have relied
upon and assumed the accuracy and completeness of the information furnished to
us by or on behalf of BOA and F&M. We have not attempted independently to verify
such information, nor have we made any independent appraisal of the assets of
BOA or F&M. We have taken into account our assessment of general economic,
financial market and industry conditions as they exist and can be evaluated at
the date hereof, as well as our experience in business valuation in general.
On the basis of our analyses and review and in reliance on the accuracy
and completeness of the information furnished to us and subject to the
conditions noted above, it is our opinion that, as of the date hereof the terms
of the Merger Agreement are fair from a financial point of view to the
shareholders of BOA Common Stock.
Very truly yours,
SCOTT & STRINGFELLOW, INC.
By:_______________________
Gary S. Penrose
Managing Director
Financial Institutions Group
<PAGE>
APPENDIX IV
---------------------
BANK OF ALEXANDRIA
FORM 10-KSB
FOR THE YEAR ENDED DECEMBER 31, 1997
---------------------
<PAGE>
FEDERAL DEPOSIT INSURANCE CORPORATION
Washington, D.C.
20429
FORM 10-KSB
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1997
FDIC Certificate No. 23988-7
I.R.S. Employer Identification No. 54-1148687
THE BANK OF ALEXANDRIA
A Virginia Corporation
1717 King Street
Alexandria, Virginia 22314
(703) 549-8262
Securities registered pursuant to Section 12(b) of
the Act:
NONE
Securities registered pursuant to Section 12(g) of
the Act:
COMMON STOCK
($5.00 Par Value)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months, and (2) has been
subject to such filing requirements for the past 90 days. YES X NO____
Check if there is no disclosure of delinquent filers in response to Item 405
of Regulation S-B, and no disclosure will be contained, to the best of Bank's
knowledge, in definitive proxy or information statements incorporated by
reference in part III of this Form 10-KSB or any amendment of this
Form 10-KSB. [ ]
The aggregate market value of the voting stock held by nonaffiliates of the
Bank as of January 30, 1998, was $19,829,557.
As of January 30, 1998, 686,619 shares of the Bank's Common Stock, $5.00 Par
Value, were outstanding.
State issuer's revenues for its most recent fiscal year: $ 6,799,708
<PAGE>
THE BANK OF ALEXANDRIA
FORM 10-KSB
<TABLE>
<CAPTION>
PAGE
PART I
<S> <C>
Item 1 - Business............................................................................1
Item 2 - Properties..........................................................................6
Item 3 - Legal Proceedings...................................................................7
Item 4 - Submission of Matters to a Vote of Security Holders.................................7
PART II
Item 5 - Market for the Bank's Common Stock
and Related Security Holder Matters...............................................8
Item 6 - Management's Discussion and Analysis of
Financial Condition and Results of Operations.....................................9
Table A: Average Balance Sheets and
Net Interest Margin Analysis.....................................................11
Table B: Rate/Volume Analysis of Changes
in Interest Income and Expense...................................................12
Table C: Investment Securities................................................................13
Table D: Loan Portfolio.......................................................................14
Table E: Loan Charge-offs and Recoveries and
Analysis of Allowance Loan Losses................................................15
Table F: Allocation of the Allowance for Loan Losses..........................................16
Item 7 - Financial Statements and Supplementary Data........................................17
Item 8 - Changes In and Disagreements with Accountants......................................17
<PAGE>
PART III
Item 9 - Directors, Executive Officers, Promoters and Control
Persons; Compliance With Section 16(a) of the Exchange Act.......................18
Item 10 - Executive Compensation..............................................................21
Item 11 - Security Ownership of Certain Beneficial Owners and Management......................25
Item 12 - Certain Relationships and Related Transactions......................................27
PART IV
Item 13 - Exhibits, Financial Statement Schedules,
and Reports on Form F-3. .......................................................29
Signatures....................................................................................33
</TABLE>
<PAGE>
PART I
ITEM 1. BUSINESS.
Organization
The Bank of Alexandria (the "Bank") was organized and chartered
under the laws of the Commonwealth of Virginia on June 12, 1980. The Bank
commenced operations on July 7, 1982. The Bank has no subsidiaries. There is
only one class of equity voting securities outstanding, common stock, $5.00 par
value.
Bank Activities
The Bank conducts a general commercial and a full service retail
banking business, with the exception of providing trust services. While the
Bank's Articles of Incorporation give the Bank trust powers, the Bank does not
presently exercise these powers. The Bank provides banking services to
individuals, corporations, and others, as well as services through correspondent
banks and other special services, including origination of items through the
Automated Clearing House, the sale of travelers' checks, the rental of safe
deposit facilities, and collection and mortgage services. The Bank makes
commercial, personal, construction and real estate loans, and accepts both
demand and time deposits. The Bank makes available international banking
services and corporate payroll preparation services through its correspondent
banks.
Proposed Merger
As of December 12, 1997, the Bank entered into an Agreement and
Plan of Reorganization with F&M National Corporation ("F&M Parent") and its
wholly-owned banking subsidiary F&M Bank - Northern Virginia ("F&M Subsidiary")
pursuant to and subject to the terms and conditions of which the Bank is to be
merged with and into F&M Subsidiary (the "Merger"). F&M Subsidiary is to be the
surviving operation in the Merger, upon which the separate corporate existence
of the Bank shall cease.
Pursuant to the Merger, each share of the Bank's outstanding common
stock, $5.00 par value per share, shall be converted into and exchanged for
0.942 shares of common stock, $2.00 par value per share, of F&M Parent. The
Merger is subject to certain conditions, including the approval thereof by the
Bank's shareholders.
Supervision And Regulation
The Bank is organized under the Virginia Banking Act, as amended.
The Bank is subject to regulation by the Virginia State Corporation Commission.
Additionally, the Bank is subject to the applicable rules and regulations of the
Federal Deposit Insurance Corporation. Various requirements and restrictions
under the laws of
1
<PAGE>
the United States and the Commonwealth of Virginia affect the operations of the
Bank, including the requirement to maintain reserves against deposits,
restrictions on the nature and amount of loans which may be made, and
restrictions relating to investments and other activities of the Bank.
Banking Offices
The Bank has four general banking offices, being its main office at
1717 King Street, Alexandria, Virginia 22314, which has one 24-hour automatic
banking terminal, a branch office at 606 King Street, Alexandria, Virginia
22314, which has one 24-hour automatic banking terminal, a branch office at 7901
Richmond Highway, Alexandria, Virginia 22306, which has one 24-hour automatic
banking terminal, and a branch office at 2111 Eisenhower Avenue, Alexandria,
Virginia, 22314, which has one 24-hour automatic banking terminal. In addition,
the Bank has four remote 24-hour automatic banking terminals.
Bank Branches
The establishment of all new branches is subject to approval by
appropriate regulatory authorities. The Virginia Banking Act provides for the
branching of Virginia banks only under prescribed conditions. It provides in
part that the State Corporation Commission, when satisfied that the public
interest will thereby be served, may authorize banks having paid-up and
unimpaired capital and surplus in an amount deemed necessary to warrant
additional expansion to establish branches. The Bank currently has no
applications pending to open branch offices.
Insurance of Accounts
The accounts of the Bank's depositors are insured up to $100,000
for each account holder by the Federal Deposit Insurance Corporation, an
instrumentality of the United States Government. Insurance of the Bank's
accounts is subject to the Federal statutes and regulations governing insured
banks, to examination by the Federal Deposit Insurance Corporation and to
certain limitations and restrictions imposed by said agency.
Service Area
The primary service area of the Bank is the City of Alexandria,
Virginia, and its environs. The City of Alexandria, as of 1990, had a population
of approximately 108,763, and it is estimated that it will have a population of
approximately 120,000 in 1998. Alexandria, which is to the south of Washington,
D. C., south of and adjacent to Arlington County, Virginia, and east of and
adjacent to Fairfax County, Virginia, is a part of the Washington, D. C.
metropolitan area.
2
<PAGE>
Competition
The Bank exists in a highly competitive bank environment. In the
City of Alexandria, Virginia, there are offices of twelve (12) other commercial
banks, all except two of which are either subsidiary banks of holding companies,
or a branch office of a bank that conducts business on a state-wide basis, which
bank is also a subsidiary bank of a holding company.
On June 30, 1997, amounts reported to the Federal Deposit Insurance
Corporation indicated that the then 48 commercial banking offices in the City of
Alexandria, including the Bank, held approximately $2,036,103,000 in total
deposits, averaging $42,418,813 per office, of which approximately $62,146,000
was held by the Bank.
Most of the Bank's deposits are attracted from the primary service
area. A material portion of the Bank's deposits has not been obtained from a
single person or a few persons, the loss of any one or more of which would have
a materially adverse effect on the business of the Bank, nor is a material
portion of the Bank's loans concentrated within a single industry or group of
related industries.
The Bank's loan limits to individual customers for unsecured and
secured loans combined is fifteen percent (15%) of the Bank's capital and
surplus. For these purposes there may be counted as part of the surplus the
undivided profits as of the date of the most recent call statement. For
customers desiring loans in excess of the Bank's lending limits, the Bank may
loan on a participation basis with other banks taking the amount of the loan in
excess of the Bank's lending limits. In other cases, the Bank may refer such
borrowers to larger banks or other lending institutions.
During the last fiscal year the Bank did not spend a material
amount of money on research for the development of new services and the
improvement of existing services.
In order to compete effectively, the Bank relies substantially on
local promotional activity, personal contacts by its officers, directors and
shareholders, extended hours, personalized service and its reputation in the
community it serves. The Bank's business is not seasonal.
3
<PAGE>
As of December 31, 1997, and December 31, 1996, the Bank had
outstanding loan commitments as follows:
December 31, 1997 December 31, 1996
Letters of Credit $ 10,000 $ 10,000
Lines of Credit 8,928,622 6,925,008
Other Loan Commitments 2,707,500 3,835,772
------------- --------------
$ 11,646,122 $ 10,770,780
============= ==============
The Bank expects approximately $5,823,061 or 50% of the loan
commitments at December 31, 1997, to be exercised within the current year.
The Bank's major goal for the remainder of the current fiscal year
is profitable growth while maintaining sound credit and management policies.
The banking business in Virginia generally, and in the Bank's
primary service area specifically, is highly competitive with respect to both
loans and deposits, and is dominated by a relatively small number of major banks
with many offices operating over a wide geographic area. Among the advantages
such major banks have over the Bank are their ability to finance wide ranging
advertising campaigns and to allocate their investment assets to regions of
highest yield and demand. Such banks offer certain services such as trust
services and international banking which are not offered directly by the Bank
(but are offered indirectly through correspondent institutions) and, by virtue
of their greater total capitalization (legal lending limits to an individual
customer are limited to a percentage of a bank's total capital accounts), such
banks have substantially higher lending limits than does the Bank. Other
entities, both governmental and in private industry, seeking to raise capital
through the issuance and sale of debt or equity securities also provide
competition for the Bank in the acquisition of deposits.
Banking is a business which depends on interest rate differentials.
In general, the difference between the interest rate paid by the Bank to obtain
its deposits and its other borrowings and the rate received by the Bank on loans
extended to its customers and on securities held in the Bank's portfolio
comprise the major portion of the Bank's earnings.
The Depository Institutions Deregulation and Monetary Control Act
of 1980 (the "Monetary Control Act") and the Garn-St. Germain Depository
Institutions Act of 1982 (the "Depository Institutions Act") have altered the
structure and competitive relationships of the nation's financial institutions
and has resulted in fundamental changes in the banking industry and the Bank.
In addition to competing with savings institutions, commercial
banks compete with other financial institutions for funds. For instance, yields
on corporate and government debt securities and other commercial paper affect
the ability of commercial
4
<PAGE>
banks to attract and hold deposits. Commercial banks also compete for available
funds with money market instruments. Such money market funds have provided
substantial competition to banks for deposits and it is anticipated they may
continue to do so in the future.
The interest rate differentials of the Bank and therefore its
earnings are affected not only by general economic conditions, both domestic and
foreign, but also by the monetary and fiscal policies of the United States as
set by statutes and as implemented by federal agencies. These agencies can and
do implement national monetary policy, such as seeking to curb inflation and
combat recession, by their open market operations in United States Government
securities, adjustments in the amount of interest free reserves that banks and
other financial institutions are required to maintain and adjustments to the
discount rates applicable to borrowings by banks from the Federal Reserve
System. The actions of the federal agencies in these areas influence the growth
of Bank loans, investments and deposits and also affect interest rates charged
on loans and paid on deposits. The nature and time of any future changes in
monetary policies and their impact on the Bank are not predictable.
In 1985, Virginia enacted legislation providing for the acquisition
of a Virginia bank holding company or a Virginia bank by a regional bank holding
company under certain specified conditions, with the approval of the State
Corporation Commission (the "Regional Banking Act"). The region referred to in
the statute means the States of Alabama, Arkansas, Florida, Georgia, Kentucky,
Louisiana, Maryland, Mississippi, North Carolina, South Carolina, Tennessee,
Virginia and West Virginia, and the District of Columbia. The Regional Banking
Act has placed the Bank in competition with other than Virginia-based banks and
their holding companies having greater resources than the Bank, since it relaxed
the former geographic restrictions on bank holding companies. Additionally, the
United States Congress has periodically considered legislation which could
result in further deregulation of banks and other financial institutions. Such
legislation could result in the further relaxation or elimination of geographic
restrictions on banks and bank holding companies and could place the Bank in
more direct competition with other financial institutions, including mutual
funds, securities brokerage firms and investment banking firms. It cannot be
predicted whether any such legislation will be adopted, or the effect such
legislation, or the Regional Banking Act, may have on commercial banking in
general or the business of the Bank in particular.
Employees
The Bank, on December 31, 1997, had thirty-six (36) full-time
employees and 3 part-time employees for a total of 39 employees, including loan
officers, bookkeepers, tellers, and others. None of the Bank's employees are
presently represented by a union or covered under a collective bargaining
agreement. Management of the Bank considers that its employee relations are
excellent.
5
<PAGE>
ITEM 2. PROPERTIES.
(a) Properties Held in Fee.
The Bank does not hold its bank premises in fee. It does however
hold in fee certain other real estate which it acquired in settlement of certain
of its loans. As of December 31, 1997, other real estate owned was carried on
the Bank's books at $2,433,554. See Note 4 to Financial Statements.
(b) Leased Bank Premises.
The Bank's main office, containing approximately 4,700 square feet,
is located at 1717 King Street, Alexandria, Virginia. The office has one 24-hour
automatic banking terminal. The property is leased from Patricia C. Humphrey and
Scott C. Humphrey. The initial term of the lease (the "Humphrey Lease") was for
five (5) years, and expired on June 30, 1987. The Humphrey Lease was renewed for
additional five (5) year terms, effective July 1, 1987, July 1, 1992, and July
1, 1997.
The Bank leases approximately 1,792 square feet of 1727 King
Street, Alexandria, Virginia, which it has renovated into its Operations Center.
This property is contiguous to the Bank's main office. The property is leased
from NAPS Property Inc., successor to KSC Associates Limited. The term of the
lease (the "KSC Lease") is from March 1, 1990 through June 30, 2002.
The Bank's branch at 606 King Street, Alexandria, Virginia 22314
contains approximately 988 square feet on its main floor banking office. This
office also has a 24-hour automatic banking terminal. The property is leased
from certain individuals pursuant to a lease, the term of which is five (5)
years, expiring on December 31, 1998 and which provides for two (2) year renewal
options.
The Bank's branch at 7901 Richmond Highway, Alexandria, Virginia
22314 contains approximately 2,475 square feet on a 23,375 square foot parcel of
land. The property is leased pursuant to a lease the initial term of which
extends through March 1, 1999 and which provides for three five-year renewal
options.
The Bank's branch at 2111 Eisenhower Avenue, Alexandria, Virginia
contains approximately 1,755 square feet within the Eisenhower Center Office
Building II. The property is leased from the 2111 Eisenhower Avenue Limited
Partnership pursuant to a lease, the initial term of which extends from July 1,
1997 through June 30, 1999 and which provides for three additional five year
terms.
The Bank also leases certain property in the Braddock Place office
complex and at 118 King Street, both in Alexandria, Virginia, at which locations
the Bank operates automatic banking terminals.
6
<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The are no material pending legal proceedings to which the Bank is
a party, or of which property of the Bank is the subject. No such proceeding is
known by the Bank to be contemplated by any governmental authority or otherwise.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
7
<PAGE>
PART II
ITEM 5. MARKET FOR THE BANK'S COMMON STOCK AND RELATED SECURITY
HOLDER MATTERS.
(a) Trading Activity.
The Bank's common stock is inactively traded in the over-the-counter
market. The stock is quoted weekly in The Washington Post. The closing bid and
ask prices of the stock at the end of each calendar quarter in 1996 and 1997,
and on January 30, 1998, as quoted in The Washington Post are set forth below.
The prices represent prices between broker-dealers and do not include retail
mark-ups and mark-downs or any commission to the dealer. The prices may not
reflect actual transactions.
<TABLE>
<CAPTION>
Closing Bid Price Closing Ask Price
<S> <C>
1996
First Quarter (on 03/31/96) $12.00 $12.75
Second Quarter (on 06/30/96) $12.00 $13.50
Third Quarter (on 09/30/96) $12.25 $13.25
Fourth Quarter (on 12/31/96) $12.25 $14.00
1997
First Quarter (on 03/31/97) $12.75 $14.00
Second Quarter (on 06/30/97) $13.25 $14.50
Third Quarter (on 09/30/97) $14.00 $15.375
Fourth Quarter (on 12/31/97) $30.25 $31.50
1998
On January 30, 1998 $28.50 $29.25
</TABLE>
(b) Approximate Number of Equity Security Holders.
As of January 30, 1998, the Bank had approximately 604 record holders
of its common stock, $5.00 par value.
(c) Dividends.
The Bank has not paid any cash dividends since its inception,
however, the Board of Directors of the Bank declared 5% stock dividends, payable
on March 15, 1996 and February 18, 1997.
8
<PAGE>
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
Net income increased $73,771 as compared to 1996, to $647,288. Net
earnings per share were $.95 for 1997 as compared to $.89 for 1996. Pre-tax
earnings per share were $1.44 in 1997 and $1.35 in 1996. The Bank's 1997
operating income (net interest income plus other income), increased by
approximately $873,307 (26.77%) and operating expenses increased by
approximately $781,653 (31.6%) compared with 1996.
The Bank's operating expenses increased in 1997 due to the opening of a
fourth branch office and four remote ATM's. Approximate changes in major
operating expenses compared to 1995 are as follows:
Employment - increase of $291,458 (23.6%)
Occupancy - increase of $163,426 (33.5%)
Other expenses - increase of $284,644 (41.1%)
Total assets were approximately $75,857,000 at December 31, 1997.
Average assets for the year were approximately $74,236,000 compared to
$66,877,000 for 1996. Assets at December 31, 1997 were composed of cash and
investments, 16.66% (31.29% at December 31, 1996), loans, 76.09% (62.37% at
December 31, 1996), real estate owned, 3.21% (2.38% at December 31, 1996), and
other assets, 4.04% (3.96% at December 31, 1996).
Cash included amounts on deposit at other banks. The Bank's average
liquidity ratio for December 1997 was 14.81%.
The loan portfolio at December 31, 1997 consisted of commercial loans,
11.1% (14.4% at December 31, 1996), consumer loans, 3.8% (5.1% at December 31,
1996) and real estate loans, 83.9% (85.1% at December 31, 1996). The Bank has
made no agricultural or foreign loans. Real estate loans are primarily in the
nature of first and second trusts secured by residential and commercial
properties in the Bank's market area. Management periodically reviews the loan
portfolio and the adequacy of the allowance for loan losses and makes
adjustments as appropriate. A provision for loan losses of $100,000 was made for
the year ended December 31, 1997.
The level of other real estate owned (properties formerly securing
loans which were acquired through foreclosure) was $2,433,554 at December 31,
1997. The properties are carried at the lower of adjusted cost or net realizable
value. This portfolio is overseen by a committee of the board of directors who
work with management to effect the orderly sale of these assets and maximize
their value. It is the Bank's policy to enforce its collateral positions and, if
the acquisition of real estate becomes necessary, to liquidate these holdings as
soon as market conditions are favorable. All
9
<PAGE>
properties held are either in the process of sale or have been listed by real
estate agents for sale.
Liabilities at December 31, 1997 consisted of customer deposits, 99.5%
(99.4% at December 31, 1996) and other liabilities, .5% (.6% at December 31,
1996). Total deposits decreased by approximately $2,284,167 at December 31, 1997
as compared to December 31, 1996.
Core deposits (deposits excluding certificates of deposit over
$100,000) constituted approximately 91.1% of total deposits at December 31, 1997
(90.8% of total deposits at December 31, 1996). Core deposits are the Bank's
major source of funding. The Bank has arranged a credit facility composed of a
floating rate line of credit with the Federal Home Loan Bank of Atlanta as a
secondary source of funding to support residential lending and general
liquidity. Additionally, the Bank may draw an amount equal to 50% of capital on
a federal funds line with a correspondent bank. Stockholders' equity at December
31, 1997 consisted of common stock, $3,433,095, surplus, $3,605,478, undivided
profits, $809,408 and unrealized gain on available-for-sale securities, $41,059.
Capital adequacy refers to the level of capital required to sustain
asset growth over time and to absorb losses. Under the FDIC's risk-based capital
guidelines, the Bank's Risk Based capital ratio was 13.80%, Tier I capital ratio
was 10.31% and its combined Tier I and Tier II capital ratio was 10.93% at
December 31, 1997. Leverage capital was 10.63%. Current requirements are a Tier
I capital ratio of at least 4%, a combined Tier I and Tier II capital ratio of
at least 8% and a leverage capital ratio of at least 3%. The Bank is considered
a well capitalized bank under these requirements.
10
<PAGE>
TABLE A: AVERAGE BALANCE SHEETS AND NET INTEREST MARGIN
ANALYSIS
<TABLE>
Caption>
Year Ended December 31,
1997 1996
------------------------------------------------------------------------------------------------
Average Yield / Average Yield /
Balance Interest Rate Balance Interest Rate
<S> <C>
EARNING ASSETS:
Loans (1):
Commercial.................. $ 8,399,645 $985,478 11.73% $ 6,790,265 $ 681,272 10.03%
Real estate................. 44,698,026 4,280,742 9.58% 36,253,312 3,433,060 9.47%
Consumer.................... 2,946,551 255,688 8.68% 3,325,703 306,538 9.22%
------------ ------------ ------------ ------------
Total Loans.............. 56,044,222 5,521,908 9.85% 46,369,280 4,420,870 9.53%
------------ ------------ ------------ ------------
Securities:
Available for Sale.......... 7,302,719 467,020 6.40% 7,205,638 443,904 6.16%
Held to Maturity............ 377,969 24,465 6.47% 285,722 19,014 6.65%
------------ ------------ ------------ ------------
Total Securities......... 7,680,688 491,485 6.40% 7,491,360 462,918 6.18%
------------ ------------ ------------ ------------
Federal funds sold............. 24,831 1,632 6.57% 4,847,145 259,370 5.35%
Deposits with other banks...... 3,002,483 216,217 7.20% 1,967,114 120,107 6.11%
------------ ------------ ------------ ------------
3,027,314 217,849 7.20% 6,814,259 379,477 5.57%
------------ ------------ ------------ ------------
Total earning assets........ 66,752,224 6,231,242 9.33% 60,674,899 5,263,265 8.67%
------------ ------------
Cash and due from banks........ 2,419,659 2,321,501
Bank premises and
equipment................... 2,221,823 1,457,426
Other assets................... 3,412,768 2,923,239
Less: allowance for
possible loan losses........ (570,579) (499,929)
------------ ------------
Total assets............. $74,235,895 $66,877,136
============ ============
INTEREST-BEARING
LIABILITIES:
Savings deposits and NOW
accounts................... $9,219,418 231,216 2.51% $ 8,788,466 234,840 2.67%
Money market accounts.......... 19,462,281 833,832 4.28% 16,223,980 632,680 3.90%
Time deposits.................. 25,833,250 1,443,259 5.59% 24,614,593 1,442,749 5.86%
Short-term borrowings.......... 873,151 49,548 5.67% 0 0 0.00%
------------ ------------ ------------- -------------
Total interest-bearing
liabilities................. 55,388,100 2,557,855 4.62% 49,627,039 2,310,269 4.66%
Demand deposits................ 10,683,591 9,452,749
Other liabilities.............. 690,616 872,307
Stockholders' equity........... 7,473,588 6,925,041
----------- ------------
Total liabilities and
stockholders' equity........ $74,235,895 $66,877,136
=========== ============
NET INTEREST INCOME............ $3,673,387 $2,952,996
============ ============
NET YIELD ON EARNING
ASSETS......................... 5.50% 4.87%
</TABLE>
(1) For purposes of this table, nonaccruing loans have been included in
average balances, and loan fees, which are immaterial, have been included
in interest income.
11
<PAGE>
TABLE B: RATE/VOLUME ANALYSIS OF CHANGES IN INTEREST INCOME AND
EXPENSE
<TABLE>
<CAPTION>
1997 vs 1996
Increase (Decrease)
Due to Change in:
Volume Rate Net
<S> <C>
INTEREST INCOME FROM:
Loans:
Commercial................................................ $188,819 $115,387 $ 304,206
Real estate............................................... 808,753 38,929 847,682
Consumer.................................................. (32,901) (17,949) (50,850)
------------ ------- -----------
Total loans............................................ 964,671 136,367 1,101,038
------------ -------- ----------
Investment Securities
Available for Sale........................................ 6,208 16,908 23,116
Held to Maturity.......................................... 5,971 (520) 5,451
------------- ---------- ------------
Total Securities....................................... 12,179 16,388 28,567
------------- ----------- ------------
Federal funds sold........................................... (316,943) 59,205 (257,738)
Deposits with other banks.................................... 74,560 21,550 96,110
------------- ---------- -----------
(242,383) 80,755 (161,628)
------------- ---------- -----------
Total interest-earning assets.......................... 734,467 233,510 967,977
------------- ---------- -----------
INTEREST EXPENSE ON:
Savings deposits and NOW accounts............................ 10,808 (14,432) (3,624)
Money market accounts........................................ 245,692 (44,540) 201,152
Time deposits................................................ 68,084 (67,574) 510
Short-term borrowings........................................ 49,548 0 49,548
------------- ----------- ----------
Total interest-bearing liabilities..................... 374,132 (126,546) 247,586
------------- --------- ----------
NET INTEREST INCOME $ 360,335 $ 360,056 $ 720,391
============= ========== ==========
</TABLE>
The change in interest due to both rate and volume has been determined by
isolating the effect of changes in rates on a constant volume for the rate
change, with the residual effect assigned to the change in volume.
12
<PAGE>
TABLE C: INVESTMENT SECURITIES
The following table shows the book and market value of the Bank's investment
securities at December 31 of the years indicated:
<TABLE>
<CAPTION>
1997 1996
------------------------ ------------------------
(Dollars in thousands)
Book Market Book Market
<S> <C>
US government securities............................ $4,261 $4,315 $6,881 $6,909
Mortgage-backed securities.......................... 1,403 1,410 1,689 1,694
---------- ---------- ---------- ----------
Total debt securities............................... $5,664 $5,725 $8,570 $8,603
Federal Home Loan Bank stock........................ 419 419 249 249
Community Bankers' Bank stock....................... 58 58 46 46
---------- ---------- ----------- ------------
Total securities.................................... $ 6,141 $ 6,202 $ 8,865 $ 8,898
========== ========== =========== =========
</TABLE>
The following table shows maturity and repricing data for securities at market
value at December 31 of the years indicated:
<TABLE>
<CAPTION>
Weighted Weighted
Average Average
1997 Yield 1996 Yield
---- ------ ---- --------
<S> <C>
Available-for-sale securities:
Due in one year or less............................ $ 511 5.54% $ 62 7.80%
Due after one year through five years.............. 3,303 6.59% 6,353 6.45%
Due after five years through ten years............. 501 7.00% 494 7.00%
Due after ten years................................ 0 0
------ -----
4,315 6,909
Held-to-maturity securities:
Due in one year or less............................ 0 0
Due after one year through five years.............. 0 0
Due after five years through ten years............. 0 0
------ -----
0 0
Mortgage-backed securities.......................... 1,410 6.56% 1,694 6.60%
Equity securities................................... 477 295
------ ------
1,887 1,989
------- ------
Total securities.................................... $6,202 $8,898
======= =======
</TABLE>
13
<PAGE>
TABLE D: LOAN PORTFOLIO
The table below classifies loans by major category and percentage
distribution at December for the two years indicated:
<TABLE>
<CAPTION>
1997 1996
------ -----
(Dollars in thousands)
Amount % Amount %
<S> <C>
Commercial loans........................................ $7,148 12.28 $5,417 11.07
Consumer loans.......................................... 2,204 3.79 1,835 3.75
Real estate loans:
Secured by residential projects....................... 19,016 32.68 16,773 34.28
Secured by commercial projects........................ 24,413 41.95 17,826 36.43
Construction and land development..................... 5,413 9.30 7,077 14.46
-------- -------- -------- --------
58,194 100.00 48,928 100.00
Less allowance for possible loan losses.................
Deferred loan origination fees, net..................... (474) (546)
0 (4)
---------- ----------
Total loans, net...................................... $57,720 $48,378
======== =======
</TABLE>
The table below shows sensitivity of loans to changes in interest rates
at December 31 for the two years indicated:
<TABLE>
<CAPTION>
1997 1996
------ -----
Amount % Amount %
<S> <C>
Repricing frequency:
Twelve months or less................................... $30,540 53.01 $19,222 40.03
Over one year through five years........................ 23,465 40.73 18,972 39.51
Over five years......................................... 3,608 6.26 9,823 20.46
-------- ------ -------- -------
Total fixed rate loans.................................... $57,613 100.00 $48,017 100.00
======== ====== ======== ======
</TABLE>
14
<PAGE>
TABLE E: LOAN CHARGE-OFFS AND RECOVERIES AND ANALYSIS OF
ALLOWANCE LOAN LOSSES
<TABLE>
<CAPTION>
(Dollars in thousands)
1997 1996
------ -----
<S> <C>
Beginning balance of reserve............................................... $547 $475
Charge-offs:
Commercial............................................................... 12 29
Real estate.............................................................. 152 20
Installment loans to individuals......................................... 28 70
--------- ----------
192 119
Recoveries:
Commercial............................................................... 1 83
Real estate.............................................................. 0 0
Installment loans to individuals......................................... 18 50
--------- ----------
19 133
Net charge-off (recovery).................................................. 173 (14)
Provision for loan losses.................................................. 100 58
--------- ----------
Ending balance of reserve.................................................. $474 $547
========= =========
As a percent of average total loans:
Net charge-offs.......................................................... 0.31% 0.03%
Provision for loan losses................................................ 0.18% 0.13%
As a percentage of nonperforming loans:
Allowance for loan losses................................................ 168.35% 230.16%
Impaired loans:
Nonaccrual loans......................................................... $581 $961
Other.................................................................... 666 991
--------- ---------
Total............................................................. $1,247 $1,952
========= =========
</TABLE>
During 1997, the Bank recognized approximately $290,000 of interest
income on nonaccrual loans. Approximately $337,000 of interest income would have
been recognized during the year if such loans had been current in accordance
with their original terms. There were no commitments to provide additional funds
on nonaccrual or restructured loans at December 31, 1997.
Interest on loans is accrued and credited to income based upon the
principal amount outstanding. The accrual of interest income is generally
discontinued when a loan becomes 90 days past due as to principal or interest
unless the loan is well-collateralized and in the process of collection. When
interest accruals are discontinued, interest credited to income in the current
year that is unpaid and deemed uncollectible is charged to income. Prior year
interest accruals that are unpaid and deemed uncollectible are charged to the
allowance for loan losses, provided that such amounts were specifically
reserved.
15
<PAGE>
TABLE F: ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
December 31, 1997
Percent of
Loans in
Each
Allowance Category to
Amount Total Loans
<S> <C>
Balance at end of period applicable to:
Loans secured by owner-occupied residential first
trusts; government contract-secured commercial
loans................................................................... $29,659 12.91%
Loans secured by owner-occupied residential junior liens, commercial property
and construction first trusts; high quality secured commercial and
auto/truck loans........................................................ 244,169 63.80%
Average quality secured commercial; average
quality auto/truck; land development; construction
junior liens; high quality consumer..................................... 72,630 14.51%
Unsecured loans; commercial property-secured
junior liens; average quality secured consumer
loans.................................................................. 127,316 8.79%
-------- --------
$473,774 100.00%
======== =======
</TABLE>
16
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Bank's financial statements required by this item are submitted as
a separate section of this Form 10-KSB. See Item 13(a) for a listing of
financial statements.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
Effective April 25, 1996, the Bank dismissed Arthur Anderson LLP
("Arthur Anderson") as its principal independent accountant. Effective April 25,
1996, the Bank engaged S.B. Hoover & Company, L.L.P. as the Bank's principal
independent accountant.
Arthur Anderson's report on the financial statements of the Bank for
the fiscal years ended December 31, 1995 and 1994 did not contain an adverse
opinion or a disclaimer of opinion, and were not modified as to audit scope or
accounting principles.
The decision to change the independent accounting firm was recommended
and approved by the Bank's Board of Directors.
There have been no disagreements with Arthur Anderson on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure during the fiscal years ended December 31, 1995 and 1994, and
through the interim period preceding their dismissal on April 25, 1996, which
disagreements, if not resolved to the satisfaction of Arthur Anderson, would
have caused it to make reference to the subject matter of the disagreement in
connection with its reports.
17
<PAGE>
PART III
ITEM 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
(a) Directors of the Bank.
The names of the directors, their ages, position with the
Bank, principal occupations during the past five years, and the year in which
they were first elected as directors, are as follows:
<TABLE>
<CAPTION>
Position Held with Bank First Year
and/or Principal Occupations as
Name (Age) During the Past Five Years Director(A)
<S> <C>
Raymond G. Curry, Jr.2,3 (67) Chairman and Chief 1989
Executive Officer, SMC Concrete
Construction Incorporated,
Annandale, Virginia.
Francis H. Fannon, III,3 (63) Treasurer of the Bank; 1980
President, Fannon Associates, Inc.,
Alexandria, Virginia;
Chartered Life Underwriter.
Scott C. Humphrey (65) President, R. L. Kane, Inc. 1980
(real estate appraisal and
brokerage), Alexandria, Virginia.
Carol B. Moore3 (59) President, Chesapeake 1993
Consulting, Inc., Alexandria,
Virginia (Health Care Industry
Consultant).
Norman B. Schrott2 (71) Secretary of the Bank; 1980
Vice President and Manager,
A.G. Edwards & Sons, Inc.,
Alexandria, Virginia.
Edward Semonian*,1,2,3 (64) Chairman of the Board 1980
of the Bank; Clerk of the
Circuit Court for the City
of Alexandria, Virginia.
18
<PAGE>
Stephen P. Tees* (40) President, The Bank of 1996
Alexandria, Alexandria Virginia.
Michael E. Wicks2,3 (45) Principal, Kositzka, Wicks 1993
and Company, Certified
Public Accountants,
Alexandria, Virginia.
</TABLE>
(A) Any directorship listed as having commenced in 1980
includes service as a director during the period in which
the Bank was in organization.
* Member of the Executive Committee. All other members of the
Board serve on the Executive Committee on a rotating basis.
1 Ex Officio member of all of the Standing Committees of the Board of
Directors.
2 Member of Audit Committee.
3 Member of Personnel Committee.
All of the directors of the Bank are elected at the Annual Meeting
of the Shareholders to serve until their successors are elected and qualified,
unless sooner removed in accordance with applicable law.
No director or officer of the Bank has any arrangement or
understanding with any other person pursuant to which he or she was selected to
serve as a director and/or officer of the Bank.
No director of the Bank holds a directorship in any other company
with a class of securities registered pursuant to Section 12 of the Securities
Exchange Act of 1934, as amended.
None of the directors or officers of the Bank has been involved in
any legal proceedings of the type set forth in Item 401(d) of Regulation S-B.
The Bank is not aware, based solely on a review of Forms F-7, F-8
and F-8A and amendments thereto furnished to the Bank, of any person who failed
to file on a timely basis such Forms.
19
<PAGE>
(b) Principal Officers of the Bank.
The names of the principal officers of the Bank, their ages
and positions with the Bank are as follows:
<TABLE>
<CAPTION>
Name (Age) Position Held With Bank
<S> <C>
Edward Semonian (64) Chairman of the Board of the Bank since April 1997;
Vice Chairman of the Board 1982 - April 1997; Director
since 1980; Assistant Secretary 1992 - 1997.
Stephen P. Tees (40) President and Chief Executive Officer of the Bank since
April 1996; Director since April 1996; Executive Vice
President of the Bank, 1995 - 1996; Senior Vice
President of the Bank, 1992-1994; Vice President of the
Bank, 1988-1992; Assistant Vice President of the Bank,
1983-1988.
John R. Lucas, Jr. (51) Executive Vice President of the Bank since 1993; Chief
Operating Officer of the Bank since 1996; Chief
Executive Officer of the Bank, 1993 - 1996; Cashier of
the Bank since 1986; Senior Vice President of the Bank,
1988-1993; Vice President of the Bank, 1984-1988.
A. E. Arthur, Jr. (59) Senior Vice President of the Bank since 1988; Vice
President of the Bank, 1985-1988.
Bonnie D. Klepner (52) Vice President of the Bank since 1992; Assistant Vice
President of the Bank, 1988-1992.
Barbara A. Schival (45) Vice President of the Bank since April 1996
Norman B. Schrott (71) Secretary of the Bank since 1992 and Director since 1980
Francis H. Fannon, III (63) Treasurer of the Bank since May 1993 and Director
since 1980.
</TABLE>
20
<PAGE>
ITEM 10. EXECUTIVE COMPENSATION.
(a) Summary Compensation Table
The following table sets forth the annual and long-term
compensation, attributable to all service in the years ended December 31, 1997,
1996 and 1995, paid to that person who was at the end of the year ended December
31, 1997, the chief executive officer (the "Named Officer").
<TABLE>
<CAPTION>
Long-term
Annual Compensation Compensation
Other Annual Securities All Other
Name and Salary Bonus Compensation Underlying Compensation
Principal Position Year ($) ($) ($) Options(1) ($)(2)
- ------------------ ---- -------- ---------- ------------ ---------- --------
<S> <C>
Stephen P. Tees 1997 100,000 16,000 0 600 17,947
President, Chief 1996 80,000 5,173 80 788 12,318
Executive Officer 1995 80,000 3,000 976 718 11,317
</TABLE>
(1) These are with respect to options granted under the 1994 Stock
Option Plan.
(2) For the year ended December 31, 1997, consists of annual Bank
contribution to the Bank's Profit Sharing and Savings Plan in the
amount of $4,702, life insurance, health insurance and disability
insurance benefits with an aggregate value of $6,165, auto
allowance of $4,800 and club dues of $2,280.
(b) Stock Options
The following tables show grants, exercises and fiscal year-end values
of stock options for the Named Officer under the Bank's 1994 Stock Option Plan.
The Plan permits the grant of stock appreciation rights in connection with all
or any part of an option, but none has been granted.
<TABLE>
<CAPTION>
Option Grants in Last Fiscal Year
Potential Realizable
Value at Assumed
Number of % of Total Annual Rates of
Securities Options Stock Price
Underlying Granted to Exercise or Appreciation for
Options Employees in Base Price Expiration Option Term
Name Granted Fiscal Year ($/Sh)(2) Date 5%($) 10%($)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C>
Stephen P. Tees 600(1) 17.9% $13.25 01/23/07 $ 5,000 $ 12,670
</TABLE>
(1) Five hundred (500) options are all currently fully vested and
exercisable. The remaining 100 options shall be exercisable upon
a change of control of the Bank.
21
<PAGE>
(2) The exercise price of shares of the Bank's stock covered by an
incentive stock option shall not be less than 100% of the fair
market value of such shares on the date of grant. The term of
each option is 10 years.
<TABLE>
<CAPTION>
Aggregated Option Exercises in Last Fiscal Year
and FY-End Option Values
Shares Number of Securities Value of Unexercised
Acquired Value Underlying Unexercised In-The-Money Options at
on Exercise Realized Options at FY-End (#) FY-End($)(2)
Name (#)(1) ($)(2) Exercisable Unexercisable Exercisable Unexercisable
<S> <C>
Stephen P. Tees -0- -0- 13,309 2,662 $291,201 $58,245
</TABLE>
(1) Upon the exercise of an option, the optionee must pay the
exercise price in cash or stock.
(2) Represents the difference between the fair market value of the
common stock underlying the option and the exercise price at
exercise, or fiscal year-end, respectively.
(c) Compensation of Directors
Non-officer directors of the Bank received a fee of $300 per month in
1997 and $250 per committee meeting attended.
1994 Stock Option Plan
On November 17, 1994, the Board of Directors adopted the 1994 Stock
Option Plan (the "1994 Option Plan"). The 1994 Option Plan was approved by the
shareholders of the Bank at the Annual Meeting on April 27, 1995. The principal
features of the 1994 Option Plan are summarized below. The 1994 Option Plan is a
restatement of the 1986 Incentive Stock Option Plan.
The 1994 Option Plan is intended to further the long term stability and
financial success of the Bank by attracting and retaining key employees through
the use of stock incentives. Options granted under the 1994 Option Plan may be
either incentive stock options qualified under Section 422 of the Code or
non-statutory stock options.
The 1994 Option Plan is administered by the Stock Option Committee. The
Stock Option Committee has the power and complete discretion to determine which
eligible employees will receive an award, when an award will be made, the number
of shares of Common Stock covered by an award, whether options will be incentive
stock options or non-statutory stock options, whether an award will become
vested over a period of time, any conditions on the exercisability of an award
and other matters relating to awards that the Stock Option Committee deems
appropriate.
22
<PAGE>
There are reserved for issuance under the 1994 Option Plan 100,000 shares
of Common Stock. The exercise price of all options under the Plan may not be
less than the fair market value of the shares on the date of grant, and no
option may be exercised more than ten years after the grant.
The 1994 Option Plan provides that the Stock Option Committee may, in its
discretion, grant options that by their terms become exercisable upon a change
of control of the Bank, notwithstanding other conditions of exercisability in
the stock option agreement.
As of December 31, 1997, options granted under the 1994 Option Plan, and
the persons to whom granted are as follows:
<TABLE>
<CAPTION>
Weighted
Options Granted Re Additional Options Total Average
Grantee Options Granted Change of Control Re Dividends(1) Options Option Price
- ------- --------------- ----------------- --------------- ------- ------------
<S> <C>
Stephen P. Tees 12,125 2,662 1,184 15,971 $9.000
John R. Lucas, Jr. 12,125 2,641 1,082 15,848 9.359
Harvey R. Boltwood 10,800 2,373 1,065 14,238 8.932
A. E. Arthur 9,275 2,042 936 12,253 8.772
Bonnie D. Klepner 2,950 646 281 3,877 9.148
Barbara S. Schival 2,650 557 133 3,340 12.170
BJ Urban 150 32 8 190 12.619
John F. Dziekan 150 32 8 190 12.619
James I. Spencer, Jr. 150 32 8 190 12.619
Sahron A. Dargan 150 32 8 190 12.619
-------- --------- ---------- --------
50,525 11,049 4,713 66,287
====== ====== ======= ======
</TABLE>
(1) The Bank paid 5% stock dividends in both 1996 and 1997.
Profit Sharing and Savings Plan
As of January 1, 1992, The Bank of Alexandria Employee Stock Ownership
Plan (the "ESOP") was amended and restated as The Bank of Alexandria Profit
Sharing And Savings Plan (the "Plan"). The ESOP accounts of all participants
were preserved under the Plan. At the time of the amendment and reinstatement,
6,100 shares of the Bank's stock had been purchased by the ESOP. All
participants in the ESOP became participants in the Plan. Each new employee of
the Bank who is age 21 is eligible to become a participant after completing one
year of service (12 months and working 1000 hours) or at December 31 of any
later calendar year in which the employee works 1000 hours. The Bank's
contributions to the Plan are determined in the discretion of the Board of
Directors. Those contributions are invested by the trustees. Contributions are
allocated among the participants in the Plan in proportion to their
compensation, taking into account Social Security contributions made by the Bank
to the permissible limits under the Internal Revenue Code. Upon a participant's
retirement, disability or
23
<PAGE>
death, his account is 100% vested. If a participant's employment terminates for
any reason other than his retirement, disability or death, his account will vest
based on his years of service under the following schedule: less than three
years - 0%, three years - 20%; four years - 40%; five years - 60%; six years -
80%; and seven or more years - 100%. The Plan is administered by the Trustees
and an Administrative Committee, each comprised of individuals appointed by the
Board of Directors. A contribution of $37,200 was made to the Plan for 1997. The
amounts of the 1997 contribution allocated to the officers of the Bank were as
follows: Alphus E. Arthur, Jr. - $3,120; John R. Lucas, Jr. - $3,701; Stephen P.
Tees - $4,702; and all principal officers as a group (5 persons) - $15,086.
24
<PAGE>
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
(a) The Bank has only one class of voting securities outstanding, common
stock, $5.00 par value. As of January 30, 1998, there were 686,619 shares of
such stock outstanding.
(b) To the knowledge of the Bank, as of January 30, 1998, no person or entity
is the beneficial owner of more than five percent (5%) of the Bank's outstanding
voting securities, except the following:
<TABLE>
<CAPTION>
Name and Address of Number of Shares Percentage of Outstanding
Beneficial Owner Beneficially Owned Shares of Common Stock
<S> <C>
Raymond G. Curry, Jr. 54,372 7.919%
3713 Templeton Avenue
Alexandria, VA 22304
Scott C. Humphrey 47,310 6.890%
301 Mansion Drive
Alexandria, VA 22302
Edward Semonian 44,821 6.528%
409 Green Street
Alexandria, VA 22314
</TABLE>
25
<PAGE>
The following information is furnished with respect to each
director and senior executive officer of the Bank and with respect to all
directors and senior executive officers of the Bank as a group who are the
beneficial owners of any of the Bank's common stock, $5.00 par value, as of
January 30, 1998:
Name of Amount and Nature of Percent of
Beneficial Owner(s) Beneficial Ownership Class(1)
Alphus E. Arthur, Jr. 14,180(2) 2.035%
Raymond G. Curry, Jr. 54,372(3) 7.919%
Francis H. Fannon, III 19,327(4) 2.815%
Scott C. Humphrey 47,310(5) 6.890%
Bonnie D. Klepner 3,231(6) .468%
John R. Lucas, Jr. 15,134(7) 2.163%
Carol B. Moore 2,775 .404%
Barbara A. Schival 2,783(8) .404%
Norman B. Schrott 24,393(9) 3.553%
Edward Semonian 44,821(10) 6.528%
Stephen P. Tees 13,807(11) 1.973%
Michael E. Wicks 5,422(12) .790%
All directors and senior
executive officers as a group 247,555(1) 33.941%
(1) Assuming the exercise of outstanding options to purchase 42,740 shares,
for a total of 729,359 shares outstanding.
(2) Includes 10,211 shares which he has the right to acquire through the
exercise of an option.
(3) Includes 1,884 shares owned by Madelyn A. Curry, his wife, 5,611 shares
in an IRA Account held by A G Edwards & Sons, Inc. as custodian for
Raymond G. Curry, Jr., and 220 shares held by Mr. Curry as custodian
for Andrew J. Somerville IV, his grandson.
(4) Includes 551 shares owned by Kathleen Fannon, his wife, 5,512 shares
owned by the F.H. Fannon Trust, 316 shares owned by Francis H. Fannon
IV, his son, and 315 shares owned by Ryan P. Fannon, his son.
(5) Includes 2,205 shares held jointly with Patricia C. Humphrey, his wife,
1,212 shares held by Mary Jane Humphrey, his daughter, 1,818 shares held
by Sarah H. Douglas, his daughter, 2,403 shares owned by Patricia C.
Humphrey, his wife and 6,382 shares owned by R. L. Kane, Inc. of which
Mr. Humphrey is president.
(6) Includes 3,231 shares which she has the right to acquire through the
exercise of an option.
(7) Includes 13,206 shares which he has the right to acquire through the
exercise of an option and 1,036 shares owned by Twelve Twenty
Partnership of which Mr. Lucas is a partner.
26
<PAGE>
(8) Includes 2,783 shares which she has the right to acquire through the
exercise of an option.
(9) Includes 4,585 shares held jointly with Helene W. Schrott, his wife,
1,323 shares owned by Helene W. Schrott, his wife, 330 shares owned by
Howard Schrott, his son, 330 shares owned by Ilene S. Gray, his
daughter, and 440 shares held as custodian by Ilene S. Gray, his
daughter.
(10) Includes 771 shares owned by Patricia Semonian, his wife.
(11) Includes 13,309 shares which he has the right to acquire through the
exercise of an option.
(12) Includes 4,981 shares in an IRA account held by A. G. Edwards & Sons,
Inc. as custodian for Michael E. Wicks.
Except for the proposed merger of the Bank with F&M Subsidiary
discussed under "Item 1. Business - Proposed Merger," the Bank is unaware of any
definitive arrangement which may operate at a subsequent date to effect a change
in control of the Bank.
To the knowledge of the Bank, there is no voting trust or similar
agreement to which more than ten percent (10%) of the voting securities of the
Bank are held or to be held.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
During the two years ended December 31, 1997 loans were made to
directors, officers and their associates. The Bank has had in the past, and
expects to have in the future, banking transactions in the ordinary course of
business with many of its directors, officers and their associates. All loans
will be made in accordance with Virginia law and in compliance with federal
regulations on the same terms and conditions as those prevailing at the same
time for comparable transactions with others.
<TABLE>
<CAPTION>
Name of Individual or
Identity of Group Whose Largest Aggregate Outstanding
Loans Exceeded 10% During Period January 1, 1996 Outstanding as of
of Equity Capital through January 31, 1998 January 31, 1998
<S> <C>
Raymond G. Curry, Jr.
(Director), associates
and related entities $1,150,000(1) $1,150,000(1)(2)
All directors, principal
officers and associates,
as a group $1,824,279(1) $1,801,685(1)(3)
</TABLE>
27
<PAGE>
(1) These loans are, primarily, in the nature of personal, real
estate and commercial loans.
(2) This total represents approximately 14.58% of equity capital
accounts as of January 31, 1998.
(3) This total represents approximately 22.84% of equity capital
accounts as of January 31, 1998.
The Bank had, and expects to have in the future, banking transactions
in the ordinary course of its business with directors, officers, principal
shareholders, and their associates, on the same terms, including interest rates
and collateral on loans as those prevailing at the same time for comparable
transactions with others, and which do not involve more than the normal risk of
collectibility or present other unfavorable features.
The Bank's main office is leased from Patricia C. Humphrey and Scott C.
Humphrey. Scott C. Humphrey was a promoter, director and Chairman of the Board
at the time that the lease was executed. He is now a director. In the opinion of
management of the Bank, the terms of the lease, including the rental payments,
are not less favorable than the terms that would have been available from
unaffiliated parties.
28
<PAGE>
PART IV
ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM F-3.
(a) Financial Statements. Page
Independent Auditor's Report F-1
Statements of Condition as of December 31, F-2
1997 and 1996
Statements of Income for the years F-3
ended December 31, 1997 and 1996
Statements of Changes in Stockholders' F-4
Equity for the years ended December 31, 1997
and 1996
Statements of Cash Flows for the years F-5
ended December 31, 1997 and 1996
Notes to Financial Statements F-6 - F-17
(b) Exhibits.
3.1 Articles of Incorporation of The Bank of Alexandria, as amended,
filed as Exhibit 1.1 to Form F-2 for the year ended December 31, 1988.
3.2 Bylaws of The Bank of Alexandria, as amended, filed as Exhibit 1.2
to Form F-2 for the year ended December 31, 1993.
3.3 Specimen copy of Common Stock Certificate, $5.00 par value, of The
Bank of Alexandria, filed as Exhibit 3.1 to Form F-2 for the year ended December
31, 1985.
3.5 Form of The Bank of Alexandria Convertible Subordinated Debentures,
Series A, Due June 30, 1985, filed as Exhibit 3.2 to Form F-2 for the year ended
December 31, 1985.
3.6 Form of The Bank of Alexandria Convertible Subordinated Debentures,
Series B, Due October 15, 1991, filed as Exhibit 3.3 to Form F-2 for the year
ended December 31, 1985.
29
<PAGE>
10.1a Agreement of Lease, dated April 1, 1982, between Patricia C.
Humphrey and Scott C. Humphrey ("Landlord"), and The Bank of Alexandria
("Tenant"), filed as Exhibit 7.2 to Form F-2 for the year ended December 31,
1985.
10.1b Letter Agreement dated January 27, 1987, relative to the exercise
of the first renewal option under the Agreement of Lease, dated April 1, 1982,
between Patricia C. Humphrey and Scott C. Humphrey ("Landlord"), and The Bank of
Alexandria ("Tenant"), filed as Exhibit 7.2a to Form F-2 for the year ended
December 31, 1986.
10.1c Letter Agreement dated September 10, 1991, relative to the
exercise of the second renewal option under the Agreement of Lease, dated April
1, 1982, between Patricia C. Humphrey and Scott C. Humphrey ("Landlord"), and
The Bank of Alexandria ("Tenant"), filed an Exhibit 7.2b to Form F-2 for the
year ended December 31, 1991.
10.2a Office Lease, dated March 26, 1984, between Bankers Square
Associates ("Landlord") and The Bank of Alexandria ("Tenant"), filed as Exhibit
7.5 to Form F-2 for the year ended December 31, 1985.
10.2b Letter, dated February 1, 1989, relative to Lease Renewal
Agreement with respect to Office Lease, dated March 26, 1984, between Bankers
Square Associates ("Landlord") and The Bank of Alexandria ("Tenant"), filed as
Exhibit 7.5a to Form F-2 for the year ended December 31, 1988.
10.3 Employment Agreement dated September 11, 1985 between The Bank of
Alexandria and Alphus E. Arthur, Jr., filed as Exhibit 7.7 to Form F-2 for the
year ended December 31, 1985.
10.4a The Bank of Alexandria 1986 Incentive Stock Option Plan, filed as
Exhibit 7.8 to Form F-2 for the year ended December 31, 1986.
10.4b The Bank of Alexandria 1994 Stock Option Plan, filed as Exhibit
7.8b to Form F-2 for the year ended December 31, 1994.
10.4c Form of The Bank of Alexandria 1994 Stock Option Plan Incentive
Stock Option Agreement, filed as Exhibit 7.8c to the Form F-2 for the year ended
December 31, 1994.
10.5 Employment Agreement dated May 20, 1996 between The Bank of
Alexandria and Harvey R. Boltwood.
10.6 Employment Agreement dated as of January 1, 1997, between The
Bank of Alexandria and John R. Lucas, Jr.
30
<PAGE>
10.7 Employment Agreement dated as of January 1, 1997 between the
Bank of Alexandria and Stephen P. Tees.
10.8a The Bank of Alexandria Employee Stock Ownership Plan effective
January 1, 1988, as amended, filed as Exhibit 7.10 to Form F-2 for the year
ended December 31, 1988.
10.8b The Bank of Alexandria Profit Sharing and Savings Plan (Amendment
and Restatement of The Bank of Alexandria Employee Stock Ownership Plan
effective January 1, 1988, as amended) effective as of January 1, 1992, filed as
Exhibit 7.10a to Form F-2 for the year ended December 31, 1992.
10.8c Second Amendment to the Bank of Alexandria Profit Sharing and
Savings Plan effective as of June 26, 1996, filed as Exhibit 7.10b to Form F-2
for the year ended December 31, 1996.
10.9a Agreement of Lease, dated January 5, 1990, between KSC Associates
Limited Partnership ("Landlord") and The Bank of Alexandria ("Tenant"), filed an
Exhibit 7.11 to Form F-2 for the year ended December 31, 1990.
10.9b Letter, dated February 10, 1994, from King Street Metro L.P. and
Federal Deposit Insurance Corporation, as Receiver of Meritor Savings Bank, to
The Bank of Alexandria, relative to the sale of the property which is the
subject of the Agreement of Lease referred to in Exhibit 7.11, filed as Exhibit
7.11a to the Form F-2 for the year ended December 31, 1994.
10.9c Letter, dated October 21, 1993, from NAPS Property and Federal
Deposit Insurance Corporation, as Receiver of Meritor Savings Bank, to The Bank
of Alexandria, relative to the sale of the property which is the subject of the
Agreement of Lease referred to in Exhibit 7.11, filed as Exhibit 7.11b to the
Form F-2 for the year ended December 31, 1994.
10.10 Deed of Lease, effective November 2, 1993, between Edward Woolf
and Shirley Woolf, husband and wife, and Albert Woolf and Nora Woolf, husband
and wife ("Landlord") and The Bank of Alexandria ("Tenant"), filed as Exhibit
7.12 to Form F-2 for the year ended December 31, 1993.
10.11 Assignment of Lease, dated March 8, 1996, between Town & Country
Properties, Inc. ("Assignor") and the Bank of Alexandria ("Assignee" and
"Tenant"), and related Agreement of Lease between Marie F. Blunt ("Landlord")
and Assignor, filed as Exhibit 7.13 to Form F-2 for the year ended December 31,
1996.
10.12 License Agreement dated as of July 2, 1997 by and between the
King Street Investment Company, L.L.C. and the Bank of Alexandria.
31
<PAGE>
10.13 License Agreement dated as of January 31, 1997 by and between Ten
Hage III Corporation and the Bank of Alexandria.
10.14 Office Lease Agreement dated May 7, 1997 by and between 2111
Eisenhower Avenue Limited Partnership and the Bank of Alexandria.
Reports on Form F-3.
No reports on Form F-3 were filed during the quarter ended December 31, 1997.
32
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 of the Securities Exchange
Act of 1934, the Bank has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
THE BANK OF ALEXANDRIA
February 26, 1998 By: /s/ Stephen P. Tees
-------------------
Stephen P. Tees
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons on behalf of
the Bank and in the capacities and on the dates indicated.
February 26, 1998 /s/ Stephen P. Tees
-------------------
Stephen P. Tees, President and Chief Executive
Officer, Principal Executive Officer
February 26, 1998 /s/ John R. Lucas, Jr.
----------------------
John R. Lucas, Jr., Executive Vice President,
Chief Operating Officer, Cashier and Principal
Financial and Accounting Officer
February 26, 1998 /s/ Raymond G. Curry, Jr.
-------------------------
Raymond G. Curry, Jr., Director
February 26, 1998 /s/ Francis H. Fannon
---------------------
Francis H. Fannon, III, Director
February 26, 1998 /s/ Scott C. Humphrey
---------------------
Scott C. Humphrey, Director
February ___, 1998
Carol B. Moore, Director
February ___, 1998
Norman B. Schrott, Director
February 26, 1998 /s/ Edward Semonian
-------------------
Edward Semonian, Director
February 26, 1998 /s/ Stephen P. Tees
-------------------
Stephen P. Tees, Director
February 26, 1998 /s/ Michael E. Wicks
--------------------
Michael E. Wicks, Director
33
<PAGE>
[GRAPHIC OMITTED]
S.B. HOOVER & COMPANY, L.L.P.
Certified Public Accountants
124 Newman Avenue o P.O. Box 1087 o Harrisonburg, VA 22801
o (540)434-6736 o FAX (540)434-3097
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders
The Bank of Alexandria
We have audited the statements of condition of The Bank of Alexandria (a
Virginia corporation) as of December 31, 1997 and 1996, and the related
statements of income, changes in stockholders' equity and cash flows for the
years then ended. These financial statements are the responsibility of the
Bank's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the 1997 and 1996 financial statements referred to above present
fairly, in all material respects, the financial position of The Bank of
Alexandria as of December 31, 1997 and 1996, and the results of its operations
and its cash flows for the years then ended in conformity with generally
accepted accounting principles.
/s/ S.B. Hoover & Company, L.L.P.
Harrisonburg, Virginia
February 10, 1998
Members of the American Institute of Certified Public Accountants
and Virginia Society of Certified Public Accountants
F-1
<PAGE>
THE BANK OF ALEXANDRIA
STATEMENTS OF CONDITION
DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
ASSETS 1997 1996
<S> <C>
Cash and due from banks $ 6,439,573 $ 15,321,511
Federal funds sold 50,000
Available-for-sale securities (Note 2) 6,202,317 8,898,374
Loans, net of allowance for loan losses of
$473,774 and $546,313 respectively (Notes 3, 4 and 10) 57,720,215 48,377,872
Other real estate owned (Note 5) 2,433,554 1,847,332
Furniture, equipment and leasehold improvements, net
(Note 6) 2,337,109 2,094,058
Accrued interest receivable 543,223 631,984
Other assets 183,389 338,989
-------------- ----------------
Total Assets $ 75,859,380 $ 77,560,120
============== ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Demand deposits $ 13,635,562 $ 11,255,200
Savings deposits and NOW accounts 10,042,179 9,236,825
Money market accounts 17,770,760 23,256,411
Time deposits of less than $100,000 (Note 7) 20,037,108 19,876,091
Time deposits of $100,000 or more (Note 7) 6,142,717 6,287,966
-------------- ----------------
Total Deposits 67,628,326 69,912,493
Accrued interest payable 184,132 174,849
Other liabilities 157,882 248,907
-------------- ----------------
Total Liabilities 67,970,340 70,336,249
-------------- ----------------
Stockholders' equity (Notes 13, 14 and 16):
Common stock, par value $5 per share; 1,325,000
shares authorized; 686,619 and 654,021 shares
issued and outstanding, respectively 3,433,095 3,270,105
Surplus 3,605,478 3,336,650
Undivided profits 809,408 595,407
Unrealized gain on available-for-sale securities,
net of taxes of $21,151 and $11,183, respectively 41,059 21,709
-------------- ----------------
Total Stockholders' Equity 7,889,040 7,223,871
-------------- ----------------
Total Liabilities and Stockholders' Equity $ 75,859,380 $ 77,560,120
============== ================
</TABLE>
The accompanying notes are an integral part of this statement.
F-2
<PAGE>
THE BANK OF ALEXANDRIA
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C>
INTEREST INCOME:
Loans and loan fees $ 5,521,908 $ 4,420,870
Investment securities 491,485 462,918
Deposits with other banks 216,217 120,107
Federal funds sold 1,632 259,370
-------------- --------------
Total Interest Income 6,231,242 5,263,265
-------------- --------------
INTEREST EXPENSE:
Savings deposits and NOW accounts 231,216 234,840
Money market accounts 833,832 632,680
Time deposits of less than $100,000 1,112,334 1,101,596
Time deposits of $100,000 or more 330,925 341,153
Borrowings 49,548
-------------- --------------
Total Interest Expense 2,557,855 2,310,269
-------------- --------------
Net interest income 3,673,387 2,952,996
-------------- --------------
PROVISION FOR LOAN LOSSES 100,000 57,875
-------------- --------------
Net interest income after provision
for loan losses 3,573,387 2,895,121
-------------- --------------
NONINTEREST INCOME:
Service charges on deposit accounts 259,906 165,702
Other noninterest income 308,560 229,848
-------------- --------------
Total Noninterest Income 568,466 395,550
-------------- --------------
NONINTEREST EXPENSE:
Salaries and employee benefits (Note 13) 1,528,285 1,236,827
Bank premises and equipment (Notes 6, 8 and 10) 651,793 488,367
Net other real estate owned expenses (Note 5) 66,374 80,569
Other noninterest expense 910,320 611,481
-------------- --------------
Total Noninterest Expense 3,156,772 2,417,244
-------------- --------------
Income before income taxes 985,081 873,427
PROVISION FOR INCOME TAXES (Note 9) 337,793 299,910
-------------- --------------
NET INCOME $ 647,288 $ 573,517
============== ==============
EARNINGS PER SHARE (Note 15) $ .95 $ .89
============== ==============
WEIGHTED-AVERAGE NUMBER OF SHARES 682,113 647,661
============== ==============
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
THE BANK OF ALEXANDRIA
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
Net Unrealized
(Loss)
Gain on
Common Undivided Available-For-Sale
Stock Surplus Profits Securities Total
<S> <C>
BALANCE DECEMBER 31, 1995 $ 3,114,920 $ 3,096,113 $ 419,045 $ (1,837) $ 6,628,241
5% stock dividend
Shares 155,185 240,537 (395,722)
Cash (1,432) (1,432)
Net changes in unrealized
gain on available-for-sale
securities, net of tax 23,546 23,546
Net income 573,518 573,518
----------- ----------- ------------ ----------- ------------
BALANCE DECEMBER 31, 1996 3,270,105 3,336,650 595,409 21,709 7,223,873
5% stock dividend
Shares 162,200 267,630 (429,830)
Cash (3,459) (3,459)
Stock option exercised 790 1,198 1,988
Net changes in unrealized
gain on available-for-sale
securities, net of tax 19,350 19,350
Net income 647,288 647,288
----------- ----------- ------------ ----------- ------------
BALANCE DECEMBER 31, 1997 $ 3,433,095 $ 3,605,478 $ 809,408 $ 41,059 $ 7,889,040
=========== =========== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
THE BANK OF ALEXANDRIA
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 647,288 $ 573,517
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 294,988 216,587
Net amortization (accretion) on securities 5,900 (66,029)
Provision for losses on loans and
other real estate owned 122,447 107,875
Increase in accrued interest receivable 67,420 (95,716)
Decrease in other assets 92,923 7,743
Increase (decrease) in accrued
interest payable 9,283 (7,021)
Decrease in other liabilities (38,313) (34,513)
-------------- --------------
Total Adjustments 554,648 128,926
-------------- --------------
Net Cash Provided by Operating Activities 1,201,936 702,443
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Maturities of securities available for sale 1,899,939 8,131,779
Sale of securities available for sale 1,000,938
Purchases of securities available for sale (181,400) (10,674,293)
Net increase in loans (9,857,468) (2,490,788)
Purchase of furniture, equipment and
leasehold improvements (538,041) (1,068,488)
Payments applied against other real estate owned 100,100
Additions to other real estate owned (272,304) (68,129)
--------------- --------------
Net Cash Used in Investing Activities (7,848,236) (6,169,919)
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in time deposits 15,768 1,407,578
Net increase (decrease) in other deposit accounts (2,299,936) 8,378,403
Cash dividends paid (3,459) (1,432)
Stock options exercised 1,988
-------------- --------------
Net Cash Provided by (Used in) Financing Activities (2,285,639) 9,784,549
-------------- --------------
Net Increase (Decrease) in Cash and Cash Equivalents (8,931,939) 4,317,073
Cash and Cash Equivalents, Beginning of Year 15,371,512 11,054,438
-------------- --------------
Cash and Cash Equivalents, End of Year $ 6,439,573 $ 15,371,511
============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING
AND FINANCING ACTIVITIES:
Loans and accrued interest transferred to
other real estate owned $ 775,196 $
Financed sales of other real estate owned 338,730
SUPPLEMENTAL DISCLOSURES:
Income taxes paid $ 316,000 $ 291,202
Interest paid 2,548,572 2,317,290
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis for Accounting
The accompanying financial statements of The Bank of Alexandria (the "Bank")
have been prepared in accordance with generally accepted accounting principles
and conform to general practices within the banking industry. The Bank is
principally engaged in the business of attracting deposits from the public and
using such deposits, together with borrowings and other funds, to make loans
secured by real estate, and various types of consumer and commercial loans.
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 revenue and expenses during the reporting period. Actual
results could differ from those estimates.
The determination of the adequacy of the allowance for loan losses is based on
estimates that are particularly susceptible to significant changes in the
economic environment and market conditions.
Investment Securities
The Bank's securities are classified as available-for-sale. Securities
available-for-sale are carried at fair value with unrealized gains and losses
reported separately net of tax, through a separate component of stockholders'
equity. Gains and losses on sales of securities are determined on the
specific-identification method.
Furniture, Equipment and Leasehold Improvements
Furniture, equipment and leasehold improvements are carried at original cost
less accumulated depreciation and amortization. Depreciation and amortization
are calculated using the straight-line method based on estimated useful lives
ranging from 3 to 20 years.
Loans
Loans are stated at unpaid principal balances, less the allowance for loan
losses and net deferred loan fees and unearned discounts.
Prior to 1997, loan origination and commitment fees, as well as certain direct
origination costs, were deferred and amortized as a yield adjustment over the
lives of the related loans using the interest method. On January 1, 1997, the
Bank discontinued the deferral of loan fees and direct origination costs because
the deferrals did not significantly affect income.
Interest income generally is not recognized on specific impaired loans unless
the likelihood of further loss is remote. Interest payments received on such
loans are applied as a reduction of the loan principal balance. Interest income
on other impaired loans is recognized only to the extent of interest payments
received.
F-6
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED):
Allowance for Loan Losses
The allowance for loan losses represents an amount which, in management's
judgement, will be adequate to absorb possible losses on existing loans that may
become uncollectible. Management's judgement in determining the adequacy of the
allowance is based on evaluations of the collectibility of loans. These
evaluations take into consideration such factors as changes in the nature and
volume of the loan portfolio, current economic conditions that may affect the
borrowers' ability to pay, overall portfolio quality, and review of specific
problem loans.
Other Real Estate Owned
Real estate properties acquired through or in lieu of loan foreclosure are
initially recorded at the lower of the Bank's carrying amount or fair value less
estimated selling cost at the date of foreclosure. Any write-downs based on the
asset's fair value at the date of acquisition are charged to the allowance for
loan losses. After foreclosure, these assets are carried at the lower of their
new cost basis or fair value less cost to sell. Costs of significant property
improvements are capitalized, whereas costs relating to holding property are
expensed. Valuations are periodically performed by management, and any
subsequent write-downs are recorded as a charge to operations, if necessary, to
reduce the carrying value of a property to the lower of its cost or fair value
less cost to sell.
Income Taxes
Amounts provided for income tax expense are based on income reported for
financial statement purposes rather than amounts currently payable under income
tax laws. Deferred taxes, which arise from temporary differences between the
period in which certain income and expenses are recognized for financial
accounting purposes and the period in which they affect taxable income, are
included in the amounts provided for income taxes.
Required Depository Reserves
The Bank is required by regulatory authorities to maintain a specified portion
of its assets in the form of reserves. Such reserves consist of vault cash and
balances maintained at the Federal Reserve Bank. Balances required to be
maintained at the Federal Reserve Bank for 1996 and 1997 were not material.
Statement of Cash Flows
For purposes of reporting cash flows, cash and cash equivalents include cash and
amounts due from banks, time deposits with other banks and Federal funds sold.
Generally, Federal funds are purchased and sold for one-day periods.
Prior Year Reclassifications
Certain amounts in the prior years' financial statements have been reclassified
to conform to current year presentation.
F-7
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES:
The amortized cost and the approximate fair values of the Bank's investment
securities as of December 31, 1997 and 1996 are as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
<S> <C>
December 31, 1997
Available-for-Sale Securities:
U. S. Treasury and
government securities $4,260,527 $ 58,531 $ (3,807) $ 4,315,251
Mortgage-backed
securities 1,402,779 9,855 (2,368) 1,410,266
Equity investments 476,800 476,800
------------ -------------- -------------- ------------
Total Available-for-
Sale Securities $ 6,140,106 $ 68,386 $ (6,175) $ 6,202,317
=========== ============== ============== ============
December 31, 1996
Available-for-Sale Securities:
U. S. Treasury and
government securities $6,880,678 $ 45,874 $ (17,688) $ 6,908,864
Mortgage-backed
securities 1,689,405 9,826 (5,121) 1,694,110
Equity investments 295,400 295,400
----------- ------------- -------------- -------------
Total Available-for-
Sale Securities $8,865,483 $ 55,700 $ (22,809) $ 8,898,374
=========== ============== ============== ==============
</TABLE>
F-8
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
2. INVESTMENT SECURITIES (CONTINUED):
The amortized cost and estimated fair value of investment securities at December
31, 1997, by contractual maturity, are as follows:
<TABLE>
<CAPTION>
Aggregate
Amortized Fair
December 31, 1997 Cost Value
<S> <C>
Available-for-Sale Securities:
U. S. Treasury and government securities:
Maturing within one year $ 515,152 $ 511,345
Maturing after one year, but within five years 3,245,375 3,303,281
Maturing after five years, but within ten years 500,000 500,625
Mortgage-backed securities 1,402,779 1,410,266
Equity Investments 476,800 476,800
-------------- --------------
Total Available-for-Sale Securities $ 6,140,106 $ 6,202,317
============== ==============
</TABLE>
Equity investments include common stock issued by the Federal Home Loan Bank and
the Community Bankers Bank. The investments are restricted as to sale as long as
the Bank participates in the programs offered by those organizations.
Securities with a carrying value of $1,272,000 and $2,272,000 were pledged at
December 31, 1997 and 1996 to secure certain deposits. During 1997 proceeds from
the sale of securities available for sale were $1,000,938 which resulted in a
loss of $585. No securities were sold in 1996.
3. LOANS:
Loans at December 31, 1997 and 1996 are summarized as follows:
1997 1996
Commercial loans $ 7,148,371 $ 5,412,827
Consumer loans 2,203,322 1,835,279
Real estate loans:
Secured by residential properties 19,015,555 16,772,895
Secured by commercial properties 24,413,347 17,825,604
Construction and land development 5,413,394 7,077,580
-------------- --------------
58,193,989 48,924,185
Less allowance for possible loan losses (473,774) (546,313)
-------------- --------------
Total Loans, Net $ 57,720,215 $ 48,377,872
============== ==============
The Bank's loans are generally secured by specific items of collateral including
real property, consumer assets, and business assets. Although the Bank has a
diversified loan portfolio, a substantial portion of its debtors' ability to
honor their contracts is dependent on local economic conditions and real estate
values.
F-9
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
3. LOANS (CONTINUED):
The Bank's impaired loans are shown in the following schedule at December 31,
1997 and 1996.
<TABLE>
<CAPTION>
1997 1996
<S> <C>
Nonaccrual loans $ 581,155 $ 960,905
Other 666,484 991,045
-------------- --------------
$ 1,247,639 $ 1,951,950
============== ==============
Average investment in impaired loans for each year $ 1,631,069 $ 2,167,592
Allowance for loan losses related to impaired loans 202,529 350,705
</TABLE>
Forgone interest on nonaccrual loans did not have a significant effect on
interest income for 1997 and 1996.
4. ALLOWANCE FOR POSSIBLE LOAN LOSSES:
An analysis of the allowance for possible loan losses as of December 31, 1997
and 1996, is as follows:
1997 1996
Balance, Beginning of the Year $ 546,313 $ 474,796
Provision for loan losses 100,000 57,875
Loans charged off (191,650) (119,244)
Recoveries 19,111 132,886
-------------- --------------
Balance, End of the Year $ 473,774 $ 546,313
============== ==============
F-10
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
5. OTHER REAL ESTATE OWNED:
Other real estate owned which was acquired in settlement of loans and the
related valuation allowance was as follows at December 31, 1997 and 1996:
1997 1996
Fair value at date of acquisition $ 2,553,554 $ 1,944,885
Valuation allowance (120,000) $ (97,553)
-------------- --------------
Net Other Real Estate Owned $ 2,433,554 $ 1,847,332
============== ==============
Other real estate owned is carried at fair value based on management's estimate
of fair value less selling costs and in most cases is supported by appraisals or
current sales contracts of the properties. The Bank intends to hold these
properties and dispose of them in an orderly process and has developed
strategies to maximize the value of each property's disposition. The ultimate
collection or realization of the Bank's nonperforming assets will be primarily
dependent on the general economic conditions in its market area.
6. FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS:
A summary of premises and equipment at December 31, 1997 and 1996 follows:
1997 1996
Furniture and equipment $ 2,327,710 $ 2,053,594
Leasehold improvements 1,520,974 1,494,263
-------------- --------------
3,848,684 3,547,857
Accumulated Depreciation and Amortization (1,511,575) (1,453,799)
-------------- --------------
$ 2,337,109 $ 2,094,058
============== ==============
Depreciation expense was $294,894 and $216,587 for 1997 and 1996, respectively.
7. DEPOSITS:
At December 31, 1997, scheduled maturities of time deposits are as follows:
1998 $ 19,288,093
1999 4,096,205
2000 1,619,226
2001 167,700
2002 1,008,601
--------------
$ 26,179,825
===============
F-11
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
8. LEASES:
The Bank has entered into various lease agreements for its facilities, expiring
through 2002. The lease agreements provide for rent increases on an annual basis
or at time of renewal. Rent expense was $160,575 and $114,990, in 1997 and 1996,
respectively.
Minimum aggregate payments for the remaining terms of the leases are as follows:
1997 $ 172,742
1998 199,954
1999 108,434
2000 78,749
2001 81,112
Thereafter 42,156
---------
$ 683,147
=========
9. INCOME TAXES:
Deferred tax assets and liabilities were comprised of the following significant
components as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
<S> <C>
Assets:
Provision for loan losses $ 109,239 $ 146,381
Losses on other real estate owned 47,831 40,199
Expenses related to severance package 1,865 5,932
-------------- --------------
Gross Deferred Tax Asset 158,935 192,512
-------------- --------------
Liabilities:
GAAP depreciation in excess of tax deprecation 72,818 41,877
Unrealized gain on available-for-sale securities 21,151 11,183
Unrealized accretion income 1,036 338
FHLB dividends 8,568 8,568
-------------- --------------
Gross Deferred Tax Liabilities 103,573 61,966
-------------- --------------
Net Deferred Tax Asset $ 55,362 $ 130,546
============== ==============
The current and deferred components of income tax expense are as follows:
1997 1996
Current payable $ 403,009 $ 310,635
Net increase (decrease) in deferred tax benefit (65,216) 10,725
-------------- ---------------
Income Tax Expense $ 337,793 $ 299,910
============== ===============
</TABLE>
The reported amount of income tax expense attributable to continuing operations
for the year approximates the amount of income tax expense that would result
from applying domestic Federal statutory tax rates to pretax income for the
years ended December 31, 1997 and 1996.
F-12
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
10. RELATED-PARTY TRANSACTIONS:
The Bank is currently leasing its main office from one of its directors. The
annual rent expense related to the office was $51,841 and $50,379 in 1997 and
1996, respectively.
The Bank makes loans to its directors and officers and their affiliates in the
normal course of business. The following table summarizes loan transactions with
related parties for 1997 and 1996.
1997 1996
Balance, Beginning of year $ 1,019,580 $ 1,020,887
New loans and advances 1,108,749 149,149
Curtailments (304,050) (150,456)
-------------- --------------
Balance, End of Year $ 1,824,279 $ 1,019,580
============== ==============
The Bank recorded expenses (income) of $559 and $(10,066), in conjunction with a
severance package for an executive officer during 1997 and 1996, respectively.
The Bank received accounting services from a firm of which a principal serves as
director of the Bank. The expense related to services provided by this firm was
$3,059 and $5,000 during 1997 and 1996, respectively.
The Bank received design services from a firm of which a principal serves as
director of the Bank. Payments to the firm were $40,395 during 1996.
11. 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 and to
reduce its own exposure to fluctuations in interest rates. These financial
instruments include commitments to extend credit, standby letters of credit, and
financial guarantees. Those instruments involve, to varying degrees, elements of
credit and interest rate risk in excess of the amount recognized in the
statement 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 and financial guarantees written 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. The Bank requires collateral or other security to
support certain financial instruments with credit risk.
Contract
Amount
(in thousands)
Commitments to extend credit
Equity lines $ 14,306
Commercial real estate, construction and land development 5,247,991
Other lines 6,373,825
Standby letters of credit 10,000
F-13
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
11. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK (CONTINUED):
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 many of the commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. The Bank evaluates each customer's
creditworthiness 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 counterparty. Collateral held varies but may include
accounts receivable, inventory, property, plant and equipment and residential
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, including
commercial paper, bond financing and similar transactions. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan facilities to customers. The Bank holds cash as collateral for
these types of commitments.
The Bank has no financial instruments which would qualify as derivatives and
therefore would require separate disclosure.
12. CONCENTRATION OF CREDIT RISK:
Most of the Bank's business activity is with customers located in the city of
Alexandria and the surrounding localities. The distribution of the Bank's loans
by type are shown in Note 3 and commitments to extend credit are shown in Note
11. At December 31, 1997, the Bank had deposits of $3,827,072 in the Federal
Home Loan Bank of Atlanta.
13. EMPLOYEE STOCK OWNERSHIP PLAN AND PROFIT SHARING PLAN:
During 1988, the Bank implemented an employee stock ownership plan ("ESOP").
Effective January 1, 1992, the Bank amended and restated the ESOP to incorporate
a Profit Sharing Plan (the "Plan") with a 401(k) feature. The Profit Sharing
Plan is intended to qualify under Internal Revenue Code section 401(a) and
includes a qualified cash or deferred arrangement under Internal Revenue Code
401(k). No shares were acquired by the ESOP during 1997 or 1996 and the ESOP
provisions were terminated in February 1998.
Plan participants may elect to have a portion of their salary deferred by
electing to make a contribution to the Plan up to the specified limits. At the
sole discretion of the Bank's Board of Directors, the Bank can elect to make an
employee profit sharing contribution on behalf of each of the Plan's
participants. The allocation will be made on the basis of salary. Employees
become eligible for the Plan on December 31 of the year they commence
employment, provided they have reached the age of 21 and have been credited with
a minimum of 1,000 hours of service. Employees become vested in the employer
contribution on the basis of their nonforfeitable interest in their account
balance which begins at 20 percent after three years of credited service and
increases by 20 percent each year thereafter, until they become fully vested
after seven years of service.
During 1997 and 1996, the Bank expensed $37,200 and $30,000, respectively, for
its Plan Contributions.
F-14
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
14. INCENTIVE STOCK OPTION PLAN:
The Bank's stock option plan provides that the Bank may grant options to
purchase 100,000 shares of common stock at the fair market at the date of the
grant. The options may be exercised anytime after six months of being granted up
to ten years. In the event of a change in control, the number of options
exercisable, shown below, increase by 20%.
Options outstanding at December 31, 1997 are shown in the following table:
Date Exercise Expiration
Granted Shares Price Date
11/17/94 46,313 $ 8.67 11/17/2004
3/5/95 599 8.67 3/5/2005
5/13/96 5,014 12.14 5/13/2006
1/23/97 2,310 12.62 1/23/2007
3/3/97 1,000 13.38 3/3/2007
--------
55,236
========
The exercise prices shown above have been restated to reflect adjustments for
the 5% stock dividends declared in 1997 and 1996.
During 1997, options were exercised to purchase 158 shares at a price of $12.62
per share.
In October 1995 the Financial Accounting Standards Board issued SFAS No. 123,
"Accounting for Stock- based Compensation," which established a new accounting
principle for measuring compensation cost. Under the new fair value based
method, compensation cost is measured at the grant date, based on the value of
the award and is recognized over the service period, which is usually the
vesting period. The standards also permit an entity to continue using the
intrinsic value based method, under which compensation cost is the excess, if
any, of the quoted market price of the stock at grant date or other measurement
date over the amount an employee must pay to acquire the stock. Under the Bank's
stock option plan there is no intrinsic value at the grant date and the Bank
continues to use this method.
The following table shows the pro forma net income and earnings per share, as if
the fair value based accounting method had been used to account for the
stock-based compensation cost.
1997 1996
Net income $ 633,274 $ 553,410
Earnings per share .95 .85
F-15
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
15. EARNINGS PER SHARE:
The income per share amounts shown on the accompanying financial statements are
computed based on 682,113 and 647,661 weighted average number of shares
outstanding in 1997 and 1996, respectively. The incentive stock option plan did
not have a material dilutive effect on the net income per share in 1997 or 1996.
16. REGULATORY MATTERS:
The Bank is subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory - and possibly additional discretionary - actions
(including restriction on payment of dividends) 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 I 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.
As of December 31, 1997, the Bank is considered 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 that management believes would change the institution's category.
The Company's actual capital ratios are presented in the following table:
<TABLE>
<CAPTION>
Actual Regulatory Requirements
----------------------- ------------------------------
December 31, Adequately Well
1997 1996 Capitalized Capitalized
<S> <C>
Total risk-based ratio 13.8% 14.1% 8.00% 10.00%
Tier 1 risk-based ratio 10.3% 9.2% 4.00% 6.00%
Total assets leverage ratio 10.6% 10.4% 3.00% 5.00%
</TABLE>
F-16
<PAGE>
THE BANK OF ALEXANDRIA
NOTES TO FINANCIAL STATEMENTS
17. PROPOSED MERGER:
As of December 12, 1997, the Board of Directors of The Bank of Alexandria
entered into an agreement and plan of reorganization with F & M National
Corporation ("F & M"). Under the terms of the agreement, the Bank will be merged
into a subsidiary of F & M and each share of the Bank's common stock will be
exchanged for .942 shares of common stock of F & M. To be effective, the
agreement must be approved by a two-thirds majority of the shareholders of the
Bank and bank regulatory authorities.
F-17
<PAGE>
II-9
Part II -- Information Not Required in Prospectus
Item 20. Indemnification of Officers and Directors
The laws of the Commonwealth of Virginia pursuant to which the Company
is incorporated permit it to indemnify its officers and directors against
certain liabilities with the approval of its shareholders. The articles of
incorporation of the Company, which have been approved by its shareholders,
provide for the indemnification of each director and officer (including former
directors and officers and each person who may have served at the request of the
Company as a director or officer of any other legal entity and, in all such
cases, his or her heirs, executors and administrators) against liabilities
(including expenses) reasonably incurred by him or her in connection with any
actual or threatened action, suit or proceeding to which he or she may be made
party by reason of his or her being or having been a director or officer of the
Company, except in relation to any action, suit or proceeding in which he or she
has been adjudged liable because of willful misconduct or a knowing violation of
the criminal law.
The Company has purchased officers' and directors' liability insurance
policies. Within the limits of their coverage, the policies insure (1) the
directors and officers of the Company against certain losses resulting from
claims against them in their capacities as directors and officers to the extent
that such losses are not indemnified by the Company and (2) the Company to the
extent that it indemnifies such directors and officers for losses as permitted
under the laws of Virginia.
Item 21. Exhibits and Financial Statement Schedules
(a) Exhibit Index
Exhibit No. Description of Exhibit
- ---------- ----------------------
1 Not Applicable
2.1 Agreement and Plan of Reorganization, dated
December 12, 1997, among F&M National Corporation
("F&M"), F&M Bank-Northern Virginia and The Bank of
Alexandria ("BOA") and a related Plan of Merger,
filed as Appendix I to the Proxy
Statement/Prospectus included in this Registration
Statement.
2.2 Stock Option Agreement, dated December 12, 1997,
between F&M and BOA filed as Appendix II to the Proxy
Statement/Prospectus included in this Registration
Statement.
3.1 Articles of Incorporation of F&M. Incorporated
herein by reference to Exhibit 3.1 to F&M's
Registration Statement on Form S-4 (Registration No.
33-45717).
3.2 Bylaws of F&M. Incorporated herein by reference
to F&M's Registration Statement on Form S-4
(Registration No. 33-45717).
5 Opinion of LeClair Ryan, A Professional
Corporation, regarding the legality of the
securities being registered and consent.
<PAGE>
Exhibit No. Description of Exhibit
- ----------- ----------------------
8.1 Form of tax opinion of LeClair Ryan, A
Professional Corporation, regarding the tax-free
nature of the acquisition of F&M and BOA.
21 Subsidiaries of F&M: F&M Bank-Winchester; F&M
Bank-Central Virginia; F&M Bank-Emporia; F&M
Bank-Northern Virginia; F&M Bank-Massanutten; F&M
Bank-Peoples; F&M Bank-Northern Virginia; F&M
Bank-Blakely; F&M Bank-Keyser; F&M Bank-Martinsburg;
F&M Trust Company; Big Apple Mortgage Company; Apple
Title Company; Winchester Credit Corporation; Credit
Bureau of Winchester, Inc.
23.1 Consent of Yount, Hyde & Barbour, P.C., as
accountants for F&M.
23.2 Consent of S.B. Hoover & Company, L.L.P., as
independent auditors for BOA.
23.3 Consent of LeClair Ryan, (included as part of Exhibit
5).
23.4 Consent of Scott & Stringfellow, Inc. relating to
inclusion of its opinion given to BOA in the Proxy
Statement/Prospectus included in this Registration
Statement.
99.1 Form of proxy of BOA.
(b) No financial statement schedules are required to be filed
herewith pursuant to Item 21(b) of this Form.
Item 22. Undertakings
(a) Item 512 of Regulation S-K.
Rule 415 offerings. The undersigned registrant hereby undertakes:
(1) To file, during any period in which offers or sales are
being made, a post-effective amendment to this registration statement:
(i) To include any prospectus required by section
10(a)(3) of the Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising
after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in the registration
statement;
(iii) To include any 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.
<PAGE>
(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.
Filings incorporating subsequent Exchange Act documents by reference.
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.
Registration on Form S-4. (1) The undersigned registrant hereby
undertakes as follows: that prior to any public reoffering of the securities
registered hereunder through use of a prospectus which is a part of this
registration statement, by any person or party which is deemed to be an
underwriter within the meaning of Rule 145(c), the issuer undertakes that such
reoffering prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other Items of
the applicable form.
(2) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act and is used in connection
with an offering of securities subject to Rule 415, will be filed as a part of
an amendment to the registration statement and will not be used until such
amendment is effective, and that, for purposes 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.
Request for acceleration of effective date or filing registration
statement on Form S-8. 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 payments by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.
(b) Item 22(b) of Form S-4
<PAGE>
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) Item 22(c) of Form S-4
The undersigned registrant hereby undertakes to supply by
means of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
<PAGE>
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 Winchester,
Commonwealth of Virginia on March 11, 1998.
F&M NATIONAL CORPORATION
By: /s/ Alfred B. Whitt
--------------------------------------------------
Alfred B. Whitt, Vice Chairman and President
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints
Alfred B. Whitt and Charles E. Curtis, and each of them singly, as his or her
true and lawful attorneys-in-fact and agents, with full power of substitution,
for him or her and in his or her name, place and stead, in any and all
capacities, to sign any and all registration statements or applications to the
Securities and Exchange Commission, the regulatory authorities of any state in
the United States or any other regulatory authorities as may be necessary to
permit shares of Common Stock of the Company to be offered in the United States
in connection with the proposed merger of The Bank of Alexandria with and into
F&M Bank-Northern Virginia, including without limitation any and all amendments
or post-effective amendments to this registration statement, and to file the
same, with all exhibits thereto and other documents in connection therewith,
with the Securities and Exchange Commission or any other such regulatory
authority, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite or necessary
to be done to enable F&M National Corporation to comply with the provisions of
the Securities Act of 1933, and all requirements of the Securities and Exchange
Commission as well as all other laws, rules and regulations relating to the
offer and sale of securities.
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C>
/s/ W. M. Feltner Chairman of the Board and Chief March 11, 1998
- ------------------------------- Executive Officer and Director
W. M. Feltner (Principal Executive Officer)
/s/ Alfred B. Whitt Vice Chairman, President and Chief March 11, 1998
- ------------------------------ Financial Officer and Director
Alfred B. Whitt (Principal Financial Officer)
/s/ Charles E. Curtis Vice Chairman, Chief Administrative March 11, 1998
- ------------------------------- -----------------------------------
Charles E. Curtis Officer and Director
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C>
/s/ Frank Armstrong Director March 11, 1998
- -------------------------------
Frank Armstrong
/s/ William H. Clement Director March 11, 1998
- -------------------------------
William H. Clement
/s/ John R. Fernstrom Director March 11, 1998
- -------------------------------
John R Fernstrom
/s/ William R. Harris Director March 11, 1998
- -------------------------------
William R. Harris
/s/ L. David Horner, III Director March 11, 1998
- -------------------------------
L. David Horner, III
/s/ Jack R. Huyett Director March 11, 1998
- -------------------------------
Jack R. Huyett
/s/ George L. Romine Director March 11, 1998
- -------------------------------
George L. Romine
/s/ John S. Scully, III Director March 11, 1998
- -------------------------------
John S. Scully, III
/s/ J. D. Shockey, Jr. Director March 11, 1998
- -------------------------------
J. D. Shockey, Jr.
/s/ Ronald W. Tydings Director March 11, 1998
- -------------------------------
Ronald W. Tydings
/s/ Fred G. Wayland, Jr. Director March 11, 1998
- -------------------------------
Fred G. Wayland, Jr.
</TABLE>
Exhibit 5
(804) 343-4089
2994.012
March 12, 1998
F&M National Corporation
P. O. Box 2800
Winchester, Virginia 22604
Ladies and Gentlemen:
We have acted as counsel to F&M National Corporation, a Virginia
corporation (the "Company"), in connection with the preparation of the
Registration Statement on Form S-4 of the Company (the "Registration Statement")
filed with the Securities and Exchange Commission (the "Commission"), relating
to the registration under the Securities Act of 1933, as amended (the
"Securities Act"), of a maximum of 709,275 shares (the "Shares") of the
Company's common stock, par value $2.00 per share, issuable pursuant to the
Agreement and Plan of Reorganization, dated as of December 12, 1997, by and
among the Company, F&M Bank-Northern Virginia and The Bank of Alexandria
("BOA"), and the related Plan of Merger (collectively, the "Agreement"), whereby
each share of BOA common stock, par value $10.00 per share ("BOA Common Stock"),
will be exchanged for shares of Company common stock pursuant to the terms set
forth in the Agreement.
In connection with this opinion, we have considered such questions of
law as we have deemed necessary as a basis for the opinions set forth below, and
we have examined and are familiar with originals or copies, certified or
otherwise identified to our satisfaction, of the following: (i) the Registration
Statement; (ii) the Articles of Incorporation and By-laws of the Company, as
amended and as currently in effect; (iii) certain resolutions of the Board of
Directors of the Company relating to the issuance of the Shares and the other
transactions contemplated by the Registration Statement; (iv) the Agreement; and
(v) such other documents as we have deemed necessary or appropriate as a basis
for the opinion set forth below. In our examination, we have assumed the
genuineness of all signatures, the authenticity of all documents submitted to us
as originals, the conformity to original documents of all documents submitted to
us as certified or photostatic copies and the authenticity of the originals of
such copies. As to any facts material to this opinion that we did not
independently establish or verify, we have relied upon statements and
representations of officers and other representatives of the Company and others.
Based upon the foregoing, we are of the opinion that if and when issued
in exchange for shares of BOA Common Stock pursuant to the terms of the
Agreement and under the circumstances contemplated by the Registration
Statement, the Shares will be validly issued, fully paid and non-assessable.
The law covered by the opinion set forth above is limited to the laws
of the Commonwealth of Virginia and the federal law of the United States of
America.
We hereby consent to the filing of this opinion with the Commission as
Exhibit 5 to the Registration Statement and to the reference to our name under
the caption "Legal Matters" in the Proxy Statement/Prospectus constituting a
part of the Registration Statement.
Sincerely,
LECLAIR RYAN
A Professional Corporation
By: /s/George P. Whitley
George P. Whitley
Vice President
GPW/lsr
Exhibit 8.1
April _____, 1998
FORM OF TAX OPINION
F&M National Corporation The Bank of Alexandria
9 Court Square 1717 King Street
Post Office Box 2800 Alexandria, Virginia 22314
Winchester, Virginia 22604
Tax Opinion Relating to the Acquisition of
The Bank of Alexandria by F&M National Corporation
Gentlemen:
You have requested our opinion as to certain federal income tax
consequences of the proposed merger of The Bank of Alexandria, a Virginia
chartered banking corporation ("BOA"), with and into F&M Bank-Northern Virginia,
a Virginia chartered banking corporation and wholly-owned subsidiary of F&M
National Corporation ("F&M"), pursuant to an Agreement and Plan of
Reorganization, dated as of December 12, 1997 and a related Plan of Merger
(collectively, the "Agreement"), by and among BOA, F&M and F&M Bank-Northern
Virginia.
The Merger
Pursuant to the Agreement and the Plan of Merger (the "Plan") attached
as Exhibit A to the Agreement, and subject to various regulatory approvals, BOA
will be merged with and into F&M Bank-Northern Virginia in accordance with the
provisions of, and with the effect provided in, the Virginia Stock Corporation
Act (the "Merger"). Upon consummation of the Merger, F&M will continue to serve
as the parent holding company for F&M Bank-Northern Virginia and its other
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 BOA ("BOA Common Stock") will be exchanged for and
converted into 0.942 shares of common stock of F&M ("F&M Common Stock"), plus
cash in lieu of issuing fractional shares of F&M Common Stock.
Our Examination
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 set forth below. In particular, we have assumed that there is no
plan or intention on the part of the shareholders of BOA to sell or otherwise
dispose of the F&M Common Stock received by them in the Merger which would have
the effect set forth in paragraph B of the "Additional Representations" below.
Additional Representations
In connection with the proposed Merger, the following additional
representations have been made to and relied upon by us in the preparation of
this opinion:
A. The fair market value of F&M Common Stock received by BOA
shareholders will be approximately equal to the fair market value of BOA Common
Stock to be surrendered in exchange therefor, and the exchange ratio used in
such exchange is the result of arm's length negotiations.
B. To the best knowledge of the management of BOA, there is no plan or
intention on the part of BOA's shareholders to sell or otherwise dispose of F&M
Common Stock received by them in the Merger that will reduce their holdings of
F&M Common Stock to a number of shares having in the aggregate a fair market
value of less than 50 percent of the fair market value of all of the BOA Common
Stock held by BOA shareholders on the effective date of the Merger. For purposes
of this representation, shares of BOA Common Stock exchanged for cash in lieu of
fractional shares of F&M Common Stock will be treated as outstanding shares of
BOA Common Stock on the effective date of the Merger. In addition, shares of BOA
Common Stock and shares of F&M Common Stock held by BOA shareholders and
otherwise sold, redeemed, or disposed of prior or subsequent to the Merger will
be considered in making this representation.
C. F&M has no plan or intention to sell or otherwise dispose of any of
the assets of BOA to be transferred to F&M in the Merger, except for
dispositions made in the ordinary course of business or transfers described in
Section 368(a)(2)(C).
D. Each party to the Merger will pay its own expenses, if any, incurred
in connection with the Merger.
E. Following the Merger of BOA with and into F&M Bank-Northern
Virginia, F&M will continue the historic business of F&M Bank-Northern Virginia.
F. F&M has no plan or intention to redeem or reacquire any of its stock
to be issued in the Merger.
G. The liabilities of BOA to be assumed by F&M Bank- Northern Virginia
as a result of the Merger and the liabilities to which BOA's assets are subject
were incurred in the ordinary course of business and are associated with the
assets to be transferred in the Merger.
H. There is no intercorporate indebtedness existing between F&M and BOA
that was issued, acquired or will be settled at a discount.
I. The fair market value and adjusted basis of the assets of BOA to be
transferred to F&M in the Merger will equal or exceed the sum of the liabilities
assumed by F&M plus the amount of liabilities to which the BOA assets are
subject.
J. No dividends or other distributions will be made with respect to any
BOA Common Stock immediately before the proposed Merger, except for regular,
normal distributions.
K. None of the shares of F&M Common Stock, cash in lieu of fractional
shares or other property received by any shareholder-employee of BOA in exchange
for BOA Common Stock pursuant to the Merger constitutes or is intended as
compensation for services rendered, or is considered separate consideration for,
or allocable to, any employment agreement, warrant, stock option or other
relationship. None of the compensation to be received by any
shareholder-employee of BOA, or warrants or options to acquire F&M Common Stock
which are exchanged for warrants or options to acquire BOA Common Stock in
connection with the Merger, will be separate consideration for, or allocable to,
any of such shareholder-employee's BOA Common Stock. In addition, any
compensation paid to any shareholder-employee of BOA, including any shares of
F&M Common Stock or options or warrants to purchase F&M Common Stock received by
such shareholder-employee in exchange for and in cancellation of any option or
warrant to purchase shares of BOA Common Stock existing as of the effective date
of the Merger, 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.
L. No two parties to the Merger are investment companies as defined in
Section 368(a)((2)(F)(iii) and (iv) of the Code, and for each of F&M and BOA,
less than 50 percent of the fair market value of its total assets (excluding
cash, cash items, government securities, and stock and securities in any 50
percent or greater subsidiary) consists of stock and securities.
M. BOA 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.
N. Cash paid to BOA shareholders in lieu of issuing fractional shares
of F&M Common Stock will be paid solely for the purpose of saving 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 F&M Common Stock to be issued to BOA
shareholders.
Tax Opinion
Based upon the foregoing, subject to the limitations expressed herein,
and with due regard to such legal considerations as we deem necessary, we are of
the opinion that for federal income tax purposes:
1. The Merger will constitute and qualify as a "reorganization" within
the meaning of Section 368(a)(2)(D) of the Code.
2. No gain, other income or loss will be recognized by F&M (Section
1032 of the Code) or BOA (Section 361 of the Code) as a result of the Merger.
3. To the extent that shareholders of BOA receive F&M Common Stock
solely in exchange for their shares of BOA Common Stock, they will recognize no
gain or loss as a result of the Merger. Section 354(a)(1) of the Code.
4. An BOA shareholder who receives cash in lieu of a fractional share
of F&M Common Stock will be treated as if the fractional share of F&M Common
Stock had been issued and then redeemed by F&M. If the deemed redemption
distribution is not essentially equivalent to a dividend within the meaning of
Section 302(b)(1) of the Code, then the BOA shareholder will be treated as
receiving a distribution in redemption of such fractional share, subject to the
provisions and limitations of Section 302 of the Code. If the deemed redemption
distribution is essentially equivalent to a dividend, then the BOA shareholder
will be treated as receiving a dividend distribution under Section 301(c)(1) of
the Code, as provided in Section 302(d) of the Code. See Section 356(a)(2) of
the Code, as interpreted by Clark v. Commissioner, 489 U.S. 726 (1989) and
Revenue Ruling 66-365, 1966-2 C.B. 116.
5. The tax basis of F&M Common Stock received by BOA shareholders who
exchange their BOA Common Stock for F&M Common Stock will be the same as the tax
basis of BOA Common Stock surrendered in exchange therefor. Section 358(a)(1) of
the Code.
6. The holding period of F&M Common Stock received by BOA shareholders
will include the period during which BOA Common Stock surrendered in exchange
therefor was held by such BOA shareholders, provided the BOA Common Stock was
held as a capital asset on the date of the exchange. Section 1223(1) of the
Code.
This opinion is based upon the provisions of the Code, as interpreted
by regulations, administrative rulings, and case law, in effect as of the date
hereof.
This opinion is provided in connection with the Merger as required by
Section 5.1(d) of the Agreement, is solely for the benefit of F&M, BOA and BOA
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.
Very truly yours,
LECLAIR RYAN,
A Professional Corporation
Exhibit 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of our report, dated January 28, 1998, on the consolidated financial
statements of F&M National Corporation as of December 31, 1997 and 1996, and for
each of the three years in the period ended December 31, 1997. We also consent
to the reference made to us under the caption "Experts" in the Proxy
Statement/Prospectus constituting a part of this Registration Statement.
YOUNT, HYDE & BARBOUR, P.C.
Winchester, Virginia
March 13, 1998
Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in this Registration
Statement of our report, dated February 10, 1998, on the financial statements of
The Bank of Alexandria as of December 31, 1997 and 1996, and for each of the two
years in the period ended December 31, 1997, which report is incorporated by
reference in the Annual Report on Form 10-KSB for the year ended December 31,
1997 of The Bank of Alexandria. We also consent to the reference made to us
under the caption "Experts" in the Proxy Statement/Prospectus constituting a
part of this Registration Statement.
S.B. HOOVER & COMPANY, L.L.P.
Harrisburg, Virginia
March 12, 1998
Exhibit 23.4
March 12, 1998
Scott Richter, Esq.
LeClair Ryan
707 East Main Street
Richmond, VA 23219
CONSENT OF INVESTMENT BANKERS
Gentlemen:
We consent to the use, quotation and summarization in the Registration
Statement on Form S-4 of our fairness opinion dated December 12, 1997 to the
Board of Directors of The Bank of Alexandria in connection with the acquisition
of The Bank of Alexandria by F&M National Corporation and to the use of our
name, and the statements with respect to us, appearing in the Registration
Statement.
Sincerely,
SCOTT & STRINGFELLOW, INC.
Gary S. Penrose
Managing Director
Financial Institutions Group
<PAGE>
Exhibit 99
PROXY
THE BANK OF ALEXANDRIA
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints _________________, __________________
and _____________________, or any one of them and with full power of
substitution, his or her attorney-in-fact and proxy, to represent the
undersigned at the Special Meeting of Shareholders of The Bank of Alexandria
("BOA"), to be held at the Main Office of BOA located at 1717 King Street,
Alexandria, Virginia at ______ a.m. on April ____, 1998 and at any adjournment
thereof, and to vote all shares of stock of BOA that the undersigned shall be
entitled to vote at such meeting on each of the following matters:
1. To approve an Agreement and Plan of Reorganization, dated as of
December 12, 1997, and a related Plan of Merger (collectively, the
"Agreement") among BOA, F&M National Corporation ("F&M") and one of its
subsidiary banks, F&M Bank-Northern Virginia, providing for the merger
of BOA with and into F&M-Northern Virginia upon the terms and
conditions set forth in the Agreement as described in the Proxy
Statement/Prospectus of BOA and F&M, dated March ___, 1998.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
(has the same effect
as a vote Against)
2. In their discretion, the Proxies are authorized to vote upon such other
business as may properly come before the meeting.
This proxy, when properly signed and dated, will be voted in the manner
directed herein. If no direction is made, this proxy will be voted FOR proposal
number 1 as specified above. This proxy may be revoked at any time prior to its
exercise.
Dated:______________________, 1998
----------------------------------
----------------------------------
Please sign exactly as name appears
on the stock certificate. When
signing as attorney, executor,
administrator or trustee, please
give full title.
Please mark, sign, date and return promptly this Proxy Card using
the enclosed envelope.
