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Filed pursuant to Rule 424(b)(3)
Registration No. 333-35376
May 5, 2000
Proxy Statement of Prospectus of
Union National Bancorp, Inc. Mercantile Bankshares Corporation
relating to relating to 2,330,228
special meeting of stockholders shares of common stock
To: The Stockholders of Union National Bancorp, Inc.
Union National Bancorp, Inc.'s board of directors has unanimously approved a
merger agreement between Union and Mercantile Bankshares Corporation. Your
vote is needed to adopt the merger agreement.
In the merger each of your shares of Union common stock will be exchanged
for 1.15 shares of Mercantile common stock. Mercantile common stock is traded
on the Nasdaq National Market under the trading symbol "MRBK." In general, the
conversion of your Union shares into shares of Mercantile common stock will
not be taxable. As part of the merger, The Union National Bank of Westminster,
Union's wholly owned bank, will merge into Westminster Bank and Trust Company
of Carroll County, which is a bank wholly owned by Mercantile, and which will
be renamed Westminster Union Bank.
The merger cannot be completed unless it is approved by the holders of at
least two-thirds of the outstanding shares of Union common stock. Only
stockholders who hold their shares of Union common stock of record on the
close of business on April 24, 2000 will be entitled to vote at the special
meeting.
The board of directors of Union is soliciting your proxy for the special
meeting of stockholders to approve the merger. After careful consideration,
your board of directors has unanimously determined the merger to be in the
best interest of Union's stockholders and declared the merger advisable and
Union's board strongly encourages you to vote "for" the merger.
This prospectus and proxy statement provides you with detailed information
concerning Union, Mercantile and the merger. Please give the prospectus and
proxy statement your careful attention.
----------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the securities to be issued under
this prospectus and proxy statement or determined that this prospectus and
proxy statement is truthful and complete. Any representation to the contrary
is a criminal offense.
The date of this prospectus and proxy statement is May 5, 2000. This
prospectus and proxy statement is being mailed on or about this date.
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This prospectus and proxy statement incorporates important business and
financial information about Mercantile and Union that is not included in or
delivered with this document. This information is available without charge to
you upon your written or oral request. You may obtain documents incorporated
by reference in this prospectus and proxy statement by requesting them in
writing or by telephone from Mercantile at the following address and phone
number: Mercantile Bankshares Corporation, Mercantile Bank & Trust Building,
Two Hopkins Plaza, P. O. Box 1477, Baltimore, Maryland 21203, Attention:
Secretary (410) 237-5900.
If you would like to request documents, please do so by May 30, 2000 in
order to receive them before the special meeting.
<PAGE>
Union National Bancorp, Inc.
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Notice of Special Meeting of Stockholders
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A special meeting of stockholders of Union National Bancorp, Inc. will be
held at the Best Western Hotel, 451 WMC Drive, Westminster, Maryland 21157, on
June 6, 2000 at 10:00 a.m. for the following purposes:
1. To consider and approve the merger of Union National Bancorp, Inc.
into Mercantile Bankshares Corporation contemplated by the Agreement and
Plan of Affiliation and Merger, dated January 20, 2000, a copy of which is
attached as Annex A to the accompanying prospectus and proxy statement,
under which each share of common stock of Union, other than shares held by
Union's stockholders who properly perfect their dissenters' rights,
automatically will convert into 1.15 shares of common stock of Mercantile,
except that cash will be paid in lieu of fractional shares.
2. To transact such other business as may properly come before the
special meeting or any adjournments or postponements of the special
meeting.
Union's stockholders may, if the merger is approved and consummated, assert
dissenters' rights under Article 3, Subtitle 2 of the Maryland General
Corporation Law. Exercise of these rights requires strict compliance with the
procedures set forth in the applicable statute. A copy of Article 3, Subtitle
2 of the Maryland General Corporation Law is included as Annex C to the
accompanying prospectus and proxy statement.
The board of directors has fixed April 24, 2000, as the record date for the
special meeting and only holders of record of Union common stock at the close
of business on that date are entitled to receive notice of and to vote at the
special meeting or at any adjournments or postponements of the special
meeting.
By Order of the board of directors
K. WAYNE LOCKARD VIRGINIA W. SMITH
Chairman of the Board President
May 5, 2000
Please mark, sign, date and return your proxy promptly, whether or not you
plan to attend the special meeting.
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Table of Contents
<TABLE>
<S> <C>
Summary................................................................... 1
The companies........................................................... 1
The merger.............................................................. 1
No federal income tax on shares received in merger...................... 2
Comparison of stockholder rights........................................ 2
Share price data........................................................ 2
Summary Historical Financial Data......................................... 4
Comparative Unaudited Per Share Data...................................... 5
The Union Special Meeting................................................. 6
Date, place and time.................................................... 6
Purpose of the Union special meeting.................................... 6
Record date............................................................. 6
Voting information...................................................... 6
Solicitation of proxies................................................. 7
The Merger................................................................ 7
General................................................................. 7
Background of the merger................................................ 8
Recommendation of the Union board of directors and reasons for the
merger................................................................. 10
Opinion of Union's financial advisor.................................... 11
Effective date.......................................................... 18
Procedures for exchange of certificates................................. 18
Certain federal income tax consequences................................. 18
Accounting treatment.................................................... 19
Resale of Mercantile common stock after the merger by controlling
persons................................................................ 19
Conditions to the merger................................................ 20
Treatment of employee benefit plans..................................... 20
Exclusive dealing....................................................... 20
Termination............................................................. 21
Rights of dissenting stockholders....................................... 22
Certain Other Agreements.................................................. 23
The support agreement................................................... 23
Affiliate undertakings.................................................. 24
Supplemental agreements................................................. 24
Employment agreement.................................................... 24
Comparison of Stockholder Rights of Holders of Mercantile Common Stock and
Union Common Stock....................................................... 24
Description of Mercantile Capital Stock................................... 26
Legal Matters............................................................. 27
Experts................................................................... 27
Forward Looking Statements................................................ 28
Where You Can Find More Information....................................... 28
Annex A--Agreement and Plan of Affiliation and Merger..................... A-1
Annex B--Fairness Opinion of Sandler O'Neill & Partners, L.P. ............ B-1
Annex C--Dissenters' Rights Statutory Provisions.......................... C-1
</TABLE>
<PAGE>
Summary
This summary highlights selected information from this prospectus and proxy
statement. This summary may not contain all of the information that is
important to you. You should carefully read this entire prospectus and proxy
statement and the other documents to which we refer for a more complete
understanding of the merger. We also incorporate by reference important
business and financial information about Mercantile and Union. See "Where You
Can Find More Information" on page 28 on how to obtain copies of these
documents. In addition, we are delivering Union's 1999 annual report to
stockholders with this prospectus and proxy statement.
The companies (Page 28)
Mercantile Bankshares Corporation
Mercantile Bank & Trust Building
Two Hopkins Plaza
Baltimore, Maryland 21201
(410) 237-5900
Mercantile is a Maryland corporation registered as a multi-bank holding
company. Its principal operations are conducted by 17 affiliated banks in
Maryland, three banks in Virginia and one bank in Delaware, all of which are
wholly-owned by Mercantile, and a wholly-owned mortgage banking company. At
December 31, 1999, Mercantile, including these affiliates, had total assets of
approximately $7.9 billion, deposits of approximately $5.9 billion, and loans
of approximately $5.6 billion.
Westminster Bank and Trust Company of Carroll County is a wholly owned bank
of Mercantile which operates 10 banking offices in Maryland. At December 31,
1999, Westminster Bank and Trust had total assets of approximately $244
million, deposits of approximately $209 million, and loans of approximately
$162 million.
Union National Bancorp, Inc.
117 East Main Street
Westminster, Maryland 21157
(410) 848-7200
Union is a one-bank holding company. Its principal operations are conducted
by its wholly owned subsidiary, The Union National Bank of Westminster. Union
National Bank operates nine banking offices in the Carroll County, Maryland
area. At December 31, 1999, Union and Union National Bank had total assets of
approximately $303 million, deposits of approximately $232 million, and loans
of approximately $180 million.
The merger (Page 7)
General. In the merger, Union will merge into Mercantile and Union National
Bank will merge into Westminster Bank and Trust. Upon closing of the merger,
you will receive 1.15 shares of Mercantile common stock for each share of Union
common stock you own, plus cash instead of fractional shares. The ratio of one
Union share for 1.15 Mercantile shares is the exchange ratio. You should read
the agreement and plan of affiliation and merger attached as Annex A to this
prospectus and proxy statement.
Two-thirds stockholder vote required (Page 6). Approval of the merger
requires the affirmative vote of the holders of at least two-thirds of the
outstanding shares of Union common stock. Directors and executive officers of
Union owning an aggregate of 161,481.953 shares, constituting approximately 8%,
of the Union common stock have agreed to vote their shares to approve the
merger. Your failure to vote will have the effect of a vote against the merger.
The merger does not require the vote of Mercantile stockholders.
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Union board unanimously recommends stockholder approval (Page 10). Union's
board of directors believes that the merger is in the best interests of Union
and Union's stockholders and unanimously recommends that you vote for the
merger.
Exchange ratio is fair to Union's stockholders according to Union's financial
advisor (Page 11). Union's board has received the opinion of its financial
advisor, Sandler O'Neill & Partners, L.P., that the exchange ratio is fair,
from a financial point of view, to Union's stockholders. Its opinion is
attached as Annex B to this prospectus and proxy statement.
Conditions to affiliation (Page 20). The mutual obligation of Mercantile and
Union to complete the merger is subject to the requisite approval of the merger
by Union's stockholders. Additionally, the obligation of Mercantile to complete
the merger is subject to various conditions, including the receipt of all
appropriate regulatory approvals and that holders of not more than 10% of the
outstanding shares of Union common stock shall have exercised statutory
dissenters' rights.
Regulatory approvals we must obtain for the merger to occur (Page 20). We
cannot complete the merger without the consent of the Federal Deposit Insurance
Corporation, the Board of Governors of the Federal Reserve System, the Virginia
State Corporation Commission and the Maryland Commissioner of Financial
Regulation. We have made filings and notifications for these purposes.
Accounting treatment (Page 19). Mercantile will account for the merger as a
purchase.
Dissenters' rights (Page 22). Maryland law permits holders of Union common
stock to dissent from the merger and to have the fair value of their Union
common stock appraised by a court and paid to them in cash by Union. To do
this, holders of these shares must follow required procedures, including filing
notices with Union, and either abstaining or voting against the merger. If you
hold shares of Union common stock and you dissent from the merger and follow
the required procedures, your shares of Union common stock will not become
shares of Mercantile common stock. Instead, your only right will be to receive
the appraised value of your shares in cash. We have attached the applicable
provisions of Maryland law related to dissenters' rights as Annex C to this
prospectus and proxy statement.
No federal income tax on shares received in merger (Page 18)
We expect that the merger will qualify as a tax-free reorganization for
federal income tax purposes. Therefore, we expect that for federal income tax
purposes, you generally will not recognize any gain or loss on the conversion
of your shares of Union common stock into shares of Mercantile common stock.
You will recognize gain or loss depending on your circumstances for any cash
you receive instead of fractional shares of Mercantile common stock or cash you
receive if you properly exercise dissenters' rights. Tax matters are
complicated and the tax consequences of the merger may vary among stockholders.
We urge you to contact your own tax advisers to understand how the merger will
affect you.
Comparison of stockholder rights (Page 24)
Upon completion of the merger, Union's stockholders will become stockholders
of Mercantile, and their rights as stockholders of Mercantile will be governed
by the Maryland General Corporation Law, Mercantile's charter and Mercantile's
bylaws. The rights of Union's stockholders differ from those of the holders of
Mercantile common stock in a number of areas.
Share price data
Mercantile common stock is publicly traded and quoted on The Nasdaq National
Market under the Symbol "MRBK." Union common stock is quoted on the Nasdaq
SmallCap Market under the symbol "UNNL."
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The following table lists the closing price of shares of Mercantile Common
Stock and the equivalent value of a share of Union common stock on January 19,
2000, the last full trading day before the public announcement of the proposed
merger, and on May 1, 2000, the latest practicable date preceding the date of
this prospectus and proxy statement. The equivalent per share value of Union
common stock at the specified dates represents the closing price of a share of
Mercantile common stock on that date multiplied by the exchange ratio of 1.15.
The closing price of Union's common stock was $27.750 on January 19, 2000 and
$34.125 on May 1, 2000.
<TABLE>
<CAPTION>
Equivalent
per Share
Mercantile Value of Union
Common Stock Common Stock
------------ --------------
<S> <C> <C>
January 19, 2000................................. $30.125 $34.64
May 1, 2000...................................... $29.50 $33.925
</TABLE>
Because the market price of Mercantile common stock can fluctuate, the market
value of the Mercantile common stock that Union's stockholders will receive in
the merger may increase or decrease before the effective date of the merger.
Union's stockholders are urged to obtain current market quotations for
Mercantile common stock.
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Summary Historical Financial Data
The following table presents selected historical financial data of Mercantile
and Union. Mercantile's historical financial data for each of the annual
periods presented have been derived from its audited consolidated financial
statements previously filed with the Securities and Exchange Commission.
Union's selected historical financial data for each of the annual periods
presented has been derived from its audited consolidated financial statements
previously filed with the Securities and Exchange Commission. The summary
historical financial data set forth below does not purport to be complete.
Mercantile's and Union's audited financial statements contain further
information for each of the years presented, all of which are incorporated by
reference in this prospectus and proxy statement. See "Where You Can Find More
Information" on page 28.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------- --------- --------- --------- ---------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Mercantile Bankshares
Corporation
Net Interest Income......... $ 369,086 $ 353,365 $ 336,049 $ 310,581 $ 286,788
Provision for Loan Losses... 12,056 11,489 13,703 14,666 7,988
Other Operating Income...... 121,991 108,693 98,653 89,428 80,906
Income before Income Taxes.. 248,601 231,564 207,595 186,928 166,009
Net Income.................. 157,737 147,128 132,043 117,400 104,432
Cash Dividends Declared and
Paid on Common Stock....... 65,133 61,538 55,277 46,579 41,013
Basic Net Income Per Share
of Common Stock............ 2.27 2.05 1.85 1.64 1.46
Diluted Net Income Per Share
of Common Stock............ 2.25 2.04 1.84 1.64 1.46
Per Share Cash Dividends
Declared and Paid on Common
Stock...................... 0.94 0.86 0.77 0.65 0.57
Total Assets................ 7,895,024 7,609,563 7,170,669 6,642,681 6,349,103
Loans....................... 5,718,942 5,220,890 4,978,522 4,582,712 4,301,270
Long-Term Debt.............. 82,683 40,934 50,016 49,395 25,623
Union National Bancorp, Inc.
Net Interest Income......... $ 11,195 $ 10,541 $ 9,821 $ 9,262 $ 8,999
Provision for Loan Losses... 255 246 275 329 212
Other Operating Income...... 2,499 1,554 1,327 1,086 977
Income before Income Taxes.. 4,432 3,693 3,564 2,764 2,650
Net Income.................. 3,203 2,638 2,400 1,830 1,760
Cash Dividends Declared and
Paid on Common Stock....... 888 741 567 475 434
Basic Net Income Per Share
of Common Stock............ 1.68 1.43 1.30 1.00 0.96
Diluted Net Income Per Share
of Common Stock............ 1.67 1.43 1.30 1.00 0.96
Per Share Cash Dividends
Declared and Paid on Common
Stock...................... 0.46 0.40 0.31 0.26 0.24
Total Assets................ 302,928 283,913 250,781 255,131 218,891
Loans....................... 179,721 163,465 158,348 147,351 146,822
Long-Term Debt.............. 25,000 20,000 10,000 -- --
</TABLE>
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Comparative Unaudited Per Share Data
The following unaudited consolidated financial information reflects certain
comparative per share data relating to the merger. You should read this
information together with our historical financial statements contained in our
filings with the Securities and Exchange Commission. See "Where You Can Find
More Information" on page 28.
The following information is not necessarily indicative of the results of
operations or combined financial position that would have resulted had the
merger occurred at the beginning of the periods indicated, nor is it
necessarily indicative of results of operations in future periods.
The table below presents selected comparative consolidated unaudited per
share information
. for Mercantile on a historical basis and on a pro forma combined basis
assuming the merger had been effective during the period presented and
accounted for as a purchase; and
. for Union on a historical basis and a pro forma equivalent basis.
<TABLE>
<CAPTION>
Year Ended
December 31, 1999
-----------------
<S> <C>
Per Common Share:
Basic Net Income:
Union--historical........................................... $ 1.68
Union pro forma equivalent(1)............................... 2.60
Mercantile--historical...................................... 2.27
Mercantile pro forma combined(2)............................ 2.26
Diluted Net Income:
Union--historical........................................... 1.67
Union pro forma equivalent(1)............................... 2.58
Mercantile--historical...................................... 2.25
Mercantile pro forma combined(2)............................ 2.24
Cash Dividends Declared:
Union--historical........................................... 0.46
Union pro forma equivalent(1)............................... 1.08
Mercantile--historical...................................... 0.94
Mercantile pro forma combined(3)............................ 0.94
Book Value:
Union--historical........................................... 13.03
Union pro forma equivalent(1)............................... 17.04
Mercantile--historical...................................... 14.19
Mercantile pro forma combined............................... 14.82
</TABLE>
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(1) Union pro forma equivalent amounts represent Mercantile's pro forma
combined information multiplied by the exchange ratio of 1.15 shares of
Mercantile common stock for each share of Union common stock.
(2) Pro forma combined basic and diluted net income per share represents
historical basic and diluted net income per share of Mercantile adjusted
for the impact of the purchase of Union.
(3) Pro forma combined dividends per share represent historical dividends per
share paid by Mercantile. At the current quarterly rate, the annual
dividends would be $0.96 per share.
5
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The Union Special Meeting
Date, place and time
The Union special meeting will be held at the Best Western Hotel, 451 WMC
Drive, Westminster, Maryland 21157 on June 6, 2000, at 10:00 a.m.
Purpose of the Union special meeting
At the Union special meeting, Union's stockholders will consider and vote
upon the proposal to approve the merger of Union into Mercantile contemplated
by the merger agreement under which each share of Union common stock, other
than shares held by Union's stockholders who properly perfect their
dissenters' rights, automatically shall become and be converted into 1.15
shares of Mercantile common stock and cash in lieu of fractional shares of
Mercantile common stock.
Record date
Union's board of directors has fixed the close of business on April 24, 2000
as the record date for determining holders entitled to notice of and to vote
at the Union special meeting. Accordingly, only holders of record of Union
common stock at the close of business on the record date will be entitled to
notice of, and to cast their vote at, the special meeting. As of April 24,
2000, there were 1,965,349 shares of Union common stock issued and outstanding
held by approximately 436 holders of record.
Voting information
Each holder of record of shares of Union common stock on the record date is
entitled to cast one vote per share, in person or by properly executed proxy,
on any matter that may properly come before the Union special meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the shares of Union common stock outstanding on the record date is
necessary to constitute a quorum at the special meeting.
The approval of the merger requires the affirmative vote of the holders of
at least two-thirds of the outstanding shares of Union common stock entitled
to vote on the merger.
As of January 21, 2000, all directors and executive officers of Union owning
an aggregate of 161,481.953 shares, or approximately 8%, of Union's common
stock had executed agreements with Mercantile agreeing to vote their shares of
Union common stock to approve the merger. See "Certain Other Agreements--The
support agreement."
All shares of Union common stock represented by properly executed proxies
will, unless these proxies have been previously revoked, be voted in
accordance with the instructions indicated in these proxies. If no
instructions are indicated, these shares of Union common stock will be voted
to approve the merger. Union does not know of any matters other than as
described in the notice of the special meeting that are to come before the
special meeting. If any other matter or matters are properly presented for
action at the special meeting, the persons named in the enclosed form of proxy
and acting under the proxy will have the discretion to vote on all matters in
accordance with their best judgment, unless this authorization is withheld.
A stockholder who has given a proxy may revoke it at any time prior to its
exercise by
. Giving written notice of revocation on or prior to the date of the
special meeting to the corporate secretary of Union;
. Signing and returning a later dated proxy; or
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. Voting in person at the special meeting; however, mere attendance at the
special meeting will not in and of itself have the effect of revoking the
proxy.
Votes cast by proxy or in person at the special meeting will be tabulated to
determine whether or not a quorum is present. Where, as to any matter
submitted to Union's stockholders for a vote, proxies are marked as
abstentions, or Union's stockholders appear in person but abstain from voting,
these abstentions will be treated as shares that are present and entitled to
vote for purposes of determining the presence of a quorum. If a broker
indicates on the proxy that it does not have discretionary authority as to
certain shares to vote on a particular matter, those shares are also treated
as shares that are present and entitled to vote for quorum purposes. Because
the required vote of Union's stockholders on the merger is based upon the
total number of outstanding shares of Union common stock, the failure to
submit a proxy card, or the failure to vote in person at the special meeting
if a proxy card is not submitted, the abstention from voting and any broker
non-vote will, except for purposes of rights of dissenting stockholders, have
the same effect as a vote against the merger.
Solicitation of proxies
Proxies are being solicited by and on behalf of the Union board of
directors, and Union will bear the costs of its solicitation of proxies.
Solicitations may be made by mail, telephone, or personally by directors,
officers and employees of Union, none of whom will receive additional
compensation for performing these services. Union may retain a proxy
solicitation firm to assist in the solicitation. In addition, Union will make
arrangements with brokerage firms and other custodians, nominees and
fiduciaries to send proxy materials to their principals and will reimburse
these parties for their expenses. Mercantile will pay all the expenses of
printing and mailing the prospectus and proxy statement.
The Merger
The following is a description of the terms of the merger. This description
does not purport to be complete and is qualified by reference to the merger
agreement, which is attached to this prospectus and proxy statement as Annex A
and which is incorporated into this description by reference.
General
The merger agreement provides that, subject to the satisfaction or waiver of
the conditions set forth in the agreement, Union National Bank will become
affiliated with Mercantile by Union's merger into Mercantile, accompanied by
Union National Bank's merger into Westminster. The separate existences of
Union and Union National Bank will cease and Mercantile and Westminster
(renamed Westminster Union Bank), respectively, will be the surviving
corporations. Each share of Union common stock, other than shares held by
Union's stockholders who properly perfect their dissenters' rights,
automatically will become and be converted into 1.15 shares of Mercantile
common stock and the right to receive cash payment for fractional shares held.
Certificates for Union common stock shall be exchanged for certificates of
Mercantile common stock as described below.
Union's stockholders will own approximately three percent of the outstanding
Mercantile common stock following the merger, and the percentage of total
assets and the percentage of total liabilities represented by Union in
Mercantile will each be approximately four percent.
Union's board of directors has concluded that the terms of the merger and
the merger agreement are advisable and are fair to, and in the best interests
of, Union and Union's stockholders. After the merger, the former stockholders
of Union who become holders of Mercantile common stock will be stockholders in
a larger entity with equity traded on The Nasdaq National Market. Each Union
stockholder who becomes a holder of Mercantile common stock will possess the
same rights as other holders of Mercantile common stock, and former Union's
stockholders as a group will no longer be taking action at the Union corporate
level. See "Comparison of Stockholder Rights of Holders of Mercantile Common
Stock and Union Common Stock" and "Description of Mercantile capital stock."
7
<PAGE>
Background of the merger
From time to time the board of directors of Union has considered and analyzed
Union's strategic alternatives, including the prospects for Union continuing as
an independent entity and the possibility of strategic combinations with
various financial institutions in the mid-Atlantic region, and the potential
effect of these transactions on Union and its stockholders, employees,
customers, and the communities it serves. In addition, other financial
institutions have contacted members of the board of directors and/or senior
management of Union from time to time to express an interest in exploring a
business combination transaction with Union. The board of directors of Union
elected not to pursue these preliminary expressions of interest, believing it
to be in the best interests of Union's stockholders for Union to focus on
independently building a franchise by expanding its bank subsidiary and by
expanding the types of financial services it offers, such as mortgages, leases,
retirement benefit plans, investments, and insurance, and by providing greater
liquidity for Union's common stock through registration with the Securities and
Exchange Commission and listing on the Nasdaq SmallCap Market.
During 1999, the board of directors preliminarily explored the alternative
methods available to Union to maximize stockholder value, while serving each of
Union's other constituencies. Union's board was particularly concerned with how
to equitably address the lack of liquidity for stockholders with sizeable
holdings. On May 20, 1999, Union formally engaged Sandler O'Neill & Partners,
L.P., a nationally recognized investment banking firm, to act as a financial
advisor and to assist the board of directors with this analysis.
In its role as financial advisor, representatives of Sandler O'Neill met
numerous times with Union's board of directors to review Union's strategic
alternatives, including the competitive environment of the financial services
industry, strategic alternatives for enhancing stockholder value and liquidity
on a stand-alone basis, and the merger and acquisition market for financial
institutions generally. The board of directors identified and discussed two
institutions that could represent potential acquisitions for Union, however,
several informal meetings with representatives of the institutions failed to
generate sufficient interest in a business combination at that time. During the
meetings with Sandler O'Neill, Sandler O'Neill also reviewed selected financial
data with respect to several bank holding companies financially and otherwise
capable of engaging in a strategic business combination with Union.
In November, 1999, as a result of these studies and the lack of participation
by either of the institutions previously identified by the board, at the board
of directors' strategic planning retreat the board of directors approved a plan
to approach certain specified banks in the region that the board of directors
believed could address the needs of Union's constituencies while maximizing
stockholder value and liquidity. Prior to the board of directors taking this
action, with the assistance of Union's management, the board of directors
considered Union's future prospects, including various forecasts of earnings
and market share growth. Sandler O'Neill presented an analysis of the
discounted value of Union's common stock based upon these forecasts.
At the direction of Union's board of directors, Sandler O'Neill contacted
twelve financial institutions, including Mercantile, in December, 1999,
regarding their interest in engaging in a business combination with Union.
Union and Sandler O'Neill jointly selected the original twelve financial
institutions based on a number of factors, including a careful analysis of
their historical performance, current business, proposed plans and strategies,
market position, branch locations and other factors that would indicate that
the merger would provide substantial long-term benefits to Union's stockholders
and its constituencies.
Nine of the financial institutions responded with proposals, of which four
were either eliminated or withdrew their interest. The remaining five
institutions were requested to deliver to Sandler O'Neill a written proposal
containing the proposed terms upon which the party would be willing to enter
into a business combination transaction with Union.
At a special meeting of Union's board of directors held on December 30, 1999,
representatives of Sandler O'Neill reviewed with the board of directors the
terms of the proposals that had been received. Sandler O'Neill reviewed
selected financial data regarding each financial institution that had submitted
an indication of interest,
8
<PAGE>
including the historical stock prices of the bidders, the exchange ratios
quoted, the market premium provided by the bids, the ratio of the transaction
price to earnings per share, book value, net tangible book value, liquidity and
trading volume of the potential acquirors' stock. In addition, Sandler O'Neill
analyzed the trading multiples of the potential acquirors' stock and the
accretive or dilutive impact of the transaction, as well as projections for
Union's future earnings and the anticipated impact these projections have on
Union. The board of directors also considered the impact of a transaction on
the ability to improve the products offered to Union's customers, the effect of
the merger on Union's employees, and opportunities for employment with each
potential acquiror or its affiliates, and the commitment of each acquiror to
the communities that Union serves. Based on all of these factors, the board of
directors selected Mercantile, which proposed an exchange of 1.15 shares of
Mercantile common stock for each share of Union common stock, as the best of
the five potential acquirors.
At the December 30 meeting, Union's board of directors directed Union
management, together with Union's legal and financial advisors, to negotiate
with Mercantile for the acquisition of Union by Mercantile on terms and subject
to the conditions to be presented to and approved by the board of directors,
and subject to completion of due diligence. Union's board of directors also
took action at the December 30 meeting to exempt Mercantile from the Maryland
business combination and control share statutes.
At a special Union board of directors meeting on January 11, 2000, Union
management updated Union's board of directors regarding the status of
negotiations with Mercantile, and described an updated proposal from one of the
other potential acquirors. Union's management and a representative of Sandler
O'Neill described the results of two meetings with Mercantile and described
meetings and other conversations with the second potential acquiror. Union's
board of directors deliberated the likely terms, pricing, and termination
mechanisms of the prospective agreement with Mercantile.
At a special meeting of Union's board of directors on January 20, 2000,
Sandler O'Neill presented its financial analysis of the proposed transaction
and opined that the exchange ratio to be received in the proposed transaction
was fair, from a financial point of view, to Union's stockholders. Union's
legal counsel, Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC,
described the details of the transaction and explained the significant terms of
the merger agreement and related agreements.
Union's board of directors also considered the financial performance, stock
performance, growth prospects and other matters concerning Mercantile. Union's
board of directors specifically evaluated whether the proposal was in the best
interests of Union and its subsidiaries by considering the best interests of
the stockholders and other factors, including the social, legal and economic
effects on employees, customers, depositors, and communities served by Union,
and evaluated the consideration being offered in relation to the then current
market value of the stock of Union in a freely negotiated transaction, and
Union's board of directors' estimate of the future value of the stock of Union
as an independent entity. Based on the factors discussed above and considering
the following, Union's board of directors determined that the transaction was
fair to Union's stockholders from a financial standpoint:
. The 24.9% premium over market value of Union's common stock;
. That the offer equated to 2.95 times tangible book value;
. The increase of dividends to Union's stockholders of 130%, based on
current dividend rates paid by Mercantile;
. The liquidity and trading volume of Mercantile's common stock, which
significantly surpassed other potential acquirors;
. The ability of Mercantile to employ certain Union employees in open
positions with Mercantile's subsidiaries;
. The fact that the consideration to be paid was at a premium to the values
determined and compared favorably to premiums paid in other transactions;
and
9
<PAGE>
. The fact that, based on then-current market prices, the calculated value
of Mercantile's proposal exceeded the calculated value of the other
proposals received.
Following discussion, Union's board of directors voted unanimously to
approve the merger agreement and the transactions contemplated by it, and
related agreements, and recommended that the proposed merger be submitted for
consideration by Union's stockholders at a special stockholders' meeting.
Recommendation of the Union board of directors and reasons for the merger
Based on the following, Union's board of directors approved the merger
agreement and unanimously recommends that the holders of Union common stock
vote "for" the merger.
In reaching its determination that the terms of the merger are fair to, and
in the best interests of, Union and its stockholders, Union's board of
directors consulted with its legal and financial advisors, as well as with
Union's senior management, and considered a number of factors, including the
following:
. Union's board of directors' review, based in part on the presentation by
Union's management regarding its due diligence of Mercantile, of the
business, operations, earnings, financial condition and credit ratings of
Mercantile on both an historical and prospective basis, the enhanced
opportunities for operating efficiencies particularly in terms of
integration of operations, data processing and support functions that
could result from the merger, the enhanced opportunities for growth that
the merger would make possible and the respective contributions the
parties would bring to a combined institution;
. The opinion of Sandler O'Neill;
. Union's board of directors' belief, based upon an analysis of the
anticipated financial effects of the merger, that upon consummation of
the merger, Mercantile and its banking subsidiaries would continue to be
well capitalized institutions, the equity positions of which would be in
excess of all applicable regulatory capital requirements;
. The fact that previous inquiries and indications of interest by other
financial institutions regarding a potential business combination did not
result in a more favorable proposal for Union than Mercantile's proposal;
. Union's board of directors' belief that, in light of the reasons
discussed above, Mercantile was the most attractive choice as a long-term
affiliation partner of Union;
. The fact that Mercantile would be able to employ certain Union employees
in open positions with Mercantile's subsidiaries, and would be able to
offer Union's customers enhanced products and services;
. The expectation that the merger will generally be a tax-free transaction
to Union and its stockholders to the extent these stockholders receive
shares of Mercantile common stock;
. The current and prospective economic and regulatory environment and
competitive constraints facing the banking and financial institutions in
Union's market area; and
. The recent business combinations involving financial institutions, either
announced or completed, during the past year in the United States, the
state of Maryland and contiguous states and the effect of these
combinations on competitive conditions in Union's market area.
Union's board of directors considered as potentially negative the fact that
Union would no longer be an independent community-based bank owned primarily
by local residents.
Union's board of directors did not assign any specific or relative weight to
each of the foregoing factors in their considerations. We cannot guarantee
that any of the positive results listed above will be achieved.
10
<PAGE>
Opinion of Union's financial advisor
By letter agreement dated May 20, 1999, Union retained Sandler O'Neill as an
independent financial adviser in connection with Union's consideration of a
possible purchase of, or business combination with, a second party. Sandler
O'Neill is a nationally recognized investment banking firm whose principal
business specialty is financial institutions. In the ordinary course of its
investment banking business, Sandler O'Neill is regularly engaged in the
valuation of financial institutions and their securities in connection with
mergers and acquisitions and other corporate transactions.
Sandler O'Neill acted as financial adviser to Union in connection with the
merger and participated in certain of the negotiations leading to the merger
agreement. At the request of Union's board of directors, representatives of
Sandler O'Neill attended the January 20, 2000 meeting of Union's board at which
the board considered and approved the merger agreement. At the meeting, Sandler
O'Neill delivered to Union's board its oral opinion, subsequently confirmed in
writing, that, as of that date, the exchange ratio was fair to Union's
stockholders from a financial point of view. Sandler O'Neill has also delivered
to Union's board a written opinion dated the date of this prospectus and proxy
statement which is substantially identical to the January 20, 2000 opinion.
The full text of Sandler O'Neill's opinion is attached as Annex B to this
prospectus and proxy statement. The opinion outlines the procedures followed,
assumptions made, matters considered and qualifications and limitations on the
review undertaken by Sandler O'Neill in rendering the opinion. The opinion is
incorporated by reference into this description of the opinion, and this
description is qualified in its entirety by reference to the opinion. Union's
stockholders are urged to carefully read the opinion in connection with their
consideration of the proposed merger.
Sandler O'Neill's opinion was directed to Union's board and was provided for
its information in considering the merger. The opinion is directed only to the
fairness of the exchange ratio to Union's stockholders from a financial point
of view. It does not address the underlying business decision of Union to
engage in the merger or any other aspect of the merger and is not a
recommendation to any Union stockholder as to how that stockholder should vote
at the special meeting with respect to the merger or any other related matter.
In rendering its January 20, 2000 opinion, Sandler O'Neill performed a
variety of financial analyses. The following is a summary of the material
analyses performed by Sandler O'Neill, but is not a complete description of all
the analyses underlying Sandler O'Neill's opinion. The preparation of a
fairness opinion is a complex process involving subjective judgments as to the
most appropriate and relevant methods of financial analysis and the application
of those methods to the particular circumstances. The process, therefore, is
not necessarily susceptible to a partial analysis or summary description.
Sandler O'Neill believes that its analyses must be considered as a whole and
that selecting portions of the factors and analyses considered without
considering all factors and analyses, or attempting to ascribe relative weights
to some or all factors and analyses, could create an incomplete view of the
evaluation process underlying its opinion. Also, no company included in Sandler
O'Neill's comparative analyses described below is identical to Union or
Mercantile and no transaction is identical to the merger. Accordingly, an
analysis of comparable companies or transactions involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading values or merger transaction values, as the case may be, of Mercantile
and Union and the companies to which they are being compared.
The earnings projections for Union relied upon by Sandler O'Neill in its
analyses were reviewed with management and were based upon internal projections
for the year ending December 31, 2000 provided to Sandler O'Neill by Union. The
2000 earnings projections for Union were prepared for internal purposes and not
with a view towards public disclosure. Mercantile did not provide internal
earnings projections. The earnings per share projections for Mercantile relied
upon by Sandler O'Neill in its analyses were reviewed with management and were
based upon published IBES consensus earnings per share estimates for 2000. For
periods after 2000, Sandler O'Neill assumed, with the consent of management, an
annual growth rate on earning assets of 5% for both companies. Those
projections, as well as the other earnings estimates relied upon by Sandler
O'Neill in its
11
<PAGE>
analyses, were based on numerous variables and assumptions which are inherently
uncertain and accordingly, actual results could vary materially from those set
forth in those projections.
In performing its analyses, Sandler O'Neill also made numerous assumptions
with respect to industry performance, business and economic conditions and
various other matters, many of which cannot be predicted and are beyond the
control of Union, Mercantile and Sandler O'Neill. The analyses performed by
Sandler O'Neill are not necessarily indicative of actual values or future
results, which may be significantly more or less favorable than suggested by
these analyses. Sandler O'Neill prepared its analyses solely for purposes of
rendering its opinion and provided its analyses to Union's board at the January
20th meeting. Estimates on the values of companies do not purport to be
appraisals or necessarily reflect the prices at which companies or their
securities may actually be sold. These estimates are inherently subject to
uncertainty and actual values may be materially different. Accordingly, Sandler
O'Neill's analyses do not necessarily reflect the value of Union common stock
or Mercantile common stock or the prices at which Union common stock or
Mercantile common stock may be sold at any time.
Summary of Proposal. Sandler O'Neill reviewed the financial terms of the
proposed transaction. Based on the closing price of Mercantile common stock on
January 19, 2000 of $30.125 and an exchange ratio of 1.15, Sandler O'Neill
calculated an implied transaction value per share of Union common stock of
$34.65. The implied aggregate transaction value was approximately $68.6
million, based upon 1,980,246 fully diluted shares of Union common stock
outstanding, which was determined using the treasury stock method at the
implied value of $34.65. Based upon the implied transaction value and Union's
September 30, 1999 financial information, Sandler O'Neill calculated the
following ratios:
<TABLE>
<S> <C>
Implied value/Book value............................................ 2.69x
Implied value/Tangible book value................................... 2.95x
Implied value/Projected 1999 Union EPS.............................. 21.39x
Implied value/Projected 2000 Union EPS.............................. 20.14x
</TABLE>
For purposes of Sandler O'Neill's analyses, earnings per share were based on
fully diluted earnings per share. Sandler O'Neill noted that the implied
transaction value represented a 24.9% premium over the January 19, 2000 closing
price of Union common stock of $27.75.
Stock Trading History. Sandler O'Neill reviewed the history of the reported
trading prices and volume of Union common stock and Mercantile common stock,
and the relationship between the movements in the prices of Union common stock
and Mercantile common stock, respectively, to movements in certain stock
indices, including the Standard & Poor's 500 Index, the NASDAQ Bank Index and
the median performance of a composite group of publicly traded regional
commercial banks of comparable size selected by Sandler O'Neill. During the one
year period ended January 18, 2000, the Union common stock outperformed the
NASDAQ Bank Index and its composite group and underperformed the S&P Index,
while the Mercantile common stock underperformed the S& P Index and NASDAQ Bank
Index and outperformed its composite group.
Comparable Company Analysis. Sandler O'Neill used publicly available
information to compare selected financial and market trading information for
Union and two groups of commercial banks selected by Sandler O'Neill. The
regional group consisted of Union and the following 16 publicly traded regional
commercial banks:
1st State Bancorp, Inc. C&F Financial Corp.
Calvin B. Taylor Bankshares Citizens Financial Services
Codorus Valley Bancorp, Inc. DNB Financial Corp.
First Keystone Corp. First Leesport Bancorp, Inc.
Juniata Valley Financial Corp. NewSouth Bancorp, Inc.
Norwood Financial Corp. Peoples Financial Corp.
Resource Bankshares Corp. Southern Financial Bancorp
Talbot Bancshares, Inc. Yadkin Valley Bank and Trust
12
<PAGE>
The highly valued group consisted of the following 10 publicly traded
commercial banks which had a return on average equity of greater than 16%
(based on last twelve months' earnings) and a price-to-tangible book value of
greater than 200%:
Bank of the Sierra Borel Bank & Trust Co.
Boston Private Financial Bridge View Bancorp
Bryn Mawr Bank Corp. Cascade Bancorp
City Bank SJNB Financial Corp.
Summit Bancshares, Inc. S.Y. Bancorp, Inc.
The analysis compared publicly available financial information for Union and
the median data for each of the regional group and highly valued group as of
and for each of the years ended December 31, 1994 through 1998 and as of and
for the twelve months ended September 30, 1999. The table below sets forth the
comparative data as of and for the twelve months ended September 30, 1999.
<TABLE>
<CAPTION>
Regional Highly
Union Group Valued Group
------------ ------------ ------------
<S> <C> <C> <C>
Total assets..................... $308,629,000 $308,629,000 $423,645,000
Annual growth rate of total
assets.......................... 10.53% 10.53% 13.91%
Tangible equity/total assets..... 7.46% 9.15% 8.26%
Intangible assets/total equity... 8.82% 0.00% 0.83%
Net loans/total assets........... 56.54% 65.66% 77.38%
Cash and securities/total
assets.......................... 39.52% 32.29% 18.01%
Gross loans/total deposits....... 79.13% 81.84% 90.33%
Total borrowings/total assets.... 19.04% 6.46% 3.86%
Non-performing assets/total
assets.......................... .09% .24% .34%
Loan loss reserves/gross loans... 1.02% 1.41% 1.37%
Net interest margin.............. 4.60% 4.08% 5.74%
Loan loss provision/average
assets.......................... .08% .08% .19%
Non-interest income/average
assets.......................... .69% .66% 1.54%
Non-interest expense/average
assets.......................... 2.96% 2.78% 3.72%
Efficiency ratio................. 58.67% 58.67% 54.38%
Return on average assets......... 1.03% 1.11% 1.63%
Return on average equity......... 12.91% 12.21% 18.19%
Price/tangible book value per
share........................... 235.51% 149.07% 246.06%
Price/earnings per share......... 16.44x 14.58x 14.13x
Dividend yield................... 1.62% 2.71% 2.08%
Dividend payout ratio............ 26.79% 30.56% 26.42%
</TABLE>
Sandler O'Neill also used publicly available information to perform a similar
comparison of selected financial and market trading information for Mercantile
and two different groups of commercial banks. The Mercantile regional group
consisted of Mercantile and the following 9 publicly traded regional commercial
banks:
CCB Financial Corp. Centura Banks, Inc.
Commerce Bancorp, Inc. First Citizens BancShares, Inc.
First Virginia Banks, Inc. Fulton Financial Corp.
Keystone Financial, Inc. Valley National Bancorp
Wilmington Trust Corp.
13
<PAGE>
The high performing group consisted of the following 9 publicly traded
commercial banks that had a return on average equity of greater than 16% (based
on last twelve months' earnings) and a price to tangible book value of greater
than 200%:
Associated Banc-Corp CCB Financial Corp.
Cullen/Frost Bankers, Inc. BOK Financial Corp.
Imperial Bancorp National Commerce Bancorp
North Fork Bancorp TCF Financial Corp.
Wilmington Trust Corp.
The analysis compared publicly available financial information for Mercantile
with the median data for each of the Mercantile regional group and high
performing group as of and for each of the years ended December 31, 1994
through 1998 and as of and for the twelve months ended September 30, 1999. The
table below sets forth the comparative data as of and for the twelve months
ended September 30, 1999.
<TABLE>
<CAPTION>
High
Performing
Mercantile Regional Group Group
-------------- -------------- --------------
<S> <C> <C> <C>
Total assets............... $7,758,163,000 $7,372,915,000 $7,845,894,000
Annual growth rate of total
assets.................... 4.69% 4.43% 11.75%
Tangible equity/total
assets.................... 11.81% 8.90% 5.98%
Intangible assets/total
equity.................... 5.47% 9.84% 12.79%
Net loans/total assets..... 69.42% 67.25% 58.80%
Cash and securities/total
assets.................... 26.73% 26.73% 28.78%
Gross loans/total
deposits.................. 93.10% 89.26% 88.65%
Total borrowings/total
assets.................... 10.14% 8.72% 18.88%
Non-performing assets/total
assets.................... .36% .33% .33%
Loan loss reserves/gross
loans..................... 2.12% 1.31% 1.40%
Net interest margin........ 5.14% 4.56% 4.18%
Loan loss provision/average
assets.................... .12% .15% .18%
Non-interest income/average
assets.................... 1.57% 1.56% 1.57%
Non-interest
expense/average assets.... 3.03% 3.29% 3.60%
Efficiency ratio........... 46.25% 56.20% 53.98%
Return on average assets... 2.05% 1.62% 1.61%
Return on average equity... 15.91% 15.85% 20.34%
Price/tangible book value
per share................. 226.67% 224.89% 296.82%
Price/earnings per share... 13.69x 13.35x 12.75x
Dividend yield............. 3.05% 3.06% 2.57%
Dividend payout ratio...... 41.82% 41.82% 37.88%
</TABLE>
Analysis of Selected Merger Transactions. Sandler O'Neill reviewed certain
other transactions announced from January 1, 1999 to January 10, 2000 involving
publicly traded commercial banks as acquired institutions with transaction
values greater than $15 million. Sandler O'Neill reviewed 147 transactions
announced nationwide and 19 transactions announced in the Mid- Atlantic region,
comprised of Washington, D.C., Delaware, Maryland, New Jersey, Virginia, North
Carolina and Pennsylvania.
Sandler O'Neill reviewed the multiples of transaction value to last four
quarters' earnings, transaction value to book value, transaction value to
tangible book value, tangible book premium to core deposits and transaction
value to total assets and computed high, low, mean and median multiples and
premiums for the respective groups of transactions. These multiples were
applied to Union's financial information as of and for the twelve months ended
September 30, 1999. As illustrated in the following table, Sandler O'Neill
derived an imputed range of values per share of Union common stock of $32.06 to
$38.52 based upon the median multiples for nationwide transactions and $33.85
to $37.93 based upon the median multiples for mid-Atlantic transactions. As
calculated by Sandler O'Neill, the implied transaction value per share of Union
common stock in the merger was $34.65.
14
<PAGE>
<TABLE>
<CAPTION>
Nationwide Mid-Atlantic
Transactions Transactions
---------------- ----------------
Median Implied Median Implied
Multiple Value Multiple Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
Transaction price/LTM EPS................. 21.5x $33.80 23.9x $37.58
Transaction price/Book value.............. 2.56x 32.88 2.77x 35.55
Transaction price/Tangible book value..... 2.74x 32.06 2.89x 33.85
Tangible book premium/Core deposits....... 20.7% 35.13 21.6% 36.06
Transaction Price/Total assets............ 23.8% 38.52 23.4% 37.93
</TABLE>
Discounted Dividend Stream and Terminal Value Analysis. Sandler O'Neill also
performed an analysis which estimated the future stream of after-tax dividend
flows of Union through December 31, 2003 under various circumstances, assuming
Union's current dividend payout ratio and that Union performed in accordance
with the earnings forecasts reviewed with management. To approximate the
terminal value of Union common stock at December 31, 2003, Sandler O'Neill
applied price/earnings multiples ranging from 12x to 22x and applied multiples
of tangible book value ranging from 175% to 300%. The dividend income streams
and terminal values were then discounted to present values using different
discount rates ranging from 9% to 15% chosen to reflect different assumptions
regarding required rates of return of holders or prospective buyers of Union
common stock. As illustrated in the following table, this analysis indicated an
imputed range of values per share of Union common stock of $16.77 to $36.10
when applying the price/earnings multiples and $19.80 to $40.20 when applying
multiples of tangible book value. As calculated by Sandler O'Neill, the implied
transaction value per share of Union common stock in the merger was $34.65.
<TABLE>
<CAPTION>
Tangible Book
Price/Earnings Value
Multiples Multiples
--------------- -------------
Discount Rate 12x 22x 1.75x 3.00x
------------- ------- ------- ------ ------
<S> <C> <C> <C> <C>
9%.......................................... $ 20.83 $ 36.10 $24.66 $40.20
11........................................... 19.37 33.47 22.91 37.26
13........................................... 18.02 31.05 21.29 34.55
15........................................... 16.77 28.81 19.80 32.05
</TABLE>
In connection with its analysis, Sandler O'Neill considered and discussed
with Union's board how the present value analysis would be affected by changes
in the underlying assumptions, including variations with respect to the growth
rate of assets, net interest spread, non-interest income, non-interest expenses
and dividend payout ratio. Sandler O'Neill noted that the discounted dividend
stream and terminal value analysis is a widely used valuation methodology, but
the results of this methodology are highly dependent upon the numerous
assumptions that must be made and are not necessarily indicative of actual
values or future results.
Pro Forma Merger Analysis. Sandler O'Neill analyzed certain potential pro
forma effects of the merger, based upon the exchange ratio of 1.15, Union's
current and projected income statements and balance sheets, Mercantile's
current income statements and balance sheets and other available financial
information with respect to Mercantile and assumptions regarding the economic
environment, accounting and tax treatment of the merger, charges associated
with the merger, operating efficiencies and other adjustments discussed with
the senior managements of Union and Mercantile. As illustrated in the following
table, for the twelve months ending December 31, 2000 this analysis indicated
that the merger would be accretive to Mercantile's annualized cash earnings per
share and dilutive to earnings per share and tangible book value per share
assuming the merger is completed in the second quarter of 2000 and Mercantile
repurchases an equal number of shares to those issued in connection with the
merger. The analysis also indicated that, from a Union stockholder's
perspective, as compared to the projected stand-alone performance of Union, the
merger would be accretive to Union's projected annualized earnings per share,
dividend and tangible book value per share for the twelve months ending
December 31, 2000. The actual results achieved by Mercantile and Union may vary
from projected results and the variations may be material.
15
<PAGE>
<TABLE>
<CAPTION>
Mercantile(1) Union
--------------- ---------------
Stand- Pro Stand- Pro
Twelve months ending December 31, 2000 alone Forma alone Forma(2)
-------------------------------------- ------- ------ ------ --------
<S> <C> <C> <C> <C>
Projected EPS.................................. $ 2.45 $ 2.44 $1.72 $2.81
Projected cash EPS............................. 2.51 2.55 NM NM
Projected tangible book value.................. 15.17 14.38 13.31 16.53
Projected dividend............................. 1.01 1.01 .48 1.17
Projected leverage capital ratio............... 12.69% 11.46% NM NM
</TABLE>
- --------
(1) These are projections derived by Sandler O'Neill; the earnings projections
for Mercantile relied upon by Sandler O'Neill in its analyses were reviewed
with management and were based upon published IBES consensus earnings per
share estimates for 2000.
(2) Determined by multiplying the Mercantile values by the exchange ratio of
1.15.
Contribution Analysis. Sandler O'Neill reviewed the relative contributions to
be made by Union and Mercantile to the combined institution based on data at
and for the nine months ended September 30, 1999. This analysis indicated that
the implied contributions to the combined entity were as follows:
<TABLE>
<CAPTION>
Union Mercantile
----- ----------
<S> <C> <C>
Total assets................................................. 3.83% 96.17%
Total net loans.............................................. 3.14 96.86
Goodwill..................................................... 4.03 95.97
Total deposits............................................... 3.63 96.37
Total borrowings............................................. 6.95 93.05
Tangible equity.............................................. 2.45 97.55
Total equity................................................. 2.54 97.46
GAAP earnings for the quarter ended Sept. 30, 1999........... 2.10 97.90
GAAP earnings for the last 9 months ended Sept. 30, 1999..... 1.94 98.06
Percentage of pro forma shares owned(1)...................... 3.18 96.82
</TABLE>
- --------
(1) Determined using an exchange ratio of 1.15.
In connection with rendering its January 20, 2000 opinion, Sandler O'Neill
reviewed, among other things:
. The merger agreement and its exhibits;
. Certain publicly available financial statements of Union and other
historical financial information provided by Union that it deemed
relevant;
. Certain publicly available financial statements of Mercantile and other
historical financial information provided by Mercantile that it deemed
relevant;
. Certain internal financial analyses and forecasts of Union prepared by
and/or reviewed with management of Union and the views of senior
management of Union, based on certain limited discussions with certain
members of senior management, regarding Union's past and current
business, financial condition, results of operations and future
prospects;
. Consensus earnings per share estimates for Mercantile published by IBES
for the year ending December 31, 2000 and the views of senior management
of Mercantile, based on certain limited discussions with certain members
of senior management, regarding Mercantile's past and current business,
financial condition, results of operations and future prospects;
. The pro forma impact of the merger;
. The publicly reported historical price and trading activity for Union and
Mercantile common stock, including a comparison of certain financial and
stock market information for Union and Mercantile with similar publicly
available information for certain other companies the securities of which
are publicly traded;
16
<PAGE>
. The financial terms of recent business combinations in the commercial
banking industry, to the extent publicly available;
. The current market environment generally and the banking environment in
particular; and
. Such other information, financial studies, analyses and investigations
and financial, economic and market criteria as it considered relevant.
In connection with rendering its opinion, Sandler O'Neill confirmed the
appropriateness of its reliance on the analyses used to render its January 20,
2000 opinion by performing procedures to update certain of the analyses and by
reviewing the assumptions upon which the analyses were based and the other
factors considered in rendering its opinion.
In performing its reviews and analyses, Sandler O'Neill assumed and relied
upon the accuracy and completeness of all the financial information, analyses
and other information that was publicly available or otherwise furnished to,
reviewed by or discussed with, it, and Sandler O'Neill did not assume any
responsibility or liability for independently verifying the accuracy or
completeness of any of the information. Sandler O'Neill did not make an
independent evaluation or appraisal of the assets, the collateral securing
assets or the liabilities, contingent or otherwise, of Union or Mercantile or
any of their respective subsidiaries, or the collectibility of any of these
assets, nor was it furnished with any evaluations or appraisals. Sandler
O'Neill is not an expert in the evaluation of allowances for loan losses, and
it has not made an independent evaluation of the adequacy of the allowance for
loan losses of Union or Mercantile, nor has it reviewed any individual credit
files relating to Union or Mercantile. With Union's consent, Sandler O'Neill
has assumed that the respective allowances for loan losses for both Union and
Mercantile are adequate to cover losses and will be adequate on a pro forma
basis for the combined entity. In addition, Sandler O'Neill has not conducted
any physical inspection of the properties or facilities of Union or
Mercantile. With respect to all financial projections reviewed with each
company's management and used by Sandler O'Neill in its analyses, Sandler
O'Neill assumed that they reflected the best currently available estimates and
judgments of the respective managements of the respective future financial
performances of Union and Mercantile and that these performances will be
achieved. Sandler O'Neill expressed no opinion as to the financial projections
or the assumptions on which they were based.
Sandler O'Neill's opinion was necessarily based upon market, economic and
other conditions as they existed on, and could be evaluated as of, the date of
its opinion. Sandler O'Neill assumed, in all respects material to its
analysis, that all of the representations and warranties contained in the
merger agreement and all related agreements are true and correct, that each
party to the agreements will perform all of the covenants required to be
performed by it under these agreements and that the conditions precedent in
the merger agreement are not waived. Sandler O'Neill also assumed, with
Union's consent, that there has been no material change in Union's or
Mercantile's assets, financial condition, results of operations, business or
prospects since the date of the last publicly filed financial statements made
available to them, that Union and Mercantile will remain as going concerns for
all periods relevant to its analyses, and that the merger will qualify as a
tax-free reorganization for federal income tax purposes.
Union has agreed to pay Sandler O'Neill a transaction fee in connection with
the merger, a substantial portion of which is contingent upon the closing of
the merger. Based on the closing price of Mercantile common stock on May 1,
2000, the latest practicable date prior to the date of this prospectus and
proxy statement, Union would pay Sandler O'Neill a transaction fee of
approximately $605,000, of which $100,000 has been paid and the balance will
be paid when the merger is closed. Union has also paid Sandler O'Neill a fee
of $75,000 for rendering its fairness opinion, which will be credited against
that portion of the transaction fee due upon closing of the merger. Union has
also agreed to reimburse Sandler O'Neill for its reasonable out-of-pocket
expenses incurred in connection with its engagement and to indemnify Sandler
O'Neill and its affiliates and their respective partners, directors, officers,
employees, agents, and controlling persons against certain expenses and
liabilities, including liabilities under securities laws.
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Sandler O'Neill has in the past provided certain other investment banking
services to Union and has received compensation for these services. In the
ordinary course of its business as a broker-dealer, Sandler O'Neill may also
purchase securities from and sell securities to Union and Mercantile and may
actively trade the equity or debt securities of Union and Mercantile and their
respective affiliates for its own account and for the accounts of customers
and, accordingly, may at any time hold a long or short position in these
securities.
Effective date
As soon as practicable after the performance of all agreements and
obligations of the parties under the merger agreement and upon fulfillment or
waiver of all conditions precedent contained in the merger agreement,
Mercantile and Union will execute and deliver Articles of Merger, and will file
the Articles of Merger with the State Department of Assessments and Taxation of
Maryland. The merger will become effective on the date and time as set forth in
the Articles of Merger as filed with the State Department of Assessments and
Taxation of Maryland.
Procedures for exchange of certificates
On and after the effective date of the merger, certificates for shares of
Union common stock will represent the right to receive certificates
representing the number of whole shares of Mercantile common stock and cash in
lieu of fractional shares. Certificates representing shares of Union common
stock may be exchanged after the effective date by surrendering these
certificates to The Bank of New York, acting as exchange agent, or any other
exchange agent as Mercantile may select, in exchange for new certificates
representing the appropriate number of whole shares of Mercantile common stock
determined by the exchange ratio and for cash in lieu of any fractional shares.
No certificates for fractional shares of Mercantile common stock shall be
issued but, in lieu of fractional shares, and solely as a mechanism for
rounding shareholdings to whole shares, Mercantile will pay cash for fractional
shares on the basis of the closing price for Mercantile common stock as
reported by The Nasdaq National Market on the effective date of the merger (or
if no closing price is reported on that date, then the closing price on the
next preceding day on which there is a closing price), without interest, upon
surrender of certificates for Union common stock representing these fractional
shares. No holder will be entitled to dividends, voting rights or any other
rights of stockholders in respect of any fractional share.
Shortly after the effective date of the merger, Union's stockholders will
receive transmittal forms and instructions as to the time and method of
surrendering their certificates. Until surrendered, certificates formerly
representing shares of Union common stock, other than shares of dissenting
stockholders, will be deemed for all corporate purposes to evidence the number
of whole shares of Mercantile common stock that a holder would be entitled to
receive upon surrender and the cash to be paid in lieu of fractional shares.
Dividends and other distributions, if any, that become payable on whole shares
of Mercantile common stock pending exchange of certificates representing shares
of Union common stock will be retained by Mercantile or the exchange agent
until surrender of the certificates, at which time those dividends and any
other distributions will be paid without interest.
Union's stockholders should not forward stock certificates until they have
received transmittal forms and instructions. Union's stockholders should not
return stock certificates with the enclosed proxy.
Certain federal income tax consequences
The following is a summary of the anticipated material federal income tax
consequences of the merger; it is not intended to be a complete description of
those consequences. The matters set forth in paragraphs below are based upon
the opinion of Venable, Baetjer and Howard, LLP, counsel to Mercantile:
. The merger of Union and Mercantile will qualify as a tax-free
reorganization within the meaning of Section 368(a)(1)(A) of the Internal
Revenue Code of 1986, to which Mercantile and Union will each be a party;
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. No gain or loss will be recognized by Mercantile or Union in the merger;
. No gain or loss will be recognized by Union's stockholders upon receipt
by them of Mercantile common stock in exchange for Union common stock in
the merger;
. The tax basis of the Mercantile common stock received by Union's
stockholders will be the same as the tax basis of the Union common stock
surrendered and exchanged for the Mercantile common stock, decreased by
the amount of any cash received and increased by the amount of gain
recognized, if any; and
. Provided that the Union common stock is held as a capital asset, the
holding period of the Mercantile common stock received by Union's
stockholders will include the holding period during which the Union
common stock surrendered in exchange for the Mercantile common stock was
held.
Union's obligation to close the merger is subject to the receipt of an
opinion of Venable, Baetjer and Howard, LLP, counsel to Mercantile, or any
other qualified law firm as Mercantile selects, with respect to the federal
income tax consequences of the merger, substantially to the effect of the
paragraphs above. This opinion will not address the state, local or foreign tax
aspects of the merger.
Any cash received by Union's stockholders, whether as a result of the
exercise of their dissenters' rights or in lieu of the issuance of fractional
shares, could result in taxable income to these Union's stockholders. The
receipt of this cash generally will be treated as a sale or exchange of the
stock resulting in capital gain or loss measured by the difference between the
cash received and an allocable portion of the basis of the stock relinquished.
The receipt of this cash may be treated as a dividend and taxed as ordinary
income in certain limited situations.
The discussion set forth above is included for general information only. It
does not address the state, local or foreign tax aspects of the merger. In
addition, it does not discuss the federal income tax considerations that may be
relevant to certain persons, and may not apply to certain holders subject to
special tax rules, including dealers in securities and foreign holders. The
discussion is based upon currently existing provisions of the Internal Revenue
Code, existing U.S. Treasury regulations and current administrative rulings and
court decisions, all of which are subject to change and any change could affect
the continuing validity of this discussion.
Each Union stockholder should consult his or her own tax adviser with respect
to the specific tax consequences of the merger to him or her, including the
application and effect of state, local and foreign tax laws.
Accounting treatment
The merger will be treated as a purchase for accounting purposes. Under the
purchase method of accounting, the amount by which the purchase price paid by
Mercantile exceeds the fair value of the net assets acquired will be recorded
as goodwill. Mercantile currently expects that based on preliminary purchase
accounting estimates the merger would result in identifiable intangibles and
goodwill approximating $50,000,000, which would be amortized over an estimated
period of not more than 15 years.
Resale of Mercantile common stock after the merger by controlling persons
Under federal securities laws there are certain potential limitations on the
sale of Mercantile common stock received in the merger that will affect certain
of Union's stockholders who may be controlling persons of Union. Mercantile and
Union believe that the only Union's stockholders who may be deemed controlling
persons subject to these limitations are the directors and certain executive
officers of Union who have been advised of these restrictions and have agreed
in writing to them.
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Conditions to the merger
Completion of the merger is conditioned upon, among other things, approval of
the merger by an affirmative vote of at least two-thirds of the outstanding
shares of Union common stock entitled to vote on the merger and the consent of
the Federal Deposit Insurance Corporation, the Board of Governors of the
Federal Reserve System, the Virginia State Corporation Commission and the
Mayland Commissioner of Financial Regulation. Mercantile is not obligated to
complete the merger if holders of more than 10% of the outstanding shares of
Union common stock exercise statutory dissenters' rights. Each of Mercantile's
and Union's obligation to complete the merger is also subject to the
satisfaction or waiver of certain further conditions, which are set forth in
detail in the merger agreement, a copy of which is attached as Annex A to this
prospectus and proxy statement.
Treatment of employee benefit plans
Under the merger agreement and at the option of Mercantile, Union's qualified
401(k) plan is expected to be merged into Mercantile's 401(k) plan, and Union
National Bank's employees will be given credit for service with Union National
Bank for purposes of eligibility to participate and vesting. If in the judgment
of Mercantile, it is not technically feasible or desirable to merge the plans,
Union's qualified plan will be frozen or terminated, with its assets held for
distribution to the participants.
In addition, and at the option of Mercantile, Union's qualified defined
benefit plan is expected to be merged into Mercantile's cash balance pension
plan and Union National Bank's employees will be given credit for service with
Union National Bank for purposes of eligibility to participate, vesting and
benefit accrual. If in Mercantile's judgment, it is not technically feasible or
desirable to merge the plans, Union's qualified plan will be frozen or
terminated.
Except with respect to Union's qualified 401(k) and pension plans and
Mercantile's qualified 401(k) and cash balance pension plans, which will be
treated as described above, and executive plans, programs and arrangements,
eligibility for participation in which is determined in the discretion of
Westminster and/or Mercantile, after the effective date, Union National Bank's
employees employed by Westminster will be entitled to participate in
Westminster's employee benefit plans and programs on substantially the same
basis as similarly situated employees of Westminster. Except as described above
with respect to service credits in Mercantile's 401(k) and cash balance pension
plans, Westminster has agreed to treat service with Union National Bank before
the effective date of the merger as service with Westminster for purposes of
all employee benefit and seniority-based plans and programs.
Union has a stock option plan for key employees under which options for the
purchase of 60,936 shares of Union common stock were outstanding on March 31,
2000, with exercise prices ranging from $19.09 to $29.50 per share.
Holders of these options may exercise them prior to the merger. The merger
agreement provides that all unexercised options shall be automatically
terminated and cancelled on the effectiveness of the merger. As to any of these
options having an option price per share which is less than the market value of
1.15 shares of Mercantile common stock, Mercantile will pay the difference in
cash to the option holders. For this purpose, market value is the average of
the closing prices for Mercantile common stock on the Nasdaq National Market
for the 20 trading days preceding the effective date of the merger.
Exclusive dealing
Union has agreed that while the merger agreement is in effect, neither Union,
Union National Bank nor any of their respective officers, directors, employees,
agents or representatives shall, directly or indirectly:
. Encourage, solicit or initiate the submission of any "acquisition
proposal" (as defined below) or take any other action to facilitate any
inquiries or proposal that constitutes or may reasonably be expected to
lead to any acquisition proposal; or
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. Recommend any acquisition proposal to Union's stockholders or enter into
any agreement or participate in discussions or negotiations with, or
furnish any information to, any person in connection with any potential
acquisition proposal, unless an unsolicited acquisition proposal is made
and the Union board of directors concludes, based on a written opinion of
counsel, which may be based with respect to financial matters on the
written opinion of a duly qualified and independent financial adviser to
Union, that its fiduciary obligations require consideration of an
acquisition proposal because it may be in the best interests of Union's
stockholders and is more favorable to Union's stockholders from a
financial point of view than the merger.
The merger agreement defines an "acquisition proposal" as including any
proposed:
. Merger, consolidation, share exchange or similar transaction involving
Union or Union National Bank;
. Sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of assets of Union or Union
National Bank representing 10% or more of the consolidated assets of
Union, including capital stock of Union National Bank, or of Union
National Bank;
. Issue, sale or other disposition of securities--or options, rights or
warrants to purchase, or securities convertible into, these securities--
representing 10% or more of the voting power of Union or Union National
Bank; or
. Any transaction in which any person or group acquires beneficial
ownership--as that term is defined in Rule 13d-3 under the Exchange Act--
or the right to acquire beneficial ownership, of 20% or more of Union's
or Union National Bank's outstanding capital stock.
Union and Union National Bank have agreed that they will promptly advise
Mercantile of, and communicate to Mercantile the terms of, any inquiry or
proposal addressed to Union or Union National Bank or of which Union or Union
National Bank or their respective officers, directors, employees, agents, or
representatives, including, without limitation, any investment banker, has
knowledge.
Termination
The parties to the merger agreement may terminate it and abandon the merger
at any time prior to the effective date by mutual consent even if Union's
stockholders have approved the merger.
Mercantile and Westminster may also terminate the merger agreement at any
time prior to the effective date if:
. Mercantile receives information from any regulatory authority, which by
law is required to approve or otherwise act upon the merger or any other
aspect of the transactions provided for in the merger agreement, or which
has authority to challenge the validity of the merger or transactions in
judicial proceedings or otherwise, that provides a substantial basis for
concluding that the required regulatory approval will not be granted or
these transactions will be so challenged;
. Union's board of directors recommends to Union's stockholders, or Union
accepts, a competing acquisition proposal.
Union and Union National Bank may terminate the merger agreement if, in
compliance with the provisions of the merger agreement, Union's board of
directors recommends to Union's stockholders, or it accepts, an acquisition
proposal.
Mercantile or Union may also terminate the merger if the merger is not closed
by November 15, 2000. The merger agreement provides that in the case of a
termination by Mercantile and Westminster by reason of Union or Union National
Bank's recommendation or acceptance of an acquisition proposal, Union will pay
Mercantile a termination fee of $1,000,000. The merger agreement also provides
that if the merger agreement is terminated by Mercantile or Westminster by
reason of a material breach by Union or Union National Bank, or by Union or
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Union National Bank by reason of a material breach by Mercantile or
Westminster, and the breach involves an intentional, willful or grossly
negligent misrepresentation or breach of covenant, the breaching party will be
liable to the nonbreaching party for all costs and expenses reasonably
incurred by the nonbreaching party in connection with the preparation,
execution and attempted effectiveness of the merger, including the fees of the
non-breaching party's counsel, accountants, consultants and other advisers and
representatives.
Rights of dissenting stockholders
Under Article 3, Subtitle 2 of the Maryland General Corporation Law, a copy
of which is attached as Annex C to this prospectus and proxy statement, each
holder of Union common stock will be entitled to demand and receive payment of
the "fair value" of his or her shares in cash, if he or she
. Prior to or at the special meeting, files with Union a written objection
to the merger;
. Does not vote in favor of the merger in person or by proxy; and
. Within 20 days after Articles of Merger have been accepted for record by
the State Department of Assessments and Taxation of Maryland, makes
written demand on Union for payment of his or her shares, stating the
number and class of shares for which payment is demanded.
A written demand for payment should be addressed to corporate secretary of
Westminster Union Bank, 71 East Main Street, Westminster, Maryland 21157. Any
stockholder who fails to comply with the requirements described above will be
bound by the terms of the merger.
A vote against or an abstention with regard to the merger will not itself
constitute a timely written notice of intent to demand payment and a failure
to vote will not constitute a timely written notice of intent to demand
payment.
Mercantile will promptly deliver or mail to each stockholder requesting
appraisal written notice of the date of acceptance of the Articles of Merger
for record by the State Department of Assessments and Taxation of Maryland.
Within 50 days after acceptance of the Articles of Merger for record by the
State Department of Assessments and Taxation, any stockholder who has not
received payment for his or her shares may petition a court of equity in
Baltimore City, Maryland, for an appraisal to determine the "fair value" of
the shares. If the court finds that a stockholder is entitled to appraisal of
his or her stock, the court will appoint three disinterested appraisers to
determine the "fair value" of the shares on terms and conditions the court
considers proper, and the appraisers will, within 60 days after appointment,
or a longer period directed by the court, 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. 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 directing the time within which payment
must be made. If the appraisers' report is rejected, the court may determine
the "fair market" value of the shares of the stockholders requesting appraisal
or may remit the proceeding to the same or other appraisers.
Any judgment entered in a court proceeding will include interest from the
date of the stockholders' vote related to the transaction giving rise to the
rights of appraisal, unless the court finds that the stockholder's refusal to
accept a written offer to purchase the stock which may previously have been
made by Mercantile in accordance with Section 3-207 of the Maryland General
Corporation Law was arbitrary and vexatious or not in good faith. Costs of the
proceeding, excluding attorneys' fees, will be determined by the court and
will be assessed against Mercantile or, under certain circumstances, the
stockholder requesting appraisal, or both.
At any time after the filing of a petition for appraisal, the court may
require any stockholder requesting appraisal to submit his or her 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 Union or under a judgment,
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the stockholder must surrender the stock certificates endorsed in blank and in
proper form for transfer. A stockholder demanding payment 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 and
will cease to have any rights as a stockholder with respect to the shares
except the right to receive payment of the "fair value" of the shares. The
stockholder's rights may be restored only upon the withdrawal, with the
consent of Mercantile, of the demand for payment, failure of either party to
file a petition for appraisal within the time required, a determination of the
court that the stockholder is not entitled to an appraisal, or the abandonment
or rescission of the merger.
This summary of the rights of stockholders requesting appraisal contains all
material information relating to the exercise of appraisal rights but does not
purport to be a complete statement of the procedures to be followed by
stockholders desiring to exercise their rights requesting appraisal. The
preservation and exercise of appraisal rights are conditioned on strict
adherence to the applicable provisions of the Maryland General Corporation
Law. Each stockholder desiring to exercise appraisal rights should refer to
Title 3, Subtitle 2, of the Maryland General Corporation Law for a complete
statement of the stockholder's rights and the steps which must be followed in
connection with the exercise of those rights. No further notice of the events
giving rise to dissenters' rights or any steps associated with dissenters'
rights will be furnished to Union's stockholders, except as indicated above or
otherwise required by law. For further information relating to the exercise of
appraisal rights, see Annex C to this prospectus and proxy statement.
Any dissenting stockholder who exercises his or her right to be paid the
value of his or her shares will recognize gain or loss, if any, for federal
income tax purposes upon the receipt of cash for his or her shares. The amount
of gain or loss and its character as ordinary income or capital gain will be
determined in accordance with applicable provisions of the Internal Revenue
Code. See "The Merger--Certain federal income tax consequences."
Certain Other Agreements
The support agreement
As a condition to Mercantile entering into the merger agreement, all
directors and certain executive officers of Union who owned an aggregate of
161,481.953 shares as of January 21, 2000 (approximately 8%) of the
outstanding Union common stock each entered into a support agreement with
Mercantile. Under the support agreement, each of the directors and executive
officers who are parties to the support agreement has agreed
. Not to pledge, hypothecate, grant a security interest in, sell, transfer
or otherwise dispose of or encumber or enter into any agreement,
arrangement or understanding, other than a proxy for purposes of
approving the merger agreement, which would restrict, establish a right
of first refusal to or otherwise relate to the transfer or voting of the
shares of Union common stock owned or acquired by the director or officer
during the term of the support agreement;
. Subject to the provisions of the merger agreement with respect to the
fiduciary obligations as directors of Union, not to directly or
indirectly, solicit, initiate or encourage inquiries or proposals from,
or participate in discussions or negotiations with, or provide any
information to, any individual or entity (other than Mercantile and its
employees and agents) concerning any sale of assets, sale or exchange of
stock, merger, consolidation or similar transactions involving Union, and
to use all commercially reasonable efforts to assure that Union does not
take these steps;
. To promptly advise Mercantile of any inquiry or proposal of which the
director or officer has knowledge;
. To vote his or her shares of Union common stock in favor of the merger
agreement and the transactions contemplated by the merger agreement, and,
in his or her capacity as a stockholder, to use his or her best efforts
to cause the merger to be effected, subject to the provisions of the
merger agreement with respect to the fiduciary obligations as directors
of Union.
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The terms of the support agreement expire upon the termination of the merger
agreement.
Affiliate undertakings
In connection with the execution and delivery of the merger agreement, the
directors and executive officers who signed the support agreement also
executed a memorandum, undertaking and agreement under which they have
undertaken to comply with certain provisions of the federal securities laws
which restrict the sale of shares of Mercantile common stock by these
directors and officers. See "The Merger--Resale of Mercantile common stock
after the merger by controlling persons."
Supplemental Agreements
The parties have agreed supplementally on certain transitional merger
issues. The parties have decided that the resulting bank in the merger of
Union National Bank and Westminster Bank and Trust will be named Westminster
Union Bank and that six directors of Union National Bank will join the board
of directors of Westminster Union Bank. These six directors are David L.
Brauning, Donald C. Essich, K. Wayne Lockard, Robert T. Scott, Ethan A. Seidel
and Larry A. VanSant, Sr. In addition to other employee matters, the parties
have agreed that Steven L. Wantz, now acting president of Union National Bank,
will become a senior vice president of Westminster Union Bank.
Employment agreement
Virginia W. Smith, the president and chief executive officer of Union and
Union National Bank, has a rolling one-year employment agreement dated August
9, 1995 with Union National Bank. Under the agreement, she receives an annual
base salary of $160,787. In the event of termination of Ms. Smith's employment
following the merger, she will be entitled under the agreement to receive her
base salary, contributions to all Union National Bank retirement and benefit
plans and coverage under health, life and disability insurance programs for a
period of 12 months following termination of employment. Thereafter, under a
key employee retention plan, Ms. Smith will be entitled to separation payments
at the rate of 50% of her base salary for 31 additional weeks.
Comparison of Stockholder Rights of Holders of
Mercantile Common Stock and Union Common Stock
The rights of Union's stockholders are currently governed by Union's
charter, its bylaws and the Maryland General Corporation Law. Upon completion
of the merger, Union's stockholders will become stockholders of Mercantile.
Their rights as former Union stockholders will continue to be governed by
Maryland law, but will also be governed by Mercantile's charter and bylaws.
The following is a summary comparison of the material differences in the
rights of holders of Union common stock and Mercantile common stock under the
governing provisions of their respective charters and bylaws and Maryland law.
Dissenters' rights
For a description of the rights of dissenting stockholders of Union, see
"The Merger--Rights of dissenting stockholders." Under Maryland law, a
stockholder does not have appraisal rights in certain circumstances, including
in a merger or consolidation, if the stockholder's stock is listed on a
national exchange or is designated as a security listed on The Nasdaq National
Market. Since, under the terms of the merger, Union's stockholders will be
receiving Mercantile common stock that is publicly traded and quoted on The
Nasdaq National Market under the symbol "MRBK," dissenters' rights with
respect to transactions affecting Mercantile common stock will not be
available.
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Stockholder power to call a special meeting
Generally under Maryland law, the board of directors, other persons specified
in the corporation's charter or by-laws and the holder or holders of 25% or
more of the voting stock of a corporation may call a special stockholders'
meeting. However, a corporation may elect to be subject to Title 3, Subtitle 8
of the Maryland General Corporation Law, which raises the percentage of
stockholders required to request a special stockholders' meeting from 25% to a
majority of those shares entitled to be voted at the meeting. Under Union's
bylaws, the president, a majority of the board of directors, or, in the
aggregate, holders of not less than 25% of the outstanding common stock of
Union entitled to vote may call a special meeting of the stockholders.
Under Mercantile's bylaws the chairman of the board, president and certain
other officials are entitled to call a special meeting of the stockholders.
Under Section 3-805 of the Maryland General Corporation Law, the percentage of
stockholders required to request a special meeting is a majority of those
shares entitled to vote at the meeting. After the merger, no individual or
group of former Union's stockholders who become holders of Mercantile common
stock solely as a result of the merger will own a sufficient number of
Mercantile common stock to call a special meeting of stockholders.
Preferred stock
Union's charter only authorizes the issuance of common stock. However,
Union's charter permits the board of directors to reclassify any authorized but
unissued shares of stock into preferred stock. To date, Union's board has not
reclassified any shares of stock and all outstanding Union stock is common
stock. Mercantile's charter authorizes the issuance of up to two million shares
of preferred stock, no par value. Mercantile's board of directors may
reclassify already classified, but unissued, shares of Mercantile preferred
stock and may alter the rights, privileges and restrictions on the unissued
Mercantile preferred stock. Currently, no Mercantile preferred stock is
outstanding.
Qualification and removal of directors
Neither Union's nor Mercantile's charter or bylaws has stock ownership
requirements for their respective directors. Union's board is divided into
three classes, with directors serving staggered three-year terms. Under Union's
articles of incorporation, no director may be removed except for cause and then
only by the affirmative vote of at least two-thirds of the eligible stockholder
votes.
Like Union's board, Mercantile's board of directors is divided into three
classes, with the directors serving staggered three-year terms. Under Section
3-804 of the Maryland General Corporation Law, a Mercantile director may be
removed only for cause and then only by the vote of two-thirds of the eligible
stockholder votes.
Indemnification
Under Maryland law, a corporation may indemnify any director, officer,
employee or agent made a party to any proceeding by reason of service in that
capacity unless
. 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;
. The director, officer, employee or agent actually received an improper
personal benefit; or
. 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 has been adjudged to be liable to the
corporation.
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Under Union's charter, Union has the power, to the maximum extent permitted
under Maryland law, to obligate itself to indemnify, and to pay or reimburse
reasonable expenses in advance of final disposition of a proceeding to,
. Former and current directors and officers of Union; or
. Any individual, while a director of Union and at the request of the
Union, serves or has served another corporation, partnership, joint
venture, trust, employee benefit plan or any other enterprise as a
director, officer, partner or trustee of a corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise.
Subject to approval by the board of directors, Union may also indemnify
persons who served a predecessor of Union in any of the capacities described
above as well as employees and agents of Union to the same extent as directors
and officers.
Under Maryland law and Mercantile's charter, the liability of Mercantile'
directors and officers to Mercantile or its stockholders for money damages is
limited:
. To the extent it is proved that the person actually received an improper
benefit or profit, for the amount of the benefit or profit; and
. To the extent that a judgment adverse to the person is entered in a
proceeding based on a finding that the person's actions or failure to act
was the result of active and deliberate dishonesty and was material to
the cause of action and adjudicated at the proceeding.
Mercantile's charter indemnifies former and current directors and officers
to the maximum extent permitted under Maryland law, and provides that
Mercantile's board of directors may indemnify employees and agents of
Mercantile to the same extent as directors and officers.
Shareholder rights plan
Mercantile has adopted a Shareholder Protection Rights Agreement dated June
8, 1999, which replaces a similar agreement adopted in 1989, that entitles
holders of Mercantile common stock to purchase additional securities, upon the
occurrence of certain events. See "Description of Mercantile Capital Stock--
Purchase rights."
This summary does not purport to be a complete discussion of, and is
qualified in its entirety by reference to, Maryland law and the charter and
bylaws of Union and Mercantile.
Description of Mercantile Capital Stock
General
Mercantile is authorized to issue up to 130,000,000 shares of Mercantile
common stock. On December 31, 1999, 68,645,758 shares of Mercantile common
stock were issued and outstanding. Mercantile is also authorized to issue
2,000,000 shares of preferred stock. The Mercantile preferred stock is subject
to classification and reclassification by Mercantile's board of directors. No
shares of Mercantile preferred stock are issued and outstanding.
Common stock
The holders of Mercantile common stock are entitled to receive dividends as
are declared by Mercantile's board of directors out of funds legally available
for dividends. Each holder of Mercantile common stock is entitled to one vote
per share on all matters requiring a vote of stockholders. In the event of
liquidation, holders
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<PAGE>
of Mercantile common stock will be entitled to receive pro rata any assets
distributable to stockholders in respect of shares held by them. Holders of
shares of Mercantile common stock do not have preemptive rights except as may
be granted by Mercantile's board of directors. The shares of common stock to
be issued in the merger will be fully paid and non-assessable. There is no
provision for cumulative voting with respect to the Mercantile common stock.
Mercantile common stock is publicly traded and quoted on The Nasdaq National
Market under the symbol "MRBK."
Purchase rights
Certain rights which under certain circumstances are exercisable for the
purchase of Mercantile preferred stock or Mercantile common stock or
exchangeable for Mercantile preferred stock or Mercantile common stock attach
to each share of Mercantile common stock, including shares of Mercantile
common stock issuable in connection with the merger agreement, under the
Shareholders Protection Rights Agreement adopted by Mercantile's board of
directors in June, 1999. In general, these rights become exercisable within 10
business days after a person, together with any affiliate of the person,
acquires or makes a tender offer or an exchange offer for the beneficial
ownership of 10% or more of the outstanding Mercantile common stock or at an
earlier or later time as the Mercantile board of directors may determine.
Until the rights become exercisable, they will not be separable from the
Mercantile common stock and will automatically trade with the Mercantile
common stock. Shares of Mercantile common stock issued to Union's stockholders
in exchange for Union common stock will be accompanied by these rights. These
rights can have a deterrent effect on unsolicited takeover attempts and,
therefore, may delay or make it more difficult to achieve a change in control
of Mercantile.
Stock repurchases
Under authorization by its board of directors, Mercantile repurchased
1,599,077 shares of Mercantile common stock in 1996, 479,175 shares in 1997,
1,911,000 shares in 1998, 2,696,825 shares in 1999 and 741,000 shares in 2000.
Repurchases have been made under the safe harbor provisions of Rule 10b-18
under the Securities Exchange Act of 1934, which limits the manner and price
of issuer repurchases. At any given time, a repurchase may not be made at a
price exceeding the greater of the highest current independent published bid
price or the last independent sale price. Repurchases have been made to
provide shares for general corporate purposes, including issuance under
Mercantile dividend reinvestment plans and employee stock purchase and stock
option plans. Mercantile is currently authorized by its board to repurchase
2,942,527 additional shares, which may be purchased from time to time
depending on the price of Mercantile common stock, market conditions,
regulatory considerations and other factors. It is expected that no
repurchases will be made until after the Union special meeting.
Legal Matters
Certain legal matters in connection with the validity of the securities
offered by this prospectus and proxy statement and the merger will be passed
upon for Mercantile by Venable, Baetjer and Howard, LLP, Baltimore, Maryland.
William J. McCarthy, a principal of William J. McCarthy, P.C., which is a
partner in Venable, Baetjer and Howard, LLP, is a director of Mercantile.
Experts
The financial statements incorporated in this prospectus and proxy statement
by reference to the Annual Report on Form 10-K of Mercantile for the year
ended December 31, 1999 have been incorporated in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on its authority as
experts in auditing and accounting.
27
<PAGE>
The financial statements incorporated in this prospectus and proxy statement
by reference to the Annual Report on Form 10-K of Union for the year ended
December 31, 1999 have been incorporated in reliance on the report of Keller
Bruner & Co., LLP, independent accountants, given on its authority as experts
in auditing and accounting.
Representatives of Keller, Bruner & Co., LLP are expected to be present at
the Union 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.
Forward Looking Statements
Portions of this prospectus and proxy statement may be deemed to contain
forward looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward looking statements include estimates,
predictions, opinions or statements of belief and the underlying assumptions.
For example, the information contained under the captions "Background of the
merger" and "Opinion of Union's financial advisor," while meant to be a
factual account of matters considered in the analysis of the merger, could be
read as incorporating forward-looking statements. We believe that any forward
looking statements are appropriately qualified in the portions of the
prospectus and proxy statement in which they appear. Nonetheless, we remind
and caution you that these statements were based on numerous variables and
assumptions which are inherently uncertain. Actual results can be affected by
many unpredictable factors, including interest rates, effects of monetary
policy and other economic conditions, and may vary materially from the
statements made.
Where You Can Find More Information
Mercantile has filed with the Securities and Exchange Commission a
registration statement on Form S-4 under the Securities Act of 1933 covering
2,330,228 shares of Mercantile common stock. Statements contained in this
prospectus and proxy statement concerning any document filed as an exhibit to
the registration statement are not necessarily complete, and in each instance
reference is made to the copy of the applicable document filed with the
Securities and Exchange Commission or attached as an annex or exhibit to the
registration statement.
Mercantile and Union are subject to the informational requirements of the
Securities Exchange Act of 1934, and file reports, proxy statements and other
information with the Securities and Exchange Commission. These reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the Securities and Exchange Commission at
the following locations of the Securities and Exchange Commission:
Public Reference Room New York Regional Office Chicago Regional Office
450 Fifth Street, N.W. 7 World Trade Center CitiCorp Center
Room 1024 Suite 1300 500 West Madison Street,
Washington, D.C. New York, New York 10048 Suite 1400
20549-1004 Chicago, Illinois
60621-2511
You may also obtain copies of this information from the Public Reference
Section of the Securities and Exchange Commission at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549-1004, at prescribed rates.
The Securities and Exchange Commission maintains a web site at
http://www.sec.gov that contains reports, proxy and information statements and
other information concerning Mercantile which files electronically with the
Securities and Exchange Commission.
The Securities and Exchange Commission allows Mercantile and Union to
"incorporate by reference" information into this prospectus and proxy
statement. This means that Mercantile and Union can disclose
28
<PAGE>
important information to you by referring you to another document filed
separately with the Securities and Exchange Commission. The information
incorporated by reference is considered to be a part of this prospectus and
proxy statement, except for any information that is superseded by information
that is included directly in this document.
The following documents, previously filed with the Securities and Exchange
Commission, are incorporated by reference into this prospectus and proxy
statement:
1. Mercantile's Annual Report on Form 10-K for the fiscal year ended
December 31, 1999;
2. The description of Mercantile common stock and preferred stock
purchase rights set forth in Mercantile's registration statement filed
under Section 12 of the Securities Exchange Act of 1934, and any amendment
or report filed for the purpose of updating any description;
3. Union's Annual Report on Form 10-K for the fiscal year ended December
31, 1999; and
4. The following sections of Union's 1999 Annual Report to Stockholders,
a copy of which is being delivered to you with this prospectus and proxy
statement:
. Selected Financial Data 1995-1999
. Management's Discussion and Analysis of Consolidated Financial
Condition and Results of Operations
In addition, Mercantile and Union incorporate by reference additional
documents that they may file with the Securities and Exchange Commission under
Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934
between the date of this prospectus and proxy statement and the date of the
Union special meeting. These documents include periodic reports, including
annual reports on Form 10-K, quarterly reports on Form 10-Q and current
reports on Form 8-K, as well as proxy statements.
Any statement contained in a document incorporated or deemed to be
incorporated by reference in this prospectus and proxy statement shall be
deemed to be modified or superseded for purposes of this prospectus and proxy
statement to the extent that a statement contained herein, or in any other
subsequently filed document that also is incorporated or deemed to be
incorporated by reference herein, modifies or supersedes the statement. Any
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this prospectus and proxy statement.
You can obtain any of the documents incorporated by reference in this
document through Mercantile or from the Securities and Exchange Commission
through its web site at the address described above. This information is
available to you without charge upon your oral or written request to
Mercantile Bankshares Corporation, Two Hopkins Plaza, P.O. Box 1477,
Baltimore, Maryland 21203, Attention: Secretary (telephone (410) 237-5900). To
ensure timely delivery of the documents, any request should be made by May 30,
2000.
We have not authorized anyone to give any information or to make any
representation not contained in or incorporated by reference in this
prospectus and proxy statement, and, if given or made, any information or
representation not contained in this prospectus and proxy statement must not
be relied upon as having been authorized. This prospectus and proxy statement
does not constitute an offer to sell, or the solicitation of an offer to
purchase, any of the securities offered by this prospectus and proxy
statement, or the solicitation of a proxy, in any jurisdiction, or from any
person to or from whom it is unlawful to make an offer or solicitation of an
offer, or proxy solicitation in that jurisdiction. Neither the delivery of
this prospectus and proxy statement nor the issuance or sale of any securities
under this prospectus and proxy statement shall under any circumstances create
any implication that there has been no change in the information set forth in
this prospectus and proxy statement since the date of this prospectus and
proxy statement or incorporated by reference in this prospectus and proxy
statement since the date of this prospectus and proxy statement.
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[This Page Intentionally Left Blank]
<PAGE>
ANNEX A
AGREEMENT AND PLAN OF AFFILIATION AND MERGER
AMONG
MERCANTILE BANKSHARES CORPORATION,
WESTMINSTER BANK AND TRUST COMPANY OF CARROLL COUNTY,
UNION NATIONAL BANCORP, INC.
AND
THE UNION NATIONAL BANK OF WESTMINSTER
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Subject Page
------- ------- ----
<C> <S> <C>
1.1 The Affiliation and Mergers.................................... 4
1.2 Conversion Rate; Stock Options................................. 4
1.3 Commercially Reasonable Efforts Requirement.................... 4
1.4 Stockholders Information....................................... 4
1.5 Representations of the Corporation; Antidilution............... 5
(a)Representations
(1)Bank Holding Company Status.............................. 5
(2)FDIC and FRB Application ................................ 5
(3)Good Standing ........................................... 5
(4)Capitalization .......................................... 5
(5)SEC Registration of Common Stock ........................ 5
(6)Financial Statements .................................... 5
(7)Material Adverse Changes ................................ 6
(8)No Conflicting Agreements ............................... 6
(9)Validly Issued Stock .................................... 6
(10)Due Authorization....................................... 6
(b)Antidilution................................................ 6
1.6 Representations of Acquired Corporation and the Bank........... 6
(a)Corporate Status of Acquired Corporation.................... 6
(b)Corporate Status of Bank; Insurance Subsidiary.............. 7
(c)Capitalization.............................................. 7
(d)Registered Stock............................................ 7
(e)Dividends................................................... 7
(f)Compliance with Laws and Regulations........................ 7
(g) Employment Agreements, Leases, Material Contracts, List of
Securities, Community Reinvestment Act Statement, Financial
Reports, Material Adverse Changes, Losses and
Liabilities................................................ 7
(h)Accuracy of Financial Statements............................ 8
(i)Stock Issuance, Distributions since September 30, 1999...... 8
(j)Litigation.................................................. 8
(k)Tax Returns and Liability................................... 8
(l)Brokers..................................................... 9
(m)Employee Benefit Plans...................................... 9
(n)Title to Assets............................................. 11
(o)No Conflicting Agreements; Business Combination Matters..... 11
(p)Personal Property........................................... 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Section Subject Page
------- ------- ----
<C> <S> <C>
(q)Zoning Laws, Etc............................................ 11
(r)Title to Offices............................................ 11
(s)Conditions of Buildings..................................... 12
(t)Environmental Matters....................................... 12
1.7 Access to Records and Information; Operation of Business....... 12
(a)Access...................................................... 12
(b)Operations.................................................. 12
1.8 Financial Statements........................................... 13
1.9 Regulatory Approvals........................................... 13
1.10 Exclusive Dealing.............................................. 13
1.11 Conditions to Corporation's Obligation and Westminster's
Obligations.................................................... 14
(a)FRB and FDIC Approval....................................... 14
(b)Maryland and Other Regulatory Approvals..................... 14
(c)SEC Registration Statement.................................. 14
(d)Agreements With Respect to SEC Rule 145..................... 14
(e)Consents.................................................... 14
(f)Legal Proceedings and Impediments........................... 14
(g)Dividends................................................... 14
(h)Stock Issuance, Evidences of Indebtedness, Distributions.... 14
(i)Compensation; Employee Benefit Plan Changes................. 15
(j)Investment Practices........................................ 15
(k)Other Approvals............................................. 15
(l)Limit on Dissenters......................................... 15
(m)Office Openings and Closings................................ 15
(n)Tax Opinion................................................. 15
(o)Representation Update and Certificate re Representations and
Conditions.................................................. 15
(p)Stockholders' Equity........................................ 16
(q)Material Adverse Change..................................... 16
(r)Changes in Loan Portfolio................................... 16
(s)Loan Portfolio Unacceptable................................. 16
(t)Deposit Liabilities......................................... 16
(u)Accrued Expenses and Liabilities............................ 16
(v)Securities.................................................. 16
1.12 Conditions to Acquired Corporation's and Bank's Obligations.... 16
(a)FRB and FDIC Approval....................................... 16
(b)Other Regulatory Approvals.................................. 16
(c)SEC Registration Statement.................................. 16
(d)Tax Opinion................................................. 16
(e)Fairness Opinion............................................ 17
(f)Representation Update and Certificate re Representations and
Conditions.................................................. 17
(g)Government Approvals........................................ 17
1.13 Confidentiality................................................ 17
1.14 Employee Benefit Matters....................................... 17
(a)401(k) Plan................................................. 17
(b)Qualified Plan.............................................. 18
(c)Directors Deferred Plan..................................... 18
(d)Other Benefits.............................................. 18
2.1 Effective Date................................................. 18
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
Section Subject Page
------- ------- ----
<C> <S> <C>
2.2 Corporation's and Westminster's Obligations in Accomplishing
the Affiliation.............................................. 19
2.3 Acquired Corporation's and the Bank's Obligations in
Accomplishing Affiliation.................................... 19
2.4 Stockholder Approval........................................... 19
2.5 Effect of the Affiliation...................................... 19
2.6 Terms of the Merger; Objecting Stockholders.................... 20
2.7 Confirmatory Deeds............................................. 21
2.8 Procedural Matters............................................. 21
3.1 Termination for Regulatory Reasons............................. 21
3.2 Termination by Consent or Due to Passage of Time............... 21
3.3 Termination with Respect to Acquisition Proposal............... 21
3.4 Termination If Support Agreement Not Delivered................. 21
3.5 Amendment...................................................... 22
3.6 Expenses; Limited Liability.................................... 22
3.7 Notices........................................................ 22
3.8 Counterparts................................................... 23
3.9 Binding Effect; No Third Party Rights.......................... 23
3.10 Governing Law.................................................. 23
Exhibit A Bank Agreement of Merger..................................... 24
</TABLE>
A-3
<PAGE>
AGREEMENT AND PLAN OF
AFFILIATION AND MERGER
THIS AGREEMENT AND PLAN OF AFFILIATION AND MERGER (the "Agreement"), made
this 20th day of January, 2000, by and among Mercantile Bankshares
Corporation, a body corporate of the State of Maryland (the "Corporation"),
Westminster Bank and Trust Company of Carroll County, a Maryland bank wholly-
owned by Corporation ("Westminster"), Union National Bancorp, Inc., a body
corporate of the State of Maryland ("Acquired Corporation"), and The Union
National Bank of Westminster, a national banking association (the "Bank").
WITNESSETH, that for and in consideration of the mutual promises of the
parties hereto hereinafter contained and other good and valuable
consideration, and in the expectation of the delivery of a Support Agreement,
to be dated and delivered as of the first business day after the date hereof,
between the Corporation and certain stockholders of Acquired Corporation, the
parties hereto agree as follows:
ARTICLE I
General Provisions
1.1. The Affiliation and Mergers. Subject to the terms, provisions, and
conditions of this Agreement, the Bank shall become affiliated with the
Corporation by Acquired Corporation's merger into the Corporation (the
"Holding Company Merger"), which will be followed by the Bank's merger into
Westminster (the "Bank Merger"), pursuant to the procedures described in
Article II of this Agreement, and the Bank Agreement of Merger attached as
Exhibit A hereto (the "Bank Agreement of Merger").
The Bank Merger and the Holding Company Merger are hereinafter referred to,
collectively, as the "Affiliation."
1.2. Conversion Rate; Stock Options.
(a) The Affiliation shall be accomplished on the basis of one and fifteen
one hundredths (1.15) of a share of the Corporation's Common Stock, $2.00 par
value per share (the "Common Stock"), for each share of common stock of
Acquired Corporation that is outstanding on the Effective Date, hereinafter
defined, immediately prior to the Holding Company Merger becoming effective
(the "Conversion Rate"). Fractional shares shall be treated as provided
elsewhere herein. The Conversion Rate may be adjusted pursuant to Section
1.5(b);
(b) All unexercised and theretofore unexpired Stock Options, as hereinafter
defined, with respect to the Acquired Corporation's common stock shall
automatically terminate and be cancelled on the Effective Date, as hereinafter
defined, immediately prior to the Holding Company Merger becoming effective.
With respect to such unexercised Stock Options having an option price per
share for the Acquired Corporation's common stock which is less than the then
market value of one and fifteen one hundredths (1.15) of a share of the Common
Stock (subject to any appropriate adjustment pursuant to Section 1.5(b)), the
difference shall be paid by the Corporation to the holders of such Stock
Options in cash as soon as practicable after the Effective Date, upon delivery
to the Corporation of such documents as it may reasonably request. For this
purpose, the then market value of the Common Stock shall be the average of the
closing prices for the Common Stock on The Nasdaq National Market for the 20
trading days preceding the Effective Date, without interest.
1.3. Commercially Reasonable Efforts Requirement. The Corporation,
Westminster, Acquired Corporation, and the Bank shall each use all
commercially reasonable efforts to consummate the transactions contemplated in
this Agreement.
1.4 Stockholder Information. The Acquired Corporation agrees to cooperate
with the Corporation with respect to requests by the Corporation for
information regarding stockholders of the Acquired Corporation;
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<PAGE>
provided, however, that the Corporation agrees not to initiate contact with
any such stockholders without the prior consent of the Acquired Corporation
except as authorized by state or federal law.
1.5 Representations of the Corporation; Antidilution.
(a) The obligations of Acquired Corporation and the Bank under this
Agreement are based upon and subject to the correctness and accuracy of the
following representations of the Corporation:
(1) The Corporation is a registered bank holding company under the Bank
Holding Company Act of 1956, as amended. Westminster is a Maryland bank,
the deposits of which are insured by the Federal Deposit Insurance
Corporation (the "FDIC"), and is not a member of the Federal Reserve
System.
(2) The Corporation will cause the filing of any required applications
with the FDIC, the Board of Governors of the Federal Reserve System (the
"FRB") and with the Maryland Commissioner of Financial Regulation
("Maryland Commissioner") for approval of the Affiliation and prosecute
such applications in good faith and with diligence.
(3) The Corporation and Westminster, respectively, are corporations duly
organized, validly existing, and in good standing under the laws of the
State of Maryland, and have the corporate power and authority to carry on
their respective businesses as they are now conducted. All of the issued
and outstanding shares of Westminster were validly issued, are fully paid
and nonassessable, and are owned both of record and beneficially by the
Corporation, free and clear of any liens or encumbrances of any kind or
nature.
(4) At December 31, 1999, the authorized capital stock of the Corporation
consisted of 2,000,000 shares of preferred stock, no par value ("Mercantile
Preferred"), and 130,000,000 shares of Common Stock. At December 31, 1999,
no shares of Mercantile Preferred were outstanding, 68,645,758 shares of
Common Stock were outstanding; and all of the outstanding shares of Common
Stock were validly issued, fully paid and nonassessable. Under the
Corporation's Shareholder Protection Rights Plan adopted June 8, 1999, each
share of issued and outstanding Common Stock, including the Common Stock to
be issued hereunder, carries a right to purchase additional securities of
the Corporation under certain circumstances.
(5) The Corporation with the assistance and cooperation of Acquired
Corporation and the Bank and their representatives will prepare and file
with the Securities and Exchange Commission ("SEC"), a Registration
Statement ("Registration Statement") under the Securities Act of 1933, as
amended (the "Securities Act"), containing audited financial statements as
of and for periods ending December 31, 1999, with respect to the shares of
Common Stock issuable upon consummation of the Holding Company Merger and
shall use all commercially reasonable efforts to have the Registration
Statement declared effective by the SEC. The Corporation and Acquired
Corporation may each rely upon all information provided to it by the other
party in this connection and shall not be liable for any untrue statement
of a material fact or any omission to state a material fact in the
Registration Statement, or in the proxy statement of Acquired Corporation
which is prepared as a part thereof (the "Proxy Statement"), if such
statement is made in reliance upon any information provided to it by the
other party or by any of the other party's officers or authorized
representatives. The Corporation, relying on the information provided by
Acquired Corporation pursuant to Section 1.4, shall promptly take all such
actions, with the assistance and cooperation of Acquired Corporation and
its authorized representatives, as may be necessary or appropriate in order
to comply with all applicable securities laws of any state or other
jurisdiction applicable to the transactions contemplated by this Agreement.
(6) The Corporation has delivered to Acquired Corporation (i) copies of
its consolidated financial statements for the year ended December 31, 1998
containing the following consolidated financial statements of the
Corporation (collectively, the "Corporation's Audited Financial
Statements"): consolidated balance sheets as of December 31, 1998 and 1997
and statements of consolidated income, consolidated cash flows, and
consolidated changes in stockholders' equity for each of the three years in
the period ended December 31, 1998, together with the notes thereto,
certified by PricewaterhouseCoopers, LLP, independent certified public
accountants, and (ii) copies of its unaudited consolidated financial
statements for the nine months ended September 30, 1999 containing a
consolidated balance sheet as of September 30, 1999 and
A-5
<PAGE>
statements of consolidated income, consolidated cash flows, and
consolidated changes in stockholders' equity for the nine months then ended
(the "Corporation's September 30, 1999 Financial Statements"). All of the
Corporation's Audited Financial Statements and the Corporation's September
30, 1999 Financial Statements have been prepared in accordance with
generally accepted accounting principles (to the extent required) and
applicable SEC requirements and present fairly the information presented
therein.
(7) Since September 30, 1999, there has not been any material adverse
change in the Corporation's consolidated balance sheet, consolidated income
statement, financial position, or results of operations. There is no
material liability, actual or contingent, known or anticipated, of a
character that should be disclosed in the Corporation's Audited Financial
Statements or in the Corporation's September 30, 1999 Financial Statements
and that is not disclosed therein, other than liabilities arising since the
respective dates thereof in the ordinary course of business, which are not
materially adverse.
(8) Neither the execution and delivery of this Agreement nor the carrying
out of the transactions contemplated hereunder will result in any material
violation, termination, modification of, or be in conflict with, any terms
of the Corporation's or Westminster's Charter or Bylaws, or any contract or
other instrument to which the Corporation or Westminster is a party, or of
any judgment, decree, or order applicable to the Corporation or
Westminster, or result in the creation of any material lien, charge, or
encumbrance upon any of the properties or assets of the Corporation or
Westminster.
(9) The Common Stock deliverable pursuant to this Agreement will be,
prior to its issuance, duly authorized for issuance and will, when issued
and delivered in accordance with this Agreement, be duly and validly
issued, fully paid and nonassessable.
(10) The execution, delivery, and performance of this Agreement by the
Corporation and Westminster have been duly authorized by their respective
Boards of Directors and require no action on the part of the stockholders
of the Corporation. This Agreement constitutes a valid and binding
obligation of each of the Corporation and Westminster, enforceable against
the Corporation and Westminster in accordance with its terms, except as
such enforceability may be limited by bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally or by
general equitable principles.
(b) Nothing in this Agreement shall limit the right of the Corporation to
issue or repurchase any of its stock or other securities in any manner and for
any consideration permitted by law either in connection with acquisitions of
new affiliates or otherwise, prior to or after the Effective Date, as
hereinafter defined; provided, however, that if the Corporation takes any
action which establishes, prior to the Effective Date, as hereinafter defined,
a record date or effective date for a stock dividend on the Common Stock, a
split or reverse split of the Common Stock, or any distribution on all shares
of the Common Stock other than cash dividends, the Corporation will take such
action as shall be necessary in order that each share of common stock of
Acquired Corporation will be converted in the Holding Company Merger into the
same number of shares of Common Stock (whether such number is greater or less
than the number otherwise provided for herein) that the owner of such shares
would have owned immediately after the record date or effective date of such
event had the Effective Date occurred immediately before such record date or
effective date, and the Conversion Rate shall be adjusted accordingly.
Acquired Corporation and the Bank hereby agree to any revision in the
Conversion Rate and payment arrangements pursuant to the foregoing provisions
of Section 1.5(b).
1.6. Representations of Acquired Corporation and the Bank. The obligations
of the Corporation and Westminster under this Agreement are based upon and
subject to the correctness and accuracy of the following representations of
Acquired Corporation and the Bank:
(a) Acquired Corporation is a Maryland stock corporation, legally formed,
validly existing, and in good standing under the laws of Maryland. Acquired
Corporation is a registered bank holding company under the Bank Holding
Company Act of 1956, as amended. Acquired Corporation has no subsidiaries
or other affiliated companies other than the Bank and the Bank's wholly
owned subsidiaries, Barnes-Bollinger Insurance Services, Inc. ("Insurance
Subsidiary") and Union National Delaware Holdings, Incorporated ("Delaware
Holding Company") (together, the "Bank Subsidiaries" and individually a
"Bank Subsidiary"), and is not a partner or coventurer in any joint venture
or other business enterprise.
A-6
<PAGE>
(b) (i) The Bank is a national bank, legally formed, validly existing,
and in good standing under federal law, the deposits of which are insured
by the FDIC, and is a member of the Federal Reserve System. The Bank has
the corporate power and authority to carry on its business as it is now
conducted. The Bank owns two and leases seven banking offices, with its
main office in Westminster, Maryland. The Bank has no subsidiaries except
the Bank Subsidiaries, and has no other affiliated companies, except
Acquired Corporation, and is not a general partner or coventurer in any
joint venture or other business enterprise except that it owns an interest
in Carroll County Development Corporation and Maryland Title West, LLC.
(ii) The Insurance Subsidiary is a Maryland stock corporation,
legally formed, validly existing and in good standing under the laws of
Maryland. The Insurance Subsidiary is licensed as an insurance agent
and broker by the Maryland Insurance Administration and by every other
state in which such license is required. The Delaware Holding Company
is a Delaware stock corporation, legally formed, validly existing, and
in good standing under the laws of Delaware.
(c) The authorized capital stock of Acquired Corporation consists of
10,000,000 shares of common stock, $.01 par value per share, of which
1,965,349 shares are issued and outstanding. All of the outstanding shares
of Acquired Corporation common stock were validly issued and are fully paid
and nonassessable. The authorized capital stock of the Bank consists of
1,000,000 shares of common stock, $10 par value per share, of which
1,000,000 shares are issued and outstanding. All of the issued and
outstanding shares of the Bank were validly issued, are fully paid and
nonassessable, and are owned both of record and beneficially by Acquired
Corporation, free and clear of any liens or encumbrances of any kind or
nature. All of the issued and outstanding shares of the Bank Subsidiaries
were validly issued, are fully paid and nonassessable and are owned both of
record and beneficially by Bank free and clear of any liens or encumbrances
of any kind or nature. Neither Acquired Corporation, the Bank nor any Bank
Subsidiary has any options, calls, warrants, commitments or agreements of
any character to which any is a party or by which any is bound calling for
the issuance, sale, or transfer of shares of capital stock of Acquired
Corporation, Bank or such Bank Subsidiary or of any security representing
the right to purchase or receive, or convert into any capital stock of
Acquired Corporation, Bank or such Bank Subsidiary, except outstanding
employee options to purchase 60,936 shares of Acquired Corporation common
("Stock Options"). The Stock Options were validly authorized and issued by
the Acquired Corporation.
(d) The shares of common stock of Acquired Corporation are registered
under Section 12(g) of the Securities Exchange Act of 1934, as amended
("Exchange Act"). Acquired Corporation has timely filed all reports
required to be filed pursuant to the Exchange Act for the last 12 months
and all such reports contain no untrue statement of a material fact or omit
to state a material fact necessary in order to make the statements made, in
light of the circumstances under which they were made, not misleading.
(e) At the date of this Agreement, there are no declared and not yet
payable dividends or distributions on, or with respect to, the shares of
common stock of Acquired Corporation.
(f) Acquired Corporation, the Bank and the Bank Subsidiaries have each
complied in all material respects with all laws and regulations applicable
to them, and their respective properties and operations, and all valid
orders of regulatory authorities having jurisdiction over them and have
received no notice of any asserted violations of the same.
(g) Acquired Corporation has previously furnished to the Corporation (i)
copies of its, the Bank's and the Bank Subsidiaries' Charters and Bylaws,
including all amendments thereto; (ii) copies of all written agreements or
understandings, and written memoranda of all oral agreements or
understandings, if any, between Acquired Corporation, Bank and/or the Bank
Subsidiaries and each of their respective present or former directors,
officers and employees relating to his compensation, employment or
severance; (iii) copies of all leases, mortgages, agreements, deeds, title
policies, title opinions, and title reports with respect to its, the Bank's
and the Bank Subsidiaries' banking and other offices; (iv) copies or
descriptions of all other material contracts and leases to which it, the
Bank or any of the Bank Subsidiaries is subject; (v) a list of all
securities held by Acquired Corporation, the Bank or any of the Bank
Subsidiaries as of December 31, 1999; (vi) a copy of the Bank's Community
Reinvestment Act Statement, together with all related documents required to
be made available for public inspection; (vii) copies of the Bank's year-
end
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Consolidated Reports of Condition and Income ("Call Reports") filed with
the Office of the Comptroller of the Currency ("OCC") for all years
subsequent to 1994; (viii) copies of all interim call reports filed by the
Bank with the OCC in 1998 and 1999 (the Bank's September 30, 1999 Call
Reports being hereinafter referred to as the "Bank's September 30, 1999
Call Reports"); (ix) copies of all reports filed by Acquired Corporation
with the FRB since Acquired Corporation's formation; (x) copies of Acquired
Corporation's audited consolidated financial statements for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998, together with the notes
thereto, certified by Stegman & Company for the years ended December 31,
1994, 1995 and 1996 and certified by Keller Bruner & Company, LLP for the
years ended December 31, 1997 and 1998, each independent certified public
accountants (the said Acquired Corporation audited consolidated financial
statements for the year ended December 31, 1998 being hereinafter referred
to as "Acquired Corporation's December 31, 1998 Financial Statements");
(xi) copies of its unaudited consolidated financial statements for the nine
months ended September 30, 1999 containing a consolidated balance sheet as
of September 30, 1999 and statements of consolidated income, consolidated
cash flows, and consolidated changes in equity for the nine months then
ended ("Acquired Corporation's September 30, 1999 Financial Statements");
(xii) a copy of the most recent management letter rendered by the Acquired
Corporation's independent certified public accountants; and (xiii) copies
of Acquired Corporation's Federal and Maryland income and franchise tax
returns for the years 1994, 1995, 1996, 1997 and 1998. Since September 30,
1999, except for market value fluctuations in the Bank's and the Delaware
Holding Company's investment portfolio resulting from changes in interest
rates, there has been no material adverse change in the consolidated
balance sheets, income statements, financial positions, results of
operation, or businesses of Acquired Corporation and no material loss is
presently realizable or anticipated with respect to any asset included in
Acquired Corporation's September 30, 1999 Financial Statements or the
Bank's September 30, 1999 Call Reports (except to the extent provided for
therein), and there is no material liability, actual or contingent, known
or anticipated, of a character that should be disclosed in Acquired
Corporation's December 31, 1998 Financial Statements, Acquired
Corporation's September 30, 1999 Financial Statements or the Bank's
September 30, 1999 Call Reports and that is not disclosed therein, other
than liabilities arising since the respective dates thereof in the ordinary
course of business, which are not materially adverse.
(h) All of the financial statements previously provided to the
Corporation pursuant to subparagraph (g) of this Section 1.6 are accurate
and complete in all material respects, have been prepared in accordance
with generally accepted accounting principles consistently followed
throughout the periods covered by such financial statements, and present
fairly the consolidated financial position, cash flows (with respect to
those financial statements containing statements of cash flows), results of
operations, and changes in stockholders' equity of Acquired Corporation at
the close of business at the dates thereof and for the periods covered
thereby.
(i) Since September 30, 1999, neither Acquired Corporation, the Bank nor
any of the Bank Subsidiaries has authorized or issued any additional shares
of capital stock or securities convertible thereto, or options, warrants or
rights to subscribe thereto, or any notes, debentures or other evidences of
indebtedness (other than certificates of deposit issued in the normal
course of business), or authorized or made payment or distribution of any
of its assets to its stockholders by way of dividends or otherwise except
for 1,220 shares issued pursuant to the dividend reinvestment plan of the
Acquired Corporation or, except for this Agreement, entered into any
agreement or commitment of any character with respect to any of the
foregoing.
(j) There is no material litigation or regulatory or other proceeding
pending against or threatened against Acquired Corporation, the Bank or any
of the Bank Subsidiaries, and neither Acquired Corporation, the Bank nor
any of the Bank Subsidiaries is subject to any order or decree of any court
or regulatory agency or any formal or informal agreement or memorandum of
understanding with any regulatory agency.
(k) Acquired Corporation, the Bank and the Bank Subsidiaries have timely
filed with the appropriate governmental agencies all tax returns required
to be filed and have paid all taxes shown to be due on such returns.
Neither Acquired Corporation, the Bank nor either of the Bank Subsidiaries
has any material
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liability for taxes except as set forth and provided for in Acquired
Corporation's September 30, 1999 Financial Statements and the Bank's
September 30, 1999 Call Reports, and there is no reason to believe that any
such liability will be asserted in connection with such returns except as
noted in Acquired Corporation's September 30, 1999 Financial Statements and
the Bank's September 30, 1999 Call Reports. Neither Acquired Corporation
nor the Bank is aware of any currently pending or threatened investigations
or proceedings concerning their respective tax returns by any governmental
agency. Acquired Corporation's and the Insurance Subsidiary's Federal and
Maryland tax returns and the Bank's Maryland tax returns for the years 1994
through 1998 have all been timely filed.
(l) There is no finder or broker acting, or who acted, for Acquired
Corporation, the Bank or the Bank Subsidiaries, or, to the knowledge of the
directors of Acquired Corporation and the Bank, for any stockholder of
Acquired Corporation, in connection with the transactions contemplated by
this Agreement, other than Sandler O'Neill & Partners, L.P.
(m) Except as set forth in a schedule previously provided by the Acquired
Corporation (the "Benefit Plan Schedule"), the Acquired Corporation and any
entity included in the group of entities treated as a single employer with
the Acquired Corporation under Section 414(b), (c), (m) or (o) of the
Internal Revenue Code of 1986, as amended (the "Code") (an "ERISA
Affiliate"), do not sponsor or maintain and are not required to contribute
to and have not during the preceding three (3) years sponsored, maintained
or contributed to an "employee benefit plan" (as such term is defined in
Section 3(3) of the Employee Retirement Income Security Act of 1974, as
amended ("ERISA")) or any other employee benefit program or arrangement,
including, without limitation, any pension, profit sharing, deferred
compensation, retirement, bonus, stock option, stock appreciation right,
stock purchase or restricted stock plan, severance or "golden parachute"
arrangement, consulting agreement, incentive plan, or any other
compensation, perquisite, welfare or fringe benefit plan, program or
arrangement providing for benefits for, or for the welfare of, any or all
of the current or former employees, leased employees, officers or directors
of the Acquired Corporation or any ERISA Affiliate, or the beneficiaries of
such persons (such plans, programs and arrangements set forth in such
Benefit Plan Schedule, collectively, the "Employee Plans"). Except as
previously disclosed on the Benefit Plan Schedule:
(1) Each Employee Plan and any related funding arrangement is in
substantial compliance with all applicable material requirements of
ERISA, the Code, and other applicable laws, and each Employee Plan has
been administered in accordance with its written terms to the extent
consistent with such requirements of law; all benefits due and payable
under any Employee Plan have been paid or are in the process of being
paid in accordance with the terms of such Employee Plan; the Acquired
Corporation and each ERISA Affiliate have timely made (and at the
Effective Date will have timely made) all contributions required to be
made to any Employee Plan; except for claims for benefits in the
ordinary course of plan administration, there is no litigation or other
legal proceeding pending or threatened against or with respect to any
Employee Plan or its fiduciaries and no facts exist which could give
rise to such proceedings or litigation; all reports, returns, forms,
notifications or other disclosure materials required to be filed with
any governmental entity or distributed to employees with respect to any
Employee Plan have been timely filed or distributed and are accurate
and complete; no nonexempt "prohibited transaction" (as defined in
Section 4975 of the Code or Section 406 of ERISA) has occurred or will
occur prior to the Effective Date with respect to any Employee Plan
subject to such rules, any parties in interest or fiduciaries; no
excise taxes are payable or will become payable prior to the Effective
Date with respect to any Employee Plan; neither the Acquired
Corporation nor any ERISA Affiliate is subject to any legal obligation
to continue any Employee Plan either before or after the Effective Date
and any such Employee Plan may, in any manner and without the consent
of any employee, beneficiary or other party (except as may be required
by written contract or by applicable law), be amended or terminated
either before or after the Effective Date.
(2) The Acquired Corporation has previously delivered to the
Corporation complete copies of each written Employee Plan; all related
summary plan descriptions; all related trust agreements or other
funding arrangements, including, but not limited to, insurance
policies; for the three (3) most recent
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plan years, all annual reports (5500 series) for each Employee Plan
that have been filed with any governmental agency; and all other
material documents relating to any Employee Plan as may reasonably be
requested by the Corporation.
(3) The Acquired Corporation and each ERISA Affiliate currently
maintain or contribute to (or maintained or contributed to) certain
Employee Plans which are intended to be qualified under Section 401(a)
of the Code (collectively, the "Qualified Plans"); the Qualified Plans
have been amended to comply with all current applicable legislation
(including any regulations issued thereunder), and have received a
favorable determination letter from the Internal Revenue Service with
respect to their tax-qualified status which considers all such current
applicable legislation, or are still within a remedial amendment period
as announced by the Internal Revenue Service, and the Acquired
Corporation has delivered to the Corporation complete copies of all
determination letters previously received and all material
correspondence relating to the applications therefor; nothing has
occurred since the date of the most recent applicable determination
letter nor will occur prior to the Effective Date that would adversely
affect the tax-qualified status of the Qualified Plans.
(4) With respect to any Qualified Plan which is an "employee pension
benefit plan" (as such term is defined in Section 3(2) of ERISA)
("Pension Plan"), no "accumulated funding deficiency" (as defined in
Section 412 of the Code and Section 302 of ERISA), whether or not
waived, and no "unfunded current liability" (as defined in Section 412
of the Code and Section 302 of ERISA) exists.
(5) With respect to any Pension Plan which is subject to Title IV of
ERISA, no "reportable event" (as defined in Section 4043 of ERISA) has
occurred or will occur prior to the Effective Date which could require
security to be provided to the Pension Plan under Section 401(a)(29) of
the Code; as of the last valuation date, the assets of the Pension Plan
were at least equal to the present value of the accrued benefits of the
participants, former participants and beneficiaries in such plan, based
first on those actuarial methods, tables and assumptions used for
minimum funding purposes, and second on those actuarial methods, tables
and assumptions used for calculating termination liability; as of the
last valuation date for such Pension Plan, the present value of the
accumulated and projected benefit obligations (determined on the basis
of reasonable assumptions employed by the independent actuary for such
Pension Plan) did not exceed the fair market value of the assets of
such Pension Plan; since the last valuation date for the Pension Plan,
there has been no amendment or change to such Pension Plan, nor will
there be any such amendment or change to the Pension Plan prior to the
Effective Date (other than changes required by law, or changes
described in writing by Acquired Corporation to the Corporation prior
to the date of this Agreement), that would increase the amount of the
benefits thereunder and there has been no event or occurrence, nor will
there be any such event or occurrence prior to the Effective Date
(other than changes required by law or by the terms of any compensation
plan or arrangement, or changes described in writing by Acquired
Corporation to the Corporation prior to the date of this Agreement),
that would cause the accumulated benefit obligations or accrued
benefits to exceed the fair market value of the assets; and the
Acquired Corporation has delivered complete copies of the actuarial
valuation and trustee investment reports for such Pension Plan for the
last three (3) plan years.
(6) The Acquired Corporation and each ERISA Affiliate do not
currently contribute to (or during the past five (5) years have not
contributed to), or have an obligation to contribute to (or during the
past five (5) years had an obligation to contribute to) a
"multiemployer plan" (as defined in Section 3(37) of ERISA).
(7) The Acquired Corporation and each ERISA Affiliate do not have any
obligation, and have not made any representation, in connection with
any medical, death or other welfare benefits for their employees after
they retire, except to the extent required under the group health plan
continuation requirements of Sections 601 through 609 of ERISA, Section
4980B of the Code, or applicable state law.
(8) Except as set forth in the Benefit Plan Schedule described above,
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
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<PAGE>
(i) result in any material payment (including, without limitation,
severance, unemployment compensation and golden parachute payments)
becoming due to any director or employee of the Acquired Corporation or
any ERISA Affiliate under any Employee Plan or otherwise; (ii)
materially increase any benefits otherwise payable by The Acquired
Corporation or any ERISA Affiliate, or (iii) result in the acceleration
of the time of payment or vesting of any such benefits under any
Employee Plan or otherwise.
(n) Acquired Corporation, the Bank and the Bank Subsidiaries each have
good and marketable title to all of their respective material property and
assets, including those reflected on Acquired Corporation's September 30,
1999 Financial Statements and the Bank's September 30, 1999 Call Reports,
except as sold or otherwise disposed of only in the ordinary course of
business, free and clear of all material liens and encumbrances (except as
permitted in Section 1.6(r) below with respect to certain real estate and
except for securities pledged to secure government deposits or that are the
subject of repurchase transactions and loans pledged to secure borrowings
with the Federal Home Loan Bank, all in the ordinary course of business).
(o) The execution, delivery and performance of this Agreement have been
duly authorized by Acquired Corporation's and the Bank's respective Boards
of Directors (including at least a majority of the entire Board of
Directors of the Bank), and, except for approval by Acquired Corporation as
the Bank's sole stockholder and by the stockholders of Acquired
Corporation, require no further corporate action. This Agreement and
Acquired Corporation are not subject to the provisions of Subtitles 3-601
et seq. and 3-701 et seq. of the Maryland General Corporation Law ("MGCL"),
being the Business Combination statute and the Control Share Acquisitions
statute, respectively. Neither the execution and delivery of this Agreement
nor the carrying out of the transactions contemplated hereunder will result
in any violation, termination, modification of, or be in conflict with the
Charter or Bylaws of Acquired Corporation, the Bank or the Bank
Subsidiaries, or the terms of any material contract or other instrument to
which Acquired Corporation, the Bank or either of the Bank Subsidiaries is
a party, or of any judgment, decree, order or regulatory agreement
applicable to Acquired Corporation, the Bank or either of the Bank
Subsidiaries, or result in the creation of any material lien, charge, or
encumbrance upon any of the properties or assets of Acquired Corporation,
the Bank or either of the Bank Subsidiaries. Except as previously disclosed
by the Acquired Corporation, no consent to this Agreement by any private
party is required under any contract, lease, mortgage or other instrument
to which Acquired Corporation, the Bank or either of the Bank Subsidiaries
is a party. This Agreement constitutes a valid and binding obligation of
Acquired Corporation and the Bank, enforceable against each of them in
accordance with its terms, except as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally or by general equitable principles.
(p) The tangible personal property of Acquired Corporation, the Bank and
the Bank Subsidiaries is in good operating condition and repair, subject to
ordinary wear and tear.
(q) There is no material violation of any zoning, building, fire or other
regulatory laws, statutes, ordinances or regulations relating to Acquired
Corporation's, the Bank's or either of the Bank Subsidiaries' offices or
other real property; no condemnation proceeding exists or, to the knowledge
of Acquired Corporation or the Bank, is threatened that would preclude or
impair the use of Acquired Corporation's, the Bank's or either of the Bank
Subsidiaries' offices as presently being used in the conduct of their
respective businesses.
(r) The Bank has good and merchantable fee simple title to the real
estate for all of the owned offices of Acquired Corporation and the Bank
and good and merchantable title to the leasehold interests for the offices
leased by the Bank in each case, free and clear of liens and encumbrances
of every kind and nature except use, occupancy and similar restrictions of
public record that are generally applicable to properties in the immediate
neighborhood or subdivision in which the real property is located,
easements and encumbrances that are of record or that may be observed by an
inspection of the property, and such utility and other easements and
encumbrances as do not materially adversely affect the fair market value of
the real property or leasehold interests. The leases for the offices leased
by the Bank are in full force and effect, except for the office at 140
Village which is in negotiation and none is in default.
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(s) In all material respects, all electrical, plumbing, heating, air
conditioning and other mechanical systems and related equipment in Acquired
Corporation's, the Bank's and Bank Subsidiaries' banking and other offices
are in good working order, subject to ordinary wear and tear, and the roofs
of the office buildings are waterproof and their basements, if any, are not
subject to water seepage.
(t) All real estate (including, without limitation, offices and
foreclosed properties) owned or leased by Acquired Corporation, the Bank or
Bank Subsidiaries (the "Real Estate") is in compliance in all material
respects with all environmental laws and regulations; there are no
underground tanks on the Real Estate; and there has been no release of
hazardous substances or petroleum products on the Real Estate.
1.7 Access to Records and Information; Operation of Business.
(a) From the date of this Agreement until the Effective Date, as hereinafter
defined, Acquired Corporation will, itself, and will cause the Bank and Bank
Subsidiaries to afford the Corporation, its officers and other authorized
representatives, such access to all books, accounts, records, bank examination
reports (subject to any permission from regulatory agencies as may be
required), tax returns, leases, contracts and documents of Acquired
Corporation, the Bank and the Bank Subsidiaries and furnish to the Corporation
such information with respect to Acquired Corporation's, the Bank's and Bank
Subsidiaries' assets, liabilities and business as the Corporation may from
time to time request, and further will fully cooperate with the Corporation in
satisfying the conditions set forth in this Agreement.
(b) Unless the Corporation shall otherwise consent in writing, from the date
of this Agreement until the Effective Date, Acquired Corporation will do and
will cause the Bank and Bank Subsidiaries to do, and will otherwise cause to
be done all things necessary to:
(1) preserve and keep in full force and effect the corporate existence of
Acquired Corporation, the Bank and Bank Subsidiaries;
(2) operate their respective businesses only in the usual, regular and
ordinary manner and consistently with past operations and practices,
including, without limitation, following the Bank's current lending
practices with regard to the setting of rates, credit standards and
collection procedures; and use all commercially reasonable efforts to
preserve their present relationships with persons having business dealings
with them;
(3) except with respect to the establishment of a branch office of the
Bank in Taneytown, Maryland, make no material increase in levels of
staffing, no material changes in duties or responsibilities of senior
management, and no changes in or appointments of senior management
(provided that the Corporation's consent to matters covered in this item
(3) shall not be unreasonably withheld);
(4) maintain their books, accounts and records in the usual regular and
ordinary manner, on a basis consistent with prior years; comply in all
material respects with all material laws and contractual obligations, and
perform all of the material obligations relating to their respective
businesses without material default;
(5) not enter into any material agreement or incur any material
obligation other than in the ordinary course of their respective
businesses;
(6) except with respect to the establishment of a branch office of the
Bank in Taneytown, Maryland, not make or commit to make any capital
expenditures aggregating in excess of $50,000;
(7) not pledge, sell, lease, transfer, dispose or otherwise encumber any
of their respective property or assets other than in the ordinary course of
business;
(8) not issue any shares of their capital stock (other than shares issued
upon exercise of the Stock Options outstanding as of the date of this
Agreement), any securities convertible into or exchangeable for shares of
their capital stock, or any other class of securities, whether debt (other
than certificates of deposit issued by the Bank in the ordinary course of
business and consistent with past practice) or equity; and not issue any
option, warrants or rights to acquire any of the foregoing and in
connection therewith, will immediately suspend the dividend reinvestment
plan of the Acquired Corporation;
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(9) not amend their Charters or Bylaws;
(10) except as provided in Section 1.10, not provide for the
consolidation with or merger of Acquired Corporation, the Bank or the Bank
Subsidiaries or a share exchange or any other reorganization involving
Acquired Corporation, the Bank or the Bank Subsidiaries capital stock with
or into another corporation, or the liquidation or dissolution of Acquired
Corporation, the Bank or the Bank Subsidiaries;
(11) not create any subsidiary, affiliate or other related business
entity or enter into any partnership or joint venture; and
(12) not take any other action or enter into any agreement which would
have the effect of defeating the purposes of this Agreement or the
Affiliation except as provided in Section 1.10.
1.8 Financial Statements. If independent public accountants acceptable to
the Corporation are unable to certify financial statements of Acquired
Corporation, the Bank or the Bank Subsidiaries for any period (or must qualify
such a certification) that would materially interfere with or prevent the
Corporation, before or after the Effective Date, from complying with
requirements of the SEC (or other requirements) for the preparation and
publication of certified or other required financial statements, whether for
Acquired Corporation, for the Bank or for the Corporation and its consolidated
subsidiaries, then the Corporation and Westminster shall have the right by
written notice to Acquired Corporation and the Bank at any time prior to the
Effective Date to terminate this Agreement, in which event no party shall have
any obligations under, or liabilities arising out of, this Agreement, except
as set forth in Section 3.6 with respect to expenses.
1.9 Regulatory Approvals. When requested by the Corporation, and through
counsel for the Corporation, Acquired Corporation, the Bank and the Bank
Subsidiaries will cooperate with the Corporation and use all commercially
reasonable efforts to obtain the approval of the Affiliation by all
appropriate State and Federal regulatory agencies.
1.10 Exclusive Dealing. The Board of Directors of Acquired Corporation has
carefully considered and deliberated upon the terms and conditions of the
Affiliation and has concluded that the Affiliation is fair to, and in the best
interests of the stockholders of Acquired Corporation, with the intent that
this Agreement be conclusive and binding, subject to the terms and conditions
hereof. In the process of so concluding, the Board of Directors of the
Acquired Corporation has, at the expense of the Acquired Corporation, received
the written opinion of Sandler O'Neill & Partners, L.P., its financial
advisor, that the exchange ratio to be received in the Affiliation is fair to
the stockholders of the Acquired Corporation from a financial viewpoint.
Accordingly, in view of the commitments of the parties and the time and
expense required to consummate the Agreement and while this Agreement is in
effect, neither Acquired Corporation nor the Bank nor any of their respective
officers, directors, employees, agents or representatives (including, without
limitation, investment bankers) shall, directly or indirectly: (i) encourage,
solicit or initiate the submission of any Acquisition Proposal, as hereinafter
defined, or take any other action to facilitate any inquiries or the making of
any proposal that constitutes or may reasonably be expected to lead to any
Acquisition Proposal; or (ii) recommend any Acquisition Proposal to Acquired
Corporation's stockholders or enter into any agreement with respect to any
Acquisition Proposal or participate in discussions or negotiations with, or
furnish any information to, any person other than the Corporation,
Westminster, or their affiliates and agents, in connection with any potential
Acquisition Proposal, unless an unsolicited Acquisition Proposal is made and
the Board of Directors of Acquired Corporation shall conclude, based on a
written opinion of counsel, which opinion shall be based with respect to
financial matters on the written opinion of a duly qualified and independent
financial advisor of Acquired Corporation that such Acquisition Proposal is
more favorable to the Acquired Corporation's stockholders from a financial
point of view than the Affiliation, that their fiduciary obligations require
consideration of such Acquisition Proposal because such Acquisition Proposal
may be in the best interest of Acquired Corporation's stockholders.
"Acquisition Proposal" shall mean any proposed (A) merger, consolidation,
share exchange or similar transaction involving Acquired Corporation or the
Bank, (B) sale, lease or other disposition directly or indirectly by merger,
consolidation, share exchange or otherwise of assets of Acquired Corporation
or the Bank representing 10% or more of the consolidated assets of Acquired
Corporation (including capital stock of the Bank) or of the Bank,
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(C) issue, sale or other disposition (including by way of merger,
consolidation, share exchange or any similar transactions) of securities (or
options, rights or warrants to purchase, or securities convertible into, such
securities) representing 10% or more of the voting power of Acquired
Corporation or the Bank, (D) transaction in which any person shall acquire
beneficial ownership (as such term is defined in Rule 13d-3 under the Exchange
Act), or the right to acquire beneficial ownership, or any "group" (as such
term is defined under the Exchange Act) shall have been formed which
beneficially owns or has the right to acquire beneficial ownership, of 20% or
more of Acquired Corporation's or the Bank's outstanding capital stock.
Acquired Corporation and the Bank shall promptly advise the Corporation of,
and communicate to the Corporation the terms of, any such inquiry or proposal
addressed to Acquired Corporation or the Bank or of which Acquired Corporation
or the Bank, or their respective officers, directors, employees, agents, or
representatives (including, without limitation, any investment banker) has
knowledge. Acquired Corporation's and the Bank's Boards of Directors shall use
all commercially reasonable efforts to cause their respective officers,
directors, employees, agents and representatives to comply with the
requirements of this Section 1.10.
1.11 Conditions to the Corporation's and Westminster's Obligations. The
obligations of the Corporation and Westminster under this Agreement are
subject to the satisfaction prior to, and at, the Effective Date, of the
conditions set forth in Article II of this Agreement or elsewhere in this
Agreement and of the following conditions:
(a) That pursuant to applicable statutes, the FRB and the FDIC shall have
given any required approvals to permit the Affiliation and such approvals
shall have become effective and all required waiting times with respect
thereto shall have expired.
(b) That all appropriate State regulatory agencies (including, without
limitation, the Maryland Commissioner, and any other appropriate State or
Federal regulatory agencies shall have approved the Affiliation to the
extent required by applicable State or Federal laws and all required
waiting periods with respect thereto shall have expired.
(c) That the Registration Statement shall have been declared effective by
the SEC and there shall not be in effect a stop order with respect thereto.
(d) That the directors of Acquired Corporation and Steven L. Wantz for
the purposes of SEC Rule 145 shall have entered into agreements with the
Corporation, in form and substance satisfactory to the Corporation,
necessary or desirable to conform with SEC Rule 145.
(e) That all other consents or approvals, governmental or otherwise, that
in the opinion of counsel for the Corporation are necessary to permit,
enable or facilitate the Affiliation, shall have been granted or issued and
shall have become effective.
(f) That there shall be no actual or threatened legal proceeding or
impediment that in the reasonable opinion of counsel for the Corporation
might prevent the consummation of the Affiliation.
(g) That since September 30, 1999, Acquired Corporation shall not have
authorized or distributed any of its assets to its stockholders by way of
dividends or otherwise, except for regular cash dividends for any full
calendar quarter occurring before the Effective Date that begins after
December 31, 1999 at an effective quarterly rate of not more than twelve
cents ($.12) per share; provided, however, that the Acquired Corporation
shall not declare or pay any dividend with respect to any period for which
the stockholders of Acquired Corporation are or become eligible to receive
a dividend declared by the Corporation.
(h) That since September 30, 1999, Acquired Corporation, the Bank and
Bank Subsidiaries shall not have issued or authorized the issuance of
additional shares of their respective capital stock of any class (other
than shares of common stock issued upon exercise of Stock Options), or
options to buy shares of said stock, or warrants or rights to subscribe
thereto, or securities converted into such capital stock, or any notes,
debentures or other evidences of indebtedness (other than certificates of
deposit issued in the normal course of business), or issued or authorized
the issuance of other securities in respect of, in lieu of, or in
substitution for the now outstanding shares of capital stock, or
repurchased or redeemed any of their capital stock, or changed their
respective capitalization, or made any distribution of their earnings or
assets other
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than as provided in Section 1.11(g) above, or as otherwise agreed in
writing by the Corporation, and Acquired Corporation and Bank shall not
have sold, transferred, pledged or granted any option or other rights with
respect to the capital stock of the Bank held by Acquired Corporation or
the capital stock of the Bank Subsidiaries held by the Bank, respectively.
(i) That, except with the prior written approval of the Corporation,
there shall have been no increase in the compensation, or rate of
compensation, payable or to become payable by Acquired Corporation, the
Bank or Bank Subsidiaries to any director, officer or employee thereof,
other than in accordance with past practices, or the establishment of, or
an agreement to establish by Acquired Corporation, the Bank or Bank
Subsidiaries, any early retirement program or arrangement for certain
employees, or any payment of any bonus, profit sharing, severance or other
extraordinary compensation, or any change (other than changes required by
law or described in writing by Acquired Corporation to the Corporation
prior to the date of this Agreement) in any presently existing stock
option, employee stock ownership, profit sharing, pension, retirement,
bonus, severance, group life or health insurance or other plan, agreement
or arrangement, and that Acquired Corporation, the Bank and Bank
Subsidiaries shall not have adopted or entered into any new employment,
stock option, stock purchase, employee stock ownership, profit sharing,
pension, retirement, bonus, group life or health insurance or other benefit
plan, agreement or arrangement.
(j) That between September 30, 1999 and the Effective Date, no change
shall have been made in Acquired Corporation's, the Bank's or Bank
Subsidiaries' investment practices and policies.
(k) That there are granted or issued any such consents or approvals,
governmental or otherwise (including, without limitation, lessor consents),
which are necessary to permit or enable Westminster, as successor to the
Bank in the Bank Merger, and the Corporation, as successor to Acquired
Corporation in the Holding Company Merger, to conduct after the Effective
Date, all and every part of the business and activities conducted by the
Bank and Acquired Corporation, respectively, prior to the Effective Date in
the manner in which such activities and business were then conducted by the
Bank and Acquired Corporation, respectively, and at the offices at which
they were then conducted except for such offices as the parties hereto
agree to close or consolidate.
(l) That the holders of no more than 10% of Acquired Corporation's common
stock shall have (i) at or before the stockholders' meeting of Acquired
Corporation at which the Affiliation is considered, delivered to Acquired
Corporation written objection to the Affiliation pursuant to Section 3-203
of the MGCL; and (ii) not voted in favor of the Affiliation.
(m) That the Bank shall not have applied for or opened any new, or closed
any existing, branch offices without the written consent of the
Corporation.
(n) That the Corporation and Westminster shall have received from
Venable, Baetjer and Howard, LLP (or such other qualified law firm as the
Corporation shall select) an opinion (i) with respect to the federal income
tax consequences of the Holding Company Merger substantially to the effect
that the Holding Company Merger will qualify as a reorganization within the
meaning of Section 368(a)(1)(A) of the Internal Revenue Code, that the
Corporation and Acquired Corporation will each be a party thereto, and that
no gain or loss will be recognized by the Corporation or Acquired
Corporation as a result of the Holding Company Merger; and (ii) with
respect to the federal income tax consequences of the Bank Merger
substantially to the effect that the Bank Merger will qualify as a
reorganization within the meaning of Section 368(a)(1)(D) of the Internal
Revenue Code, that Westminster and the Bank will each be a party thereto,
and that no gain or loss will be recognized by Westminster, the
Corporation, or the Bank as a result of the Bank Merger.
(o) That the representations of Acquired Corporation and the Bank
contained in Section 1.6 of this Agreement shall be true in all material
respects on and as of the Effective Date as if made again as of such date,
and that, on request of the Corporation, and as of the Effective Date, the
President of Acquired Corporation shall deliver a written certificate to
the Corporation that to her knowledge, information and belief, the
representations set forth in this Agreement are true and correct in all
material respects as if made on and as of the date of such certificate and
that the conditions set forth herein which are required to have been met by
such date have, without exception, been met.
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(p) That the consolidated stockholders' equity of the Acquired
Corporation determined in accordance with generally accepted accounting
principles, exclusive of accumulated other comprehensive income or expense,
consistently applied and exclusive of merger-related costs shall not be
less than $26,915,960.
(q) That since September 30, 1999 there shall not have been a material
adverse change in the consolidated balance sheet, income statement,
financial position, results of operation, or business of the Acquired
Corporation except for market value fluctuations in the Bank's and the
Delaware Holding Company's, investment portfolios resulting from changes in
interest rates and except for merger-related costs.
(r) That the nature or composition of the Bank's loan portfolio shall not
be materially different from the nature or composition of the Bank's loan
portfolio as reflected in the Bank's September 30, 1999 Call Reports.
(s) That any material item or material group of items in the Bank's loan
portfolio shall not be unacceptable to the Corporation for stated defects,
including, without limitation, matters relating to credit, collateral or
documentation.
(t) That the nature or composition of the Bank's deposit liabilities
shall not be materially different from the nature or composition of the
Bank's deposit liabilities as reflected in the Bank's September 30, 1999
Call Reports.
(u) That the Bank's accrued expenses or other liabilities shall not be
materially different in nature from those associated with the normal
operation of a commercial bank except for merger-related costs.
(v) That the list of the Acquired Corporation's, the Bank's and the Bank
Subsidiaries' securities supplied by the Acquired Corporation to the
Corporation pursuant to Section 1.6(g) shall be accurate, as of its date,
in all material respects.
Conditions (d), (e), (f), (g), (h), (i), (j), (k), (l), (m), (n), (o), (p),
(q), (r), (s), (t), (u) and (v) may be waived by the Corporation and
Westminster.
1.12 Conditions to Acquired Corporation's and the Bank's Obligations.
The obligation of Acquired Corporation and the Bank under this Agreement are
subject to the following conditions:
(a) That pursuant to applicable statutes, the FRB and the FDIC shall have
given any required approvals to permit the Affiliation and such approvals
shall have become effective and all required waiting times with respect
thereto shall have expired.
(b) That all appropriate State regulatory agencies, including, without
limitation, the Maryland Commissioner, and any other appropriate State or
Federal regulatory agencies shall have approved the Affiliation to the
extent required by applicable State or Federal laws and all required
waiting periods with respect thereto shall have expired.
(c) That the Registration Statement shall have been declared effective by
the SEC and there shall not be in effect a stop order with respect thereto.
(d) That Acquired Corporation shall have received an opinion of Venable,
Baetjer and Howard, LLP (or such other qualified law firm acceptable to
Corporation as Acquired Corporation shall select) with respect to the
federal income tax consequences of the Affiliation, substantially to the
effect that, upon completion of the Affiliation (except as to the
disposition of fractional shares):
(1) the Holding Company Merger will qualify as a reorganization
within the meaning of Section 368(a)(1)(A) of the Internal Revenue
Code;
(2) the Corporation and Acquired Corporation will each be a party
thereto;
(3) no gain or loss will be recognized by the Corporation or Acquired
Corporation as a result of the Holding Company Merger;
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(4) no gain or loss will be recognized by the stockholders of
Acquired Corporation upon receipt by them of Common Stock in exchange
for common stock of Acquired Corporation;
(5) the basis of the Common Stock received by such stockholders of
Acquired Corporation will be the same as the basis of the common stock
of Acquired Corporation surrendered by such stockholders in exchange
for the Common Stock;
(6) provided that Acquired Corporation's common stock is held as a
capital asset, such stockholders' holding period of the Common Stock
received by them will include the stockholders' holding period of the
common stock of Acquired Corporation which is surrendered in exchange
for such Common Stock.
(e) That the Acquired Corporation's Proxy Statement shall contain the
written opinion of Sandler O'Neill & Partners, L.P. (or such other
recognized investment firm as the Acquired Corporation may select), to the
effect that the exchange ratio to be received in the Affiliation is fair to
the stockholders of the Acquired Corporation from a financial point of
view.
(f) That the representations of the Corporation and Westminster contained
in Section 1.5(a) of this Agreement (other than Section 1.5(a)(4)) shall be
true in all material respects on and as of the Effective Date as if made
again as of such date, and that, on the request of Acquired Corporation,
and as of the Effective Date, the President of the Corporation shall
deliver a written certificate to Acquired Corporation that, to his
knowledge, information and belief, the representations of the Corporation
and Westminster set forth in this Agreement (other than in Section
1.5(a)(4)) are true and correct in all material respects as if made on and
as of the date of such certificate and that the conditions set forth herein
required to have been met by the Corporation by such date have, without
exception, been met.
(g) That there are granted or issued such governmental consents or
approvals which are necessary to permit or enable Westminster, as successor
to the Bank in the Bank Merger, and the Corporation, as successor to the
Acquired Corporation in the Holding Company Merger, to conduct after the
Effective Date, all and every part of the business and activities conducted
by the Bank and Acquired Corporation, respectively, prior to the Effective
Date in the manner in which such activities and businesses were then
conducted by the Bank and Acquired Corporation, respectively, and at the
offices at which they were then conducted except for such offices as the
parties hereto agree to close or consolidate.
Condition (f) may be waived by Acquired Corporation and the Bank.
1.13 Confidentiality
Between the date of this Agreement and the Effective Date, the Corporation
and Westminster, on the one hand, and Acquired Corporation and the Bank, on
the other hand, each will maintain in confidence, and cause its directors,
officers, employees, agents and advisors to maintain in confidence, and will
not use for any purpose other than those contemplated in this Agreement, any
written, oral or other information obtained in confidence from the other party
or a third party in connection with this Agreement or the transactions
contemplated hereby unless such information is already known to such party or
to others not bound by a duty of confidentiality or unless such information
becomes publicly available through no fault of such party, unless use of such
information is necessary or appropriate in making any filing or obtaining any
consent or approval required for the consummation of the transactions
contemplated hereby or unless the furnishing or use of such information is
required by or necessary or appropriate in connection with legal proceedings.
If the Affiliation is not consummated, each party will return or destroy as
much of such written information as may reasonably be requested except to the
extent that it is necessary or appropriate for the party to retain the
information in connection with any legal proceedings relating to the
Agreement.
1.14 Employee Benefit Matters
(a) 401(k) Plan. It is the current intention of the Corporation and
Westminster and expectation of the parties that effective as of the Effective
Date (or as soon thereafter as is practicable in the judgment of the
Corporation), Bank's 401(k) plan shall be merged with and into the
Corporation's 401(k) plan. If the plans are
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merged, the terms of the merger will comply with applicable requirements of
the Code, including Sections 401(a), 414(1) and 411(d)(6), and shall provide
that employees of the Acquired Corporation and the Bank will be given credit
under the Corporation's 401(k) plan for service with the Acquired Corporation
and the Bank for purposes of eligibility to participate and vesting. In the
event that, in the judgment of the Corporation after consultation with the
former officers of the Bank and the Acquired Corporation, it is not
technically feasible or desirable to merge the plans, Bank's 401(k) plan shall
be frozen.
(b) Qualified Pension Plan. It is the current intention of the Corporation
and Westminster and expectation of the parties that effective as of the
Effective Date (or as soon thereafter as is practicable in the judgment of the
Corporation), Bank's qualified pension plan shall be merged with and into the
Corporation's cash balance plan. If the plans are merged, the terms of the
merger will comply with applicable requirements of the Code, including
Sections 401(a), 414(l) and 411(d)(6) and shall provide that employees of the
Acquired Corporation and the Bank will be given credit under the Corporation's
cash balance plan for service with the Acquired Corporation and the Bank for
purposes of eligibility to participate, vesting and benefit accrual. In the
event that, in the judgment of the Corporation after consultation with the
former officers of the Bank and the Acquired Corporation, it is not
technically feasible or desirable to merge the plans, Bank's qualified pension
plan shall be frozen or terminated, in which case the employees of the
Acquired Corporation and the Bank shall be given credit under the
Corporation's cash balance plan for service with the Acquired Corporation and
the Bank only for purposes of eligibility to participate and vesting, but not
for benefit accrual.
(c) Directors Deferral Plan. As of the Effective Date the Directors Deferral
Plan shall be discontinued. Any amounts previously deferred shall be paid to
the directors at such times and in such manner as previously elected by the
directors pursuant to the terms of the Directors Deferral Plan that were in
effect at the time such elections were made. The interest rate to be credited
to the directors' Accounts (as defined in Section 5.01 of the Directors
Deferral Plan) shall be the current prime interest rate, as described in
Section 5.03 of the Directors Deferral Plan.
(d) Other Benefits. Except with respect to (i) Bank's 401(k) plan described
in Section 1.14(a) above (the disposition of which shall be governed by
Section 1.14(a) above), (ii) Bank's qualified pension plan described in
Section 1.14(b) above (the disposition of which shall be governed by Section
1.14(b) above), (iii) the Directors Deferral Plan described in Section 1.14(c)
above (the disposition of which shall be governed by Section 1.14(c) above),
and (iv) executive plans, programs and arrangements (i.e., those for which
eligibility for participation is determined in the discretion of Westminster
and/or the Corporation), after the Effective Date, employees of the Acquired
Corporation and the Bank shall be entitled to participate in Corporation's or
Westminster's employee benefit plans and programs, as the case may be, on the
same basis as similarly situated employees of Corporation or Westminster
(taking into account all applicable factors, including but not limited to,
position, employment classification, age, length of service, pay, part-time or
full time status, and the like). Corporation and Westminster agree to treat
service with the Acquired Corporation and the Bank before the Effective Date
as service with Corporation or Westminster for purposes of all such employee
benefit and seniority based plans and programs.
ARTICLE II
Affiliation
The following terms, provisions and conditions are in addition to those
contained in Articles I and III of this Agreement:
2.1. Effective Date. Subject to the terms and conditions contained in this
Agreement, as soon as practicable after the performance of all agreements and
obligations of the parties hereunder and upon fulfillment or waiver of all
conditions precedent contained herein, and (except as may be otherwise
determined by the Corporation, as of the last business day of a month) the
Corporation and Acquired Corporation will execute and deliver Articles of
Merger in such form(s) as in the opinion of counsel to the Corporation may be
required by
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Maryland law (the "Articles"), and any other documents required by law to
effectuate the Holding Company Merger, and will file the Articles with the
State Department of Assessments and Taxation of the State of Maryland. The
effective date and time of the Holding Company Merger (the "Effective Date")
shall be the effective date and time set forth in the Articles as filed with
the Maryland State Department of Assessments and Taxation. The effective date
and time of the Bank Merger shall be the effective date and time set forth in
the Certificate of Merger issued by the Maryland Commissioner pursuant to
applicable provisions of Maryland law. The Bank Merger shall be made effective
as soon as practicable after the Holding Company Merger becomes effective, as
determined by the Corporation.
2.2. Corporation's and Westminster's Obligations in Accomplishing the
Affiliation. In order to effect the Affiliation as aforesaid, the Corporation
and Westminster, as the case may be, to any extent required by law will (i)
prepare and file with the FRB, the FDIC and the Maryland Commissioner,
applications requesting approval of the Affiliation and the Bank Merger; (ii)
if required, cause the Corporation's Maryland banking affiliates to file with
the Maryland Commissioner, an application for approval of the affiliation of
such Maryland banking affiliates with Acquired Corporation and the Bank; (iii)
prepare and file any other necessary regulatory applications and use their
best efforts to obtain approval of all such applications; (iv) cause the
Corporation to approve the Bank Merger as the Westminster's sole stockholder
and cause the execution and delivery of the Bank Merger Agreement; and (iv)
publish any newspaper notices required by law with respect to the Affiliation
and Bank Merger.
2.3. Acquired Corporation's and the Bank's Obligations in Accomplishing the
Affiliation. At such times as shall be requested by the Corporation, Acquired
Corporation and the Bank and their respective management and directors shall,
(i) cooperate with and assist the Corporation and Westminster in the
preparation and filing with the FRB, FDIC and the Maryland Commissioner of
applications requesting approval of the Affiliation and of the Bank Merger;
(ii) cause the publication of any newspaper notices required with respect to
the Affiliation and Bank Merger; (iii) duly call and convene a meeting of
Acquired Corporation's stockholders to vote on the Affiliation and, in
connection therewith and subject to the fiduciary duties of the Board of
Directors of Acquired Corporation (as advised in writing by its counsel), but
only as such fiduciary duty is encompassed in, contemplated by, and within the
scope of Section 1.10, approve and recommend this Agreement, and the
Affiliation to Acquired Corporation's stockholders and use their best efforts
to obtain a favorable vote thereon; and (iv) cause Acquired Corporation to
approve the Bank Merger as the Bank's sole stockholder and cause the execution
and delivery of the Bank Merger Agreement. In connection with the submission
of the Affiliation to the stockholders of Acquired Corporation pursuant to the
MGCL, Acquired Corporation agrees that its Board of Directors will not take
any action that would have the effect of requiring that the Affiliation be
approved by more than of the votes entitled to be cast on the matter nor
impose any condition to its submission of the Affiliation to the stockholders
of Acquired Corporation.
2.4. Stockholder Approval. The Affiliation is subject to the additional
nonwaivable condition that this Agreement, the Holding Company Merger, and the
Affiliation shall have been approved by the stockholders of Acquired
Corporation by not less than two thirds 2/3 of the votes entitled to be cast
on the matter at a meeting of Acquired Corporation's stockholders duly called
for that purpose and duly constituted, at which a quorum is present and acting
throughout, subject, however, to the rights of the Corporation under Section
1.11(l) hereof.
2.5. Effect of the Affiliation. Upon the Effective Date, Acquired
Corporation shall be merged with and into the Corporation, and upon the
effective date of the Bank Merger, the Bank shall be merged into Westminster
in accordance with this Agreement and the Bank Agreement of Merger and
pursuant to the applicable provisions of MGCL and the Financial Institutions
Article of the Annotated Code of Maryland and with the effect provided in said
provisions. The Corporation shall be the successor corporation in the Holding
Company Merger; no amendments to its charter will be effected by the Holding
Company Merger. Westminster shall be the surviving corporation in the Bank
Merger.
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2.6. Terms of Mergers; Objecting Stockholders. On the Effective Date and
immediately upon the Holding Company Merger becoming effective with the
effects set forth in Section 2.5 above and in Section 3-114 of the MGCL, or
any successor statute thereto, and in consideration thereof, the terms of the
Holding Company Merger shall be as follows:
(a) Each share of capital stock of the Corporation shall remain issued
and outstanding as one share of capital stock of the Successor, without any
action on the part of the holder thereof.
(b) Each share of issued and outstanding common stock of the Acquired
Corporation (other than the shares held by any objecting stockholder of the
Acquired Corporation pursuant to paragraph (d) of this Section 2.6) shall
for all corporate purposes, and without any action on the part of the
holder thereof, automatically become and be converted into one and fifteen
hundredths (1.15) shares (subject to adjustment pursuant to Section 1.5(b))
of Common Stock of the Corporation and the right to receive cash in lieu of
fractional shares of Common Stock, as provided in paragraph (c) of this
Section 2.6. Each certificate representing shares of the common stock of
the Acquired Corporation (other than certificates for shares held by any
objecting stockholders) will thereafter represent a number of whole shares
of Common Stock (and the right to receive cash in lieu of fractional shares
of Common Stock) determined in accordance with the conversion ratio set
forth above. Such certificates may at any time thereafter be surrendered to
The Bank of New York, acting as exchange agent, or such other or additional
exchange agent as the Corporation may select (the "Exchange Agent")
(together with any transmittal materials or endorsements required by the
Exchange Agent) for new certificates for the appropriate number of whole
shares of Common Stock (and cash in lieu of fractional shares). After the
Effective Date, no dividends or other distributions shall be paid on shares
of Common Stock with respect to which certificates formerly representing
shares of common stock of the Acquired Corporation have not been
surrendered; but whenever a dividend is declared by the Corporation on the
Common Stock after the Effective Date, the declaration shall include
dividends on all shares of Common Stock issuable hereunder and upon such
surrender, all dividends not paid because of this provision shall be paid,
without interest. The Corporation shall be entitled, however, after the
Effective Date, to treat the certificates of theretofore outstanding common
stock of the Acquired Corporation as evidencing the ownership of the number
of whole shares of Common Stock into which the common stock of the Acquired
Corporation, previously represented by such certificates, shall have been
converted, notwithstanding the failure to surrender such certificates. All
certificates for common stock of the Acquired Corporation surrendered to
the Exchange Agent for new certificates representing shares of Common Stock
pursuant to this Section 2.6(b) will be cancelled.
(c) In order to save the expense and inconvenience of issuing and
transferring fractional shares, no fractional shares of Common Stock or
certificates therefor will be issued, but, in lieu thereof, and solely as a
mechanism for rounding shares to whole shares, the Corporation will pay
cash for such fractional shares on the basis of the closing price for
Common Stock (as reported by The Nasdaq National Market) on the Effective
Date (or if no closing price is reported on that date, then the closing
price on the next preceding day on which there is a closing price), without
interest, upon surrender of certificates of common stock of the Acquired
Corporation representing the right to receive such cash in lieu of
fractional shares of Common Stock. No such holder shall be entitled to
dividends, voting rights or any other rights of stockholders in respect of
any fractional share.
(d) Any holder of shares of the common stock of the Acquired Corporation
who (i) at or before the stockholders' meeting of the Acquired Corporation
at which the Affiliation is considered has delivered to Acquired
Corporation written objection to the Affiliation pursuant to Section 3-203
of the MGCL and (ii) not voted in favor of the Affiliation, and (iii) who,
within twenty (20) days after Articles of Merger are accepted for record by
the State Department of Assessments and Taxation makes a written demand
upon Corporation for payment for such shares, all pursuant to the
provisions of Title 3, Subtitle 2 of the MGCL shall be entitled to receive
from Corporation in cash the fair value of such shares of the common stock
of the Acquired Corporation determined in accordance with the aforesaid
provisions of the MGCL, or any successor statute thereto.
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(e) The Stock Options shall automatically terminate and be cancelled
immediately prior to the Affiliation becoming effective; unexercised and
theretofore unexpired Stock Options shall be subject to the provisions of
Section 1.2(b).
(f) The terms of the Bank Merger shall be as set forth in the Bank
Agreement of Merger.
2.7. Confirmatory Deeds. When and as requested by the Corporation or
Westminster, Acquired Corporation and the Bank shall execute and deliver or
cause to be executed and delivered, all such deeds and other instruments, and
take or cause to be taken all such further or other actions, as the
Corporation or Westminster may deem necessary or desirable in order to vest or
perfect in or confirm of record or otherwise to Westminster as survivor in the
Bank Merger, or the Corporation, as successor in the Holding Company Merger,
title to and possession of all real estate and other property of the Bank and
of Acquired Corporation, respectively, and otherwise to carry out the intent
and purposes of this Agreement and the Bank Agreement of Merger.
2.8 Procedural Matters. The Corporation, at its option, may revise the
sequence of events or other procedural matters relating to the accomplishment
of the Affiliation in such manner as it may reasonably determine will best
facilitate accomplishment of the Affiliation.
ARTICLE III
Miscellaneous
3.1. Termination For Regulatory Reasons. If, at any time, the Corporation
receives information from any regulatory authority, which by law is required
to approve the Affiliation or any other aspect of the transactions provided
for herein or which has authority to challenge the validity of the Affiliation
or such transactions in judicial proceedings or otherwise, that provides a
substantial basis for concluding, after consultation with the Acquired
Corporation, that the required regulatory approval will not be granted or that
the Affiliation or such transactions will be so challenged, the Corporation
and Westminster may, subject to the provisions of Section 3.6 with respect to
expenses, terminate all obligations under this Agreement by giving fourteen
(14) days written notice of such termination to Acquired Corporation and the
Bank. Upon such termination, except as set forth in Section 3.6, this
Agreement shall become null and void and none of the parties hereto shall have
any obligation or liability to the others with respect to this Agreement.
3.2. Termination By Consent or Due to Passage of Time. At any time prior to
the Effective Date, notwithstanding the approval of this Agreement and of the
Holding Company Merger by the stockholders of Acquired Corporation, this
Agreement may be terminated by mutual consent of the parties. Moreover, the
Corporation and Westminster on the one hand, and Acquired Corporation and the
Bank on the other, shall be entitled to terminate this Agreement after
November 15, 2000, by written notice to the other party unless the Effective
Date shall have occurred on or before such date or the parties hereto shall
have extended the Effective Date in writing.
3.3 Termination With Respect to Acquisition Proposal. This Agreement may be
terminated by the Corporation and Westminster if the Directors of Acquired
Corporation recommend to its stockholders, or Acquired Corporation or the Bank
accepts, an Acquisition Proposal and may be terminated by Acquired Corporation
and the Bank if, in compliance with Section 1.10 hereof, Acquired
Corporation's Directors recommend to its stockholders, or Acquired Corporation
or the Bank accept, an Acquisition Proposal. In any such case, Acquired
Corporation and the Bank shall pay the Corporation a termination fee in the
amount of $1,000,000 and shall also pay their own expenses as provided in
Section 3.6 below.
3.4 Termination If Support Agreement Not Delivered. This Agreement may be
terminated by the Corporation and Westminster unless stockholders owning
beneficially at least 7.9% of the Acquired Corporation's outstanding capital
stock have executed and delivered to the Corporation by the end of the first
business day following the date of this Agreement, a "Support Agreement," in a
form satisfactory to the
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Corporation, agreeing to vote in favor of the Holding Company Merger and to
certain other related matters with respect to the transactions contemplated in
this Agreement.
3.5 Amendment. This Agreement may be amended, but only in writing approved
by Acquired Corporation, the Bank, the Corporation, and Westminster, at any
time prior to the Effective Date and with respect to any of the terms and
provisions hereof; provided, however, that after the stockholders of Acquired
Corporation have approved the Holding Company Merger, no amendment shall be
made that alters the conversion rate set forth in Section 1.2 (except pursuant
to Section 1.5(b)) or that is otherwise prohibited by the MGCL.
3.6 Expenses; Limited Liability Each party to this Agreement, being the
Corporation and Westminster, on the one hand, and Acquired Corporation and the
Bank, on the other hand, shall pay its own expenses relating hereto, including
fees and disbursements of its respective counsel and of any investment or
financial advisor retained by it; provided, however, that, subject to the
provisions of the next sentence of this Section 3.6, in the event the
transactions hereunder are not consummated, other than pursuant to Section
3.3, the Corporation will also pay for the preparation of the regulatory
filings referred to herein and for the filing fees relating thereto, the
printing and mailing of the Proxy Statement, and all fees and disbursements of
accountants (not including routine auditing fees) for either of the parties
hereto. The termination of this Agreement in accordance with the terms of
Sections 3.1, 3.2 or 3.3 shall create no liability on the part of any party,
except as set forth in Section 3.3, or on the part of any party's directors,
officers, stockholders, agents or representatives; provided, however, that if
this Agreement is terminated under any of such provisions or otherwise by the
Corporation and Westminster by reason of a material breach by Acquired
Corporation or the Bank, or by Acquired Corporation or the Bank by reason of a
material breach by the Corporation or Westminster, and such breach involves an
intentional, willful or grossly negligent misrepresentation or breach of
covenant, the breaching party shall be liable to the nonbreaching party for
all costs and expenses reasonably incurred by the nonbreaching party in
connection with the preparation, execution and attempted consummation of this
Agreement, including the fees of its counsel, accountants, consultants and
other advisors and representatives.
3.7 Notices. All notices or other communications required or permitted under
the terms of this Agreement shall be sufficient if hand delivered or if sent
by registered or certified mail, postage prepaid, addressed as follows:
If to the Corporation or Westminster:
Mercantile Bankshares Corporation
Attention: Alan D. Yarbro, Esq.
General Counsel and Secretary
2 Hopkins Plaza
Baltimore, Maryland
Fax No. 410-237-5347
Copy to:
Venable, Baetjer and Howard, LLP
Attention: Lee M. Miller, Esq.
1800 Mercantile Bank & Trust Building
2 Hopkins Plaza
Baltimore, Maryland 21201
Fax No. 410-244-7742
If to Acquired Corporation or the Bank:
Union National Bancorp, Inc.
117 East Main Street
Westminster, Maryland 21157
Attention: Virginia W. Smith
President and Chief Executive Officer
Fax No. 410-840-9919
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Copy to:
Gordon, Feinblatt, Rothman, Hoffberger & Hollander, LLC
Attention: Abba David Poliakoff, Esq.
233 E. Redwood Street
Baltimore, Maryland 21202
Fax No. (410) 576-4140
or to such other address as shall hereafter be provided in writing by the
Corporation or the Acquired Corporation, respectively. Any notice or
communication given pursuant to this Agreement shall be deemed to have been
given on the day it is mailed or telecopied, as the case may be.
3.8. Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
shall together be deemed one and the same Agreement.
3.9. Binding Effect; No Third Party Rights. This Agreement shall bind the
Corporation, Westminster, Acquired Corporation and the Bank and their
respective successors and assigns. Nothing in this Agreement is intended to
confer upon any individual, corporation or other entity, other than the
parties hereto or their respective successors and permitted assigns, any
rights or remedies under of or by reason of this Agreement.
3.10. Governing Law. This Agreement shall be governed by the laws of the
State of Maryland, without regard to conflict of law principles.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
Mercantile Bankshares Corporation
/s/ H. Furlong Baldwin (SEAL)
By: _________________________________
H. Furlong Baldwin
Chairman of the Board, President and
Chief Executive Officer
Union National Bancorp, Inc.
/s/ Virginia W. Smith (SEAL)
By: _________________________________
Virginia W. Smith
President and Chief Executive
Officer
Westminster Bank and Trust Company
of Carroll County
/s/ Ferdinand A. Ruppel, Jr. (SEAL)
By: _________________________________
Ferdinand A. Ruppel, Jr.
Chairman of the Board and Chief
Executive Officer
The Union National Bank of
Westminster
/s/ Virginia W. Smith (SEAL)
By: _________________________________
Virginia W. Smith
President and Chief Executive
Officer
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EXHIBIT A
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER made between The Union National Bank of
Westminster, a national banking association (hereinafter called "Union"), and
Westminster Bank and Trust Company of Carroll County, a Maryland commercial
bank (hereinafter called "Westminster").
In consideration of the mutual covenants and agreements herein contained and
the mutual benefits to be derived therefrom, the parties do hereby agree as
follows:
Section 1. As of the effective date and time provided for in Section 9
hereof (the "Effective Date"), Union shall be merged into Westminster under
the charter of Westminster and Westminster shall be the Successor (hereinafter
called the "Successor") under the name " ". The bylaws of Westminster
shall be the bylaws of the Successor.
[Executed version may address charter amendments with respect to the
corporate name and Westminster capitalization.]
Section 2. The business, objects and purposes of the Successor shall be to
carry on in all of its aspects the business of a commercial bank, and to that
end the Successor shall have and may exercise all rights and powers conferred
upon commercial banks, including those of a trust company under the laws of
the State of Maryland, as now in force or as the same may hereafter be
amended, and shall have and may exercise all rights, powers and duties of
Union, to the full extent permitted by law, and of Westminster under their
respective charters.
Section 3. The address of the principal banking office of Union is 117 East
Main Street, Westminster, Maryland 21157. The address of the principal banking
office of Westminster is 71 East Main Street, Westminster, Maryland 21157.
Section 4. The address of the principal banking office of the Successor will
be .
Section 5. The authorized capital stock of Union is ten million dollars
($10,000,000), consisting of one million (1,000,000) shares of capital stock
with a par value of ten dollars ($10.00) per share. The authorized capital
stock of Westminster is three hundred fifty thousand dollars ($350,000),
consisting of thirty-five thousand (35,000) shares of capital stock with a par
value of ten dollars ($10) per share. The authorized capital stock of
Westminster as Successor is dollars ($ ), consisting of ( ) shares of
capital stock with a par value of dollars ($ ) per share. Each share of
capital stock shall be entitled to one vote. No preferred stock will be issued
in the Merger.
Section 6. All assets and all rights, franchises and interests of
Westminster and Union in and to every species of property, real, personal and
mixed, and choses in action thereto belonging, shall be transferred to and
vest in the Successor without any deed, transfer or other action. The
Successor shall have the same powers that Westminster and Union had as to any
property held in any fiduciary capacity without any deed, transfer, or other
action. The Successor by virtue of this Merger and without any order or other
action on the part of any court or otherwise shall hold and enjoy the same,
and all rights of property, franchises and interests in the same manner and to
the same extent as such rights, franchises and interests were held or enjoyed
by either Westminster or Union immediately prior to the Effective Date.
Section 7. On the Effective Date and immediately upon the Merger provided
for in this Agreement of Merger becoming effective and in consideration
thereof, the terms of the Merger shall be as follows:
(a) Each share of capital stock of Westminster shall remain issued and
outstanding as one share of capital stock of the Successor, without any
action on the part of the holder thereof. [may issue additional Westminster
shares]
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<PAGE>
(b) Each share of issued and outstanding capital stock of Union shall be
cancelled for all corporate purposes, and without any action on the part of
the holder thereof.
(c) There will be no objecting shareholders of Union or Westminster.
Section 8. This Agreement of Merger is subject to the approval of the
Commissioner of Financial Regulation of Maryland and of the holders of at
least two-thirds ( 2/3rds) of the issued and outstanding capital stock of each
of Westminster and of Union, and is subject also to compliance with all of the
conditions set forth in the Agreement and Plan of Affiliation and Merger dated
January 20, 2000, by and among Union, Westminster, Mercantile Bankshares
Corporation and Union National Bancorp, Inc. (the "Plan"), pursuant to which
this Agreement of Merger is executed, except such as shall have been waived as
provided in the said Plan. At any time prior to the Effective Date,
notwithstanding its approval by the stockholders of Union and/or Westminster,
the parties hereto, without further action or approval of the stockholders of
Union or Westminster, may amend or abandon the Merger in accordance with
Article III of the Plan.
Section 9. The Merger provided for herein shall be effective on the date and
time set forth in the Certificate of Merger issued by the Commissioner of
Financial Regulation of Maryland.
IN WITNESS WHEREOF, Union and Westminster have caused this Agreement of
Merger to be executed on their respective behalves and their corporate seals
to be hereunto affixed on this day of , 2000.
ATTEST: The Union National Bank of
Westminster
_____________________________________
, Cashier
By: _________________________________
ATTEST: ,
President and Chief Executive
Officer
_____________________________________ Westminster Bank and Trust Company
, Secretary of Carroll County
By: _________________________________
,
Chairman and Chief Executive
Officer
A-25
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<PAGE>
ANNEX B
- ---------------------------------------
Sandler O'Neill & Partners, L.P.
Two World Trade Center, 104th Floor
New York, New York 10048
Sandler O'Neill
May 5, 2000
Board of Directors
Union National Bancorp, Inc.
117 East Main Street
Westminster, MD 21157
Ladies and Gentlemen:
Union National Bancorp, Inc. ("Union National"), The Union National Bank of
Westminster, Mercantile Bankshares Corporation ("Mercantile") and Westminster
Bank and Trust Company of Carroll County have entered into an Agreement and
Plan of Affiliation and Merger, dated as of January 20, 2000 (the "Agreement"),
pursuant to which Union National will be merged with and into Mercantile (the
"Merger"). Upon consummation of the Merger, each share of Union National common
stock, par value $0.01 per share, issued and outstanding immediately prior to
the Merger (the "Union National Shares") will be converted into the right to
receive 1.15 shares (the "Exchange Ratio") of Mercantile common stock, par
value $2.00 per share (together with the rights attached thereto issued
pursuant to the Stockholder Protection Rights Agreement, dated as of June 8,
1999, between Mercantile and Mercantile-Safe Deposit and Trust Company, as
Rights Agent). The terms and conditions of the Merger are more fully set forth
in the Agreement. You have requested our opinion as to the fairness, from a
financial point of view, of the Exchange Ratio to the holders of Union National
Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking business,
is regularly engaged in the valuation of financial institutions and their
securities in connection with mergers and acquisitions and other corporate
transactions. In connection with this opinion, we have reviewed, among other
things: (i) the Agreement and exhibits thereto; (ii) certain publicly available
financial statements of Union National and other historical financial
information provided by Union National that we deemed relevant; (iii) certain
publicly available financial statements and other publicly available historical
financial information of Mercantile that we deemed relevant; (iv) certain
internal financial analyses and forecasts of Union National prepared by and/or
reviewed with management of Union National and the views of senior management
of Union National, based on certain limited discussions with certain members of
senior management, regarding Union National's past and current business,
financial condition, results of operations and future prospects; (v) consensus
earnings per share estimates for Mercantile published by IBES for the year
ending December 31, 2000 and the views of senior management of Mercantile,
based on certain limited discussions with certain members of senior management,
regarding Mercantile's past and current business, financial condition, results
of operations and future prospects; (vi) the pro forma impact of the Merger;
(vii) the publicly reported historical price and trading activity for Union
National's and Mercantile's common stock, including a comparison of certain
financial and stock market information for Union National and Mercantile with
similar publicly available information for certain other companies the
securities of which are publicly traded; (viii) the financial terms of recent
business combinations in the commercial banking industry, to the extent
publicly available; (ix) the current market environment generally and the
banking environment in particular; and (x) such other information, financial
studies, analyses and investigations and financial, economic and market
criteria as we considered relevant.
Sandler O'Neill & Partners, L.P. is a limited partnership, the sole general
partner of which is Sandler O'Neill & Partners Corp., a New York Corporation.
-----------------------------------------------------------------------------
<PAGE>
In performing our review, we have assumed and relied upon the accuracy and
completeness of all the financial information, analyses and other information
that was publicly available or otherwise furnished to, reviewed by or
discussed with us, and we do not assume any responsibility or liability for
independently verifying the accuracy or completeness thereof. We did not make
an independent evaluation or appraisal of the specific assets, the collateral
securing assets or the liabilities (contingent or otherwise) of Union National
or Mercantile or any of their subsidiaries, or the collectibility of any such
assets, nor have we been furnished with
any such evaluations or appraisals. We did not make an independent evaluation
of the adequacy of the allowance for loan losses of Union National or
Mercantile nor have we reviewed any individual credit files relating to Union
National or Mercantile and, with your permission, we have assumed that the
respective allowances for loan losses for both Union National and Mercantile
are adequate to cover such losses and will be adequate on a pro forma basis
for the combined entity. With respect to the financial projections prepared by
or reviewed with Union National's management and the published earning per
share estimates of Mercantile, we have assumed that they reflect the best
currently available estimates and judgments of the respective managements of
Union National and Mercantile of the respective future financial performances
of their respective institutions and that such performances will be achieved,
and we express no opinion as to such financial projections or estimates or the
assumptions on which they are based. We have also assumed that there has been
no material change in Union National's or Mercantile's assets, financial
condition, results of operations, business or prospects since the date of the
most recent financial statements made available to us. We have assumed in all
respects material to our analysis that Union National and Mercantile will
remain as going concerns for all periods relevant to our analyses, that all of
the representations and warranties contained in the Agreement and all related
agreements are true and correct, that each party to such agreements will
perform all of the covenants required to be performed by such party under such
agreements, that the conditions precedent in the Agreement are not waived and
that the Merger will qualify as a tax-free reorganization for federal income
tax purposes.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of,
the date hereof.
Events occurring after the date hereof could materially affect this opinion.
We have not undertaken to update, revise or reaffirm this opinion or otherwise
comment upon events occurring after the date hereof. We are expressing no
opinion herein as to what the value of Mercantile common stock will be when
issued to Union National's shareholders pursuant to the Agreement or the
prices at which Union National's or Mercantile's common stock will trade at
any time.
We have acted as Union National's financial advisor in connection with the
Merger and will receive a fee for our services, a significant portion of which
is contingent upon consummation of the Merger. We will also receive a fee for
rendering this opinion. In the past, we have also provided certain other
investment banking services for Union National and have received compensation
for such services.
In the ordinary course of our business as a broker-dealer, we may purchase
securities from and sell securities to Union National and Mercantile. We may
also actively trade the debt and equity securities of Union National and
Mercantile for our own account and for the accounts of our customers and,
accordingly, may at any time hold a long or short position in such securities.
Our opinion is directed to the Board of Directors of Union National in
connection with its consideration of the Merger and does not constitute a
recommendation to any shareholder of Union National as to how such shareholder
should vote at any meeting of shareholders called to consider and vote upon
the Merger. Our opinion is not to be quoted or referred to, in whole or in
part, in a registration statement, prospectus, proxy statement or in any other
document, nor shall this opinion be used for any other purposes, without
Sandler O'Neill's prior written consent; provided, however, that we hereby
consent to the inclusion of this opinion as an annex to Union National's and
Mercantile's Proxy Statement and Prospectus dated the date hereof and to the
references to this opinion therein.
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Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Exchange Ratio is fair, from a financial point of view, to the
holders of Union National Shares.
Very truly yours,
/s/ Sandler O'Neill & Partners, L.P.
-------------------------------------
Sandler O'Neill & Partners, L.P.
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<PAGE>
ANNEX C
DISSENTERS' RIGHTS PROVISIONS
OF THE MARYLAND GENERAL CORPORATIONS LAW
(S) 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. (An. Code 1957, art. 23, (S) 73; 1975, ch.
311, (S) 2; 1985, ch. 657.)
(S) 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 action
under (S) 3-105(e) 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 (S) 3-602 of this title or exempted by
(S) 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 (S) 3-106 of this title of a 90
percent or more owned subsidiary with or into its parent corporation, on
the day notice is given or waived under (S) 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 (S) 3-602 of this title or exempted by
(S) 3-603(b) of this title, fair value shall be value determined in accordance
with the requirements of (S) 3-603(b) of this title.
(c) When right to fair value does not apply.--Unless the transaction is
governed by (S) 3-602 of this title or is exempted by (S) 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 (S) 3-106 of this title of a 90
percent or more owned subsidiary with or into its parent corporation,
on the date notice is given or waived under (S) 3-106; or
<PAGE>
(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. (An. Code 1957, art. 23, (S) 73; 1975, ch. 311, (S) 2; 1976, ch.
567, (S) 2; 1983, Sp. Sess., ch. 1; 1985, chs. 363, 657; 1990, ch. 6, (S)
2; 1993, ch. 605; 1997, ch. 717; 1999, ch. 395; ch. 459, (S) 1.)
(S) 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 (S) 3-106 of this title of a 90
percent or more owned subsidiary with or into its parent corporation,
within 30 days after notice is given or waived under (S) 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. (An. Code 1957, art. 23,
(S) 73; 1975, ch. 311, (S) 2; 1976, ch. 567, (S) 2; 1999, ch. 395.)
(S) 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 (S) 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. (An. Code
1957, art. 23, (S) 73; 1975, ch. 311, (S) 2; 1976, ch. 567, (S) 2.
(S) 3-205. Withdrawal of demand.
A demand for payment may be withdrawn only with the consent of the
successor. (An. Code 1957, art. 23, (S) 73; 1975, ch. 311, (S) 2.)
(S) 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:
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(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. (An. Code 1957, art. 23, (S) 73; 1975, ch. 311, (S) 2.)
(S) 3-207. Notice and offer to stockholders.
(a) Duty of successor--(l) 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. (An. Code 1957, art. 23, (S) 73; 1975, ch. 311, (S) 2; 1983,
ch. 563; 1985, ch. 10, (S) 3.)
(S) 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. (An. Code 1957, art. 23, (S) 73; 1975, ch. 311, (S) 2.)
(S) 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
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to the stock other than the rights of the original objecting stockholder. (An.
Code 1957, art. 23, (S) 73; 1975, ch. 311, (S) 2.)
(S) 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.--(l) 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. (An. Code 1957, art. 23, (S) 73; 1975, ch. 311, (S) 2.)
(S) 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 (S) 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 (S) 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
(ii) 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
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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 (S) 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) Cost 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 (S) 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. (An. Code 1957, art.
23, (S) 73; 1975, ch. 311, (S) 2; 1976, ch. 567, (S) 2.)
(S) 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. (An. Code 1957, art. 23, (S)
73; 1975, ch. 3 11, (S) 2.)
(S) 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 (S) 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. (An. Code 1957, art. 23 (S) 73; 1975, ch. 311, (S)
2; 1976, ch. 567, (S) 2.)
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