[BANCORP LETTERHEAD]
November 14, 1994
Dear Fellow Stockholder:
You are cordially invited to attend the Special Meeting of Stockholders
of Farmers National Bancorp ("Bancorp") to be held at the Holiday Inn, 210
Holiday Court, Annapolis, Maryland on Thursday, December 15, 1994, at 10:00 a.m.
At the Special Meeting you will be asked to consider and vote upon
the proposed affiliation and merger (the "Affiliation") of Bancorp with and
into First Virginia Banks, Inc. ("First Virginia") pursuant to the Agreement
and Plan of Reorganization dated as of July 1, 1994 between Bancorp and First
Virginia, and the Related Plan of Merger dated as of July 1, 1994 between
Bancorp and First Virginia (collectively, the "Affiliation Agreement").
First Virginia is a bank holding company organized under the laws of
Virginia, with assets of approximately $7.221 billion as of September
30, 1994. Headquartered in Falls Church, Virginia, First Virginia engages
in the business of commercial and consumer banking primarily through 20
subsidiary banks located in Virginia, Tennessee and Maryland.
Under the terms of the Affiliation Agreement, stockholders of
Bancorp will be entitled to receive 1.5 shares of common stock of First
Virginia for each share of common stock of Bancorp held of record on the date
the Affiliation is consummated (the "Effective Date"). Cash will be paid in
lieu of fractional shares of First Virginia common stock. Instead of receiving
shares of First Virginia common stock, Bancorp stockholders may elect to receive
cash at the rate of $58.53 per share for their shares of Bancorp common stock.
The right to receive cash for shares of Bancorp common stock is subject to the
limitation that the aggregate number of shares as to which cash elections are
properly made plus the aggregate number of shares as to which Bancorp
stockholders exercise the statutory right to receive the "fair value" of the
shares may not exceed 30% of all shares of Bancorp common stock outstanding
immediately prior to the Effective Date. If this limit is exceeded, First
Virginia will pay cash first for shares properly submitted for cash
exchange by each holder of 100 or fewer shares of Bancorp common stock (if such
holder has submitted all his shares for cash exchange) and then will pay cash
for shares properly submitted for cash on a pro rata basis. Shares not
exchanged for cash after proration will be exchanged for First Virginia common
stock.
Details of the proposed Affiliation of Bancorp with First Virginia are
set forth in the accompanying Proxy Statement-Prospectus, which you are urged to
read carefully in its entirety.
Your Board of Directors has retained Alex. Brown & Sons Incorporated to
act as its financial advisor in connection with the proposed Affiliation.
As discussed in the accompanying Proxy Statement-Prospectus, Alex. Brown
has delivered to the Board of Directors its written opinion dated July 1,
1994 that the consideration to be received by Bancorp's stockholders pursuant
to the Affiliation Agreement is fair to the stockholders of Bancorp from a
financial point of view.
Your Board of Directors has approved the Affiliation and the Affiliation
Agreement, and has determined that they are in the best interests of Bancorp
and its stockholders. Accordingly, the Board of Directors recommends that you
vote FOR the proposal to approve the Affiliation.
Approval of the Affiliation requires the affirmative vote of the
holders of two- thirds of all outstanding shares of Bancorp common stock.
It is important that your shares are represented at the Special Meeting,
whether or not you plan to attend the meeting. An abstention or failure to
vote will have the same effect as a vote against the Affiliation. Please
complete, date, sign and return promptly the enclosed proxy card in the
enclosed envelope. You may attend the Special Meeting and vote your shares in
person if you wish, even though you have previously returned your proxy card.
We hope you can attend the Special Meeting, and look forward to seeing you
there.
Sincerely,
John M. Suit, II
President and Chief
Executive Officer
<PAGE>
FARMERS NATIONAL BANCORP
5 CHURCH CIRCLE
ANNAPOLIS, MARYLAND 21401
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
December 15, 1994
A Special Meeting of Stockholders of FARMERS NATIONAL BANCORP
("Bancorp") will be held at the Holiday Inn, 210 Holiday Court, Annapolis,
Maryland, on Thursday, December 15, 1994, at 10:00 a.m., for the following
purposes:
1. To consider and vote on a proposal recommended by the Board of
Directors of Bancorp to approve the affiliation and merger of
Bancorp with and into First Virginia Banks, Inc. ("First
Virginia"), as provided in and pursuant to the Agreement and Plan
of Reorganization dated as of July 1, 1994 between Bancorp and
First Virginia, and the related Plan of Merger dated as of July 1,
1994 between Bancorp and First Virginia, copies of which are
attached as Appendix A to the accompanying Proxy
Statement-Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournment or adjournments thereof.
Only stockholders of record at the close of business on November 9,
1994, are entitled to notice of and to vote at the Special Meeting and at any
and all adjournments thereof.
By Order of the Board of Directors
Norma K. Behlke
Secretary
Dated: November 14, 1994
YOU ARE REQUESTED TO COMPLETE, SIGN, DATE AND RETURN THE PROXY
CARD SUBMITTED HEREWITH IN THE RETURN ENVELOPE PROVIDED FOR
YOUR USE. THE GIVING OF SUCH PROXY WILL NOT AFFECT YOUR RIGHT
TO REVOKE THE PROXY OR TO VOTE IN PERSON SHOULD YOU LATER
DECIDE TO ATTEND THE MEETING.
<PAGE>
PROXY STATEMENT
RELATING TO
SPECIAL MEETING OF STOCKHOLDERS OF
FARMERS NATIONAL BANCORP
TO BE HELD ON DECEMBER 15, 1994
- - - - - - - - - - - - - - - - - - - -
PROSPECTUS
RELATING TO 4,048,584 SHARES OF
COMMON STOCK OF
FIRST VIRGINIA BANKS, INC.
This Proxy Statement-Prospectus is being furnished to the holders of
shares of Common Stock, par value $1.00 per share ("Bancorp Common Stock"),
of Farmers National Bancorp ("Bancorp"), a Maryland corporation registered
under the Bank Holding Company Act of 1956, as amended (the "BHCA"), in
connection with the solicitation of proxies by the Board of Directors of
Bancorp for use at the Special Meeting of Stockholders of Bancorp to be held at
the Holiday Inn, 210 Holiday Court, Annapolis, Maryland on Thursday, December
15, 1994 at 10:00 a.m., and at any and all adjournments thereof (the "Special
Meeting").
This Proxy Statement-Prospectus relates to shares of Common Stock, par
value $1.00 per share ("First Virginia Common Stock"), of First Virginia
Banks, Inc. ("First Virginia"), a Virginia corporation registered under the
BHCA, issuable in connection with the proposed affiliation and merger of
Bancorp with and into First Virginia (such affiliation and merger are
referred to herein as the "Affiliation"), pursuant to an Agreement and
Plan of Reorganization dated as of July 1, 1994 between Bancorp and First
Virginia and a related Plan of Merger dated as of July 1, 1994 between Bancorp
and First Virginia (collectively, the "Affiliation Agreement"). Upon
consummation of the Affiliation, each outstanding share of Bancorp Common
Stock (other than shares of Bancorp Common Stock with respect to which the
holders thereof properly exercise the right under the Maryland General
Corporation Law to demand and receive payment in cash of the "fair value" of
those shares, hereinafter sometimes referred to as "Dissenting Shares") will
automatically be converted into 1.5 shares of First Virginia Common Stock.
Cash will be paid in lieu of fractional shares of First Virginia Common Stock.
Rather than receiving First Virginia Common Stock, stockholders of Bancorp may
elect to receive cash in exchange for Bancorp Common Stock at the rate of
$58.53 per share, provided that the aggregate number of shares of Bancorp
Common Stock exchanged for cash, when added to Dissenting Shares, shall not
exceed 30% of all outstanding shares of Bancorp Common Stock. The date on
which the Affiliation is consummated is referred to herein as the "Effective
Date."
This Proxy Statement-Prospectus constitutes (i) a proxy statement
for use in connection with the Special Meeting, at which the stockholders of
Bancorp will be asked to consider and vote upon a proposal to approve the
Affiliation pursuant to the Affiliation Agreement, and (ii) a prospectus
covering the issuance in connection with the Affiliation of up to 4,048,584
shares of First Virginia Common Stock.
The information presented in this Proxy Statement-Prospectus concerning
Bancorp has been supplied by Bancorp and the information concerning First
Virginia has been supplied by First Virginia.
- - - - - - - - - - - - - - - - - -
THE SECURITIES OFFERED HEREBY ARE NOT DEPOSITS, SAVINGS
ACCOUNTS OR OTHER OBLIGATIONS OF A DEPOSITORY INSTITUTION AND ARE
NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR
ANY OTHER GOVERNMENTAL AGENCY OR INSTRUMENTALITY.
THE SECURITIES TO BE ISSUED PURSUANT TO THIS PROXY STATEMENT-PROSPECTUS
HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROXY STATEMENT-PROSPECTUS.
ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- - - - - - - - - - - - - - - - - -
This Proxy Statement-Prospectus and the accompanying form of proxy
are being furnished to Bancorp stockholders on or about November 14, 1994.
<PAGE>
TABLE OF CONTENTS
Page
AVAILABLE INFORMATION . . . . . . . . . . . . . . . . . . . . . 5
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE . . . . . . . . 5
SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
The Special Meeting . . . . . . . . . . . . . . . . . . . 7
First Virginia . . . . . . . . . . . . . . . . . . . . . 7
Bancorp . . . . . . . . . . . . . . . . . . . . . . . . . 7
General Description of the Affiliation . . . . . . . . . 7
Vote Required . . . . . . . . . . . . . . . . . . . . . . 8
Exchange Ratio . . . . . . . . . . . . . . . . . . . . . 8
Cash Election and Prorationing . . . . . . . . . . . . . 8
Recommendation of the Bancorp Board of Directors . . . . 9
Opinion of Bancorp's Financial Advisor . . . . . . . . . 9
Rights of Dissenting Stockholders . . . . . . . . . . . . 10
Interests of Certain Persons in the Merger . . . . . . . 10
Conditions to the Affiliation . . . . . . . . . . . . . . 10
Regulatory Review and Approvals . . . . . . . . . . . . . 10
Certain Federal Income Tax Consequences . . . . . . . . . 11
Accounting Treatment . . . . . . . . . . . . . . . . . . 11
Termination . . . . . . . . . . . . . . . . . . . . . . . 11
Amendment . . . . . . . . . . . . . . . . . . . . . . . . 11
Effective Date . . . . . . . . . . . . . . . . . . . . . 12
Comparison of Stockholder Rights . . . . . . . . . . . . 12
Market Prices . . . . . . . . . . . . . . . . . . . . . . 12
SELECTED FINANCIAL DATA AND PER SHARE DATA . . . . . . . . . . 13
THE SPECIAL MEETING . . . . . . . . . . . . . . . . . . . . . . 15
General . . . . . . . . . . . . . . . . . . . . . . . . . 15
Date, Place and Time . . . . . . . . . . . . . . . . . . 15
Purpose . . . . . . . . . . . . . . . . . . . . . . . . . 15
Record Date . . . . . . . . . . . . . . . . . . . . . . . 15
Vote Required . . . . . . . . . . . . . . . . . . . . . . 15
Voting and Revocation of Proxies . . . . . . . . . . . . 16
Solicitation of Proxies . . . . . . . . . . . . . . . . . 17
BACKGROUND AND RECOMMENDATION OF THE BANCORP BOARD OF DIRECTORS 18
Background . . . . . . . . . . . . . . . . . . . . . . . 18
Recommendation of the Bancorp Board of Directors . . . . 21
Opinion of Bancorp's Financial Advisor . . . . . . . . . 23
THE AFFILIATION . . . . . . . . . . . . . . . . . . . . . . . . 29
Terms of the Affiliation . . . . . . . . . . . . . . . . 29
Effective Date of the Affiliation . . . . . . . . . . . . 30
Cash Election Procedures . . . . . . . . . . . . . . . . 30
Procedures for Exchange of Certificates . . . . . . . . . 31
Certain Federal Income Tax Consequences . . . . . . . . . 32
Accounting Treatment . . . . . . . . . . . . . . . . . . 35
Conditions to Consummation of the Affiliation . . . . . . 35
Regulatory Review and Approvals . . . . . . . . . . . . . 37
Conduct of Business Pending the Affiliation . . . . . . . 38
No Solicitation of Acquisition Proposals . . . . . . . . 39
Waiver and Amendment . . . . . . . . . . . . . . . . . . 40
Termination . . . . . . . . . . . . . . . . . . . . . . . 40
Operations After the Effective Date . . . . . . . . . . . 41
Interests of Certain Persons in the Affiliation . . . . . 41
<PAGE>
Effect on Employee Benefit Plans . . . . . . . . . . . . 43
Resale of First Virginia Common Stock . . . . . . . . . . 44
Expenses . . . . . . . . . . . . . . . . . . . . . . . . 44
Rights of Dissenting Stockholders . . . . . . . . . . . . 45
DESCRIPTION OF FIRST VIRGINIA CAPITAL STOCK . . . . . . . . . . 48
Authorized Capital Stock . . . . . . . . . . . . . . . . 48
Certain Provisions of First Virginia's Articles of
Incorporation and First Virginia's Shareholder Rights
Plan . . . . . . . . . . . . . . . . . . . . . . . . . . 48
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS . . . . . . . . . 51
Size and Classification of the Board of Directors . . . . 51
Election of Directors . . . . . . . . . . . . . . . . . . 51
Interested Director Transactions . . . . . . . . . . . . 52
Voting Requirements . . . . . . . . . . . . . . . . . . . 52
Dissenters' Rights . . . . . . . . . . . . . . . . . . . 53
Stockholder Power to Call a Special Meeting . . . . . . . 54
Notice of Special Meeting . . . . . . . . . . . . . . . . 54
Authorized Stock . . . . . . . . . . . . . . . . . . . . 54
Inspection of Stockholder Lists . . . . . . . . . . . . . 54
Indemnification . . . . . . . . . . . . . . . . . . . . . 55
Business Combination and Affiliation Statutes . . . . . . 56
Power to Amend Bylaws . . . . . . . . . . . . . . . . . . 57
Control Share Acquisition Statutes . . . . . . . . . . . 57
Employee Benefit Plan Matters . . . . . . . . . . . . . . 58
EXPERTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
LEGAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . 59
PRO FORMA FINANCIAL INFORMATION . . . . . . . . . . . . . . . . 60
<PAGE>
AVAILABLE INFORMATION
First Virginia and Bancorp are subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") and, in accordance therewith, file reports and other
information with the Securities and Exchange Commission (the "Commission").
Proxy statements, reports and other information concerning First Virginia
and Bancorp can be inspected and copied at the public reference facilities
maintained by the Commission at Room 1024, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the Commissioner's Regional Offices in New York (Seven
World Trade Center, Suite 1300, New York, New York 10007) and Chicago
(Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60661.)
Copies of such material may be obtained from the Freedom of Information
Act Officer, Public Reference Section of the Commission at Room 1024, 450
Fifth Street, Judiciary Plaza, Washington, D.C. 20549 at prescribed rates.
First Virginia's Common Stock is listed on the New York Stock
Exchange and the Philadelphia Stock Exchange. Reports, proxy material and
other information concerning First Virginia may be inspected at the offices of
the New York Stock Exchange, 20 Broad Street, New York, New York 10005 and the
Philadelphia Stock Exchange, Inc., 1900 Market Street, Philadelphia,
Pennsylvania 19103.
This Proxy Statement-Prospectus incorporates documents by reference which
are not presented herein or delivered herewith. In the case of First
Virginia, these documents are available, without charge, upon request from
Thomas P. Jennings, Vice President and Secretary, First Virginia Banks, Inc.,
6400 Arlington Boulevard, Falls Church, Virginia 22042-2336. Mr. Jennings'
telephone number is 703/241-3655. In the case of Bancorp, these documents are
available upon request from Norma K. Behlke, Secretary, Farmers National
Bancorp, 5 Church Circle, Annapolis, Maryland 21401. Requests may be
directed to Ms. Behlke at (410) 626-2205. In order to ensure timely
delivery of the documents, any request should be made by December 8, 1994.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by First Virginia with the Commission
under Section 13(a) or 15(d) of the Exchange Act are hereby incorporated by
reference in this Proxy Statement-Prospectus:
(1) First Virginia's Annual Report on Form 10-K for the year ended
December 31, 1993;
(2) First Virginia's Quarterly Reports on Form 10-Q for the quarters
ended March 31, 1994, and June 30, 1994;
(3) First Virginia's Report on Form 8-K as filed on July 12, 1994;
(4) The description of First Virginia's Common Stock which is
contained in its registration statement on Form 8-A as filed on February 23,
1971 under the Exchange Act; and
(5) All documents filed by First Virginia pursuant to Section 13(a),
13(c), 14 and 15(d) of the Exchange Act subsequent to the date hereof and prior
to the Special Meeting.
The following documents filed by Bancorp with the Commission under
Section 13(a) or 15(d) of the Exchange Act are hereby incorporated by
reference in this Proxy Statement- Prospectus:
(1) Bancorp's Annual Report on Form 10-K for the year ended December 31,
1993; and
(2) Bancorp's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1994 and June 30, 1994.
(3) Bancorp's Report on Form 8-K as filed on July 7, 1994; and
(4) All documents filed by Bancorp pursuant to Section 13(a), 13(c), 14
and 15(d) of the Exchange Act subsequent to the date hereof and prior to the
Special Meeting.
Any statement contained in any supplement hereto or in a document
incorporated or deemed to be incorporated by reference herein shall be deemed to
be modified or superseded for purpose of this Proxy Statement-Prospectus to
the extent that a statement contained herein, in any supplement hereto or in
any subsequently filed document which also is or is deemed to be incorporated
by reference herein modifies or supersedes such statement. Any such statement
so modified or superseded shall not be deemed, except as so modified or
superseded, to constitute a part of this Proxy Statement-Prospectus or any
supplement hereto.
<PAGE>
SUMMARY
The following is a brief summary of certain information contained
elsewhere in this Proxy Statement-Prospectus. This summary should be read in
conjunction with, and is qualified in its entirety by, the remainder of this
Proxy Statement-Prospectus including the information incorporated herein by
reference. Stockholders are urged to review carefully the entire Proxy
Statement-Prospectus, including the Appendices.
The Special Meeting
The Special Meeting of Bancorp will be held at the Holiday Inn,
210 Holiday Court, Annapolis, Maryland at 10:00 a.m. local time on Thursday,
December 15, 1994. Only holders of record of Bancorp Common Stock at the close
of business on November 9, 1994 will be entitled to notice of and to vote at
the Special Meeting. Stockholders will be asked to consider and vote upon the
Affiliation pursuant to the Affiliation Agreement which provides for the
affiliation and merger of Bancorp with and into First Virginia. See "THE
SPECIAL MEETING."
First Virginia
First Virginia is a registered bank holding company organized in
October, 1949. As of June 30, 1994, it had assets of approximately $7.230
billion, deposits of $6.253 billion and loans (net of unearned interest) of
$4.508 billion, making it the sixth largest bank holding company in Virginia.
First Virginia currently owns all of the stock of 20 commercial
banks, 14 of which are domiciled in Virginia, 2 in Maryland and 4 in Tennessee.
First Virginia is engaged in the general commercial and consumer banking
business and provides a full range of banking services to individuals,
businesses and organizations through a network of 329 branches. The
principal executive office of First Virginia is located at 6400 Arlington
Boulevard, Falls Church, Virginia 22042-2336, telephone number (703) 241-3655.
Bancorp
Bancorp is a bank holding company incorporated under the laws of
the State of Maryland and registered under the BHCA. Bancorp has three
wholly owned banking subsidiaries, Farmers National Bank of Maryland
("Farmers") whose main office is in Annapolis, Maryland; Atlantic National
Bank ("Atlantic") whose main office is in Ocean City, Maryland; and The
Caroline County Bank ("Caroline") whose main office is in Greensboro,
Maryland. As of June 30, 1994, Bancorp had assets on a consolidated basis of
approximately $709.8 million, deposits of $617.8 million, and loans (net
of unearned interest) of $316.1 million. The principal executive office of
Bancorp is located at 5 Church Circle, Annapolis, Maryland 21401, telephone
number (410) 626- 2200.
General Description of the Affiliation
The terms and conditions of the Affiliation are set forth in the
Affiliation Agreement, a copy of which is attached as Appendix A. Subject
to regulatory and Bancorp stockholder approval and certain other conditions,
on the date on which the Affiliation is consummated, Bancorp will merge with
and into First Virginia, with First Virginia as the surviving corporation.
All subsidiaries of Bancorp, including Farmers, Atlantic and Caroline, will
become subsidiaries of First Virginia. See "THE AFFILIATION - Terms of the
Affiliation" and "- Conditions to Consummation of the Affiliation."
Vote Required
Approval of the Affiliation by Bancorp stockholders requires the
affirmative vote of two-thirds of the votes entitled to be cast by the holders
of record of shares of Bancorp Common Stock. Holders of shares of Bancorp
Common Stock will be entitled to one vote per share on the proposal to approve
the Affiliation. As of the Record Date, there were outstanding and entitled
to vote 2,699,056 shares of Bancorp Common Stock, each share being entitled
to one vote. Bancorp's directors and executive officers and their
affiliates had voting power with respect to 375,736 shares or approximately
13.92% of the shares of Bancorp Common Stock outstanding as of the Record
Date. These directors and executive officers have indicated that they will
vote their shares in favor of the proposal to approve the Affiliation.
See "THE SPECIAL MEETING."
Approval of the Affiliation by the stockholders of First
Virginia is not required.
Exchange Ratio
If the Affiliation is consummated, stockholders of Bancorp will be
entitled to receive for each share of Bancorp Common Stock held of record as
of the Effective Date, 1.5 shares of First Virginia Common Stock. Bancorp
stockholders will be entitled to receive cash in lieu of fractional shares of
First Virginia Common Stock, based on the average of the closing prices of First
Virginia Common Stock as reported by The Wall Street Journal under the
heading "New York Stock Exchange - Composite Transactions" or any comparable
heading then in use, for each of the last ten trading days ending on the tenth
trading day prior to the Effective Date of the Affiliation. See "THE
AFFILIATION - Terms of the Affiliation."
Cash Election and Prorationing
In lieu of receiving First Virginia Common Stock, holders of shares
of Bancorp Common Stock will be given the option of exchanging their shares
for $58.53 per share in cash, provided that the number of shares that may be
exchanged for cash, when added to Dissenting Shares, shall not exceed 30% of
the shares of Bancorp Common Stock outstanding immediately prior to the
Effective Date. If the aggregate of (i) shares as to which cash elections are
properly made and (ii) Dissenting Shares exceeds 30% of the shares of Bancorp
Common Stock outstanding immediately prior to the Effective Date, First
Virginia first will pay cash for shares properly submitted for cash
exchange by each holder of 100 or fewer shares of Bancorp Common Stock (if such
holder has submitted all his shares for cash exchange) and then will pay
cash for shares properly submitted for cash on a pro rata basis. Shares not
exchanged for cash after proration will be exchanged for First Virginia
Common Stock at the exchange ratio noted above.
IF A BANCORP STOCKHOLDER DESIRES TO ELECT TO RECEIVE CASH FOR SHARES
OF BANCORP COMMON STOCK, HE MUST PROPERLY COMPLETE AND SUBMIT TO BANCORP, AT OR
PRIOR TO THE TIME AT WHICH BANCORP'S STOCKHOLDERS VOTE ON THE AFFILIATION AT
THE SPECIAL MEETING, THE CASH ELECTION FORM ACCOMPANYING THIS PROXY
STATEMENT-PROSPECTUS TOGETHER WITH THE STOCK CERTIFICATES FOR SUCH SHARES.
ANY BANCORP STOCKHOLDER WHO DOES NOT PROPERLY COMPLETE AND SUBMIT A CASH
ELECTION FORM PRIOR TO OR AT SUCH TIME OF VOTING CAN ONLY RECEIVE FIRST
VIRGINIA COMMON STOCK IN THE AFFILIATION, EXCEPT A STOCKHOLDER WHO PROPERLY
EXERCISES THE STATUTORY RIGHT TO DEMAND AND RECEIVE PAYMENT OF "FAIR VALUE"
FOR SHARES OF BANCORP COMMON STOCK. ONCE THE VOTE ON THE AFFILIATION HAS BEEN
TAKEN AT THE SPECIAL MEETING, A CASH ELECTION IS IRREVOCABLE. BANCORP WILL
HOLD BANCORP COMMON STOCK CERTIFICATES PROPERLY SUBMITTED WITH CASH ELECTION
FORMS IN SAFEKEEPING PENDING THE EFFECTIVE DATE OF THE AFFILIATION, AT WHICH
TIME THEY WILL BE EXCHANGED FOR CASH, OR IN THE EVENT OF PRORATION, CASH AND
FIRST VIRGINIA COMMON STOCK. IF THE AFFILIATION IS NOT CONSUMMATED, BANCORP
WILL RETURN THE CERTIFICATES.
SEE "THE AFFILIATION - Terms of the Affiliation", "- Cash Election
Procedures" and "- Rights of Dissenting Stockholders".
Recommendation of the Bancorp Board of Directors
The Board of Directors of Bancorp believes that the Affiliation
and the Affiliation Agreement are in the best interests of Bancorp and its
stockholders, as well as its employees, customers and the communities it
serves. In reaching its conclusion to approve the Affiliation and the
Affiliation Agreement, the Bancorp Board of Directors considered a number of
factors. Among other things, those factors included: the financial terms
of the Affiliation; certain financial and other information concerning
First Virginia, including its financial condition and historical record
of strong profitability, and the pro forma increase in the historical
earnings per share, book value per share and dividends per share that would be
received by Bancorp stockholders receiving First Virginia Common Stock pursuant
to the Affiliation, although there can be no assurance that the historical or
pro forma figures are indicative of future earnings, book value or dividends;
other terms of the Affiliation; the opinion of Alex. Brown & Sons Incorporated
("Alex. Brown") as to the fairness, from a financial point of view, of the
consideration to be received by the stockholders of Bancorp pursuant to the
Affiliation Agreement; the non-binding offer made by another financial
institution in the Mid-Atlantic region for the acquisition of Bancorp by that
institution; the possibility of an affiliation between Bancorp and certain
other financial institutions; alternative strategic courses available to
Bancorp, including remaining an independent financial institution;
and the similarities in the business strategies of Bancorp and First
Virginia that, in the view of Bancorp's Board of Directors, would improve
the opportunity for enhanced profitability and stockholder value through the
Affiliation.
THE BANCORP BOARD OF DIRECTORS RECOMMENDS THAT BANCORP STOCKHOLDERS
VOTE TO APPROVE THE AFFILIATION.
See "BACKGROUND AND RECOMMENDATION OF THE BANCORP BOARD OF
DIRECTORS - Background" and "- Recommendation of the Board of Directors."
Opinion of Bancorp's Financial Advisor
On July 1, 1994, Alex. Brown, which has served as financial advisor to
Bancorp in connection with the Affiliation, rendered its written opinion to
Bancorp's Board of Directors that the consideration to be received by Bancorp's
stockholders pursuant to the Affiliation Agreement is fair to the Bancorp
stockholders from a financial point of view. A copy of this opinion, which
sets forth the assumptions made, matters considered and limits on the review
undertaken, is attached as Appendix B to this Proxy Statement-Prospectus.
Bancorp stockholders are urged to read the opinion in its entirety. See
"BACKGROUND AND RECOMMENDATION OF THE BANCORP BOARD OF DIRECTORS - Opinion
of Bancorp's Financial Advisor."
Rights of Dissenting Stockholders
A Bancorp stockholder who properly complies with the requirements
of the Maryland General Corporation Law will be entitled to demand and receive
payment of the "fair value" of his shares of Bancorp Common Stock, in
lieu of receiving the consideration pursuant to the Affiliation Agreement.
If the "fair value" of such shares of Bancorp Common Stock is determined
by appraisal pursuant to a judicial proceeding, such a determination may
result in a value that is more than, less than or equal to the consideration
which the Bancorp stockholder would otherwise be entitled to receive pursuant
to the Affiliation Agreement. See "THE AFFILIATION - Rights of Dissenting
Stockholders" for a more complete summary of the rights of Bancorp
stockholders to demand and receive payment of the "fair value" of their
shares,and Appendix C for provisions of the Maryland General Corporation Law
with respect to those rights.
Interests of Certain Persons in the Merger
Certain members of Bancorp's management and Board of Directors have
interests in the Affiliation in addition to their interests as stockholders
of Bancorp. These include, among other things, provisions in the
Affiliation Agreement relating to indemnification, the continuation of
directors' and officers' liability insurance, continued service as directors
of Farmers, Atlantic and Caroline, directors' fees, and employment agreements
for certain officers. See "THE AFFILIATION - Interests of Certain Persons
in the Affiliation".
Conditions to the Affiliation
The respective obligations of Bancorp and First Virginia to
consummate the Affiliation are subject to certain conditions, including,
among other things, the requisite approval of the Affiliation by the
stockholders of Bancorp, the absence of certain material adverse changes
affecting Bancorp and its subsidiaries, the absence of certain material adverse
changes affecting First Virginia and its subsidiaries, and the accuracy of,
and compliance with, the respective representations, warranties, obligations
and covenants of First Virginia and Bancorp in all material respects.
Consummation of the Affiliation is also subject to receiving certain
regulatory approvals. See "THE AFFILIATION - Conditions to Consummation of the
Affiliation."
Regulatory Review and Approvals
Consummation of the Affiliation is subject to certain regulatory
approvals by the State Bank Commissioner of Maryland, the Virginia State
Corporation Commission and the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). The Affiliation Agreement also requires
that the conversion of Farmers and Atlantic into Maryland-chartered
commercial banks with membership in the Federal Reserve System, and
membership for Caroline in the Federal Reserve System, be approved prior to
consummation of the Affiliation by the appropriate federal and state
regulatory authorities. Applications for such regulatory approvals have
been filed with the State Bank Commissioner of Maryland, the Virginia State
Corporation Commission and the Federal Reserve Board. The Federal Reserve
Bank of Richmond has approved the Affiliation under the BHCA. See "THE
AFFILIATION - Conditions to Consummation of the Affiliation" and " - Regulatory
Review and Approvals."
Certain Federal Income Tax Consequences
It is intended that the Affiliation will qualify as a tax-free
reorganization under Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"), for federal income tax purposes. Accordingly, (i) no gain
or loss will be recognized for federal income tax purposes by a Bancorp
stockholder (except with respect to cash, if any, received in lieu of a
fractional share of First Virginia Common Stock) who exchanges his shares of
Bancorp Common Stock solely for shares of First Virginia Common Stock
pursuant to the Affiliation, (ii) a Bancorp stockholder who receives both First
Virginia Common Stock and cash, or only cash, in exchange for his shares of
Bancorp Common Stock pursuant to the Affiliation may recognize a gain, but
not in excess of the cash received. The receipt of an opinion of Miles &
Stockbridge, a Professional Corporation, counsel to Bancorp, to the effect that
the Affiliation will qualify as a tax-free reorganization under Section
368(a) of the Code and as to certain other matters is a condition to
Bancorp's obligation to consummate the Affiliation. BANCORP STOCKHOLDERS
ARE URGED TO CONSULT THEIR OWN TAX ADVISORS AS TO THE SPECIFIC TAX
CONSEQUENCES TO THEM OF THE AFFILIATION. For a more complete description
of the federal income tax consequences of the Affiliation, see "THE
AFFILIATION - Certain Federal Income Tax Consequences".
Accounting Treatment
The Affiliation is expected to be accounted for as a purchase in
accordance with generally accepted accounting principles. See "THE
AFFILIATION - Accounting Treatment" and "PRO FORMA FINANCIAL INFORMATION."
Termination
The Affiliation Agreement may be terminated and the Affiliation
abandoned, at any time prior to the Effective Date, under certain
circumstances. See "THE AFFILIATION - Termination."
Among other grounds for termination, the Affiliation Agreement provides
that the Affiliation Agreement may be terminated by the Board of Directors
of Bancorp if Bancorp receives an acquisition proposal from a third party
which the Board of Directors of Bancorp determines in good faith in
accordance with Paragraph 4.3 of the Affiliation Agreement that it has a
fiduciary duty to consider and which a majority of the full Board of Directors
of Bancorp further determines to approve and to recommend to the stockholders
of Bancorp for approval. If the Board of Directors of Bancorp terminates the
Affiliation Agreement by reason of its approval of an acquisition proposal
from a third party as described above, Bancorp will be obligated to pay the
amount of $3,160,000 as liquidated damages to First Virginia upon execution
of a definitive written agreement with a third party for consummation of an
acquisition proposal.
Amendment
The Affiliation Agreement may be amended at any time prior to the
Effective Date (without a vote of stockholders) by written agreement
approved by the Boards of Directors of Bancorp and First Virginia. However,
subsequent to the Special Meeting, no amendment may be made in the exchange
ratio which decreases the consideration to Bancorp stockholders without the
approval of stockholders holding two-thirds of all issued and outstanding
shares of Bancorp Common Stock.
Effective Date
The Effective Date of the Affiliation shall be the date specified
in the Articles of Merger filed with both the Maryland State Department of
Assessments and Taxation pursuant to the Maryland General Corporation Law and
with the Virginia State Corporation Commission pursuant to the Virginia Stock
Corporation Act.
Comparison of Stockholder Rights
Upon consummation of the Affiliation, Bancorp stockholders will
become stockholders of First Virginia, which is a Virginia corporation, and
their rights as stockholders of First Virginia will be governed by Virginia
law, First Virginia's Articles of Incorporation and First Virginia's
By-laws. The rights of Bancorp stockholders differ from those of the
holders of First Virginia Common Stock in a number of areas, including the
ability of First Virginia to issue preferred stock, the purchase rights
attached to each share of First Virginia Common Stock and the stockholder
vote required for extraordinary transactions. See "CERTAIN DIFFERENCES IN
RIGHTS OF STOCKHOLDERS and "DESCRIPTION OF FIRST VIRGINIA CAPITAL STOCK"
for a description of the material differences between the rights of
holders of First Virginia Common Stock and Bancorp Common Stock and a
description of First Virginia capital stock.
Market Prices
There is no established public market for the shares of Bancorp Common
Stock although several local brokerage firms do try to maintain a market for
the stock. Bancorp Common Stock is registered pursuant to Section 12 of the
Exchange Act. Shares of First Virginia Common Stock are traded on the New
York and Philadelphia Stock Exchanges. On June 30, 1994, the last trading day
prior to the public announcement of the Affiliation Agreement, the closing
price for First Virginia Common Stock on the New York Stock Exchange was
$36.875 per share. On October 28, 1994, the closing price for First Virginia
Common Stock on the New York Stock Exchange was $36.875 per share. Because the
market price of First Virginia Common Stock is subject to fluctuation, the
market value of the First Virginia Common Stock that Bancorp stockholders will
receive pursuant to the Affiliation may increase or decrease prior to the
Effective Date of the Affiliation. Bancorp stockholders are urged to obtain
current market quotations for First Virginia Common Stock.
<PAGE>
SELECTED FINANCIAL DATA AND PER SHARE DATA
The following table sets forth selected financial information and per share
data on the dates and for the periods indicated of (a) Bancorp, historical, (b)
First Virginia, historical, (c) First Virginia, combined, pro forma, giving
effect to the proposed Affiliation, and (d) 1.5 shares of First Virginia Banks,
Inc., pro forma, giving effect to the proposed Affiliation. This table is
qualified in its entirety by the financial statements appearing herein or
incorporated by reference herein.
<TABLE>
Six Months
Ended June 30
1994 1993 1992 1991 1990 1989
(In thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C>
Farmers National Bancorp
(Historical)
Operating Revenue $ 23,921 $ 49,044 $ 51,511 $ 54,260 $ 50,124 $ 47,028
Provision for Loan Losses 396 1,821 2,445 1,341 1,658 1,216
Net Income 4,787 9,508 7,794 6,950 6,689 7,016
Net Income Per Share 1.77 3.52 2.89 2.58 2.48 2.60
Book Value Per Share
(Period-end) 26.65 25.91 22.91 20.90 19.14 17.43
Dividends Declared Per Share 0.60 1.05 0.88 0.81 0.77 0.73
Total Assets (Period-end) 709,821 714,209 690,210 650,988 545,376 471,835
Total Loans, net of unearned
income 316,133 303,423 298,589 278,735 273,808 230,317
Total Deposits (Period-end) 617,796 619,957 607,103 569,077 473,862 410,023
Total Long-term Debt
(Period-end) 103 128 175 218 257 293
First Virginia Banks, Inc.
(Historical) (1)
Operating Revenue $ 292,482 $ 587,322 $ 602,357 $ 588,120 $ 569,788 $ 534,620
Provision for Loan Losses 4,163 6,450 17,355 14,024 13,404 11,039
Net Income 57,845 116,024 97,473 69,608 65,111 67,374
Net Income Per Share 1.78 3.57 3.02 2.17 2.03 2.13
Book Value Per Share
(Period-end) 22.55 21.29 18.85 16.80 15.51 14.37
Dividends Declared Per Share 0.63 1.13 0.99 0.91 0.85 0.80
Total Assets (Period-end) 7,229,559 7,036,883 6,840,547 6,119,260 5,384,147 5,123,964
Total Loans, net of unearned
income 4,508,293 4,087,318 3,842,373 3,515,378 3,434,403 3,335,675
Total Deposits (Period-end) 6,253,457 6,136,389 6,013,746 5,349,971 4,715,882 4,426,663
Total Long-term Debt (Period-end) 4,216 1,008 5,227 11,467 11,836 37,480
First Virginia Banks, Inc.
(Combined Pro Forma) (1)(2)(4)(5)
Operating Revenue 314,278 632,116
Provision for Loan Losses 4,559 8,271
Net Income 59,576 119,421
Net Income Per Share 1.75 3.52
Book Value Per Share (Period-end) 23.06 21.86
Dividends Declared Per Share 0.63 1.13
Total Assets (Period-end) 7,919,344 7,751,092
Total Loans, net of unearned income 4,824,426 4,390,741
Total Deposits (Period-end) 6,871,253 6,756,346
Total Long-term Debt (Period-end) 4,319 1,136
Farmers National Bancorp Equivalent
Pro Forma 1.5 Shares First Virginia
Banks, Inc. (1)(2)(3)
Net Income Per Share 2.63 5.28
Book Value Per Share (Period-end) 34.60 32.79
Dividends Per Share (Period-end) 0.95 1.70
NOTES TO SELECTED FINANCIAL DATA AND PER SHARE DATA
(1) All per share information for First Virginia, historical, First Virginia, combined
pro forma, and 1.5 shares of First Virginia, pro forma has been restated to
reflect a three-for-two common stock split that was paid on July 27, 1992.
(2) The First Virginia combined pro forma information reflects the results of the
consolidated operations of First Virginia and Bancorp after giving effect on a
purchase basis to the Affiliation of Bancorp with First Virginia.
(3) This data reflects the pro forma net income, book value and dividends per share of
1.5 shares of the First Virginia Common Stock which would be received in the
Affiliation assuming that Bancorp Common Stock was exchanged for the First
Virginia Common Stock. The computations are based on the exchange ratio of 1.5
shares of First Virginia Common Stock for 1.0 shares of Bancorp Common Stock.
(4) In connection with this Affiliation First Virginia intends to repurchase
approximately $100 million in shares of its common stock. Bancorp stockholders
may elect to receive cash at the rate of $58.53 per share of Bancorp Common Stock
in lieu of First Virginia Common Stock, provided that the aggregate of the number
of shares as to which cash elections are properly made and Dissenting Shares may
not exceed 30% of all outstanding Bancorp Common Stock. To the extent that
stockholders elect to receive cash, First Virginia will repurchase a
correspondingly lesser amount of its shares so that the total of cash paid to
Bancorp stockholders and shares repurchased in the open market will equal $100
million. The pro forma statements included herein assume that Bancorp
stockholders elect to receive cash for 30% of all outstanding Bancorp Common Stock
and no Bancorp stockholders elect to exercise the statutory right to receive the
"fair value" of their shares, thereby resulting in the issuance of 2,834,010
shares of First Virginia Common Stock. It is further assumed that 1,426,640
shares of First Virginia Common Stock will be repurchased in open market
transactions in connection with the Affiliation.
(5) In calculating combined pro forma net income, it was assumed that goodwill in the
amount of $79,964,000 will be created and amortized over a period of 23 7/8 years.
In addition, the loss of interest income on the $100,000,000 to be spent in the
repurchase of shares and payments to Bancorp stockholders in cash is included in
the pro forma results.
</TABLE>
<PAGE>
THE SPECIAL MEETING
General
This Proxy Statement-Prospectus is being furnished to holders of
shares of Bancorp Common Stock in connection with the solicitation of
proxies by the Bancorp Board of Directors for use at the Special Meeting.
Each copy of this Proxy Statement-Prospectus mailed to Bancorp stockholders
is accompanied by a form of proxy for use at the Special Meeting.
This Proxy Statement-Prospectus is also furnished by First Virginia to
holders of shares of Bancorp Common Stock as a prospectus in connection with
the issuance by First Virginia of shares of First Virginia Common Stock to be
issued upon consummation of the Affiliation.
Date, Place and Time
The Special Meeting will be held at the Holiday Inn, 210 Holiday
Court, Annapolis, Maryland, at 10:00 a.m. on Thursday, December 15, 1994.
Purpose
At the Special Meeting, Bancorp stockholders will consider and vote
upon the proposal to approve the Affiliation and transact such other business
as may properly come before the Special Meeting or any adjournments thereof.
Record Date
The Bancorp Board of Directors has fixed the close of business on
November 9, 1994 as the record date for the determination of Bancorp
stockholders entitled to receive notice of and to vote at the Special Meeting
(the "Record Date").
Vote Required
As of the Record Date, there were outstanding 2,699,056 shares of Bancorp
Common Stock.
A quorum for the Special Meeting requires the presence in person or by
proxy of holders of a majority of the outstanding shares of Bancorp Common
Stock. Votes cast by proxy or in person at the Special Meeting will be
tabulated in accordance with Maryland law by the inspectors of election
appointed for the Special Meeting. Abstentions will be treated as present
for purposes of determining the presence of a quorum.
The Affiliation. Approval of the Affiliation by Bancorp stockholders
requires the affirmative vote of two-thirds of the votes entitled to be cast by
the holders of record of shares of Bancorp Common Stock. Holders of shares of
Bancorp Common Stock will be entitled to one vote per share on the proposal
to approve the Affiliation. Abstentions and failures to vote (including
broker non-votes, i.e., proxies from brokers or nominees indicating that such
persons have not received instructions from the beneficial owners or other
persons entitled to vote shares as to a matter with respect to which the
brokers or nominees do not have discretionary power to vote) will have the same
effect as votes against the proposal to approve the Affiliation.
Share Ownership. Bancorp's directors and executive officers and
their affiliates, who had voting power with respect to 375,736 shares or
approximately 13.92% of the shares of Bancorp Common Stock outstanding as of
the Record Date, have indicated that they will vote their shares in favor of
the proposal to approve the Affiliation.
As of the Record Date, Farmers National Bank of Maryland ("Farmers"), a
wholly owned subsidiary of Bancorp, had voting power with respect to an
aggregate of 210,103 shares or approximately 7.78% of the shares of Bancorp
Common Stock outstanding as of the Record Date. Of this aggregate number
of shares, 55,564 were held under arrangements providing for Farmers to
share voting power with respect to those shares with co-fiduciaries, settlors,
beneficiaries or others. It is expected that Farmers will vote those shares in
favor of the proposal to approve the Affiliation only to the extent that the
persons with whom it shares voting power for such shares execute proxies in
favor of the proposal. The remainder of the aggregate number of shares may be
voted by Farmers in its sole discretion. It is expected that Farmers will vote
all shares as to which it has discretion in accordance with the
recommendations of the Bancorp Board of Directors.
As of September 30, 1994, First Virginia Bank, a subsidiary of
First Virginia, held in a fiduciary capacity with sole voting authority 960
shares of Bancorp Common Stock. As of September 30, 1994, neither First
Virginia nor the trust departments of First Virginia's other subsidiary banks
owned or held in any agent or fiduciary capacity any shares of Bancorp Common
Stock. To First Virginia's best knowledge, as of September 30, 1994, directors
and executive officers of First Virginia did not own any shares of Bancorp
Common Stock.
Voting and Revocation of Proxies
Shares of Bancorp Common Stock as to which a proxy properly signed is
received at or prior to the Special Meeting, unless subsequently revoked,
will be voted in accordance with the instructions thereon. If a proxy is
signed and returned without indicating any voting instructions, the shares of
Bancorp Common Stock represented by the proxy will be voted FOR the proposal to
approve the Affiliation. Any proxy given pursuant to this solicitation may
be revoked by the person giving it at any time before the proxy is voted by
the filing of an instrument revoking it or of a duly executed proxy bearing
a later date with the Secretary of Bancorp prior to or at the Special Meeting
or by voting in person at the Special Meeting. All written notices of
revocation and other communications with respect to revocation of Bancorp
proxies should be addressed to: Farmers National Bancorp, 5 Church Circle,
Annapolis, Maryland 21401, Attention: Norma K. Behlke, Corporate Secretary.
Unless a stockholder votes or abstains in person at the Special Meeting,
attendance at the Special Meeting will not in and of itself constitute a
revocation of a proxy.
The Bancorp Board of Directors is not aware of any business to be acted
upon at the Special Meeting other than as described herein. If, however,
other matters are properly brought before the Special Meeting, or any
adjournments thereof, the persons appointed as proxies will have discretion to
vote or act thereon according to their best judgment.
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and
employees of Bancorp, who will not be separately compensated for such services,
may solicit proxies from the stockholders of Bancorp, respectively, personally
or by telephone or telegram or other forms of communication. Brokerage
houses, nominees, fiduciaries and other custodians will be requested to
forward soliciting materials to beneficial owners of Bancorp Common Stock and
to obtain authorizations for the execution of proxies; and if they in turn so
request, Bancorp will reimburse such brokerage houses, nominees, fiduciaries
and other custodians for their reasonable expenses incurred in doing so.
Bancorp will bear its own expenses in connection with the
solicitation of proxies for the Special Meeting, except that First Virginia
will pay all printing expenses and filing fees incurred in connection with
this Proxy Statement-Prospectus. See "THE AFFILIATION -- Expenses."
BACKGROUND AND RECOMMENDATION OF THE BANCORP BOARD OF DIRECTORS
Background
Bancorp, a bank holding company headquartered in Annapolis, Maryland, has
three commercial bank subsidiaries. Farmers, a national banking association and
the largest of the subsidiary banks, also maintains its main office in
Annapolis. The Caroline County Bank ("Caroline") is a commercial bank
chartered under the laws of the State of Maryland with its sole office in
Greensboro, Maryland. Atlantic National Bank ("Atlantic") is a national
banking association with its main office in Ocean City, Maryland. Farmers,
Caroline and Atlantic (the "Banks") are wholly owned subsidiaries of Bancorp.
Beginning in 1990, the price of shares of Bancorp Common Stock traded in
over- the-counter transactions disclosed to Bancorp began to lag the market
performance of common stocks of certain other comparable financial institutions
in the Mid-Atlantic region. The Board of Directors of Bancorp monitored
the price of Bancorp Common Stock, and was of the view that for much of the
time since the beginning of 1990 the price did not appropriately reflect the
financial performance of Bancorp or the underlying value of its franchise.
Bancorp's Board of Directors attributed the fact to, among other things, the
limited liquidity of Bancorp Common Stock.
In late August, 1993, First Virginia contacted Bancorp to discuss
the possibility of an affiliation of Bancorp with First Virginia. After
several meetings with representatives of Bancorp, First Virginia made an
affiliation proposal by letter dated October 22, 1993. Following consideration
of the proposal, Bancorp's Board of Directors rejected it by letter dated
October 28, 1993.
In April, 1994, First Virginia again suggested meeting with
representatives of Bancorp to explore whether Bancorp would consider an
affiliation proposal on terms more favorable to Bancorp and its stockholders
than the previous proposal. In response to this contact by First Virginia,
members of the Executive Committee of the Board of Directors of Bancorp met with
certain executive officers of First Virginia on June 6, 1994 to discuss the
business strategies and philosophies of First Virginia and Bancorp and terms
of a possible affiliation between the two institutions. Subsequently by
letter dated June 8, 1994, First Virginia submitted to the Board of Directors
of Bancorp a written offer for the affiliation of Bancorp with First
Virginia.
Certain directors of Bancorp received an unsolicited letter dated June 10,
1994, from another bank holding company headquartered in the Mid-Atlantic
region (the "Interested Institution"), expressing an interest in possibly
acquiring Bancorp. The Interested Institution's letter set forth a price
range per share of Bancorp Common Stock that the Interested Institution might
offer for the acquisition of Bancorp, subject to negotiation and due
diligence investigation. The highest price in the range suggested by the
Interested Institution was less than the then current market value of the
consideration offered by First Virginia in its June 8, 1994 letter.
The First Virginia offer and the Interested Institution's written
expression of interest were submitted to Bancorp's Board of Directors at a
meeting on June 14, 1994. At this meeting the Board of Directors appointed a
special committee of directors (the "Special Committee") to review First
Virginia's offer and the Interested Institution's expression of interest,
negotiate on behalf of the Board of Directors and make recommendations to
the Board of Directors concerning any action to be taken. The Board of
Directors also retained Alex. Brown & Sons Incorporated ("Alex. Brown") to
serve as financial advisor to Bancorp in connection with evaluation of the
proposals.
Bancorp furnished to the Interested Institution the information
concerning Bancorp that previously had been provided by Bancorp to First
Virginia. Bancorp requested that if the Interested Institution wished to
make a firm offer for the acquisition of Bancorp, the Interested
Institution should submit its best offer together with its proposed
definitive acquisition agreement on or before June 24, 1994. Subsequently
certain additional information requested by the Interested Institution was
provided to it by Bancorp. Bancorp advised both First Virginia and the
Interested Institution that Bancorp had received a proposal or expression
of interest from another institution, and that Bancorp would consider the
proposals made or to be made by each of them. Bancorp did not disclose the
identity of either party to the other. First Virginia submitted its proposed
definitive affiliation agreement to Bancorp's counsel on June 15, 1994. The
Interested Institution submitted a non- binding written acquisition offer for
Bancorp, together with a proposed definitive acquisition agreement, to
Bancorp's representatives on June 24, 1994.
The consideration per share of Bancorp Common Stock offered by First
Virginia was 1.5 shares of First Virginia Common Stock for each share of
Bancorp Common Stock (the "Exchange Ratio"), to be effected as a tax-free
exchange. As of June 24, 1994, based on the closing price of First Virginia
Common Stock on that date, the market value of 1.5 shares of First Virginia
Common Stock was approximately $55.50. The Interested Institutions's offer
also contemplated a tax-free exchange of shares of common stock of the
Interested Institution for Bancorp Common Stock. However, the Interested
Institution's proposal involved a floating exchange ratio under which
Bancorp stockholders would receive for each share of Bancorp Common Stock
shares of the Interested Institution's common stock with an average market
price of $51.00 per share as of ten days prior to the effective date of the
acquisition. The Interested Institution's offer also would have given
Bancorp's stockholders the option to elect cash in the amount of $51.00 per
share for up to 40% of all outstanding shares of Bancorp Common Stock.
The amount of $51.00 per share offered by the Interested Institution was
less than the highest price per share in the range of consideration originally
suggested by the Interested Institution in its June 10, 1994 letter.
The Special Committee met five times between June 14, 1994 and June 30,
1994, to consider the offers of First Virginia and the Interested Institution,
and to consult with Bancorp's financial advisers and legal counsel. In view
of the fact that the then current market value of the consideration per
share offered by First Virginia exceeded the highest price per share in
the range originally suggested by the Interested Institution in its June
10, 1994 letter, as well as the lesser amount per share offered by the
Interested Institution on June 24, 1994, the Special Committee instructed
legal counsel to negotiate with First Virginia's counsel concerning the
terms of the proposed affiliation agreement submitted by First Virginia. The
object of these negotiations was to identify the terms most favorable to
Bancorp and its stockholders to which First Virginia would agree for
inclusion in a definitive affiliation agreement between Bancorp and First
Virginia. The Special Committee and the Board of Directors of Bancorp would
then consider the negotiated terms of the proposed affiliation agreement
with First Virginia in determining the appropriate course of action for
Bancorp. Alex. Brown worked with Bancorp's legal counsel in advising the
Special Committee regarding the terms of the proposed definitive
agreements submitted by First Virginia and the Interested Institution,
and in negotiating the definitive agreement with First Virginia.
In the course of negotiations, First Virginia modified its offer to
provide that Bancorp stockholders would have the right to elect to receive cash
for their shares at the rate of $58.53 per share of Bancorp Common Stock,
provided that the shares exchanged for cash plus all Dissenting Shares would
not exceed 30% of all outstanding shares of Bancorp Common Stock.
During the last two weeks of June 1994, representatives of Alex. Brown
received inquiries from two other financial institutions concerning
their interest in discussing a possible acquisition of Bancorp. In view of
the potential difficulties in seeking to negotiate and consummate a more
favorable transaction with either of these institutions, compared to the fully
negotiated offer in hand from First Virginia by June 30, 1994, and in view of
the risk that the delay resulting from negotiations with other potential
acquirors might result in First Virginia's withdrawal of its fully negotiated
offer, Bancorp did not pursue discussions with the other two
institutions.
On June 30, 1994, the Interested Institution sent a letter to the
Board of Directors of Bancorp modifying its June 24, 1994 offer by increasing
the value of the Interested Institution's common stock to be received for each
share of Bancorp Common Stock from $51.00 to $53.00.
At a meeting of the Special Committee on June 30, 1994, Alex. Brown
presented its financial analysis of the modified offers of First Virginia
and the Interested Institution, and reported that it would be able to render an
opinion that the proposed consideration to be received by the stockholders of
Bancorp under the terms of First Virginia's offer as negotiated was fair from
a financial point of view (the "Fairness Opinion"). After considering the
advice of its financial advisors and legal counsel at the June 30, 1994
meeting, the Special Committee adopted a report to the Board of Directors of
Bancorp recommending approval of the First Virginia proposal as modified and
negotiated.
The Special Committee's report was presented to the Board of
Directors of Bancorp at a special meeting of the Board of Directors on June
30, 1994. At this meeting Alex. Brown reported to the Board of
Directors regarding its financial analysis of the modified offers of First
Virginia and the Interested Institution. Alex. Brown reported to the Board
of Directors that it would be able to render the Fairness Opinion with
respect to the proposed consideration to be received by the stockholders of
Bancorp under the terms of the modified offer.
Another special meeting of the Board of Directors of Bancorp was held on
July 1, 1994. Upon consideration of the modified offers of First Virginia and
the Interested Institution, the terms of the proposed definitive affiliation
agreement with First Virginia, the report and recommendation of the Special
Committee, and the advice and analysis of Bancorp's financial advisors and
legal counsel, the Board of Directors unanimously approved the modified offer
of First Virginia and authorized the execution and delivery of the Affiliation
Agreement. The Affiliation Agreement was signed and delivered by Bancorp
and First Virginia on July 1, 1994. Certain terms of the Affiliation and
the execution of the Affiliation Agreement were announced in a joint press
release on July 1, 1994. See "Recommendation of the Bancorp Board of Directors"
and "Opinion of Bancorp's Financial Advisor."
Recommendation of the Bancorp Board of Directors
The Bancorp Board of Directors believes that the Affiliation and the
Affiliation Agreement are in the best interests of Bancorp and its
stockholders, as well as its employees, customers and the communities it
serves. As explained below, this conclusion is supported by the opinion
of Alex. Brown, its independent financial advisor. In reaching its
conclusion to approve the Affiliation and the Affiliation Agreement, the
Bancorp Board of Directors considered a number of factors. The Board of
Directors of Bancorp did not assign any relative or specific weights to the
factors considered. The material factors considered included:
(1) The Financial Terms of the Affiliation. The Board of
Directors of Bancorp compared the financial terms of the Affiliation
with those in other recent merger transactions involving bank
holding companies of comparable size in the Mid-Atlantic region and
in the United States as a whole. Based on this comparative
analysis, and in view of historical and anticipated trading ranges
for First Virginia Common Stock, the Bancorp Board of Directors
concluded that the consideration to be received by Bancorp
stockholders represented a fair multiple of Bancorp's per share book
value and earnings. The Board of Directors also considered the
premium included in the aggregate consideration to be received by
all Bancorp stockholders (calculated as the difference between such
aggregate consideration and Bancorp's total book value at March 31,
1994) as a percentage of Bancorp's core deposits. In addition, the
Bancorp Board of Directors considered that, based on the Exchange
Ratio and the Bancorp Board of Directors' belief that First Virginia
is likely to continue paying dividends at approximately its current
rate, the Affiliation would result in a substantial increase in the
rate of dividends paid per share to Bancorp stockholders who receive
shares of First Virginia Common Stock pursuant to the Affiliation,
although there can be no assurance that current dividends are
indicative of future dividends. See "SELECTED FINANCIAL DATA AND
PER SHARE DATA" for comparative per share data and "Opinion of
Bancorp's Financial Advisor" for a discussion of this comparative
information.
(2) Certain Financial and Other Information Concerning First
Virginia. The Board of Directors of Bancorp considered numerous
factors concerning First Virginia, including its financial condition
and consistent historical record of strong profitability, asset
quality and capital adequacy in comparison to other bank holding
companies of comparable size in the Mid-Atlantic region and the
nation. Bancorp's Board of Directors reviewed First Virginia's
historical earnings per share, book value per share and dividends
per share, and the pro forma increase in the historical earnings per
share, book value per share and dividends per share that would be
received by Bancorp stockholders receiving First Virginia Common
Stock pursuant to the Affiliation, although there can be no
assurance that the historical or pro forma figures are indicative of
future earnings, book value or dividends. The Bancorp Board of
Directors also considered the marketability of First Virginia Common
Stock, which is publicly traded on the New York Stock Exchange.
(3) Other Terms of the Affiliation. Bancorp's Board of
Directors considered that the Affiliation would qualify as a tax-
free reorganization under the Internal Revenue Code of 1986, as
amended (the "Code"). See "THE AFFILIATION - Certain Federal Income
Tax Consequences." In addition, the Board of Directors of Bancorp
considered the benefits to the customers and employees of Farmers
and the communities it serves that would result from the agreement
of First Virginia to maintain Farmers as a separate subsidiary bank
of First Virginia until at least December 31, 1998. The Bancorp
Board of Directors further considered the benefits that would inure
to employees of Bancorp's subsidiaries under the provisions of the
Affiliation Agreement providing for First Virginia to use its best
efforts to minimize terminations of those employees after the
Affiliation and to place displaced employees in other job vacancies
within the First Virginia organization for a certain period of time
and subject to certain conditions, and also providing for the
participation by employees of Bancorp and its subsidiaries in First
Virginia's benefit plans after the Effective Date, subject to
eligibility requirements. See "THE AFFILIATION - Effect on Employee
Benefits."
(4) Opinion of Bancorp's Financial Advisor. The Board of
Directors of Bancorp considered the opinion of Alex. Brown as to the
fairness, from a financial point of view, of the consideration to be
received by the stockholders of Bancorp pursuant to the Affiliation
Agreement. See "Opinion of Bancorp's Financial Advisor."
(5) The Non-Binding Offer of the Interested Institution.
Bancorp's Board of Directors considered the non-binding offer made
by the Interested Institution as modified on June 30, 1994, the
historical financial performance and future prospects of the
Interested Institution, and the advice and analysis of Bancorp's
financial advisor and legal counsel concerning the financial and
legal terms of the offer. The Bancorp Board of Directors determined
that the offer was inferior to First Virginia's proposal and that
the advantages of affiliation with First Virginia on the terms and
conditions of the First Virginia proposal were superior. Further,
the Board of Directors was of the view that the possibility of
substantially improving the offer of the Interested Institution by
negotiation to the point that it would offer advantages superior to
those of the First Virginia proposal was remote and that any delay
resulting from such an effort to negotiate with the Interested
Institution or any other institutions might result in First
Virginia's withdrawal of its offer. See "Background."
(6) Other Possible Affiliation Partners. The Bancorp Board
of Directors also considered the possibility of affiliating with
certain other financial institutions, the prospects of such other
possible affiliation partners, and the likelihood that such other
potential partners would be able to make an affiliation offer on
terms comparable or superior to those of First Virginia's proposal.
Based upon the foregoing considerations, and after consulting with
its financial advisor, the Board of Directors of Bancorp concluded
that none of the other possible affiliation partners considered by
it presented the advantages that the Affiliation would provide, and
as a result Alex. Brown was not authorized to contact financial
institutions other than First Virginia and the Interested
Institution.
(7) Alternative Strategic Courses Available to Bancorp. The
Board of Directors of Bancorp considered other courses Bancorp could
pursue as an alternative to an affiliation with another financial
institution. These courses included maintaining the independence
and previous strategic course of Bancorp and seeking growth and
enhanced profitability through the acquisition of other financial
institutions.
(8) Certain Other Considerations. The Bancorp Board of
Directors considered the similarities between the business
strategies and philosophies of First Virginia and Bancorp, and was
of the view that these similarities would improve the opportunity
for enhanced profitability and stockholder value through the
Affiliation. The Board of Directors of Bancorp also considered that
First Virginia's organizational structure of a parent bank holding
company providing central controls and support for affiliate banks
with substantial local autonomy would be likely to allow efficient
integration of Bancorp's subsidiary banks into First Virginia's
organization, thus serving the interests of Bancorp's stockholders,
the employees and customers of Bancorp's subsidiary banks and the
communities served by them.
THE BANCORP BOARD OF DIRECTORS RECOMMENDS THAT BANCORP STOCKHOLDERS VOTE TO
APPROVE THE AFFILIATION.
Opinion of Bancorp's Financial Advisor
Bancorp retained Alex. Brown in June 1994 as financial advisor in
connection with the consideration by the Bancorp Board of Directors of the
Affiliation. Bancorp selected Alex. Brown because of Alex. Brown's reputation
as a nationally recognized investment banking firm with substantial
experience in mergers and acquisitions of financial institutions. No
limitations were imposed by the Bancorp Board of Directors upon Alex. Brown
with respect to the investigations made or procedures followed by it in
rendering its opinion.
Representatives of Alex. Brown attended a meeting of the Bancorp
Board of Directors on July 1, 1994 at which Alex. Brown rendered a written
opinion to the Bancorp Board of Directors that the consideration to be
received by Bancorp's stockholders pursuant to the Affiliation Agreement (the
"Affiliation Consideration") is, as of the date of the opinion, fair to
the stockholders of Bancorp from a financial point of view. The full text
of the written opinion of Alex. Brown which sets forth certain assumptions
made, matters considered and limitations on the reviews undertaken, is attached
as Appendix B and is incorporated herein by reference, and should be read in
its entirety in connection with this Proxy Statement-Prospectus. The summary
of the opinion of Alex. Brown set forth herein is qualified in its
entirety by reference to the opinion.
In connection with its opinion, Alex. Brown reviewed, analyzed and
relied upon material bearing upon the business, financial condition and
prospects of Bancorp and First Virginia, including, among other things, the
following: (i) the Affiliation Agreement; (ii) Bancorp's Annual Reports to
Stockholders and Bancorp's Annual Reports on Form 10-K for each of the
five years ended December 31, 1993; (iii) First Virginia's Annual Reports
to Stockholders and First Virginia's Annual Reports on Form 10-K for each of
the five years ended December 31, 1993; (iv) the unaudited financial statements
of each of Bancorp and First Virginia for the three months ended March 31, 1993
and 1994; and (v) certain operating and financial information provided by
Bancorp management and First Virginia management with respect to their
respective businesses and prospects. Alex. Brown also met with certain of the
senior management of Bancorp and First Virginia to discuss their respective
operations, historical financial statements and future prospects; reviewed
the historical stock prices and trading volume of Bancorp Common Stock and
First Virginia Common Stock; reviewed the publicly available financial data and
stock market performance data of publicly traded bank holding companies
which were deemed generally comparable to Bancorp and First Virginia;
reviewed the terms of recent acquisitions of publicly traded bank holding
companies which were deemed generally comparable to the Affiliation of Bancorp
with First Virginia; and conducted such other studies, analyses,
inquiries and investigations as were deemed appropriate.
In conducting its review and arriving at its opinion, Alex. Brown
relied upon and assumed the accuracy and completeness of all of the
financial and other information provided to it or publicly available and
Alex. Brown did not attempt independently to verify such information. Alex.
Brown relied upon the management of Bancorp and First Virginia as to the
reasonableness and achievability of the financial projections (and the
assumptions and bases therefor) provided to it, and assumed that such
projections reflect the best currently available estimates and judgments of
such managements and that such projections will be realized in the amounts and
in the time periods currently estimated by such managements. In addition,
Alex. Brown did not make an independent evaluation or appraisal of the assets
or liabilities of Bancorp or First Virginia, nor was Alex. Brown furnished with
such an appraisal or evaluation.
The following is a summary of the analyses performed by Alex.
Brown in connection with its opinion.
(1) Affiliation Analysis. Alex. Brown performed an analysis
of the Affiliation Consideration and reviewed the multiples or
premiums represented by the Affiliation Consideration to Bancorp's
book value, tangible book value, latest twelve months' earnings,
core deposits and market prices of Bancorp Common Stock. Alex.
Brown analyzed the Affiliation Consideration on the assumption that
all Bancorp stockholders would elect to receive shares of First
Virginia Common Stock for all of their Bancorp Common Stock (the
"Maximum Stock Election"), and alternatively on the assumption that
Bancorp stockholders would elect to receive cash for their Bancorp
Common Stock at the rate of $58.53 per share up to the maximum of
30% of all outstanding shares of Bancorp Common Stock (the "Maximum
Cash Election"). See "THE AFFILIATION - Terms of the Affiliation."
The analysis was performed for a range of possible future market
prices for shares of First Virginia Common Stock. Using the closing
price of $36.88 for First Virginia Common Stock on June 29, 1994,
the Affiliation Consideration was determined by Alex. Brown to
represent (i) in the case of the Maximum Stock Election a multiple
of 15.9 times Bancorp's earnings per share for the 12-month period
ended March 31, 1994, and in the case of the Maximum Cash Election a
multiple of 16.2 times Bancorp's earnings for such 12-month period,
(ii) in the case of the Maximum Stock Election a multiple of 15.9
times Bancorp's estimated earnings for the fiscal year ending
December 31, 1994, and in the case of the Maximum Cash Election a
multiple of 16.2 times Bancorp's estimated earnings for such fiscal
year, (iii) in the case of the Maximum Stock Election a multiple of
2.12 times Bancorp's book value per share at March 31, 1994, and in
the case of the Maximum Cash Election a multiple of 2.15 times such
book value per share, (iv) in the case of the Maximum Stock Election
a multiple of 2.15 times Bancorp's tangible book value per share at
March 31, 1994, and in the case of the Maximum Cash Election a
multiple of 2.19 times such tangible book value per share, (v) in
the case of the Maximum Stock Election a premium of 13.6% of
Bancorp's core deposits at March 31, 1994, and in the case of the
Maximum Cash Election, a premium of 14.0% of such core deposits, and
(vi) in the case of the Maximum Stock Election a premium of 49.5%
over the latest price ($37.00 per share) known to Alex. Brown at
which shares of Bancorp Common Stock were traded as of June 28,
1994, and in the case of the Maximum Cash Election a premium of
52.1% over such trading price for Bancorp Common Stock.
(2) Comparable Transaction Analysis. Alex. Brown compared
the Affiliation Consideration to the consideration received by the
stockholders in 27 affiliation and acquisition transactions
involving commercial banks and bank holding companies known to Alex.
Brown to have been completed or announced in the United States since
January 1, 1993 and in which the aggregate consideration in the
transaction was between $100 million and $500 million. Comparisons
were made to such transactions as categorized in a number of
different ways,including all 27 such transactions in the United
States, the eight such transactions in the Mid-Atlantic region, and
such transactions classified according to the different levels of
profitability of the banks or bank holding companies involved.
Using the closing price of $36.88 for First Virginia Common Stock on
June 29, 1994 for purposes of comparison, the consideration paid in
all 27 national transactions reflected (i) a mean average multiple
of 15.0 times earnings for the latest twelve months prior to the
announcement of the transaction (compared to a multiple of 15.9 for
the Affiliation in the case of the Maximum Stock Election, and a
multiple of 16.2 in the case of the Maximum Cash Election), (ii) a
mean average multiple of 2.06 times book value (compared to a
multiple of 2.12 for the Affiliation in the case of the Maximum
Stock Election, and a multiple of 2.15 in the case of the Maximum
Cash Election), (iii) a mean average core deposit premium of 11.3%
(compared to a premium of 13.6% for the Affiliation in the case of
the Maximum Stock Election, and a premium of 14.0% in the case of
the Maximum Cash Election, and (iv) a mean average premium of 36.7%
over the market price of the stock one month before the announcement
of the transaction (compared to a premium of 58.0% over the trading
price of Bancorp Common Stock reported to Alex. Brown to be
prevailing one month before the announcement of the Affiliation in
the case of the Maximum Stock Election, and in the case of the
Maximum Cash Election to a premium of 60.8%).
(3) Analysis of Selected Publicly Traded Companies. In
preparing its opinion, Alex. Brown, using publicly available
information, compared selected financial information, including
latest twelve months ("LTM") earnings, 1994 estimated earnings, 1995
estimated earnings, stated book value, tangible book value and total
assets, for Bancorp and a peer group of commercial bank
organizations.
The peer group was comprised of 14 commercial banks
organizations headquartered in the Mid-Atlantic region (New Jersey,
Pennsylvania, Maryland and Virginia) that possessed an asset base
between $300 million and $1 billion (the "Regional Comparables
Group"). The Regional Comparables Group included F&M Bancorp (MD),
Mason-Dixon Bancshares, Inc. (MD), First United Corp. (MD), Piedmont
BankGroup, Inc. (VA), Premier Bankshares Corp. (VA), George Mason
Bankshares, Inc. (VA), National Penn Bancshares, Inc. (PA), Omega
Financial Corp. (PA), Financial Trust Corp (PA), Harleysville
National Corp. (PA), Southwest National Corp. (PA), State
Bancshares, Inc. (PA), Keystone Heritage Group, Inc. (PA) and Bryn
Mawr Bank Corp. (PA). As of June 29, 1994, the relative multiples
implied by the market price of Bancorp Common Stock and the mean
market price of the common stock of the Regional Comparables Group
to such selected financial data was to LTM earnings, 11.1x for
Bancorp and 13.0x for the Regional Comparables Group; to 1994
estimated earnings per share, 11.1x for Bancorp and 12.5x for the
Regional Comparables Group; to 1995 estimated earnings per share,
10.5x for Bancorp and 12.4x for the Regional Comparables Group; to
stated book value, 1.47x for Bancorp and 1.68x for the Regional
Comparables Group; to tangible book value, 1.50x for Bancorp and
1.72x for the Regional Comparables Group; and to total assets, 14.6%
for Bancorp and 15.9% for the Regional Comparables Group.
(4) Analysis of First Virginia. Alex. Brown analyzed the
performance and financial condition of First Virginia. Among the
financial information reviewed was information for the last five
full fiscal years and the first quarter of 1994 relating to return
on average assets, return on average equity, equity to assets, net
interest income to average assets, total assets, nonperforming
assets and efficiency ratio. Alex. Brown also evaluated average
annual growth rates over the last ten full fiscal years in First
Virginia's return on average assets, return on average equity,
earnings per share and dividends, as well as trends in nonperforming
assets. Overall, in the opinion of Alex. Brown, First Virginia's
historical operating performance and financial condition compared
favorably to those of bank holding companies of comparable size in
the Mid-Atlantic region and in the nation as a whole.
(5) Discounted Cash Flow Analysis. Using discounted cash
flow analysis, Alex. Brown estimated the present value of the future
dividend streams that Bancorp could produce over a four year period,
under different assumptions as to required equity levels, if the
Company performed in accordance with management's forecasts and
certain variants thereof. Alex. Brown also estimated the terminal
value for Bancorp's common equity after the four year period by
applying book value (175%-250%) and earnings (15.6-22.2 times)
acquisition multiples currently being received by commercial bank
organizations with similar profitability ratios as Bancorp is
projected to have during its calendar year ended December 31, 1998.
The range of multiples used reflected a variety of scenarios
regarding the growth and profitability prospects of Bancorp. The
dividend streams and terminal values were then discounted to present
values using discount rates ranging from 12.0% to 15.0%, which
reflect different assumptions regarding the required rates of
returns of holders or prospective buyers of the common equity.
Based on the foregoing analysis, Alex. Brown estimated that a range
for the value of Bancorp Common Stock on a per share basis was
$39.81 to $61.35.
(6) Dilution Analysis. Alex. Brown analyzed the financial
impact of the Affiliation on First Virginia and its impact on
Bancorp stockholders as prospective future stockholders of First
Virginia. Among other things, Alex. Brown evaluated the impact of
the Affiliation on assets, earnings and equity of First Virginia, as
well as on First Virginia's projected 1995 earnings per share and
tangible book value per share. Alex. Brown concluded, based on
assumptions concerning the transaction and future operating
performance (furnished by Bancorp and First Virginia) that Alex.
Brown considered to be appropriate in the circumstances, that the
Affiliation would have a significant positive effect on Bancorp
stockholders. After giving effect to the Affiliation, the pro forma
earnings per share, tangible book value per share and dividends per
share to be recognized by Bancorp stockholders receiving shares of
First Virginia Common Stock pursuant to the Affiliation would
represent a significant increase over projected earnings per share
(60.0% increase per Bancorp equivalent share received in the
Affiliation), tangible book value per share (14.0% increase per
Bancorp equivalent share) and dividends per share (60.0% increase
per Bancorp equivalent share) for Bancorp Common Stock if the
Affiliation were not consummated. However, there can be no
assurance that these pro forma amounts are indicative of future
dividends or financial performance. See "SELECTED FINANCIAL DATA
AND PER SHARE DATA."
(7) Reference Range. Based in part on the several analyses
discussed above, Alex. Brown developed, for purposes of its opinion,
a reference range for the value of Bancorp Common Stock of $52.00 to
$60.00 per share. The values reflected in the foregoing reference
range were considered along with the other analyses performed by
Alex. Brown and were not intended to represent the price at which
100% of the Bancorp Common Stock could actually be sold. The
foregoing reference ranges were based in part on the application of
economic and financial models and were not necessarily indicative of
actual values, which may be significantly more or less than such
estimates. The reference ranges do not purport to be appraisals.
Based on these analyses, Alex. Brown rendered a written opinion to the
Bancorp Board of Directors on July 1, 1994 that the Affiliation
Consideration is fair to Bancorp stockholders from a financial point of view.
In connection with rendering its opinion to the Bancorp Board of
Directors, Alex. Brown performed a variety of financial analyses. However, the
preparation of a fairness opinion involves various determinations as to the
most appropriate and relevant methods of financial analysis and the
application of those methods to the particular circumstances and, therefore,
such an opinion is not readily susceptible to summary description.
Accordingly, Alex. Brown believes that its analysis must be considered as a
whole and that considering any portions of such analysis and of the factors
considered, without considering all analyses and factors, could create a
misleading view of the process underlying the opinion. In its analysis, Alex.
Brown made numerous assumptions with respect to industry performance, business
and economic conditions and other matters, many of which are beyond Bancorp's
and First Virginia's control. Estimates contained in Alex. Brown's analysis are
not necessarily indicative of future results or actual values, which may be
significantly more or less favorable than such estimates. The analyses do not
purport to be appraisals or to reflect the prices at which a company might
actually be sold or the prices at which any securities may trade at the present
time or any time in the future.
Bancorp has paid Alex. Brown $50,000 in connection with the opinion
delivered on July 1, 1994 and has agreed to pay Alex. Brown an additional
$350,000 in connection with such opinion upon consummation of the
Affiliation. Bancorp has also agreed to reimburse Alex. Brown for certain
reasonable out-of-pocket expenses and to indemnify Alex. Brown against certain
liabilities.
THE AFFILIATION
This Proxy Statement-Prospectus describes certain aspects of the
Affiliation Agreement. The description does not purport to be complete and
is qualified in its entirety by reference to the Affiliation Agreement, a copy
of which is attached as Appendix A and is incorporated herein by reference.
ALL STOCKHOLDERS ARE URGED TO READ THE AFFILIATION AGREEMENT IN ITS ENTIRETY.
Terms of the Affiliation
On the date on which the Affiliation is consummated (the "Effective
Date"), the Affiliation will be effected by the merger of Bancorp with and
into First Virginia, with First Virginia as the surviving corporation. The
Articles of Incorporation and Bylaws of First Virginia as in effect
immediately prior to the Effective Date will govern the surviving
corporation until amended or repealed in accordance with applicable law,
and the directors of First Virginia will be the directors of the surviving
corporation. The Affiliation Agreement provides that following the
Effective Date, First Virginia will amend its Bylaws to add an additional
director to the Board of Directors of First Virginia, and the Nominating
Committee of the First Virginia Board of Directors will recommend for
nomination and election to fill this vacancy a current director of Bancorp
designated by Bancorp's Board of Directors prior to the Effective Date.
On the Effective Date and subject to the cash election described
below, each outstanding share of Bancorp Common Stock other than
Dissenting Shares will automatically be converted into 1.5 shares of
First Virginia Common Stock (the "Exchange Ratio"). The Exchange Ratio will
be proportionately adjusted for any stock split, stock dividend or other similar
capital adjustments by First Virginia between the date of the Affiliation
Agreement and the Effective Date. No fractional shares of First Virginia Common
Stock will be issued pursuant to the Affiliation. Instead, the Affiliation
Agreement provides that in the case of each Bancorp stockholder otherwise
entitled to receive a fractional share of First Virginia Common Stock, First
Virginia will pay to the stockholder cash (without interest) in an amount
determined by multiplying the fraction of a share of First Virginia Common
Stock the stockholder would otherwise be entitled to receive by the average of
the closing prices per share of First Virginia Common Stock as reported by
The Wall Street Journal under the heading "New York Stock Exchange -
Composite Transactions" or any comparable heading for each of the last ten
trading days ending on the tenth trading day prior to the Effective Date. No
such holder shall be entitled to dividends, voting rights or any other rights
of stockholders in respect of any fractional share.
In lieu of receiving First Virginia Common Stock, stockholders of
Bancorp may elect to receive cash in exchange for Bancorp Common Stock at the
rate of $58.53 per share, provided that the aggregate number of shares of
Bancorp Common Stock exchanged for cash, when added to Dissenting Shares,
shall not exceed 30% of all outstanding shares of Bancorp Common Stock. If
the aggregate of (i) shares as to which cash elections are properly made and
(ii) Dissenting Shares exceeds 30% of all shares of Bancorp Common Stock
outstanding immediately prior to the Effective Date, First Virginia will
pay cash first for shares properly submitted for cash exchange by each holder
of 100 or fewer shares of Bancorp Common Stock (if such holder has submitted
all his shares for cash exchange) and then will pay cash for shares properly
submitted for cash on a pro rata basis. Shares not exchanged for cash after
proration will be exchanged for First Virginia Common Stock at the Exchange
Ratio. See "Cash Election Procedures."
First Virginia has waived a provision of the Affiliation Agreement that
under certain circumstances might have required an exchange of some shares of
Bancorp Common Stock for cash by Bancorp stockholders desiring to receive First
Virginia Common Stock for their shares.
Effective Date of the Affiliation
As soon as practicable after the fulfillment or waiver of all
conditions precedent to the consummation of the Affiliation contained in
the Affiliation Agreement, Bancorp and First Virginia will execute and deliver
Articles of Merger (the "Articles"), and will file the Articles with the State
Department of Assessments and Taxation of the State of Maryland (the
"Maryland SDAT") and the Virginia State Corporation Commission (the
"Virginia Commission"). The Affiliation shall become effective on such date
(the "Effective Date") as set forth in the Articles as filed with the Maryland
SDAT and the Virginia Commission. There can be no assurance as to whether or
when the Affiliation will occur. See "Conditions to Consummation of the
Affiliation" and "Regulatory Approvals."
Cash Election Procedures
Any stockholder of Bancorp desiring to elect to receive cash at the
rate of $58.53 per share in exchange for some or all of the shares of
Bancorp Common Stock owned by that stockholder must submit to Bancorp, at or
prior to the time at which Bancorp's stockholders vote on the proposal to
approve the Affiliation at the Special Meeting (the "Time of Voting"), (i)
the cash election form accompanying this Proxy Statement-Prospectus (the "Cash
Election Form"), properly completed in accordance with the instructions on or
accompanying the Cash Election Form and signed by the record holder of the
shares of Bancorp Common Stock as to which the cash election is made, and (ii)
the stock certificates representing the shares of Bancorp Common Stock as to
which the cash election is made. A Cash Election Form may be changed or
revoked by the person submitting the Cash Election Form by written
notice to Bancorp in accordance with the procedures set forth in the Cash
Election Form, at any time at or prior to the Time of Voting. All Cash
Election Forms will be deemed revoked if the Affiliation Agreement is
terminated in writing by First Virginia or Bancorp in accordance with
the provisions of the Affiliation Agreement. The certificates
representing Bancorp Common Stock relating to any revoked Cash Election Form
will be returned by Bancorp to the person submitting such Cash Election Form.
After the vote on the proposal to approve the Affiliation has taken place at the
Special Meeting, all properly submitted Cash Election Forms will be
irrevocable except in the case of termination of the Affiliation Agreement by
First Virginia or Bancorp in accordance with the terms thereof prior to
consummation of the Affiliation. A Cash Election Form will be properly
completed only if accompanied by the certificates representing all shares of
Bancorp Common Stock as to which the cash election is made.
A BANCORP STOCKHOLDER DESIRING TO ELECT TO RECEIVE CASH FOR SHARES OF
BANCORP COMMON STOCK MUST PROPERLY COMPLETE AND SUBMIT TO BANCORP A CASH
ELECTION FORM AND THE CERTIFICATES REPRESENTING THOSE SHARES AT OR PRIOR TO THE
TIME OF VOTING.
Bancorp will hold in safekeeping certificates representing Bancorp Common
Stock relating to any properly completed Cash Election Form, pending the
Effective Date.
A stockholder of Bancorp who elects to receive cash in accordance
with the procedures described above may not receive cash for some or all of
the shares of Bancorp Common Stock as to which the cash election is made if
the aggregate of all shares of Bancorp Common Stock as to which cash elections
are properly made plus all Dissenting Shares exceeds 30% of all shares of
Bancorp Common Stock outstanding immediately prior to the Effective Date (an
"Excess Cash Election"). In that case, the number of shares of Bancorp Common
Stock for which cash will be paid will be equal to the number of shares which,
when added to all Dissenting Shares, equals 30% of all shares of Bancorp Common
Stock outstanding immediately prior to the Effective Date. Those holders of
100 or fewer shares of Bancorp Common Stock who properly elect to receive
cash for all of their shares will be paid cash for those shares. Other
holders who properly elect to receive cash will be paid cash for a pro rata
portion of those shares as to which the cash election was made, based on the
number of shares as to which a cash election was properly made by each such
holder and the total number of shares as to which cash elections were
properly made by all such holders. The remaining shares of Bancorp Common
Stock for which cash elections were properly made will be converted
automatically into shares of First Virginia Common Stock at the Exchange
Ratio on the Effective Date.
Promptly after the Effective Date, the exchange agent designated by
First Virginia (the "Exchange Agent") will mail to each stockholder who has
properly made a cash election, with respect to the shares of Bancorp Common
Stock as to which the cash election was made, a check for the amount (without
interest) payable with respect to those shares of Bancorp Common Stock which
were converted into the right to receive cash, and a certificate or
certificates representing the shares of First Virginia Common Stock into
which any shares of Bancorp Common Stock were converted in the case of an
Excess Cash Election.
All shares of Bancorp Common Stock as to which the holder does not
properly complete and submit to Bancorp, at or prior to the Time of Voting,
a Cash Election Form and certificates representing the shares of Bancorp Common
Stock as to which the cash election is made will be converted automatically
into shares of First Virginia Common Stock at the Exchange Ratio on the
Effective Date, except Dissenting Shares.
See "Terms of the Affiliation," "Procedures for Exchange of
Certificates" and "Rights of Dissenting Stockholders."
Procedures for Exchange of Certificates
Promptly following the Effective Date, First Virginia or the Exchange
Agent will mail to each stockholder of record of Bancorp a transmittal letter
(the "Transmittal Letter") and instructions for the exchange of Bancorp stock
certificates (other than certificates previously submitted to Bancorp together
with a properly completed Cash Election Form) for new certificates
representing the number of shares of First Virginia Common Stock which
each stockholder is entitled to receive pursuant to the Affiliation. Upon
surrender to the Exchange Agent of one or more certificates formerly
representing shares of Bancorp Common Stock, together with a properly
completed Transmittal Letter, there will be mailed to the holder a
certificate or certificates representing the number of shares of First
Virginia Common Stock into which those shares of Bancorp Common Stock were
converted, together with a check for the cash amount (without interest)
representing any fractional share of First Virginia Common Stock.
Directors and executive officers of Bancorp and any other person
constituting an "affiliate" of Bancorp for purposes of Rule 145 under the
Securities Act of 1933, as amended (the "Securities Act") will be subject to
certain restrictions on the transfer of shares of First Virginia Common Stock
received by them pursuant to the Affiliation.
All shares of First Virginia Common Stock into which shares of Bancorp
Common Stock are converted pursuant to the Affiliation will be deemed
issued as of the Effective Date. On and after the Effective Date, former
holders of record of Bancorp Common Stock will be entitled to vote any shares
of First Virginia Common Stock into which their shares have been converted,
regardless of whether they have surrendered their Bancorp certificates.
Until surrendered in accordance with the procedures described above,
certificates for Bancorp Common Stock will be deemed for all corporate
purposes of First Virginia to represent the number of whole shares of First
Virginia Common Stock into which the shares of Bancorp Common Stock
formerly represented thereby were converted, excluding Dissenting Shares and
shares converted into the right to receive cash. However, no dividend or
distribution that becomes payable to holders of record of First Virginia Common
Stock on or after the Effective Date will be paid to the holder of any
Bancorp certificate until such holder physically surrenders such
certificate, after which First Virginia will promptly pay all such dividends
and distributions payable in respect of shares of First Virginia Common Stock
represented thereby, without interest, except for any such dividends or
distributions paid to any public official or authority pursuant to any
abandoned property or similar law.
BANCORP STOCKHOLDERS WHO DESIRE TO RECEIVE FIRST VIRGINIA COMMON STOCK FOR
THEIR SHARES SHOULD NOT FORWARD THEIR STOCK CERTIFICATES UNTIL THEY RECEIVE THE
TRANSMITTAL LETTER AND INSTRUCTIONS.
Certain Federal Income Tax Consequences
The following is a summary of the anticipated material federal
income tax consequences of the Affiliation. This summary is not a complete
description of all the consequences of the Affiliation. Each stockholder's
individual circumstances may affect the tax consequences of the Affiliation
to that stockholder. In addition, no information is provided herein with
respect to the tax consequences of the Affiliation under applicable foreign,
state or local laws. Consequently, each Bancorp stockholder is advised to
consult his own tax advisor as to the specific tax consequences of the
Affiliation.
The Affiliation is intended to be a reorganization pursuant to Section
368(a) of the Code, and in accordance with the Affiliation Agreement,
Bancorp will receive an opinion to that effect from Miles & Stockbridge, a
Professional Corporation, counsel to Bancorp (the "Tax Opinion"). The federal
income tax consequences summarized below are based on the assumption that the
Affiliation will qualify as a reorganization. Federal income tax consequences
to a Bancorp stockholder will depend on whether the stockholder exchanges
Bancorp Common Stock for First Virginia Common Stock, cash or a combination of
First Virginia Common Stock and cash. If a Bancorp stockholder exchanges
Bancorp Common Stock for cash, the federal income tax consequences to that
stockholder will also depend on whether certain related stockholders receive
First Virginia Common Stock or cash.
Exchange of Bancorp Common Stock For First Virginia Common Stock
No gain or loss will be recognized by a Bancorp stockholder who receives
only First Virginia Common Stock in exchange for Bancorp Common Stock.
Where cash is received by a stockholder of Bancorp in lieu of a fractional
share of First Virginia Common Stock, such cash will be treated as
received by the stockholder as a distribution in redemption of the
fractional share which the stockholder would otherwise be entitled to
receive; gain or loss will be recognized equal to the difference between
the amount of cash received and the stockholder's tax basis in the fractional
share, and such gain or loss will be capital gain or loss if the Bancorp
Common Stock is held by the stockholder as a capital asset. The tax basis of
First Virginia Common Stock received by a stockholder who exchanges all of
his Bancorp Common Stock for First Virginia Common Stock will be equal to the
tax basis of the Bancorp Common Stock exchanged therefor, and, if the Bancorp
Common Stock surrendered was a capital asset in the hands of the Bancorp
stockholder, the holding periods of the First Virginia Common Stock received by
the stockholder will include the holding periods for the shares of Bancorp
Common Stock.
A Bancorp stockholder who properly elects to receive cash for all of his
shares of Bancorp Common Stock may nevertheless receive First Virginia
Common Stock in exchange for some of his shares of Bancorp Common Stock if
the aggregate of (i) the shares as to which Bancorp stockholders properly
make cash elections and (ii) Dissenting Shares exceeds 30% of all shares
of Bancorp Common Stock outstanding immediately prior to the Effective Date.
See "Terms of the Affiliation." In that case, the following discussion under
"Exchange of Bancorp Common Stock For Cash and First Virginia Common Stock"
would be applicable.
Exchange of Bancorp Common Stock For Cash and First Virginia Common Stock
A Bancorp stockholder who receives both First Virginia Common Stock and
cash may recognize a gain, but not in excess of the cash received, and the
exchange of Bancorp Common Stock for First Virginia Common Stock will not be
subject to federal income tax. Whether a gain will be recognized for federal
income tax purposes will depend on whether the fair market value of the
consideration (including shares of First Virginia Common Stock) received by the
Bancorp stockholder exceeds the stockholder's tax basis in the shares of
Bancorp Common Stock exchanged for that consideration. If the Bancorp
Common Stock held by the Bancorp stockholder is a capital asset at the
Effective Date of the Affiliation, the gain will be treated as a capital gain
unless the receipt of the cash is treated as having the effect of a dividend.
If the receipt of the cash is treated as having the effect of a dividend,
only the portion of the recognized gain that is not in excess of a ratable
share of the accumulated earnings and profits is taxable as a dividend.
The cash received by a Bancorp stockholder will not be treated as a
dividend if the requirements of Section 302 of the Code are satisfied,
determined in conjunction with the application of Section 318 of the Code
summarized herein (relating to constructive ownership of stock). Under a
Supreme Court decision (Clark v. Commissioner of Internal Revenue, 489 U.S.
726 (1989)), to determine whether those requirements are satisfied, a
stockholder should be treated as receiving shares of First Virginia Common
Stock in the Affiliation (instead of the cash actually received) and then
receiving cash from First Virginia in a hypothetical redemption of those
shares. That hypothetical redemption will satisfy the requirements under
Section 302 if it (i) is "not essentially equivalent to a dividend" within
the meaning of Section 302(b)(1) of the Code or (ii) has the effect of a
"substantially disproportionate" redemption of First Virginia Common Stock
within the meaning of Section 302(b)(2) of the Code. Whether the cash received
by a Bancorp stockholder in hypothetical redemption of shares of First
Virginia Common Stock is essentially equivalent to a dividend depends on the
individual facts and circumstances of each stockholder. However, to qualify
for treatment as a gain rather than a dividend, the hypothetical redemption
must result in a meaningful reduction of a Bancorp stockholder's
proportionate interest in First Virginia. The hypothetical redemption of
shares of First Virginia Common Stock will be substantially
disproportionate if the ratio of the stockholder's ownership of First Virginia
Common Stock after the hypothetical redemption is less than 80% of the
ratio of First Virginia Common Stock owned by the stockholder before the
redemption.
A Bancorp stockholder's tax basis in First Virginia Common Stock
received pursuant to the Affiliation will be such stockholder's basis in
Bancorp Common Stock, decreased by any cash received and increased by any
gain recognized (including any gain treated as a dividend). The holding
period for First Virginia Common Stock received by the stockholder of Bancorp
will include the holding period for the shares of Bancorp Common Stock,
provided the stock surrendered was a capital asset in the hands of the
Bancorp stockholder. If cash is received by a stockholder of Bancorp in lieu
of a fractional share of First Virginia Common Stock, the stockholder will
recognize gain or loss as if the fractional share had been received and then
redeemed for cash.
Exchange of Bancorp Common Stock for Cash
Any Bancorp stockholder who exchanges all of his shares of Bancorp Common
Stock for cash should consult his tax advisor to determine whether the
exchange is to be taxed as a sale of stock or whether the cash received is to
be taxed as a dividend. In addition, any stockholder who makes an election to
receive cash for all his shares should be aware that he may, in fact, receive
some First Virginia Common Stock under the proration provisions of the
Affiliation Agreement in the case of an Excess Cash Election. See "Cash
Election Procedures."
The criteria for determining the tax treatment of exchanging all
of a stockholder's shares of Bancorp Common Stock for cash are governed by
the principles enunciated in Clark v. Commissioner. Under those principles,
a Bancorp stockholder should be treated as having exchanged the Bancorp
Common Stock for First Virginia Common Stock and then receiving cash in a
hypothetical redemption of those shares of First Virginia Common Stock (the
constructive ownership rules of Section 318 of the Code applying). The
cash received in the hypothetical redemption should result in the
recognition of a gain or loss unless the redemption is treated as a dividend
pursuant to Section 302(a) of the Code.
Section 318 of the Code
Section 318 of the Code provides that stock owned by a taxpayer includes
stock constructively owned. A stockholder is treated as owning (i) the stock
owned by his or her spouse, children, grandchildren and parents, (ii) stock
applicable to an option to acquire stock, (iii) stock owned by an estate and
certain trusts in which the stockholder is a beneficiary, (iv) stock owned by
a partnership (including a limited liability company treated as a
partnership for tax purposes) or Subchapter S corporation of which the
stockholder is a partner or a stockholder, and (v) stock owned by a
corporation (including a limited liability company treated as a corporation for
tax purposes) which is not a Subchapter S corporation of which the
stockholder owns at least 50% of the value of the stock. An individual who
actually owns no First Virginia Common Stock but pursuant to Section 318 of
the Code, constructively owns First Virginia Common Stock may avoid family
attribution rules by filing a timely waiver agreement with the Internal
Revenue Service under Section 302(c)(2) of the Code and the regulations
thereunder.
Dissenting Stockholders
The receipt of cash for shares of Bancorp Common Stock pursuant to the
exercise of statutory rights to receive payment of the "fair value" of
shares (Dissenting Shares) will be a taxable transaction for federal income
tax purposes. A Bancorp stockholder who receives solely cash for all his
shares of Bancorp Common Stock through the exercise of these statutory rights
and, as a result of surrender of all of the stockholder's shares, owns no
shares of First Virginia Common Stock either directly or through the
constructive ownership rules of Section 318 of the Code, would recognize
capital gain or loss (assuming that the shares of Bancorp Common Stock are
held by such stockholder as a capital asset) equal to the difference
between the amount of cash received and the stockholder's tax basis in
the shares. Any stockholder considering the exercise of the rights to
receive payment of the "fair value" of shares should consult his tax
advisor about the tax consequences of receiving cash for his shares. See
"Rights of Dissenting Stockholders."
THE TAX CONSEQUENCES TO ANY PARTICULAR BANCORP STOCKHOLDER WILL GENERALLY
DEPEND UPON THE FACTS AND CIRCUMSTANCES OF THE STOCKHOLDER. BANCORP
STOCKHOLDERS ARE ADVISED TO CONSULT THEIR OWN TAX ADVISORS WITH RESPECT TO
FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES OF THE AFFILIATION.
Accounting Treatment
Upon consummation of the Affiliation, the transaction will be accounted
for as a purchase in accordance with generally accepted accounting principles.
The unaudited pro forma financial information included in this Proxy
Statement- Prospectus reflects the effects of the Affiliation using the
purchase method of accounting. See "PRO FORMA FINANCIAL INFORMATION."
Conditions to Consummation of the Affiliation
The Affiliation will be consummated only if approved by the affirmative
vote of two-thirds of all the votes entitled to be cast by the holders of
record of Bancorp Common Stock.
The obligations of each of Bancorp and First Virginia to
consummate the Affiliation are also subject to the satisfaction of certain
other conditions prior to or at the Effective Date, unless waived in writing,
including the following: (i) the receipt of all necessary regulatory approvals
of the Affiliation by the Board of Governors of the Federal Reserve System
(the "Federal Reserve Board"), the State Bank Commissioner of Maryland (the
"Bank Commissioner"), and the Bureau of Financial Institutions of the
Virginia State Corporation Commission (the "Virginia Bureau"), (ii) the
approval by the Boards of Directors of Farmers and Atlantic of Plans of
Conversion and Articles of Incorporation for the conversion of Farmers and
Atlantic into Maryland-chartered commercial banks with membership in the Federal
Reserve System (the "Conversions"), (iii) the receipt of all necessary
regulatory approvals of the Conversions by the Federal Reserve Board, the
Bank Commissioner and (to the extent required) the Office of the Comptroller
of the Currency (the "OCC"), and the approval of Caroline's application to
become a member of the Federal Reserve System by the Federal Reserve Board
(collectively, the "Conversion Regulatory Approvals"), and (iv) the
effectiveness of the Registration Statement of which this Proxy
Statement- Prospectus is a part and the absence of a stop order suspending
such effectiveness. See "Regulatory Review and Approvals."
In addition, the obligation of First Virginia to consummate the
Affiliation is subject to certain further conditions, unless waived in
writing by First Virginia, including the following: (i) the representations
and warranties of Bancorp contained in the Affiliation Agreement must be
accurate in all material respects as of the Effective Date, and Bancorp
must have performed and complied with in all material respects all
obligations and covenants required by the Affiliation Agreement to be
performed or complied with by Bancorp on or prior to the Effective Date,
(ii) the absence of any material adverse changes affecting Bancorp and its
subsidiaries from March 31, 1994 to the Effective Date that, individually or
in the aggregate, would have a "Material Adverse Effect" on Bancorp and its
subsidiaries (in this context, "Material Adverse Effect" is defined in the
Affiliation Agreement to mean an event, change or occurrence which,
individually or in the aggregate, is reasonably likely to result in a reduction
of the consolidated stockholders' equity of Bancorp and its subsidiaries by
an amount equal to or greater than 5% of the consolidated
stockholders' equity of Bancorp and its subsidiaries as at June 30, 1994, or
which has a material adverse impact on the ability of Bancorp to consummate
the Affiliation), (iii) the receipt by First Virginia of a written opinion
of Miles & Stockbridge, counsel to Bancorp, dated as of the Effective Date,
covering matters customary in transactions of this type, and (iv) no action
or proceeding against First Virginia, Bancorp or its subsidiaries or against
consummation of the Affiliation shall have been commenced or threatened or any
investigations or inquiries undertaken that might eventuate in such an action
or proceeding.
The Affiliation Agreement provides that another condition to First
Virginia's obligation to consummate the Affiliation is the confirmation by an
audit of Bancorp and its subsidiaries conducted by First Virginia that the
consolidated stockholders' equity of Bancorp and its subsidiaries as of June
30, 1994 was not less than $68.5 million. Prior to the date of this Proxy
Statement-Prospectus, First Virginia notified Bancorp in writing that this
condition has been satisfied.
The obligation of Bancorp to consummate the Affiliation is also
subject to certain further conditions, unless waived in writing by
Bancorp, including the following: (i) the representations and warranties of
First Virginia contained in the Affiliation Agreement must be accurate in all
material respects as of the Effective Date, and First Virginia must have
performed and complied with in all material respects all obligations and
covenants required by the Affiliation Agreement to be performed or complied
with by First Virginia on or prior to the Effective Date, (ii) the absence of
any material adverse changes affecting First Virginia and its
subsidiaries from March 31, 1994 to the Effective Date that, individually or
in the aggregate, would have a "Material Adverse Effect" on First
Virginia and its subsidiaries (in this context, "Material Adverse Effect" is
defined in the Affiliation Agreement to mean an event, change or occurrence
which, individually or in the aggregate, is reasonably likely to result
in a reduction of the consolidated stockholders' equity of First Virginia
and its subsidiaries by an amount equal to or greater than 5% of the
consolidated stockholders' equity of First Virginia and its subsidiaries as
of June 30, 1994, or which has a material adverse impact on the ability of
First Virginia to consummate the Affiliation), (iii) the receipt by Bancorp of a
written opinion of in-house counsel to First Virginia, dated as of the
Effective Date, covering matters customary in transactions of this type,
(iv) no action or proceeding against First Virginia, Bancorp or its
subsidiaries or against consummation of the Affiliation shall have been
commenced or threatened or any investigations or inquiries undertaken that
might eventuate in such an action or proceeding, and (v) the receipt by Bancorp
of the Tax Opinion.
Regulatory Review and Approvals
The Affiliation is subject to approval by the Federal Reserve Board under
3(a) of the BHCA. Under the BHCA, the Federal Reserve Board must withhold
approval of the Affiliation if it finds that the Affiliation would result in
a monopoly or be in furtherance of any combination or conspiracy to monopolize
or attempt to monopolize the business of banking in any part of the United
States. In addition, the Federal Reserve Board may not approve the
Affiliation if it finds that the effect of the Affiliation may be
substantially to lessen competition or tend to create a monopoly, or if the
Affiliation would in any other manner be in restraint of trade unless it
finds that the anticompetitive effects of the Affiliation are clearly
outweighed in the public interests by the probable effect of the
transactions in meeting the convenience and needs of the communities to be
served. In ruling upon the application for approval of the Affiliation, the
Federal Reserve Board must also take into consideration the financial and
managerial resources and future prospects of the existing and proposed
institutions and the convenience and needs of the communities to be served.
First Virginia has filed an application with the Federal Reserve Bank of
Richmond for approval of the Affiliation under the BHCA.
In addition, the Affiliation is subject to approval by the Bank
Commissioner under Sections 3-314 and 5-403 of the Financial Institutions
Article of the Annotated Code of Maryland (the "FI Article"). The
Affiliation is also subject to the requirements of the Maryland Regional
Reciprocal Banking Act, Section 5-1001 et seq. of the FI Article. The Bank
Commissioner may disapprove the Affiliation if the Bank Commissioner finds the
effect of the Affiliation would be anticompetitive or threaten the safety or
soundness of any of the Banks. In order for the Bank Commissioner to approve
the Affiliation, the Bank Commissioner must determine that approval of the
Affiliation is reasonably required to protect the welfare of the general
economy of Maryland and of the Banks, and that such approval is not
detrimental to the public interest or to any of the Banks. First Virginia and
Bancorp have filed an application with the Bank Commissioner for approval of the
Affiliation under these statutes.
The Affiliation Agreement provides that it is a condition to the
respective obligations of Bancorp and First Virginia to consummate the
Affiliation that all necessary regulatory approvals shall have been granted
on or prior to the Effective Date for (i) the Conversions of Farmers and
Atlantic from national banking associations into Maryland-chartered
commercial banks with membership in the Federal Reserve System, and (ii)
Caroline's membership in the Federal Reserve System. For approval of the
Conversions by the Bank Commissioner, Section 3-801 of the FI Article requires
Farmers and Atlantic to satisfy the requirements of Title 3 of the FI Article
for incorporation of a Maryland-chartered commercial bank. In accordance
with the requirements of Title 12, Section 214a of the United States Code, a
plan of conversion for each of Farmers and Atlantic has been approved by a
majority of the entire Board of Directors of each of Farmers and Atlantic,
and Bancorp as their sole stockholder has approved each of the plans of
conversions. Farmers and Atlantic have submitted applications to the Bank
Commissioner for approval of the Conversions. In addition, First Virginia
has filed with the Federal Reserve Bank of Richmond membership applications on
behalf of Farmers, Atlantic and Caroline in order for those banks to become
members of the Federal Reserve System.
Pursuant to Section 6.1-406 of the Virginia Code, First Virginia has also
filed with the Virginia Bureau a notice of First Virginia's intention to
acquire Farmers, Atlantic and Caroline. The Virginia Bureau within 30 days of
the filing may disapprove such an acquisition if it determines that the
acquisition could affect detrimentally the safety or soundness of a Virginia
Bank. It must approve such acquisition within 45 days if it determines that
the acquisition will not affect detrimentally the safety or soundness of a
Virginia Bank.
On September 29, 1994, the Federal Reserve Bank of Richmond
approved the Affiliation pursuant to Section 3 of the BHCA and required that
the Affiliation be consummated within three months of such date unless
such period is extended. On October 14, 1994, the Federal Reserve Bank of
Richmond also approved the applications by Farmers, Atlantic and Caroline to
become members of the Federal Reserve System. On October 6, 1994, the Virginia
Bureau approved the acquisition of Farmers, Atlantic and Caroline by First
Virginia.
See "Conditions to Consummation of the Affiliation" and "Termination."
Conduct of Business Pending the Affiliation
The Affiliation Agreement provides that until the Effective Date Bancorp
and its subsidiaries will conduct their operations according to the ordinary
and usual course of business consistent with current practices, use their
best efforts to maintain their business organizations, employees and
advantageous business relationships, and retain their executive officers.
The Affiliation Agreement also provides that until the Effective Date,
Bancorp and its subsidiaries will not, without First Virginia's prior
written consent, (i) change their charters or bylaws, (ii) adjust, split,
combine or repurchase their stock or grant any stock options or stock
appreciation rights, (iii) pay any dividends or distributions with respect to
their stock, except payment by Bancorp of quarterly cash dividends on Bancorp
Common Stock at a rate up to $.30 per share per quarter, (iv) enter into any
contracts, incur any liabilities, make any capital expenditures or sell,
lease or dispose of any property except in the normal course of business, (v)
increase the compensation, fringe benefits or employee benefits of any of
their directors, officers or employees, except increases and payments
consistent with past practices and current compensation plans or otherwise not
material, or (vi) merge or consolidate (or agree to do so) with any other
corporation.
In the Affiliation Agreement, Bancorp and First Virginia agreed to
coordinate the record and payment dates for each regular quarterly dividend of
Bancorp and First Virginia so that the stockholders of Bancorp will be
entitled to receive either a Bancorp or First Virginia regular dividend for
each fiscal quarter commencing prior to the Effective Date.
The Affiliation Agreement also provides that First Virginia, Bancorp
and its subsidiaries will jointly prepare and file applications for the
necessary regulatory approvals of the Affiliation by the Federal Reserve Board
and the Bank Commissioner, as well as filings and applications with
appropriate regulatory authorities for the Conversion Regulatory Approvals. In
addition, Bancorp agreed to use its best efforts to secure the requisite
regulatory approvals with respect to the Affiliation from the Federal Reserve
Board and the Bank Commissioner, and First Virginia agreed to use its best
efforts to secure such requisite regulatory approvals from the Federal Reserve
Board, the Bank Commissioner and the Virginia Bureau. See "Regulatory
Review and Approvals."
Also, under the Affiliation Agreement Bancorp agreed to use all
reasonable efforts to obtain the written consents or approvals of all private
third parties whose consent or approval is required, in connection with the
transactions contemplated by the Affiliation Agreement, under the terms of any
lease, mortgage, indenture or other agreement to which Bancorp or any of its
subsidiaries is a party or by which any of their assets is bound.
No Solicitation of Acquisition Proposals
The Affiliation Agreement provides that, unless and until the
Affiliation Agreement is terminated, Bancorp and its subsidiaries and
representatives will not (i) solicit or initiate discussions with any person
other than First Virginia concerning any merger, sale of substantial assets,
tender offer, sale of shares of stock or similar transaction involving
Bancorp or its subsidiaries (collectively, an "Acquisition Proposal"),
(ii) provide any confidential information concerning Bancorp or its
subsidiaries to any person in connection with an Acquisition Proposal, or (iii)
enter into an agreement with any third party providing for a business
combination transaction, equity investment or sale of significant amount of
assets, except as described below. However, if Bancorp receives from a
third party an unsolicited Acquisition Proposal and a majority of the full
Board of Directors of Bancorp determines in good faith, upon advice of
legal counsel, that the Board of Directors has a fiduciary duty to consider the
Acquisition Proposal, then the Board of Directors may do so, and Bancorp is
excused from the restrictions described in the preceding sentence in regard
to that Acquisition Proposal. In such a case, the Affiliation Agreement
provides that Bancorp will give written notice to First Virginia of
Bancorp's intention to consider the Acquisition Proposal and of the material
terms thereof at least five days before responding to the Acquisition
Proposal, provided that if the terms of the Acquisition Proposal require a
response by Bancorp in a shorter period then Bancorp will give such written
notice to First Virginia within one business day after Bancorp's receipt of
the Acquisition Proposal and Bancorp thereafter may respond to the
Acquisition Proposal as it deems appropriate. The Affiliation Agreement
provides that the Bancorp Board of Directors may terminate the Affiliation
Agreement if a majority of the full Board of Directors approves and
recommends to the Bancorp stockholders an Acquisition Proposal that the
Board of Directors has determined in good faith that it must consider. In
the event of such termination Bancorp would be obligated to pay the amount of
$3,160,000 as liquidated damages to First Virginia upon execution of a
definitive written agreement with a third party for consummation of an
Acquisition Proposal (the "Termination Payment"). See "Termination."
Waiver and Amendment
Prior to the Effective Date, any provision of the Affiliation Agreement
may be waived by the party against which the waiver would be enforceable,
subject to the requirements of applicable laws and regulations. In addition,
any provision of the Affiliation Agreement may be amended (without a vote
of stockholders) by written agreement approved by the Boards of Directors of
Bancorp and First Virginia, provided that after the Special Meeting no
amendment may be made in the exchange rate which decreases the Affiliation
Consideration to Bancorp's stockholders without the approval of stockholders
holding two-thirds of all outstanding shares of Bancorp Common Stock.
Termination
The Affiliation Agreement provides that at any time prior to the Effective
Date, notwithstanding the approval of the Affiliation by the stockholders of
Bancorp, the Affiliation Agreement may be terminated: (i) by mutual consent
of the Boards of Directors of First Virginia and Bancorp, (ii) by the Board
of Directors of either Bancorp or First Virginia (provided that the
terminating party is not then in material breach of any representation,
warranty, covenant, or other agreement contained in the Affiliation Agreement)
in the event of a material breach by the other party of any representation or
warranty contained in the Affiliation Agreement which cannot be or has not
been cured within 30 days after the giving of written notice to the breaching
party of such breach, provided, however, that a material breach of a
representation or warranty shall be deemed to exist only if, when
aggregated with all other such breaches, the breach has or constitutes a
Material Adverse Effect, (iii) by the Board of Directors of either First
Virginia or Bancorp (provided that the terminating party is not then in
material breach of any representation, warranty, covenant or other agreement
contained in the Affiliation Agreement) in the event of a material breach by the
other party of any covenant or agreement contained in the Affiliation
Agreement which cannot be or has not been cured within 30 days after the
giving of written notice to the breaching party of such breach, (iv) by the
Board of Directors of either First Virginia or Bancorp if (a) the Federal
Reserve Board or the Bank Commissioner denies approval of the Affiliation and
the time period for all appeals or requests for reconsideration has run or
(b) the OCC, the Federal Reserve Board or the Bank Commissioner denies
approval of either of the Conversions or (c) the Federal Reserve Board denies
the application of Caroline to become a member bank in the Federal Reserve
System, (v) by the Board of Directors of either Bancorp or First Virginia in
the event the Affiliation does not become effective within nine months of the
date of the Affiliation Agreement, if the failure to consummate the Affiliation
is not caused by any breach of the Affiliation Agreement by the party electing
to terminate, (vi) by the Board of Directors of either Bancorp or First
Virginia (provided that the terminating party is not then in material
breach of any representation, warranty, covenant or other agreement contained
in the Affiliation Agreement) in the event that any of the conditions precedent
to the obligations of such party to consummate the Affiliation cannot be
satisfied or fulfilled within nine months of the date of the Affiliation
Agreement, (vii) by the Board of Directors of First Virginia if the
holders of more than 10% of the outstanding shares of Bancorp Common Stock
validly exercise dissenters' rights under Maryland law or if the holders of
more than 20% of the outstanding shares of Bancorp Common Stock vote against
the Affiliation, (viii) by the Board of Directors of Bancorp if the average
of the closing prices of First Virginia Common Stock as reported in The Wall
Street Journal under the heading "New York Stock Exchange--Composite
Transactions" declines to $30 per share or less for any period of ten
consecutive trading days during the sixty day period immediately prior to the
Effective Date, or (ix) by the Board of Directors of Bancorp if Bancorp
receives an Acquisition Proposal which the Board of Directors of Bancorp
determines in good faith, upon advice of legal counsel, that the Board of
Directors has a fiduciary duty to consider, and which Acquisition Proposal a
majority of the full Board of Directors of Bancorp further determines to
approve and recommend to the stockholders of Bancorp for approval.
In the event of the termination of the Affiliation Agreement pursuant
to the termination provisions thereof, the Affiliation Agreement will become
void and have no effect, except that certain provisions of the Affiliation
Agreement relating to expenses and confidentiality of information obtained
pursuant to the Affiliation Agreement or in connection with the negotiation
thereof will survive such termination. Also, in the event the Board of
Directors of Bancorp terminates the Affiliation Agreement by reason of its
approval of an Acquisition Proposal as described above, then Bancorp's
obligation to pay the Termination Payment to First Virginia upon execution
of a definitive written agreement between Bancorp and a third party for
consummation of an Acquisition Proposal will survive the termination of
the Affiliation Agreement. Neither First Virginia nor Bancorp will be
relieved from liability for any breach of the Affiliation Agreement.
Operations After the Effective Date
After the Affiliation is consummated, the Banks will continue to conduct
their respective banking businesses as wholly owned subsidiaries of First
Virginia. The Banks will be commercial banks chartered under the laws of the
State of Maryland, and will be member banks of the Federal Reserve System.
Farmers will conduct its business under the name "Farmers Bank of Maryland,"
and Atlantic will conduct its business under the name "Atlantic Bank."
First Virginia has agreed in the Affiliation Agreement to maintain Farmers
as a wholly owned subsidiary bank named "Farmers Bank of Maryland" or "The
Farmers Bank of Maryland" until at least December 31, 1998.
Interests of Certain Persons in the Affiliation
Farmers currently maintains the Farmers National Bank of Maryland
Executive Benefits Plan (the "FNB Plan") for the benefit of certain current and
former executive officers of Farmers. The current executive officers of Farmers
who participate in the FNB Plan are John M. Suit, II, President, Frank T.
Lowman, III, Executive Vice President, Louis A. Supanek, Executive Vice
President, and Ross J. Selby, Senior Vice President. Retired or former
executive officers of Farmers who participate in the FNB Plan are Charles L.
Schelberg, Glenwood L. Gish and Thomas G. Moore. The Affiliation Agreement
provides that First Virginia will perform, or cause to be performed, the
terms of the participation agreements under which these participants receive,
or may be entitled in the future to receive, payments of benefits under the
FNB Plan, and that First Virginia will guarantee the payments of those benefits
to such participants pursuant to the terms of a written guaranty to be
executed and delivered by First Virginia as of the Effective Date. The
Affiliation Agreement further provides that a certain First Virginia Trust
Agreement currently in effect for funding of certain Nonqualified Deferred
Compensation Programs of First Virginia will be amended by the Effective Date
to provide that liabilities under the FNB Plan and such participation
agreements will be funded from the assets of such First Virginia Trust
Agreement, and that all life insurance policies owned by Farmers or
Bancorp covering such participants will be assigned to the trust. In
addition, the Affiliation Agreement provides that the FNB Plan will be
amended on or prior to the Effective Date to provide that (i) any benefits
that Messrs. Suit, Lowman, Supanek and Selby receive from the First Virginia
Pension Trust Plan (the "FV Pension Plan"), the Farmers National Bank of
Maryland Pension Plan (the "Farmers Pension Plan") and Social Security will
reduce on a dollar for dollar basis the benefits they are entitled to receive
under the FNB Plan, (ii) the benefits of Messrs. Suit, Lowman, Supanek and
Selby under the FNB Plan will become fully vested (a) upon the occurrence of
any of certain transactions constituting a change in control of First Virginia
or (b) upon discharge as to each of them who is discharged "other than for
cause" (as that term is defined in the Affiliation Agreement) on or after the
Effective Date, and (iii) after the Effective Date, no amendment or
termination of the FNB Plan may be made without the written consent of all
participants who would be affected thereby.
The Affiliation Agreement provides that during the 24-month period
following the Effective Date, First Virginia will take all requisite
action to elect as the respective directors of Farmers, Atlantic and
Caroline the persons serving as directors of the Banks immediately prior to
the Effective Date except any persons who (i) vote against the proposal to
approve the Affiliation in their capacities as stockholders at the Special
Meeting or (ii) who are 72 years old or more as of the Effective Date. The
Affiliation Agreement also provides that after the Effective Date First Virginia
will not permit Farmers to adopt a mandatory retirement age of less than 75
years for continued service on Farmers' Board of Directors by the person
serving as Chairman of the Board immediately prior to the Effective Date.
Charles L. Schelberg currently serves as Chairman of the Board of Bancorp
and Farmers. In addition, the Affiliation Agreement provides that during the
24-month period following the Effective Date, the directors of the Banks
will be paid for their service as directors (i) in the case of directors of
Atlantic and Caroline, total compensation to each director for each calendar
year not less than $5,000 , and (ii) in the case of Farmers, compensation to
each director for each calendar year not less than a $5,000 annual retainer
plus $200 for each board of directors meeting and committee meeting attended.
The Affiliation Agreement provides that for a period of six years
after the Effective Date, First Virginia will indemnify and hold harmless
each present and former director and officer of Bancorp and its subsidiaries
in connection with any proceeding arising out of matters existing or occurring
on or prior to the Effective Date, to the fullest extent that Bancorp would
have been permitted to indemnify them under Maryland law and the charter and
by-laws of Bancorp as in effect on July 1, 1994. The Affiliation Agreement
further provides that First Virginia will use all reasonable efforts to
cause to be obtained directors' and officers' liability insurance under
First Virginia's Executive Liability Insurance Policy covering all present
and former directors and officers of Bancorp and its subsidiaries during the
six year period following the Effective Date for claims arising from facts or
event which occurred or existed on or before the Effective Date. If such
insurance coverage cannot be obtained, First Virginia is obligated to use
all reasonable efforts to maintain in effect during such six year period
the policies of directors' and officers' liability insurance currently
maintained by Bancorp and its subsidiaries (the "Existing Policies") to
cover such directors and officers for such claims, provided that First
Virginia is not obligated to expend annually for such insurance coverages an
aggregate amount exceeding 200% of the annual premiums paid by Bancorp and its
subsidiaries as of July 1, 1994 for the Existing Policies.
Pursuant to the Affiliation Agreement, First Virginia has entered
into an employment agreement with Mr. Suit under which Mr. Suit would be
employed as President and Chief Executive Officer of Farmers for a three year
period following the Effective Date. Also pursuant to the Affiliation
Agreement, First Virginia has entered into employment agreements with Messrs.
Lowman, Supanek and Selby under which each of them would be employed by
Farmers in their current positions for a period of two years following the
Effective Date. The employment agreements for Messrs. Suit, Lowman, Supanek
and Selby will become effective only if and when the Affiliation is
consummated.
Effect on Employee Benefit Plans
Following consummation of the Affiliation, employees of Bancorp
and its subsidiaries will be eligible to participate in all of First
Virginia's employee benefit programs provided they meet the eligibility
requirements of those programs. Service with Bancorp and its subsidiaries
will be considered service with First Virginia for purposes of determining
eligibility, vesting and benefits under all such programs, except First
Virginia's Post Retirement Medical Program and as otherwise described below.
The Farmers National Bank of Maryland Pension Plan (the "Farmers Pension
Plan") will either be terminated or merged into First Virginia's Pension
Trust Plan (the "First Virginia Pension Plan"), as may be mutually agreed
by Bancorp and First Virginia. If the Farmers Pension Plan is terminated,
participants therein will receive (either at retirement or otherwise in
accordance with the provisions of the Farmers Pension Plan) all of their
pension benefits which are vested and accrued thereunder as of the
termination date, and such participants will be credited for years of
employment with Bancorp and its subsidiaries prior to the Effective Date
solely for purposes of determining eligibility and vesting under the First
Virginia Pension Plan but not for purposes of determining their accrued
benefits. If the Farmers Pension Plan is merged into the First Virginia
Pension Plan, then participants in the Farmers Pension Plan would receive
credit under the First Virginia Plan for their prior service with Bancorp
and its subsidiaries for purposes of determining accrued benefits under the
First Virginia Pension Plan as well as eligibility and vesting, provided that
First Virginia determines that the Farmers Pension Plan is adequately
funded. Employees of Bancorp and its subsidiaries who are not participants in
the Farmers Pension Plan will be credited for years of employment with Bancorp
and its subsidiaries prior to the Effective Date for purposes of determining
eligibility and vesting under the First Virginia Pension Plan but not for
purposes of determining their accrued benefits.
The Affiliation Agreement provides that with respect to the Farmers
National Bank of Maryland Profit Sharing Plan (the "Farmers Profit
Sharing Plan"), a contribution will be made under that plan by Farmers for
each full calendar year prior to the Effective Date and, for the calendar year
in which the Affiliation occurs, the portion of such year preceding the
Effective Date. The Farmers Profit Sharing Plan will either be terminated or
merged into First Virginia's Employees Thrift Plan (the "Thrift Plan"), as may
be mutually agreed by Bancorp and First Virginia. Employees of Bancorp and its
subsidiaries will be credited with years of employment with Bancorp and its
subsidiaries prior to the Effective Date for purposes of determining only
eligibility and vesting under the Thrift Plan.
The Affiliation Agreement also provides that with respect to First
Virginia's Nonqualified Profit Sharing Plan, employees of Bancorp and its
subsidiaries will be able to participate in that plan (subject to eligibility
requirements). Participation in that plan during the plan year in which the
Affiliation occurs will be pro-rated for the portion of that plan year
commencing on the Effective Date.
Vacation and sick leave of employees of Bancorp and its subsidiaries
accrued as of the Effective Date (including accrued paid vacation days) will
not be adversely affected by the Affiliation.
In addition, the Affiliation Agreement provides that certain terms of
the FNB Plan will be amended prior to the Effective Date, and that First
Virginia will honor the terms of the FNB Plan and guarantee payment of
benefits payable under the FNB Plan. See "Interests of Certain Persons in the
Affiliation."
Resale of First Virginia Common Stock
The shares of First Virginia Common Stock issuable to stockholders of
Bancorp upon consummation of the Affiliation have been registered under the
Securities Act. Such shares may be traded freely and without restriction by
those stockholders not deemed to be "affiliates" of Bancorp as that term is
defined in the rules promulgated under the Securities Act. "Affiliates" are
generally defined under rules promulgated by the Securities and Exchange
Commission as persons who control, are controlled by or are under common
control with Bancorp at the time of the Special Meeting. Accordingly,
"affiliates" generally will include directors and executive officers of
Bancorp. Shares of First Virginia Common Stock received by those
stockholders of Bancorp who are deemed to be "affiliates" of Bancorp
may be resold without registration as provided for by Rules 144 and 145, or
as otherwise permitted, under the Securities Act. This Proxy
Statement-Prospectus does not cover any resales of First Virginia Common Stock
received by "affiliates" of Bancorp or by certain of their family members or
related interests.
Bancorp has agreed in the Affiliation Agreement to furnish to First
Virginia such information as may be necessary to determine those
persons who may be "affiliates" of Bancorp and to use its best efforts to
cause each such person to enter into a written agreement with First Virginia
providing that such "affiliate" will not resell any shares of First Virginia
Common Stock to be received by such person pursuant to the Affiliation
except in compliance with certain restrictions and the applicable provisions
of the Securities Act and the rules promulgated thereunder.
Expenses
The Affiliation Agreement provides that whether or not the
Affiliation is consummated, First Virginia will pay all expenses and fees
incurred by First Virginia and Bancorp and its subsidiaries in connection with
the Affiliation Agreement and the Affiliation, except that Bancorp and the
Banks will pay (i) the fees and expenses of their legal counsel and advisors,
including the fees and expenses of Alex. Brown and Bancorp's accountants, and
(ii) all their expenses and fees incurred in connection with the Conversions
of Farmers and Atlantic and the application of Caroline for membership in
the Federal Reserve System. However, First Virginia has agreed to pay the
fee of Bancorp's legal counsel in connection with the Tax Opinion.
The Affiliation Agreement also provides that if the Board of Directors
of Bancorp terminates the Affiliation Agreement in accordance with the
provisions thereof by reason of its approval of an Acquisition Proposal, then
upon execution of a definitive written agreement with a third party for
consummation of an Acquisition Proposal Bancorp would be obligated to pay the
Termination Payment to First Virginia. See "No Solicitation of Acquisition
Proposals" and "Termination."
Rights of Dissenting Stockholders
Under the Maryland General Corporation Law (the "MGCL"), stockholders of
Bancorp will be entitled to demand and receive payment of the "fair value" of
their shares of Bancorp Common Stock if they fully comply with the applicable
provisions of the MGCL, if the Affiliation is approved by the requisite vote of
the stockholders of Bancorp, and if the Affiliation is consummated. The
following summary of Maryland law relating to these rights of stockholders is
qualified in its entirety by reference to the applicable provisions of the
MGCL, including but not limited to Sections 3-201 through 3-213 of the MGCL, a
copy of which is attached to this Proxy Statement-Prospectus as Appendix C.
Any Bancorp stockholder who wishes to demand and receive payment of the fair
value of his shares is advised to consult with his independent legal counsel.
To be entitled to receive payment of the "fair value" of his shares of
Bancorp Common Stock, a Bancorp stockholder must (i) prior to or at the Special
Meeting, file with Bancorp a written objection to the Affiliation (a "Written
Objection"), (ii) not vote in favor of the Affiliation in person or by proxy,
(iii) within 20 days after the Articles of Merger have been accepted for record
by the Maryland SDAT, make written demand on First Virginia for payment for
his shares, stating the number and class of shares for which payment is
demanded (a "Payment Demand"), and (iv) if necessary under the provisions of
the MGCL, commence a judicial proceeding in compliance with the procedures
required by the MGCL for appraisal of the "fair value" of the shares within 50
days after the Articles of Merger have been accepted for record by the
Maryland SDAT. A Payment Demand should be sent to First Virginia at 6400
Arlington Boulevard, Falls Church, Virginia 22042-2336, Attn: Christopher M.
Cole, Vice President and Assistant General Counsel. Any Bancorp
stockholder who fails to comply with the requirements described above will be
bound by the terms of the Affiliation.
A Bancorp stockholder who returns a signed proxy but fails to
provide instructions as to the manner in which the stockholder's shares are to
be voted will be deemed to have voted to approve the Affiliation, and therefore
to have waived his rights to demand and receive payment of the "fair value" of
his shares. A Bancorp stockholder may vote against the Affiliation, abstain
from voting on the Affiliation or refrain from voting (by not returning the
proxy and not voting at the Special Meeting) on the Affiliation without losing
his rights to demand and receive payment of such "fair value," as long as the
stockholder timely files the Written Objection and timely makes the Payment
Demand in accordance with applicable law. A VOTE AGAINST, AN ABSTENTION WITH
RESPECT TO, OR A FAILURE TO VOTE ON, THE AFFILIATION WILL NOT ITSELF
CONSTITUTE A TIMELY WRITTEN OBJECTION TO THE AFFILIATION.
First Virginia will promptly deliver or mail written notice of the
date of acceptance of the Articles of Merger for record by the Maryland SDAT to
each Bancorp stockholder who has timely filed with Bancorp a Written
Objection and not voted in favor of the Affiliation.
For purposes of the Affiliation and proceedings for appraisal of the
"fair value" of shares of Bancorp Common Stock under Section 3-208 of the
MGCL, First Virginia has appointed a resident agent in Calvert County,
Maryland. Within 50 days after acceptance of the Articles of Merger for record
by the Maryland SDAT, any such stockholder who timely makes a Payment Demand
on First Virginia and who has not received payment for his shares may
petition a court of equity in Calvert County, Maryland, for an appraisal to
determine the "fair value" of such shares. If the court finds that a
stockholder is entitled to appraisal of his shares, the court will appoint
three disinterested appraisers to determine the "fair value" of such shares on
terms and conditions the court considers proper, and the appraisers will,
within 60 days after appointment (or such longer period as the court may
direct), file with the court and mail to each party to the proceeding their
report stating their conclusion as to the "fair value" of the shares. Within 15
days after the filing of the report, any party may object to the report and
request a hearing thereon. The court will, upon motion of any party, enter an
order either confirming, modifying or rejecting the report and, if confirmed
or modified, enter judgment setting the time within which payment must be
made. If the appraisers' report is rejected, the court may determine the "fair
value" of the shares of the stockholders requesting appraisal or may remit the
proceeding to the same or other appraisers. Any judgment entered pursuant to
a court proceeding will include interest from the date of the stockholders'
vote on the Affiliation, unless First Virginia previously made a written offer
to pay an amount considered by First Virginia to be the "fair value" of the
shares in accordance with Section 3-207 of the MGCL (a "Payment Offer")
and the court finds that the stockholder's refusal to accept the Payment
Offer was arbitrary and vexatious or not in good faith. Costs of the
proceeding (including compensation and expenses of the appraisers, but not
including attorneys' fees or expenses) will be determined by the court and
will be assessed against First Virginia, or if the court finds that the
stockholder's refusal to accept a Payment Offer previously made by First
Virginia was arbitrary and vexatious or not in good faith, against the
stockholder, or both.
The "fair value" of shares of Bancorp Common Stock will be determined as
of the close of business on the date of the stockholders' vote on the
Affiliation. The "fair value" will not include any appreciation or
depreciation which directly or indirectly results from the Affiliation or its
proposal. If the "fair value" of shares of Bancorp Common Stock is
determined pursuant to an appraisal proceeding, such determination may
result in a value that is more than, less than, or equal to the Affiliation
Consideration which would have been paid by First Virginia pursuant to the
Affiliation.
At any time after the filing of a petition for appraisal, the court may
require any stockholder requesting appraisal to submit his certificates
representing shares to the clerk of the court for notation of the pendency of
the appraisal proceedings. In order to receive payment, whether by agreement
with First Virginia or pursuant to a judgement rendered in an appraisal
proceeding, the stockholder must surrender to First Virginia the stock
certificates endorsed in blank and in proper form for transfer. A stockholder
demanding payment of "fair value" for shares will not have the right to
receive any dividends or distributions payable to holders of record after the
close of business on the date of the stockholders' vote on the Affiliation, and
shall cease to have any rights as a stockholder with respect to the shares
except the right to receive payment of the "fair value" thereof. The
stockholder's rights may be restored only upon (i) the withdrawal, with the
consent of First Virginia, of the demand for payment of "fair value," (ii) a
petition for appraisal is not filed within the time required, (iii) a
determination of the court that the stockholder is not entitled to an
appraisal, or (iv) the abandonment or rescission of the Affiliation.
Any Bancorp stockholder who properly exercises his right to demand and
receive payment of the "fair value" of his shares will recognize gain or
loss, if any, for federal income tax purposes upon the receipt of cash for
his shares. The amount of gain or loss and its character as ordinary or
capital gain or loss will be determined in accordance with applicable provisions
of the Code. See "Certain Federal Income Tax Consequences."
The foregoing summary does not constitute a complete statement of the
procedures to be followed by Bancorp stockholders desiring to exercise their
rights to demand and receive payment of the "fair value" of their shares. The
preservation and exercise of these rights are conditioned on strict adherence
to the applicable provisions of the MGCL. Each stockholder desiring to
exercise these rights should refer to Title 3, Subtitle 2, entitled "Rights
of Objecting Stockholders," of the Corporations and Associations Article of
the Annotated Code of Maryland for a complete statement of the stockholder's
rights and the steps which must be followed in connection with the exercise
of those rights.
Holders of shares of First Virginia Common Stock will not be
entitled to dissenters' or appraisal rights in connection with the Affiliation.
For further information relating to the exercise of rights to demand and
receive payment of the "fair value" of shares of Bancorp Common Stock, see
Appendix C to this Proxy Statement-Prospectus.
DESCRIPTION OF FIRST VIRGINIA CAPITAL STOCK
Authorized Capital Stock
First Virginia is authorized to issue 60,000,000 shares of First Virginia
Common Stock and 3,000,000 shares of preferred stock of a par value of $10.00
per share. As of June 30, 1994, there were approximately 32,769,000 shares of
First Virginia Common Stock and 79,480 shares of convertible preferred stock of
First Virginia outstanding (the "First Virginia Preferred Stock").
Holders of the First Virginia Common Stock are entitled to one vote per
share on all matters presented to the stockholders. There is no provision
for cumulative voting. Subject to the preferential rights of the holders of
the First Virginia Preferred Stock, each holder of First Virginia Common
Stock is entitled to receive a pro rata share of such dividends as may be
declared by the Board of Directors out of the funds available therefor, and
to share ratably in the net assets in event of liquidations. All of the
shares of First Virginia Common Stock and First Virginia Preferred Stock which
are issued and outstanding are fully paid and nonassessable. No holder of any
share of First Virginia Common Stock has any preemptive right to purchase
any security which First Virginia may hereafter issue, and the First Virginia
Common Stock is not subject to any conversion rights, redemption
provisions, or sinking fund provisions. First Virginia is prohibited from
redeeming any of the First Virginia Common Stock if any First Virginia Preferred
Stock dividends are in arrears.
First Virginia Preferred Stock is divided into four series, Series A
through Series D. Series A and B shares are convertible into one and one-half
shares of First Virginia Common Stock and Series C shares are convertible
into one and two-tenths shares of First Virginia Common Stock. These shares
may be redeemed at the option of First Virginia for $10.00 per share. The
Series D shares are convertible into one and one-half shares of First Virginia
Common Stock and are redeemable at the option of First Virginia for $10.08 per
share until March 15, 1995 and for $10.00 per share in each succeeding year
thereafter. Series A shares carry an annual dividend of 5%, whereas Series
B and C carry an annual dividend of 7% and Series D shares carry an annual
dividend of 8%. The First Virginia Preferred Stock, regardless of series, is
voting stock and unless otherwise required by law, each share is entitled to
the same vote as each share of First Virginia Common Stock on all
matters presented to stockholders. In the event of the voluntary dissolution
of First Virginia, the then holders of shares of any of series of First
Virginia Preferred Stock would receive the then redemption price of their
shares plus accrued but unpaid dividends and interest, if any, unless there are
insufficient assets to pay the same in which event they will be paid ratably
in proportion to the amounts to which they are entitled. The same provisions
are applicable in the event of involuntary dissolution except that the
holders of First Virginia Preferred Stock would receive $10.00 per share plus
accrued dividends and interest, if any, rather than the then effective
redemption price.
Certain Provisions of First Virginia's Articles of Incorporation and First
Virginia's Shareholder Rights Plan
First Virginia's Articles of Incorporation contain certain provisions
which are of a type sometimes characterized, and under certain circumstances
could operate, as anti-takeover provisions. These measures include staggered
terms for directors and 80% vote requirements for stockholder approval of
certain actions as described below. These provisions may have the effect of
strengthening the position of incumbent management by making it more
difficult to change the composition of the Board of Directors. In
addition, with respect to a merger or other business combination, the 80%
stockholder approval requirement may make it more difficult for stockholders
who might wish to participate in a tender offer to do so.
First Virginia's Articles of Incorporation (i) classify the Board into
three classes, as nearly equal in number as possible, each of which will
serve for three years, with one class being elected each year; (ii) increase
to 80% the stockholder vote required to approve certain mergers, sales of
assets, liquidations and other significant transactions involving First
Virginia and any beneficial holder of five percent or more of First Virginia's
voting stock unless the transaction is either (a) approved by at least a
majority of the Continuing Directors (as that term is defined in the Articles
of Incorporation), or (b) certain minimum price and procedural requirements
are met; (iii) increase to 80% the stockholder vote required to remove
directors, and (iv) prevent the circumvention of the foregoing
provisions by increasing to 80% the stockholder vote required to repeal or
amend the foregoing provisions of the Articles of Incorporation.
First Virginia's Bylaws include a provision which requires that, in
order to adopt, amend or repeal the Bylaws, an affirmative vote of a
majority of First Virginia's Board of Directors or an affirmative vote of the
stockholders holding 80% of the voting power of First Virginia Common Stock
would be necessary. Under Virginia law, unless other provision is made in the
Articles of Incorporation or Bylaws, a majority of the directors or a
majority of the stockholders present entitled to vote may adopt, amend or
repeal the Bylaws. First Virginia's Bylaws also provide that special
meetings of stockholders may be called at the written request of the holders
of 80% of the voting stock of First Virginia, or a majority of the
Continuing Directors.
On July 27, 1988 the Board of Directors of First Virginia adopted a
Shareholder Rights Plan and declared a distribution of one right for each
outstanding share of First Virginia Common Stock. The Shareholder Rights
Plan is designed to protect shareholders against unsolicited attempts to
acquire control of First Virginia whether through accumulation of shares in the
open market or tender offers that do not offer what the Board believes to be an
adequate price to all stockholders.
The Shareholder Rights Plan provides for the distribution of one Stock
Purchase Right (a "Right") as a dividend for each outstanding share of First
Virginia Common Stock. Initially, the Rights are represented by and trade in
tandem with the common stock certificates and the Rights are not exercisable.
Each Right, when triggered, will entitle stockholders to buy $180.00 worth of
capital stock of First Virginia for $90.00. The First Virginia Board of
Directors determines the exercise price of the Rights. Purchased stock may be
in the form of preferred stock of First Virginia or, at the election of First
Virginia's Board of Directors, First Virginia Common Stock or a combination of
preferred stock and First Virginia Common Stock. The Rights may be exercised
only if a person or group acquires 20% or more of all outstanding shares of
First Virginia Common Stock or announces a tender offer that would result
in the ownership of 20% or more of all outstanding shares of First Virginia
Common Stock. At such time, the Rights will begin to trade independently from
the First Virginia Common Stock. At no time do the Rights have any voting
power.
Under certain circumstances involving the acquisition of 20% or more
of all outstanding shares of First Virginia Common Stock, all Rights
holders except the acquiror may purchase, at the exercise price, capital
stock of First Virginia at a discounted price. If First Virginia merges with
an acquiror that has acquired 20% or more of the outstanding shares of First
Virginia Common Stock without Board approval of such stock acquisition, all
Rights holders except the acquiror may purchase the shares of First Virginia
Common Stock held by the acquiror at a similar discount.
The Rights will expire on August 8, 1998. First Virginia Common
Stock certificates issued after August 8, 1988 (including those issued
to Bancorp stockholders pursuant to the Affiliation) contain or will contain a
legend evidencing the existence of the Rights applicable to those shares.
Each share of First Virginia Common Stock issued to a Bancorp
stockholder in exchange for Bancorp Common Stock pursuant to the Affiliation
will be subject to the Shareholder Rights Plan and will carry with it a Right as
described above.
The Rights have certain antitakeover effects. The Rights will cause
substantial dilution to a person or group that attempts to acquire First
Virginia (other than pursuant to a "permitted offer" as that term is
defined in the Shareholder Rights Plan) or with First Virginia's prior
approval) without conditioning the offer on the Rights being redeemed or
substantially all the Rights being acquired. However, the Rights should not
interfere with any merger or other business combination approved by First
Virginia (other than with an Acquiring Person as that term is defined under the
Shareholder Rights Plan) because the Rights are redeemable under those
circumstances.
CERTAIN DIFFERENCES IN RIGHTS OF STOCKHOLDERS
First Virginia is a Virginia corporation subject to the provisions
of the Virginia Stock Corporation Act (the "VSCA"). Bancorp is a Maryland
corporation subject to the provisions of the MGCL. Stockholders of Bancorp,
whose rights are governed by Bancorp's Charter and By-Laws and by the MGCL,
may, upon consummation of the Affiliation, become stockholders of First
Virginia. The rights of Bancorp stockholders as stockholders of First
Virginia will then be governed by the Articles of Incorporation and Bylaws of
First Virginia and by the VSCA.
Set forth below are certain differences between the rights of
Bancorp stockholders under Bancorp's Charter and By-Laws and under the MGCL, on
the one hand, and the rights of First Virginia stockholders under First
Virginia's Articles of Incorporation and Bylaws and under the VSCA, on the
other hand, including with respect to, among other matters, (i)
indemnification of directors, officers, employees and agents, and (ii)
limitation of personal liability of directors. This summary does not purport to
be a complete discussion of, and is qualified in its entirety by reference to,
the MGCL, the VSCA, the Charter and By-Laws of Bancorp, and the Articles
of Incorporation and Bylaws of First Virginia.
Size and Classification of the Board of Directors
Bancorp's Charter provides for the number of directors to be not less than
five, no more than 25, as is fixed from time to time pursuant to the Bylaws.
Bancorp's Charter divides the Board of Directors into three classes, with
each class being elected for successive three-year terms. At present,
Bancorp's Board of Directors is comprised of three classes consisting of an
aggregate of 17 directors.
First Virginia's Articles of Incorporation provide for the number of
directors to be 16 unless otherwise fixed by the Bylaws, provided that the
number of directors shall not be less than three nor more than thirty. The
Board of Directors of First Virginia is also divided into three classes, each
of which is elected for successive three-year terms. First Virginia's Bylaws
currently provide for 15 directors divided into three equal classes of five
directors each.
Election of Directors
Directors of both Bancorp and First Virginia are elected by a majority of
votes cast at a meeting of stockholders, duly called and at which a quorum is
present. The Charter of Bancorp provides that directors may be removed only
for cause and by the vote of at least two-thirds of the votes entitled to
be cast at a meeting of stockholders duly called for the consideration of
such removal. First Virginia's Articles of Incorporation provide that
directors may only be removed by the vote of 80% of the stockholders entitled
to vote on such action.
Vacancies on Bancorp's Board of Directors, whether created by
death, resignation, retirement, disqualification or removal of a director or
by increase in size of the Board, may be filled by a majority of directors
then in office. First Virginia's Articles of Incorporation also provide that
vacancies may be filled by the majority of directors then in office provided
that directors may only fill up to two vacancies resulting from an increase in
the size of the Board of Directors.
Under First Virginia's Bylaws, a director must own in his sole name and
have in his personal possession or control capital stock of First Virginia
having an aggregate par value of not less than $1,000.
Under the MGCL and Bancorp's Charter and By-Laws, directors have no
stock ownership requirements.
Interested Director Transactions
Under the MGCL, a contract or other transaction between a Maryland
corporation and a director or entity of which any director is a director or in
which any director has a material financial interest is neither void nor
voidable if either (i) the fact of the common directorship or interest is
known or disclosed either (a) to the board or a committee thereof and a
majority of disinterested directors on the board or such committee approve the
contract or transaction or (b) to the stockholders entitled to vote and the
contract or transaction is approved by a majority of the votes cast
exclusive of shares owned by the interested director or entity, or (ii) the
contract or transaction is fair and reasonable to the corporation. If
the contract or transaction is not approved as described above, the person
asserting the validity of the contract or transaction bears the burden of
proving it was fair and reasonable to the corporation when authorized,
ratified or approved. Any procedures which are specified in the section
of the MGCL relating to the approval of indemnification payments by a
corporation may also be used to approve such a contract or transaction.
The VSCA generally permits transactions involving a Virginia corporation
and an interested director of that corporation if (i) the material facts are
disclosed to the board of directors or a committee thereof and a majority
of the disinterested directors on the board or such committee authorized,
approved or ratified the transaction, (ii) the material facts are disclosed
to the stockholders entitled to vote and the transaction is authorized,
approved or ratified by the vote of a majority of the shares entitled to be
voted on the matter (excluding shares owned or controlled by the interested
director or entity), or (iii) the transaction is fair to the corporation.
Voting Requirements
Pursuant to the VSCA and First Virginia's Articles of Incorporation, a
plan of merger or exchange (except in certain circumstances as described
below) or a transaction involving the sale of all or substantially all of
First Virginia's assets requires the vote of more than two-thirds of all votes
entitled to be cast on such transaction by each voting group entitled to
vote on the transaction, if (i) the proposed action has been approved and
recommended by a majority of the directors then in office, (ii) the proposed
action involves only First Virginia and a subsidiary of First Virginia or
(iii) certain price conditions set forth in the Articles of Incorporation
are met. The affirmative vote of holders of eighty percent (80%) of the
outstanding shares entitled to vote is required if none of the conditions
described above is met. Pursuant to First Virginia's Articles of
Incorporation, except as otherwise provided in Articles V, X and XI, the
Articles of Incorporation may be amended by vote of a majority of all votes
entitled to be cast by each voting group entitled to vote on the amendment.
Except as described below, under the MGCL and Bancorp's Charter, an
amendment to Bancorp's Charter, a merger (except in certain circumstances as
described below), consolidation, a share exchange in which Bancorp is not the
successor or a sale of all or substantially all of the assets of Bancorp
requires the approval of the holders of two-thirds of the outstanding shares
of Bancorp Common Stock and any other class entitled to vote thereon.
Notwithstanding the foregoing, the affirmative vote of at least 80% of the
outstanding shares entitled to vote is required for the approval of certain
"business combinations" (as defined in the Bancorp Charter) unless approved by a
two-thirds vote of the "continuing directors" (as defined in Bancorp's
Charter). Upon consummation of the Affiliation, former Bancorp stockholders
who receive First Virginia Common Stock will be subject to the rules
applicable to First Virginia, pursuant to which any of the transactions
described immediately above will require the approval of 80% of the outstanding
shares of First Virginia Common Stock, unless one of the conditions is met.
The VSCA does not require a stockholder vote of the surviving
Virginia corporation in a merger if (i) the merger agreement does not
amend the existing articles of incorporation of the surviving corporation
such that the amendment would otherwise require shareholder approval, (ii) each
outstanding share of capital stock of the surviving corporation before the
merger is unchanged after the merger, and (iii) the number of voting or
participating shares to be issued by the surviving corporation in the merger
does not exceed 20% of the voting or participating shares, respectively,
outstanding immediately prior to the merger. The MGCL does not require a
stockholder vote of the surviving Maryland corporation in a merger if the
merger does not amend the surviving corporation's charter or change its
outstanding stock and the number of shares to be issued by the surviving
corporation in the merger does not exceed 15% of the shares of the same class
or series outstanding immediately before the merger becomes effective.
Dissenters' Rights
Under the VSCA, a dissenting stockholder of a Virginia corporation
participating in certain transactions, such as certain mergers or
consolidations, may, under varying circumstances, receive cash in the amount of
the fair value of his shares (as may be ultimately determined by a court) in
lieu of the consideration he would otherwise receive in any such
transaction. Unless otherwise provided in the articles of incorporation
of a Virginia corporation, the VSCA does not generally provide such
dissenter's rights of appraisal with respect of (i) a sale of assets
comprising less than all or substantially all of a corporation's assets,
(ii) an amendment to the articles of incorporation, (iii) a merger, share
exchange or sale of property by a corporation having shares which are either
listed on a national securities exchange or widely-held (i.e., by at least
2,000 record stockholders), if such stockholder received cash or shares of
the surviving corporation or any other listed or widely- held corporation, or
(iv) stockholders of a corporation surviving a merger if no vote of the
stockholders of the surviving corporation is required to approve the merger.
Under the MGCL, a stockholder does not have appraisal rights if
such stockholder's stock is listed on a national securities exchange or is
designated as a security listed on The NASDAQ National Market or if such
stockholder's stock is that of the surviving corporation in a merger and the
merger does not alter or change such stock.
Stockholder Power to Call a Special Meeting
Under the MGCL, the board of directors and other persons specified
in the corporation's articles of incorporation or by-laws and the holder or
holders of 25% or more of the voting stock of a Maryland corporation may call
a special stockholders' meeting. Under First Virginia's Bylaws, special
meetings of the stockholders can be called by the president or secretary only
at the written request of a majority of the directors, provided that, if as of
the date of the request for such special meeting there is a Related Person
(as defined in Article X of the Articles of Incorporation), such majority shall
include a majority of the Continuing Directors (also as defined in Article X of
the Articles of Incorporation), or by the holders of eighty percent (80%) of the
voting power of all of the then outstanding shares of capital stock of First
Virginia entitled to vote generally in the election of directors. Upon
consummation of the Affiliation, no individual or group of former Bancorp
stockholders who become holders of First Virginia Common Stock solely as a
result of the Affiliation will own a sufficient number of shares of First
Virginia Common Stock to call a special meeting of stockholders of First
Virginia.
Notice of Special Meeting
Pursuant to First Virginia's Bylaws, notice of any special meeting of
First Virginia stockholders must be mailed not less than 10 days, nor more
than 60 days prior to the date fixed for the meeting. In the case of a
special meeting called for the purposes of acting on an amendment to the
Articles of Incorporation or plan of merger or similar transaction, notice
shall be given not less than 25 days nor more than 60 days before the date of
the meeting.
Under Bancorp's By-Laws and the MGCL, notice for a special meeting of
holders of Bancorp Common Stock must be provided not less than 10 days nor
more than 90 days before the meeting.
Authorized Stock
First Virginia's Articles of Incorporation authorize the issuance of
up to 60,000,000 shares of common stock and 3,000,000 shares of preferred
stock. As of June 30, 1994, there are approximately 32,769,000 shares of First
Virginia Common Stock and 79,480 shares of First Virginia Preferred Stock
outstanding. Bancorp's Charter authorizes the issuance of 10,000,000 shares
of common stock and 5,000,000 shares of series preferred stock. Currently, no
preferred stock of Bancorp is outstanding.
Inspection of Stockholder Lists
Under the VSCA, First Virginia stockholders may inspect a list of First
Virginia stockholders during the 10-day period prior to any stockholder
meeting at First Virginia's principal place of business or at the office of
its transfer agent. First Virginia stockholders of record for at least six
months or who hold at least 5% of all the outstanding shares may inspect First
Virginia's stockholder list at any time, provided that the appropriate
request is made.
Under the MGCL, one or more holders of Bancorp Common Stock only may
inspect Bancorp's stockholder list if such stockholders have been stockholders
of record for at least six months and own 5% of the outstanding stock of the
corporation, provided that the appropriate request is made.
Indemnification
Under the VSCA, a Virginia corporation may indemnify a director or
officer against liability if the director or officer conducted himself in
good faith and believed that his official conduct was in the best interests
of the corporation and all other non-official conduct was not opposed to the
corporation's best interests, or in the case of a criminal proceeding, had no
reasonable cause to believe his conduct was unlawful. A corporation may not
indemnify a director or officer in connection with a proceeding in which the
director or officer is adjudged liable on the basis that he received an
improper personal benefit. A director or officer also cannot be indemnified in
connection with a proceeding by or in the right of the corporation in which
the director or officer is adjudged liable to the corporation. In addition,
under the VSCA, any corporation may indemnify, including an indemnity with
respect to a proceeding by or in the right of the corporation, and may provide
for advances or reimbursement of expenses, to any director, officer,
employee or agent that is authorized by the articles of incorporation or any
bylaw approved by the stockholders or any resolution adopted, before or after
the subject event, by the stockholders except an indemnity against (i)
willful misconduct or (ii) a knowing violation of criminal law. To the
fullest extent permitted by the VSCA, First Virginia's Articles of
Incorporation require indemnification of all directors, advisory directors
and officers of First Virginia, and permit indemnification of employees and
agents of First Virginia and directors, advisory directors, officers,
employees and agents of subsidiaries and affiliates of First Virginia.
Subject to the statutory exceptions, First Virginia's Articles of
Incorporation eliminate liability of any director, advisory director or
officer of First Virginia in connection with a proceeding by or in the right
of the corporation or by or on behalf of it stockholders, unless the
director, advisory director or officer engaged in wilful misconduct or
knowingly violated any criminal or securities law.
Under the MGCL, a Maryland corporation may indemnify any director,
officer, employee or agent of the corporation made a party to any
proceeding by reason of service in that capacity unless: (i) the act or
omission of the director, officer, employee or agent was material to the
matter giving rise to the proceeding, and was committed in bad faith or was the
result of active and deliberate dishonesty; (ii) the director, officer, employee
or agent actually received an improper personal benefit; or (iii) in a
criminal proceeding, the director, officer, employee or agent had
reasonable cause to believe that the act or omission was unlawful. However,
in a proceeding by or in the right of the corporation, indemnification may
not be made in respect of a proceeding in which the director, officer,
employee or agent shall have been adjudged to be liable to the corporation.
Bancorp's Charter provides that Bancorp shall indemnify all persons permitted
to be indemnified to the maximum extent permitted under the MGCL.
Under the MGCL and Bancorp's Charter the liability of Bancorp's
directors and officers to Bancorp or its stockholders for money damages is
limited: (i) to the extent it is proved that the person actually received
improper benefit or profit, for the amount of such benefit or profit, and (ii)
to the extent that a judgment adverse to the person is entered in a proceeding
based on a finding that such person's action or failure to act was the result of
active and deliberate dishonesty and was material to the cause of action
adjudicated in the proceeding.
Business Combination and Affiliation Statutes
The MGCL imposes conditions and restrictions on certain "business
combinations" (including, among other various transactions, a merger,
consolidation, share exchange, or, in certain circumstances, an asset
transfer or issuance of equity securities) between a Maryland corporation and
any person who beneficially owns at least 10% of the corporation's stock (an
"Interested Stockholder"). Unless approved in advance by the board of
directors, or otherwise exempted by the statute, such a business
combination is prohibited for a period of five years after the most recent
date on which the Interested Stockholder became an Interested Stockholder.
After such five- year period, a business combination with an Interested
Stockholder must be: (a) recommended by the corporation's board of
directors; and (b) approved by the affirmative vote of at least (i) 80%
of the votes entitled to be cast by the corporation's outstanding shares
of voting stock and (ii) two-thirds of the votes entitled to be cast by the
outstanding shares of voting stock which are not held by the Interested
Stockholder with whom the business combination is to be effected, unless,
among other things, the corporation's common stockholders receive a "fair
price" (as defined in the statute) for their shares and the consideration is
received in cash or in the same form as previously paid by the Interested
Stockholder for his shares.
The VSCA also provides similar restrictions on "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
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 insure that all
stockholders receive fair and equivalent consideration, regardless of when
they tender their shares.
The First Virginia Articles of Incorporation provide that a
"business combination" (as defined therein) shall require only the
affirmative vote otherwise required by law if (i) it has been approved by
a majority of First Virginia's directors (including a majority of all
"Continuing Directors," as that term is defined in the Articles of
Incorporation); or (ii) the business combination is solely between First
Virginia and a subsidiary; or (iii) certain price conditions and procedures are
satisfied.
Power to Amend Bylaws
Under the MGCL, the power to amend, alter or repeal bylaws of a
Maryland corporation generally is vested in the stockholders unless the
bylaws or charter provide otherwise. Bancorp's By-Laws provide that both the
Board of Directors or the stockholders may amend, alter or repeal the By-Laws
of Bancorp, provided that the stockholders may not amend, alter or repeal
the provisions of Article II, Section 2 which relate to matters within the
exclusive power of the Board of Directors to fix from time to time the number
of directors of Bancorp.
The Articles of Incorporation of First Virginia provide that the power to
adopt, alter, amend or repeal the Bylaws of First Virginia is vested in
the Board of Directors except that the stockholders may adopt new bylaws, or
alter, amend or repeal the Bylaws by the affirmative vote of holders of not less
than 80% of the voting power of all of the then outstanding shares of capital
stock of First Virginia.
Control Share Acquisition Statutes
Under the MGCL's control share acquisition law, voting rights of shares of
stock of a Maryland corporation acquired by an acquiring person at ownership
levels of 20%, 33-1/3% and 50% of all outstanding shares are denied unless
conferred by a special stockholder vote of two-thirds of the outstanding
shares held by persons other than the acquiring person and officers and
certain 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. Unless a corporation's charter or bylaws provide otherwise or voting
rights for the acquired shares are approved by the requisite stockholder vote,
the statute permits such corporation to redeem the acquired shares at "fair
value" if the voting rights are not approved by the requisite stockholder vote.
The acquiring person may demand a stockholder's meeting to consider authorizing
voting rights for control shares subject to certain disclosure obligations and
payment of certain costs. If voting rights are approved and the acquiror is
entitled to exercise a majority or more of the voting power of all
outstanding stock, objecting stockholders may have their shares appraised and
repurchased by the corporation for cash.
Under the VSCA'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 all outstanding shares may, under
certain circumstances, be denied unless conferred by a special stockholder vote
of a majority of the outstanding shares entitled to vote for directors, other
than shares held by the acquiring person and officers and certain directors of
the corporation or, among other exceptions, such acquisition of shares is made
pursuant to a merger agreement with the corporation. If authorized in the
corporation's articles 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 stockholders may have the right to have their
shares repurchased by the corporation for "fair value."
Employee Benefit Plan Matters
First Virginia's Articles of Incorporation contain a provision
permitting a majority of the entire Board of Directors to establish, adopt,
alter, amend or repeal certain employee benefit plans. Bancorp has no analogous
provision in its Charter or By-Laws.
EXPERTS
The consolidated financial statements of First Virginia
incorporated by reference in First Virginia's Annual Report on Form 10-K for
the year ended December 31, 1993 have been audited by Ernst & Young LLP,
independent auditors, as set forth in their report thereon included herein
and incorporated herein by reference. Such consolidated financial
statements are incorporated herein by reference in reliance upon such report
given upon the authority of such firm as experts in accounting and auditing.
With respect to the unaudited consolidated interim financial information
for the quarters ended March 31, 1994 and June 30, 1994, incorporated by
reference in this Proxy Statement-Prospectus, Ernst & Young LLP have
reported that they have applied limited procedures in accordance with
professional standards for a review of such information. However, their
separate reports, included in First Virginia's Quarterly Reports on Form 10-Q
for the quarters ended March 31, 1994 and June 30, 1994, and incorporated
herein by reference, state that they did not audit and they do not express
an opinion on that interim financial information. Accordingly, the degree of
reliance on their reports on such information should be restricted in light
of the limited nature of the review procedures applied. The independent
auditors are not subject to the liability provisions of Section 11 of the
Securities Act of 1933 (the "Act") for their reports on the unaudited interim
financial information because those reports are not a "report" or a "part"
of the Registration Statement prepared or certified by the auditors within the
meaning of Sections 7 and 11 of the Act.
The financial statements incorporated in this Proxy
Statement-Prospectus by reference to the Annual Report on Form 10-K of
Bancorp for the three years ended December 31, 1993 have been audited by
Stegman & Company, independent certified public accountants, whose reports
thereon are incorporated herein by reference in reliance upon the report of
said firm and upon the authority of said firm as experts in auditing and
accounting.
Representatives of Stegman & Company are expected to be present at the
Special Meeting, will have an opportunity to make a statement if they so
desire, and are expected to be available to respond to appropriate questions.
LEGAL MATTERS
The validity of the securities offered in connection with the Affiliation
will be passed upon for First Virginia by Christopher M. Cole, Vice President
and Assistant General Counsel of First Virginia. Certain legal matters in
connection with the Affiliation will be passed upon for Bancorp by Miles &
Stockbridge, a Professional Corporation, Baltimore, Maryland. In addition,
certain tax matters will be passed upon by Miles & Stockbridge, a Professional
Corporation.
<PAGE>
PRO FORMA FINANCIAL INFORMATION
Pro Forma Combined Balance Sheet
June 30, 1994
(Unaudited)
The following unaudited pro forma combined balance sheet presents (i) the
historical unaudited consolidated balance sheets of First Virginia and Bancorp
at June 30, 1994, and (ii) pro forma combined balance sheet at June 30, 1994
assuming the Affiliation had taken place and was accounted for as a purchase.
The unaudited pro forma combining balance sheet should be read in conjunction
with the historical consolidated financial statements of First Virginia and
Bancorp, including the respective notes thereto, which are incorporated by
reference in this Proxy Statement-Prospectus, and the unaudited historical and
other pro forma financial information, including the notes thereto, appearing
elsewhere in this Proxy Statement-Prospectus. The pro forma combined balance
sheet is not necessarily indicative of the financial condition that actually
would have resulted had the Affiliation been consummated on the date indicated
or that may be obtained in the future.
<TABLE>
As of June 30, 1994
Consolidated Pro-forma
First Virginia Bancorp Adjustments Combined
(dollars in thousands)
<S> <C> <C> <C> <C>
ASSETS
Cash and non-interest bearing deposits $ 330,005 $ 32,025 $ (47,393) (2) $ 262,030
(52,607) (3)
Interest-bearing deposits with banks 2,336 2,336
Federal funds sold & securities purchased
under agreements to resell 100,000 12,900 112,900
Mortgage loans held for sale 21,139 21,139
Investment securities - held to maturity 2,045,794 282,319 44,535 (5) 2,372,648
Investment securities - available for sale 44,535 (44,535) (5)
Loans, net of unearned income 4,508,293 316,133 4,824,426
Deduct: allowance for loan losses (53,472) (5,710) (59,182)
Net loans 4,454,821 310,423 4,765,244
Premises and equipment 142,726 9,123 151,849
Other assets 135,074 16,160 79,964 (6) 231,198
104,504 (1)
47,393 (2)
(71,933) (4)
(79,964) (6)
Total Assets $7,229,559 $709,821 $(20,036) $7,919,344
LIABILITIES
Deposits:
Noninterest-bearing $1,081,503 $ 84,455 $$1,165,958
Interest bearing 5,171,954 533,341 5,705,295
Total deposits 6,253,457 617,796 6,871,253
Interest, taxes & other liabilities 57,453 6,529 63,982
Short-term borrowings and securities
sold under agreements to repurchase 174,706 8,932 183,638
Other indebtedness 4,528 4,528
Long-term indebtedness 4,216 103 4,319
Total liabilities 6,489,832 637,888 7,127,720
SHAREHOLDERS' EQUITY
Preferred Stock, $10 par value 795 795
Common Stock, $1 par value 32,769 2,699 2,834 (1) 34,177
(1,426) (3)
(2,699) (4)
Capital surplus 76,651 29,728 101,670 (1) 127,140
(51,181) (3)
(29,728) (4)
Retained earnings 629,512 39,506 (39,506) (4) 629,512
Total shareholders' equity 739,727 71,933 (20,036) 791,624
Total liabilities & shareholders' equity $7,229,559 $709,821 $ (20,036) $7,919,344
(see accompanying notes)
</TABLE>
<PAGE>
Pro Forma Combined Statement of Income
(Unaudited)
The following unaudited pro forma combined statements of income have been
prepared based on the historical statements of income for First Virginia and
Bancorp for the six months ended June 30, 1994 and for the year ended December
31, 1993 assuming the Affiliation had taken place and was accounted for as a
purchase. The unaudited pro forma combined statements of income should be read
in conjunction with the historical consolidated financial statements of First
Virginia and Bancorp, including the respective notes thereto, which are
incorporated by reference in this Proxy Statement- Prospectus, and the unaudited
consolidated historical and other pro forma financial information, including the
notes thereto, appearing elsewhere in this Proxy Statement- Prospectus. The pro
forma combined statements of income are not necessarily indicative of the
results that actually would have occurred had the Affiliation been consummated
on the dates indicated or that may be obtained in the future.
<TABLE>
Year Ended December 31, 1993
Consolidated Pro-forma
First Virginia Bancorp Adjustments Combined
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $360,551 $ 27,485 $ $388,036
Interest on mortgage loans held for sale 2,568 2,568
Income on investment securities 133,304 16,320 149,624
Income from federal funds sold and securities
purchased under agreements to resell 8,359 767 (4,250) (2) 4,876
Total interest income 504,782 44,572 (4,250) 545,104
Interest expense
Deposits 161,175 16,719 177,894
Short-term borrowings 3,563 307 3,870
Long-term indebtedness 221 14 235
Total interest expense 164,959 17,040 181,999
Net interest income 339,823 27,532 (4,250) 363,105
Provision for loan losses 6,450 1,821 8,271
Net interest income after provision for loan
losses 333,373 25,711 (4,250) 354,834
Other income
Service charges on deposit accounts 34,448 2,589 37,037
Insurance premiums and commissions 6,555 6,555
Credit card service charges and fees 11,070 11,070
Trust services 5,001 472 5,473
Income from other customer services 16,533 499 17,032
Securities gains before income tax
provisions 711 711
Other 8,222 912 9,134
Total other income 82,540 ,472 87,012
Other expenses
Salaries and employee benefits 134,296 9,435 143,731
Occupancy 18,207 1,177 19,384
Equipment 19,634 1,277 20,911
FDIC assessment 13,412 1,354 14,766
Other 60,218 3,874 3,349 (6) 69,441
Total other expenses 245,767 17,117 3,349 266,233
Income before income taxes 170,146 13,066 (7,599) 175,613
Provision for income taxes 54,122 3,558 (1,488) (2) 56,192
NET INCOME $116,024 $9,508 (7) (6,111) $119,421
Net income per share of common stock $3.57 $3.52 $3.52
Average shares outstanding 32,512 2,699 33,919
(see accompanying notes)
</TABLE>
<PAGE>
<TABLE>
Pro Forma Combined Statement of Income
(Unaudited)
Six Months Ended June 30, 1994
Consolidated Pro-forma
First Virginia Bancorp Adjustments Combined
(in thousands, except per share data)
<S> <C> <C> <C> <C>
Interest income
Interest and fees on loans $181,246 $ 13,549 $ $194,795
Interest on mortgage loans held for sale 1,312 1,312
Income on investment securities 62,762 7,598 70,360
Income from federal funds sold and securities
purchased under agreements to resell 3,544 471 (2,125) (2) 1,890
Total interest income 248,864 21,618 (2,125) 268,357
Interest expense
Deposits 74,720 8,038 82,758
Short-term borrowings 2,655 184 2,839
Long-term indebtedness 237 237
Total interest expense 77,612 8,222 85,834
Net interest income 171,252 13,396 (2,125) 182,523
Provision for loan losses 4,163 396 4,559
Net interest income after provision for
loan losses 167,089 13,000 (2,125) 177,964
Other income
Service charges on deposit accounts 18,038 1,258 19,296
Insurance premiums and commissions 3,248 3,248
Credit card service charges and fees 5,422 5,422
Trust services 2,490 311 2,801
Income from other customer services 8,387 248 8,635
Securities gains before income tax
provisions 964 29 993
Other 5,069 457 5,526
Total other income 43,618 2,303 45,921
Other expenses
Salaries and employee benefits 68,993 4,896 73,889
Occupancy 9,519 578 10,097
Equipment 9,885 813 10,698
FDIC assessment 6,794 689 7,483
Other 29,548 1,854 1,675 (6) 33,073
Total other expenses 124,739 8,830 1,675 135,244
Income before income taxes 85,968 6,473 (3,808) 88,641
Provision for income taxes 28,123 1,686 (744) (2) 29,065
NET INCOME $ 57,845 $ 4,787 $ (3,056) $ 59,576
Net income per share of common stock $1.78 $1.77 $1.75
Average shares outstanding 32,555 2,699 33,962
(see accompanying notes)
</TABLE>
NOTES TO PRO FORMA FINANCIAL INFORMATION
(1) Represents issuance of 2,834,000 shares of First Virginia Common Stock
issued in exchange for 70% of all outstanding shares of Bancorp Common
Stock. Bancorp stockholders will receive 1.5 shares of First Virginia
Common Stock for each share of Bancorp Common Stock. Alternatively, Bancorp
stockholders may elect to exchange their shares for a cash payment of $58.53
per share, provided that the aggregate number of shares as to which cash
elections are properly made and Dissenting Shares may not exceed 30% of all
outstanding Bancorp Common Stock. It is assumed that the maximum number of
Bancorp stockholders will exercise the cash option and there will be no
Dissenting Shares. The value of First Virginia Common Stock to be issued is
based on a market value on the date of the Affiliation announcement of
$36.875 per share and as a consequence, equity will be increased by
$104,504,000.
(2) Represents 809,716 (30% of total shares) shares of Bancorp Common Stock
submitted for the cash price of $58.53 per share. Cash utilized for the
cash option electees and the shares of First Virginia Common Stock to be
purchased in the open market will result in a reduction in interest income
on those funds. Entries on the Income Statement reflect the loss of these
funds at an imputed rate of 4.25%, net of income taxes at the marginal
federal rate of 35%.
(3) In connection with this transaction, First Virginia will repurchase up to
$100,000,000 of its shares of common stock in the open market. This amount
will be reduced to the extent that Bancorp stockholders elect the cash
option so that the total cash paid for stockholders electing the cash option
and the cash used to repurchase shares of First Virginia Common Stock in the
open market does not exceed $100,000,000. This entry represents the
repurchase of 1,426,640 shares of First Virginia Common Stock in the open
market at an approximate price of $36.875.
(4) Represents the elimination of Bancorp equity.
(5) Upon consummation of the Affiliation, all investment securities in Bancorp's
"available for sale" category will be classified as held-to-maturity. It is
the policy of First Virginia to retain all securities to maturity and it has
the intention and capacity to do so.
(6) Represents the net excess of the price paid over the value of the assets
received and classified to Goodwill or to Deposit Intangibles. This amount
will be amortized over an average period of approximately 23.875 years.
(7) Net income of Bancorp for the year ended December 31, 1993 excludes
$1,431,000 or $.53 per share due to the cumulative effects of an accounting
change. This change was a result of adoption of SFAS No. 109 "Accounting
for Income Taxes" which changed the method by which Bancorp accounted for
deferred taxes.
<PAGE>
APPENDIX A
AGREEMENT AND PLAN OF REORGANIZATION
between
FIRST VIRGINIA BANKS, INC.
and
FARMERS NATIONAL BANCORP
July 1, 1994
INDEX
Page
ARTICLE 1.
THE MERGER . . . . . . . . . . . . A-1
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . A-1
1.2 Effective Date and Closing Date . . . . . . . . . . . . . . . . A-3
1.3 Dissenting Bancorp Stockholders . . . . . . . . . . . . . . . . A-3
1.4 Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . A-3
1.5 Participation Agreements . . . . . . . . . . . . . . . . . . . A-4
1.6 Employment Agreement . . . . . . . . . . . . . . . . . . . . . A-6
1.7 Board Member . . . . . . . . . . . . . . . . . . . . . . . . . A-6
1.8 Employment of First Virginia Officer . . . . . . . . . . . . . A-6
1.9 Bank Conversions . . . . . . . . . . . . . . . . . . . . . . . A-6
1.10 Continued Existence of Farmers . . . . . . . . . . . . . . . . A-6
1.11 Directors of Banks . . . . . . . . . . . . . . . . . . . . . . A-6
1.12 Director Compensation . . . . . . . . . . . . . . . . . . . . . A-7
1.13 Treatment of Employees . . . . . . . . . . . . . . . . . . . . A-7
1.14 Certain Definitions . . . . . . . . . . . . . . . . . . . . . . A-7
ARTICLE II.
EVENTS PRECEDING EFFECTIVENESS. . . . . . . . A-8
2. Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-8
ARTICLE III.
REPRESENTATIONS AND WARRANTIES. . . . . . . . A-9
3.1 Representations and Warranties of Bancorp . . . . . . . . . . . A-9
(a) Organization and Authority . . . . . . . . . . . . . . . A-9
(b) Capital Structure . . . . . . . . . . . . . . . . . . . . A-9
(c) Corporate Authority . . . . . . . . . . . . . . . . . . . A-9
(d) Subsidiaries . . . . . . . . . . . . . . . . . . . . . . A-10
(e) Financial Statements . . . . . . . . . . . . . . . . . . A-10
(f) Absence of Undisclosed Liabilities . . . . . . . . . . . A-10
(g) No Material Adverse Changes . . . . . . . . . . . . . . . A-11
(h) Tax Matters . . . . . . . . . . . . . . . . . . . . . . . A-11
(i) Property . . . . . . . . . . . . . . . . . . . . . . . . A-11
(j) Litigation . . . . . . . . . . . . . . . . . . . . . . . A-12
(k) Contracts and Commitments . . . . . . . . . . . . . . . . A-12
(l) Accuracy of Information Supplied . . . . . . . . . . . . A-13
(m) Bancorp and its Subsidiaries' Employee Benefit Plans . . A-13
(n) Defined Benefit and Deferred Contribution Plans . . . . . A-13
(o) Environmental Matters . . . . . . . . . . . . . . . . . . A-14
(p) Loan Portfolio . . . . . . . . . . . . . . . . . . . . . A-15
(q) Compliance with Laws . . . . . . . . . . . . . . . . . . A-15
(r) Insurance . . . . . . . . . . . . . . . . . . . . . . . . A-16
(s) Applicable Takeover Laws . . . . . . . . . . . . . . . . A-16
(t) Charter Provisions . . . . . . . . . . . . . . . . . . . A-16
3.2 Representations and Warranties of First Virginia . . . . . . . A-16
(a) Organization, Standing and Power . . . . . . . . . . . . A-16
(b) Capital Structure . . . . . . . . . . . . . . . . . . . . A-16
(c) Authority . . . . . . . . . . . . . . . . . . . . . . . . A-17
(d) Financial Statements . . . . . . . . . . . . . . . . . . A-17
(e) No Material Adverse Change . . . . . . . . . . . . . . . A-17
(f) Accuracy of Information Supplied . . . . . . . . . . . . A-17
(g) First Virginia Common Stock to be Issued . . . . . . . . A-18
(h) Litigation . . . . . . . . . . . . . . . . . . . . . . . A-18
(i) Tax Representations . . . . . . . . . . . . . . . . . . . A-18
ARTICLE IV.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE. . . . A-18
4.1 Conduct of the Business of Bancorp and its Subsidiaries'
Prior to the Effective Date . . . . . . . . . . . . . . . . . A-18
4.2 Forbearances . . . . . . . . . . . . . . . . . . . . . . . . . A-19
4.3 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . . A-19
4.4 Compliance with Tax-Free Provisions . . . . . . . . . . . . . . A-20
4.5 Access and Information . . . . . . . . . . . . . . . . . . . . A-20
4.6 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . A-21
4.7 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . A-21
4.8 Meeting of Bancorp Stockholders . . . . . . . . . . . . . . . . A-21
4.9 Affiliates of Bancorp . . . . . . . . . . . . . . . . . . . . . A-21
4.10 Insurance Applications . . . . . . . . . . . . . . . . . . . . A-21
4.11 Bank Conversion . . . . . . . . . . . . . . . . . . . . . . . . A-21
4.12 Applications to the Maryland Bank Commissioner . . . . . . . . A-22
4.13 Federal Reserve Applications . . . . . . . . . . . . . . . . . A-22
4.14 Changes Requested by First Virginia . . . . . . . . . . . . . . A-22
ARTICLE V.
COVENANTS OF FIRST VIRGINIA. . . . . . . . . A-22
5.1 Issuance of Stock and Payment of Cash . . . . . . . . . . . . . A-22
5.2 Stock Adjustments . . . . . . . . . . . . . . . . . . . . . . . A-22
5.3 Preparation of Registration Statement . . . . . . . . . . . . . A-23
5.4 Applications to the Maryland Bank Commissioner . . . . . . . . A-23
5.5 Application to the Bureau of Financial Institutions . . . . . . A-23
5.6 Federal Reserve Applications . . . . . . . . . . . . . . . . . A-23
5.7 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . A-23
5.8 Directors' and Officers' Liability Insurance . . . . . . . . . A-24
5.9 Effect of Future Transactions . . . . . . . . . . . . . . . . . A-24
5.10 Executive Employment Agreements . . . . . . . . . . . . . . . . A-24
ARTICLE VI.
CONDITIONS PRECEDENT TO FIRST VIRGINIA'S OBLIGATIONS
HEREUNDER . . . . . . . . . . . . . . . . . . . . . . . . A-25
6.1 Representations, Warranties . . . . . . . . . . . . . . . . . . A-25
6.2 No Adverse Changes . . . . . . . . . . . . . . . . . . . . . . A-25
6.3 Audit of Bancorp and its Subsidiaries . . . . . . . . . . . . . A-25
6.4 Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . A-25
6.5 Events Preceding the Effective Date . . . . . . . . . . . . . . A-25
6.6. No Adverse Proceedings . . . . . . . . . . . . . . . . . . . . A-25
ARTICLE VII.
CONDITIONS PRECEDENT TO BANCORP'S OBLIGATIONS HEREUNDER. . A-26
7.1 Representations, Warranties and Covenants . . . . . . . . . . . A-26
7.2 Events Preceding the Effective Date . . . . . . . . . . . . . . A-26
7.3 No Adverse Proceedings or Events . . . . . . . . . . . . . . . A-26
7.4 No Adverse Changes . . . . . . . . . . . . . . . . . . . . . . A-26
7.5. Legal Opinion . . . . . . . . . . . . . . . . . . . . . . . . . A-26
7.6. Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . A-26
7.7. Fairness Opinion . . . . . . . . . . . . . . . . . . . . . . . A-26
ARTICLE VIII.
TAX OPINION AND RESTRICTIONS CONCERNING THE RESALE OF FIRST
VIRGINIA COMMON STOCK BY AFFILIATES OF BANCORP . . . A-27
8.1 Tax Opinion . . . . . . . . . . . . . . . . . . . . . . . . . . A-27
8.2 Restrictions on Affiliates . . . . . . . . . . . . . . . . . . A-27
ARTICLE IX.
TERMINATION, AMENDMENT AND SURVIVAL OF REPRESENTATIONS. . A-28
9.1 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . A-28
9.2 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . A-28
9.3 Survival of Representations and Covenants . . . . . . . . . . . A-29
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . A-29
9.5 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
9.6 Entire Agreement in Effect . . . . . . . . . . . . . . . . . . A-30
9.7 General . . . . . . . . . . . . . . . . . . . . . . . . . . . . A-30
9.8 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . A-31
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
THIS AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement")
dated this 1st day of July, 1994 by and between FIRST VIRGINIA
BANKS, INC. ("First Virginia"), a Virginia corporation with its
main office at 6400 Arlington Boulevard, Falls Church, Virginia
22042-2336 and FARMERS NATIONAL BANCORP ("Bancorp"), a Maryland
corporation and a registered bank holding company, with its main
office at 5 Church Circle, Annapolis, Maryland 21401 (First Virginia
and Bancorp each being referred to herein as a "Party" and collectively
referred to herein as "Parties").
W I T N E S E T H:
WHEREAS, the Boards of Directors of First Virginia and Bancorp
deem it advisable and in the best interests of the Parties and their
stockholders that Bancorp be acquired by First Virginia through a
merger (the "Merger") of Bancorp with and into First Virginia
pursuant to a Plan of Merger in the form attached hereto as Exhibit
A (the "Plan of Merger"); and
WHEREAS, the Parties desire to provide for certain
undertakings, conditions, warranties, representations and covenants in
connection with the transactions contemplated hereby.
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants, agreements, representations and warranties herein
contained, the Parties agree as follows:
ARTICLE 1.
THE MERGER
1.1 The Merger. Upon performance of all covenants and
obligations of the Parties contained in this Agreement and upon the
terms and conditions contained herein, on the Effective Date of the
Merger, Bancorp shall be merged with and into First Virginia,
pursuant to the Plan of Merger, the terms of which are incorporated
herein by reference to the same extent as if fully set forth herein.
The Plan of Merger provides for the terms of the Merger, the mode of
carrying the same into effect and the basis and manner of converting
the outstanding shares of Bancorp Common Stock, $1.00 par value per
share (the "Bancorp Common Stock") into shares of First Virginia
Common Stock, $1.00 par value per share (the "First Virginia Common
Stock"). As a result of the Merger, each share of Bancorp Common
Stock outstanding on the Effective Date (other than "Dissenting Shares"
as hereinafter defined) will be converted into 1.5 shares of First
Virginia Common Stock, proportionately adjusted for any stock split,
stock dividends or other similar capital adjustments between the date
of this Agreement and the Effective Date. No fractional shares of
First Virginia Common Stock shall be issued to Bancorp stockholders.
In lieu thereof, each Bancorp stockholder shall receive upon surrender
of his Bancorp Common Stock an amount in cash equal to the amount of
any fractional share he would otherwise be entitled to receive
multiplied by the average of the closing prices per share of First
Virginia Common Stock as reported by The Wall Street Journal under the
heading "New York Stock Exchange--Composite Transactions" or any
comparable heading then in use, for each of the last ten trading days
ending on the tenth trading day prior to the Effective Date of the
Merger.
Holders of shares of Bancorp Common Stock will be given the
option of exchanging their shares for $58.53 per share in cash,
provided that the number of shares that may be exchanged for cash, when
added to Dissenting Shares (as defined in Section 1.3), shall not exceed
30% of the shares of Bancorp Common Stock outstanding immediately
prior to the Effective Date. The cash election must be made at the
time Bancorp stockholders vote on the Merger and once such vote has been
taken, cash elections shall be irrevocable. If the aggregate of (i)
shares for which a cash election is made and (ii) Dissenting Shares
exceed 30% of the shares of Bancorp Common Stock outstanding
immediately prior to the Effective Date of the Merger, First Virginia
first will pay cash for shares submitted for cash exchange by each
holder of 100 or fewer shares of Bancorp Common Stock (if such
holder has submitted all his shares for cash exchange) and then will
pay cash for shares submitted for cash pro rata. Shares not
exchanged for cash after proration will be exchanged for First
Virginia Common Stock at the exchange ratio provided above. If (i)
the aggregate of (A) shares as to which a cash election is made and (B)
Dissenting Shares is less than 10.1% of the total number of shares
of Bancorp Common Stock outstanding immediately prior to the Effective
Date of the Merger and (ii) First Virginia is advised by its
independent accountants that it cannot otherwise qualify to treat the
Merger as a purchase for accounting purposes after First Virginia has
used all reasonable efforts to qualify for such purchase accounting
treatment by repurchasing outstanding shares of First Virginia Common
Stock, then First Virginia will pay to Bancorp stockholders, other
than for Dissenting Shares and shares for which a cash election is
made, a pro rata cash payment equal in an aggregate amount to the
difference between (i) the amount of cash that would have been paid if
there were no Dissenting Shares and holders of 10.1% of the total
number of shares of Bancorp Common Stock outstanding immediately prior
to the Effective Date of the Merger had elected cash at $58.53 per share
in exchange for that percentage of shares of Bancorp Common Stock and
(ii) the aggregate amount of cash paid to Bancorp stockholders
electing cash and holders of Dissenting Shares (for purposes of
this calculation only, holders of Dissenting Shares shall be assumed to
be entitled to receive $58.53 cash per Dissenting Share). The pro
rata cash payment payable to each Bancorp stockholder (other than
for Dissenting Shares and shares for which a cash election is made)
as provided in the immediately preceding sentence shall be in
exchange for that number of shares of Bancorp Common Stock held by such
stockholder immediately prior to the Effective Date equal to the
amount of such cash payment divided by $58.53, and the remaining
shares of Bancorp Common Stock held by such Stockholder immediately
prior to the Effective Date will be converted into shares of First
Virginia Common Stock at the exchange ratio and upon the terms and
conditions provided above.
Stockholders who elect to exchange some or all of their shares
of Bancorp Common Stock for cash must submit to Bancorp certificates for
the shares being exchanged for cash at or prior to the meeting of
Bancorp stockholders referred to in Paragraph 4.8. If the Merger is
approved by Bancorp stockholders at this meeting, a stockholder's
election to receive cash is irrevocable and Bancorp will retain
certificates for shares submitted for cash purchase until either (i)
termination of this Agreement, upon which Bancorp will return such
certificates or (ii) the Effective Date of the Merger when the exchange
agent will exchange such certificates for cash to the extent required
by this Agreement and the Plan of Merger.
1.2 Effective Date and Closing Date. The Effective Date of
the Merger shall be the date specified in the Articles of Merger filed
with both the Maryland State Department of Assessments and Taxation
pursuant to the Maryland General Corporation Law and the Articles of
Merger filed with the Virginia State Corporation Commission pursuant
to the Virginia Stock Corporation Act. The Closing Date shall be the
date when all documents, including officers' certificates, legal
opinions, shareholder resolutions and agreements shall be exchanged
between the parties hereto. The Closing Date shall be a date mutually
agreed to by First Virginia and Bancorp but in any case shall be on or
after the date of Bancorp's Special Meeting of Stockholders called to
consider the Merger.
1.3 Dissenting Bancorp Stockholders. Stockholders of
Bancorp shall have the rights provided in Section 3-202 et seq. of
the Corporations and Associations Article of the Annotated Code of
Maryland. Notwithstanding anything in this Agreement to the
contrary, shares of Bancorp Common Stock which are issued and
outstanding immediately prior to the Effective Date of the Merger and
which are held by a stockholder who has exercised in accordance with
applicable law the right (to the extent such right is available by
law) to demand and receive payment of the fair value of his shares of
Bancorp Common Stock ("Dissenting Shares" and the holders of Dissenting
Shares being "Dissenting Stockholders") pursuant to Maryland law shall
not be converted into or be exchangeable for the right to receive the
consideration provided in Section 1.1 of this Agreement, unless and
until such holder shall fail to perfect his right to receive payment
of such fair value or shall have effectively withdrawn or lost such
right. If such holder shall have so failed to perfect his right to
receive payment of such fair value or shall have effectively
withdrawn or lost such right, each of his shares of Bancorp Common Stock
shall thereupon be deemed to have been converted into, at the Effective
Date of the Merger, the right to receive shares of First Virginia
Common Stock together with any required pro rata cash payment (if
applicable) as provided in Paragraph 1.1. Prior to the Effective Date,
Bancorp shall comply with all notice and other provisions of the
above-mentioned sections of the Maryland Code and shall keep First
Virginia fully advised thereof and shall give First Virginia prompt
notice of any demands received from Dissenting Stockholders and the
opportunity to participate in all negotiations and proceedings with
respect to any such demands. Bancorp shall not, except with the
prior written consent of First Virginia, voluntarily make any payment
with respect to or settle any such demands for payment.
1.4 Employee Benefits. Employees of Bancorp and its
subsidiaries (each subsidiary of Bancorp is hereinafter referred
to as "Subsidiary" or collectively as the "Subsidiaries") will
be eligible to participate in all of First Virginia's employee
benefit programs, provided they meet the eligibility requirements
of those programs. Except for First Virginia's Post Retirement Medical
Program, service with Bancorp and its Subsidiaries shall be considered
service with First Virginia for purposes of eligibility, vesting and
benefits under all these programs except as otherwise provided in
paragraphs (a) and (b) below.
(a) Bancorp currently has a pension plan known as The
Farmers National Bank of Maryland Pension Plan (the "Farmers' Pension
Plan"). With the mutual agreement of Bancorp and First Virginia, the
Farmers' Pension Plan will either be terminated or merged into First
Virginia's Pension Trust Plan. If it is terminated, participants in
that plan would receive (either at retirement or otherwise in accordance
with the provisions of that plan) all of their pension benefits which
are vested and accrued in the plan as of the termination date and
Farmers' Pension Plan participants, as well as other employees of
Bancorp and its Subsidiaries, would be credited for years of employment
with Bancorp and the Subsidiaries prior to the Effective Date of
the Merger solely for purposes of determining eligibility and
vesting under First Virginia's Pension Trust Plan, but not for purposes
of determining accrued benefits. If the Farmers' Pension Plan is
merged into First Virginia's Pension Trust Plan, then Farmers' Pension
Plan participants would receive credit under First Virginia's Pension
Trust Plan for their prior service with Farmers, not only for purposes
of determining eligibility and vesting, but also for determining accrued
benefits, provided that First Virginia, in its sole discretion,
determines that the Farmers' Pension Plan is adequately funded to
support the level of benefits for prior service under the merged plan.
(b) With respect to the Farmers National Bank of
Maryland Profit Sharing Plan (the "Farmers' Plan"), a contribution
shall be determined under that plan's terms and made to that plan for
each full calendar year before the Effective Date and the portion of the
calendar year in which the Merger occurs that precedes the Effective
Date of the Merger. With the mutual agreement of Bancorp and First
Virginia, the Farmers' Plan will either be terminated or merged into
First Virginia's Employees Thrift Plan (the "Thrift Plan"). With
respect to the Thrift Plan, for purposes of determining eligibility
and vesting under the Thrift Plan, employees of Bancorp and its
Subsidiaries will be credited with years of employment with Bancorp
and its Subsidiaries prior to the Effective Date of the Merger.
(c) With respect to First Virginia's Nonqualified Profit
Sharing Plan, all employees of Bancorp and its Subsidiaries as of the
Effective Date of the Merger shall be able to participate in that plan
and participate in the benefits for the plan year in which the merger
is completed (which participation in the year of Merger will be
pro-rated based on the period of time during that year that
employees of Bancorp and its Subsidiaries are covered by that plan).
(d) Any sick or vacation leave that has been accrued
by an employee of Bancorp and its Subsidiaries as of the Effective
Date shall not be disturbed, and the number of days of paid vacation
which an employee at Bancorp and its Subsidiaries has accrued as of
the Effective Date shall not be adversely affected by the Merger during
that year.
1.5 Participation Agreements. First Virginia will observe and
perform, or cause to be observed and performed the terms and
conditions of the Participation Agreements issued under the "Farmers
National Bank of Maryland Executive Benefits Plan" (the "FNB Plan") to
John M. Suit, II, Louis A. Supanek, Frank T. Lowman, III and Ross J.
Selby as the FNB Plan is amended and in effect on the date of this
Agreement, provided, however, that the FNB Plan will be further
amended on or prior to the Effective Date, by written instrument
reasonably satisfactory in form and content to the Parties, to provide
that (a) any benefits these officers receive from the First
Virginia Pension Trust Plan (in addition to the benefits they
receive from Social Security and from participation in the Farmers'
Pension Plan) will reduce on a dollar for dollar basis the benefits
they receive from their Participation Agreements at retirement, (b)
their benefits will become fully vested under the FNB Plan (i) if
there is a change of control of First Virginia (as hereinafter
defined) or (ii) upon discharge as to each of them who is discharged
other than for cause (as hereinafter defined) on or after the Effective
Date, and (c) after the Effective Date, no amendment to or
termination of the FNB Plan may be made without the written consent of
each holder of a Participation Agreement whose rights would be affected
in any respect by the amendment or termination. First Virginia will
observe and perform, or cause to be observed and performed, the terms
and conditions of the Participation Agreements with Charles L.
Schelberg and Glenwood L. Gish, as amended and in effect on the date of
this Agreement and, subsequent to the Effective Date, will
continue paying retirement benefits to those persons pursuant to
those Agreements. First Virginia also will observe and perform, or
cause to be observed and performed the terms and conditions of the
Participation Agreement dated July 1, 1986, as amended by a Release
dated June 19, 1989, with Thomas G. Moore. First Virginia will
guarantee the payment of all benefits due and payable after the
Effective Date under the Participation Agreements with Messrs. Suit,
Supanek, Lowman, Selby, Schelberg, Gish and Moore pursuant to the terms
of an irrevocable and unconditional written guaranty of payment,
reasonably satisfactory in form and content to Bancorp, to be executed
and delivered by First Virginia on the Closing Date. The First Virginia
Trust Agreement covering the Nonqualified Deferred Compensation
Programs with Chemical Bank (rabbi trust) shall be amended on or prior
to the Effective Date, by written instrument reasonably satisfactory in
form and content to Bancorp, to provide that the
liabilities under the FNB Plan and the Participation Agreements shall be
funded out of the assets of that trust and all insurance policies owned
by Farmers National Bank of Maryland or Bancorp and insuring the life of
any participants in the FNB Plan shall be transferred, assigned and
contributed to that trust for the purpose of funding the FNB Plan and
the Participation Agreements. As used in this Paragraph 1.5, (x) a
change in control of First Virginia shall occur when (i) any person,
together with all other persons controlling, controlled by, or under
common control with that person, acquires the right to vote or control
the voting of 20% of the shares of stock having the power to vote for
the election of directors of First Virginia, (ii) First Virginia
consolidates with or mergers into any person and shall not be the
continuing or surviving corporation of such consolidation or merger,
(iii) First Virginia permits any person, other than Bancorp, to
merge into or consolidate with First Virginia and First Virginia
shall be the continuing or surviving corporation but, in connection
with such merger or consolidation, the then outstanding shares of
First Virginia Common Stock shall be changed into or exchanged for
stock or other securities of First Virginia or any other person or
cash or any other property or the outstanding shares of First Virginia
Common Stock immediately prior to such merger or consolidation shall
after such merger or consolidation represent less than 50% of the
outstanding shares and share equivalents of the merged or
consolidated entity, or (iv) First Virginia sells or otherwise
transfers all or substantially all of its assets to any person; and (y)
an employee is discharged other than for cause if (i) his discharge
was for other than (A) fraud or gross misconduct, (B) continuous and
substantial violation of a rule, regulation or policy of First
Virginia after written notice from First Virginia, (C) gross
negligence, or (D) continuous and substantial failure of the employee to
perform his duties after written notice from First Virginia or (ii) the
employee resigns from his employment because (A) he is demoted in
position, authority or status from his position with Farmers National
Bank of Maryland on the date of this Agreement, (B) his duties and
responsibilities change significantly from those at the date of this
Agreement, (C) the location of his place of employment is changed
from Annapolis, Maryland or the Washington/Baltimore metropolitan
area or (D) his duties are changed to require a significantly
greater amount of travel than the travel required in the performance of
his duties prior to the date of this Agreement or (iii) his salary is
reduced below his salary in effect on the date of this Agreement.
1.6 Employment Agreement. On the Effective Date First Virginia
will enter into an employment agreement between First Virginia and John
M. Suit, II, under which Mr. Suit will agree to be employed by
Farmers National Bank of Maryland ("Farmers") as President and Chief
Executive Officer for three years following the Effective Date of the
Merger.
1.7 Board Member. Following the Effective Date of the Merger,
First Virginia will amend its Bylaws to add an additional director
to its Board of Directors and the Nominating Committee of the
First Virginia Board of Directors will recommend for nomination
and election to the Board a Bancorp director designated by Bancorp.
1.8 Employment of First Virginia Officer. Following the
Effective Date, Farmers will employ an officer to be designated by
First Virginia to work as a member of Farmers' senior management to
assist in the development of Farmers' consumer loan activities and
assist in the implementation of First Virginia policies, procedures,
marketing programs, etc.
1.9 Bank Conversions. On or before the Effective Date of the
Merger and subject to approval of the appropriate regulatory
authorities, Bancorp will convert Farmers and Atlantic National Bank
("Atlantic") from national banks to state chartered, Federal
Reserve member banks pursuant to Maryland law and the regulations of
the Comptroller of the Currency and the Federal Reserve Board.
Bancorp shall file the Plans of Conversion and the proposed Articles
of Incorporation with the Maryland Bank Commissioner. The new Articles
of Incorporation of Farmers shall include the new name "Farmers Bank of
Maryland" or "The Farmers Bank of Maryland", subject to regulatory
approval. On or before the Effective Date of the Merger, Bancorp
agrees to make Caroline County Bank ("Caroline") a Federal Reserve
member bank. Farmers, Atlantic and Caroline are sometimes referred to
in this Agreement collectively as the "Banks" and individually as a
"Bank."
1.10 Continued Existence of Farmers. First Virginia will
maintain Farmers as a wholly owned subsidiary bank named "The Farmers
Bank of Maryland" or "Farmers Bank of Maryland" until at least
December 31, 1998.
1.11 Directors of Banks. During the 24 month period after
the Effective Date, First Virginia will take all requisite action
to elect as members of the boards of directors of each of the Banks
those persons serving as directors of each of the Banks immediately
prior to the Effective Date except for those persons (1) who vote
against the Merger at Bancorp's Special Meeting of Stockholders called
to consider the Merger or (2) who are seventy-two years old as of the
Effective Date. From and after the Effective Date, First Virginia
will not permit Farmers to adopt a mandatory retirement age of less
than 75 years for continued service on Farmers' Board of Directors by
the person serving as Chairman of the Board immediately prior to the
Effective Date.
1.12 Director Compensation. During the 24 month period after
the Effective Date, First Virginia will cause the members of the
boards of directors of each of the Banks to be paid compensation for
their service as directors in amounts (i) in the case of Atlantic and
Caroline, total compensation to each director for each calendar year
not less than $5,000, and (ii) in the case of Farmers, compensation
to each director for each calendar year not less than a $5,000 annual
retainer plus $200 for each board of directors meeting (to be held
monthly) and committee meeting attended.
1.13 Treatment of Employees. After the Effective Date, First
Virginia will, and will cause each of the Banks and its other
subsidiaries to, use its best efforts to minimize terminations of
the employees of Bancorp and its Subsidiaries and provide for their
continued employment with First Virginia's organization, and give
priority to displaced employees of Bancorp and its Subsidiaries equal
to that given to employees of First Virginia and its present
subsidiaries in filling positions within First Virginia and its
subsidiaries for a period of 60 days after notification of job
elimination, or until termination of employment, whichever is later,
so long as: (i) performance requirements are met, (ii) the job
elimination is related to the Merger, and (iii) the job elimination
notification is given or the job elimination occurs within one year
after the Effective Date. In the case of any employee of Bancorp or its
Subsidiaries who has been employed by Bancorp or any of its
Subsidiaries for a period of ten years or more as of the Effective Date
and who is discharged without cause within one year after the
Effective Date, First Virginia will pay to each such employee severance
pay in an amount equal to four weeks pay at the rate of compensation
in effect for such employee on the date of discharge.
Notwithstanding anything contained herein to the contrary, the
Parties hereto do not intend that any third party shall have, nor
shall any third party be deemed to have, any right to enforce the
provisions of this Paragraph 1.13 or assert any claim in connection
with this Paragraph 1.13.
1.14 Certain Definitions. As used in this Agreement, the
following terms shall have the meanings set forth below:
(a) "material" means material to Bancorp or First Virginia (as
the case may be) and its respective subsidiaries, taken as a whole,
and determined in light of the facts and circumstances of the matter in
question; provided, that any specific monetary amount stated in this
Agreement with respect to materiality shall determine materiality in
that instance.
(b) "Material Adverse Effect," with respect to a person, means
an event, change or occurrence which, individually or in the aggregate,
(i) is reasonably likely to result in a reduction in the consolidated
stockholders' equity of such person and its subsidiaries, taken as a
whole, by the amount equal to or greater than five percent (5%)
of the consolidated stockholders' equity of such person and its
subsidiaries, taken as a whole, as reflected in the consolidated
balance sheet of such person as of June 30, 1994, or (ii) which has a
material adverse impact on the ability of such person to consummate the
Merger contemplated by this Agreement, provided that in determining
whether a Material Adverse Effect has occurred under either (i) or
(ii), the adverse impact of changes in laws or regulations or
accounting rules of general applicability or interpretations thereof
shall not be included and any decreases in capital under Financial
Accounting Standards No. 115 attributable to general increases in
interest rates or other effects attributable to interest rate
fluctuations also will not be included.
(c) "person" includes an individual, corporation, partnership,
limited liability company, association, trust or unincorporated
organization.
(d) "to the knowledge of" or "to the best of the knowledge of"
Bancorp or First Virginia or similar phrases includes the knowledge
of the current directors and the current executive officers
(including the knowledge of the chief executive officer and chief
financial officer after internal inquiry) of Bancorp or First Virginia,
as the case may be.
ARTICLE II.
EVENTS PRECEDING EFFECTIVENESS.
2. Events. On or before the Effective Date the following shall
have occurred:
(a) a majority of the entire Boards of Directors of
First Virginia and Bancorp shall have approved this Agreement;
(b) the Boards of Directors of Farmers and Atlantic each
shall have approved a Plan of Conversion and a new charter for each of
Farmers and Atlantic to become a state chartered, Federal Reserve Member
Bank;
(c) the Comptroller of the Currency, the Board of
Governors of the Federal Reserve System and the Maryland Bank
Commissioner shall have approved the conversion of Farmers and
Atlantic from national banks into state chartered, Federal Reserve
member banks and the Board of Governors of the Federal Reserve System
shall have approved the membership application of Caroline;
(d) the Federal Reserve shall have approved the merger of
Bancorp into First Virginia pursuant to the Bank Holding Company Act
and the acquisition of all of Bancorp's Subsidiaries;
(e) the Maryland Bank Commissioner shall have approved the
merger of Bancorp into First Virginia and the acquisition by First
Virginia of Bancorp's Subsidiaries.
(f) the Bureau of Financial Institutions of the Virginia
State Corporation Commission shall have approved the Merger pursuant to
the provisions of Section 6.1-406 of the Code of Virginia;
(g) a registration statement on Form S-4 containing the
proxy statement for Bancorp shall have been filed with the Securities
and Exchange Commission (the "SEC") pertaining to the shares of First
Virginia Common Stock to be issued in connection with this Agreement
and the Plan of Merger (the "Registration Statement"), the
Registration Statement shall have become effective, and no stop
order shall have been entered with regard to such Registration
Statement;
(h) this Agreement and the Plan of Merger shall have
been submitted to the stockholders of Bancorp and approved by an
affirmative vote of the holders of at least two-thirds of all the
outstanding shares of Bancorp entitled to vote; and
(i) Articles of Merger containing the provisions required
by, and executed in accordance with, the Maryland General
Corporation Law and the Virginia Stock Corporation Act (the
"Articles of Merger"), shall have been filed with the Maryland State
Department of Assessments and Taxation and the Virginia State
Corporation Commission.
ARTICLE III.
REPRESENTATIONS AND WARRANTIES.
3.1 Representations and Warranties of Bancorp. Bancorp
represents and warrants to First Virginia the following:
(a) Organization and Authority. Bancorp is a corporation
duly incorporated, validly existing and in good standing under the laws
of the State of Maryland. Each of Bancorp's Subsidiaries is duly
incorporated, validly existing and in good standing under the laws of
the jurisdiction in which it is incorporated. Each has all requisite
power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Bancorp and its
Subsidiaries have delivered to First Virginia complete and correct
copies of (1) their charters and all amendments thereto to the date
hereof and (2) their Bylaws as amended to the date hereof.
(b) Capital Structure.
(1) As of the date of this Agreement, the
authorized capital stock of Bancorp consists of 10,000,000 shares of
Common Stock, $1.00 par value per share. As of the date hereof,
2,699,056 shares of Bancorp Common Stock were outstanding, all of
which were validly issued, fully paid and nonassessable. Bancorp has
authorized Preferred Stock but there are no shares of Preferred Stock
outstanding. No options to purchase Bancorp Common Stock have been
issued.
(2) Bancorp has no commitments to issue or sell any
such shares or any securities or obligations convertible into or
exchangeable for such shares, or given any person the right to
subscribe for or acquire any such shares and no securities or
obligations representing such rights are outstanding.
(c) Corporate Authority. The execution of this Agreement
and the Plan of Merger and the consummation of the transactions
contemplated hereby and thereby have been duly authorized by the Board
of Directors of Bancorp. This Agreement and the Plan of Merger are
valid and binding obligations of Bancorp and no further corporate
authorization on the part of Bancorp is necessary to consummate the
transactions contemplated hereby or thereby except the approval of the
stockholders of Bancorp pursuant to applicable law. Except as
otherwise disclosed in writing to First Virginia, neither the
execution and delivery of this Agreement and the Plan of Merger nor the
consummation in accordance with the terms of the transactions
contemplated hereby and thereby nor compliance by Bancorp or any of its
Subsidiaries with any provision hereof or thereof will (i) conflict
with or result in a breach of any provision of their charters or bylaws
or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of
any material note, bond, mortgage, indenture, license, agreement or
other instrument or obligation to which Bancorp or any of its
Subsidiaries is a party or by which Bancorp and its Subsidiaries or
any of their properties or assets may be bound in any instance in
which such right of termination, cancellation or acceleration if
exercised would have a Material Adverse Effect, or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation applicable
to Bancorp or its Subsidiaries or any of their properties or assets
in any instance in which such violation would have a Material Adverse
Effect. Except for consents the lack of which would not have a
Material Adverse Effect, and except as otherwise disclosed in writing
to First Virginia, no consent is required in connection with the
execution and delivery by Bancorp of this Agreement or the Plan of
Merger except for the consents, approvals, and satisfaction of
conditions hereinafter set forth and consummation by Bancorp and its
Subsidiaries of the transactions contemplated hereby.
(d) Subsidiaries. Bancorp owns all the issued and
outstanding shares of Farmers, Atlantic and Caroline as well as
Farmers National Land Corporation and Farmers National Mortgage
Corporation. Farmers owns all of the issued and outstanding shares of
Colonial Securities Corporation. Bancorp has and will have on the
Effective Date no other subsidiaries.
(e) Financial Statements. Bancorp has delivered to First
Virginia its 1993 Annual Report to Stockholders and Form 10-K and
Bancorp has also delivered its Quarterly Report on Form 10-Q for the
period ended March 31, 1994 which includes (1) Unaudited
Consolidated Balance Sheet as of March 31, 1994 and Audited
Consolidated Balance Sheet as of December 31, 1993; (2) Unaudited
Consolidated Statements of Changes in Stockholders' Equity for the
three months ended March 31, 1994 and 1993; (3) Unaudited
Consolidated Statement of Income for the three months ended March
31, 1994 and 1993 and (4) the Unaudited Consolidated Statements of
Cash Flow for the three months ended March 31, 1994 and 1993 together
with the Notes to those Consolidated Statements (the "Financial
Statements"). Subject to required yearend adjustments and the absence
of certain footnote information in the unaudited statements, the
Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis
throughout the periods indicated or as more particularly set forth
therein. The Unaudited Consolidated Balance Sheets included as a part
of the Financial Statements present fairly as of March 31, 1994 the
consolidated financial position and assets and liabilities of Bancorp.
The Unaudited Consolidated Statements of Income present fairly the
consolidated results of operations of Bancorp for the periods indicated.
(f) Absence of Undisclosed Liabilities. Except to the
extent reflected or reserved against in the Financial Statements or as
disclosed in writing to First Virginia, neither Bancorp nor any of its
Subsidiaries as of the date of this Agreement has any liabilities or
obligations of any nature (other than contingent liabilities that have
been disclosed in writing to First Virginia) that would have a
Material Adverse Affect or any liabilities in the nature of employment
contracts with, or agreements to pay bonuses to any of its
directors, officers or employees, other than liabilities or
obligations incurred in the ordinary course of business, none of
which liabilities or obligations would have, individually or in the
aggregate, a Material Adverse Effect on Bancorp and its Subsidiaries.
(g) No Material Adverse Changes. Since March 31, 1994,
there has been no material adverse change in the assets or
liabilities or in the business or condition (financial or otherwise)
of Bancorp or its Subsidiaries that would have, individually or in the
aggregate, a Material Adverse Effect on Bancorp and its Subsidiaries,
which has not been previously disclosed to First Virginia.
(h) Tax Matters. Bancorp and its Subsidiaries have
filed all tax returns required to be filed for each of the five years
ended December 31, 1992 (and an extension request for filing income tax
returns for the year ended December 31, 1993 has been timely filed by
Bancorp), and have paid or set up an adequate reserve for the
payment of all taxes required to be paid in respect of the periods
covered by such returns and have set up an adequate reserve for the
payment of all income, property, sales, employment, franchise or
other taxes anticipated to be payable in respect of the period
subsequent to the last of said periods and for the payment of all other
taxes, except where the failure to do so would not have a Material
Adverse Effect. Bancorp and its Subsidiaries will not have any
material liability for any such taxes in excess of the amounts so
paid or the reserve so established and Bancorp and its Subsidiaries are
not delinquent in the payment of any material tax assessment or
governmental charge. No material deficiencies for any tax assessment
or governmental charge have been proposed, asserted or assessed
against Bancorp and its Subsidiaries which would not be covered by
existing reserves and, as of the date of this Agreement, no requests
for waivers for the time to assess any such taxes are pending. All of
the Bancorp's Subsidiaries have timely filed all information returns for
customers required to be filed by the IRS and to the best of its
knowledge, has complied with all IRS requirements regarding the
certification of taxpayer identification numbers of customers and backup
withholding, except where failure to do so would not have, individually
or in the aggregate, a Material Adverse Effect on Bancorp and
its Subsidiaries.
(i) Property.
(1) Bancorp and its Subsidiaries own all
operating real properties reflected as owned by them in the Financial
Statements free and clear of all mortgages, liens, pledges, charges
or encumbrances of any nature whatsoever (collectively,
"Encumbrances") that are material to the financial condition, results
of operations or business of Bancorp and its Subsidiaries taken as a
whole, except (i) liens for current taxes not yet due and payable,
(ii) mortgages, deeds of trust or other Encumbrances reflected in the
Financial Statements, (iii) such imperfections of title, easements
and other Encumbrances as do not materially detract from or interfere
with the present use of such operating real properties subject
thereto or affected thereby, (iv) Encumbrances incurred in the
ordinary course of business after the date of this Agreement with the
written consent of First Virginia which shall not be unreasonably
withheld, and (v) Encumbrances disclosed in writing to First Virginia.
(2) As of the date of this Agreement, substantially
all tangible real or personal property and assets material to the
business operation or financial condition of Bancorp and its
Subsidiaries on a consolidated basis which are owned by them or in
which any of them has an interest (other than a security interest) are
in substantially good operating condition and repair, ordinary wear and
tear excepted.
(3) All leases material to Bancorp and its
Subsidiaries on a consolidated basis pursuant to which Bancorp and
its Subsidiaries lease real property are valid and effective in
accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium and similar laws, and there is
not, under any such leases, any material existing default by Bancorp
and its Subsidiaries or any event which with notice or lapse of time or
both would constitute such a material default.
(j) Litigation. Other than as has been set forth to
First Virginia in writing, neither Bancorp nor any of its Subsidiaries
is a party to any pending or, to the best of Bancorp's knowledge and
belief, threatened claim, action, suit, investigation or proceeding,
nor is subject to any order, judgment or decree except for matters
which in the aggregate will not have and cannot reasonably be expected
to have a Material Adverse Effect on Bancorp and its Subsidiaries.
Except as previously disclosed in writing to First Virginia, neither
Bancorp nor any of its Subsidiaries is subject to any agreement,
memorandum or understanding or similar arrangement with any
regulatory authority restricting its operations or requiring that
certain actions be taken, and, neither Bancorp nor any of its
Subsidiaries has received any notification from any governmental or
regulatory authority, or the staff thereof, asserting that it is not
in compliance with any statutes, regulations or ordinances which such
authority enforces, noncompliance with which could reasonably be
expected to have, individually or in the aggregate, a Material Adverse
Effect on Bancorp and its Subsidiaries. For the purposes of this
paragraph, a threatened claim shall mean any claim which has been
actually and overtly asserted against Bancorp or its Subsidiaries in a
written communication delivered to an officer of Bancorp.
(k) Contracts and Commitments. Except as reflected
in the Financial Statements or as previously disclosed in writing to
First Virginia, neither Bancorp nor its Subsidiaries has as of the
date hereof and, except to the extent consented to in writing by
First Virginia, will not have on the Effective Date:
(1) any bonus, stock option plans, deferred
compensation plans, profit-sharing, retirement arrangements or other
fringe benefit plans (other than those terminable at will by Bancorp or
a Subsidiary) nor any outstanding calls, commitments or agreements of
any character requiring the issuance of shares of its capital stock;
(2) any debt obligations for borrowed money
(including guaranties or agreements to acquire such debt obligations
of others) except for debt obligations incurred or acquired in the
ordinary course of its banking business;
(3) any outstanding loans for any person other than
those made in the ordinary course of Bancorp's banking business;
(4) any outstanding loan participations with any
of its directors, officers, stockholders or employees;
(5) any agreement for services or for the purchase
or disposition of any equipment or supplies except those incurred in
the ordinary course of business;
(6) any lease of personal property with annual
rentals aggregating $50,000 or more;
(7) any agreement or contract with any third party
for the provision of data processing or other services to Bancorp or
its Subsidiaries which involves payment by Bancorp or its Subsidiaries
of more than $5,000 per month and which (i) has more than six months to
run from the date of this Agreement or (ii) may not be canceled by
Bancorp or its Subsidiaries as appropriate on 180 days notice or less
without penalty.
(8) any outstanding loans to its officers,
directors, significant stockholders (collectively "insiders"), or to
firms, partnerships or corporations in which any insiders are partners,
executive officers, directors or significant stockholders or to any
entity which would be a "related interest" of an insider as defined
in 12 C.F.R. Section 215.2(1) made at rates of interest more
favorable or involving greater risks of collectibility than similar
loans made to outsiders.
(l) Accuracy of Information Supplied. As of their
respective filing dates, Bancorp's Annual Reports on Form 10-K for the
fiscal years ended December 31, 1993 and 1992 and proxy statement
for 1994, and any other filings made from and after the date hereof
with the SEC pursuant to the Securities Exchange Act of 1934, as
amended (the "Exchange Act") (such filings being collectively
referred to herein as the "Bancorp Filings") complied in all
material respects with the regulations of the SEC, and none of the
Bancorp Filings, as of the respective dates thereof, contained any
untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the
statements made therein not misleading. The information which has been
or will be supplied by Bancorp to First Virginia for inclusion in the
Registration Statement or any amendment thereto pertaining to the
transactions contemplated hereby (the "Registration Statement") filed
with the Securities and Exchange Commission ("the "SEC") or the
Prospectus contained therein (the "Prospectus"), at the time the
Registration Statement becomes effective will not contain any untrue
statement of a material fact or omit to state any material fact
required to be stated therein in order to make the statements not
misleading, provided that information as of a later date shall be deemed
to modify information of an earlier date.
(m) Bancorp and its Subsidiaries' Employee Benefit Plans.
Bancorp and its Subsidiaries have delivered to First Virginia or
its counsel and filed with the appropriate governmental
authority, as to each employee benefit plan subject to the Employee
Retirement Income Security Act of 1974 ("ERISA"), a true and correct
copy of (i) the most recent annual report (Form 5500, 5500-C or 5500-R,
as appropriate) filed with the Internal Revenue Service ("IRS"), (ii)
each IRS favorable determination letter or opinion letter for each such
Plan, as applicable, (iii) such Plan documents, (iv) each such Plan,
(v) each applicable Summary Plan Description, and (vi) the most recent
actuarial report or valuation relating to each tax-qualified Deferred
Compensation Plan that was delivered to Bancorp or one of its
Subsidiaries by the actuary or recordkeeper for such Plan.
(n) Defined Benefit and Deferred Contribution Plans.
Farmers currently maintains a defined benefit plan which is the
Farmers' Pension Plan and a defined contribution plan which is the
Farmers' Plan (the "Plans" or individually, the "Plan"). Bancorp and
its Subsidiaries have no other defined benefit or defined contribution
plan. Bancorp represents with respect to each Plan that: (i) to the
best knowledge of Bancorp based on due inquiry, it substantially
complies in all material respects with all applicable provisions of
ERISA the breach or violation of which would have a Material Adverse
Effect; (ii) all material reporting and disclosure requirements of
ERISA imposed upon the Plan have been substantially complied with,
(iii) to the best knowledge of Bancorp based on due inquiry, the
Plan has not engaged in any material transaction prohibited by
Title I of ERISA or Section 4975 of the Internal Revenue Code of 1986
as amended (the "Code") for which an exemption is not applicable; (iv)
the minimum funding standards in Section 302 of ERISA and Section 412
of the Code, do not apply with respect to the Farmers' Plan; (v) no
material contributions to the Plan from Bancorp are currently past due;
(vi) the Plan is not subject to any partial plan terminations that
would have a Material Adverse Effect; (vii) the Plan does not have any
material property (other than shares of Bancorp Common Stock) which
does not have a readily ascertainable value; (viii) the Plan does not
own any employer security or real property as defined in ERISA Section
407 (other than shares of Bancorp Common Stock); (ix) to the best
knowledge of Bancorp based on due inquiry, no proceedings,
investigation, filing, or other matters are pending before the IRS,
the Department of Labor, the Pension Benefit Guaranty Corporation,
or other public or quasi-public body in connection with the Plan except
for such matters as may have been instituted by Bancorp by virtue of
the Merger contemplated by this Agreement or which if adversely
determined or resolved would not have a Material Adverse Effect on
Bancorp and its Subsidiaries; and (x) to the best knowledge of
Bancorp based on due inquiry, the Plan is qualified in all material
respects under Section 401(a) and other applicable provisions of the
Code including, in the case of the Farmers Plan, Section 401(K).
(o) Environmental Matters. For purposes of this
subsection, the following term shall have the indicated meaning:
"Environmental Law" means any federal, state or
local law, statute, ordinance, rule, regulation, code,
license, permit, authorization, approval, consent, order,
judgment, decree, injunction or agreement with any
governmental entity relating to (i) the protection,
preservation or restoration of the environment
(including, without limitation, air, water vapor, surface
water, groundwater, drinking water supply, surface
soil, subsurface soil, plant and animal life or any other
natural resource), and/or (ii) the use, storage,
recycling, treatment, generation, transportation,
processing, handling, labeling, production, release or
disposal of Hazardous Substances. The term "Environmental
Law" includes without limitation (i) the Comprehensive
Environmental Response, Compensation and Liability Act,
as amended, 42 U.S.C. Section 9601, et seq; the Resource
Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901, et seq; the Clean Air Act, as amended, 42 U.S.C.
Section 7401, et seq; the Federal Water Pollution Control
act, as amended, 33 U.S.C. Section 1251, et seq; the Toxic
Substances Control Act, as amended, 15 U.S.C. Section
9601, et seq; the Emergency Planning and Community Right
to Know Act, 42 U.S.C. Section 11001, et seq; the Safe
Drinking Water Act, 42 U.S.C. Section 300f, et seq; and all
comparable state and local laws, and (ii) any common law
(including without limitation common law that may impose
strict liability) that may impose liability or obligations
for injuries or damages due to, or threatened as a result
of, the presence of or exposure to any Hazardous Substance.
Except as otherwise disclosed in writing to First Virginia, to the
best knowledge of Bancorp after internal inquiry, neither Bancorp,
any of its Subsidiaries, nor any properties owned or operated by
Bancorp or any of its Subsidiaries or in which such entity has a
security interest, has been or is in violation of or liable under any
Environmental Law, except for such violations or liabilities that are
not reasonably likely to have, individually or in the aggregate,
a Material Adverse Effect on Bancorp and its Subsidiaries. To
the best knowledge of Bancorp after internal inquiry, there are no
actions, suits or proceedings, or demands, claims, notices or
investigations (including without limitation notices, demand
letters or requests for information from any environmental agency)
instituted, pending or threatened relating to the liability of any
properties owned or operated by Bancorp or any of its Subsidiaries or in
which such entity has a security interest under any Environmental Law,
except for liabilities or violations that would not reasonably be
expected to have, individually or in the aggregate, a Material
Adverse Effect.
(p) Loan Portfolio. Except as disclosed in writing to
First Virginia, each loan outstanding on the books of Farmers, Atlantic
or Caroline (hereinafter referred to as the "Banks" or individually as
the "Bank") is in all respects what it purports to be, was made in the
ordinary course of business, was not known to be uncollectible at the
time it was made, and was made substantially in accordance with the
respective Bank's standard loan policies as in effect at the time made.
The records of the Banks regarding all loans outstanding on its books
are accurate in all material respects. The reserves for possible loan
losses (subject to yearend adjustments) on the outstanding loans of the
Banks and the reserves for the real estate owned by the Banks as
reflected in the Financial Statements, have been established in
accordance with generally accepted accounting principles and with the
requirements of the FDIC, and in the best judgment of the management of
the Banks, are adequate to absorb all known and anticipated loan
losses in the loan portfolio of the Banks, and any losses associated
with other real estate owned or held by the Banks. Except for those
loans disclosed to First Virginia, no loan in excess of $100,000 has
been classified as of the date hereof by the Banks or regulatory
examiners as "Other Loans Specifically Mentioned", "Substandard",
"Doubtful" or "Loss". Except as has been disclosed to First
Virginia, each loan reflected as an asset on the Financial Statements
is the legal, valid and binding obligation of the obligor and any
guarantor, subject to bankruptcy, insolvency, reorganization,
moratorium and similar laws, and no defense, offset or
counterclaim has been asserted with respect to any such loan
which, if successful, would have a Material Adverse Effect on Bancorp
and its Subsidiaries.
(q) Compliance with Laws. Except as previously
disclosed in writing to First Virginia, neither Bancorp nor any of
its Subsidiaries (i) is in violation of any law, order or permit
applicable to its business, except for violations which are not
reasonably likely to have, individually or in the aggregate, a Material
Adverse Effect or (ii) has received any notification or communication
from any agency or federal, state or local government or any
regulatory authority or the staff thereof (a) asserting that either
Bancorp or its Subsidiaries is not in compliance with any law or order
which such governmental authority or regulatory authority enforces,
which noncompliance could reasonably be expected to have a Material
Adverse Effect; or (b) threatening to revoke any material permits, or
(c) requiring either Bancorp or its Subsidiaries (1) to enter into or
consent to the issuance of a cease and desist order, formal
agreement, directive, commitment or memorandum of understanding or (2)
to adopt any Board resolution or similar undertaking which restricts
materially the conduct of its business, or in any manner relates to
its capital adequacy, its management, or the payment of dividends.
(r) Insurance. Bancorp and its Subsidiaries are
presently insured, and since December 31, 1993 have been insured, for
reasonable amounts with financially sound and reputable insurance
companies, against such risks as companies engaged in a similar
business would, in accordance with good business practice, customarily
be insured. All of the insurance policies and bonds maintained by
Bancorp and its Subsidiaries are in full force and effect, Bancorp and
its Subsidiaries are not in material default thereunder, and all
material claims thereunder have been filed in due and timely fashion,
except where the failure to make any such claim or to have such
insurance or bond coverage would not have, individually or in the
aggregate, a Material Adverse Effect on Bancorp and its
Subsidiaries. Bancorp and its Subsidiaries have no knowledge of any
material inaccuracy in any application for such policies or binders,
any failure to pay premiums when due or any similar state of facts
that might form the basis for termination of any such insurance.
Bancorp and its Subsidiaries have no knowledge of any state of facts or
of the occurrence of any event that is reasonably likely to form the
basis for any claim against it not fully covered (except to he extent of
any applicable deductible) by the policies or binders referred to above
except claims that would not have a Material Adverse Effect.
(s) Applicable Takeover Laws. Bancorp has taken all
necessary action to exempt the transactions contemplated by this
Agreement from any applicable Maryland takeover law.
(t) Charter Provisions. Bancorp has taken all action so
that the entering into this Agreement and the consummation of the
Merger and the other transactions contemplated by this Agreement will
be exempt from any change of control or anti-takeover provisions of the
Charter, Bylaws, or other governing instruments of Bancorp or any of its
Subsidiaries and will not restrict or impair the ability of First
Virginia to vote, or otherwise to exercise the rights of a
stockholder with respect to, shares of any of Bancorp's Subsidiaries
that may be acquired or controlled by First Virginia.
3.2 Representations and Warranties of First Virginia. First
Virginia represents and warrants to Bancorp as follows:
(a) Organization, Standing and Power. First Virginia is
a corporation duly organized, validly existing and in good standing
under the laws of the Commonwealth of Virginia, has all requisite
corporate power and authority to own, lease and operate its properties
and to carry on its business as now being conducted, and is duly
registered as a bank holding company under the Bank Holding Company Act.
(b) Capital Structure. As of March 31, 1994, and as shown
by the 1994 First Quarter Report to Stockholders, the authorized
capital stock of First Virginia consisted of 60,000,000 shares of
Common Stock, par value $1.00 per share, of which approximately
32,424,000 shares were issued and outstanding as of such date and
3,000,000 shares of Preferred Stock, par value $10.00 per share, of
which 79,618 shares were issued and outstanding at such date. As
of March 31, 1994, 1,125,727 shares of Common Stock were reserved:
115,237 for the conversion of Preferred Stock and 622,513 for stock
options and stock appreciation rights and 387,977 for bank
acquisitions. As of the date hereof and as of the Effective Date, all
outstanding shares of capital stock of First Virginia have been validly
issued and are fully paid and nonassessable.
(c) Authority. The execution and delivery of this
Agreement and the Plan of Merger and the consummation of the
transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of First Virginia, no
approval of the stockholders of First Virginia is required to
consummate the transaction herein and therein, and this Agreement
and the Plan of Merger are valid and binding obligations of First
Virginia. Neither the execution and delivery of this Agreement and the
Plan nor the consummation of the transactions contemplated hereby or
thereby, nor compliance by First Virginia with any of the provisions
hereof or thereof will (i) conflict with or result in a breach of any
provision of First Virginia's Articles of Incorporation or Bylaws, or
a default or give rise to any right of termination, cancellation or
acceleration under any of the terms, conditions or provisions of any
material note, bond, mortgage, indenture, license, agreement or other
instrument, or violation to which First Virginia is a party or by which
it or any of its properties or assets may be bound in any instance in
which such right of termination, cancellation or acceleration if
exercised would have a Material Adverse Effect, or (ii) violate any
order, writ, injunction, decree, statute, rule or regulation
applicable to First Virginia or any of its properties or assets in any
instance in which such violation would have a Material Adverse
Effect. Except for consents the lack of which would not have a
Material Adverse Effect, no consent or approval by any governmental
authority is required for the execution and delivery by First
Virginia of this Agreement and the Plan of Merger except for the
approval of all the applicable regulatory agencies and meeting of
conditions hereinafter set forth, the consummation by First Virginia
of the transactions contemplated hereby and thereby.
(d) Financial Statements. The consolidated financial
statements of First Virginia contained in First Virginia's 1994
First Quarter Report to Stockholders and heretofore delivered by it
to Bancorp have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the
periods indicated, all as more particularly set forth in the notes to
such financial statements. Each of the balance sheets contained in such
statements presents fairly as of its date the consolidated financial
condition and assets and liabilities of First Virginia. The income
statements, statements of stockholders' equity and statements of
changes in financial position contained in such statements present
fairly the consolidated results of operations of First Virginia for
the periods indicated.
(e) No Material Adverse Change. Since the date of the
financial statements described in Section 3.2(d) above, there has been
no material adverse change in the assets or liabilities or in the
business or condition (financial or otherwise), results of
operations or prospects of First Virginia that would have,
individually or in the aggregate, a Material Adverse Effect on First
Virginia and its Subsidiaries.
(f) Accuracy of Information Supplied. As of their
respective filing dates, First Virginia's Annual Reports on Form 10-K
for the fiscal years ended December 31, 1992 and 1993 and proxy
statement dated March 8, 1994, and any other filings made from and
after the date hereof with the SEC pursuant to the Exchange Act
(such filings being collectively referred to herein as the "First
Virginia Filings") complied in all material respects with the
regulations of the SEC, and none of the First Virginia Filings, as of
the respective dates thereof, contained any untrue statement of a
material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein not misleading.
The information which has been or will be supplied by First Virginia for
inclusion in the proxy statement to be distributed to the
stockholders of Bancorp (the "Proxy Statement") in respect of the
Merger or any amendment or supplement thereto will not contain any
untrue statement of a material fact nor omit to state any material
fact required to be stated therein or necessary in order to make the
statements made therein not misleading; provided, that information of a
later date shall be deemed to modify information of an earlier date.
(g) First Virginia Common Stock to be Issued. Each share
of First Virginia Common Stock issued in connection with the
consummation of the Merger to stockholders of Bancorp will be validly
issued, fully paid and nonassessable.
(h) Litigation. Except as reflected in the First
Virginia Filings, there are no actions, proceedings or investigations
pending or, to the best of First Virginia's knowledge and belief,
threatened against First Virginia or any First Virginia subsidiary
which, if adversely determined, would have a Material Adverse Effect
on the financial conditions or operations of First Virginia and its
subsidiaries. Neither First Virginia nor any of its bank subsidiaries
is subject to any agreement, memorandum of understanding or similar
arrangement with any regulatory authority restricting its
operations or requiring that certain actions be taken, and, neither
First Virginia nor any of its bank subsidiaries has received any
notification from any governmental or regulatory authority, or the staff
thereof, asserting that it is not in compliance with any
statutes, regulations or ordinances which such authority enforces,
noncompliance with which could reasonably be expected to have,
individually or in the aggregate, a Material Adverse Effect on First
Virginia and its Subsidiaries.
(i) Tax Representations. First Virginia has no present
plan or intention to sell or dispose any of the assets of Bancorp or
its Subsidiaries after the Effective Date of the Merger, except for (i)
sales, transfers or other distributions made in the ordinary course of
business and (ii) transfers described in Section 368(a)(2)(C) of the
Internal Revenue Code of 1986, as amended (the "Code"); First
Virginia has no present plan or intention to reacquire any of the
shares of First Virginia Common Stock it will issue to stockholders of
Bancorp pursuant to the Merger; and following the Effective Date
First Virginia will continue the historic businesses of Bancorp
and its Subsidiaries as presently conducted.
ARTICLE IV.
CONDUCT OF BUSINESS PRIOR TO THE EFFECTIVE DATE.
4.1 Conduct of the Business of Bancorp and its
Subsidiaries' Prior to the Effective Date. During the period from
the date of this Agreement to the Effective Date, Bancorp and its
Subsidiaries shall conduct their operations according to the ordinary
and usual course of business consistent with current practices and use
their best efforts to maintain and preserve their business
organizations, employees and advantageous business relationships and
retain the services of their executive officers. Following the date of
this Agreement, Bancorp and First Virginia will coordinate the record
and payment dates for each regular quarterly dividend of Bancorp and
First Virginia so that the stockholders of Bancorp will be entitled to
receive either a Bancorp or First Virginia regular dividend for each
fiscal quarter commencing prior to the Effective Date.
4.2 Forbearances.
(a) During the period from the date of this Agreement to
the Effective Date, neither Bancorp nor its Subsidiaries shall without
the prior written consent of First Virginia:
(i) make any changes to their Charters or Bylaws;
(ii) adjust, split, combine or reclassify its
Common Stock; make, declare or pay any dividend (except that Bancorp
may declare or pay its normal dividend at a quarterly rate of $.30 per
share on its regular quarterly payment dates in accordance with
Paragraph 4.1) or make any other distribution on, or directly or
indirectly redeem, purchase or otherwise acquire, any shares of
their capital stock or any securities or obligations convertible into
or exchangeable for any shares of their capital stock, or grant any
stock options or stock appreciation rights or give any person any
right or warrant to acquire any shares of their capital stock;
(iii) enter any contract or commitment or incur or
agree to incur any liability or make any capital expenditures except in
the normal course of business;
(iv) except as provided in Paragraph 1.5, increase
in any manner the compensation or fringe benefits of any of their
directors, officers, agents or employees or pay any pension or
retirement allowance not required by any existing plan or agreement to
any such directors, officers, agents or employees or become a party to,
amend or commit itself to any pension, retirement, profit sharing,
welfare benefit plan or agreement or employment agreement with or for
the benefit of any employee or officer or other person other than
payments consistent with past practices and current incentive
compensation plans, increases which are not material and other increases
consented to by First Virginia in writing;
(v) sell, assign, lease or otherwise transfer
or dispose of any property or equipment except in the normal course of
business; or
(vi) merge or consolidate or agree to merge or
consolidate with or into any other corporation.
4.3 No Solicitation. Unless and until this Agreement shall
have been terminated pursuant to its terms, from and after the date
hereof neither Bancorp nor its Subsidiaries nor any of their executive
officers, directors, or agents shall, directly or indirectly,
encourage, solicit or initiate discussions or negotiations with any
person (other than First Virginia) concerning any merger, sale of
substantial assets, tender offer, sale of shares of stock or similar
transaction involving Bancorp or its Subsidiaries (an "Acquisition
Proposal") or disclose, directly or indirectly, to any person in
connection with an Acquisition Proposal any information not
customarily disclosed to the public concerning Bancorp or its
Subsidiaries, afford to any other person access to the
properties, books or records of Bancorp or its Subsidiaries in
connection with an Acquisition Proposal or otherwise assist any person
preparing to make or who has made such an Acquisition Proposal, or enter
into any agreement with any third party providing for a business
combination transaction, equity investment or sale of significant
amount of assets, except in a situation in which a majority of the
full Board of Directors of Bancorp has determined in good faith,
upon advice of counsel, that such Board has a fiduciary duty to
consider and respond to a bona fide Acquisition Proposal by a third
party (which Acquisition Proposal was not directly or indirectly
solicited by Bancorp or its Subsidiaries or any of their respective
officers, directors, representatives, agents or affiliates after the
date of this Agreement) and provides written notice of its
intention to consider such Acquisition Proposal and the material terms
thereof to First Virginia at least five days before responding to
the Acquisition Proposal provided, however, that if such Acquisition
Proposal by its terms requires a response in a shorter period, Bancorp
shall provide such notice within one business day after it receives
the Acquisition Proposal and may thereafter respond in an appropriate
fashion. Bancorp and its Subsidiaries will promptly communicate to
First Virginia the identity of the offeror and the terms of any
Acquisition Proposal which it may receive in respect to any of the
foregoing transactions.
4.4 Compliance with Tax-Free Provisions. Neither Bancorp nor
First Virginia shall take any action prior to or after the Effective
Date of the Merger which would disqualify the Merger as a tax free
reorganization under Section 368(a) of the Internal Revenue Code of 1986
as amended.
4.5 Access and Information. Bancorp and its Subsidiaries
will permit First Virginia to conduct audits of their books and
records within 30 days of the date of this Agreement and First Virginia
will advise Bancorp of the results within 30 days of the date of this
Agreement. Such audits may include an examination of loan files,
accounts receivable and accounts payable, tax returns, agreements,
schedule of assets owned, investment portfolio and all other items
deemed necessary by First Virginia. Bancorp and First Virginia will
give to the officers, accountants, counsel and authorized
representatives of the other Party access to its properties, books and
records and those of its subsidiaries and will furnish the other Party
with such additional financial and operating data and other information
as to its business and properties and those of its subsidiaries as
the other Party may from time to time request. Bancorp and its
Subsidiaries and their officers and directors will cooperate with
First Virginia and its representatives and counsel in the preparation
of any documents or other materials which may be required in
connection with the applications to the Federal Reserve Bank of
Richmond, the Virginia State Corporation Commission and the Maryland
Bank Commissioner and First Virginia's registration statement on Form
S-4 as filed with the SEC or in connection with any other documents or
materials required by any governmental agency, stock exchange or
association of securities dealers. First Virginia will cooperate with
and furnish such information to, and cause its directors and officers
and those of its subsidiaries to cooperate with and furnish such
information to, Bancorp as it may request in connection with the
preparation of the proxy statement for the special meeting of the
stockholders of Bancorp to consider the Merger. First Virginia shall
return the results of its audit review to Bancorp's Board of
Directors if First Virginia terminates this Agreement pursuant to
Paragraph 9.2(g).
4.6 Confidentiality. First Virginia and Bancorp shall cause
its advisers and agents to maintain the confidentiality of all
confidential information furnished to it by the other party concerning
its and its subsidiaries' businesses, operations, and financial
positions and shall not use such information for any purpose except in
furtherance of the transactions contemplated by this Agreement. If this
Agreement is terminated prior to the Effective Date of the Merger, each
party shall promptly return all documents and copies thereof, and all
work papers containing confidential information received from the
other party. In the event that either Bancorp or First Virginia should
violate any of the terms of this paragraph, they agree that the
party who is not in violation would have an inadequate remedy at law
for such violation and may, therefore, seek an injunction without the
necessity of bond, to prevent or halt any violation hereof and the
parties hereto agree not to raise any defense that the party who is
not in violation of this paragraph has an adequate remedy at law.
Bancorp and First Virginia further acknowledge and agree that in the
event of a violation of the terms and conditions of this paragraph
that the party who is not in violation shall have any and all remedies
available at law or equity and shall not be limited to the remedy of
injunctive relief.
4.7 Consents. From the date of this Agreement to the Effective
Date, Bancorp will use all reasonable efforts to obtain the written
consents or approvals of all private third parties whose consent or
approval is required with regard to the transactions contemplated by
this Agreement, under the terms of any lease, mortgage, indenture or
other agreement to which Bancorp or any of its Subsidiaries is a party
or by which any of their assets is bound.
4.8 Meeting of Bancorp Stockholders. Bancorp will duly call
and will convene a meeting of its stockholders to act upon the
transactions contemplated hereby as soon as practicable, will
recommend approval of this Agreement to its stockholders, and will use
its best efforts to obtain a favorable vote thereon. The calling
and holding of such meetings and all transactions, documents and
information related thereto will be in compliance with all
applicable laws. The proxy statement for the stockholders' meeting of
Bancorp will be contained in the Registration Statement.
4.9 Affiliates of Bancorp. Bancorp will promptly (a) furnish
to First Virginia and its counsel such information as may be necessary
to determine those persons who may be deemed to be affiliates of
Bancorp within the meaning of Rule 144 and Rule 145 under the
Securities Act of 1933 and (b) use their best efforts to obtain from any
person who may be deemed to be such an affiliate such undertakings and
agreements substantially in the form of Exhibit B, attached.
4.10 Insurance Applications. Bancorp and its Subsidiaries
agree to complete and deliver to First Virginia within 30 days from
the date of this Agreement the insurance applications necessary to
include insurance coverage for the Banks' property, casualty and
fidelity risks and include liability coverage for the Banks' directors
and officers under First Virginia's directors and officers liability
insurance policy.
4.11 Bank Conversion. As provided under Section 1.9 of this
Agreement, Bancorp and the Banks will make the necessary filings with
the Maryland Bank Commissioner and the Comptroller of the Currency to
convert Farmers and Atlantic into state chartered, Federal Reserve
member banks.
4.12 Applications to the Maryland Bank Commissioner. Bancorp and
its Subsidiaries, jointly with First Virginia, will prepare and file
with the Maryland Bank Commissioner applications requesting approval
for First Virginia to acquire both Bancorp and its Subsidiaries
pursuant to the provisions of Maryland law and will use their best
efforts to secure favorable action by the Maryland Bank Commissioner on
such applications.
4.13 Federal Reserve Applications. Bancorp and its
Subsidiaries, jointly with First Virginia, will prepare and file with
the Federal Reserve, applications requesting approval for the Merger as
well as an application to make the Banks members of the Federal Reserve
System and will use its best efforts to secure favorable action by
the Federal Reserve on such applications.
4.14 Changes Requested by First Virginia. At the request of
First Virginia and upon receipt by Bancorp of a written instrument
signed by First Virginia and reasonably satisfactory in form and
content to Bancorp, containing (i) an irrevocable and
unconditional written waiver by First Virginia of all conditions to
the obligations of First Virginia under this Agreement to consummate
the Merger and the other transactions contemplated hereby, and (ii) the
agreement of First Virginia that the requested actions described below
will not be deemed, individually or in the aggregate or in
combination with any other facts or circumstances, to constitute or have
a Material Adverse Effect on Bancorp and its Subsidiaries, then on the
last business day prior to the Effective Date of the Merger Bancorp
shall, and Bancorp shall cause each of its Subsidiaries to, establish
such additional accruals, reserves and charge-offs, through
appropriate entries in its accounting books and records, as may be
necessary to conform the accounting and credit loss reserve practices
and methods of Bancorp and its Subsidiaries to those of First
Virginia (as such practices and methods are to be applied from and
after the Effective Date of the Merger) and to First Virginia's
plans with respect to the conduct of the business of Bancorp and the
Banks following the Effective Date of the Merger. Any such accruals,
reserves and charge-offs shall not be deemed to cause any
representation and warranty of Bancorp to not be true and accurate as of
the Effective Date of the Merger.
ARTICLE V.
COVENANTS OF FIRST VIRGINIA.
5.1 Issuance of Stock and Payment of Cash. First Virginia will
issue and deliver or cause to be delivered the shares of First
Virginia Common Stock as called for by Paragraph 1.1 of this
Agreement.
5.2 Stock Adjustments. Nothing in this Agreement shall limit
the right of First Virginia to issue or agree to issue any of its stock
or other securities in any manner and for any consideration permitted
by law prior to or after the Effective Date; provided, however, that
if First Virginia takes any action which establishes prior to the
Effective Date a record date or an effective date for a stock dividend
on its common stock, a split- up, any combination of its common stock,
or any distribution on shares of its common stock other than cash
dividends, First Virginia will take all such action as shall be
necessary in order that the Bancorp Common Stock will be converted in
the Merger into additional shares of First Virginia Common Stock which
would have been delivered to the holders of Bancorp Bank Common Stock
if the Merger had been made effective immediately before such record
or effective date; provided, however, that there shall be no
adjustment of First Virginia Common Stock by reason of First Virginia
issuing or agreeing to issue, on such terms as it may determine,
First Virginia Common Stock for cash or property, in exchange for
shares of stock of any other corporation or on account of mergers or
consolidations before, after or simultaneously with the consummation of
the Merger.
5.3 Preparation of Registration Statement. First Virginia
will prepare the Registration Statement and any amendments thereto,
file the Registration Statement with the SEC, use its best efforts to
secure its effectiveness and promptly after the effective date of the
Registration Statement, mail and deliver copies of the proxy
statement contained therein to the Bancorp stockholders for use by its
management to solicit proxies for use at its stockholder's meetings.
5.4 Applications to the Maryland Bank Commissioner. First
Virginia, jointly with Bancorp, will prepare and file with the Maryland
Bank Commissioner applications requesting approval for First Virginia to
acquire Bancorp and its Subsidiaries and will use its best efforts to
secure favorable action by the Maryland Bank Commissioner on such
applications.
5.5 Application to the Bureau of Financial Institutions.
First Virginia will prepare and file with the Bureau of Financial
Institutions of the Virginia State Corporation Commission an
application requesting the approval to acquire the Banks and will
use its best efforts to secure favorable action by the Bureau
of Financial Institutions on such application.
5.6 Federal Reserve Applications. First Virginia will prepare
and file with the Federal Reserve, applications requesting approval
for the Merger as well as applications to make the Banks members of
the Federal Reserve System and will use its best efforts to secure
favorable action by the Federal Reserve on such applications.
5.7 Indemnification. From and after the Effective Date
through the sixth anniversary of the Effective Date, First Virginia
agrees to indemnify and hold harmless each present and former
director and officer of Bancorp and its Subsidiaries (the
"Indemnified Parties") against all costs, expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages and
liabilities (collectively, "Costs") incurred in connection with any
claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative, arising out of matters
existing or occurring on or prior to the Effective Date, whether
asserted or claimed prior to, on or after the Effective Date, to
the fullest extent that Bancorp would have been permitted under
Maryland law and its charter and Bylaws as in effect on the date hereof
to indemnify such Indemnified Party, and First Virginia shall also
advance costs and expenses, including reasonable attorneys' fees, as
incurred by each Indemnified Party to the fullest extent permitted
under Maryland Law and Bancorp's charter and Bylaws as in effect on
the date hereof, provided the Indemnified Party to whom costs and
expenses are advanced provides a written affirmation of the
Indemnified Party's good faith belief that the standard of conduct
necessary for indemnification by Bancorp under applicable Maryland law
has been met and the Indemnified Party's undertaking to repay such
advances if it is ultimately determined that such person is not
entitled to indemnification. In the event any claim, action, suit,
proceeding or investigation is threatened, asserted or commenced within
such six-year period, all rights to indemnification in respect of
such claim, action, suit, proceeding or investigation shall continue
until the final and nonappealable disposition thereof.
5.8 Directors' and Officers' Liability Insurance. Effective as
of the Effective Date and continuing at least until the sixth
anniversary of the Effective Date, First Virginia shall use all
reasonable efforts to cause to be obtained directors' and officers'
liability insurance under First Virginia's Executive Liability
Insurance Policy (as disclosed to Bancorp prior to the date hereof)
covering all present and former directors and officers of Bancorp and
its Subsidiaries, so that coverage thereunder for all such present and
former directors and officers shall be effective on and after the
Effective Date for claims arising from facts or events which occurred
or existed on or before the Effective Date. If First Virginia cannot
obtain such insurance for such directors and officers of Bancorp and
all of its Subsidiaries on or before the Effective Date, First
Virginia shall use all reasonable efforts to cause to be maintained
in effect, for the present and former directors and officers of
Bancorp and its Subsidiaries for whom coverage cannot be obtained
under such policy of First Virginia, the current policies of
directors' and officers' liability insurance maintained by Bancorp
and its Subsidiaries (the "Existing Policies"), so that coverage for
such present and former directors and officers shall remain in
effect after the Effective Date through at least the sixth
anniversary of the Effective Date, for claims arising from facts or
events which occurred or existed on or before the Effective date;
provided, however, that First Virginia shall not be obligated to
expend for coverage of such directors and officers under First
Virginia's Executive Liability Insurance Policy and the Existing
Policies any aggregate amount per annum in excess of 200% of the
amount of the annual premiums paid as of the date hereof by Bancorp
and its Subsidiaries for the Existing Policies (the "Maximum
Amount"). If the amount of the annual premiums necessary to
maintain or procure such insurance coverage exceeds the Maximum
Amount, First Virginia shall maintain the most advantageous policies
of directors' and officers' insurance obtainable for annual premiums
equal to the Maximum Amount, covering those persons covered by the
Existing Policies for claims arising from acts or events which occurred
or existed on or before the Effective Date.
5.9 Effect of Future Transactions. If First Virginia or any of
its successors or assigns (i) shall consolidate with or merge into any
other corporation or entity and shall not be the continuing or
surviving corporation or entity of such consolidation or merger or
(ii) shall transfer all or substantially all of its assets to
any individual, corporation or other entity, then and in each such
case, proper provisions shall be made so that the successors and
assigns of First Virginia shall assume the obligations of First Virginia
set forth in Paragraphs 5.7 and 5.8.
5.10 Executive Employment Agreements. First Virginia covenants
that immediately following the Effective Date it will enter into
employment agreements with Frank T. Lowman, III, Louis A. Supanek and
Ross J. Selby under which each of those individuals will be employed by
Farmers for a period of two years following the Effective Date in
the respective positions held by each of them on the Effective Date,
and in each case at an annual salary not less than that received by
such individual on the Effective Date, and otherwise on terms
substantially similar to the terms contained in the employment
agreement for John M. Suit, II provided for in Paragraph 1.6.
ARTICLE VI.
CONDITIONS PRECEDENT TO FIRST VIRGINIA'S OBLIGATIONS HEREUNDER.
Unless waived in writing by First Virginia in its sole
discretion, all obligations of First Virginia hereunder to effect the
Merger shall be subject to the fulfillment prior to or at the Effective
Date of the following conditions:
6.1 Representations, Warranties. The representations and
warranties of Bancorp herein contained shall be true in all material
respects as of the Effective Date, shall be deemed made again at and
as of the Effective Date and shall be true in all material respects
as if so made again; Bancorp shall have performed all of the
obligations and complied with all of the covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Date in all material respects and First Virginia shall
receive from Bancorp officers' certificates in such detail as First
Virginia may reasonably request dated the day of the Effective Date
and signed by the president, cashier or secretary to the foregoing
effect.
6.2 No Adverse Changes. There shall not have been any material
adverse changes in the financial position, results of operations,
assets, liabilities or business of Bancorp and its Subsidiaries, taken
as a whole, from March 31, 1994, the date of the Financial Statements
referred to in Paragraph 3.1(e) above, to the Effective Date, which
changes, individually or in the aggregate, have or constitute a
Material Adverse Effect on Bancorp and its Subsidiaries.
6.3 Audit of Bancorp and its Subsidiaries. The audit of
Bancorp and its Subsidiaries conducted pursuant to Paragraph 4.5
shall reflect stockholders' equity of Bancorp and its Subsidiaries on
a consolidated basis of not less than $68.5 million as of June 30,
1994. For purposes of the audit and this Agreement, consolidated
stockholders' equity shall be determined in accordance with generally
accepted accounting principles applied on a consistent basis with
Bancorp's prior financial statements; provided, however, that (a) no
deduction shall be made from consolidated stockholders' equity by
reason of the application of Financial Accounting Standard No. 115 on
account of general increases in interest rates or other effects
attributable to interest rate fluctuations, and (b) non-disclosures or
disclosures made by Bancorp to First Virginia before or after the
signing of this Agreement shall not affect inclusion or exclusion of an
item from the audit process.
6.4 Legal Opinion. First Virginia shall have received a written
opinion, dated as of the Effective Date, from Miles & Stockbridge,
counsel to Bancorp, in form reasonably satisfactory to First Virginia,
which shall cover matters customary in transactions of this nature.
6.5 Events Preceding the Effective Date. Each of the
events set forth in Paragraphs 2(a)-2(i) shall have occurred.
6.6. No Adverse Proceedings. No action or proceeding
against First Virginia, Bancorp or its Subsidiaries or the
consummation of the transactions contemplated by this Agreement shall
have been instituted or threatened or any investigations or
inquiries undertaken that might eventuate in any such action or
proceeding.
ARTICLE VII.
CONDITIONS PRECEDENT TO BANCORP'S OBLIGATIONS HEREUNDER.
Unless waived in writing by Bancorp in its sole discretion,
all obligations of Bancorp hereunder to effect the Merger shall be
subject to the fulfillment prior to or at the Effective Date of the
following conditions:
7.1 Representations, Warranties and Covenants. The
representations and warranties of First Virginia herein contained
shall be true in all material respects as of the Effective Date,
shall be deemed made again at and as of the Effective Date and shall
be true in all material respects as if so made again. First Virginia
shall have performed all obligations and complied with all covenants
required by this Agreement to be performed or complied with by it on
or prior to the Effective Date in all material respects and Bancorp
shall have received from First Virginia an officer's certificate in such
detail as Bancorp may reasonably request dated the Effective Date
and signed by its president, cashier or secretary to the foregoing
effect.
7.2 Events Preceding the Effective Date. Each of the
events set forth in Paragraphs 2(a)-2(i) shall have occurred.
7.3 No Adverse Proceedings or Events. No action or proceeding
against Bancorp or its Subsidiaries or First Virginia or the
consummation of the transactions contemplated by this Agreement shall
have been instituted or threatened or any investigations or inquiries
undertaken that might eventuate in any such action or proceeding.
7.4 No Adverse Changes. There shall not have been any material
adverse change in the financial position, results of operations,
assets, liabilities or business of First Virginia and its Subsidiaries
taken as a whole from March 31, 1994 to the Effective Date, which
changes, individually or in the aggregate, have or constitute a
Material Adverse Effect, provided, however, that a merger or acquisition
or the announcement of a merger or acquisition involving First Virginia
or a subsidiary of First Virginia and requiring the issuance of First
Virginia Common or Preferred Stock or cash will not be considered for
purposes of this section as an "adverse change" in the financial
position, results of operations, assets, liabilities or business of
First Virginia.
7.5. Legal Opinion. Bancorp shall have received a written
opinion, dated as of the Effective Date, of inhouse counsel to First
Virginia, in form reasonably satisfactory to Bancorp, which shall cover
matters customary in transactions of this nature.
7.6. Tax Opinion. Bancorp shall have received the written
Tax Opinion (as hereinafter defined), dated as of the Effective Date,
in form satisfactory to Bancorp and in accordance with Paragraph 8.1.
7.7. Fairness Opinion. If a change of control of First
Virginia (as defined in Paragraph 1.5) occurs on or prior to the
effective date of the Registration Statement, or if on or prior to the
effective date of the Registration Statement First Virginia enters
into an agreement or announces its intention to enter into an
agreement providing for a change of control of First Virginia, then
it shall be a condition precedent under this Article VII that Bancorp
shall have received thereafter and before the date on which the SEC
declares the Registration Statement effective the written opinion of
its independent financial advisor, reasonably satisfactory to
Bancorp, to the effect that the consideration to be received by
stockholders of Bancorp pursuant to the Merger is fair from a
financial point of view.
ARTICLE VIII.
TAX OPINION AND RESTRICTIONS CONCERNING THE RESALE OF FIRST
VIRGINIA COMMON STOCK BY AFFILIATES OF BANCORP
8.1 Tax Opinion. First Virginia and Bancorp agree to jointly
obtain a tax opinion (the "Tax Opinion") at First Virginia's expense,
reasonably satisfactory to Bancorp, from Miles & Stockbridge, counsel to
Bancorp, which opinion may be relied on by Bancorp and its stockholders
to the effect that:
(a) the Merger will constitute a reorganization within
the meaning of Code Section 368(a)(1)(A) and Bancorp and First
Virginia will each be "a party to a reorganization" within the
meaning of Code Section 368(b);
(b) no gain or loss will be recognized by Bancorp or First
Virginia upon the transfer of Bancorp's assets to First Virginia
pursuant to the Merger and the assumption by First Virginia of the
liabilities of Bancorp pursuant to the Merger;
(c) the gain, if any, realized by a holder of shares of
Bancorp Common Stock upon receipt of shares of First Virginia Common
Stock and/or cash in exchange for shares of Bancorp Common Stock
pursuant to the Merger will be recognized but not in excess of the
amount of cash received; and no loss will be recognized by those
Bancorp stockholders who exchange their shares of Bancorp Common Stock
for shares of First Virginia Common Stock pursuant to the Merger; and
(d) the basis of First Virginia Common Stock to be
received by Bancorp stockholders will be the same as the basis of
Bancorp Common Stock surrendered in exchange therefor and the holding
period of the First Virginia Common Stock to be received by Bancorp
stockholders will include the period during which Bancorp Common Stock
surrendered in exchange therefor was held provided the Bancorp Common
Stock was held as a capital asset by such Bancorp stockholder at the
Effective Date.
8.2 Restrictions on Affiliates. Each of the executive
officers and directors of Bancorp shall, prior to or on the Effective
Date, execute and deliver to First Virginia a written representation
substantially in the form of Exhibit B of this Agreement to the
effect that no disposition will be made by that person of any shares
of First Virginia Common Stock received after the Effective Date except
within the limits and in accordance with the applicable provisions of
Paragraph C, E, F, and G of Rule 144 under the Securities Act of
1933.
ARTICLE IX.
TERMINATION, AMENDMENT AND SURVIVAL OF REPRESENTATIONS.
9.1 Amendment. This Agreement and the Plan of Merger
attached hereto may be amended at any time prior to the Effective
Date; provided that any such amendment is in writing and is approved
by the Board of Directors of each of the parties hereto and
provided, further, that subsequent to the meeting in which this
Agreement is approved by stockholders of Bancorp, no amendment shall
be made in the exchange rate which decreases the consideration to
Bancorp's stockholders without the approval of stockholders holding
two-thirds of all issued and outstanding shares of Bancorp Common Stock.
9.2 Termination. Notwithstanding any other provision to the
contrary of this Agreement, and notwithstanding the approval of
this Agreement by the stockholders of Bancorp, this Agreement and the
Plan of Merger may be terminated and the Merger abandoned (without any
obligation by First Virginia or Bancorp to renegotiate the Agreement) at
any time prior to the Effective Date:
(a) By mutual consent of the Board of Directors of First
Virginia and the Board of Directors of Bancorp; or
(b) By the Board of Directors of either Bancorp or First
Virginia (provided that the terminating Party is not then in
material breach of any representation, warranty, covenant, or other
agreement contained in this Agreement) in the event of a material
breach by the other Party of any representation or warranty contained
in this Agreement which cannot be or has not been cured within thirty
(30) days after the giving of written notice to the breaching Party of
such breach; provided, however, that a material breach of a
representation or warranty shall be deemed to exist only if, when
aggregated with all other such breaches, the breach has or constitutes
a Material Adverse Effect; or
(c) By the Board of Directors of either First Virginia or
Bancorp (provided that the terminating Party is not then in material
breach of any representation, warranty, covenant or other agreement
contained in this Agreement) in the event of a material breach by the
other Party of any covenant or agreement contained in this Agreement
which cannot be or has not been cured within thirty (30) days after the
giving of written notice to the breaching Party of such breach; or
(d) By the Board of Directors of either First Virginia or
Bancorp if (i) the Federal Reserve Board or the Maryland Bank
Commissioner deny approval of the Merger and the time period for all
appeals or requests for reconsideration has run or (ii) the
Comptroller of the Currency, the Federal Reserve Board or the Maryland
Bank Commissioner deny the conversion of either Farmers or Atlantic
into state-chartered, Federal Reserve member banks or (iii) the
Federal Reserve Board denies the application of Caroline to become a
member bank in the Federal Reserve System;
(e) By the Board of Directors of either Bancorp or First
Virginia in the event the Merger should not become effective within
nine months of the date of this Agreement, in each case only if the
failure to consummate the Merger is not caused by any breach of the
Agreement by the Party electing to terminate; or
(f) By the Board of Directors of either Bancorp or First
Virginia (provided that the terminating Party is not then in material
breach of any representation, warranty, covenant or other agreement
contained in this Agreement) in the event that any of the conditions
precedent to the obligations of such Party to consummate the Merger
cannot be satisfied or fulfilled within nine months of the date of this
Agreement; or
(g) By the Board of Directors of First Virginia, at any time
prior to the 30th day after execution of this Agreement in the event
that First Virginia determines, after its audit of Bancorp and its
Subsidiaries referred to in Paragraph 4.5, that the financial
conditions of Bancorp and its Subsidiaries, taken as a whole as of the
date of completion of the audit, do not meet the standards described in
Paragraph 6.3; or
(h) By the Board of Directors of First Virginia if the holders
of more than 10% of the outstanding shares of Bancorp Common Stock
validly exercise appraisal rights under Maryland law or if the
holders of more than 20% of the outstanding shares of Bancorp Common
Stock vote against the Merger;
(i) By the Board of Directors of Bancorp if the average of the
closing prices of First Virginia Common Stock as reported in The Wall
Street Journal under the heading "New York Stock Exchange --Composite
Transactions" or any comparable heading then in use declines to $30
per share or less for any period of ten consecutive trading days
during the sixty day period immediately prior to the Effective Date; or
(j) By the Board of Directors of Bancorp if Bancorp
receives an Acquisition Proposal which the Board of Directors of
Bancorp determines in good faith in accordance with Paragraph 4.3 that
it must consider, and which Acquisition Proposal a majority of the full
Board of Directors of Bancorp further determines to approve and to
recommend to the stockholders of Bancorp for approval.
In the event of the termination of this Agreement and the Plan
of Merger and the abandonment of the Merger pursuant to this
Paragraph 9.2, other than the provisions of Paragraphs 4.6 and 9.4
which shall survive such termination, this Agreement and the Plan of
Merger shall become void and have no effect, without any liability
on the part of either Party or its directors, officers or
stockholders. Notwithstanding the foregoing, nothing contained in this
Paragraph 9.2 shall relieve either Party from liability for any breach
of this Agreement.
9.3 Survival of Representations and Covenants. The
respective warranties, representations, obligations and agreements of
the Parties hereto shall not survive the Effective Date of the
Merger except for the obligations and agreements set forth in
Paragraphs 1.1, 1.3, 1.4, 1.5, 1.6, 1.7, 1.8, 1.10, 1.11, 1.12, 1.13,
4.4, 4.6, 5.1, 5.2, 5.7, 5.8, 5.9, 5.10, 8.2, 9.4, 9.5, 9.6, 9.7 and
9.8 of this Agreement and Sections 2, 3.1, 3.2, 3.3, 3.4, 3.5 and 4 of
the Plan of Merger.
9.4 Expenses. Whether or not the transactions herein are
consummated, First Virginia shall pay all expenses and fees in
connection with this Agreement and the Merger provided for herein;
provided, however, that Bancorp and the Banks shall pay (a) all of
their legal expenses and fees including the expenses for converting
the Banks to state chartered, Federal Reserve members, except the fee
of Miles & Stockbridge with respect to the Tax Opinion which fee shall
be paid by First Virginia, and (b) all the expenses and fees of
their advisors, including but not limited to their investment
banker, their counsel (except with respect to the Tax Opinion as
provided above) and their accountant, in connection with the Merger.
Notwithstanding the foregoing, after the date of this Agreement if
Bancorp terminates this Agreement and the Plan of Merger pursuant
to Paragraph 9.2(j), Bancorp covenants and agrees (which covenant and
agreement shall survive termination of this Agreement) if and when a
definitive written agreement for consummation of an Acquisition
Proposal with a third party (other than First Virginia) is fully
executed by the parties thereto, to cause such third party to pay to
First Virginia by wire transfer within one business day after such
execution the sum of $3,160,000 as liquidated damages for all losses
and damages suffered by First Virginia as a result of the Merger not
being consummated, including, without limitation, the direct costs
and expenses (including fees and expenses of First Virginia's financial
consultants, printing costs, accountants and counsel) incurred by First
Virginia in negotiating and carrying out the Merger and the indirect
costs and expenses incurred by First Virginia in connection with the
Merger, including First Virginia's management time devoted to
negotiation and preparation for such transaction. In the event such
third party shall refuse to pay such amount, the amount shall be an
obligation of Bancorp and shall be paid by Bancorp promptly upon notice
to Bancorp by First Virginia. .
9.5 Notices. All notices, requests, demands and other communications
under or connected with this Agreement shall be in writing and (a) if to
First Virginia shall be addressed to First Virginia Banks, Inc. 6400 Arlington
Boulevard, Falls Church, Virginia 22042-2336, Attention: Barry J. Fitzpatrick,
Executive Vice President, with copies to its counsel, Christopher M. Cole, Vice
President and Assistant General Counsel and (b) if to Bancorp shall be
addressed to Farmers National Bancorp, 5 Church Circle, Annapolis, Maryland
21401, Attention: Charles L. Schelberg, Chairman, with a copy to its counsel,
Miles & Stockbridge, a Professional Corporation, 10 Light Street,
Baltimore, Maryland 21202, Attention: Lowell R. Bowen.
9.6 Entire Agreement in Effect. This Agreement, including
Exhibits A and B, is intended by the Parties to and does constitute
the entire agreement of the Parties with respect to the transactions
contemplated hereunder. This Agreement including the Plan of Merger
attached hereto supersedes any and all other prior understandings and
agreements between the Parties hereto and it may not be changed,
waived, discharged or terminated orally but only in writing by a party
against which enforcement of the change, waiver, or discharge or
termination is sought.
9.7 General. The paragraph headings contained in this Agreement
are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. This Agreement and
the Plan of Merger attached hereto may be executed simultaneously
in two or more counterparts, each of which shall be deemed an original,
all of which shall become one and the same instrument. This Agreement
and the Plan of Merger attached hereto shall inure to the benefit of
and be binding upon the parties hereto and their respective successors;
it shall not be assigned. It is intended and agreed by the Parties
that in addition to the rights of Bancorp's stockholders after
consummation of the Merger, the persons benefitted by the provisions of
Paragraphs 1.5, 1.11, 1.12, 5.7, 5.8 and 5.9 of this Agreement and
Section 2 of the Plan of Merger shall be deemed third party
beneficiaries of such provisions, and such persons and their
heirs and personal representatives shall be entitled to enforce the
agreements and obligations of First Virginia under such provisions
after the Effective Date of the Merger.
9.8 Governing Law. This Agreement shall be construed in
accordance with the laws of the State of Virginia.
IN WITNESS WHEREOF, First Virginia and Bancorp have caused this
Agreement to be duly executed by their respective chairmen or
presidents and their respective seals to be hereunto affixed and
attested by their respective cashiers or secretaries thereunto duly
authorized as of the date first written above.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ THOMAS P. JENNINGS By /s/ ROBERT H. ZALOKAR
Thomas P. Jennings, Robert H. Zalokar, Chairman
Vice President and of the Board and Chief
Secretary Executive Officer
ATTEST: FARMERS NATIONAL BANCORP
/s/ NORMA K. BEHLKE By /s/ JOHN M. SUIT, II
Secretary John M. Suit, II
President
EXHIBIT A
PLAN OF MERGER
OF
FARMERS NATIONAL BANCORP
INTO
FIRST VIRGINIA BANKS, INC.
1. The Parties. Farmers National Bancorp a Maryland
corporation ("Bancorp") shall merge with and into First Virginia
Banks, Inc. (the "Merger"), a Virginia corporation ("First
Virginia") (collectively referred to herein as the "Constituent
Corporations"). First Virginia shall be (as is hereinafter called when
reference is made to it at and after the consummation of the Merger) the
Surviving Corporation. The name of the Surviving Corporation shall be
First Virginia Banks, Inc. The Merger shall become effective at a
time specified in the Articles of Merger filed with both the Virginia
State Corporation Commission and the Maryland State Department of
Assessments and Taxation (the "Effective Date").
2. Articles of Incorporation; Bylaws. At the Effective
Date, the Articles of Incorporation and Bylaws of the Surviving
Corporation shall be the Articles of Incorporation and Bylaws of
First Virginia as in effect immediately prior to the Effective Date.
First Virginia acknowledges and agrees that the rights of all persons
accrued or existing on or before the Effective Date of the Merger under
Article Seventh, clause (2) and Article Ninth of the charter of Bancorp
shall survive the consummation of the Merger.
3. Effect of the Merger on Capital Stock, Assets, Liabilities
and Capitalization of Bancorp and First Virginia.
3.1 Conversion of Stock of Bancorp. At the Effective
Date, each issued and outstanding share of Bancorp Common Stock other
than treasury shares shall by virtue of the Merger and without any
action by the holder thereof be converted in accordance with the
provisions of Section 3.2 hereof, into shares of First Virginia
Common Stock which shall be validly issued, fully paid and
nonassessable or cash. Each share of the Common Stock of the
Surviving Corporation which shall be issued and outstanding prior to
the Merger shall continue to be issued and outstanding.
3.2 Conversion Rate. At the Effective Date of the
Merger:
(a) Conversion of Stock. Each share of Bancorp Common Stock
which is issued and outstanding as of the Effective Date of the Merger
(other than shares exchanged for cash and Dissenting Shares) shall, and
without any action by the holder thereof, be converted into 1.5 shares
of First Virginia Common Stock, proportionately adjusted for any
stock split, stock dividends or other similar capital adjustments
between the date of the Agreement and Plan of Reorganization between
the Parties hereto (the "Agreement") and the Effective Date of the
Merger by First Virginia. No fractional shares of First Virginia
Common Stock shall be issued to Bancorp stockholders. In lieu
thereof, each Bancorp stockholder shall receive upon surrender of his
Bancorp Common Stock an amount in cash equal to the amount of any
fractional share he would otherwise be entitled to receive multiplied
by the average of the closing prices per share of First Virginia
Common Stock as reported in The Wall Street Journal under the
heading "New York Stock Exchange-- Composite Transactions" or any
comparable heading then in use, for each of the last ten trading days
ending on the tenth trading day prior to the Effective Date of the
Merger.
(b) Cash Election. Holders of shares of Bancorp Common Stock
will be given the option of exchanging their shares for $58.53 per
share in cash, provided that the number of shares that may be
exchanged for cash, when added to Dissenting Shares (as defined
below) shall not exceed 30% of the shares of Bancorp Common Stock
outstanding immediately prior to the Effective Date of the Merger. The
cash election must be made at the time the Bancorp stockholders vote
on the Merger and once such vote has been taken, the cash election
shall be irrevocable. If the aggregate of (i) shares as to which a cash
election is made and (ii) Dissenting Shares exceeds 30% of the
shares of Bancorp Common Stock outstanding immediately prior to the
Effective Date of the Merger, First Virginia first will pay cash for
shares submitted for cash exchange by each holder of 100 or fewer shares
of Bancorp Common Stock (if such holder has submitted all his shares
for cash exchange) and then will pay cash for shares submitted for
cash pro rata. Shares not exchanged for cash after proration will be
exchanged for First Virginia Common Stock at the exchange ratio
provided above. If (i) the aggregate of (A) shares as to which a cash
election is made and (B) Dissenting Shares is less than 10.1% of the
total number of shares of Bancorp Common Stock outstanding immediately
prior to the Effective Date of the Merger and (ii) First Virginia is
advised by its independent accountants that it cannot otherwise qualify
to treat the Merger as a purchase for accounting purposes after First
Virginia has used all reasonable efforts to qualify for such purchase
accounting treatment by repurchasing outstanding shares of First
Virginia Common Stock, then First Virginia will pay to Bancorp
stockholders, other than for Dissenting Shares and shares for which a
cash election is made, a pro rata cash payment equal in an aggregate
amount to the difference between (i) the amount of cash that would
have been paid if there were no Dissenting Shares and holders of
10.1% of the total number of shares of Bancorp Common Stock
outstanding immediately prior to the Effective Date of the Merger had
elected cash at $58.53 per share in exchange for that percentage of
shares of Bancorp Common Stock and (ii) the aggregate amount of cash
paid to Bancorp stockholders electing cash and holders of Dissenting
Shares (for purposes of this calculation only, holders of Dissenting
Shares shall be assumed to be entitled to receive $58.53 cash per
Dissenting Share). The pro rata cash payment payable to each Bancorp
stockholder (other than for Dissenting Shares and shares for which a
cash election is made) as provided in the immediately preceding
sentence shall be in exchange for that number of shares of Bancorp
Common Stock held by such stockholder immediately prior to the
Effective Date equal to the amount of such cash payment divided by
$58.53, and the remaining shares of Bancorp Common Stock held by
such Stockholder immediately prior to the Effective Date will be
converted into shares of First Virginia Common Stock at the exchange
ratio and upon the terms and conditions provided above.
Bancorp stockholders who elect to exchange some or all of their
shares of Bancorp Common Stock for cash must submit to Bancorp
certificates for the shares being exchanged for cash at or prior to the
meeting of Bancorp stockholders called to consider the Merger. If the
Merger is approved by Bancorp stockholders at this meeting, a
stockholder's election to receive cash is irrevocable and Bancorp will
retain certificates for shares submitted for cash purchase until either
(1) termination of the Agreement and this Plan of Merger, upon which
Bancorp will return such certificates or (2) the Effective Date of the
Merger when the exchange agent will exchange such certificates for
cash to the extent required by the Agreement and this Plan of Merger.
(c) After the Effective Date of the Merger, each holder of
a certificate for theretofore outstanding shares of Bancorp Common
Stock, upon surrender of such certificate to the exchange agent
designated by First Virginia (the "Exchange Agent"), unless
previously surrendered to Bancorp in connection with the exercise of
the cash option, and a letter of transmittal which shall be mailed
to each holder of a certificate for theretofore outstanding shares
of Bancorp Common Stock by the Exchange Agent promptly following
the Effective Date of the Merger, shall be entitled to receive in
exchange therefor a certificate or certificates representing the
number of full shares of First Virginia Common Stock for which shares
of Bancorp Common Stock theretofore represented by the certificate or
certificates so surrendered shall have been exchanged as provided in
the Agreement and this Plan of Merger, or cash if the cash option
provided above is properly elected, or in the event of a pro rata
cash payment as provided above, a combination of cash and First
Virginia Common Stock. Until so surrendered, each outstanding
certificate which, prior to the Effective Date of the Merger,
represented Bancorp Common Stock, will be deemed evidence of the
right to receive either (i) the number of full shares of First
Virginia Common Stock into which the number of shares of Bancorp
Common Stock formerly represented thereby may be converted in
accordance with the exchange ratio provided above, or (ii) $58.53 cash
per share multiplied by the number of shares of Bancorp Common Stock
formerly represented by such certificate if the cash option provided
above was properly elected, or (iii) a combination thereof as provided
above; and after the Effective Date of the Merger (unless the cash
option is properly elected) will be deemed for all corporate purposes
of First Virginia to evidence ownership of the number of full shares of
First Virginia Common Stock into which the shares of Bancorp Common
Stock formerly represented thereby were converted.
With respect to shares of First Virginia Common Stock into which
shares of Bancorp Common Stock are converted pursuant to the Merger,
until such outstanding certificates formerly representing Bancorp
Common Stock are surrendered, no dividend payable to holders of record
of First Virginia Common Stock for any period as of any date
subsequent to the Effective Date of the Merger shall be paid to the
holder of such outstanding certificates in respect thereof. After
the Effective Date of the Merger, there shall be no further registry
transfer on the records of Bancorp of shares of Bancorp Common
Stock. If a certificate representing such shares is presented to
First Virginia, it shall be cancelled and exchanged for a certificate
representing shares of First Virginia Common Stock and/or cash as
herein provided. Upon surrender of certificates of Bancorp Common
Stock in exchange for First Virginia Common Stock, there shall be paid
to the record holder of the certificates of First Virginia Common Stock
issued in exchange therefor (i) the amount of dividends theretofore paid
with respect to such full shares of First Virginia Common Stock as of
any date subsequent to the Effective Date of the Merger which have not
been paid to a public official pursuant to abandoned property laws and
(ii) at the appropriate payment date the amount of dividends with a
record date after the Effective Date of the Merger but prior to
surrender and a payment date subsequent to surrender. No interest
shall be payable with respect to such dividends upon surrender
of outstanding certificates. Subject to the immediately preceding
two sentences, whenever a dividend or other distribution is
declared by First Virginia on First Virginia Common Stock, the record
date for which is on or after the Effective Date of the Merger, the
declaration shall include dividends or other distributions on all
shares of First Virginia Common Stock issuable pursuant to the Merger
as provided above, whether or not certificates for those shares of
First Virginia Common Stock have then been issued as provided above.
3.3 Dissenting Bancorp Shares. Notwithstanding anything in this
Plan of Merger to the contrary, shares of Bancorp Common Stock which
are issued and outstanding immediately prior to the Effective Date of
the Merger and which are held by a stockholder who exercised in
accordance with applicable law the right (to the extent such
right is available by law) to demand and receive payment of the fair
value of his shares of Bancorp Common Stock pursuant to Maryland law
(the "Dissenting Shares") shall be canceled and shall not be
converted into or be exchangeable for the right to receive the
consideration provided in Section 3.2 of this Plan of Merger, but the
holders thereof shall be entitled to payment of the fair market value
of such shares in accordance with Maryland law subject to the procedures
and conditions specified under Maryland law unless and until such holder
shall fail to perfect his right to dissent or shall have effectively
withdrawn or lost such right as the case may be. If such holder shall
have failed to perfect or shall have effectively withdrawn or lost
such right, his shares of Bancorp Common Stock shall thereupon be
deemed at the Effective Date of the Merger to have been converted
into the right to receive the consideration provided in Section 3.2 of
this Plan of Merger.
3.4 Assets. The Surviving Corporation shall possess
all the rights, interest, privileges, immunities, powers,
franchises, concessions, certificates of authority of a public as
well as a private nature of each of First Virginia and Bancorp and
all property, real and personal, and every interest therein, and all
debts and other obligations due on whatever account, and all other
choses in action and all and every interest of, or belonging to, or
due to each of First Virginia and Bancorp and the title to all real
estate or any interest therein, vested in either of Bancorp or First
Virginia, shall not revert or be in any way impaired by reason of the
Merger.
3.5 Liabilities. The Surviving Corporation shall be
liable for liabilities of Bancorp and all valid debts, liabilities,
duties and obligations of Bancorp shall thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent
as if said debts, liabilities, duties and obligations had been
originally incurred or contracted by it and neither the rights of
creditors nor any liens upon the property of either Bancorp or First
Virginia shall be impaired by the Merger.
4. Board of Directors and Officers. From and after the
Effective Date, the directors of the Surviving Corporation shall
be the directors of First Virginia immediately prior to the
Effective Date and the officers of the Surviving Corporation shall be
the officers of First Virginia immediately prior to the Effective Date.
5. Conditions. Consummation of the Merger is subject
to the following conditions:
(i) approving vote of the holders of a two-third's of the
outstanding shares of Bancorp Common Stock entitled to vote; (ii) the
approval of the Merger by the Board of Directors of the Federal
Reserve System, the Maryland Bank Commissioner and the State
Corporation Commission of Virginia; and (iii) the satisfaction of all
other conditions to the Merger as contained in the Agreement.
6. Termination and Abandonment. This Plan of Merger may be
terminated and the Merger abandoned as provided in Paragraph 9.2 of the
Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Plan of
Merger as of the 1stday of July, 1994.
ATTEST: FIRST VIRGINIA BANKS, INC.
/s/ THOMAS P. JENNINGS By /s/ ROBERT H. ZALOKAR
Thomas P. Jennings, Vice Robert H. Zalokar, Chairman
President and Secretary of the Board and Chief
Executive Officer
ATTEST: FARMERS NATIONAL BANCORP
/s/ NORMA K. BEHLKE By /s/ JOHN M. SUIT, II
Secretary John M. Suit II
President
EXHIBIT B
TO: PRINCIPAL OFFICERS, DIRECTORS, AND STOCKHOLDERS OF
FARMERS NATIONAL BANCORP
Re: Restrictions on Resale of First Virginia Common Stock
The Federal Securities Laws impose certain limitations on the
resale of securities of publicly owned companies acquired by principal
officers and directors in merger-type transactions. We are required
to note these restrictions in the proxy statement and to receive your
acknowledgment and agreement to these restrictions.
As to the acquisition of Farmers National Bancorp ("Bancorp")
by First Virginia, these restrictions, in summary, are as follows:
For a period of two years from the date of the acquisition, any
principal officer or director of Bancorp may not resell, in any
three-month period, more than approximately 300,000 shares of First
Virginia Common Stock acquired pursuant to the merger. In
addition, such securities must be sold in brokers' transactions or in a
transaction with a market maker. A broker's transaction is defined as
a transaction in which a broker (i) does no more than execute the
order to sell the security, receiving no more than the customary
broker's commission and (ii) neither solicits nor arranges for the
solicitation of orders to buy the security in anticipation of or in
connection with the transaction. A more detailed description of these
restrictions is as follows:
Although the issuance of securities of First Virginia Banks,
Inc. in the proposed merger will be registered under the Securities
Act and will be issued in compliance with any applicable state laws
relating to securities, any public reoffering or sale of such
securities by any person who is an "affiliate" of Bancorp at the time
the Agreement is submitted to a vote of Bancorp stockholders and who
thus could be deemed an "underwriter" will, under current law, require
either (i) the further registration under the Securities Act of the
securities of First Virginia to be sold or (ii) compliance with Rule
145 under the Securities Act (as described below) or (iii) the
availability of another exemption from such registration. An
"affiliate" is defined as a "controlling person", which could mean,
generally, a stockholder owning 10% or more of Bancorp's stock or a
director or principal officer of Bancorp. Compliance with Rule 145
requires compliance with certain of the provisions of Rule 144
under the Securities Act. Under such provisions, "affiliates" are
only able to sell, in any three-month period, the greater of (i) 1%
of the securities of the class outstanding as shown by First Virginia's
most recent report or statement, (ii) the average weekly reported
volume of trading in those securities on all national securities
exchanges and reported through the national quotation system of a
registered securities association (i.e., NASDAQ), or (iii) to the
extent such figures are available, the average weekly volume of
trading in the securities reported through the consolidated
transaction reporting system mandated by Rule 17a-15 under the
Securities Exchange Act of 1934 for the same four-week period. In
addition, if an "affiliate" acts in concert with another person for
the purpose of any such sales, the sales of all persons acting in
concert would be limited in the aggregate to such maximum number of
securities in any three-month period. Two additional requirements of
Rule 144 which must be satisfied in complying with Rule 145 are that (1)
First Virginia must have been current for a period of twelve months
prior to the sale in the filing of all reports required by the
Securities and Exchange Commission (a condition which First Virginia
presently fulfills and which it will endeavor to fulfill in the
future), and (2) First Virginia securities must be sold in brokers'
transactions or in a transaction directly with a market maker in
the First Virginia security involved. A broker's transaction is
defined as a transaction in which a broker (i) does no more than
execute the order to sell the security, receiving no more than the
customary broker's commission and (ii) neither solicits nor arranges
for the solicitation of orders to buy the security in anticipation of or
in connection with the transaction.
If you have any questions about these restrictions either at
present or in the future, please feel free to contact me.
Please acknowledge your receipt of and agreement to these
restrictions by signing a copy of this letter and returning it to me.
Very truly yours,
Christopher M. Cole
Vice President and Assistant
General Counsel
CMC:nel
ACKNOWLEDGED AND AGREED:
___________________________________
(Name and date)
APPENDIX B
July 1, 1994
The Board of Directors
Farmers National Bancorp
5 Church Circle
Annapolis, Maryland 21401
Dear Sirs and Madam:
You have requested our opinion as to the fairness from a financial
point of view to the holders of the outstanding shares of Common
Stock, $1.00 par value per share (the "Shares") of Farmers National
Bancorp (the "Company") of the consideration to be received by the
Company's shareholders pursuant to the Agreement and Plan of
Reorganization dated as of July 1, 1994 between First Virginia Banks,
Inc. ("First Virginia") and the Company (the "Agreement"). Pursuant to
the Agreement, each of the Shares will receive (a) 1.50 shares of
First Virginia Common Stock, par value $1.00 per share ("First
Virginia Common Stock") (the "Stock Consideration") or (b) $58.53 in
cash (the "Cash Consideration") or (c) a combination of Stock
Consideration and Cash Consideration, subject to an election available
to the Company's shareholders as detailed in the Agreement
(collectively, the "Merger Consideration").
Alex. Brown & Sons Incorporated, as a customary part of its
investment banking business, is engaged in the valuation of
businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements and
valuations for estate, corporate and other purposes. We have acted as
financial advisor to the Board of Directors of the Company in
connection with the transactions described above and will receive a
fee for our services, a significant portion of which is contingent
upon the consummation of the transaction contemplated by the
Agreement. Alex. Brown & Sons Incorporated regularly publishes
research reports regarding the financial services industry and the
businesses and securities of publicly owned companies in that industry.
In connection with this opinion, we have reviewed certain
publicly available financial information concerning the Company and
First Virginia and certain internal financial analyses and other
information furnished to us by the Company and First Virginia. We
have also held discussions with members of the senior management of
the Company and First Virginia regarding the business and prospects of
the Company and First Virginia, respectively. In addition, we have (i)
reviewed the reported price and trading activity for the Shares and
First Virginia Common Stock, (ii) compared certain financial and stock
market information for the Company and First Virginia,
respectively, with similar information for certain comparable companies
whose securities are publicly traded, (iii) reviewed the Agreement and
compared the financial terms of the Agreement with those of certain
recent business combinations in the commercial banking industry which we
deemed comparable in whole or in part and (iv) performed such other
studies and analyses and considered such other factors as we deemed
appropriate.
We have not independently verified the information described
above and for purposes of this opinion have assumed the accuracy,
completeness and fairness thereof. With respect to information
relating to the prospects of the Company and First Virginia, we have
assumed that such information reflects the best currently available
estimates and judgments of the managements of the Company and First
Virginia, respectively, as to the likely future financial performance
of the Company and First Virginia. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities of the
Company or First Virginia, nor have we been furnished with any
such evaluation or appraisal. Our opinion is based on market,
economic and other conditions as they exist and can be evaluated as of
the date of this letter.
Based upon and subject to the foregoing, it is our opinion that,
as of the date of this letter, the Merger Consideration is fair, from
a financial point of view, to the holders of Shares.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
By: /s/ DONALD W. DELSON
Donald W. Delson
Managing Director
Appendix C
Subtitle 2. Rights of Objecting Stockholders
Section 3-201 "SUCCESSOR" DEFINED. - (a) Corporation amending
charter. In this subtitle, except as provided in subsection (b) of
this section, "successor" includes a corporation which amends its
charter in a way which alters the contract rights, as expressly set
forth in the charter, of any outstanding stock, unless the right to
do so is reserved by the charter of the corporation.
(b) Corporation whose stock is acquired. When used with
reference to a share exchange, "successor" means the corporation the
stock of which was acquired in the share exchange.
Section 3-202 RIGHT TO FAIR VALUE OF STOCK. - (a) General rule.
Except as provided in subsection (c) of this section, a stockholder of
a Maryland corporation has the right to demand and receive payment of
the fair value of the stockholder's stock from the successor if: (1)
The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange; (3)
The corporation transfers its assets in a manner requiring corporate
action under Section 3-105 of this title; (4) The corporation amends
its charter in a way which alters the contract rights, as expressly set
forth in the charter, of any outstanding stock and substantially
adversely affects the stockholder's rights, unless the right to do
so is reserved by the charter of the corporation; or (5) The
transaction is governed by Section 3-602 of this title or exempted by
Section 3- 603(b) of this title.
(b) Basis of fair value. (1) Fair value is determined as of the
close of business: (i) With respect to a merger under Section 3-106 of
this title of a 90 percent or more owned subsidiary into its parent,
on the day notice is given or waived under Section 3-106; or (ii)
With respect to any other transaction, on the day the
stockholders voted on the transaction objected to. (2) Except as
provided in paragraph (3) of this subsection, fair value may not
include any appreciation or depreciation which directly or
indirectly results from the transaction objected to or from its
proposal. (3) In any transaction governed by Section 3-602 of this
title or exempted by Section 3-603(b) of this title, fair value shall
be value determined in accordance with the requirements of Section
3-603(b) of this title.
(c) When right to fair value does not apply. Unless the
transaction is governed by Section 3-602 of this title or is exempted
by Section 3-603(b) of this title, a stockholder may not demand the
fair value of his stock and is bound by the terms of the transaction
if: (1) The stock is listed on a national securities exchange or is
designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers,
Inc.: (i) With respect to a merger under Section 3-106 of this title of
a 90 percent or more owned subsidiary into its parent, on the date
notice is given or waived under Section 3-106; or (ii) With respect
to any other transaction, on the record date for determining
stockholders entitled to vote on the transaction objected to; (2) The
stock is that of the successor in a merger, unless: (i) The merger
alters the contract rights of the stock as expressly set forth in the
charter, and the charter does not reserve the right to do so; or (ii)
The stock is to be changed or converted in whole or in part in the
merger into something other than either stock in the successor or
cash, scrip, or other rights or interests arising out of provisions
for the treatment of fractional shares of stock in the successor; or
(3) The stock is that of an open-end investment company registered
with the Securities and Exchange Commission under the Investment Company
Act of 1940 and the value placed on the stock in the transaction is its
net asset value.
Section 3-203 PROCEDURE BY STOCKHOLDER. - (a) Specific
duties. A stockholder of a corporation who desires to receive
payment of the fair value of his stock under this subtitle: (1)
Shall file with the corporation a written objection to the
proposed transaction: (i) With respect to a merger under Section 3- 106
of this title of a 90 percent or more owned subsidiary into its
parent, within 30 days after notice is given or waived under Section
3-106; or (ii) With respect to any other transaction, at or
before the stockholders' meeting at which the transaction will be
considered; (2) May not vote in favor of the transaction; and (3)
Within 20 days after the Department accepts the articles for record,
shall make a written demand on the successor for payment for his
stock, stating the number and class of shares for which he demands
payment.
(b) Failure to comply with section. A stockholder who fails
to comply with this section is bound by the terms of the
consolidation, merger, share exchange, transfer of assets, or charter
amendment.
Section 3-204 EFFECT OF DEMAND ON DIVIDEND AND OTHER RIGHTS. - A
stockholder who demands payment for his stock under this subtitle: (1)
Has no right to receive any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under
Section 3-202 of this subtitle, and (2) Ceases to have any rights of a
stockholder with respect to that stock, except the right to receive
payment of its fair value.
Section 3-205 WITHDRAWAL OF DEMAND. - A demand for payment may be
withdrawn only with the consent of the successor.
Section 3-206 RESTORATION OF DIVIDEND AND OTHER RIGHTS. - (a)
When rights restored. The rights of a stockholder who demands payment
are restored in full, if: (1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time
required by this subtitle; (3) A court determines that the stockholder
is not entitled to relief; or (4) The transaction objected to is
abandoned or rescinded.
(b) Effect of restoration. The restoration of a stockholder's
rights entitles him to receive the dividends, distributions, and other
rights he would have received if he had not demanded payment for his
stock. However, the restoration does not prejudice any corporate
proceedings taken before the restoration.
Section 3-207 NOTICE AND OFFER TO STOCKHOLDERS. - (a) Duty of
successor. (1) The successor promptly shall notify each objecting
stockholder in writing of the date the articles are accepted for record
by the Department. (2) The successor also may send a written offer to
pay the objecting stockholder what it considers to be the fair value
of his stock. Each offer shall be accompanied by the following
information relating to the corporation which issued the stock: (i) A
balance sheet as of a date not more than six months before the date
of the offer; (ii) A profit and loss statement for the 12 months ending
on the date of the balance sheet; and (iii) Any other information the
successor considers pertinent.
(b) Manner of sending notice. The successor shall deliver the
notice and offer to each objecting stockholder personally or mail
them to him by certified mail, return receipt requested, bearing a
postmark from the United States Postal Service, at the address he
gives the successor in writing, or, if none, at his address as it
appears on the records of the corporation which issued the stock.
Section 3-208 PETITION FOR APPRAISAL; CONSOLIDATION OF
PROCEEDINGS; JOINDER OF OBJECTORS. - (a) Petition for appraisal. Within
50 days after the Department accepts the articles for record, the
successor or an objecting stockholder who has not received payment
for his stock may petition a court of equity in the county where the
principal office of the successor is located or, if it does not have
a principal office in this State, where the resident agent of the
successor is located, for an appraisal to determine the fair value of
the stock.
(b) Consolidation of suits, joinder of objectors. (1) If more
than one appraisal proceeding is instituted, the court shall direct
the consolidation of all the proceedings on terms and conditions it
considers proper. (2) Two or more objecting stockholders may join or
be joined in an appraisal proceeding.
Section 3-209 NOTATION ON STOCK CERTIFICATE. - (a) Submission of
certificate. At any time after a petition for appraisal is filed, the
court may require the objecting stockholders parties to the proceeding
to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a
stockholder fails to comply with the order, the court may dismiss
the proceeding as to him or grant other appropriate relief.
(b) Transfer of stock bearing notation. If any stock
represented by a certificate which bears a notation is subsequently
transferred, the new certificate issued for the stock shall bear a
similar notation and the name of the original objecting stockholder.
The transferee of this stock does not acquire rights of any character
with respect to the stock other than the rights of the original
objecting stockholder.
Section 3-210 APPRAISAL OF FAIR VALUE. - (a) Court to appoint
appraisers. If the court finds that the objecting stockholder is
entitled to an appraisal of his stock, it shall appoint three
disinterested appraisers to determine the fair value of the stock on
terms and conditions the court considers proper. Each appraiser shall
take an oath to discharge his duties honestly and faithfully.
(b) Report of appraisers - Filing. Within 60 days after their
appointment, unless the court sets a longer time, the appraisers shall
determine the fair value of the stock as of the appropriate date and
file a report stating the conclusion of the majority as to the fair
value of the stock.
(c) Same - Contents. The report shall state the reasons for
the conclusion and shall include a transcript of all testimony and
exhibits offered.
(d) Same - Service; Objection. (1) On the same day that the
report is filed, the appraisers shall mail a copy of it to each party
to the proceedings. (2) Within 15 days after the report is filed, any
party may object to it and request a hearing.
Section 3-211 ACTION BY COURT ON APPRAISERS' REPORT. - (a) Order
of court. The court shall consider the report and, on motion of any
party to the proceeding, enter an order which: (1) Confirms, modifies,
or rejects it; and (2) If appropriate, sets the time for payment to the
stockholder.
(b) Procedure after order. (1) If the appraisers' report is
confirmed or modified by the order, judgment shall be entered
against the successor and in favor of each objecting stockholder
party to the proceeding for the appraised fair value of his stock. (2)
If the appraisers' report is rejected, the court may: (i) Determine the
fair value of the stock and enter judgment for the stockholder; or
(ii) Remit the proceedings to the same or other appraisers on terms and
conditions it considers proper.
(c) Judgment includes interest. (1) Except as provided in
paragraph (2) of this subsection, a judgment for the stockholder shall
award the value of the stock and interest from the date as at which
fair value is to be determined under Section 3-202 of this subtitle.
(2) The court may not allow interest if it finds that the failure of
the stockholder to accept an offer for the stock made under
Section 3-207 of this subtitle was arbitrary and vexatious or not in
good faith. In making this finding, the court shall consider: (i) The
price which the successor offered for the stock; (ii) The financial
statements and other information furnished to the stockholder; and
(iii) Any other circumstances it considers relevant.
(d) Costs of proceedings. (1) The costs of the proceedings,
including reasonable compensation and expenses of the appraisers,
shall be set by the court and assessed against the successor.
However, the court may direct the costs to be apportioned and
assessed against any objecting stockholder if the court finds that
the failure of the stockholder to accept an offer for the stock
made under Section 3-207 of this subtitle was arbitrary and vexatious
or not in good faith. In making this finding, the court shall
consider: (i) The price which the successor offered for the stock;
(ii) The financial statements and other information furnished to
the stockholder; and (iii) Any other circumstances it considers
relevant. (2) Costs may not include attorney's fees or expenses.
The reasonable fees and expenses of experts may be included only if:
(i) The successor did not make an offer for the stock under Section
3-207 of this subtitle; or (ii) The value of the stock determined in
the proceeding materially exceeds the amount offered by the successor.
(e) Effect of judgment. The judgment is final and conclusive
on all parties and has the same force and effect as other decrees in
equity. The judgment constitutes a lien on the assets of the successor
with priority over any mortgage or other lien attaching on or after the
effective date of the consolidation, merger, transfer, or charter
amendment.
Section 3-212 SURRENDER OF STOCK. - The successor is not required
to pay for the stock of an objecting stockholder or to pay a judgment
rendered against it in a proceeding for an appraisal unless,
simultaneously with payment: (1) The certificates representing the stock
are surrendered to it, indorsed in blank, and in proper form for
transfer; or (2) Satisfactory evidence of the loss or destruction
of the certificates and sufficient indemnity bond are furnished.
Section 3-213 RIGHTS OF SUCCESSOR WITH RESPECT TO STOCK. - (a)
General rule. A successor which acquires the stock of an objecting
stockholder is entitled to any dividends or distributions payable to
holders of record of that stock on a record date after the close of
business on the day as at which fair value is to be determined under
Section 3-202 of this subtitle.
(b) Successor in transfer of assets. After acquiring the
stock of an objecting stockholder, a successor in a transfer of assets
may exercise all the rights of an owner of the stock.
(c) Successor in consolidation, merger, or share exchange.
Unless the articles provide otherwise, stock in the successor of a
consolidation, merger, or share exchange otherwise deliverable in
exchange for the stock of an objecting stockholder has the status of
authorized but unissued stock of the successor. However, a proceeding
for reduction of the capital of the successor is not necessary to
retire the stock or to reduce the capital of the successor represented
by the stock.
