<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 15, 1998
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
F&M BANCORP
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
MARYLAND 6711 52-1316473
(State or other jurisdiction (Primary Standard (I.R.S. Employer Identification Number)
of incorporation or organization) Industrial Classification Code Number)
</TABLE>
110 THOMAS JOHNSON DRIVE
FREDERICK, MARYLAND 21702
(301) 694-4000
(Address, including ZIP Code, and telephone number, including
area code, of registrant's principal executive offices)
------------------------------
FAYE E. CANNON, PRESIDENT & CHIEF EXECUTIVE OFFICER
F&M BANCORP
110 THOMAS JOHNSON DRIVE
FREDERICK, MARYLAND 21702
(301) 694-4000
(Name, address, including ZIP Code, and telephone number,
including area code, of agent for service)
------------------------------
COPIES TO:
<TABLE>
<S> <C>
WILLIAM S. RUBENSTEIN, ESQ. DAVID A. GIBBONS, ESQ.
SKADDEN, ARPS, SLATE, MILES & STOCKBRIDGE P.C.
MEAGHER & FLOM LLP 10 LIGHT STREET
919 THIRD AVENUE BALTIMORE, MARYLAND 21210
NEW YORK, NEW YORK 10022 (410) 727-6464
(212) 735-3000
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effectiveness of this Registration Statement and the
satisfaction or waiver of all other conditions to the Merger described in the
Joint Proxy Statement/ Prospectus.
--------------------------
If the securities being registered on this form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED PROPOSED AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES BEING AMOUNT TO MAXIMUM OFFERING MAXIMUM AGGREGATE REGISTRATION FEE
REGISTERED BE REGISTERED PRICE PER SHARE OFFERING PRICE (2) (2)
<S> <C> <C> <C> <C>
Common Stock, par value $5.00 per share ("Common
Stock")......................................... 2,281,753 N/A $72,054,343.75 $7,538.03
</TABLE>
(1) This amount is based upon the number of shares of Common Stock anticipated
to be issued upon consummation of the transaction contemplated in the
Agreement and Plan of Merger dated as of September 4, 1998, by and between
F&M Bancorp and Monocacy Bancshares, Inc. ("Monocacy").
(2) The registration fee has been computed pursuant to Rule 457(f)(1) under the
Securities Act of 1933, as amended, based on the average of the bid and
asked prices for shares of Common Stock of Monocacy as reported on The
Nasdaq National Market System on October 12, 1998, ($38.125) and the maximum
number of such shares (1,889,950) that may be exchanged for the securities
being registered. Pursuant to Rule 457(b), the registration fee has been
reduced by the $13,718.00 paid on September 28, 1998 upon the filing under
the Securities Exchange Act of 1934, as amended, of F&M Bancorp's proxy
materials included herein relating to the Merger. Accordingly, the
registration fee payable upon the filing of this Registration Statement is
$7,538.03.
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
[F&M LOGO] [MONOCACY LOGO]
MERGER PROPOSED -- YOUR VOTE IS VERY IMPORTANT
The Boards of Directors of F&M Bancorp and Monocacy Bancshares, Inc. have
agreed on a merger of F&M Bancorp and Monocacy. This merger would create a
financial services institution with total assets of approximately $1.363 billion
and stockholders' equity of approximately $128.9 million as of June 30, 1998.
The combined company will be named "F&M Bancorp" and will be headquartered in
Frederick, Maryland.
If the merger is completed, Monocacy stockholders will receive shares of F&M
Bancorp common stock in exchange for the shares of Monocacy common stock that
they own immediately prior to the merger. The number of shares of F&M Bancorp
common stock to be exchanged for each share of Monocacy common stock will be
determined by dividing 2,219,753 by the number of shares of Monocacy common
stock outstanding immediately prior to consummation of the merger, subject to
adjustment in certain circumstances. The aggregate number of shares of F&M
Bancorp common stock to be delivered may be increased or decreased by up to
62,000 shares, depending on the average closing price of F&M Bancorp common
stock prior to the merger. F&M Bancorp stockholders will continue to own their
existing shares of F&M Bancorp common stock after the merger. We estimate that,
on completion of the merger, about 26% of the outstanding stock of F&M Bancorp
will be owned by former Monocacy stockholders, and that about 74% will be owned
by those persons who are F&M Bancorp stockholders just before the merger is
completed.
We can't complete the merger unless the stockholders of both companies
approve it. Completion of the merger is conditioned on approval by both
companies' stockholders. The proposal to approve the merger will be on the
agenda of both companies' special meetings of stockholders.
YOUR VOTE IS VERY IMPORTANT. Whether or not you plan to attend your
stockholder meeting, please take the time to vote by completing and mailing the
enclosed proxy card to us. If you sign, date and mail your proxy card without
indicating how you want to vote, your proxy will be counted as a vote in favor
of the merger. If you don't return your card, the effect will be a vote against
the merger.
The dates, times and places of the meetings are as follows:
FOR F&M BANCORP STOCKHOLDERS:
November 24, 1998, 10:00 a.m.
110 Thomas Johnson Drive
Frederick, Maryland 21702
FOR MONOCACY STOCKHOLDERS:
November 24, 1998, 3:00 p.m.
222 East Baltimore Street
Taneytown, Maryland 21787
This Joint Proxy Statement-Prospectus provides you with detailed information
about the proposed merger. You can also get information about our companies from
documents we have filed with the Securities and Exchange Commission. We
encourage you to read this entire document carefully.
We strongly support this strategic combination between F&M Bancorp and
Monocacy and join with the other members of our Boards of Directors in
enthusiastically recommending that you vote in favor of the merger.
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<S> <C>
/s/ Faye E. Cannon /s/ Eric E. Glass
Faye E. Cannon Eric E. Glass
President and Chief Executive Officer Chairman and Acting Chief Executive Officer
F&M Bancorp Monocacy Bancshares, Inc.
</TABLE>
<PAGE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED THE F&M BANCORP COMMON STOCK TO BE ISSUED UNDER THIS
JOINT PROXY STATEMENT-PROSPECTUS OR DETERMINED IF THIS JOINT PROXY
STATEMENT-PROSPECTUS IS ACCURATE OR ADEQUATE. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE. THE SHARES OF F&M BANCORP COMMON STOCK TO BE ISSUED IN
THE MERGER ARE NOT SAVINGS OR DEPOSIT ACCOUNTS OR OTHER OBLIGATIONS OF ANY BANK
OR NON-BANK SUBSIDIARY OF ANY OF THE PARTIES, AND THEY ARE NOT INSURED BY THE
FEDERAL DEPOSIT INSURANCE CORPORATION, THE BANK INSURANCE FUND OR ANY OTHER
GOVERNMENTAL AGENCY.
Joint Proxy Statement-Prospectus dated October , 1998 and first mailed to
stockholders on or about October , 1998.
2
<PAGE>
F&M BANCORP
110 THOMAS JOHNSON DRIVE
FREDERICK, MARYLAND 21702
(301) 694-4000
NOTICE OF SPECIAL STOCKHOLDERS' MEETING
TO BE HELD ON NOVEMBER 24, 1998
TO THE STOCKHOLDERS OF F&M BANCORP:
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of F&M Bancorp
will be held at 110 Thomas Johnson Drive, Frederick, Maryland at 10:00 a.m.,
local time, on November 24, 1998, to consider and act upon:
1. A proposal recommended by the Board of Directors of F&M Bancorp to
approve the Agreement and Plan of Merger, dated as of September 4, 1998,
by and between F&M Bancorp and Monocacy Bancshares, Inc., a Maryland
corporation, and the transactions contemplated thereby, including the
merger of Monocacy and F&M Bancorp.
2. The transaction of such other business as may properly come before the
Special Meeting or any adjournments or postponements of the Special
Meeting.
Only stockholders of record at the close of business on October 20, 1998 are
entitled to notice of and to vote at the Special Meeting or any adjournments or
postponements of the Special Meeting.
All stockholders are cordially invited to attend the Special Meeting. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE AND PROMPTLY
MAIL YOUR PROXY IN THE RETURN ENVELOPE ENCLOSED. This will not prevent you from
voting in person, but will help to secure a quorum and avoid added solicitation
costs. Your proxy may be revoked at any time before it is voted. Please review
the Joint Proxy Statement-Prospectus accompanying this notice for more complete
information regarding the matters proposed for your consideration at the Special
Meeting.
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<S> <C> <C>
BY ORDER OF THE BOARD OF DIRECTORS
/s/ FAYE E. CANNON
---------------------------------------------
Faye E. Cannon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
</TABLE>
October , 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF F&M BANCORP UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS
VOTE FOR
APPROVAL OF THE MERGER AGREEMENT.
<PAGE>
MONOCACY BANCSHARES, INC.
222 EAST BALTIMORE STREET
TANEYTOWN, MARYLAND 21787
(410) 756-2655
NOTICE OF SPECIAL STOCKHOLDERS' MEETING
TO BE HELD ON NOVEMBER 24, 1998
TO THE STOCKHOLDERS OF
MONOCACY BANCSHARES, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of Stockholders of Monocacy
Bancshares, Inc. will be held on November 24, 1998 at 222 East Baltimore Street,
Taneytown, Maryland at 3 p.m., local time, for the purpose of considering and
voting upon the following matters:
1. A proposal recommended by the Board of Directors of Monocacy to approve the
Agreement and Plan of Merger, dated as of September 4, 1998, by and between
Monocacy and F&M Bancorp, a Maryland corporation, and the transactions
contemplated in that agreement, including the merger of Monocacy and F&M
Bancorp.
2. To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements of the Special Meeting.
Only holders of record of Monocacy common stock at the close of business on
October 20, 1998 are entitled to notice of and to vote at the Special Meeting or
any adjournments or postponements of the Special Meeting.
All stockholders are cordially invited to attend the Special Meeting. TO
ENSURE YOUR REPRESENTATION AT THE SPECIAL MEETING, PLEASE COMPLETE AND PROMPTLY
MAIL YOUR PROXY IN THE RETURN ENVELOPE ENCLOSED. This will not prevent you from
voting in person, but will help to secure a quorum and avoid added solicitation
costs. Your proxy may be revoked at any time before it is voted. Please review
the Joint Proxy Statement-Prospectus accompanying this notice for more complete
information regarding the merger and the Special Meeting.
<TABLE>
<S> <C> <C>
BY ORDER OF THE BOARD OF DIRECTORS
/s/ ERIC E. GLASS
---------------------------------------------
Eric E. Glass
CHAIRMAN AND ACTING CHIEF EXECUTIVE OFFICER
</TABLE>
October , 1998
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF MONOCACY UNANIMOUSLY RECOMMENDS THAT STOCKHOLDERS VOTE
FOR
APPROVAL OF THE MERGER AGREEMENT.
<PAGE>
QUESTIONS AND ANSWERS
ABOUT THE F&M BANCORP/MONOCACY MERGER
Q. WHY ARE THE TWO COMPANIES PROPOSING TO MERGE?
A: Our companies are proposing to merge because we believe that by combining
them we will be able to provide our stockholders with substantial benefits
and better serve our customers and markets. We also think that by combining
our two companies we can create a company with enhanced financial
performance which will be better positioned to be a strong competitor in the
rapidly-changing financial services business.
Q. AS A MONOCACY STOCKHOLDER, WHAT WILL I RECEIVE IN THE MERGER?
A: You will have the right to receive a number of shares of F&M Bancorp common
stock in exchange for each share of Monocacy common stock you own equal to
the quotient obtained by dividing 2,219,753 by the number of shares of
Monocacy common stock outstanding immediately prior to the consummation of
the merger, subject to adjustment in certain circumstances. However, F&M
Bancorp won't issue any fractional shares. Instead, you will receive an
amount of cash for any fraction of a share based on the market value of F&M
Bancorp common stock over a period close to the date the merger is
completed. The aggregate number of shares of F&M Bancorp common stock to be
issued in the merger may be increased or decreased by up to 62,000 shares,
depending on the average closing price of the F&M Bancorp common stock
during such period. If the average closing price of F&M Bancorp common stock
during such period is less than $34.425, then the total number of shares of
F&M Bancorp common stock to be issued in the merger will be increased to the
extent necessary so that the product of the number of shares to be issued in
the merger and the average closing price will equal $76,415,000, subject to
a maximum of 2,281,753 shares being issued in the merger. The amount of
$76,415,000 represents the aggregate value of the transaction if the average
closing price is equal to $34.425, and the adjustment is designed to
increase the aggregate transaction value up to $76,415,000 in the event that
the average closing price is below $34.425, subject, however, to only 62,000
additional shares being issuable for such an adjustment. If the average
closing price of F&M Bancorp common stock is more than $46.575, then the
total number of shares of F&M Bancorp common stock to be issued in the
merger will be decreased to the extent necessary so that the product of the
number of shares to be issued in the merger and the average closing price
will equal $103,384,996, subject to a minimum of 2,157,753 shares being
issued in the merger. The amount of $103,384,996 represents the aggregate
value of the transaction if the average closing price is equal to $46.575,
and the adjustment is designed to decrease the aggregate transaction value
to $103,384,996 in the event that the average closing price is above
$46.575, subject, however, to a maximum reduction of 62,000 shares for such
an adjustment.
EXAMPLE: If you own ten shares of Monocacy common stock, upon completion of
the merger you'll have the right to receive 12 shares of F&M Bancorp common
stock and a check for the market value of .34 shares of F&M Bancorp common
stock, based upon the number of shares of Monocacy common stock outstanding
as of the date of this Joint Proxy Statement-Prospectus and assuming that
the average closing price of F&M Bancorp common stock prior to the merger is
between $34.425 and $46.575. The closing price of F&M Bancorp common stock
on the day prior to the date of this Joint Proxy Statement-Prospectus was
$_________. You are encouraged to obtain current market prices.
Q. WHAT HAPPENS AS THE MARKET PRICE OF F&M BANCORP COMMON STOCK FLUCTUATES?
A: The exchange ratio may vary based upon the number of shares of Monocacy
common stock outstanding prior to consummation of the merger (which could be
affected by directors, officers or employees of Monocacy exercising Monocacy
stock options) or the average closing price of F&M Bancorp common stock
measured during a specified pre-closing trading period, or both. In no
event, however, will the exchange ratio be more than the quotient obtained
by dividing 2,281,753 by the number
<PAGE>
of shares of Monocacy common stock outstanding immediately prior to the
effective time of the merger or less than the quotient obtained by dividing
2,157,753 by the number of shares of Monocacy common stock outstanding
immediately prior to the merger. Since the market value of F&M Bancorp
common stock will fluctuate before and after the closing of the merger, the
value of the stock Monocacy stockholders will receive in the merger will
fluctuate as well and could increase or decrease.
Q. AS AN F&M BANCORP STOCKHOLDER, HOW WILL THE MERGER AFFECT ME?
A: The merger will not affect your shares of common stock. Following the
merger, you and the other F&M Bancorp stockholders will own approximately
76% of the common stock of F&M Bancorp, with the balance being owned by the
former Monocacy stockholders.
Q. WHY WILL MONOCACY STOCKHOLDERS RECEIVE F&M BANCORP STOCK, BUT F&M BANCORP
STOCKHOLDERS WILL NOT RECEIVE MONOCACY SHARES?
A: Monocacy will merge with and into F&M Bancorp and will no longer be a
separate company. F&M Bancorp will be the surviving company in the merger
and will continue to exist after the merger is completed. The business and
operations of Monocacy and F&M Bancorp will be combined into a single,
larger company. Accordingly, the ownership of Monocacy stockholders in
Monocacy will entitle them to own a portion of the combined company, which
is represented by the shares of F&M Bancorp stock that they will receive in
the merger.
Q. WHAT HAPPENS TO MY DIVIDENDS IN THE FUTURE?
A: After the merger, F&M Bancorp expects to pay quarterly dividends on its
common stock in the amount of $.25 per share. This is the same amount F&M
Bancorp has recently paid as a regular quarterly cash dividend to its
stockholders. While we currently expect to pay those dividends, we can't
assure these payments. The combined company's board of directors will use
its discretion to decide whether and when to declare dividends and in what
amount, and it will consider all relevant factors in doing so.
Q. WHEN DO YOU EXPECT THE MERGER TO BE COMPLETED?
A: We hope to complete the merger by the end of 1998. In addition to approvals
of F&M Bancorp stockholders and Monocacy stockholders, we must also obtain
regulatory approvals, which include approval of the Office of the
Comptroller of the Currency and may include approval of or notice to certain
state authorities.
Q. AS A MONOCACY STOCKHOLDER, WHAT ARE THE U.S. FEDERAL INCOME TAX CONSEQUENCES
TO ME?
A: We expect that for U.S. federal income tax purposes, your exchange of shares
of Monocacy common stock for shares of F&M Bancorp common stock in the
merger generally will not cause you to recognize any gain or loss. You will,
however, have to recognize gain or loss in connection with any cash received
instead of fractional shares.
YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A FULL UNDERSTANDING OF THE TAX
CONSEQUENCES OF THE MERGER TO YOU.
Q. WHAT DO I NEED TO DO NOW?
A: Just indicate on your proxy card how you want to vote, and sign, date and
mail the proxy card in the enclosed return envelope as soon as possible so
that your shares may be represented at your stockholders' meeting. If you
sign and send in your proxy but don't indicate how you want to vote, your
proxy will be counted as a vote in favor of the merger. If you don't vote on
the merger or if you abstain, the effect will be a vote against the merger.
The F&M Bancorp special meeting will take place on November 24, 1998 and the
Monocacy special meeting will also take place on November 24, 1998. You are
invited to your stockholders' meeting to vote your shares in person, rather
than signing and mailing your proxy card. If you do sign your proxy card,
you can take back your proxy up to and including the date of your
stockholders' meeting and
2
<PAGE>
either change your vote or attend your stockholders' meeting and vote in
person. We provide more detailed instructions about voting on page 15, for
F&M Bancorp stockholders, and on page 17, for Monocacy stockholders.
THE BOARD OF DIRECTORS OF BOTH F&M BANCORP AND MONOCACY UNANIMOUSLY RECOMMEND
VOTING IN FAVOR OF THE PROPOSED MERGER.
Q. IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Only if you provide instructions on how your broker should vote. You should
instruct your broker how to vote your shares, following the directions your
broker provides. Without instructions from you to your broker, your shares
will not be voted and this will effectively be a vote against the merger.
Q. SHOULD I SEND IN MY STOCK CERTIFICATES NOW?
A: No. No one should send their stock certificates in now.
MONOCACY STOCKHOLDERS: Assuming the merger is completed, we will send you
written instructions on how to exchange your Monocacy common stock for F&M
Bancorp common stock.
F&M BANCORP STOCKHOLDERS: You will keep your shares of common stock and so
you should not send in your F&M Bancorp stock certificates at all.
3
<PAGE>
WHO CAN HELP ANSWER YOUR QUESTIONS
If you have more questions about the merger, you should contact:
F&M BANCORP STOCKHOLDERS:
F&M Bancorp
110 Thomas Johnson Drive
Frederick, Maryland 21702
Attention: David L. Spilman, Treasurer
Phone Number: (888) 694-4170
MONOCACY STOCKHOLDERS:
Monocacy Bancshares, Inc.
222 East Baltimore Street
Taneytown, Maryland 21787
Attention: Michael K. Walsch,
Chief Financial Officer
Phone Number: (410) 756-2655
If you would like additional copies of this Joint Proxy Statement-Prospectus, or
if you have questions about the merger, you should contact:
F&M Bancorp
110 Thomas Johnson Drive
Frederick, Maryland 21702
Attention: David L. Spilman, Treasurer
Phone Number: (888) 694-4170
4
<PAGE>
TABLE OF CONTENTS
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PAGE #
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SUMMARY.................................................................................................. 1
The Companies.......................................................................................... 1
Our Reasons for the Merger............................................................................. 1
The Stockholders' Meeting.............................................................................. 2
Our Recommendations to Stockholders.................................................................... 2
Record Date; Voting Power.............................................................................. 2
Votes Required......................................................................................... 2
The Merger............................................................................................. 2
Conditions to Completion of the Merger................................................................. 3
Termination of the Merger Agreement.................................................................... 3
Certain Federal Income Tax Consequences................................................................ 4
Accounting Treatment................................................................................... 4
Opinions of Financial Advisors......................................................................... 4
Board of Directors of F&M Bancorp Following the Merger................................................. 4
Interests of Other Persons in the Merger That are Different from Yours................................. 4
Regulatory Approvals................................................................................... 5
F&M Bancorp Option to Purchase Monocacy Common Stock................................................... 5
Comparative Per Share Market Price Information......................................................... 5
Forward-Looking Statements May Prove Inaccurate........................................................ 5
SELECTED FINANCIAL DATA.................................................................................. 7
COMPARATIVE UNAUDITED PER SHARE DATA..................................................................... 11
THE COMPANIES............................................................................................ 13
F&M Bancorp............................................................................................ 13
Monocacy............................................................................................... 13
THE SPECIAL MEETINGS..................................................................................... 15
F&M Bancorp Meeting.................................................................................... 15
Monocacy Meeting....................................................................................... 16
THE MERGER............................................................................................... 19
Effects of the Merger.................................................................................. 19
Exchange Ratio......................................................................................... 19
Treatment of Outstanding Monocacy Stock Options........................................................ 20
Effective Time......................................................................................... 21
Background of the Merger............................................................................... 21
Recommendation of the Boards of Directors; Reasons for the Merger...................................... 23
Opinions of Financial Advisors......................................................................... 25
Interests of Certain Persons in the Merger............................................................. 32
Conversion of Shares; Procedures for Exchange of Certificates; Fractional Shares....................... 33
Conditions to the Merger............................................................................... 34
Regulatory Approvals Required for the Merger........................................................... 36
Conduct of Business Pending the Merger................................................................. 37
Waiver and Amendment; Termination...................................................................... 39
Resales of F&M Bancorp Common Stock Received in the Merger............................................. 40
Stock Exchange Listing................................................................................. 40
Anticipated Accounting Treatment....................................................................... 41
Certain Federal Income Tax Consequences................................................................ 41
No Dissenters' Rights.................................................................................. 42
Stock Option Agreement................................................................................. 43
</TABLE>
i
<PAGE>
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PAGE #
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Voting Agreements...................................................................................... 46
Expenses............................................................................................... 46
Board of Directors Following the Merger................................................................ 46
Merger and Restructuring Charge........................................................................ 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF F&M BANCORP AND MONOCACY.............................. 47
CERTAIN REGULATORY CONSIDERATIONS........................................................................ 50
Holding Company Regulation............................................................................. 50
Bank Regulation........................................................................................ 51
Capital Adequacy....................................................................................... 52
Enforcement Powers of the Federal Banking Agencies..................................................... 53
Control Acquisitions................................................................................... 53
FUTURE LEGISLATION....................................................................................... 54
MARKET PRICES AND DIVIDEND INFORMATION................................................................... 55
DESCRIPTION OF F&M BANCORP CAPITAL STOCK................................................................. 57
General................................................................................................ 57
Common Stock........................................................................................... 57
Preferred Stock........................................................................................ 57
COMPARISON OF STOCKHOLDER RIGHTS......................................................................... 58
Stockholder Nominations and Proposals for Business..................................................... 58
Business Combinations Involving Interested Stockholders................................................ 59
Removal of Directors................................................................................... 59
Amendment of Bylaws.................................................................................... 59
Amendment of Charter................................................................................... 59
Special Meetings of Stockholders....................................................................... 60
PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (Unaudited)............................................ 61
LEGAL MATTERS............................................................................................ 69
EXPERTS.................................................................................................. 69
STOCKHOLDER PROPOSALS.................................................................................... 69
AVAILABLE INFORMATION.................................................................................... 70
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.......................................................... 71
APPENDIX A AGREEMENT AND PLAN OF MERGER.................................................................. A-1
APPENDIX B STOCK OPTION AGREEMENT........................................................................ B-1
APPENDIX C OPINION OF WHEAT FIRST SECURITIES, INC........................................................ C-1
APPENDIX D OPINION OF RP FINANCIAL LC.................................................................... D-1
</TABLE>
ii
<PAGE>
SUMMARY
THIS SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS DOCUMENT. IT DOES NOT
CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. YOU SHOULD CAREFULLY
READ THIS ENTIRE DOCUMENT AND THE DOCUMENTS TO WHICH WE HAVE REFERRED YOU IN
ORDER TO UNDERSTAND FULLY THE MERGER AND TO OBTAIN A MORE COMPLETE DESCRIPTION
OF THE LEGAL TERMS OF THE MERGER. EACH ITEM IN THIS SUMMARY INCLUDES A PAGE
REFERENCE THAT DIRECTS YOU TO A MORE COMPLETE DESCRIPTION IN THIS DOCUMENT OF
THE TOPIC DISCUSSED.
THE COMPANIES (PAGE 13)
F&M BANCORP
110 Thomas Johnson Drive
Frederick, Maryland 21702
(301) 694-4000
F&M Bancorp is incorporated in Maryland and is a federal bank holding
company. We provide banking and other financial services. Our banking services
are provided primarily in Maryland through our main bank subsidiary, Farmers &
Mechanics National Bank and our savings bank subsidiary, Home Federal Savings
Bank. F&M Bancorp offers commercial and consumer loan and deposit products and
services and trust and investment management services. As of June 30, 1998, our
total assets were $1.068 billion, our deposits were $845.2 million and
stockholders' equity was $103.7 million.
MONOCACY BANCSHARES, INC.
222 East Baltimore Street
Taneytown, Maryland 21787
(410) 756-2655
Monocacy Bancshares, Inc. is incorporated in Maryland and is a federal bank
holding company. Through our bank subsidiary, Taneytown Bank & Trust Company,
and our banking-related subsidiaries, we serve customers primarily in Maryland.
Monocacy, through its subsidiaries, offers commercial and savings banking
services and mortgage lending, and through a contract with Trust Company of
America, offers trust services. Through another subsidiary in conjunction with a
third party service provider, we also provide a range of mutual fund and annuity
products. In conjunction with another third party service provider, a division
of Taneytown offers a full line of insurance products. As of June 30, 1998, our
total assets were $294.4 million, our deposits were $239.1 million and
stockholders' equity was $25.3 million.
OUR REASONS FOR THE MERGER (PAGE 23)
The merger will combine the strengths of our individual companies and will
create the third largest independent bank holding company headquartered in the
State of Maryland based on total assets at June 30, 1998. We expect that the
combined company resulting from the merger will be able to achieve superior
financial performance compared to our individual companies on their own. One
reason for this is that we should be able to substantially reduce costs by
eliminating duplicate operations. Another reason is that we think we will have
opportunities to increase revenue by bringing a larger universe of customers in
contact with a broader range of products and services. We believe that the
competitiveness of the financial services industry is increasing continually,
and that the greater strength realized through combining our companies will
enable us to provide superior products and services to our customers and greater
value to our stockholders.
To review the background of, and reasons for, the merger in greater detail,
please see pages 21 through 24.
<PAGE>
THE STOCKHOLDERS' MEETINGS (PAGE 15)
F&M BANCORP STOCKHOLDERS. The F&M Bancorp special meeting will be held at
110 Thomas Johnson Drive, Frederick, MD at 10:00 a.m. on November 24, 1998. At
the special meeting, F&M Bancorp stockholders will be asked to approve the
merger agreement.
MONOCACY STOCKHOLDERS. The Monocacy special meeting will be held at 222
East Baltimore Street, Taneytown, MD at 3:00 p.m. on November 24, 1998. At this
special meeting, Monocacy stockholders will be asked to approve the merger
agreement and the transactions contemplated thereby.
OUR RECOMMENDATIONS TO STOCKHOLDERS (PAGES 15, 23 AND 24)
F&M BANCORP STOCKHOLDERS. The F&M Bancorp Board of Directors believes that
the merger is fair to you and in your best interests, and unanimously recommends
that you vote "FOR" the proposal to approve the merger agreement.
MONOCACY STOCKHOLDERS. The Monocacy Board of Directors believes that the
merger is fair to you and in your best interests, and unanimously recommends
that you vote "FOR" the proposal to approve the merger agreement and the
transactions contemplated thereby.
RECORD DATE; VOTING POWER (PAGES 15 AND 17)
F&M BANCORP STOCKHOLDERS. You can vote at the F&M Bancorp special meeting
if you owned F&M Bancorp common stock as of the close of business on October 20,
1998, the record date. On that date shares of F&M Bancorp common stock
were outstanding and therefore are allowed to vote at the F&M Bancorp special
meeting. You will have one vote at the F&M Bancorp special meeting for each
share of F&M Bancorp common stock you owned on October 20, 1998.
MONOCACY STOCKHOLDERS. You can vote at the Monocacy special meeting if you
owned Monocacy common stock as of the close of business on October 20, 1998, the
record date. On that date, shares of Monocacy common stock were
outstanding and therefore are allowed to vote at the Monocacy special meeting.
You will be able to cast one vote for each share of Monocacy common stock you
owned on October 20, 1998.
VOTES REQUIRED (PAGES 15, 17 AND 19)
F&M BANCORP STOCKHOLDERS. In order for the merger to be approved, F&M
Bancorp stockholders holding two-thirds of the outstanding shares of the common
stock on the record date must vote in favor of the merger.
All together, the directors and officers of F&M Bancorp and Monocacy can
cast less than % of the votes entitled to be cast at the F&M Bancorp special
meeting. We expect that they will vote all of their shares in favor of the
merger.
MONOCACY STOCKHOLDERS. In order for the merger to be approved, Monocacy
stockholders holding two-thirds of the outstanding shares of common stock on the
record date must vote in favor of the merger.
All together, the directors and officers of F&M Bancorp and Monocacy can
cast less than % of the votes entitled to be cast at the Monocacy special
meeting. We expect that they will vote all of their shares in favor of the
merger.
THE MERGER (PAGE 19)
WE HAVE ATTACHED THE MERGER AGREEMENT TO THIS JOINT PROXY
STATEMENT-PROSPECTUS AS APPENDIX A. WE ENCOURAGE YOU TO READ THE MERGER
AGREEMENT. IT IS THE LEGAL DOCUMENT THAT GOVERNS THE MERGER.
2
<PAGE>
At the effective time of the merger, Monocacy will be directly merged into
F&M Bancorp. Immediately after completion of the merger, Monocacy's bank
subsidiary, Taneytown, will be merged with and into Farmers & Mechanics National
Bank, F&M Bancorp's primary bank subsidiary.
CONDITIONS TO COMPLETION OF THE MERGER (PAGE 34)
The completion of the merger depends on a number of conditions being met
including the following:
1. F&M Bancorp stockholders and Monocacy stockholders approving the
merger;
2. Nasdaq having authorized for quotation the shares F&M Bancorp will
issue to Monocacy stockholders in the merger;
3. receipt of all required regulatory approvals and the expiration of
any regulatory waiting periods;
4. the absence of any governmental order blocking completion of the
merger, or of any proceedings by a government body trying to block the
merger;
5. receipt by each of F&M Bancorp and Monocacy of an opinion of their
respective counsel stating, among other things, that the merger will be
treated as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended;
6. receipt of a letter from F&M Bancorp's independent public
accountants stating that the merger will qualify for "pooling of interests"
accounting treatment; and
7. the continued accuracy of each party's representations and
warranties and the performance by each party of its obligations under the
merger agreement.
In cases where the law permits, a party to the merger agreement could elect
to waive a condition that has not been satisfied and complete the merger
although it is not required to. We cannot be certain whether or when any of the
conditions we have listed will be satisfied (or waived, where permissible), or
that the merger will be completed. In the event that either party fails to
receive its tax opinion, that party will resolicit approval of its stockholders
prior to proceeding with consummation of the merger.
TERMINATION OF THE MERGER AGREEMENT (PAGE 39)
We can agree at any time to terminate the merger agreement without
completing the merger, even if the stockholders of both our companies have
already voted to approve it. Also, F&M Bancorp can terminate the merger
agreement if Monocacy's Board withdraws, or modifies in any way adverse to F&M
Bancorp, its recommendation that Monocacy stockholders approve the merger.
Moreover, either of us can terminate the merger agreement in the following
circumstances:
1. after a final decision by a governmental authority to prohibit the
merger, or after the rejection of an application for a governmental approval
required to complete the merger (but in the latter case, only after waiting
60 days);
2. if the merger isn't completed by June 30, 1999;
3. if the F&M Bancorp stockholders or the Monocacy stockholders don't
approve the merger; or
4. if the other party violates, in a significant way, any of its
representations, warranties or obligations under the merger agreement.
Generally, a party can only terminate the merger agreement in one of the
preceding four situations if that party is not in violation of the merger
agreement, or if its violations of the merger agreement aren't the cause of the
event permitting termination.
3
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES (PAGE 41)
It is a condition to the obligations of F&M Bancorp and Monocacy to
consummate the merger that each receive a legal opinion from its respective
counsel stating that the merger will constitute a reorganization within the
meaning of Section 368(a) of the Internal Revenue Code of 1986, as amended. If
such legal opinions are rendered and such opinions accurately describe the U.S.
federal income tax treatment of the merger, then the Monocacy stockholders would
not recognize any gain or loss for U.S. federal income tax purposes in the
merger, except in connection with cash received instead of fractional shares.
Even if the legal opinions described herein are rendered to F&M Bancorp and
Monocacy, such opinions are not binding on the Internal Revenue Service or the
courts and, accordingly, there can be no assurance that the Internal Revenue
Service will not challenge the conclusions reflected therein or prevail in any
such challenge thereto.
THIS TAX TREATMENT MAY NOT APPLY TO CERTAIN MONOCACY STOCKHOLDERS, INCLUDING
THE TYPES OF STOCKHOLDERS DISCUSSED ON PAGE 41. YOUR TAX CONSEQUENCES WILL
DEPEND ON YOUR PERSONAL SITUATION. YOU SHOULD CONSULT YOUR TAX ADVISOR FOR A
FULL UNDERSTANDING OF THE TAX CONSEQUENCES OF THE MERGER TO YOU.
ACCOUNTING TREATMENT (PAGE 40)
We expect the merger to qualify as a pooling of interests, which means that,
for accounting and financial reporting purposes, we will treat our companies as
if they had always been one company. We have conditioned the merger on our
receipt of a letter from F&M Bancorp's independent public accountants that the
merger will qualify as a pooling of interests.
OPINIONS OF FINANCIAL ADVISORS (PAGES 25 AND 28)
TO F&M BANCORP STOCKHOLDERS. In deciding to approve the merger, our Board
considered the opinion of Wheat First Securities, Inc., that the exchange ratio
was fair from a financial point of view to stockholders of F&M Bancorp. We have
attached this opinion as Appendix C to this document. You should read it
carefully.
TO MONOCACY STOCKHOLDERS. In deciding to approve the merger, our Board
considered the opinion of its financial advisor, RP Financial LC, that as of the
date of the opinion the consideration to be received by Monocacy's stockholders
was fair from a financial point of view to Monocacy's stockholders. We have
attached this opinion as Appendix D to this document. You should read it
carefully.
BOARD OF DIRECTORS OF F&M BANCORP FOLLOWING THE MERGER (PAGE 46)
F&M BANCORP BOARD OF DIRECTORS. If the merger is completed, two of
Monocacy's directors, Eric E. Glass and Donald R. Hull, will be appointed to F&M
Bancorp's Board of Directors.
INTERESTS OF OTHER PERSONS IN THE MERGER THAT ARE DIFFERENT FROM YOURS (PAGE 32)
Certain members of Monocacy's management and Board of Directors have
interests in the merger in addition to their interests as stockholders of
Monocacy generally. Those interests relate to or arise from, among other things,
provisions in the merger agreement regarding (i) the indemnification of
directors and officers of Monocacy, (ii) the assumption of stock options granted
to employees, executive officers and directors of Monocacy and the acceleration
of excercisability of those options as a result of either the signing of the
merger agreement or the consummation of the merger and (iii) the eligibility of
certain executive officers to participate in certain F&M Bancorp employee
benefit plans. In addition, certain officers may become entitled to payments
under change in control and severance arrangements as a result of the merger.
The Monocacy Board was aware of the interests of their directors and executive
officers and considered their interests, among other matters, in approving the
merger agreement and the transactions contemplated thereby.
4
<PAGE>
Please refer to pages 32 and 33 for more information concerning employment
arrangements, retention incentives and other interests of Monocacy directors and
officers in the merger.
REGULATORY APPROVALS (PAGE 36)
We can't complete the merger unless we obtain the approval of the Office of
the Comptroller of the Currency ("OCC") and approval, or waiver of the need for
approval, of the Board of Governors of the Federal Reserve System or a Federal
Reserve Bank, as appropriate (the "Federal Reserve Board"). Notice of the merger
also should be provided to the Maryland Commissioner of Financial Regulation. We
have filed all of the required applications and notices with these regulatory
authorities, and the Federal Reserve Board has waived its approval requirements.
The Maryland Commissioner of Financial Regulation will also be notified of the
completion of the merger.
While we don't know of any reason why we shouldn't obtain all required
regulatory approvals in a timely manner, we cannot predict whether we will
obtain all required regulatory approvals, the timing of these approvals, or
whether any approval will include conditions that would be detrimental to us.
F&M BANCORP OPTION TO PURCHASE MONOCACY COMMON STOCK (PAGE 43)
As an inducement to F&M Bancorp to enter into the merger agreement, Monocacy
granted a stock option to F&M Bancorp to purchase up to 19.9% of Monocacy's
common stock. The exercise price of the option is $33.00, Monocacy's closing
stock price on the second to last trading day before we entered into the merger
agreement.
F&M Bancorp can't exercise the option unless certain specific events take
place. These events are generally related to a competing transaction involving a
merger, business combination or other acquisition of Monocacy or its stock or
assets. As of the date of this Joint Proxy Statement-Prospectus, we don't
believe any event of that kind has occurred. The option could have the effect of
discouraging other companies that might want to combine with or acquire Monocacy
from doing so. The option agreement is attached as Appendix B to this Joint
Proxy Statement-Prospectus.
COMPARATIVE PER SHARE MARKET PRICE INFORMATION (PAGE 11)
Shares of F&M Bancorp and of Monocacy are both quoted on The Nasdaq National
Market System. On September 3, 1998, the last full trading day prior to the
public announcement of the merger, F&M Bancorp stock closed at $37.25 per share
and Monocacy stock closed at $32.00 per share. On , 1998, F&M
Bancorp stock closed at $ per share and Monocacy stock closed at $ per
share.
Based on the exchange ratio as calculated on the date the merger agreement
was signed, the market value of the consideration that Monocacy stockholders
will receive in the merger for each share of Monocacy common stock would be
$45.97 based on F&M Bancorp's September 3, 1998 closing price and $ based
on F&M Bancorp's , 1998 closing price. Of course, the market price
of F&M Bancorp common stock will fluctuate prior to and after completion of the
merger, and the exchange ratio may fluctuate based on the terms of the merger
agreement. You should obtain current stock price quotations for F&M Bancorp
common stock and Monocacy common stock.
FORWARD-LOOKING STATEMENTS MAY PROVE INACCURATE (PAGE 72)
We have each made forward-looking statements in this document (and in
documents to which we refer you in this document) that are subject to risks and
uncertainties. These forward-looking statements include information about
possible or assumed future results of our operations or the performance of the
combined company after the merger. Also, when we use any of the words
"believes," "expects," "anticipates" or similar expressions, we are making
forward-looking statements. Many possible events or factors
5
<PAGE>
could affect the future financial results and performance of each of our
companies and the combined company after the merger and could cause those
results or our performance to differ materially from those expressed in our
forward-looking statements. These possible events or factors include the
following:
1. problems or delays in bringing together our two companies, either
before or after the merger is consummated;
2. legal and regulatory risks and uncertainties;
3. economic, political and competitive forces affecting our businesses,
markets, constituencies or securities;
4. the risk that our analyses of these risks and forces could be
incorrect, or that the strategies we've developed to deal with them may not
succeed;
5. our cost savings from the merger are less than we expect, or we are
unable to realize those cost savings as soon as we expect;
6. technological changes and systems integrations are harder to make or
more expensive than we expect; and
7. adverse changes occur in the securities markets generally or in the
valuation of financial institutions.
6
<PAGE>
SELECTED FINANCIAL DATA
The following tables show summarized unaudited historical consolidated
financial data for each of our companies and also show similar pro forma
information reflecting the merger of our two companies. The pro forma
information reflects the "pooling of interests" method of accounting for the
merger.
We expect that we will incur restructuring and merger-related expenses as a
result of combining our companies. We also anticipate that the merger will
provide the combined company with financial benefits such as reduced operating
expenses and the opportunity to earn more revenue. However, none of these
anticipated expenses or benefits has been factored into the pro forma income
statement information. For that reason, the pro forma information, while helpful
in illustrating the financial attributes of the combined company under one set
of assumptions, doesn't attempt to predict or suggest future results. Also, the
information we've set forth for the six month period ended June 30, 1998 does
not indicate what the results will be for the full 1998 fiscal year.
The information in the following tables is based on the historical financial
information of our companies that has been presented in our prior filings with
the Securities and Exchange Commission. All of the summary financial information
provided in the following tables should be read in connection with this
historical financial information and with the more detailed financial
information we have provided in this Joint Proxy Statement-Prospectus, which you
can find beginning at page 8. This historical financial information has also
been incorporated into this Joint Proxy Statement-Prospectus by reference. F&M
Bancorp's audited historical financial statements as of December 31, 1997, 1996,
and 1995 and for the years ended December 31, 1997, 1996, 1995, and 1994 were
audited by Arthur Andersen, LLP, its independent certified public accountants.
F&M Bancorp's audited historical financial statements as of years ended December
31, 1994 and 1993 and for the year ended December 31, 1993 were audited by
Keller Bruner & Co., L.L.C. Monocacy's audited historical financial statements
were audited by Stegman & Company, its independent certified public accountants.
The financial information as of or for the interim periods ended June 30, 1998
and 1997 has not been audited, and in the respective opinions of management
reflects all adjustments (consisting only of normal recurring adjustments)
necessary to a fair presentation of such data.
7
<PAGE>
F&M BANCORP
SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF OR FOR THE SIX
MONTHS ENDED JUNE 30, AS OF OR FOR THE YEARS ENDED DECEMBER 31,
---------------------- ----------------------------------------------
1998 1997 1997 1996 1995 1994
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Interest income.................................. $ 38,478 $ 36,623 $ 75,541 $ 70,880 $ 70,124 $ 61,603
Interest expense................................. 17,334 16,532 34,257 32,296 32,434 24,951
Net interest income.............................. 21,144 20,091 41,284 38,584 37,690 36,652
Provision for credit losses...................... 1,050 900 1,800 1,522 1,651 1,188
Net interest income after provision for credit
losses......................................... 20,094 19,191 39,484 37,062 36,039 35,464
Net gains (losses) on sales of securities........ 35 2 (11) (330) (256) (19)
Other noninterest income......................... 8,105 7,309 15,457 13,274 14,559 11,124
Noninterest expenses............................. 19,359 18,522 37,711 38,558 37,300 33,826
Provision for income taxes....................... 2,587 2,371 5,111 2,658 2,379 3,300
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change.................... 6,288 5,609 12,108 8,790 10,663 9,443
Loss from discontinued operation................. -- -- -- -- -- --
Cumulative effect of accounting change........... -- -- -- -- -- --
Net income....................................... 6,288 5,609 12,108 8,790 10,663 9,443
PER SHARE DATA--BASIC:
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change.................... 0.99 0.89 1.91 1.39 1.69 1.50
Loss from discontinued operation................. -- -- -- -- -- --
Cumulative effect of accounting change........... -- -- -- -- -- --
Net income....................................... 0.99 0.89 1.91 1.39 1.69 1.50
PER SHARE DATA--DILUTED:
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change.................... 0.97 0.88 1.89 1.38 1.68 1.49
Loss from discontinued operation................. -- -- -- -- -- --
Cumulative effect of accounting change........... -- -- -- -- -- --
Net income....................................... 0.97 0.88 1.89 1.38 1.68 1.49
Cash dividends................................... 0.72 0.40 0.81 0.58 0.57 0.50
Period end book value............................ 16.23 15.28 15.96 14.77 13.98 12.14
BALANCE SHEET DATA (AT PERIOD END):
Loans, net of unearned income.................... 716,518 692,053 724,295 670,452 626,200 622,408
Total assets..................................... 1,068,470 1,035,157 1,045,594 1,007,185 955,665 912,003
Total deposits................................... 845,218 810,457 821,967 794,750 784,625 753,307
Total shareholders' equity....................... 103,652 96,810 101,467 93,299 88,056 76,329
RATIOS:
Return on average assets......................... 1.20% 1.12% 1.19% 0.91% 1.15% 1.10%
Return on average shareholders' equity........... 12.26 11.98 12.61 9.70 13.00 12.48
Average shareholders' equity to total average
assets......................................... 9.75 9.35 9.39 9.38 8.84 8.78
Dividend payout ratio............................ 72.73 44.94 42.41 41.73 33.73 33.33
OTHER INFORMATION
Total average assets............................. $1,052,147 $1,001,944 $1,021,750 $ 966,115 $ 927,227 $ 861,872
Total average shareholders' equity............... 102,542 93,647 95,990 90,605 82,004 75,647
Weighted average shares outstanding--Basic....... 6,377,345 6,329,008 6,337,870 6,309,620 6,294,626 6,278,849
Weighted average shares outstanding--Diluted..... 6,450,080 6,370,437 6,393,849 6,358,497 6,347,986 6,331,941
<CAPTION>
1993
----------
<S> <C>
OPERATING DATA:
Interest income.................................. $ 60,794
Interest expense................................. 25,167
Net interest income.............................. 35,627
Provision for credit losses...................... 3,217
Net interest income after provision for credit
losses......................................... 32,410
Net gains (losses) on sales of securities........ 210
Other noninterest income......................... 10,798
Noninterest expenses............................. 31,949
Provision for income taxes....................... 3,044
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change.................... 8,425
Loss from discontinued operation................. (72)
Cumulative effect of accounting change........... 250
Net income....................................... 8,603
PER SHARE DATA--BASIC:
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change.................... 1.34
Loss from discontinued operation................. (0.01)
Cumulative effect of accounting change........... 0.04
Net income....................................... 1.37
PER SHARE DATA--DILUTED:
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change.................... 1.34
Loss from discontinued operation................. (0.01)
Cumulative effect of accounting change........... 0.04
Net income....................................... 1.37
Cash dividends................................... 0.48
Period end book value............................ 12.06
BALANCE SHEET DATA (AT PERIOD END):
Loans, net of unearned income.................... 546,515
Total assets..................................... 842,897
Total deposits................................... 696,945
Total shareholders' equity....................... 75,637
RATIOS:
Return on average assets......................... 1.04%
Return on average shareholders' equity........... 12.29
Average shareholders' equity to total average
assets......................................... 8.45
Dividend payout ratio............................ 35.04
OTHER INFORMATION
Total average assets............................. $ 828,858
Total average shareholders' equity............... 70,026
Weighted average shares outstanding--Basic....... 6,263,982
Weighted average shares outstanding--Diluted..... 6,303,481
</TABLE>
8
<PAGE>
MONOCACY BANCSHARES, INC.
SELECTED HISTORICAL FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED
JUNE 30, AS OF OR FOR THE YEARS ENDED DEC. 31,
-------------------- -----------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
OPERATING DATA:
Interest income............................... $ 10,858 $ 10,129 $ 20,856 $ 19,593 $ 17,079 $ 14,997 $ 12,441
Interest expense.............................. 5,774 5,034 10,687 10,421 7,852 6,271 5,224
Net interest income........................... 5,084 5,095 10,169 9,172 9,227 8,726 7,217
Provision for credit losses................... 106 660 1,110 300 885 687 375
Net interest income after provision for credit
losses...................................... 4,978 4,435 9,059 8,872 8,342 8,039 6,842
Net gains (losses) on sales of securities..... 703 (3) 87 (220) 55 (78) 205
Other noninterest income...................... 1,575 1,453 2,763 2,259 1,372 1,159 1,439
Noninterest expenses.......................... 4,982 4,490 9,651 8,762 6,536 6,121 5,904
Provision for income taxes.................... 587 149 140 538 882 777 621
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change ................ 1,687 1,246 2,118 1,611 2,351 2,222 1,961
Loss from discontinued operation.............. -- -- -- -- -- -- --
Cumulative effect of accounting change........ -- -- -- -- -- -- --
Net income ................................... 1,687 1,246 2,118 1,611 2,351 2,222 1,961
PER SHARE DATA--BASIC:
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change ................ 0.94 0.70 1.19 0.91 1.33 1.27 1.12
Loss from discontinued operation.............. -- -- -- -- -- -- --
Cumulative effect of accounting change........ -- -- -- -- -- -- --
Net income ................................... 0.94 0.70 1.19 0.91 1.33 1.27 1.12
PER SHARE DATA--DILUTED:
Income from continuing operations before loss
from discontinued operation and cumulative
effect of accounting change ................ 0.91 0.69 1.16 0.90 1.32 1.26 1.12
Loss from discontinued operation.............. -- -- -- -- -- -- --
Cumulative effect of accounting change........ -- -- -- -- -- -- --
Net income ................................... 0.91 0.69 1.16 0.90 1.32 1.26 1.12
Cash dividends................................ 0.24 0.20 0.40 0.33 0.30 0.21 0.17
Period end book value......................... 14.04 12.76 13.49 12.18 12.01 10.63 9.88
BALANCE SHEET DATA (AT PERIOD END):
Loans, net of unearned income................. 162,055 166,077 158,255 158,790 139,126 147,466 122,879
Total assets.................................. 294,425 270,474 290,240 263,015 266,194 211,249 191,768
Total deposits................................ 239,069 227,865 228,870 225,039 223,412 171,873 155,722
Total shareholders' equity.................... 25,264 22,775 24,168 21,648 21,169 18,610 17,289
RATIOS:
Return on average assets...................... 1.14% 0.95% 0.77% 0.61% 1.07% 1.08% 1.09%
Return on average shareholders' equity........ 13.54 11.24 9.25 7.81 11.83 12.19 11.27
Average shareholders' equity to total average
assets...................................... 8.45 8.42 8.36 7.85 9.08 8.86 9.68
Dividend payout ratio......................... 25.53 28.57 33.61 36.26 22.56 16.54 15.18
OTHER INFORMATION:
Total average assets.......................... $ 294,934 $ 263,428 $ 273,830 $ 262,564 $ 218,764 $ 205,614 $ 179,688
Total average shareholders' equity............ 24,913 22,173 22,893 20,619 19,870 18,221 17,395
Weighted average shares outstanding--Basic.... 1,797,177 1,782,458 1,785,754 1,771,177 1,761,694 1,752,626 1,751,815
Weighted average shares
outstanding--Diluted........................ 1,848,058 1,811,865 1,818,854 1,792,563 1,776,246 1,766,065 1,751,815
</TABLE>
9
<PAGE>
SELECTED PRO FORMA FINANCIAL DATA FOR F&M BANCORP AND MONOCACY BANCSHARES, INC.
<TABLE>
<CAPTION>
AS OF OR FOR THE
SIX MONTHS ENDED AS OF OR FOR THE
JUNE 30, YEARS ENDED DECEMBER 31,
-------------------- -------------------------------
<S> <C> <C> <C> <C> <C>
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<CAPTION>
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
OPERATING DATA:
Interest income..................................... $ 49,336 $ 46,752 $ 96,397 $ 90,473 $ 87,203
Interest expense.................................... 23,108 21,566 44,944 42,717 40,286
Net interest income................................. 26,228 25,186 51,453 47,756 46,917
Provision for credit losses......................... 1,156 1,560 2,910 1,822 2,536
Net interest income after provision for credit
losses............................................ 25,072 23,626 48,543 45,934 44,381
Net gains (losses) on sales of securities........... 738 (1) 76 (550) (201)
Other noninterest income............................ 9,680 8,762 18,220 15,533 15,931
Noninterest expenses................................ 24,341 23,012 47,362 47,320 43,836
Provision for income taxes.......................... 3,174 2,520 5,251 3,196 3,261
Net income (loss)................................... 7,975 6,855 14,226 10,401 13,014
PER SHARE DATA--BASIC:
Net income.......................................... 0.93 0.80 1.66 1.22 1.53
PER SHARE DATA--DILUTED:
Net income.......................................... 0.92 0.80 1.65 1.21 1.52
Cash dividends...................................... 0.59 0.33 0.68 0.50 0.48
Period end book value............................... 14.98 14.44 14.64 13.47 12.82
BALANCE SHEET DATA (AT PERIOD END):
Loans, net of unearned income....................... 878,573 858,130 882,550 829,242 765,326
Total assets........................................ 1,362,895 1,305,631 1,335,834 1,270,200 1,221,859
Total deposits...................................... 1,084,287 1,038,322 1,050,837 1,019,789 1,008,037
Total shareholders' equity.......................... 128,916 119,585 125,635 114,947 109,225
RATIOS:
Return on average assets............................ 1.18% 1.08% 1.10% 0.85% 1.14%
Return on average shareholders' equity.............. 12.51 11.84 11.97 9.35 12.77
Average shareholders' equity to total average
assets............................................ 9.46 9.15 9.18 9.05 8.89
Dividend payout ratio............................... 63.44 41.25 40.96 40.98 31.37
OTHER INFORMATION:
Total average assets................................ $1,347,081 $1,265,372 $1,295,580 $1,228,679 $1,145,991
Total average shareholders' equity.................. 127,455 115,820 118,883 111,224 101,874
Weighted average shares outstanding--Basic.......... 8,597,098 8,548,761 8,557,623 8,529,373 8,514,379
Weighted average shares outstanding--Diluted........ 8,669,833 8,590,190 8,613,602 8,578,250 8,567,739
</TABLE>
10
<PAGE>
COMPARATIVE UNAUDITED PER SHARE DATA
The following table shows information about our companies' income per share,
dividends per share and book value per share, and similar information reflecting
the merger of our two companies (which is referred to as "pro forma"
information). In presenting the comparative pro forma information for certain
time periods, we assumed that our companies had been merged throughout those
periods.
In presenting the comparative pro forma information, we also assumed that we
will treat our companies as if they had always been combined for accounting and
financial reporting purposes (a method which is referred to as the "pooling of
interests" method of accounting).
The information listed as "equivalent pro forma" was obtained by multiplying
the pro forma amounts by the exchange ratio of , calculated by dividing
2,219,753 by , the number of shares of Monocacy common stock outstanding
on the date this document was printed. It is intended to reflect the fact that
Monocacy stockholders will be receiving more than one share of F&M Bancorp
common stock for each share of Monocacy common stock exchanged in the merger.
We expect that we will incur restructuring and merger-related expenses as a
result of combining our companies. We also anticipate that the merger will
provide the combined company with financial benefits such as reduced operating
expenses and the opportunity to earn more revenue. However, none of these
anticipated expenses or benefits has been factored into the pro forma
information, except for the pro forma combined condensed balance sheet. For that
reason, the pro forma information, while helpful in illustrating the financial
attributes of the combined company under one set of assumptions, doesn't attempt
to predict or suggest future results. Also, the information we've set forth for
the six-month period ended June 30, 1998 doesn't indicate what the results will
be for the full 1998 fiscal year.
The information in the following table is based on the historical financial
information of our companies that has been presented in our prior Securities and
Exchange Commission filings. This information has been incorporated into this
Joint Proxy Statement-Prospectus by reference.
<TABLE>
<CAPTION>
AT OR FOR THE SIX
MONTHS ENDED JUNE AT OR FOR THE YEARS ENDED
30, DECEMBER 31,
-------------------- -------------------------------
1998 1997 1997 1996 1995
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
NET INCOME PER SHARE (1):
F&M Bancorp................................................. $ 0.99 $ 0.89 $ 1.91 $ 1.39 $ 1.69
Monocacy.................................................... 0.94 0.70 1.19 0.91 1.33
F&M Bancorp Pro Forma....................................... 0.93 0.80 1.66 1.22 1.53
Monocacy Pro Forma Equivalent............................... 1.15 0.99 2.05 1.51 1.89
CASH DIVIDENDS DECLARED PER SHARE (2):
F&M Bancorp................................................. 0.72 0.40 0.81 0.58 0.57
Monocacy.................................................... 0.24 0.20 0.40 0.33 0.30
F&M Bancorp Pro Forma....................................... 0.59 0.33 0.68 0.50 0.48
Monocacy Pro Forma Equivalent............................... 0.73 0.41 0.84 0.62 0.59
BOOK VALUE PER SHARE AT PERIOD END (3):
Stated:
F&M Bancorp............................................... 16.23 15.28 15.96 14.77 13.98
Monocacy.................................................. 14.04 12.76 13.49 12.18 12.01
F&M Bancorp Pro Forma..................................... 14.98 14.44 14.64 13.47 12.82
Monocacy Pro Forma Equivalent............................. 18.49 17.82 18.07 16.62 15.82
Tangible:
F&M Bancorp............................................... 15.67 14.70 15.38 14.15 13.38
Monocacy.................................................. 12.55 11.03 11.88 10.34 9.97
F&M Bancorp Pro Forma..................................... 14.27 13.20 13.91 12.63 11.85
Monocacy Pro Forma Equivalent............................. 17.61 16.29 17.16 15.59 14.62
</TABLE>
11
<PAGE>
(1) F&M Bancorp pro forma net income per share amounts are calculated by
totaling the historical net income for F&M Bancorp and Monocacy and dividing the
resulting amounts by the average pro forma shares of F&M Bancorp and Monocacy
outstanding giving effect to the merger. The average pro forma shares of F&M
Bancorp and Monocacy combined equals the historical average shares of F&M
Bancorp plus the historical average shares of Monocacy as adjusted by the
Exchange Ratio of 1.234 (which was based upon (i) 1,799,005 shares of Monocacy
outstanding as of the date of this Joint Proxy Statement-Prospectus and (ii)
assuming that the average closing price of F&M Bancorp common stock prior to the
Merger is between $34.425 and $46.575). The Monocacy pro forma equivalent net
income per share amounts are computed by multiplying the F&M Bancorp pro forma
net income per share amounts by the Exchange Ratio of 1.234.
(2) F&M Bancorp pro forma cash dividends per share represents the sum of
historical cash dividends declared by F&M Bancorp and Monocacy and assumes no
changes in cash dividends declared per share. Monocacy pro forma equivalent cash
dividends per share represent such amounts multiplied by the Exchange Ratio of
1.234.
(3) F&M Bancorp pro forma stated and tangible book value per share amounts
are calculated by totaling the historical stated and tangible stockholders'
equity for F&M Bancorp and Monocacy and dividing the resulting amounts by the
total pro forma common shares of F&M Bancorp and Monocacy combined. The total
pro forma common shares of F&M Bancorp and Monocacy combined equals the
historical common shares of F&M Bancorp plus the historical common shares of
Monocacy multiplied by the Exchange Ratio of 1.234. The Monocacy pro forma
equivalent stated and tangible book value per share amounts are computed by
multiplying the F&M Bancorp pro forma stated and tangible book value per share
amounts by the Exchange Ratio of 1.234.
12
<PAGE>
THE COMPANIES
F&M BANCORP.
F&M Bancorp, with its executive headquarters located in Frederick, Maryland,
is a bank holding company organized under the laws of the State of Maryland in
1983 and registered under the Bank Holding Company Act of 1956, as amended (the
"BHC Act"). F&M Bancorp's primary subsidiary, Farmers & Mechanics National Bank,
a national banking association, the deposits of which are insured by the Federal
Deposit Insurance Corporation ("FDIC"), conducts a general banking and trust
company business through 27 offices located in Frederick, Carroll and Montgomery
Counties of Maryland. In addition, F&M Bancorp owns Home Federal Savings Bank
("Home Federal"), a federal savings bank, that conducts a traditional thrift
business through 8 branch offices located in Allegheny and Washington counties
of Maryland.
At June 30, 1998, F&M Bancorp had assets of $1.068 billion, deposits of
$845.2 million and stockholders' equity of $103.7 million. The principal
executive offices of F&M Bancorp are located at 110 Thomas Johnson Drive,
Frederick, Maryland 21702 and its telephone number is (301) 694-4000.
On May 29, 1998, F&M Bancorp completed its purchase of Keller-Stonebraker
Insurance, Inc., a Hagerstown, Maryland-based, full-line independent insurance
agency which at closing had approximately $1.2 million in assets and no deposits
for $2.085 million in common stock, par value $5.00 per share, of F&M Bancorp
("F&M Bancorp Common Stock").
On November 15, 1996, F&M Bancorp completed its purchase of Home Federal
Corporation, a Maryland corporation and unitary thrift holding company, which at
closing had approximately $228 million in assets and $161 million in deposits,
for $29 million in F&M Bancorp Common Stock.
On May 31, 1995, F&M Bancorp completed its purchase of Bank of Brunswick, a
Maryland state chartered bank, which at closing had approximately $29.5 million
in assets and $26.6 million in deposits for $6.8 million in F&M Bancorp Common
Stock.
F&M Bancorp, through its wholly owned subsidiaries, provides banking and
bank-related financial services to middle market and small business
organizations, local governmental units, and retail customers in central
Maryland.
From time to time, F&M Bancorp investigates and holds discussions and
negotiations regarding possible transactions with other banks. As of the date of
this Joint Proxy Statement-Prospectus, F&M Bancorp has not entered into any
agreements or understandings with respect to any significant transactions of the
type referred to above except for the transactions described herein and in
documents incorporated herein by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." Any such transaction would be
subject to stockholder approval only if required under applicable law or the
rules of the National Association of Securities Dealers, Inc. ("NASD").
For more information about F&M Bancorp, reference is made to the 1997 F&M
Bancorp Form 10-K which is incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
MONOCACY.
Monocacy Bancshares, Inc. ("Monocacy"), with its executive headquarters
located in Taneytown, Maryland, is a bank holding company incorporated under the
laws of the State of Maryland in 1993 and registered under the BHC Act.
Monocacy's primary subsidiary, Taneytown Bank & Trust Company ("Taneytown"), a
Maryland-chartered, FDIC-insured, commercial bank, operates 11 full service
branch offices throughout Carroll, Baltimore and Howard Counties of Maryland as
well as Adams County, Pennsylvania.
13
<PAGE>
On April 1, 1996, Monocacy acquired the assets of Classic Mortgage Company
which became a division of Taneytown.
On December 31, 1995, Monocacy acquired Royal Oak Savings Bank, F.S.B.,
which was merged into Taneytown in April, 1996. The merger was accounted for as
a purchase transaction.
Monocacy, through Taneytown, engages in commercial and savings business,
including the receiving of demand and time deposits and the making of loans to
individuals, associations, partnerships and corporations.
At June 30, 1998, Monocacy had assets of approximately $294.4 million,
deposits of approximately $239.1 million and stockholders' equity of
approximately $25.3 million. The principal executive offices of Monocacy are
located at 222 East Baltimore Street, Taneytown, Maryland 21787 and its
telephone number is (410) 756-2655.
For more information about Monocacy, reference is made to the 1997 Monocacy
Form 10-KSB which is incorporated herein by reference. See "AVAILABLE
INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
14
<PAGE>
THE SPECIAL MEETINGS
F&M BANCORP MEETING
GENERAL. This Joint Proxy Statement-Prospectus is being furnished to
stockholders of F&M Bancorp in connection with the solicitation of proxies by
the Board of Directors of F&M Bancorp (the "F&M Bancorp Board") for use at the
special meeting of the stockholders of F&M Bancorp (the "F&M Bancorp Meeting")
to be held at 110 Thomas Johnson Drive, Frederick, Maryland, on Tuesday,
November 24, 1998 at 10:00 a.m. local time. At the F&M Bancorp Meeting, the
stockholders of F&M Bancorp will be asked to: (i) approve the merger agreement
(the "Merger Agreement"), dated as of September 4, 1998, by and between F&M
Bancorp and Monocacy and the consummation of the transactions contemplated
thereby, which are more fully described herein; and (ii) act upon such other
matters as may properly be brought before the F&M Bancorp Meeting and at any
adjournments or postponements thereof. A copy of the Merger Agreement is
attached as Appendix A hereto.
HOLDERS OF F&M BANCORP COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO F&M BANCORP IN
THE ENCLOSED POSTAGE-PAID ADDRESSED ENVELOPE.
F&M BANCORP STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH
THEIR PROXY CARDS.
THE F&M BANCORP BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND HAS
DETERMINED THAT THE MERGER AND THE ISSUANCE OF THE SHARES IN THE MERGER IS FAIR
TO, AND IN THE BEST INTERESTS OF, F&M BANCORP AND ITS STOCKHOLDERS. THE F&M
BANCORP BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT F&M BANCORP'S STOCKHOLDERS
VOTE FOR APPROVAL OF THE ISSUANCE OF THE SHARES IN THE MERGER. SEE "THE MERGER
- --BACKGROUND OF THE MERGER" AND "-- RECOMMENDATION OF THE BOARDS OF DIRECTORS;
REASONS FOR THE MERGER -- F&M BANCORP."
RECORD DATE; VOTING; SOLICITATION AND REVOCATION OF PROXIES. The F&M
Bancorp Board has fixed October 20, 1998 as the F&M Bancorp record date (the
"F&M Bancorp Record Date") for the determination of those F&M Bancorp
stockholders entitled to notice of and to vote at the F&M Bancorp Meeting. Only
holders of record of F&M Bancorp Common Stock at the close of business on the
F&M Bancorp Record Date will be entitled to notice of and to vote at the F&M
Bancorp Meeting. As of the F&M Bancorp Record Date, there were shares of
F&M Bancorp Common Stock outstanding, entitled to vote and held by approximately
holders of record. Each holder of record of shares of F&M Bancorp Common
Stock on the F&M Bancorp Record Date is entitled to cast one vote per share on
the proposal to approve the issuance of the shares of F&M Bancorp Common Stock,
and on any other matter properly submitted for the vote of the F&M Bancorp
stockholders at the F&M Bancorp Meeting. The presence, either in person or by
properly executed proxy, of the holders of a majority of the outstanding shares
of F&M Bancorp Common Stock entitled to vote at the F&M Bancorp Meeting is
necessary to constitute a quorum at the F&M Bancorp Meeting. Abstentions will be
counted as present for purposes of determining the presence or absence of a
quorum at the F&M Bancorp Meeting.
The approval of the Merger Agreement by F&M Bancorp stockholders will
require the affirmative vote of the holders of two-thirds of the outstanding
shares of F&M Bancorp Common Stock entitled to vote thereon. As described in
"THE MERGER -- Conditions to the Merger," such stockholder approval is a
condition to consummation of the Merger. Under applicable Maryland law, in
determining whether the Merger proposal has received the requisite number of
affirmative votes, abstentions and broker non-votes will be counted and will
have the same effect as a vote against the Merger proposal.
As of the F&M Bancorp Record Date, directors and executive officers of F&M
Bancorp and their affiliates may be deemed to be beneficial owners of
shares of F&M Bancorp Common Stock, or approximately % of the shares of F&M
Bancorp Common Stock outstanding as of the F&M Bancorp
15
<PAGE>
Record Date. Such persons have executed a voting agreement pursuant to which
each such person has agreed to vote or direct the vote of all of such person's
shares of F&M Bancorp Common Stock for approval of the Merger Agreement. As of
the F&M Bancorp Record Date, Monocacy owned 105 shares of F&M Bancorp Common
Stock and the directors of Monocacy owned 429 shares of F&M Bancorp Common
Stock. None of the executive officers of Monocacy owned any shares of F&M
Bancorp Common Stock as of the F&M Bancorp Record Date.
All shares of F&M Bancorp Common Stock which are entitled to be voted and
are represented at the F&M Bancorp Meeting by properly executed proxies received
prior to or at the meeting, and not revoked, will be voted at such meeting and
any adjournments or postponements thereof, in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted (i) for approval of the Merger Agreement, and (ii) otherwise in the
discretion of the proxy holders as to any other matter which may come before the
F&M Bancorp Meeting or any adjournment or postponement thereof, including, among
other things, a motion to adjourn or postpone the F&M Bancorp Meeting to another
time and/or place, for the purpose of soliciting additional proxies or
otherwise; provided, however, that no proxy which is voted against the proposal
to approve the Merger Agreement will be voted in favor of any such adjournment
or postponement.
If any other matters are properly presented at the F&M Bancorp Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; provided, however, that such discretionary
authority will only be exercised to the extent possible under applicable federal
and state securities and corporation laws. F&M Bancorp does not have any
knowledge of any matters to be presented at the F&M Bancorp Meeting other than
the matters set forth above under "-- General."
The presence of a stockholder at the F&M Bancorp Meeting will not
automatically revoke such stockholder's proxy. However, any proxy given by an
F&M Bancorp stockholder pursuant to this solicitation may be revoked by the
person giving it at any time before it is exercised by (i) delivering to the
Secretary of F&M Bancorp a written notice of revocation bearing a later date
than the proxy; (ii) delivering to the Secretary of F&M Bancorp a duly executed
proxy bearing a later date; or (iii) attending the F&M Bancorp Meeting and
voting in person. Any written notice of revocation or subsequently executed
proxy should be sent so as to be delivered to F&M Bancorp, 110 Thomas Johnson
Drive, Frederick, Maryland 21702, Attention: Gordon M. Cooley, Secretary or hand
delivered to F&M Bancorp's Secretary at such address at or before the taking of
the vote at the F&M Bancorp Meeting.
F&M Bancorp will bear all expenses of this solicitation of proxies from the
holders of F&M Bancorp Common Stock, except that the cost of printing and
mailing this Joint Proxy Statement-Prospectus and all filing and other fees will
be borne equally by Monocacy and F&M Bancorp. In addition to solicitation by use
of the mails, proxies may be solicited by directors, officers and employees of
F&M Bancorp in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. F&M Bancorp has retained Morrow & Co., Inc., a proxy solicitation
firm, to assist in such solicitation. The fee to be paid to such firm is not
expected to exceed $12,500 plus reasonable out-of-pocket expenses and costs. In
addition, F&M Bancorp will make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their principals
and will reimburse such parties for their expenses in doing so.
MONOCACY MEETING
GENERAL. This Joint Proxy Statement-Prospectus is being furnished to
stockholders of Monocacy in connection with the solicitation of proxies by the
Board of Directors of Monocacy (the "Monocacy Board") for use at the special
meeting of the stockholders of Monocacy (the "Monocacy Meeting") to be held at
222 East Baltimore Street, Taneytown, Maryland on Tuesday, November 24, 1998 at
3:00 p.m. local
16
<PAGE>
time. At the Monocacy Meeting, the stockholders of Monocacy will be asked to:
(i) approve the Merger Agreement and the transactions contemplated thereby and
(ii) act upon such other matters as may properly be brought before the Monocacy
Meeting. A copy of the Merger Agreement is attached as Appendix A hereto. The
Merger Agreement provides for the acquisition of Monocacy by F&M Bancorp by
means of the merger (the "Merger") of Monocacy with and into F&M Bancorp. Upon
consummation of the Merger, each share of Monocacy common stock, par value $5.00
per share ("Monocacy Common Stock") outstanding at the effective time of the
Merger (except for certain specified shares described below) will be converted
into and exchangeable for the number of shares of F&M Bancorp Common Stock,
equal to the quotient obtained by dividing 2,219,753 by the number of shares of
Monocacy Common Stock outstanding immediately prior to the effective time of the
Merger (the "Exchange Ratio"), subject to adjustment in certain circumstances.
See "THE MERGER -- Exchange Ratio."
This Joint Proxy Statement-Prospectus constitutes a prospectus of F&M
Bancorp with respect to the shares of F&M Bancorp Common Stock to be issued in
connection with the Merger. The information in this Joint Proxy
Statement-Prospectus concerning F&M Bancorp and Monocacy has been furnished by
each of such entities, respectively.
HOLDERS OF MONOCACY COMMON STOCK ARE REQUESTED TO PROMPTLY COMPLETE, SIGN
AND DATE THE ACCOMPANYING PROXY CARD AND RETURN IT PROMPTLY TO MONOCACY IN THE
ENCLOSED POSTAGE-PAID ADDRESSED ENVELOPE.
MONOCACY STOCKHOLDERS SHOULD NOT FORWARD ANY STOCK CERTIFICATES WITH THEIR
PROXY CARDS.
THE MONOCACY BOARD HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, MONOCACY AND ITS STOCKHOLDERS AND HAS UNANIMOUSLY APPROVED
THE MERGER AGREEMENT. THE MONOCACY BOARD THEREFORE UNANIMOUSLY RECOMMENDS THAT
MONOCACY'S STOCKHOLDERS VOTE FOR APPROVAL OF THE MERGER AGREEMENT AND
CONSUMMATION OF THE TRANSACTIONS CONTEMPLATED IN THE MERGER AGREEMENT. SEE "THE
MERGER -- BACKGROUND OF THE MERGER" AND "-- RECOMMENDATION OF THE BOARDS OF
DIRECTORS; REASONS FOR THE MERGER -- MONOCACY."
RECORD DATE; VOTING; SOLICITATION AND REVOCATION OF PROXIES. The Monocacy
Board has fixed October 20, 1998 as the record date (the "Monocacy Record Date")
for the determination of those Monocacy stockholders entitled to notice of and
to vote at the Monocacy Meeting. Only holders of record of Monocacy Common Stock
at the close of business on the Monocacy Record Date will be entitled to notice
of and to vote at the Monocacy Meeting. As of the Monocacy Record Date, there
were shares of Monocacy Common Stock outstanding, entitled to vote and
held by approximately holders of record. Each holder of record of shares
of Monocacy Common Stock on the Monocacy Record Date is entitled to cast one
vote per share on the proposal to approve the Merger Agreement and the
transactions contemplated thereby, and on any other matter properly submitted
for the vote of the Monocacy stockholders at the Monocacy Meeting. The presence,
either in person or by properly executed proxy, of the holders of a majority of
the outstanding shares of Monocacy Common Stock entitled to vote at the Monocacy
Meeting is necessary to constitute a quorum at the Monocacy Meeting. Abstentions
will be counted as present for purposes of determining the presence or absence
of a quorum at the Monocacy Meeting.
The approval of the Merger Agreement by Monocacy stockholders will require
the affirmative vote of two-thirds of the outstanding shares of Monocacy Common
Stock entitled to vote thereon. As described in "THE MERGER -- Conditions to the
Merger," such stockholder approval is a condition to consummation of the Merger.
In determining whether approval of the Merger Agreement has received the
requisite number of affirmative votes, abstentions and broker non-votes will be
counted and will have the same effect as a vote against the proposal to approve
the Merger Agreement.
17
<PAGE>
As of the Monocacy Record Date, directors of Monocacy and their affiliates
were the beneficial owners of shares of Monocacy Common Stock, or
approximately % of the shares of Monocacy Common Stock outstanding as of the
Monocacy Record Date. Such persons have executed a voting agreement pursuant to
which each such person has agreed to vote or direct the vote of all such
person's shares of Monocacy Common Stock for approval of the Merger Agreement.
As of the Monocacy Record Date, neither F&M Bancorp and its subsidiaries, nor
the directors and executive officers of F&M Bancorp, beneficially owned any
outstanding shares of Monocacy Common Stock.
All shares of Monocacy Common Stock which are entitled to be voted and are
represented at the Monocacy Meeting by properly executed proxies received prior
to or at the meeting, and not revoked, will be voted at such meeting and any
adjournments or postponements thereof, in accordance with the instructions
indicated on such proxies. If no instructions are indicated, such proxies will
be voted for: (i) approval of the Merger Agreement and the transactions
contemplated thereby and (ii) otherwise in the discretion of the proxy holders
as to any other matter which may come before the Monocacy Meeting or any
adjournment or postponement thereof, including, among other things, a motion to
adjourn or postpone the Monocacy Meeting to another time and/or place, for the
purpose of soliciting additional proxies or otherwise; provided, however, that
no proxy which is voted against the proposal to approve the Merger Agreement and
the transactions contemplated thereby will be voted in favor of any such
adjournment or postponement.
If any other matters are properly presented at the Monocacy Meeting for
consideration, the persons named in the form of proxy enclosed herewith and
acting thereunder will have discretionary authority to vote on such matters in
accordance with their best judgment; provided, however, that such discretionary
authority will only be exercised to the extent possible under applicable federal
and state securities and corporation laws. Monocacy does not have any knowledge
of any matters to be presented at the Monocacy Meeting other than the matters
set forth above under "-- General."
The presence of a stockholder at the Monocacy Meeting will not automatically
revoke such stockholder's proxy. However, any proxy given by a Monocacy
stockholder pursuant to this solicitation may be revoked by the person giving it
at any time before it is exercised by (i) delivering to the Secretary of
Monocacy a written notice of revocation bearing a later date than the proxy;
(ii) delivering to the Secretary of Monocacy a duly executed proxy bearing a
later date; or (iii) attending the Monocacy Meeting and voting in person. Any
written notice of revocation or subsequently executed proxy should be sent so as
to be delivered to Monocacy Bancshares, Inc., 222 East Baltimore Street,
Taneytown, Maryland 21787, Attention: Brian M. Etzler, Secretary, or hand
delivered to Monocacy's Secretary at or before the taking of the vote at the
Monocacy Meeting.
Monocacy will bear all expenses of this solicitation of proxies from the
holders of Monocacy Common Stock, except that the cost of printing and mailing
this Joint Proxy Statement-Prospectus and all filing and other fees will be
borne equally by Monocacy and F&M Bancorp. In addition to solicitation by use of
the mails, proxies may be solicited by directors, officers and employees of
Monocacy in person or by telephone, telegram or other means of communication.
Such directors, officers and employees will not be additionally compensated, but
may be reimbursed for reasonable out-of-pocket expenses in connection with such
solicitation. Monocacy has retained D.F. King & Co., Inc., a proxy solicitation
firm, to assist in such solicitation. The fee to be paid to such firm is not
expected to exceed $4,000 plus reasonable out-of-pocket expenses and costs. In
addition, Monocacy will make arrangements with brokerage firms and other
custodians, nominees and fiduciaries to send proxy materials to their principals
and will reimburse such parties for their expenses in doing so.
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THE MERGER
The following information concerning the Merger, insofar as it relates to
matters contained in the Merger Agreement, describes the material aspects of the
Merger but does not purport to be a complete description and is qualified in its
entirety by reference to the Merger Agreement which is incorporated herein by
reference and attached hereto as Appendix A. F&M Bancorp and Monocacy
stockholders are urged to read the Merger Agreement carefully.
EFFECTS OF THE MERGER
Pursuant to the terms of the Merger Agreement, subject to the satisfaction
or waiver (where permissible) of certain conditions, including, among other
things, the receipt of all necessary regulatory approvals, the expiration of all
waiting periods in respect thereof, and the approval of the Merger Agreement and
the transactions contemplated thereby by the requisite vote of the stockholders
of F&M Bancorp and Monocacy, Monocacy will be merged with and into F&M Bancorp.
F&M Bancorp shall be the surviving corporation in the Merger, and shall continue
its corporate existence under the laws of the State of Maryland. Upon
consummation of the Merger, the separate corporate existence of Monocacy shall
terminate.
Immediately after the consummation of the Merger, Taneytown, a wholly owned
subsidiary of Monocacy, will merge (the "Subsidiary Bank Merger") with and into
Farmers & Mechanics National Bank, a wholly owned subsidiary of F&M Bancorp.
EXCHANGE RATIO
At the Effective Time (as defined below), each issued and outstanding share
of Monocacy Common Stock, except for shares held directly or indirectly by
Monocacy or F&M Bancorp (other than shares held by F&M Bancorp or Monocacy in a
fiduciary capacity ("Trust Account Shares") or in respect of a debt previously
contracted ("DPC Shares")), will be converted into and exchangeable for the
number of shares of F&M Bancorp Common Stock equal to the quotient obtained by
dividing the Share Number (as defined below) by the number of shares of Monocacy
Common Stock issued and outstanding immediately prior to the Effective Time. The
"Share Number" shall be 2,219,753, PROVIDED, HOWEVER, that if the Average
Closing Price (as defined below) is less than $34.425, then the Share Number
shall be increased so that the product of the Share Number and the Average
Closing Price shall equal $76,415,000, PROVIDED, that in no event shall the
Share Number be greater than 2,281,753. If the Average Closing Price is greater
than $46.575, then the Share Number shall be reduced to the extent necessary so
that the product of the Share Number and the Average Closing Price shall equal
$103,384,996, PROVIDED, that in no event shall the Share Number be less than
2,157,753. The "Average Closing Price" is the average of the last reported sale
prices per share of F&M Bancorp Common Stock as reported on The Nasdaq National
Market System ("Nasdaq/NMS") (as reported in THE WALL STREET JOURNAL or, if not
reported therein, in another mutually agreed upon authoritative source) for the
15 consecutive trading days ending on the fifth business day prior to the
Closing Date (as defined below).
The formula for determining the Exchange Ratio was arrived at through
arm's-length negotiations between F&M Bancorp and Monocacy. If F&M Bancorp
effects a reclassification, recapitalization, split-up, combination, exchange of
shares or readjustment of the F&M Bancorp Common Stock or declares a stock
dividend on such stock, an appropriate adjustment to the Exchange Ratio will be
made.
It is expected that the market price of F&M Bancorp Common Stock will
fluctuate between the date of this Joint Proxy Statement-Prospectus and the date
on which the Merger is consummated and thereafter. Because the number of shares
of F&M Bancorp Common Stock to be received by Monocacy stockholders in the
Merger is fixed (subject to possible increase or decrease in the limited
circumstances described above) and because the market price of the F&M Bancorp
Common Stock is subject to fluctuation, the value of the shares of F&M Bancorp
Common Stock that holders of Monocacy Common
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Stock would receive in the Merger may increase or decrease prior to the Merger.
No assurance can be given concerning the market price of F&M Bancorp Common
Stock before or after the Effective Time. In addition, outstanding Monocacy
Options (as defined below) could be exercised prior to the Effective Time which
would increase the number of shares of Monocacy Common Stock outstanding and
consequently reduce the per share consideration to be received by Monocacy
stockholders.
The following table sets forth the number of shares of F&M Bancorp Common
Stock into which each share of Monocacy Common Stock outstanding at the
Effective Time of the Merger will be converted based on various assumptions
concerning (i) the number of shares of Monocacy Common Stock that are
outstanding at that time and (ii) the Average Closing Price of F&M Bancorp
Common Stock.
SHARES OF F&M BANCORP COMMON STOCK
TO BE EXCHANGED FOR EACH SHARE
OF MONOCACY COMMON STOCK
<TABLE>
<CAPTION>
SHARES OF MONOCACY COMMON STOCK
ASSUMED AVERAGE OUTSTANDING AT EFFECTIVE TIME
CLOSING PRICE OF F&M BANCORP -------------------------------------------
COMMON STOCK 1,799,005 (1) [ ](2) 1,848,500(3)
- ---------------------------------------------------------------------- ------------- ------------- -------------
<S> <C> <C> <C>
$50.00................................................................ 1.1994 [ ] 1.1673
$45.00................................................................ 1.2339 [ ] 1.2008
$40.00................................................................ 1.2339 [ ] 1.2008
$35.00................................................................ 1.2339 [ ] 1.2008
$30.00................................................................ 1.2683 [ ] 1.2344
$25.00................................................................ 1.2683 [ ] 1.2341
</TABLE>
- ------------------------
(1) Represents the number of shares of Monocacy Common Stock outstanding as of
September 4, 1998, the date the Merger Agreement was signed.
(2) Represents the number of shares of Monocacy Common Stock outstanding as of
, 1998, the latest practicable date prior to the mailing of this Joint
Proxy Statement-Prospectus.
(3) Represents the maximum number of shares of Monocacy Common Stock that could
be outstanding as of the Effective Time, assuming exercise of all
outstanding options that are exercisable prior to the Effective Time.
No fractional shares of F&M Bancorp Common Stock will be issued in
connection with the Merger. In lieu of the issuance of fractional shares, F&M
Bancorp will make a cash payment to each Monocacy stockholder who otherwise
would be entitled to receive a fractional share equal to the product of (i) the
fractional interest which a Monocacy stockholder would otherwise receive and
(ii) the Average Closing Price.
Upon consummation of the Merger, any shares of Monocacy Common Stock that
are held directly or indirectly by F&M Bancorp or Monocacy other than Trust
Account Shares and DPC Shares will be cancelled and retired and no payment will
be made with respect thereto.
TREATMENT OF OUTSTANDING MONOCACY STOCK OPTIONS
At the Effective Time, each outstanding and unexercised option to purchase
shares of Monocacy Common Stock (a "Monocacy Option"), will be assumed by F&M
Bancorp. After the Effective Time, each Monocacy Option will be converted
automatically into an option to acquire, on the same terms and conditions as
were applicable under such Monocacy Option immediately prior to the Effective
Time, the number of shares of F&M Bancorp Common Stock equal to the product,
rounded down to the nearest share, of the number of shares of Monocacy Common
Stock subject to the Monocacy Option and the
20
<PAGE>
Exchange Ratio, at a price per share equal to the exercise price per share of
Monocacy Common Stock otherwise purchasable pursuant to such Monocacy Option
divided by the Exchange Ratio, rounded up to the nearest cent. As of the date of
this Joint Proxy Statement-Prospectus, there were Monocacy Options
outstanding, of which were fully exercisable and the remainder of which
will become exercisable upon consummation of the Merger.
EFFECTIVE TIME
The Merger will become effective as set forth in the articles of merger
which shall be filed with the State Department of Assessments and Taxation in
accordance with applicable law (the "Effective Time"). The articles of merger
will be filed on the first day (the "Closing Date") which is (i) the last
business day of a month and (ii) at least two business days after satisfaction
or waiver of the latest to occur of the conditions to the Merger specified in
the Merger Agreement, unless another date is agreed to in writing by F&M Bancorp
and Monocacy. See "--Conditions to the Merger" below. It is possible that a
period of time will elapse between the Special Meetings and the Effective Time
while the parties seek to obtain the regulatory approvals required to consummate
the Merger. There can be no assurance that such regulatory approvals will be
obtained, and if obtained, there can be no assurance as to the date of any such
approval. There can likewise be no assurance that the United States Department
of Justice or the Maryland Attorney General will not challenge the Merger or, if
such a challenge is made, as to the result thereof. See "--Regulatory Approvals
Required for the Merger" below. The Merger Agreement may be terminated by either
party if, among other reasons, the Merger has not been consummated on or before
June 30, 1999. See "--Waiver and Amendment; Termination" below.
BACKGROUND OF THE MERGER
Monocacy began operations in 1884 through its subsidiary community bank
located in Taneytown, Maryland. The management of Monocacy has, over time,
considered the possibility of strategic combinations with a variety of financial
institutions in the mid-Atlantic region. Because of Monocacy's strategic
location and growth potential, Monocacy personnel were contacted from time to
time by other financial institutions that expressed an interest in a potential
transaction with Monocacy.
As part of its business expansion strategy, F&M Bancorp would periodically
make calls on financial institutions in areas targeted for expansion to
determine whether there was any interest in a potential merger.
In November 1994, the Chairman of F&M Bancorp mentioned in a conversation
with Eric E. Glass, the present Chairman of the Monocacy Board, that F&M Bancorp
would be interested in pursuing a business combination transaction if Monocacy
were interested. Mr. Glass reported this conversation to members of the Monocacy
Board who expressed no interest in pursuing a merger at that time.
In the fall of 1997, executives from two other financial institutions in the
mid-Atlantic region contacted Mr. Glass to discuss a possible strategic alliance
with Monocacy. As a result of these initial indications of interest, the
Monocacy Board established the Strategic Initiatives Committee, consisting of
Messrs. Glass, Abramson and Hull, on February 23, 1998 to consider a variety of
strategic alternatives for Monocacy.
Into the spring and early summer of 1998, members of the Strategic
Initiatives Committee had preliminary discussions with executives from several
other financial institutions in the mid-Atlantic region. These discussions did
not lead to any specific offer from a third party, and generally discussions
terminated as a result of valuation and cultural issues or based on the
uncertainty in market prices for financial services company stocks generally. In
addition, some of these institutions expressed concern over the May 20, 1998
resignation of Frank W. Neubauer as President and Chief Executive Officer of
Monocacy.
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<PAGE>
In mid-June 1998, Mr. Glass received a telephone call from Faye E. Cannon,
President and Chief Executive Officer of F&M Bancorp. During this call, Ms.
Cannon indicated that F&M Bancorp might be interested in a business combination
transaction and suggested that the two of them meet to discuss each company's
individual strategic plans. On June 24, 1998, Mr. Glass and Ms. Cannon met and
discussed the strategic plans of each of the two companies and their
compatibility, the financial condition and credit quality of each of them, as
well as a possible range of valuations, and the benefits and cost savings that
such a business combination transaction might provide. Mr. Glass reported the
results of his discussion to the members of the Strategic Initiatives Committee,
and was encouraged to explore further the possibility of a transaction. Over the
next several weeks Mr. Glass had numerous discussions with Ms. Cannon and other
representatives of F&M Bancorp during which the parties continued to discuss the
implications of a transaction as well as valuation issues. During this same time
period, Mr. Glass continued to have discussions with two other financial
institutions about a three-party consolidation as well as another bank holding
company about a possible transaction. None of these discussions resulted in a
specific proposal for a potential transaction.
The discussions with F&M Bancorp continued and on August 19, 1998, Ms.
Cannon presented a tentative proposal to Mr. Glass. On August 25, 1998, counsel
to F&M Bancorp delivered a draft agreement which set forth specific terms of a
proposed transaction. The Monocacy Board met on August 26, 1998 to consider the
proposal from F&M Bancorp. At that meeting, representatives of RP Financial, LC
("RP Financial"), financial advisor to Monocacy in connection with the ongoing
discussions with F&M Bancorp, presented a preliminary analysis of the proposal
from F&M Bancorp and an analysis of F&M Bancorp and its subsidiaries, based on
publicly available information. The Monocacy Board and Monocacy's legal and
financial advisors also discussed a variety of price protection techniques. The
Monocacy Board directed the Strategic Initiatives Committee, together with
Monocacy's legal and financial advisors, to continue negotiations with F&M
Bancorp and formally retained RP Financial as its financial advisor.
During the remainder of August, through September 4 and until the execution
of the Merger Agreement, senior management of the two companies and their
respective legal and financial advisors conducted mutual due diligence. During
the same period, senior management of the parties and their respective legal and
financial advisors negotiated the terms of the Merger Agreement, the Stock
Option Agreement (as defined below) and other related agreements. The Strategic
Initiatives Committee members met personally or by telephone conference at
various times to discuss the proposed Merger Agreement and related issues as the
business and legal representatives of each party continued to finalize the
proposed Merger Agreement.
On September 2, 1998, the Monocacy Board met to consider the terms of the
proposed Merger Agreement. RP Financial presented its financial analysis of the
proposed transaction and delivered a draft of its opinion that the consideration
to be received in the proposed transaction was fair, from a financial point of
view, to the Monocacy stockholders. Monocacy's legal counsel, Miles &
Stockbridge P.C., presented the terms of the Merger Agreement and the Stock
Option Agreement and answered questions raised by Monocacy Board members. The
Monocacy Board also considered the financial performance, stock performance,
growth prospects and other matters concerning F&M Bancorp.
On September 3, 1998, the Strategic Initiatives Committee held a special
meeting to consider the proposed merger with F&M Bancorp and unanimously
determined to recommend the proposed merger to the full Board of Directors.
Later that day, the Monocacy Board held a special meeting to consider the
proposed merger and the Strategic Initiatives Committee's recommendation. At
this meeting, Mr. Glass, together with financial and legal advisors, reviewed
for the Monocacy Board the due diligence Monocacy had conducted, the
negotiations to date, previous discussions relating to the proposed merger by
the Strategic Initiatives Committee, the financial and other terms of the
proposed merger, the proposed appointment of members of the Monocacy Board to
the F&M Bancorp Board after the merger and other terms and conditions of the
Merger Agreement, the Stock Option Agreement and related agreements. Monocacy's
financial advisor, based on the analysis described in "--Opinion of Financial
Advisors--
22
<PAGE>
Monocacy," gave its opinion to the Monocacy Board that, as of the date of the
meeting, the consideration to be received by stockholders of Monocacy in the
Merger was fair, from a financial point of view, to the stockholders of
Monocacy. Monocacy's legal and financial advisors also answered questions from
members of the Monocacy Board. Following discussion and questions, the Monocacy
Board voted unanimously to approve the Merger Agreement and the transactions
contemplated thereby including the Stock Option Agreement and related
agreements, and recommended that the proposed Merger be submitted for
consideration by the stockholders of Monocacy at a special meeting.
On September 3, 1998, the F&M Bancorp Board considered and approved, by
unanimous vote, the Merger, the Merger Agreement, the Stock Option Agreement and
the related transactions. Presentations were made by both Wheat First
Securities, Inc. ("Wheat First"), whom F&M Bancorp had retained to render a
fairness opinion, and F&M Bancorp's legal counsel. At the special meeting,
members of F&M Bancorp's senior management, together with its legal and
financial advisors, reviewed with the F&M Bancorp Board, among other things, the
terms of the proposed transaction, the potential benefits of the transaction,
including the strategic rationale for the transaction, a summary of their due
diligence findings, financial and valuation analyses of the transaction and the
terms of the proposed agreements. In addition, Wheat First delivered to the F&M
Bancorp Board its oral opinion, which was subsequently confirmed in writing, to
the effect that, as of such date, the Exchange Ratio pursuant to the Merger
Agreement was fair from a financial point of view to the stockholders of F&M
Bancorp.
On September 4, 1998, Monocacy and F&M Bancorp executed and delivered the
Merger Agreement and the Stock Option Agreement.
RECOMMENDATION OF THE BOARDS OF DIRECTORS; REASONS FOR THE MERGER
F&M BANCORP. In reaching its decision to approve the Merger Agreement, the
F&M Bancorp Board consulted with its legal advisors regarding the legal terms of
the transaction, its financial advisors regarding the financial aspects and
fairness of the proposed transaction, as well as with management of F&M Bancorp,
and, without assigning any relative or specific weights, considered a number of
factors, both from a short-term and a longer-term perspective, including the
following: (i) the F&M Bancorp Board's familiarity with and review of F&M
Bancorp's business, operations, financial condition, earnings and prospects,
including, but not limited to, its potential growth, development, productivity
and profitability and the business risks associated therewith; (ii) the F&M
Bancorp Board's review, based in part on a presentation by F&M Bancorp
management regarding its due diligence on Monocacy, of the business, operations,
earnings and financial condition of Monocacy on an historical, prospective and
pro forma basis, and the enhanced opportunities for growth that the Merger makes
possible; (iii) a variety of factors affecting and relating to the overall
strategic focus of F&M Bancorp including, without limitation, opportunities for
growth in deposits, assets and earnings, and opportunities available to F&M
Bancorp in the market areas where Monocacy conducts business; (iv) the current
and prospective economic, competitive and regulatory environment facing
financial institutions, including F&M Bancorp; (v) the terms of the Merger
Agreement, the Stock Option Agreement and the other documents executed in
connection with the Merger; (vi) the anticipated revenue enhancement, cost
savings and efficiencies available from the Merger; (vii) the expectation that
the Merger would be treated as a tax-free reorganization and accounted for as a
pooling of interests; and (viii) the opinion of Wheat First as to the fairness
to stockholders of F&M Bancorp from a financial point of view of the Exchange
Ratio.
The F&M Bancorp Board believes that the Merger is fair to, and in the best
interests of, F&M Bancorp and its stockholders. ACCORDINGLY, THE F&M BANCORP
BOARD HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT AND RECOMMENDS THAT F&M
BANCORP'S STOCKHOLDERS VOTE FOR THE APPROVAL OF THE MERGER AGREEMENT.
MONOCACY. In reaching its determination that the terms of the Merger are
fair to, and in the best interests of, Monocacy and its stockholders, the
Monocacy Board consulted with its legal and financial
23
<PAGE>
advisors, as well as with Monocacy senior management, and considered a number of
factors, including, without limitation, the following:
(a) the Monocacy Board's review, based in part on the presentation by
Monocacy's management regarding its due diligence of F&M Bancorp, of the
business, operations, earnings, financial condition and credit ratings of
F&M Bancorp on both a 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;
(b) the Monocacy Board's belief, based upon an analysis of the
anticipated financial effects of the Merger, that upon consummation of the
Merger, F&M Bancorp and its banking subsidiary would continue to be well
capitalized institutions, the equity positions of which would be in excess
of all applicable regulatory capital requirements;
(c) the Monocacy Board's belief that, in light of the reasons discussed
above, F&M Bancorp was the most attractive choice as a long-term affiliation
partner of Monocacy;
(d) the expectation that the Merger will generally be a tax-free
transaction to Monocacy and its stockholders to the extent such stockholders
receive shares of F&M Bancorp Common Stock;
(e) the current and prospective economic and regulatory environment and
competitive constraints facing the banking and financial institutions in
Monocacy's market area;
(f) the fact that previous inquiries by other financial institutions
regarding a potential business combination did not result in a more
favorable proposal for Monocacy than the F&M Bancorp proposal;
(g) 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 such
combinations on competitive conditions in Monocacy's market area; and
(h) the recent departure of the President and Chief Executive Officer of
Monocacy and the possibility of retaining a suitable replacement.
The Monocacy Board considered as potentially negative (i) the fact that
Monocacy would no longer be an independent community-based bank owned primarily
by local residents, (ii) the fact that the Stock Option Agreement can be
expected to deter third parties from submitting an acquisition proposal for
Monocacy during the pendency of the Merger and (iii) the Monocacy Board's belief
that the exercise or repurchase of the Option (as hereinafter defined) is likely
to prohibit any other acquiror from accounting for an acquisition by using the
"pooling of interests" accounting method for a period of two years.
The Monocacy Board did not assign any specific or relative weight to each of
the foregoing factors in their considerations. It should be noted that there is
no guarantee that any of the positive results listed above will be achieved.
BASED ON THE FOREGOING, THE MONOCACY BOARD APPROVED THE MERGER AGREEMENT AND
THE STOCK OPTION AGREEMENT AND UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF
MONOCACY COMMON STOCK VOTE "FOR" APPROVAL OF THE MERGER AGREEMENT.
24
<PAGE>
OPINIONS OF FINANCIAL ADVISORS
F&M BANCORP. F&M Bancorp retained Wheat First to render its opinion to the
F&M Bancorp Board as to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of F&M Bancorp Common Stock. Wheat First is a
nationally recognized investment banking firm regularly engaged in the valuation
of businesses and their securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for estate,
corporate and other purposes. The F&M Bancorp Board selected Wheat First to
render its opinion in connection with the Merger on the basis of such firm's
expertise. Wheat First regularly publishes research reports regarding the
financial services industry and the businesses and securities of publicly owned
companies in that industry, including F&M Bancorp. In the ordinary course of its
business, Wheat First and its affiliates may actively trade in the equity
securities of F&M Bancorp or Monocacy for its account and the accounts of its
customers, and therefore may from time to time hold long or short positions in
such securities.
Representatives of Wheat First attended the meeting of the F&M Bancorp Board
on September 3, 1998 at which the Merger Agreement was considered and approved.
At the meeting, Wheat First issued a written opinion that, as of such date, the
Exchange Ratio was fair, from a financial point of view, to the holders of F&M
Bancorp Common Stock. Wheat First also issued a written opinion to the F&M
Bancorp Board dated as of the date of this Joint Proxy Statement-Prospectus,
reconfirming that, as of such date, the Exchange Ratio was fair, from a
financial point of view, to the holders of F&M Bancorp Common Stock.
The full text of Wheat First's opinion, which sets forth certain assumptions
made, matters considered and limitations on review undertaken is attached as
Appendix C to this Joint Proxy Statement-Prospectus, is incorporated herein by
reference, and should be read in its entirety in connection with this Joint
Proxy Statement-Prospectus. The summary of the opinion of Wheat First set forth
in this Joint Proxy Statement-Prospectus is qualified in its entirety by
reference to the opinion. No limitations were imposed by the F&M Bancorp Board
upon Wheat First with respect to the investigations made or procedures followed
by it in rendering the F&M Bancorp fairness opinion. Wheat First's opinion has
been furnished to the F&M Bancorp Board for its benefit and use. Wheat First's
opinion is directed only to the fairness, from a financial point of view, of the
Exchange Ratio to the holders of F&M Bancorp Common Stock and does not
constitute a recommendation to any stockholder of F&M Bancorp as to how such
stockholder should vote on the Merger.
In arriving at its opinion dated as of September 3, 1998, Wheat First
reviewed certain publicly available business and financial information relating
to F&M Bancorp and Monocacy and certain other information provided to it,
including the following: (i) F&M Bancorp's Annual Reports to Stockholders,
Annual Reports on Form 10-K and related financial information for the three
fiscal years ended December 31, 1997; (ii) F&M Bancorp's Quarterly Reports on
Form 10-Q and related financial information for the quarterly periods ended June
30, 1998 and March 31, 1998; (iii) Monocacy's Annual Reports to Stockholders,
Annual Reports on Form 10-KSB and related financial information for the three
fiscal years ended December 31, 1997; (iv) Monocacy's Quarterly Reports on Form
10-Q and related financial information for the quarterly periods ended June 30,
1998 and March 31, 1998 and certain information made available by the management
of Monocacy for the period ended July 31, 1998; (v) certain publicly available
information with respect to historical market prices and trading activities for
F&M Bancorp Common Stock and Monocacy Common Stock and for certain publicly
traded financial institutions which Wheat First deemed relevant; (vi) certain
publicly available information with respect to banking companies and the
financial terms of certain other mergers and acquisitions which Wheat First
deemed relevant; (vii) the Merger Agreement; (viii) certain estimates of the
cost savings and revenue enhancements projected by F&M Bancorp and Monocacy for
the combined company; (ix) other financial information concerning the businesses
and operations of F&M Bancorp and Monocacy, including certain audited
25
<PAGE>
financial information and certain internal financial analyses and forecasts for
F&M Bancorp and Monocacy prepared by senior managements of these companies; and
(x) such financial studies, analyses, inquiries and other matters as Wheat First
deemed necessary. In addition, Wheat First met with members of the senior
managements of F&M Bancorp and Monocacy to discuss the business and prospects of
each company.
In connection with its review, Wheat First relied upon and assumed the
accuracy and completeness of all of the foregoing information provided to it or
publicly available, including representations and warranties of F&M Bancorp and
Monocacy included in the Merger Agreement, and Wheat First has not assumed any
responsibility for independent verification of such information. Wheat First
relied upon the managements of F&M Bancorp and Monocacy as to the reasonableness
and achievability of their financial and operational forecasts and projections,
and the assumptions and bases therefor, provided to Wheat First, and assumed
that such forecasts and projections reflect the best currently available
estimates and judgments of such management and that such forecasts and
projections will be realized in the amounts and in the time periods currently
estimated by such managements. Wheat First also assumed, without independent
verification, that the aggregate allowances for loan losses and other
contingencies for F&M Bancorp and Monocacy are adequate to cover such losses.
Wheat First did not review any individual credit files of F&M Bancorp and
Monocacy, nor did it make an independent evaluation or appraisal of the assets
or liabilities of F&M Bancorp and Monocacy. Wheat First also assumed that the
Merger will be consummated in accordance with the terms and conditions of the
Merger Agreement in due course without unnecessary delay.
Additionally, Wheat First considered certain financial and stock market data
of F&M Bancorp and Monocacy and compared that data with similar data for certain
publicly-held financial institutions and considered the financial terms of
certain other comparable transactions that recently have been announced or
effected, as further discussed below.
In connection with rendering its opinion, Wheat First performed a variety of
financial analyses. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Moreover, the evaluation of the fairness, from a
financial point of view, of the Exchange Ratio to holders of F&M Bancorp Common
Stock was to some extent a subjective one based on the experience and judgment
of Wheat First and not merely the result of mathematical analysis of financial
data. Accordingly, notwithstanding the separate factors summarized below, Wheat
First believes that its analyses must be considered as a whole and that
selecting portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create an incomplete view of the
evaluation process underlying its opinion. The ranges of valuations resulting
from any particular analysis described below should not be taken to be Wheat
First's view of the actual value of F&M Bancorp or Monocacy.
In performing its analyses, Wheat First made numerous assumptions with
respect to industry performance, business and economic conditions and other
matters, many of which are beyond the control of F&M Bancorp or Monocacy. The
analyses performed by Wheat First are not necessarily indicative of actual
values or future results, which may be significantly more or less favorable than
suggested by such analyses. Additionally, analyses relating to the values of
businesses do not purport to be appraisals or to reflect the prices at which
businesses actually may be sold. In rendering its opinion, Wheat First assumed
that, in the course of obtaining the necessary regulatory approvals for the
Merger, no conditions will be imposed that will have a material adverse effect
on the contemplated benefits of the Merger, on a pro forma basis, to F&M
Bancorp.
Wheat First's opinion is just one of the many factors taken into
consideration by the F&M Bancorp Board in determining to approve the Merger
Agreement. Wheat First's opinion does not address the relative merits of the
Merger as compared to any alternative business strategies that might exist for
F&M
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Bancorp, nor does it address the effect of any other business combination in
which F&M Bancorp might engage.
The following is a summary of the analyses performed by Wheat First in
connection with its opinion delivered to the F&M Bancorp Board on September 3,
1998:
ANALYSIS OF SELECTED TRANSACTIONS. Wheat First performed an analysis of
premiums paid in thirteen selected transactions (the "Selected Transactions").
Wheat First compiled the Selected Transactions by researching acquisitions of
banks or bank holding companies headquartered in the District of Columbia,
Delaware, Maryland, New Jersey, Pennsylvania, Virginia or West Virginia which
were announced between August 1, 1997 and September 1, 1998 which had deal
values between $50 and $250 million. Wheat First compared valuation multiples
for the Selected Transactions to the multiples implied by the Exchange Ratio
offered to Monocacy in the Merger. The Selected Transactions included the
following pending and completed transactions: Commerce Bancorp, Inc./Community
First Banking; National Penn Bancshares, Inc./Elverson National Bank; One Valley
Bancorp, Inc./Summit Bankshares, Inc.; JeffBanks, Inc./Regent Bancshares Corp.;
Fulton Financial Corporation/Ambassador Bank of the Commonwealth; BB&T Corp./
Franklin Bancorporation, Inc.; Sovereign Bancorp, Inc./Carnegie Bancorp;
Citizens Bancshares, Inc./ Century Financial Corporation; Community Banks,
Inc./Peoples State Bank; WesBanco, Inc./Commerical BancShares, Incorporated;
United Bankshares, Inc./George Mason Bankshares, Inc.; Fulton Financial
Corporation/Keystone Heritage Group, Inc.; and First Union Corporation/Covenant
Bancorp, Inc.
Based on the market value of F&M Bancorp Common Stock on September 2, 1998,
and financial data for Monocacy as of June 30, 1998, the analysis of the implied
value based on the Exchange Ratio offered by F&M Bancorp to Monocacy yielded the
following values: (i) price to book value of 326.3% compared to an average of
322.8%, a minimum of 253.7%, and a maximum of 474.2% for the Selected
Transactions; (ii) price to latest quarter earnings per share annualized of
32.7x compared to an average of 25.1x, a minimum of 16.9x, and a maximum of
42.1x for the Selected Transactions; and (iii) premium to market price of 52.7%
compared to an average of 32.4%, a minimum of 2.0%, and a maximum of 76.8% for
the Selected Transactions.
The following comparisons were based on financial data as of and for the
twelve month reporting period ended June 30, 1998, for Monocacy and the twelve
month reporting period prior to the announcement of each transaction for each
acquiree in the Selected Transactions. Monocacy had: (i) equity to assets of
8.58% compared to an average of 8.69%, a minimum of 6.24%, and a maximum of
15.50% for the Selected Transaction acquirees; (ii) nonaccrual loans plus loans
90 days past due to total assets of 0.31% compared to an average of 0.62%, a
minimum of 0.09%, and a maximum of 1.35% for the Selected Transaction acquirees;
(iii) efficiency ratio of 74.91% compared to an average of 65.78%, a minimum of
46.12%, and a maximum of 108.34% for the Selected Transaction acquirees; and
(iv) return on average assets before extraordinary items of 0.81% compared to an
average of 1.14%, a minimum of 0.48%, and a maximum of 1.85% for the Selected
Transaction acquirees.
IMPACT ANALYSIS. Wheat First estimated the potential impact of the
transaction to F&M Bancorp's book value and 1999 estimated earnings per share
assuming that the Merger qualifies as a pooling-of-interests for accounting and
financial reporting purposes. Utilizing financial data as of June 30, 1998 for
both F&M Bancorp and Monocacy, and assuming certain adjustments to the equity of
Monocacy, Wheat First noted that the Merger could result in 10.54% dilution to
F&M Bancorp's book value per share. Wheat First also noted that, assuming
certain fully phased-in expense savings and revenue enhancements (based on
projections by F&M Bancorp management), the Merger could result in 0.11%
accretion to F&M Bancorp's 1999 estimated earnings per share.
DISCOUNTED DIVIDENDS ANALYSIS. Using discounted dividends analysis, Wheat
First estimated the present value of the future stream of dividends that
Monocacy could produce over the next five years, assuming the company performed
in accordance with the earnings forecasts of management, maintained
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consistent capital ratios at the bank level, and that assumed levels of expense
savings and revenue enhancements were achieved. Wheat First then estimated the
terminal values for Monocacy at the end of the period by applying multiples
ranging from 17 times to 21 times earnings projected in year five. The dividend
streams and terminal values were then discounted to present values using
different discount rates (ranging from 15% to 17%) chosen to reflect different
assumptions regarding the required rates of return to holders or prospective
buyers of F&M Bancorp Common Stock. This discounted dividend analysis indicated
reference ranges of between $40.18 and $51.52 per share for Monocacy Common
Stock. These values compare to the implied consideration based on the Exchange
Ratio offered by F&M Bancorp to Monocacy in the Merger of $45.81 based on the
market value of F&M Bancorp Common Stock on September 2, 1998.
No company or transaction used as a comparison in the above analysis is
identical to F&M Bancorp, Monocacy or the Merger. Accordingly, an analysis of
the results of the foregoing necessarily involves complex considerations and
judgments concerning differences in financial and operating characteristics of
the companies and other factors that could affect the public trading value of
the companies used for comparison in the above analysis.
In connection with its written opinion dated as of the date of this Joint
Proxy Statement-Prospectus, Wheat First confirmed the appropriateness of its
reliance on the analyses used to render its September 3, 1998, opinion by
performing procedures to update certain of such analyses and by reviewing the
assumptions on which such analyses were based and the factors considered in
connection therewith.
Wheat First's opinion in Appendix C, dated as of the date of this Joint
Proxy Statement-Prospectus, is based solely upon the information available to
Wheat First and the economic, market and other circumstances as they existed as
of such date. Events occurring after that date could materially affect the
assumptions and conclusions contained in Wheat First's opinion. Wheat First has
not undertaken to reaffirm or revise its opinion or otherwise comment on any
events occurring after the date of its opinion.
As compensation for Wheat First's services, F&M Bancorp has agreed to pay
Wheat First a fee equal to $75,000 payable on the Effective Date. F&M Bancorp
has agreed also to reimburse Wheat First for its out-of-pocket expenses incurred
in connection with the activities contemplated by its engagement, regardless of
whether the Merger is consummated. F&M Bancorp has further agreed to indemnify
Wheat First against certain liabilities, including certain liabilities under
federal securities laws. The payment of the above fee is not contingent upon
Wheat First rendering a favorable opinion with respect to the Merger.
MONOCACY. The Strategic Initiatives Committee of the Monocacy Board
retained RP Financial in March 1998 to evaluate the financial merits of various
strategic options, including potential strategic mergers. In August 1998, the
Monocacy Board engaged RP Financial as its financial advisor in conjunction with
the Merger, which included negotiating financial terms of the Merger with F&M
Bancorp and rendering its opinion with respect to the fairness of the merger
consideration from a financial point of view to Monocacy stockholders in the
event Monocacy entered into an agreement to be acquired. In requesting RP
Financial's advice and opinion, the Monocacy Board did not give any special
instructions to RP Financial, nor did it impose any limitations upon the scope
of the investigation that RP Financial might wish to conduct to enable it to
give its opinion. RP Financial has delivered to Monocacy its written opinion,
dated September 4, 1998, and its updated opinion as of the date of this Joint
Proxy Statement-Prospectus, to the effect that, based upon and subject to the
matters set forth therein, as of the date thereof, the merger consideration is
fair to the holders of Monocacy Common Stock from a financial point of view. The
opinion of RP Financial is directed toward the consideration to be received by
Monocacy stockholders and does not constitute a recommendation to any Monocacy
stockholder to vote in favor of approval of the Merger Agreement. A copy of the
RP Financial opinion is set forth as Appendix D to this Joint Proxy
Statement-Prospectus and should be read in its entirety by stockholders of
Monocacy. RP Financial has consented to the inclusion and description of its
written opinion in this Joint Proxy Statement-Prospectus.
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RP Financial was selected by Monocacy to act as its financial advisor
because of RP Financial's expertise in the valuation of businesses and their
securities for a variety of purposes, including its expertise in connection with
mergers and acquisitions of commercial banks and thrift institutions (and their
respective holding companies, if applicable). RP Financial was engaged by
Monocacy on August 26, 1998, pursuant to terms set forth in a mutually executed
engagement letter ("Engagement Letter"). Inclusive of its related services for
which it was paid approximately $17,000 prior to the Engagement Letter, RP
Financial estimates that it will receive from Monocacy total professional fees
of approximately $80,000, plus reimbursement of certain out-of-pocket expenses,
for its services in connection with the Merger. In addition, Monocacy has agreed
to indemnify and hold harmless to the fullest extent permitted by law, RP
Financial, any affiliates of RP Financial, and the respective directors,
officers, agents and employees of RP Financial or their successors and assigns
who act for or on behalf of RP Financial in connection with the services called
for under the Engagement Letter from and against any and all losses, claims,
damages and liabilities, joint or several, that RP Financial may become
obligated to pay, to which RP Financial may become subject or for which RP
Financial may become liable, in connection with any of the services rendered
pursuant to or matters that are the subject of or arise out of the services
rendered pursuant to the Engagement Letter, provided that Monocacy will be under
no obligation to indemnify or hold harmless RP Financial thereunder if a court
of competent jurisdiction determines by a final nonappealable judgment that RP
Financial was negligent or acted in bad faith with respect to any actions or
omissions of RP Financial related to a matter for which indemnification is
sought thereunder. Any time devoted by employees of RP Financial to situations
for which indemnification is provided hereunder shall be an indemnifiable cost
payable by Monocacy at the normal hourly professional rate chargeable by such
employee. Monocacy shall pay for or reimburse the reasonable expenses, including
attorneys' fees, incurred by RP Financial in advance of the final disposition of
any proceeding within thirty days of the receipt of such request if RP Financial
furnishes Monocacy: (1) a written statement of RP Financial's good faith belief
that it is entitled to indemnification thereunder; and (2) a written undertaking
to repay the advance if it ultimately is determined in a final adjudication of
such proceeding that it or he is not entitled to such indemnification.
In rendering its fairness opinion, RP Financial reviewed and analyzed the
following material, the most recent of which includes: (i) the Merger Agreement
including exhibits; (ii) financial and other information for Monocacy, all with
regard to balance sheet and off-balance sheet composition, profitability,
interest rates, volumes, maturities, trends, credit risk, interest rate risk,
liquidity risk and operations and shareholder information from (a) audited
financial statements for the last three fiscal years and unaudited financial
statements for the current fiscal year to date incorporated in stockholder,
regulatory and internal financial and other reports; (b) the most recent two
proxy statements; and (c) executive management and Board comments regarding
historical, current and anticipated business, operations and financial
performance and condition; and (iii) financial and other information for F&M
Bancorp, with regard to balance sheet and off-balance sheet composition,
profitability, interest rates, volumes, maturities, trends, credit risk,
interest rate risk, liquidity risk and operations and shareholder information
from F&M Bancorp's (a) audited financial statements for the last three fiscal
years and unaudited financial statements for the current fiscal year to date
incorporated in stockholder, regulatory and internal financial and other
reports; (b) the most recent three proxy statements of F&M Bancorp and (c)
executive management comments regarding historical, current and anticipated
business, operations and financial performance and condition.
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
Monocacy and F&M Bancorp furnished by the respective institutions to RP
Financial for review, as well as publicly-available information regarding other
financial institutions and other third party data and information referenced
above. Monocacy and F&M Bancorp did not restrict RP Financial as to the material
it was permitted to review. RP Financial did not perform or obtain any
independent appraisals or evaluations of the assets and liabilities and
potential and/or contingent liabilities of Monocacy or F&M Bancorp.
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<PAGE>
RP Financial expresses no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the Merger as set forth in the Merger
Agreement to be consummated. In rendering its opinion, RP Financial assumed
that, in the course of obtaining the necessary regulatory and governmental
approvals for the proposed Merger, no restriction will be imposed on F&M Bancorp
that would have a material adverse effect on the ability of the Merger to be
consummated as set forth in the Merger Agreement.
RP Financial's opinion was based solely upon the information available to it
and the economic, market and other circumstances as they existed as of September
4, 1998 and as of the date of this Joint Proxy Statement-Prospectus; events
occurring after the most recent of those dates could materially affect the
assumptions used in preparing the opinion.
RP Financial's opinion is just one of the many factors taken into
consideration by the Monocacy Board in determining to approve the Merger
Agreement. See "--Recommendation of the Boards of Directors; Reasons for the
Merger" on page 23. RP Financial's opinion does not address the relative merits
of the Merger as compared to any alternative business strategies that might
exist for Monocacy, nor does it address the effect of any other business
combination in which Monocacy might engage.
In connection with rendering its opinion dated September 4, 1998 and updated
as of the date of this Joint Proxy Statement-Prospectus, RP Financial performed
a variety of financial analyses that are summarized below. Although the
evaluation of the fairness, from a financial point of view, of the consideration
to be received by Monocacy stockholders in the Merger was to some extent
subjective based on the experience and judgment of RP Financial, and not merely
the result of mathematical analyses of financial data, RP Financial relied, in
part, on the financial analyses summarized below in its determinations. The
preparation of a fairness opinion is a complex process and is not necessarily
susceptible to partial analyses or summary description. RP Financial believes
its analyses must be considered as a whole and that selecting portions of such
analyses and factors considered by RP Financial without considering all such
analyses and factors could create an incomplete view of the process underlying
RP Financial's opinion. In its analyses, RP Financial took into account its
assessment of general business, market, monetary, financial and economic
conditions, industry performance and other matters, many of which are beyond the
control of Monocacy and F&M Bancorp, as well as RP Financial's experience in
securities valuation, its knowledge of financial institutions and its experience
in similar transactions. With respect to the comparable transactions analysis
described below, no public company utilized as a comparison is identical to
Monocacy and such analyses necessarily involve complex considerations and
judgments concerning the differences in financial and operating characteristics
of the companies and other factors that could affect the acquisition values of
the companies concerned. The analyses were prepared solely for purposes of RP
Financial providing its opinion as to the fairness of the Merger consideration
and do not purport to be appraisals or necessarily reflect the prices at which
businesses or securities actually may be sold. Any estimates contained in RP
Financial's analyses are not necessarily indicative of future results of values,
which may be significantly more or less favorable than such estimates. None of
the analyses performed by RP Financial was assigned a greater significance by RP
Financial than any other.
COMPARABLE TRANSACTIONS ANALYSIS. RP Financial compared the Merger on the
basis of acquisition pricing multiples or ratios of reported earnings, book
value, tangible book value, assets, core deposit premium and control premium of
Monocacy implied by the Merger consideration to be paid to the holders of
Monocacy Common Stock with the same ratios in pending and completed acquisitions
of MidAtlantic Region publicly-traded and non-publicly traded commercial banks
and bank holding companies. The MidAtlantic Regional acquisitions pending or
completed from 1996 to date included 124 banks and bank holding companies with
assets up to $310 billion. Also, RP Financial compared the Merger acquisition
pricing multiples or ratios to a subset of more recent MidAtlantic regional
acquisitions, specifically 57 pending acquisitions and those which closed during
1998. The median acquisition pricing multiples or ratios at announcement for the
larger MidAtlantic group and the more recent subset are set forth below. The
acquisition pricing ratios presented in the table below reflect pricing ratios
at the time such deals were
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announced. The subsequent market correction has reduced the acquisition pricing
multiples for the majority of the pending transactions included in these two
groups.
<TABLE>
<CAPTION>
MIDATLANTIC REGION COMMERCIAL BANK AND
BANK HOLDING COMPANY ACQUISITIONS
----------------------------------------
<S> <C> <C>
PENDING AND CLOSED PENDING AND CLOSED
1996 TO PRESENT 1998 TO PRESENT
------------------- -------------------
Price/Book............................................................... 239.54% 288.34%
Price/Tangible Book...................................................... 242.72% 288.34%
Price/Earnings (1)....................................................... 21.67x 26.79x
Price/Assets............................................................. 22.35% 28.42%
Tangible Book Prem./Core Deposits........................................ 17.77% 26.63%
Control Premium (2)...................................................... 1.25x 1.21x
</TABLE>
- ------------------------
(1) Based on 4 quarter earnings prior to announcement.
(2) Based on seller price per share one day prior to the merger announcement.
In comparison, Monocacy was generally smaller and maintained lower levels of
capitalization and profitability, both in terms of average assets and average
equity. The common stock of Monocacy maintained a lower level of liquidity to
these groups on average. Monocacy's acquisition pricing multiples or ratios for
price/earnings, price/tangible book, price/assets, core deposit premium and
control premium falls within the range of this group assuming the merger
consideration was equivalent to the closing price of F&M Bancorp stock on
October 9, 1998 and the number of shares of Monocacy common stock then
outstanding. Specifically, the merger consideration of $39.95, based on F&M
Bancorp's closing price as of October 9, 1998 indicated the following pricing
ratios for shares of Monocacy Common Stock, based on financial statements as of
June 30, 1998: 322.96 percent of reported tangible book value; 24.41 percent of
assets; 22.08 percent premium on core deposits, a control premium of 1.19 times
and 21.3 times earnings, based on earnings for the six months ended June 30,
1998 annualized. Monocacy's earnings for the six months ended June 30, 1998
included gains on the sale of securities. Excluding these gains and annualizing
Monocacy's net income, the price/earning multiple would approximate 31.0 times.
No company or transaction used in this composite is identical to Monocacy or
the Merger. Accordingly, an analysis of the results of the foregoing is not
mathematical; rather, it involves complex considerations and judgments
concerning differences in financial and operating characteristics of the
companies involved and other factors that could affect the public trading values
of the securities of the company or companies to which they are being compared.
DISCOUNTED CASH FLOW ANALYSIS. In applying the discounted cash flow
analysis, RP Financial estimated the present value of both future dividends over
a five year period and a range of low, moderate and high terminal values at the
end of the fifth year, reflecting growth and profitability scenarios comparable
to and in excess of Monocacy's average performance over the last five years. The
price/tangible book value and price/earnings multiples utilized to determine the
terminal value range were derived from the comparable transaction analysis
discussed above. The cash flows were then discounted to present value based on a
15 percent discount rate incorporating the earnings capitalization rate of
publicly-traded banks, the Treasury yield curve (i.e. the risk-free rate) and
perceived investment risks in the Monocacy Common Stock. The merger
consideration, assuming the closing price of F&M Bancorp Common Stock on October
9, 1998 and the number of shares of Monocacy Common Stock then outstanding,
exceeds the upper end of the range of discounted cash flows based on growth and
profitability scenarios comparable to recent performance and is at the upper end
of the range of the discounted cash flows based on growth and profitability
scenarios in excess of recent performance.
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PRO FORMA IMPACT ANALYSIS. RP Financial's analysis considered the pro forma
impact of the Merger on F&M Bancorp, including financial condition, operations,
size, market area served, market capitalization and liquidity of the stock. The
increased size, market capitalization and market area served is expected to
position F&M Bancorp as a more competitive institution. The increased number of
shares as a result of the Merger is expected to favorably influence the
liquidity of F&M Bancorp's Common Stock. The Merger is estimated to be dilutive
to F&M Bancorp's pro forma tangible book value per share and accretive to
earnings per share in 1999, incorporating anticipated merger synergies (before
one-time merger adjustments).
As described above, RP Financial's opinion and presentation to the Monocacy
Board was one of many factors taken into consideration by the Monocacy Board in
making its determination to approve the Merger Agreement. Although the foregoing
summary describes the material components of the analyses provided by RP
Financial as of September 4, 1998 and updated as of the date of this Joint Proxy
Statement-Prospectus, in connection with its opinion as of those dates, it does
not purport to be a complete description of all the analyses performed by RP
Financial and is qualified by reference to the written opinion of RP Financial
set forth as Appendix D hereto, which Monocacy's stockholders are urged to read
in its entirety.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
GENERAL. In connection with its approval of the Merger Agreement and the
transactions contemplated thereby, the Monocacy Board considered the interests
of members of the Board of Directors and certain executive officers of Monocacy
in the Merger that differed from those interests of stockholders generally,
including interests relating to provisions in the Merger Agreement with respect
to indemnification and insurance, employee benefits and the election of certain
members of the Monocacy Board as directors of F&M Bancorp and Farmers &
Mechanics National Bank upon consummation of the Merger. In addition, the
Monocacy Board also considered the acceleration of stock options as a result of
the signing of the Merger Agreement and certain employment and severance
arrangements with officers.
INDEMNIFICATION; INSURANCE. The Merger Agreement provides that, after the
consummation of the Merger, F&M Bancorp shall indemnify and hold harmless, as
and to the extent provided by Maryland law, the former directors and officers of
Monocacy and its subsidiaries against all claims to which they become subject
arising out of actions or omissions occurring at or prior to the consummation of
the Merger, including as a result of the transactions contemplated by the Merger
Agreement. In addition, F&M Bancorp has agreed to maintain in effect for a
period of six years after the Effective Time of the Merger directors and
officers liability insurance coverage with respect to wrongful acts or omissions
committed or allegedly committed prior to the Effective Time by officers or
directors of Monocacy.
STOCK OPTIONS. As of September 3, 1998, the date immediately prior to the
date on which the Merger Agreement was signed, approximately 86,945 options to
purchase Monocacy Common Stock ("Monocacy Options") were outstanding under the
1994 Stock Incentive Plan and the 1997 Independent Directors' Stock Option Plan,
of which 49,495 were fully vested and exercisable. The remaining Monocacy
Options either automatically became exercisable upon the execution of the Merger
Agreement (provided that if the transactions contemplated by the Merger
Agreement are not consummated, such options will no longer be vested and will be
treated as if the Merger Agreement had not been executed) or will become
exercisable upon consummation of the Merger. All Monocacy Options that are not
exercised prior to the Effective Time are expected to be assumed by F&M Bancorp
and converted to the right to receive F&M Bancorp Common Stock under the terms
contained in the Merger Agreement. See "--Treatment of Outstanding Monocacy
Options" on page 20.
EMPLOYEE BENEFITS. The Merger Agreement provides that, after the
consummation of the Merger, the employees of Monocacy and its subsidiaries shall
be entitled to participate in F&M Bancorp's employee benefit plans in which
similarly situated employees of F&M Bancorp or its subsidiaries participate, to
the
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same extent as comparable employees of F&M Bancorp or its subsidiaries. With
respect to each employee benefit plan of F&M Bancorp, for purposes of
determining eligibility to participate, vesting and entitlement to benefits,
including severance benefits and vacation entitlement (but not for accrual of
pension benefits), service with Monocacy will be treated as service with F&M
Bancorp. Such service also shall apply for purposes of satisfying any waiting
periods, evidence of insurability requirements or the application of any
pre-existing condition limitations. Monocacy employees shall be given credit for
amounts paid under a corresponding benefit plan during the same period for
purposes of applying deductibles, co-payments and out-of-pocket maximums as
those such amounts had been paid in accordance with the terms and conditions of
the F&M Bancorp employee benefit plans. F&M Bancorp intends to continue each of
the existing Monocacy employee benefit plans to which there exists a
corresponding F&M Bancorp employee benefit plan until the date on which the
inclusion of Monocacy employees in F&M Bancorp's corresponding plan occurs. F&M
Bancorp and its subsidiaries have agreed to honor, in accordance with their
terms, all employment, severance and other compensation agreements and
arrangements existing prior to the execution of the Merger Agreement which are
between Monocacy or its subsidiaries and any director, officer or employee of
Monocacy or its subsidiaries. Specifically, under the terms of an Employment
Agreement between Taneytown and Michael K. Walsch, Executive Vice President and
Chief Operating Officer of Taneytown, Mr. Walsch would be entitled to (a)
certain severance payments and other severance benefits if Taneytown terminates
his employment other than for Good Cause (as defined in the Employment
Agreement) prior to the consummation of the Merger, or (b) Change of Control
Payments (as defined in the Employment Agreement) and other severance benefits
in the event that after the consummation of the Merger, F&M Bancorp or any of
its subsidiaries terminates Mr. Walsch's employment for reasons other than for
Good Cause or Mr. Walsch terminates his employment for Good Reason (as defined
in the Employment Agreement). In addition, notwithstanding anything in the
Employment Agreement to the contrary, a termination by Mr. Walsch for any reason
during the thirty day period immediately following the first anniversary of the
date of the change of control shall be deemed to be a termination for Good
Reason for all purposes of the Employment Agreement. Change of Control Payments
shall be calculated utilizing a formula provided in the Employment Agreement and
generally shall be paid one-third (1/3) in a lump sum in cash on the first day
of the second month after the date of termination and with the remaining balance
paid to Mr. Walsch in equal monthly consecutive installments, without interest,
for, depending upon the date of termination, up to three years. The Change of
Control Payments could, under particular circumstances, be in an aggregate
amount equal to $555,270, assuming current salary and maximum current bonus
levels.
DIRECTORSHIPS. The Merger Agreement provides that F&M Bancorp will take all
action necessary or appropriate to cause Eric E. Glass, Chairman of the Monocacy
Board and acting Chief Executive Officer of Monocacy and Taneytown, and Donald
R. Hull, Vice Chairman of the Monocacy Board and of the Board of Directors of
Taneytown, to be appointed directors of each of F&M Bancorp and Farmers &
Mechanics National Bank upon consummation of the Merger.
CONVERSION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES; FRACTIONAL SHARES
MONOCACY. As promptly as practicable after the Effective Time, and in no
event more than five business days thereafter, a bank or trust company selected
by F&M Bancorp and reasonably satisfactory to Monocacy, acting in the capacity
of exchange agent (the "Exchange Agent"), will mail to each former holder of
record of Monocacy Common Stock a form of letter of transmittal, together with
instructions for the exchange of such holder's certificates representing shares
of Monocacy Common Stock for certificates representing shares of F&M Bancorp
Common Stock and cash in lieu of fractional shares.
HOLDERS OF MONOCACY COMMON STOCK SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE THE LETTER OF TRANSMITTAL FORM AND INSTRUCTIONS FROM THE EXCHANGE
AGENT, AND SHOULD NOT RETURN SUCH STOCK CERTIFICATES WITH THE ENCLOSED PROXY.
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Upon surrender to the Exchange Agent of one or more certificates
representing shares of Monocacy Common Stock, together with a properly completed
letter of transmittal, there will be issued and mailed to the holder of Monocacy
Common Stock surrendering such items a certificate or certificates representing
the number of shares of F&M Bancorp Common Stock to which such holder is
entitled, if any, and, where applicable, a check for the amount representing any
fractional share determined in the manner described below, without interest. The
Monocacy certificate or certificates so surrendered will be cancelled.
No dividend or other distribution declared after the Effective Time with
respect to F&M Bancorp Common Stock will be paid to the holder of any
unsurrendered Monocacy certificate until the holder surrenders such certificate,
at which time the holder will be entitled to receive all previously withheld
dividends and distributions, without interest.
After the Effective Time, there will be no transfers on the stock transfer
books of Monocacy of shares of Monocacy Common Stock issued and outstanding
immediately prior to the Effective Time. If certificates representing shares of
Monocacy Common Stock are presented for transfer after the Effective Time, they
will be cancelled and exchanged for certificates representing shares of F&M
Bancorp Common Stock.
None of the Exchange Agent, F&M Bancorp or Monocacy, or any other person,
will be liable to any former holder of Monocacy Common Stock for any amount
properly delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
If a certificate for Monocacy Common Stock has been lost, stolen or
destroyed, the Exchange Agent will issue the consideration properly payable in
accordance with the Merger Agreement upon receipt of appropriate evidence as to
such loss, theft or destruction, appropriate evidence as to the ownership of
such certificate by the claimant, and appropriate and customary indemnification.
No fractional shares of F&M Bancorp Common Stock will be issued in the
Merger. Instead, the Merger Agreement provides that each holder of shares of
Monocacy Common Stock exchanged pursuant to the Merger who would otherwise have
been entitled to receive a fraction of a share of F&M Bancorp Common Stock will
receive, in lieu thereof, cash in an amount equal to such fractional part of a
share of F&M Bancorp Common Stock multiplied by the Average Closing Price. No
such holder will be entitled to dividends, voting rights or any other rights as
a stockholder in respect of any fractional share which such holder would
otherwise have been entitled to receive.
F&M BANCORP. Shares of F&M Bancorp Common Stock issued and outstanding
immediately prior to the Effective Time will remain issued and outstanding and
be unaffected by the Merger, and holders of such stock will not be required to
exchange the certificates representing such stock or take any other action by
reason of the consummation of the Merger.
CONDITIONS TO THE MERGER
The respective obligations of F&M Bancorp and Monocacy to effect the Merger
are subject to the satisfaction of the following conditions at or prior to the
Effective Time: (i) approval of the Merger Agreement by the affirmative votes of
the holders of two-thirds of the outstanding shares of Monocacy Common Stock and
F&M Bancorp Common Stock entitled to vote thereon; (ii) the shares of F&M
Bancorp Common Stock issuable to holders of Monocacy Common Stock pursuant to
the Merger shall have been authorized for quotation on Nasdaq/NMS, subject to
official notice of issuance; (iii) approval of the Merger Agreement and the
transactions contemplated thereby (including the Merger and the Subsidiary Bank
Merger) by the appropriate governmental authorities (all such governmental
authorities being referred to as the "Governmental Entities"), and the
expiration of any statutory waiting periods in respect thereof (collectively,
the "Requisite Regulatory Approvals") (see "-- Regulatory Approvals Required for
the Merger" below); (iv) the Registration Statement of which this Joint Proxy
Statement-Prospectus forms a part will have become effective under the
Securities Act of 1933, as amended (the "Securities Act") and no stop order
suspending the effectiveness of the Registration Statement will have been issued
and no
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proceedings for that purpose will have been initiated or threatened by the
Securities and Exchange Commission (the "Commission"); (v) no order, injunction
or decree issued by any court or agency of competent jurisdiction or other legal
restraint or prohibition (an "Injunction") which prohibits the consummation of
the Merger or any of the other transactions contemplated by the Merger Agreement
will be in effect and (vi) no statute, rule, regulation, order, injunction or
decree will have been enacted, entered, promulgated or enforced by any
Governmental Entity which prohibits, restricts or makes illegal consummation of
the Merger or the Subsidiary Bank Merger.
The obligations of F&M Bancorp to effect the Merger are further subject to
the satisfaction, or waiver by F&M Bancorp, of the following conditions: (i) the
representations and warranties of Monocacy contained in the Merger Agreement
shall be true and correct as of the date of the Merger Agreement and (except to
the extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date; PROVIDED,
HOWEVER, that for purposes of determining the satisfaction of the condition
described in this clause (i), such representations and warranties shall be
deemed to be true and correct unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, has had or would have a Material Adverse Effect (as defined below) on
Monocacy; (ii) Monocacy shall have duly performed in all material respects all
obligations required to be performed by it under the Merger Agreement at or
prior to the Closing Date; (iii) no proceeding initiated by a federal agency or
state banking authority seeking an Injunction shall be pending; (iv) F&M Bancorp
shall have received an opinion of its counsel, in form and substance reasonably
satisfactory to F&M Bancorp, dated as of the Effective Time, to the effect that,
on the basis of facts, representations and assumptions set forth in such
opinion, which are consistent with the state of facts existing at the Effective
Time, the Merger will be treated as a reorganization within the meaning of
Section 368(a) of the Code (see "-- Certain Federal Income Tax Consequences"
below); and (v) F&M Bancorp shall have received a letter addressed to F&M
Bancorp, dated as of the Effective Time, from F&M Bancorp's independent public
accountants to the effect that the Merger will qualify for pooling of interests
accounting treatment.
The Merger Agreement defines a "Material Adverse Effect," when applied to a
party to the Merger Agreement, as a material adverse effect on (i) the business,
results of operations or financial condition of such party and its subsidiaries
taken as whole, other than any such effect attributable to or resulting from (x)
any change in banking or similar laws, rules or regulations of general
applicability or interpretations thereof by courts or governmental authorities,
(y) any change in GAAP or regulatory accounting principles applicable to banks
or their holding companies generally, or (z) any action or omission of Monocacy
or F&M Bancorp or any subsidiary of either of them taken with the prior written
consent of the other party or (ii) the ability of such party and its
subsidiaries to consummate the transactions contemplated by the Merger
Agreement.
The obligations of Monocacy to effect the Merger are further subject to the
satisfaction, or waiver by Monocacy of the following conditions: (i) the
representations and warranties of F&M Bancorp contained in the Merger Agreement
shall be true and correct as of the date of the Merger Agreement and (except to
the extent such representations and warranties speak as of an earlier date) as
of the Closing Date as though made on and as of the Closing Date; PROVIDED,
HOWEVER, that for purposes of determining the satisfaction of the condition
described in this clause (i), such representations and warranties shall be
deemed to be true and correct unless the failure or failures of such
representations and warranties to be so true and correct, individually or in the
aggregate, has had or would have a Material Adverse Effect on F&M Bancorp; (ii)
F&M Bancorp shall have performed in all material respects all obligations
required to be performed by it under the Merger Agreement at or prior to the
Effective Time; (iii) no proceeding initiated by any federal agency or state
banking authority seeking an Injunction shall be pending; (iv) Monocacy shall
have received from its counsel an opinion, in form and substance reasonably
satisfactory to Monocacy, dated as of the Effective Time, to the effect that on
the basis of facts, representations and assumptions set forth in such opinion
which are consistent with the state of facts
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existing at the Effective Time, the Merger and the Subsidiary Bank Merger will
each be treated as a reorganization within the meaning of Section 368(a) of the
Code and that, accordingly, for federal income tax purposes (A) no gain or loss
will be recognized by Monocacy as a result of the Merger; (B) no gain or loss
will be recognized by Taneytown as a result of the Subsidiary Bank Merger; (C)
no gain or loss will be recognized by the stockholders of Monocacy who exchange
all of their Monocacy Common Stock solely for F&M Bancorp Common Stock pursuant
to the Merger (except with respect to cash received in lieu of a fractional
share interest in F&M Bancorp Common Stock); and (D) the aggregate tax basis of
F&M Bancorp Common Stock received by stockholders who exchange all of their
Monocacy Common Stock solely for F&M Bancorp Common Stock pursuant to the Merger
will be the same as the aggregate tax basis of the Monocacy Common Stock
surrendered in exchange therefor (reduced by any amount allocable to a
fractional share interest for which cash is received) (see "-- Certain Federal
Income Tax Consequences" below); and (v) Monocacy shall have received a letter
addressed to F&M Bancorp, dated as of the Effective Time, from F&M Bancorp's
independent public accountants to the effect that the Merger will qualify for
pooling of interests accounting treatment.
No assurance can be provided as to when, or whether, the regulatory consents
and approvals necessary to consummate the Merger will be obtained or whether all
of the other conditions precedent to the Merger will be satisfied or waived by
the party permitted to do so. See "-- Regulatory Approvals Required for the
Merger" below. If the Merger is not effected on or before June 30, 1999, the
Merger Agreement may be terminated by a vote of a majority of the Board of
Directors of either F&M Bancorp or Monocacy unless the failure to effect the
Merger by such date is due to the breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement.
REGULATORY APPROVALS REQUIRED FOR THE MERGER
Under the Merger Agreement, the respective obligations of F&M Bancorp and
Monocacy to effect the Merger are conditioned upon, among other things, the
receipt of all Requisite Regulatory Approvals. The Requisite Regulatory
Approvals include the approval of the OCC of the Subsidiary Bank Merger under
the Bank Merger Act. In view of the OCC's consideration under the Bank Merger
Act of the Subsidiary Bank Merger, which will occur contemporaneously with the
Merger, the Federal Reserve Board may waive application requirements for prior
approval of the Merger under the BHC Act and the Federal Reserve Board's
Regulation Y. F&M Bancorp has requested and received such a waiver from the
Federal Reserve Board. Notice of the Merger and the Subsidiary Bank Merger also
has been provided to the Maryland Commissioner of Financial Regulation, and the
Commissioner will be notified when the Merger and the Subsidiary Bank Merger are
consummated.
Under the Bank Merger Act, the OCC must consider, among other factors, the
financial and managerial resources and future prospects of the existing and
proposed organizations and the convenience and needs of the communities to be
served. In considering financial and managerial factors, the OCC will evaluate,
among other things, the adequacy of the capital of the parties to the
transaction. In addition, the OCC will assess the degree to which the parties
are taking appropriate steps to assure that their electronic data processing
systems and those of their vendors are Year 2000 compliant and their plans for
ensuring Year 2000 readiness of the resulting organization.
The OCC is prohibited from approving any transaction if it would result in a
monopoly or would be in furtherance of any combination or conspiracy to
monopolize or to attempt to monopolize the business of banking in any part of
the United States or if its effect in any section of the United States would be
substantially to lessen competition, or to tend to create a monopoly, or result
in a restraint of trade, unless the OCC finds that the anti-competitive effects
of the transaction are clearly outweighed in the public interest by the probable
effect of the transaction in meeting the convenience and needs of the
communities to be served.
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In addition, under the Community Reinvestment Act of 1977, as amended, the
OCC must take into account the record of performance of each of the depository
institution subsidiaries of F&M Bancorp and Monocacy in meeting the credit needs
of its assessment area, including low- and moderate-income neighborhoods. OCC
regulations require publication of notice of, and the opportunity for public
comment on, the proposed transaction, and the OCC may hold a public hearing, if
deemed appropriate. Any such hearing or comments provided by third parties could
prolong the period during which the application is subject to review by the OCC.
Assuming OCC approval, the Merger may not be consummated until 30 days after
such approval, during which time the Department of Justice may challenge the
Merger on antitrust grounds and seek the divestiture of certain assets and
operations, except that, with the approval of the OCC and the Department of
Justice, the waiting period may be reduced to no less than 15 days. The
commencement of an antitrust action by the Department of Justice would stay the
effectiveness of the OCC approval of the Merger unless a court specifically
orders otherwise.
Applications or notices for the foregoing regulatory approvals have been
filed with the applicable regulatory authorities. The Merger and the Subsidiary
Bank Merger will not proceed in the absence of all such approvals, and there can
be no assurance that all such approvals will be obtained. Further, if approved,
there can be no assurance as to the date of such approvals, or that such
approvals will not be conditioned upon matters that would be detrimental to F&M
Bancorp.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, Monocacy has agreed that until the
Effective Time, except as provided in the Merger Agreement, the Stock Option
Agreement (as defined below) or with the prior consent of F&M Bancorp, Monocacy
and its subsidiaries will carry on their respective businesses in the ordinary
course consistent with past practice and consistent with prudent banking
practice. Monocacy has agreed to use its reasonable efforts to (x) preserve its
business organization and that of its subsidiaries intact, (y) keep available to
itself and F&M Bancorp the present services of its and its subsidiaries'
employees and (z) preserve for itself and F&M Bancorp the goodwill of its and
its subsidiaries' customers and others with whom business relationships exist.
The Merger Agreement also contains certain restrictions on the conduct of
Monocacy's business pending consummation of the Merger. In particular, the
Merger Agreement provides that, except as provided in the Merger Agreement or
with the prior written consent of F&M Bancorp, Monocacy and its subsidiaries may
not, among other things, (i) solely in the case of Monocacy, declare or pay any
dividends on, or make other distributions in respect of, any of its capital
stock, other than normal quarterly dividends in an amount of no more than $0.12
per share of Monocacy Common Stock, (ii)(a) subject to certain exceptions,
split, combine or reclassify any shares of its capital stock or (b) repurchase,
redeem or otherwise acquire (except for the acquisition of Trust Account Shares
and DPC Shares) any shares of the capital stock of Monocacy or any of its
subsidiaries or securities convertible into or exercisable therefor, (iii)
subject to certain exceptions, issue, deliver or sell, or authorize or propose
the issuance, delivery or sale of, any shares of its capital stock or securities
convertible into or exchangeable therefor, (iv) amend its Articles of
Incorporation, Bylaws or other similar governing documents, (v) make any capital
expenditures other than those which are in the ordinary course of business or as
necessary to maintain existing assets in good repair, and in any event are in an
amount of no more than $100,000 in the aggregate, (vi) enter into any new line
of business, (vii) subject to certain exceptions, acquire or agree to acquire
any business or entity or otherwise acquire any assets which would be material
to Monocacy, (viii) take any action that is intended or may reasonably be
expected to result in any of its representations and warranties set forth in the
Merger Agreement being or becoming untrue in any material respect, or in any of
the conditions to the Merger not being satisfied, (ix) change its methods of
accounting in effect at June 30, 1998, subject to certain exceptions, (x)(a)
subject to certain exceptions, adopt, amend or terminate (except as may be
required by law) any employee benefit plan or agreement, arrangement, plan or
policy between Monocacy
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or any of its subsidiaries and any of its current or former directors, officers
and employees or (b) except for normal increases in the ordinary course of
business consistent with past practice or except as required by applicable law,
increase in any manner the compensation or fringe benefits of any director,
officer or employee or pay any benefit not required by any plan or agreement as
in effect as of the date of the Merger Agreement (including, without limitation,
the granting of stock options, stock appreciation rights, restricted stock,
restricted stock units or performance units or shares), (xi) take or cause to be
taken any action that would cause the Merger to fail to qualify (a) for pooling
of interests accounting treatment or (b) as a tax-free reorganization under
Section 368(a) of the Code, PROVIDED, HOWEVER, that nothing contained in the
Merger Agreement will limit the ability of F&M Bancorp to exercise its rights
under the Stock Option Agreement, (xii) other than in the ordinary course of
business consistent with past practice, dispose of or encumber or agree to
dispose of or encumber its material assets, properties or other rights or
agreements, (xiii) other than in the ordinary course of business consistent with
past practice, incur any indebtedness for borrowed money, or assume, guarantee,
endorse or otherwise become responsible for the obligations of any other entity,
(xiv) file any application to relocate or terminate the operations of any of its
banking offices, (xv) subject to certain exceptions, invest or commit to invest
in real estate or any real estate development project, (xvi) create, renew,
amend or terminate or give notice to do the same with respect to any material
contract, agreement or lease for goods, services or office space to which
Monocacy or any of its subsidiaries is a party or by which Monocacy or any of
its subsidiaries or their respective properties is bound, (xvii) other than in
prior consultation with F&M Bancorp, restructure or materially change its
investment securities portfolio or its gap position, through purchases, sales or
otherwise, or the manner in which the portfolio is classified or reported, or
(xviii) agree to do any of the foregoing.
Monocacy also has agreed in the Merger Agreement that neither it nor any of
its subsidiaries will authorize or permit any of its officers, directors,
employees or agents to directly or indirectly solicit, initiate or encourage any
inquiries relating to, or the making of any proposal which constitutes, a
"takeover proposal" (as defined below), or, except to the extent legally
required for the discharge of the fiduciary duties of the Monocacy Board as
advised by such board's counsel, (i) recommend or endorse any takeover proposal,
(ii) participate in any discussions or negotiations, or provide third parties
with any non-public information, relating to any such inquiry or proposal, or
(iii) otherwise facilitate any effort or attempt to make or implement a takeover
proposal, provided that Monocacy may communicate information about any such
takeover proposal to its stockholders if, in the judgment of the Monocacy Board,
based upon the advice of outside counsel, such communication is required under
applicable law. The Merger Agreement permits the Monocacy Board to (x) to the
extent applicable, comply with Rule 14e-2 and/or Rule 14d-9 promulgated under
the Exchange Act or (y) furnish information to, or enter into discussions or
negotiations with, any person or entity that makes an unsolicited, written BONA
FIDE proposal regarding a takeover proposal if, and only to the extent that (A)
the Monocacy Board concludes in good faith, after consultation with and based
upon the advice of outside counsel, that it is legally required to furnish such
information or enter into such discussions or negotiations in order to comply
with its fiduciary duties to stockholders under applicable law, (B) prior to
taking such action, Monocacy receives from such person or entity an executed
confidentiality agreement and an executed standstill agreement, each in
reasonably customary form (provided that such agreement is at least as limiting
as any such agreement between F&M Bancorp and Monocacy), and (C) the Monocacy
Board, after consultation with and based upon the advice of its financial
advisor, concludes in good faith that the proposal regarding the takeover
proposal contains an offer of consideration that is greater than the
consideration set forth herein. Monocacy agreed to immediately cease any
activities, discussions or negotiations previously conducted with any parties
other than F&M Bancorp with respect to any of the foregoing. Monocacy also
agreed that it will notify F&M Bancorp immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with,
Monocacy, and will promptly inform F&M Bancorp in writing of the relevant
details with respect to the foregoing. As used in the Merger Agreement,
"takeover proposal" means any tender or exchange offer, proposal for a merger,
consolidation or other business combination involving Monocacy or any subsidiary
of Monocacy or any proposal or offer to acquire in any manner a substantial
equity interest in, or a substantial portion of the assets of, Monocacy or any
subsidiary of Monocacy other than the transactions contemplated or permitted by
the Merger Agreement and the Stock Option Agreement.
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Pursuant to the Merger Agreement, F&M Bancorp has agreed that, subject to
certain exceptions, it and its subsidiaries will carry on their respective
businesses in the ordinary course consistent with prudent banking practice. F&M
Bancorp has also agreed to use its best efforts to preserve its business
organization and that of its subsidiaries intact, to keep available to itself
and Monocacy the present services of F&M Bancorp's and its subsidiaries'
employees and to similarly preserve the goodwill of its customers and others
with whom business relationships exist. F&M Bancorp has also agreed that until
the Effective Time, except as provided in the Merger Agreement or with the prior
written consent of Monocacy, neither F&M Bancorp nor any of its subsidiaries
will (i) solely in the case of F&M Bancorp, declare or pay any extraordinary or
special dividends on or make any extraordinary or special distributions in
respect of its capital stock, except that nothing contained in the Merger
Agreement will prohibit F&M Bancorp from increasing the quarterly cash dividend
on the F&M Bancorp Common Stock, (ii) take any action that is intended or may
reasonably be expected to result in any of its representations and warranties
set forth in the Merger Agreement being or becoming untrue in any material
respect, or in any of the conditions to the Merger not being satisfied, (iii)
change its method of accounting in effect at June 30, 1998, subject to certain
exceptions, (iv) take or cause to be taken any action that would cause the
Merger to fail to qualify (a) for pooling of interests accounting treatment or
(b) as a tax-free reorganization under Section 368(a) of the Code, except that
nothing contained in the Merger Agreement will limit the ability of F&M Bancorp
to exercise its rights under the Stock Option Agreement, or (v) knowingly take
any action that would result in a failure to maintain the authorization for
quotation of F&M Bancorp Common Stock on Nasdaq/NMS, (vi) enter into any
agreement relating to a merger, acquisition or similar transaction which would
prevent or adversely decrease the probability of the consummation of the
transactions contemplated by the Merger Agreement, (vii) enter into any
agreement contemplating the acquisition of F&M Bancorp or Farmers & Mechanics
National Bank, whether by merger or otherwise, unless the other party thereto
expressly agrees to be bound by the terms of the Merger Agreement, or (viii)
agree to do any of the foregoing.
WAIVER AND AMENDMENT; TERMINATION
Prior to the Effective Time, any provision of the Merger Agreement may be
waived by the party benefitted by the provision or, subject to applicable law,
amended or modified by an agreement in writing approved by the Boards of
Directors of F&M Bancorp and Monocacy provided that, after the vote of the
stockholders of Monocacy, the Merger Agreement may not be amended, without
further approval of such stockholders, to reduce the amount or change the form
of the consideration to be received by Monocacy stockholders other than as
contemplated by the Merger Agreement.
The Merger Agreement may be terminated at any time prior to the Effective
Time, either before or after approval of the matters presented in connection
with the Merger by the stockholders of both Monocacy and F&M Bancorp, as
follows: (i) by the mutual consent of F&M Bancorp and Monocacy if the Boards of
Directors of each so determines by a vote of a majority of the members of the
entire Board of Directors; (ii) by either F&M Bancorp or Monocacy upon written
notice to the other (a) 60 days after the date on which any request or
application for a Requisite Regulatory Approval is denied or withdrawn at the
request of the governmental entity which must grant such approval, unless within
such 60-day period a petition for rehearing or an amended application has been
filed with the applicable governmental entity (or unless the failure to obtain
the necessary regulatory approval is due to the failure of the party seeking to
terminate the Merger Agreement to perform or observe its covenants and
agreements set forth in the Merger Agreement) or (b) if any governmental entity
of competent jurisdiction issues a final nonappealable order enjoining or
otherwise prohibiting the consummation of any of the transactions contemplated
by the Merger Agreement; (iii) by either F&M Bancorp or Monocacy in the event
that the Merger has not been consummated by June 30, 1999, unless the failure to
consummate the Merger is due to a breach of the Merger Agreement by the party
seeking to terminate the Merger Agreement; (iv) by either F&M Bancorp or
Monocacy (provided that the terminating party is not in breach of its
obligations in the Merger Agreement with respect to the meeting of its
stockholders to approve the Merger Agreement) if any approval of the
stockholders of either of F&M Bancorp or Monocacy required for consummation of
the
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Merger Agreement shall not have been obtained; or (v) by either F&M Bancorp or
Monocacy (provided that the terminating party is not then in material breach of
any representation, warranty, covenant or other agreement contained in the
Merger Agreement) in the event of (a) a material breach by the other of any of
its representations or warranties contained in the Merger Agreement which is not
cured within 30 days after written notice of such breach is given to the
breaching party or which breach, by its nature, cannot be cured prior to the
Closing or (b) a material breach of any of the covenants or agreements contained
in the Merger Agreement by the other which is not cured within 30 days after
written notice of such breach is given to the breaching party.
In the event of the termination of the Merger Agreement by either F&M
Bancorp or Monocacy, neither F&M Bancorp nor Monocacy will have any further
obligations under the Merger Agreement except (i) for certain specified
provisions of the Merger Agreement relating to confidentiality and expenses and
(ii) that no party will be relieved or released from any liabilities or damages
arising out of its willful breach of any provisions of the Merger Agreement.
RESALES OF F&M BANCORP COMMON STOCK RECEIVED IN THE MERGER
The shares of F&M Bancorp Common Stock to be issued in the Merger will be
registered under the Securities Act and will be freely transferable under the
Securities Act, except for shares issued to any Monocacy stockholder who may be
deemed to be an "affiliate" of Monocacy for purposes of Rule 145 under the
Securities Act. Affiliates may not sell their shares of F&M Bancorp Common Stock
acquired in connection with the Merger except pursuant to an effective
registration statement under the Securities Act covering such shares or in
compliance with Rule 145 or another applicable exemption from the registration
requirements of the Securities Act. This Joint Proxy Statement-Prospectus does
not cover any resales of F&M Bancorp Common Stock received in the Merger by
persons who may be deemed to be affiliates of Monocacy. Persons who may be
deemed to be affiliates of Monocacy generally include individuals or entities
that control, are controlled by or are under common control with Monocacy, and
may include certain officers and directors as well as principal stockholders of
Monocacy.
Commission guidelines regarding qualifying for the pooling of interests
method of accounting also limit sales by affiliates of the acquiring and
acquired company in a business combination. Commission guidelines indicate
further that the pooling of interests method of accounting will generally not be
challenged on the basis of sales by affiliates of the acquiring or acquired
company if they do not dispose of any of the shares of the corporation they own
or shares of a corporation they receive in connection with a merger during the
period beginning 30 days before the effective date of the merger and ending when
financial results covering at least 30 days of post-merger operations of the
combined entity have been published.
F&M Bancorp and Monocacy have each agreed in the Merger Agreement to use
their best efforts to cause each person who is an affiliate (for purposes of
Rule 145 of the Securities Act and for purposes of qualifying the Merger for
pooling of interests accounting treatment) of such party to deliver to the other
party a written agreement intended to ensure compliance with the Securities Act
and preserve the ability to treat the Merger as a pooling of interests. In
addition, F&M Bancorp has agreed in the Merger Agreement to use all reasonable
efforts to publish, not later than 15 days after the end of the first full
calendar month following the Effective Time, financial results covering at least
30 days of post-Merger combined operations.
STOCK EXCHANGE LISTING
The F&M Bancorp Common Stock is authorized for quotation on Nasdaq/NMS. F&M
Bancorp has agreed to use all commercially reasonable efforts to cause the
shares of F&M Bancorp Common Stock to be issued in the Merger to be authorized
for quotation on Nasdaq/NMS, subject to official notice of issuance, as of the
Effective Time. The obligations of the parties to consummate the Merger are
subject to authorization for quotation by Nasdaq/NMS of such shares. See "--
Conditions to the Merger" above.
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ANTICIPATED ACCOUNTING TREATMENT
The Merger is expected to qualify as a pooling of interests for accounting
and financial reporting purposes. Under this method of accounting, the recorded
amount of assets and liabilities of F&M Bancorp and Monocacy will be combined at
the Effective Time and carried forward at their previously recorded amounts and
the stockholders' equity accounts of F&M Bancorp and Monocacy will be combined
on F&M Bancorp's consolidated balance sheet. Income and other financial
statements of F&M Bancorp issued after the Effective Time will be restated
retroactively to reflect the consolidated operations of F&M Bancorp and Monocacy
as if F&M Bancorp and Monocacy had always been combined.
The Merger Agreement provides that a condition to each of F&M Bancorp's and
Monocacy's obligation to consummate the Merger is the receipt of a letter from
F&M Bancorp's independent accountants to the effect that the Merger qualifies
for pooling of interests accounting treatment. See "-- Conditions to the Merger"
above.
The issuance of shares of Monocacy Common Stock pursuant to the Stock Option
Agreement may prevent the Merger from qualifying as a pooling of interests for
accounting and financial reporting purposes. See "-- Stock Option Agreement"
below.
For information concerning certain restrictions to be imposed on the
transferability of F&M Bancorp Common Stock to be received by affiliates in
order, among other things, to ensure the availability of pooling of interests
accounting treatment, see "-- Resales of F&M Bancorp Common Stock Received in
the Merger" above.
The unaudited pro forma condensed combined financial information contained
in this Joint Proxy Statement-Prospectus has been prepared using the pooling of
interests accounting method to account for the Merger. See "PRO FORMA CONDENSED
COMBINED FINANCIAL STATEMENTS (UNAUDITED)."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a discussion of certain federal income tax consequences of
the Merger and the Subsidiary Bank Merger to F&M Bancorp, Monocacy, Taneytown
and holders of Monocacy Common Stock. The discussion is based upon the Internal
Revenue Code of 1986, as amended (the "Code"), Treasury regulations, Internal
Revenue Service (the "Service") rulings, and judicial and administrative
decisions in effect as of the date hereof, all of which are subject to change at
any time, possibly with retroactive effect. This discussion assumes that the
Monocacy Common Stock is held as a "capital asset" within the meaning of Section
1221 of the Code (I.E., property generally held for investment). In addition,
this discussion does not address all of the tax consequences that may be
relevant to a holder of Monocacy Common Stock in light of his or her particular
circumstances or to holders subject to special rules, such as foreign persons,
financial institutions, tax-exempt organizations, traders in securities that
elect mark-to-market, dealers in securities or foreign currencies, insurance
companies, persons who acquired their Monocacy Common Stock through the exercise
of employee stock options or otherwise as compensation or persons who hold
Monocacy Common Stock as part of a hedge, straddle or conversion transaction. In
addition, this discussion does not address any state, local or foreign tax
consequences of the Merger or Subsidiary Bank Merger. The opinions of such
counsel referred to in this section will be based on facts existing at the
Effective Time, and in rendering such opinions, such counsel will require and
rely upon representations contained in certificates of officers of F&M Bancorp,
Monocacy, Farmers & Mechanics National Bank, Taneytown and others.
HOLDERS OF MONOCACY COMMON STOCK SHOULD CONSULT THEIR TAX ADVISORS AS TO THE
PARTICULAR TAX CONSEQUENCES TO THEM OF THE MERGER, INCLUDING THE APPLICABILITY
AND EFFECT OF ANY FEDERAL, STATE, LOCAL AND FOREIGN INCOME AND OTHER TAX LAWS.
41
<PAGE>
It is a condition to the obligation of F&M Bancorp to consummate the Merger
that F&M Bancorp shall have received an opinion of Skadden, Arps, Slate, Meagher
& Flom LLP, counsel to F&M Bancorp, dated as of the Effective Time, in form and
substance reasonably satisfactory to F&M Bancorp, to the effect that the Merger
will be treated as a reorganization within the meaning of Section 368(a) of the
Code. It is a condition to the obligation of Monocacy to consummate the Merger
that Monocacy shall have received an opinion of Miles & Stockbridge P.C.,
counsel to Monocacy, dated as of the Effective Time, in form and substance
reasonably satisfactory to Monocacy, to the effect that the Merger and the
Subsidiary Bank Merger will each be treated as a reorganization within the
meaning of Section 368(a) of the Code and that, accordingly, for federal income
tax purposes:
(i) no gain or loss will be recognized by Monocacy as a result of the
Merger;
(ii) no gain or loss will be recognized by Taneytown as a result of the
Subsidiary Bank Merger;
(iii) no gain or loss will be recognized by the stockholders of Monocacy
who exchange all of their Monocacy Common Stock solely for F&M Bancorp
Common Stock pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in F&M Bancorp Common Stock); and
(iv) the aggregate tax basis of the F&M Bancorp Common Stock received by
holders of Monocacy Common Stock who exchange their Monocacy Common Stock
solely for F&M Bancorp Common Stock pursuant to the Merger will be the same
as the aggregate tax basis of the Monocacy Common Stock surrendered in
exchange therefor (reduced by any amount allocable to a fractional share
interest for which cash is received).
None of these tax opinions to be delivered to the parties in connection with
the Merger and the Subsidiary Bank Merger as described herein are binding on the
Service or the courts, and the parties do not intend to request a ruling from
the Service with respect to either the Merger or the Subsidiary Bank Merger.
Accordingly, there can be no assurance that the Service will not challenge the
conclusions reflected in such opinions or that a court will not sustain such a
challenge.
Based upon the current ruling position of the Service, cash received by a
holder of Monocacy Common Stock in lieu of a fractional share interest in F&M
Bancorp Common Stock will be treated as received in exchange for such fractional
share interest, and gain or loss will be recognized for federal income tax
purposes measured by the difference between the amount of cash received and the
portion of the basis of the share of Monocacy Common Stock allocable to such
fractional share interest. Such gain or loss should be long-term capital gain or
loss if such share of Monocacy Common Stock has been held for more than one year
at the Effective Time.
NO DISSENTERS' RIGHTS
Pursuant to Section 3-202 of the Maryland General Corporation Law (the
"MGCL"), stockholders of a Maryland corporation have the right to demand and
receive payment of the fair value of their shares in the event of mergers,
consolidations and certain other corporate transactions. However, because the
common stock of both F&M Bancorp and Monocacy are designated as national market
system securities on an interdealer quotation system by the NASD, stockholders
of both F&M Bancorp and Monocacy do not have rights to demand and receive
payment of the fair value of their shares in the event of mergers,
consolidations and certain other corporate transactions to which F&M Bancorp or
Monocacy may be parties. In addition, F&M Bancorp stockholders also will not
have dissenters' rights with respect to the Merger Agreement and the Merger
because the stock held by them is that of the successor corporation in the
Merger, and the contract rights of the F&M Bancorp Common Stock as set forth in
F&M Bancorp's charter are not altered by the Merger, and will not be changed or
converted in the Merger into anything other than shares of F&M Bancorp Common
Stock.
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<PAGE>
STOCK OPTION AGREEMENT
The following is a summary of the material provisions of the Stock Option
Agreement, dated September 4, 1998 (the "Stock Option Agreement"), by and
between Monocacy and F&M Bancorp, which is attached hereto as Appendix B. The
following summary is qualified in its entirety by reference to the Stock Option
Agreement.
Execution of the Stock Option Agreement was a condition to F&M Bancorp's
merger proposal. Pursuant to the Stock Option Agreement, Monocacy granted to F&M
Bancorp an option (the "Option") to purchase up to 358,002 shares (the "Option
Shares") of Monocacy Common Stock (representing approximately 19.9% of the
issued and outstanding shares of such Monocacy Common Stock without giving
effect to the shares that may be issued upon exercise of such Option) at an
exercise price of $33.00 per share (the "Exercise Price"), subject to the terms
and conditions set forth therein and to the adjustment of the number of Option
Shares in certain events.
The Stock Option Agreement provides that F&M Bancorp may exercise the
Option, in whole or in part, subject to regulatory approval, if both an Initial
Triggering Event (as defined below) and a Subsequent Triggering Event (as
defined below) shall have occurred prior to the occurrence of an Exercise
Termination Event (as defined below); provided that F&M Bancorp shall have sent
to Monocacy written notice of such exercise within six months following such
Subsequent Triggering Event (subject to extension as provided in the Stock
Option Agreement). The terms Initial Triggering Event and Subsequent Triggering
Event generally relate to attempts by one or more third parties to acquire a
significant interest in Monocacy. Any exercise of the Option will be deemed to
occur on the date such notice is sent. Notwithstanding anything to the contrary
contained in the Stock Option Agreement, the Option may not be exercised at any
time when F&M Bancorp is in willful breach of any of its covenants or agreements
contained in the Merger Agreement under circumstances that would entitle
Monocacy to terminate the Merger Agreement.
For purposes of the Stock Option Agreement:
(a) The term "Initial Triggering Event" means the occurrence of any of
the following events or transactions after September 4, 1998: (i) Monocacy
or any subsidiary of Monocacy, without F&M Bancorp's prior written consent,
shall have entered into an agreement to engage in, or the Monocacy Board
authorizes, recommends or proposes (or publicly announces its intention to
take any of the foregoing actions) an Acquisition Transaction (as defined
below) with any person or group (other than as contemplated by the Merger
Agreement); (ii) any person, other than F&M Bancorp, any subsidiary of F&M
Bancorp or any subsidiary of Monocacy acting in a fiduciary capacity in the
ordinary course of its business, acquires beneficial ownership, or the right
to acquire beneficial ownership, of 10% or more of the outstanding shares of
the Monocacy Common Stock or any person other than F&M Bancorp or any
subsidiary of F&M Bancorp shall have commenced (as such term is defined
under the rules and regulations of the SEC), or shall have filed or publicly
disseminated a registration statement or similar disclosure statement with
respect to, a tender offer or exchange offer to purchase any shares of
Monocacy Common Stock such that, upon consummation of such offer, such
person would own or control 10% or more of the then outstanding shares of
Monocacy Common Stock; (iii) Monocacy or the Monocacy Board shall have
publicly withdrawn or modified, or publicly announced its intent to withdraw
or modify, in any manner adverse to F&M Bancorp, its recommendation that the
stockholders of Monocacy approve the transactions contemplated by the Merger
Agreement; (iv) any person other than F&M Bancorp or any subsidiary of F&M
Bancorp shall have made a BONA FIDE proposal to Monocacy or its stockholders
by public announcement or written communication that is or becomes the
subject of public disclosure to engage in an Acquisition Transaction; (v)
any person other than F&M Bancorp or any subsidiary of F&M Bancorp has filed
an application (or given a notice), whether in draft or final form, under
any federal or state banking laws seeking regulatory approval to engage in
an Acquisition Transaction; or (vi) after a proposal is made by a third
party to Monocacy or its stockholders to engage in an Acquisition
Transaction, Monocacy shall have breached any covenant or
43
<PAGE>
obligation contained in the Merger Agreement and such breach would entitle
F&M Bancorp to terminate the Merger Agreement and shall not have been cured
prior to the date on which F&M Bancorp sends notice to Monocacy that it
wishes to exercise the Option;
(b) The term "Acquisition Transaction" means (i) a merger or
consolidation, or any similar transaction, involving Monocacy or any of its
significant subsidiaries (other than internal mergers, reorganizations,
consolidations or dissolutions involving only existing subsidiaries), (ii) a
purchase, lease or other acquisition of all or a substantial portion of the
assets or deposits of Monocacy or its significant subsidiaries, or (iii) a
purchase or other acquisition (including by way of merger, consolidation,
share exchange or otherwise) of securities representing 10% or more of the
voting power of Monocacy; and
(c) The term "Subsequent Triggering Event" means the occurrence of
either of the following events or transactions after September 4, 1998: (i)
the acquisition by any person of beneficial ownership of 20% or more of the
then outstanding shares of Monocacy Common Stock; or (ii) the occurrence of
the Initial Triggering Event described above in clause (a)(i), except that
the percentage referred to in subclause (iii) of the definition of
Acquisition Transaction set forth above shall be 20%.
The Option will expire upon the occurrence of an "Exercise Termination
Event," defined as: (i) the Effective Time; (ii) termination of the Merger
Agreement in accordance with the provisions thereof if such termination occurs
prior to the occurrence of an Initial Triggering Event except a termination by
F&M Bancorp as a result of Monocacy's breach of a covenant set forth in the
Merger Agreement (other than a termination resulting from a willful breach by
Monocacy of a provision of the Merger Agreement); or (iii) eighteen months after
the termination of the Merger Agreement if such termination occurs after the
occurrence of an Initial Triggering Event or is a termination by F&M Bancorp as
a result of Monocacy's willful breach of a provision of the Merger Agreement.
As of the date of this Joint Proxy Statement-Prospectus, to the best
knowledge of F&M Bancorp and Monocacy, no Initial Triggering Event or Subsequent
Triggering Event has occurred.
The number and type of securities subject to the Option and the purchase
price of shares will be adjusted for any change in or distribution in respect of
the Monocacy Common Stock by reason of a stock dividend, stock split, split-up,
recapitalization, combination, exchange of shares or similar transaction so as
to fully preserve the economic benefits provided under the Stock Option
Agreement. The number of shares of Monocacy Common Stock subject to the Option
will also be adjusted in the event Monocacy issues additional shares of Monocacy
Common Stock such that the number of shares of Monocacy Common Stock subject to
the Option, together with shares previously purchased pursuant thereto,
represents 19.9% of the Monocacy Common Stock then issued and outstanding,
without giving effect to shares subject to or issuable pursuant to the Option.
In no event will the number of Option Shares for which the Option is exercisable
exceed 19.9% of Monocacy Common Stock then issued and outstanding, without
giving effect to the shares subject to or issuable pursuant to the Option.
Immediately prior to the occurrence of a Repurchase Event (as defined
below), (i) following a request of the holder or holders of the Option (the
"Holder"), delivered prior to an Exercise Termination Event, Monocacy (or any
successor thereto) will repurchase the Option from the Holder at a price (the
"Option Repurchase Price") equal to the amount by which (A) the Market/Offer
Price (as defined below) exceeds (B) the Option Price, multiplied by the number
of shares for which the Option may then be exercised and (ii) at the request of
the owner of Option Shares from time to time (the "Owner"), delivered within 90
days of such occurrence (or such later period as provided in the Option
Agreements), Monocacy will repurchase such number of the Option Shares from the
Owner as the Owner designates at a price equal to the Market/Offer Price
multiplied by the number of Option Shares so designated.
A "Repurchase Event" will be deemed to have occurred upon (a) the
consummation of any merger, consolidation or similar transaction involving
Monocacy or any purchase, lease or other acquisition of all
44
<PAGE>
or a substantial portion of the assets of Monocacy (other than internal mergers,
reorganizations, consolidations or dissolutions involving only existing
subsidiaries) or (b) the acquisition by any person of beneficial ownership of
50% or more of the then outstanding shares of Monocacy Common Stock.
The term "Market/Offer Price" means the highest of (i) the price per share
of Monocacy Common Stock at which a tender offer or exchange offer therefor has
been made, (ii) the price per share of Monocacy Common Stock to be paid by any
third party pursuant to an agreement with Monocacy, (iii) the highest closing
price for shares of Monocacy Common Stock within the six-month period
immediately preceding the date the Holder or the Owner, as the case may be,
gives notice of the required repurchase of this Option or any Option Shares, as
the case may be, or (iv) in the event of a sale of all or a substantial portion
of Monocacy's assets, the sum of the price paid in such sale for such assets and
the current market value of the remaining assets of Monocacy as determined by a
nationally recognized investment banking firm selected by the Holder or the
Owner, as the case may be, and reasonably acceptable to Monocacy, divided by the
number of shares of Monocacy Common Stock outstanding at the time of such sale.
In determining the Market/Offer Price, the value of consideration other than
cash will be determined by a nationally recognized investment banking firm
selected by the Holder or the Owner, as the case may be, and reasonably
acceptable to Monocacy.
The Stock Option Agreement provides that neither party may assign any of its
rights or obligations thereunder without the written consent of the other party,
except that if a Subsequent Triggering Event occurs prior to an Exercise
Termination Event, F&M Bancorp may, subject to certain limitations, assign its
rights and obligations thereunder in whole or in part within six months
following such Subsequent Triggering Event (subject to extension as described
the Stock Option Agreement).
In the event that, prior to an Exercise Termination Event, Monocacy enters
into any agreement (i) to merge into or consolidate with any person other than
F&M Bancorp or one of its subsidiaries such that Monocacy is not the surviving
corporation, (ii) to permit any person, other than F&M Bancorp or one of its
subsidiaries, to merge into Monocacy and Monocacy is the surviving corporation,
but, in connection with such merger, the then outstanding shares of Monocacy
Common Stock are changed into or exchanged for stock or other securities of
Monocacy or any other person or cash or any other property or the outstanding
shares of Monocacy Common Stock prior to such merger shall after such merger
represent less than 50% of the outstanding voting shares and voting share
equivalents of the merged company, or (iii) to sell or otherwise transfer all or
substantially all of its assets to any person other than F&M Bancorp or one of
its subsidiaries, then, and in each such case, the agreement governing the
transaction must provide that, upon consummation of the transaction, the Option
will be converted into or exchanged for an option (the "Substitute Option") to
purchase securities of either the acquiring person, any person that controls the
acquiring person or Monocacy (if Monocacy is the surviving entity), in all cases
at the election of F&M Bancorp.
Monocacy has granted F&M Bancorp certain registration rights with respect to
Option Shares. These rights include requiring Monocacy to file up to two
registration statements under the Securities Act in order to permit the sale or
other disposition of any Option Shares. In addition, in the event that at the
time of any request by F&M Bancorp for registration, Monocacy is in registration
with respect to an underwritten public offering of shares of Monocacy Common
Stock, Monocacy will allow F&M Bancorp to participate in such registration,
subject to certain limitations. In connection with any registration described
above, Monocacy and F&M Bancorp will provide to each other and any underwriter
of the offering customary representations, warranties, covenants,
indemnifications and contributions.
Certain rights and obligations of the parties under the Stock Option
Agreement are subject to receipt of prior regulatory approvals. The approval of
the Federal Reserve Board, for example, is required for the acquisition by F&M
Bancorp of more than 5% of the outstanding shares of Monocacy Common Stock.
Accordingly, in the event that F&M Bancorp seeks to exercise its rights under
the Stock Option Agreement, F&M Bancorp will file the appropriate application
for approval with the Federal Reserve Board. See "--Regulatory Approvals
Required for the Merger".
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<PAGE>
EFFECT OF STOCK OPTION AGREEMENT. The Stock Option Agreement is intended to
increase the likelihood that the Merger will be consummated in accordance with
the terms of the Merger Agreement. Consequently, certain aspects of the Stock
Option Agreement may have the effect of discouraging persons who might now or
prior to the Effective Time be interested in acquiring all of or a significant
interest in Monocacy from considering or proposing such an acquisition, even if
such persons were prepared to pay a higher price per share for Monocacy Common
Stock than the price per share implicit in the Exchange Ratio. The acquisition
of Monocacy or an interest in Monocacy, or an agreement to do either, could
cause the Option to become exercisable. The existence of the Option could
significantly increase the cost to a potential acquiror of acquiring Monocacy
compared to its cost had the Stock Option Agreement and the Merger Agreement not
been entered into. Such increased cost might discourage a potential acquiror
from considering or proposing an acquisition or might result in a potential
acquiror proposing to pay a lower per share price to acquire Monocacy than it
might otherwise have proposed to pay. Moreover, following consultation with
Monocacy's independent accountants, the management of Monocacy believes that the
exercise of the Option is likely to prohibit any acquiror of Monocacy from
accounting for any acquisition of Monocacy using the pooling of interests
accounting method for a period of two years. Accordingly, the existence of the
Stock Option Agreement may deter significantly, or completely preclude, an
acquisition of Monocacy by certain other banking organizations.
VOTING AGREEMENTS
In connection with the execution of the Merger Agreement, directors and
certain executive officers of Monocacy entitled to exercise sole voting power
with respect to an aggregate of 295,150 shares of Monocacy Common Stock or
approximately 16.40% of the outstanding Monocacy Common Stock entered into an
agreement with F&M Bancorp pursuant to which such persons agreed, among other
things, to vote all such shares of Monocacy Common Stock which they are entitled
to vote in favor of approval of the Merger Agreement and similarly, directors of
F&M Bancorp entitled to exercise sole voting power with respect to an aggregate
of 263,827 shares of F&M Bancorp Common Stock or approximately 4.1% of the
outstanding F&M Bancorp Common Stock entered into an agreement with Monocacy
pursuant to which such persons agreed, among other things, to vote all such
shares of F&M Bancorp Common Stock which they are entitled to vote in favor of
approval of the Merger Agreement (collectively, the "Voting Agreements").
EXPENSES
All costs and expenses incurred in connection with the Merger Agreement, the
Stock Option Agreement and the transactions contemplated thereby will be paid by
the party incurring such expense, except that the expenses incurred in
connection with printing and mailing this Joint Proxy Statement-Prospectus to
the stockholders of F&M Bancorp and Monocacy, and all filing and other fees paid
to the Commission or any other governmental entity in connection with the
Merger, the Subsidiary Bank Merger and the other transactions contemplated
thereby will be shared equally by F&M Bancorp and Monocacy.
BOARD OF DIRECTORS FOLLOWING THE MERGER
Pursuant to the terms of the Merger Agreement, prior to the Effective Time,
F&M Bancorp will cause the F&M Bancorp Board to be expanded by two members and
Eric E. Glass, Chairman of the Monocacy Board and Donald R. Hull (or any other
person designated by the Monocacy Board and acceptable to F&M Bancorp) will be
appointed to fill the new board seats as of the Effective Time.
MERGER AND RESTRUCTURING CHARGE
A non-recurring merger and restructuring charge will be incurred upon
consummation of the Merger. The restructuring charge includes merger related
severance and employee related expenses, facility and system costs and other
merger costs resulting from the Merger. See "Pro Forma Condensed Combined
Financial Statements."
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<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS OF F&M BANCORP AND MONOCACY
BENEFICIAL OWNERSHIP OF SHARES OF F&M BANCORP COMMON STOCK
Set forth below is certain information concerning beneficial ownership of
F&M Bancorp Common Stock, as of October 13, 1998, by (i) each director of F&M
Bancorp, (ii) each executive officer of F&M Bancorp, and (iii) all executive
officers and directors of F&M Bancorp as a group. As of the F&M Bancorp Record
Date there was no person known by the F&M Bancorp Board to be the beneficial
owner of more than 5% of the outstanding shares of F&M Bancorp Common Stock.
<TABLE>
<CAPTION>
PERCENTAGE
NAME NUMBER OF SHARES BENEFICIALLY OWNED
- -------------------------------------------------- ----------------- ---------------------
<S> <C> <C>
C. Carl Benna..................................... 10,997 *
Howard B. Bowen................................... 9,204(1) *
John D. Brunk..................................... 16,302(2) *
Beverly B. Byron.................................. 1,081 *
Faye E. Cannon.................................... 29,404(3) *
Martha E. Church.................................. 1,640 *
Albert H. Cohen................................... 83,968(4) 1.3%
Gordon M. Cooley.................................. 20,840(5) *
Maurice A. Gladhill............................... 48,798(6) *
Charles W. Hoff, III.............................. 19,041(7) *
James K. Kluttz................................... 650(8) *
Charles A. Nicodemus.............................. 36,962(9) *
Richard W. Phoebus, Sr............................ 21,011(10) *
David R. Stauffer................................. 21,229(11) *
Alice E. Stonebreaker............................. 20,906(12) *
H. Deets Warfield, Jr............................. 11,612(13) *
John C. Warfield.................................. 3,288(14) *
Thomas R. Winkler................................. 1,262 *
All Executive Officers and Directors
as a group (21 persons)......................... 369,330(15) 5.8%
</TABLE>
- ------------------------
* Indicates holdings of less than 1%
(1) Includes 970 shares in the form of options exercisable by Mr. Bowen within
60 days.
(2) Includes 11,313 shares owned by family members and as to which Mr. Brunk has
voting and disposition powers.
(3) Includes 3,641 shares owned jointly with family members and as to which Ms.
Cannon has joint voting and disposition powers and 15,572 shares in the form
of options exercisable by Ms. Cannon within 60 days.
(4) Includes 20,751 shares owned by family members and as to which Mr. Cohen has
voting and disposition powers.
(5) Includes 8,138 shares owned by family members and 7,153 shares in the form
of options exercisable by Mr. Cooley within 60 days.
(6) Includes 28,689 shares owned by family members and as to which Mr. Gladhill
has voting and disposition powers and 4,956 shares owned by a limited
partnership as to which Mr. Gladhill has voting and disposition powers.
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<PAGE>
(7) Includes 2,428 shares owned by family members and as to which Mr. Hoff has
voting and disposition powers and 2,680 shares in the form of options
exercisable by Mr. Hoff within 60 days.
(8) Includes 320 shares owned jointly with family members and as to which Mr.
Kluttz has voting and disposition powers
(9) Includes 4,358 shares owned by a family member and as to which Mr. Nicodemus
has voting and disposition powers. Also includes 15,409 shares owned by
Frederick Mutual Insurance Company of which Mr. Nicodemus is Chairman of the
Board and as to which Mr. Nicodemus has shared voting and disposition powers
but disclaims beneficial ownership.
(10) Includes 607 shares owned by family members and as to which Mr. Phoebus has
disposition and voting powers, and 6,777 shares in the form of options
exercisable by Mr. Phoebus within 60 days.
(11) Includes 12,735 shares in the form of options exercisable by Mr. Stauffer
within 60 days.
(12) Includes 12,689 shares in the form of options exercisable by Ms.
Stonebreaker within 60 days.
(13) Includes 3,320 shares owned by family members and as to which Mr. H.
Warfield has voting and disposition powers.
(14) Includes 2,211 shares owned by a family member and as to which Mr. J.
Warfield has voting and disposition powers.
(15) Includes 58,578 shares in the form of options exercisable within 60 days.
Set forth below is certain information regarding beneficial ownership of
Monocacy Common Stock, as of the Monocacy Record Date, by (i) each director and
executive officer of Monocacy and (ii) all directors and executive officers of
Monocacy as a group. As of the Monocacy Record Date, there was no person known
by the Monocacy Board to be the beneficial owner of more than 5% of the
outstanding stock of Monocacy Common Stock, except as provided below.
BENEFICIAL OWNERSHIP OF SHARES OF MONOCACY COMMON STOCK
<TABLE>
<CAPTION>
PERCENTAGE
BENEFICIALLY
NAME NUMBER OF SHARES(1) OWNED(2)
- -------------------------------------------------------------- ------------------- -------------
<S> <C> <C>
David M. Abramson............................................. 3,505(3) --
E. Wayne Baumgardner.......................................... 70,140(4) 3.85%
George B. Crouse.............................................. 26,811(5) 1.47%
Glenn E. Eaves................................................ 16,107(6) --
Eric E. Glass................................................. 119,907(7) 6.58%
Donald R. Hull................................................ 66,930(8) 3.67%
Frank W. Neubauer............................................. 13,745(9) --
Michael K. Walsch............................................. 6,890(10) --
All Officers and Directors
as a Group (12 persons)..................................... 338,835(11) 18.47%(12)
</TABLE>
- ------------------------
(1) The securities "beneficially owned" by an individual are determined in
accordance with the definition of "beneficial ownership" set forth in the
General Rules and Regulations of the Securities and Exchange Commission and
may include securities owned by or for the individual's spouse and minor
children and any other relative who has the same home, as well as securities
to which the individual has or shares voting or investment power or shares
that the individual has the right to acquire beneficial ownership of within
60 days after , 1998. Beneficial ownership may be disclaimed, at the
discretion of the individual, as to certain of the securities reported
herein. The number of shares
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<PAGE>
of Monocacy Common Stock shown as beneficially owned does not include stock
options that will become exercisable upon consummation of the Merger. Each
director will be entitled to exercise 4,125 stock options, Mr. Walsch will
be entitled to exercise 3,000 additional stock options and all officers and
directors as a group will be entitled to exercise 31,850 additional stock
options upon consummation of the Merger. Other officers of Monocacy and
Taneytown will be entitled to exercise an aggregate total of 4,500
additional stock options upon consummation of the Merger.
(2) Less than one percent (1%) unless otherwise indicated.
(3) Includes 285 shares owned individually; and 1,375 exercisable stock options
and 1,845 shares held as trustee of the Irma Abramson Pollack Revocable
Intervivos Trust.
(4) Includes 64,772 shares owned individually; 1,375 exercisable stock options
and 3,993 shares held jointly by Mr. Baumgardner's wife and mother.
(5) Includes 8,042 shares owned individually; 1,375 exercisable stock options;
16,850 shares held by Mr. Crouse jointly with his wife; and 544 shares held
individually by Mr. Crouse's wife.
(6) Includes 2,321 shares owned individually; 1,375 exercisable stock options
and 12,411 shares held by Mr. Eaves jointly with his wife.
(7) Includes 103,850 shares owned individually; 1,375 exercisable stock options;
5,010 shares held jointly with, and 2,348 shares held individually by Mr.
Glass' wife; 1,732 shares held by the Taney Corporation of which Mr. Glass
is Chairman of the Board; and 5,592 shares held by the Taney Corporation's
employees profit sharing trust over which Mr. Glass has investment
discretion.
(8) Includes 9,964 shares owned individually; 1,375 exercisable stock options;
42,857 shares held by Mr. Hull jointly with his wife; 110 shares held
individually by Mr. Hull's wife; and 12,624 shares held by the Residuary
Trust of the Estate of Robert W. Smith, for which Mr. Hull is trustee.
(9) Includes 1,381 shares owned individually and 12,364 exercisable stock
options.
(10) Includes 1,033 shares owned individually; 4,682 exercisable stock options;
and 1,175 shares granted as Restricted Stock Awards.
(11) Includes 35,042 exercisable stock options; and 1,175 shares granted as
Restricted Stock Awards to Officers.
(12) The percent of class assumes all outstanding stock options, exercisable
within sixty (60) days of , 1998, issued to the directors and officers
have been exercised and, therefore, on a pro forma basis, 1,834,047 shares
of Monocacy Common Stock would be outstanding.
49
<PAGE>
CERTAIN REGULATORY CONSIDERATIONS
As bank holding companies, F&M Bancorp and Monocacy are subject to extensive
supervision and regulation by the Federal Reserve Board. In addition, F&M
Bancorp is also a non-diversified unitary thrift holding company, supervised and
regulated by the Office of Thrift Supervision ("OTS"), as a result of its
ownership of Home Federal. F&M Bancorp will continue to be subject to this
regulatory scheme following the Merger.
Farmers & Mechanics National Bank is a national bank subject to supervision
and regulation by the OCC. As an FDIC-insured, Maryland-chartered bank,
Taneytown is subject to supervision and regulation by the FDIC and the Maryland
Commissioner of Financial Regulation. The deposits of Farmers & Mechanics
National Bank and Taneytown are insured up to applicable limits by the FDIC.
Following the Subsidiary Bank Merger, Farmers & Mechanics National Bank, as the
surviving institution, will continue to be subject to supervision and regulation
by the OCC and its deposits will be insured by the FDIC. Home Federal is subject
to supervision and regulation by the OTS and will continue to be regulated and
supervised by the OTS following the Merger.
Supervision and regulation of banking organizations and their subsidiaries
are intended primarily for the protection of depositors, the deposit insurance
funds of the FDIC and the banking system as a whole, not for the protection of
bank holding company stockholders or creditors. The following description
summarizes some of the laws to which F&M Bancorp, Monocacy and their depository
institution subsidiaries are subject. To the extent statutory or regulatory
provisions or proposals are described, the description is qualified in its
entirety by reference to the particular statutory or regulatory provisions or
proposals.
HOLDING COMPANY REGULATION
The activities of bank holding companies and their banking and nonbanking
subsidiaries are generally limited to the business of banking and activities
that the Federal Reserve Board determines to be closely related or incidental to
banking. Bank holding companies may not directly or indirectly acquire the
ownership or control of more than five percent of any class of voting shares or
substantially all of the assets of any company, including a bank, without the
prior approval of the Federal Reserve Board.
DIVIDEND RESTRICTIONS. Federal Reserve Board policy provides that, as a
matter of prudent banking, a bank holding company generally should not maintain
a rate of cash dividends unless its net income available to common stockholders
has been sufficient to fully fund the dividends, and the prospective rate of
earnings retention appears to be consistent with the holding company's capital
needs, asset quality and overall financial condition.
CROSS-GUARANTEE AND POTENTIAL HOLDING COMPANY LIABILITY. A depository
institution insured by the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection with (i) the
default of a commonly-controlled FDIC-insured depository institution or (ii) any
assistance provided by the FDIC to a commonly-controlled depository institution
in danger of default. Cross-guarantee liability may result in the ultimate
failure or insolvency of other insured depository institutions in a holding
company structure. Any obligation or liability, including any secured
obligation, owed by a bank subsidiary to its holding company or any affiliate is
subordinate to the bank subsidiary's cross-guarantee liability. Following the
Subsidiary Bank Merger, Farmers & Mechanics National Bank and Home Federal will
continue to be commonly-controlled depository institutions for this purpose.
Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial strength to each of its banking subsidiaries and
commit resources to their support. Such support may be required at times when,
absent this Federal Reserve Board policy, a holding company may not be inclined
to provide it. As discussed below under "Prompt Corrective Action," a bank
holding company in certain circumstances could be required to guarantee the
capital plan of an undercapitalized banking subsidiary.
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<PAGE>
In the event of a bank holding company's bankruptcy under Chapter 11 of the
U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required
to cure immediately any deficit under any commitment by the debtor holding
company to any of the federal banking agencies to maintain the capital of an
insured depository institution, and any claim for breach of such obligation will
generally have priority over most other unsecured claims.
BANK REGULATION
PAYMENT OF DIVIDENDS. F&M Bancorp is a legal entity separate and distinct
from its subsidiaries. The principal source of F&M Bancorp's cash revenues is
dividends from its depository institution subsidiaries. There are various legal
and regulatory limitations under federal and state law on the extent to which
banking subsidiaries can finance or otherwise supply funds to their holding
company.
Under OCC regulations, national banks such as Farmers & Mechanics National
Bank are limited in the amount of dividends they may declare. Two different
calculations are performed to measure the amount of dividends that may be paid:
a recent earnings test and a cumulative net profit test. Under the recent
earnings test, a dividend may not be paid if the total of all dividends declared
by the bank in any calendar year is in excess of the current year's net profits
combined with the retained net profits of the two preceding years unless the
bank obtains the approval of the OCC. Under the cumulative net undivided profits
test, a dividend may not be paid in excess of a bank's cumulative net profits
after deducting bad debts in excess of the reserve for loan losses. OTS
regulations also limit the amount of dividends that may be paid by Home Federal.
In addition, under federal law, a depository institution is prohibited from
paying a dividend if the depository institution would thereafter be
"undercapitalized" as determined by the federal bank regulatory agencies. The
relevant federal regulatory agencies also have authority to prohibit a
depository institution from engaging in what, in the opinion of such regulatory
body, constitutes an unsafe or unsound practice in conducting its business. The
payment of dividends could, depending upon the financial condition of Farmers &
Mechanics National Bank or Home Federal, be deemed to constitute such an unsafe
or unsound practice.
TRANSACTIONS WITH AFFILIATES. Farmers & Mechanics National Bank and Home
Federal are subject to restrictions under federal law that limit certain
transactions with F&M Bancorp and its nonbanking subsidiaries, including loans,
other extensions of credit, investments or asset purchases. Such transactions by
a depository institution subsidiary with any one affiliate are limited in amount
to ten percent of the institution's capital and surplus and, with all affiliates
together, to an aggregate of twenty percent of such institution's capital and
surplus. Such loans and extensions of credit, as well as certain other
transactions, are also required to be secured in specified amounts. These and
certain other transactions must be on terms and conditions that are, or in good
faith would be, offered to nonaffiliated companies.
FDIC INSURANCE ASSESSMENTS. The deposits of Farmers & Mechanics National
Bank are primarily insured by the Bank Insurance Fund of the FDIC to the extent
provided by law. The deposits of Home Federal, and certain deposits of Farmers &
Mechanics National Bank that are related to the bank's prior acquisitions of a
savings association, are insured by the Savings Association Insurance Fund of
the FDIC.
The FDIC has adopted a risk-based assessment system under which the
assessment rate for an insured depository institution varies according to the
level of risk involved in its activities.
PROMPT CORRECTIVE ACTION. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA"), the federal banking agencies must take
prompt supervisory and regulatory actions against undercapitalized depository
institutions. Depository institutions are assigned one of five capital
categories: "well capitalized," "adequately capitalized," "undercapitalized,"
"significantly undercapitalized," and "critically undercapitalized," and are
subjected to differential regulation corresponding to the capital category
within which the institution falls. Under certain circumstances, a well
capitalized, adequately capitalized or undercapitalized institution may be
treated as if the institution were in the next
51
<PAGE>
lower capital category. A depository institution is generally prohibited from
making capital distributions (including paying dividends) or paying management
fees to a holding company if the institution would thereafter be
undercapitalized. Adequately capitalized institutions cannot accept, renew or
roll over brokered deposits except with a waiver from the FDIC, and are subject
to restrictions on the interest rates that can be paid on such deposits.
Undercapitalized institutions may not accept, renew, or roll over brokered
deposits.
The banking regulatory agencies are permitted or, in certain cases, required
to take certain actions with respect to institutions falling within one of the
three undercapitalized categories. Depending on the level of an institution's
capital, the agency's corrective powers include, among other things: prohibiting
the payment of principal and interest on subordinated debt; prohibiting the
holding company from making distributions without prior regulatory approval;
placing limits on asset growth and restrictions on activities; placing
additional restrictions on transactions with affiliates; restricting the
interest rate the institution may pay on deposits; prohibiting the institution
from accepting deposits from correspondent banks; and in the most severe cases,
appointing a conservator or receiver for the institution. A banking institution
that is undercapitalized is required to submit a capital restoration plan, and
such a plan will not be accepted unless, among other things, the banking
institution's holding company guarantees the plan up to a certain specified
amount. Any such guarantee from a depository institution's holding company is
entitled to a priority of payment in bankruptcy. As of June 30, 1998, both
Farmers & Mechanics National Bank and Home Federal exceeded the minimum capital
ratios for "well capitalized" institutions. See "--Capital Adequacy." It is
expected that immediately following the Merger, Farmers & Mechanics National
Bank and Home Federal will continue to exceed the minimum capital ratios for a
"well capitalized" institution.
CAPITAL ADEQUACY
RISK-BASED CAPITAL AND LEVERAGE RATIOS
<TABLE>
<CAPTION>
RISK-BASED RATIOS
--------------------
<S> <C> <C> <C>
TIER I TOTAL LEVERAGE
AS OF JUNE 30, 1998 CAPITAL CAPITAL RATIO(1)
- -------------------------------------------------------------- --------- --------- ---------
F&M Bancorp................................................... 12.89% 14.0% 9.51%
Farmers & Mechanics National Bank............................. 12.21% 13.21% 9.39%
Home Federal.................................................. 11.48% 12.67% 7.83%
Monocacy...................................................... 13.81% 15.07% 7.52%
Taneytown..................................................... 13.78% 15.04% 7.51%
MINIMUM REQUIRED RATIO........................................ 4.0% 8.0% 3.0%
"WELL CAPITALIZED" MINIMUM RATIO.............................. 6.0% 10.0% 5.0%
</TABLE>
The Federal Reserve Board has adopted risk-based capital guidelines for bank
holding companies. The minimum ratio of total capital to risk-weighted assets
(which are the credit risk equivalents of balance sheet assets and certain off
balance sheet items such as standby letters of credit) is 8 percent. At least
half of the total capital must be composed of common stockholders' equity
(including retained earnings), qualifying non-cumulative perpetual preferred
stock (and, for bank holding companies only, a limited amount of qualifying
cumulative perpetual preferred stock), and minority interests in the equity
accounts of consolidated subsidiaries, less goodwill, other disallowed
intangibles and disallowed deferred tax assets, among other items ("Tier 1
capital"). The remainder may consist of a limited amount of subordinated debt,
other perpetual preferred stock, hybrid capital instruments, mandatory
convertible debt securities that meet certain requirements, as well as a limited
amount of reserves for loan losses ("Tier 2 capital"). The Federal Reserve Board
has also adopted a minimum leverage ratio for bank holding companies, requiring
Tier 1 capital of at least 3 percent of average total consolidated assets.
The OCC and OTS have also established minimum risk-based and leverage
capital guidelines that are substantially similar to those established by the
Federal Reserve Board for bank holding companies.
- ------------------------
(1) For all but the most highly-rated bank holding companies and banks, the
leverage ratio is 3 percent plus an additional percentage of at least 100 to
200 basis points.
52
<PAGE>
The federal banking agencies' risk-based and leverage ratios are minimum
supervisory ratios generally applicable to banking organizations that meet
certain specified criteria, assuming that they have the highest regulatory
rating. Banking organizations not meeting these criteria are expected to operate
with capital positions well above the minimum ratios. The federal bank
regulatory agencies may set capital requirements for a particular banking
organization that are higher than the minimum ratios when circumstances warrant.
Federal Reserve Board guidelines also provide that banking organizations
experiencing internal growth or making acquisitions will be expected to maintain
strong capital positions substantially above the minimum supervisory levels,
without significant reliance on intangible assets. In addition, the regulations
of the Federal Reserve Board provide that concentration of credit risk, interest
rate risk and certain risks arising from nontraditional activities, as well as
an institution's ability to manage these risks, are important factors to be
taken into account by regulatory agencies in assessing an organization's overall
capital adequacy.
The risk-based capital regulations provide for the consideration of interest
rate risk in the agencies' determination of a banking organization's capital
adequacy. The regulations require such institutions to effectively measure and
monitor their interest rate risk and to maintain capital adequate for that risk.
As discussed below under "Enforcement Powers of the Federal Banking
Agencies," failure to meet the minimum regulatory capital requirements could
subject a banking organization to a variety of enforcement remedies available to
federal regulatory authorities, including, in the most severe cases, the
termination of deposit insurance by the FDIC and placing a depository
institution into conservatorship or receivership.
Each of F&M Bancorp, Farmers & Mechanics National Bank, Home Federal,
Monocacy and Taneytown met the minimum capital ratios on June 30, 1998. It is
expected that immediately following the Merger and the Subsidiary Bank Merger,
F&M Bancorp, Farmers & Mechanics National Bank, and Home Federal will continue
to meet the minimum capital requirements of their respective regulators.
ENFORCEMENT POWERS OF THE FEDERAL BANKING AGENCIES
The federal banking agencies have broad enforcement powers, including the
power to terminate deposit insurance, impose substantial fines and other civil
and criminal penalties and, in the most severe cases, appoint a conservator or
receiver for insured depository institutions. Failure to comply with applicable
laws, regulations and supervisory agreements could subject F&M Bancorp and its
depository institution subsidiaries, as well as officers, directors and other
institution-affiliated parties of these organizations, to administrative
sanctions and potentially substantial civil money penalties. In addition to the
grounds discussed under "Prompt Corrective Action," the appropriate federal
banking agency may appoint the FDIC as conservator or receiver for a banking
institution (or the FDIC may appoint itself, under certain circumstances) if any
one or more of a number of circumstances exist, including, without limitation,
the fact that the banking institution is undercapitalized and has no reasonable
prospect of becoming adequately capitalized; fails to become adequately
capitalized when required to do so; fails to submit a timely and acceptable
capital restoration plan; or materially fails to implement an accepted capital
restoration plan.
CONTROL ACQUISITIONS
The Change in Bank Control Act (the "CBCA") prohibits a person or group of
persons from acquiring "control" of a bank holding company unless the Federal
Reserve Board has been notified and has not objected to the transaction. Under a
rebuttable presumption established by the Federal Reserve Board, the acquisition
of 10% (or 5% in the case of an acquisition by a bank holding company) or more
of a class of voting stock of a bank holding company with a class of securities
registered under Section 12 of the Exchange Act, such as F&M Bancorp, would,
under the circumstances set forth in the presumption, constitute acquisition of
control of F&M Bancorp.
53
<PAGE>
In addition, any company is required to obtain the approval of the Federal
Reserve under the BHC Act before acquiring 25% (5% in the case of an acquiror
that is a bank holding company) or more of the outstanding F&M Bancorp Common
Stock, or otherwise obtaining control or a "controlling influence" over F&M
Bancorp.
FUTURE LEGISLATION
Various legislation, including proposals to substantially change the
financial institution regulatory system, expand the powers of banking
institutions and bank holding companies and limit the investments that a
depository institution may make with insured funds, is from time to time
introduced in Congress. Such legislation may change banking statutes and the
operating environment of F&M Bancorp and its subsidiaries in substantial and
unpredictable ways. F&M Bancorp cannot determine whether such potential
legislation will ultimately be enacted, and if enacted the ultimate effect that
such potential legislation, or implementing regulations, would have upon the
financial condition or results of operations of F&M Bancorp or its subsidiaries.
54
<PAGE>
MARKET PRICES AND DIVIDEND INFORMATION
F&M Bancorp Common Stock and Monocacy Common Stock are listed and traded
principally on Nasdaq/NMS under the symbols "FMBN" and "MNOC," respectively.
The following table sets forth, for the calendar periods indicated, the high
and low sale prices per share for the F&M Bancorp Common Stock and Monocacy
Common Stock as reported on the Nasdaq/ NMS, and the quarterly cash dividends
declared by each of F&M Bancorp and Monocacy, in the periods indicated.
<TABLE>
<CAPTION>
F&M BANCORP MONOCACY
COMMON STOCK COMMON STOCK
----------------------------------- -----------------------------------
<S> <C> <C> <C> <C> <C> <C>
<CAPTION>
HIGH LOW DIVIDENDS(1) HIGH LOW DIVIDENDS(2)
--------- --------- ------------- --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
1996
Quarter ended March 31................................ $ 28.57 $ 26.91 $ 0.19 $ N/A $ N/A $ 0.10
Quarter ended June 30................................. 28.21 21.43 0.19 N/A N/A 0.10
Quarter ended September 30............................ 23.45 20.00 0.19 N/A N/A 0.10
Quarter ended December 31............................. 23.57 21.19 0.19 N/A N/A 0.10
1997
Quarter ended March 31................................ 27.14 21.91 0.21 N/A N/A 0.11
Quarter ended June 30................................. 27.14 24.29 0.21 21.5 21.5 0.11
Quarter ended September 30............................ 34.75 25.48 0.21 24.0 21.0 0.11
Quarter ended December 31............................. 38.00 33.00 0.21 32.0 22.0 0.11
1998
Quarter ended March 31................................ 41.25 34.50 0.24 31.0 24.0 0.12
Quarter ended June 30................................. 46.25 38.25 0.48 32.0 29.0 0.12
Quarter ended September 30............................ 45.13 32.50 0.25 39.75 30.0 0.12
</TABLE>
- ------------------------
(1) Adjusted to reflect five percent (5%) stock dividends paid August 1997 and
August 1998.
(2) Not adjusted to reflect ten percent (10%) stock dividends paid January 1996,
February 1997 and February 1998.
The following table sets forth the last reported sales price per share of
F&M Bancorp Common Stock and Monocacy Common Stock and the equivalent per share
price for Monocacy Common Stock giving effect to the Merger on (i) September 3,
1998, the last business day preceding public announcement of the execution of
the Merger Agreement and (ii) , 1998, the last practicable trading
day prior to the printing of this Joint Proxy Statement-Prospectus:
<TABLE>
<CAPTION>
F&M BANCORP EQUIVALENT
COMMON MONOCACY PRICE PER
STOCK COMMON STOCK MONOCACY SHARE(1)
----------------- --------------- -------------------
<S> <C> <C> <C>
September 3, 1998.......................................... $ 37.25 $ 32.00 $ 45.97
, 1998...........................................
</TABLE>
- ------------------------
(1) The equivalent price per share of Monocacy Common Stock at each specified
date was determined by multiplying the last reported sale price of F&M
Bancorp Common Stock on each specified date by an exchange ratio of ,
calculated by dividing 2,219,753 by the number of outstanding shares of
Monocacy Common Stock as of the date this Joint Proxy Statement-Prospectus
was printed and assuming that none of the Monocacy Options are exercised
prior to the Effective Time. See "The Merger--Exchange Ratio."
MONOCACY AND F&M BANCORP STOCKHOLDERS ARE ADVISED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR MONOCACY COMMON STOCK AND F&M BANCORP COMMON STOCK. It is
expected that the market price of F&M
55
<PAGE>
Bancorp Common Stock will fluctuate between the date of this Joint Proxy
Statement-Prospectus and the date on which the Merger is consummated and
thereafter. Because the number of shares of F&M Bancorp Common Stock to be
received by Monocacy stockholders in the Merger is fixed (subject to possible
adjustment in certain circumstances) and because the market price of the F&M
Bancorp Common Stock is subject to fluctuation, the value of the shares of F&M
Bancorp Common Stock that holders of Monocacy Common Stock would receive in the
Merger may increase or decrease prior to the Merger. In addition, because
certain Monocacy Options are exercisable prior to the Effective Time and
exercise of those Monocacy Options would increase the number of shares of
Monocacy Common Stock outstanding at the Effective Time, the Exchange Ratio
could be less than that assumed for purposes of the immediately preceding chart.
No assurance can be given concerning the market price of F&M Bancorp Common
Stock before or after the Effective Time or that such exercisable Monocacy
Options will not be exercised prior to the Effective Time. See "THE
MERGER--Exchange Ratio" and "--Waiver and Amendment; Termination."
56
<PAGE>
DESCRIPTION OF F&M BANCORP CAPITAL STOCK
GENERAL
The authorized capital of F&M Bancorp consists exclusively of 50,000,000
shares of capital stock, par value $5.00 per share. All are currently classified
as F&M Bancorp Common Stock. As of August 10, 1998, there were issued and
outstanding 6,395,629 shares of F&M Bancorp Common Stock, which were held by
3,902 owners of record, and there were 190,034 shares issuable upon the exercise
of options to purchase F&M Bancorp Common Stock. F&M Bancorp has issued no
warrants to purchase its common stock. F&M Bancorp Common Stock is listed for
quotation on Nasdaq/NMS under the symbol "FMBN."
COMMON STOCK
The holders of F&M Bancorp Common Stock are entitled to one vote per share
on all matters submitted to a vote of the stockholders and may not cumulate
their votes for the election of directors. Subject to the voting rights of the
holders of preferred stock, if any, the exclusive voting power for all purposes
is vested in the holders of F&M Bancorp Common Stock. Each share of F&M Bancorp
Common Stock is entitled to participate on a PRO RATA basis in dividends and
other distributions. The holders of F&M Bancorp Common Stock do not have
preemptive rights to subscribe for additional shares that may be issued by F&M
Bancorp, and no share is entitled in any manner to any preference over any other
share. The shares of F&M Bancorp Common Stock to be issued to Monocacy
stockholders pursuant to the Merger will be fully paid and non-assessable and
the holders thereof will not be subject to call or assessment under Maryland
law. Norwest Shareowner Services serves as the transfer agent for F&M Bancorp.
PREFERRED STOCK
The Board of Directors of F&M Bancorp may classify and reclassify any
unissued shares of capital stock into other classes and series, including one or
more series of preferred stock, by setting or changing in any one or more
respects the preferences, conversion or other rights, voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption of such shares of stock. Such stock may rank senior to the F&M
Bancorp Common Stock in one or more respects.
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<PAGE>
COMPARISON OF STOCKHOLDER RIGHTS
F&M Bancorp and Monocacy are incorporated under the laws of the State of
Maryland. If the merger is consummated, the holders of Monocacy Common Stock,
whose rights as stockholders are currently governed by the MGCL, the Monocacy
Charter (the "Monocacy Charter") and the Bylaws of Monocacy (the "Monocacy
Bylaws") will, upon the exchange of their Monocacy Common Stock pursuant to the
Merger Agreement, become holders of shares of F&M Bancorp Common Stock, and
their rights as such will be governed by the MGCL, the F&M Bancorp Charter (the
"F&M Bancorp Charter") and the bylaws of F&M Bancorp (the "F&M Bancorp Bylaws").
The material differences between the rights of holders of Monocacy Common Stock
and the rights of holders of F&M Bancorp Common Stock, resulting from the
differences in their governing documents are summarized below.
The following summary does not purport to be a complete statement of the
rights of holders of F&M Bancorp Common Stock under applicable Maryland laws,
the F&M Bancorp Charter and the F&M Bancorp Bylaws or the rights of the holders
of Monocacy Common Stock under applicable Maryland laws, the Monocacy Charter
and the Monocacy Bylaws, or a complete description of the specific provisions
referred to herein. This summary of material differences is not meant to be
relied upon as an exhaustive list or a detailed description of the provisions
discussed and is qualified in its entirety by reference to the MGCL and the
governing corporate instruments of F&M Bancorp and the governing corporate
instruments of Monocacy, to which the holders of Monocacy Common Stock are
referred. Copies of such governing corporate instruments of F&M Bancorp and
Monocacy are available, without charge, to any person, including any beneficial
owner to whom this Joint Proxy Statement-Prospectus is delivered, by following
the instructions listed under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
STOCKHOLDER NOMINATIONS AND PROPOSALS FOR BUSINESS
F&M BANCORP. The F&M Bancorp Bylaws establish procedures that must be
followed for stockholders to nominate individuals to the F&M Bancorp Board or to
propose business at an annual meeting of stockholders. In order to nominate
individuals to the F&M Bancorp Board, a stockholder must provide timely notice
of such nomination in writing to the Secretary of F&M Bancorp. A stockholder's
notice must set forth (a) as to each person whom the stockholder proposes to
nominate for election or reelection as a director all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Exchange Act (including such person's written consent
to being named in the proxy statement as a nominee and to serving as a director
if elected).
In order to properly propose that an item of business come before the annual
meeting of stockholders, a stockholder must provide timely notice in writing to
the Secretary of F&M Bancorp, which notice must include (i) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting and any material interest in
such business of such stockholder and of the beneficial owner, if any, on whose
behalf the proposal is made, (ii) the class and number of shares of F&M Bancorp
capital stock beneficially owned by the stockholder giving such notice, (iii) a
description of all arrangements or understandings between such stockholder and
any other person or persons (including their names) in connection with the
proposal of such business by such stockholder and any material interest of such
stockholder in such business, and (iv) a representation that such stockholder
intends to appear in person or by proxy at the annual meeting to bring such
business before the meeting.
To be timely, a stockholder's notice of a nominee or proposed item of
business to the Secretary must be delivered to or mailed and received at the
principal executive offices of F&M Bancorp not less than 90 days nor more than
120 days prior to the anniversary date of the immediately preceding annual
meeting of stockholders; provided, however, that in the event that the date of
the annual meeting is advanced by more
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<PAGE>
than 30 days or delayed by more than 60 days from such anniversary date, notice
by the stockholder in order to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed or such public disclosure of the date of
the annual meeting was made, whichever first occurs.
MONOCACY. Monocacy has no comparable provision in either the Monocacy
Charter or Bylaws.
BUSINESS COMBINATIONS INVOLVING INTERESTED STOCKHOLDERS
BUSINESS COMBINATIONS. Under the MGCL, certain "business combinations"
(including a merger, consolidation, share exchange, or, in certain
circumstances, an asset transfer or issuance or reclassification of equity
securities) between a Maryland corporation and (i) any person who beneficially
owns 10% or more of the voting power of the corporation's shares, (ii) an
affiliate of such corporation who, at any time within the two-year period prior
to the date in question, was the beneficial owner of 10% or more of the voting
power of the then-outstanding voting stock of the corporation (in either case,
an "interested stockholder"), or (iii) any affiliate of an interested
stockholder, are prohibited for five years after the most recent date on which
the interested stockholder became an interested stockholder, and thereafter must
be recommended by the board of directors of the Maryland corporation and
approved by the affirmative vote of at least (a) 80% of the votes entitled to be
cast by holders of its outstanding voting shares, and (b) two-thirds of the
votes entitled to be cast by holders of such outstanding voting shares, other
than shares held by the interested stockholder with whom the business
combination is to be effected; unless, among other things, the corporation's
stockholders receive a minimum price (as defined in the MGCL) for their shares
and the consideration is received in cash or in the same form as previously paid
by the interested stockholder for its shares. These provisions of the MGCL do
not apply to business combinations that are approved or exempted by the board of
directors of the corporation prior to the time that the interested stockholder
becomes an interested stockholder.
REMOVAL OF DIRECTORS
F&M BANCORP. The F&M Bancorp Charter provides that any director, or the
entire Board of Directors, may be removed from office at any time, but only for
cause and then only by an affirmative vote of the holders of at least 80% of the
combined voting power of all classes of shares of capital stock entitled to
vote.
MONOCACY. The Monocacy Charter provides that any director of Monocacy, or
the entire Monocacy Board, may be removed from office only for cause and only by
the affirmative vote of the holders of at least 75% of the aggregate number of
votes entitled to be cast in the election of the directors.
AMENDMENT OF BYLAWS
F&M BANCORP. The F&M Bancorp Bylaws may be amended by a majority of the
votes cast at an annual or special meeting of the stockholders at which a quorum
is present, or by a majority of votes cast at a regular or special meeting of
directors at which a quorum is present.
MONOCACY. The Monocacy Bylaws may be repealed, altered, amended or
rescinded by the vote of 75% of the outstanding shares of capital stock. In
addition, the Monocacy Board may repeal, alter, amend or rescind the Monocacy
Bylaws by a vote of two-thirds of the Monocacy Board at a legal meeting held in
accordance with such Bylaws.
AMENDMENT OF CHARTER
F&M BANCORP. The F&M Bancorp Charter may be amended by resolution of the
F&M Bancorp Board, setting forth the proposed amendment and declaring it
advisable, followed by the affirmative vote of a majority of all stockholders
entitled to vote on the matter.
59
<PAGE>
MONOCACY. The Monocacy Charter provides that the affirmative vote of the
holders of at least 75% of the outstanding shares of capital stock of Monocacy
shall be required to amend or repeal the Monocacy Charter.
SPECIAL MEETINGS OF STOCKHOLDERS
F&M BANCORP. Special meetings of F&M Bancorp stockholders may be called by
the Chairman of the Board or the President of F&M Bancorp or by a majority of
the F&M Bancorp Board by vote at a meeting or in writing with or without a
meeting.
MONOCACY. Under the Monocacy Bylaws, special meetings of Monocacy
stockholders may be called by the Chairman or Vice-Chairman of the Monocacy
Board or the President or by a majority of the Board by vote at a meeting or in
writing with or without a meeting. A special meeting of Monocacy stockholders
may also be called upon the submission to the Secretary of Monocacy of a written
request therefor by stockholders entitled to cast not less than 25% of all of
the votes entitled to be cast at the special meeting.
60
<PAGE>
PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS
(UNAUDITED)
The following pro forma financial statements set forth certain selected
condensed financial information for F&M Bancorp and Monocacy on an unaudited
combined basis giving effect to the Merger, as if such transaction had become
effective as of January 1, 1995. The pro forma information assumes that the
Merger is accounted for using the pooling of interests method of accounting (See
"THE MERGER -- Anticipated Accounting Treatment"). These statements should be
read in conjunction with, and are qualified in their entirety by, the historical
financial statements, including the notes thereto, of F&M Bancorp and Monocacy
incorporated by reference herein. See "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
The pro forma condensed combined financial statements do not give effect to
the anticipated cost savings and revenue enhancement opportunities that could
result from the Merger, and do not purport to be indicative of the combined
financial position or results of operations of future periods or indicative of
the results that would have occurred had the transaction been consummated on
January 1, 1995.
61
<PAGE>
F&M BANCORP--MONOCACY BANCSHARES, INC.
PRO FORMA CONDENSED COMBINED BALANCE SHEETS
(UNAUDITED)
JUNE 30, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA F&M BANCORP
F&M BANCORP MONOCACY ADJUSTMENTS PRO FORMA
----------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks.................................... $ 42,917 $ 9,036 $ 51,953
Federal funds sold......................................... 9,011 1,579 10,590
----------- ---------- ----------- -------------
Total cash and cash equivalents........................ 51,928 10,615 -- 62,543
Loans held for sale........................................ 552 4,079 4,631
Investment securities:
Held-to-maturity......................................... 89,876 -- 89,876
Available-for-sale, at fair value........................ 164,620 106,490 271,110
----------- ---------- ----------- -------------
Total investment securities............................ 254,496 106,490 -- 360,986
Loans, net of unearned income.............................. 716,518 162,055 878,573
Less: Allowance for credit losses.......................... (9,797) (2,611) (12,408)
----------- ---------- ----------- -------------
Net loans................................................ 706,721 159,444 -- 866,165
Bank premises and equipment, net........................... 23,955 8,095 32,050
Other assets............................................... 30,818 5,702 36,520
----------- ---------- ----------- -------------
Total assets............................................... $ 1,068,470 $ 294,425 -- $ 1,362,895
----------- ---------- ----------- -------------
----------- ---------- ----------- -------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits:..................................................
Noninterest bearing...................................... $ 110,303 $ 33,244 $ 143,547
Interest-bearing......................................... 734,915 205,825 940,740
----------- ---------- ----------- -------------
Total deposits......................................... 845,218 239,069 -- 1,084,287
Federal funds purchased & securities sold under agreements
to repurchase............................................ 50,599 -- 50,599
Other short-term borrowings................................ 8,903 900 9,803
Advances from the Federal Home Loan Bank of Atlanta........ 50,173 24,912 75,085
Accrued interest and other liabilities..................... 9,925 4,280 14,205
----------- ---------- ----------- -------------
Total liabilities...................................... 964,818 269,161 -- 1,233,979
Shareholders' Equity
Common stock............................................... 31,937 8,994 2,105(1) 43,036
Surplus.................................................... 48,420 15,357 (2,105)(1) 61,672
Retained earnings.......................................... 23,285 1,131 24,416
Net unrealized gains (losses) on securities available for
sale..................................................... 10 (218) (208)
----------- ---------- ----------- -------------
Total shareholders' equity................................. 103,652 25,264 -- 128,916
----------- ---------- ----------- -------------
Total liabilities and shareholders' equity................. $ 1,068,470 $ 294,425 -- $ 1,362,895
----------- ---------- ----------- -------------
----------- ---------- ----------- -------------
</TABLE>
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
(UNAUDITED)."
62
<PAGE>
F&M BANCORP--MONOCACY BANCSHARES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PRO FORMA F&M BANCORP
F&M BANCORP MONOCACY ADJUSTMENTS PRO FORMA
------------- ------------ ----------- -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans........................... $ 31,049 $ 7,668 $ 38,717
Interest and dividends on investment securities:
Taxable............................................ 5,277 2,465 7,742
Tax-exempt......................................... 1,667 449 2,116
Interest on deposits with banks...................... 251 40 291
Interest on federal funds sold....................... 234 236 470
------------- ------------ ----------- -------------
Total interest income............................ 38,478 10,858 -- 49,336
------------- ------------ ----------- -------------
Interest expense:
Interest on deposits................................. 14,414 4,755 19,169
Interest on federal funds purchased and securities
sold under agreements to repurchase................ 1,098 11 1,109
Interest on advances from the FHLB of Atlanta........ 1,735 999 2,734
Interest on other borrowings......................... 87 9 96
------------- ------------ ----------- -------------
Total interest expense........................... 17,334 5,774 -- 23,108
------------- ------------ ----------- -------------
Net interest income.................................... 21,144 5,084 -- 26,228
Provision for credit losses............................ 1,050 106 -- 1,156
------------- ------------ ----------- -------------
Net interest income after provision for credit
losses............................................... 20,094 4,978 -- 25,072
------------- ------------ ----------- -------------
Noninterest income:
Trust income......................................... 1,321 56 1,377
Service charges on deposit accounts.................. 2,687 340 3,027
Net gains on sales of loans.......................... 453 707 1,160
Net gains on sales of securities..................... 35 703 738
Other operating income............................... 3,644 472 4,116
------------- ------------ ----------- -------------
Total noninterest income......................... 8,140 2,278 -- 10,418
------------- ------------ ----------- -------------
Noninterest expense:
Salaries and employee benefits....................... 10,374 3,111 13,485
Occupancy and equipment expense...................... 3,225 771 3,996
Other operating expense.............................. 5,760 1,100 6,860
------------- ------------ ----------- -------------
Total noninterest expense........................ 19,359 4,982 -- 24,341
------------- ------------ ----------- -------------
Income before provision for income taxes............... 8,875 2,274 -- 11,149
Provision for income taxes............................. 2,587 587 3,174
------------- ------------ ----------- -------------
Net income............................................. $ 6,288 $ 1,687 -- $ 7,975
------------- ------------ ----------- -------------
------------- ------------ ----------- -------------
Earnings per Common Share--Basic:
Net income........................................... $ 0.99 $ 0.94 $ 0.93
Weighted average number of shares...................... 6,377,345 1,797,177 422,576(2) 8,597,098
Earnings per Common Share--Diluted:
Net income........................................... $ 0.97 $ 0.91 $ 0.92
Weighted average number of shares...................... 6,450,080 1,848,058 371,695(2) 8,669,833
</TABLE>
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)."
63
<PAGE>
F&M BANCORP--MONOCACY BANCSHARES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE SIX MONTHS ENDED JUNE 30, 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
F&M
PRO FORMA BANCORP
F&M BANCORP MONOCACY ADJUSTMENTS PRO FORMA
------------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $ 29,490 $ 8,001 $ 37,491
Interest and dividends on investment securities:
Taxable............................................. 5,284 1,399 6,683
Tax-exempt.......................................... 1,727 683 2,410
Interest on deposits with banks....................... 98 10 108
Interest on federal funds sold........................ 24 36 60
------------- ------------ ------------ ------------
Total interest income............................. 36,623 10,129 -- 46,752
------------- ------------ ------------ ------------
Interest expense:
Interest on deposits.................................. 13,728 4,705 18,433
Interest on federal funds purchased and securities
sold under agreements to repurchase................. 1,074 15 1,089
Interest on advances from the FHLB of Atlanta......... 1,656 304 1,960
Interest on other borrowings.......................... 74 10 84
------------- ------------ ------------ ------------
Total interest expense............................ 16,532 5,034 -- 21,566
------------- ------------ ------------ ------------
Net interest income..................................... 20,091 5,095 -- 25,186
Provision for credit losses............................. 900 660 -- 1,560
------------- ------------ ------------ ------------
Net interest income after provision for credit losses... 19,191 4,435 -- 23,626
------------- ------------ ------------ ------------
Noninterest income:
Trust income.......................................... 1,180 79 1,259
Service charges on deposit accounts................... 2,560 264 2,824
Net gains on sales of loans........................... 104 631 735
Net gains (losses) on sales of securities............. 2 (3) (1)
Other operating income................................ 3,465 479 3,944
------------- ------------ ------------ ------------
Total noninterest income.......................... 7,311 1,450 -- 8,761
------------- ------------ ------------ ------------
Noninterest expense:
Salaries and employee benefits........................ 9,857 2,734 12,591
Occupancy and equipment expense....................... 3,050 755 3,805
Other operating expense............................... 5,615 1,001 6,616
------------- ------------ ------------ ------------
Total noninterest expense......................... 18,522 4,490 -- 23,012
------------- ------------ ------------ ------------
Income before provision for income taxes................ 7,980 1,395 -- 9,375
Provision for income taxes.............................. 2,371 149 2,520
------------- ------------ ------------ ------------
Net income.............................................. $ 5,609 $ 1,246 -- $ 6,855
------------- ------------ ------------ ------------
------------- ------------ ------------ ------------
Earnings per Common Share--Basic:
Net income............................................ $ 0.89 $ 0.70 $ 0.80
Weighted average number of shares....................... 6,329,008 1,782,458 437,295(2) 8,548,761
Earnings per Common Share--Diluted:
Net income............................................ $ 0.88 $ 0.69 $ 0.80
Weighted average number of shares....................... 6,370,437 1,811,865 407,888(2) 8,590,190
</TABLE>
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)."
64
<PAGE>
F&M BANCORP--MONOCACY BANCSHARES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1997 FOR F&M BANCORP AND MONOCACY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
F&M PRO FORMA F&M BANCORP
BANCORP MONOCACY ADJUSTMENTS PRO FORMA
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $ 60,782 $ 15,982 $ 76,764
Interest and dividends on investment securities:...... --
Taxable............................................. 11,028 3,245 14,273
Tax-exempt.......................................... 3,385 1,356 4,741
Interest on deposits with banks....................... 293 46 339
Interest on federal funds sold........................ 53 227 280
------------ ------------ ------------ -------------
Total interest income............................. 75,541 20,856 -- 96,397
------------ ------------ ------------ -------------
Interest expense:
Interest on deposits.................................. 28,025 9,558 37,583
Interest on federal funds purchased and securities
sold under agreements to repurchase................. 2,236 28 2,264
Interest on advances from the FHLB of Atlanta......... 3,827 1,080 4,907
Interest on other borrowings.......................... 169 21 190
------------ ------------ ------------ -------------
Total interest expense............................ 34,257 10,687 -- 44,944
------------ ------------ ------------ -------------
Net interest income..................................... 41,284 10,169 -- 51,453
Provision for credit losses............................. 1,800 1,110 2,910
------------ ------------ ------------ -------------
Net interest income after provision for credit losses... 39,484 9,059 -- 48,543
------------ ------------ ------------ -------------
Noninterest income:
Trust income.......................................... 2,594 121 2,715
Service charges on deposit accounts................... 5,255 600 5,855
Net gains on sales of loans........................... 278 1,143 1,421
Net (losses) gains on sales of securities............. (11) 87 76
Other operating income................................ 7,330 899 8,229
------------ ------------ ------------ -------------
Total noninterest income.......................... 15,446 2,850 -- 18,296
------------ ------------ ------------ -------------
Noninterest expense:
Salaries and employee benefits........................ 19,214 5,626 24,840
Occupancy and equipment expense....................... 6,051 1,498 7,549
Other operating expense............................... 12,446 2,527 14,973
------------ ------------ ------------ -------------
Total noninterest expense......................... 37,711 9,651 -- 47,362
------------ ------------ ------------ -------------
Income before provision for income taxes................ 17,219 2,258 -- 19,477
Provision for income taxes.............................. 5,111 140 5,251
------------ ------------ ------------ -------------
Net income.............................................. $ 12,108 $ 2,118 -- $ 14,226
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Earnings per Common Share--Basic:
Net income............................................ $ 1.91 $ 1.19 $ 1.66
Weighted average number of shares....................... 6,337,870 1,785,754 433,999(2) 8,557,623
Earnings per Common Share--Diluted:
Net income............................................ $ 1.89 $ 1.16 $ 1.65
Weighted average number of shares....................... 6,393,849 1,818,854 400,899(2) 8,613,602
</TABLE>
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)."
65
<PAGE>
F&M BANCORP--MONOCACY BANCSHARES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1996 FOR F&M AND MONOCACY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
F&M PRO FORMA F&M BANCORP
BANCORP MONOCACY ADJUSTMENTS PRO FORMA
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $ 56,357 $ 14,043 $ 70,400
Interest and dividends on investment securities: --
Taxable............................................. 10,216 3,823 14,039
Tax-exempt.......................................... 3,614 1,529 5,143
Interest on deposits with banks....................... 240 52 292
Interest on federal funds sold........................ 453 146 599
------------ ------------ ------------ -------------
Total interest income............................. 70,880 19,593 -- 90,473
------------ ------------ ------------ -------------
Interest expense:
Interest on deposits.................................. 27,952 9,251 37,203
Interest on federal funds purchased and securities
sold under agreements to repurchase................. 1,813 95 1,908
Interest on advances from the FHLB of Atlanta......... 2,381 1,072 3,453
Interest on other borrowings.......................... 150 3 153
------------ ------------ ------------ -------------
Total interest expense............................ 32,296 10,421 -- 42,717
------------ ------------ ------------ -------------
Net interest income..................................... 38,584 9,172 -- 47,756
Provision for credit losses............................. 1,522 300 1,822
------------ ------------ ------------ -------------
Net interest income after provision for credit losses... 37,062 8,872 -- 45,934
------------ ------------ ------------ -------------
Noninterest income:
Trust income.......................................... 1,806 150 1,956
Service charges on deposit accounts................... 4,684 438 5,122
Net gains on sales of loans........................... 323 864 1,187
Net (losses) on sales of securities................... (330) (220) (550)
Other operating income................................ 6,461 807 7,268
------------ ------------ ------------ -------------
Total noninterest income.......................... 12,944 2,039 -- 14,983
------------ ------------ ------------ -------------
Noninterest expense:
Salaries and employee benefits........................ 17,647 5,087 22,734
Occupancy and equipment expense....................... 5,646 1,340 6,986
Other operating expense............................... 15,265 2,335 17,600
------------ ------------ ------------ -------------
Total noninterest expense......................... 38,558 8,762 -- 47,320
------------ ------------ ------------ -------------
Income before provision for income taxes................ 11,448 2,149 -- 13,597
Provision for income taxes.............................. 2,658 538 3,196
------------ ------------ ------------ -------------
Net income.............................................. $ 8,790 $ 1,611 -- $ 10,401
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Earnings per Common Share--Basic:
Net income............................................ $ 1.39 $ 0.91 $ 1.22
Weighted average number of shares....................... 6,309,620 1,771,177 448,576(2) 8,529,373
Earnings per Common Share--Diluted:
Net income............................................ $ 1.38 $ 0.90 $ 1.21
Weighted average number of shares....................... 6,358,497 1,792,563 427,190(2) 8,578,250
</TABLE>
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)."
66
<PAGE>
F&M BANCORP--MONOCACY BANCSHARES, INC.
PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
FOR THE YEAR ENDED DECEMBER 31, 1995 FOR F&M AND MONOCACY
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
F&M PRO FORMA F&M BANCORP
BANCORP MONOCACY ADJUSTMENTS PRO FORMA
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans............................ $ 57,491 $ 13,535 $ 71,026
Interest and dividends on investment securities:...... --
Taxable............................................. 8,501 2,604 11,105
Tax-exempt.......................................... 3,570 740 4,310
Interest on deposits with banks....................... 181 132 313
Interest on federal funds sold........................ 381 68 449
------------ ------------ ------------ -------------
Total interest income............................. 70,124 17,079 -- 87,203
------------ ------------ ------------ -------------
Interest expense:
Interest on deposits.................................. 27,870 6,905 34,775
Interest on federal funds purchased and securities
sold under agreements to repurchase................. 2,215 55 2,270
Interest on advances from the FHLB of Atlanta......... 2,162 892 3,054
Interest on other borrowings.......................... 187 -- 187
------------ ------------ ------------ -------------
Total interest expense............................ 32,434 7,852 -- 40,286
------------ ------------ ------------ -------------
Net interest income..................................... 37,690 9,227 -- 46,917
Provision for credit losses............................. 1,651 885 2,536
------------ ------------ ------------ -------------
Net interest income after provision for credit losses... 36,039 8,342 -- 44,381
------------ ------------ ------------ -------------
Noninterest income:
Trust income.......................................... 1,560 151 1,711
Service charges on deposit accounts................... 4,097 329 4,426
Net gains on sales of loans........................... 3,061 167 3,228
Net (losses) gains on sales of securities............. (256) 55 (201)
Other operating income................................ 5,841 725 6,566
------------ ------------ ------------ -------------
Total noninterest income.......................... 14,303 1,427 -- 15,730
------------ ------------ ------------ -------------
Noninterest expense:
Salaries and employee benefits........................ 16,444 3,805 30,249
Occupancy and equipment expense....................... 4,867 1,106 5,973
Other operating expense............................... 15,989 1,625 17,614
------------ ------------ ------------ -------------
Total noninterest expense......................... 37,300 6,536 -- 43,836
------------ ------------ ------------ -------------
Income before provision for income taxes................ 13,042 3,233 -- 16,275
Provision for income taxes.............................. 2,379 882 3,261
------------ ------------ ------------ -------------
Net income.............................................. $ 10,663 $ 2,351 -- $ 13,014
------------ ------------ ------------ -------------
------------ ------------ ------------ -------------
Earnings per Common Share--Basic:
Net income............................................ $ 1.69 $ 1.33 $ 1.53
Weighted average number of shares....................... 6,294,626 1,761,694 458,059(2) 8,514,379
Earnings per Common Share--Diluted:
Net income............................................ $ 1.68 $ 1.32 $ 1.52
Weighted average number of shares....................... 6,347,986 1,776,246 443,507(2) 8,567,739
</TABLE>
See "NOTES TO PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)."
67
<PAGE>
F&M BANCORP AND
MONOCACY BANCSHARES, INC.
NOTES TO PRO FORMA CONDENSED COMBINED
FINANCIAL STATEMENTS (UNAUDITED)
(1) Represents the issuance of 2,219,753 shares of F&M Bancorp Common Stock
pursuant to the Merger Agreement. Under the terms of the Merger Agreement, if
the Average Closing Price of F&M Bancorp Common Stock is less than $34.425, then
up to an additional 62,000 shares of F&M Bancorp Common Stock could be issued.
As of the date of this Joint Proxy Statement-Prospectus, the closing price of
F&M Bancorp Common Stock was $ .
(2) Represents the adjustment necessary to increase Monocacy's weighted average
shares outstanding to a total of 2,219,753 shares of F&M Bancorp Common Stock to
be issued pursuant to the Merger Agreement.
(3) F&M Bancorp expects to incur a non-recurring merger and restructuring charge
of approximately $3.9 million, on a pre-tax basis, which will be recognized upon
consummation of the transaction.
68
<PAGE>
LEGAL MATTERS
The validity of the shares of F&M Bancorp Common Stock which will be issued
in the Merger and other legal matters in connection with the Merger will be
passed upon for F&M Bancorp by Gordon M. Cooley, General Counsel and Secretary.
As of the date of this document, Mr. Cooley benefically owned shares of F&M
Bancorp Common Stock and held options to purchase shares of F&M Bancorp
Common Stock.
Certain legal matters in connection with the Merger will be passed upon for
Monocacy by Miles & Stockbridge P.C. and for F&M Bancorp by Skadden, Arps,
Slate, Meagher & Flom LLP.
EXPERTS
The consolidated financial statements of F&M Bancorp and subsidiaries as of
December 31, 1997 and 1996 and for each of the years in the three year period
ended December 31, 1997, included in F&M Bancorp's 1997 Form 10-K incorporated
by reference into this Joint Proxy Statement-Prospectus, have been incorporated
by reference herein and in the Registration Statement of which this Joint Proxy
Statement-Prospectus is a part in reliance upon the reports of Arthur Andersen,
LLP, and Smith, Elliott Kearns & Company LLC independent auditors, included in
F&M Bancorp's 1997 Form 10-K and incorporated by reference herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Monocacy Bancshares, Inc. and
subsidiaries as of December 31, 1997 and 1996 and for each of the years in the
three-year period ended December 31, 1997, included in Monocacy's 1997 Form
10-KSB and incorporated by reference into this Joint Proxy Statement-Prospectus,
have been incorporated by reference herein and in the Registration Statement of
which the Joint Proxy Statement-Prospectus is a part in reliance upon the report
of Stegman & Company, independent auditors, included in Monocacy's 1997 Form
10-KSB and incorporated by reference herein, and upon the authority of said firm
as experts in accounting and auditing.
STOCKHOLDER PROPOSALS
Proposals of stockholders intended to be presented at the 1999 Annual
Meeting of Stockholders of F&M Bancorp must be received by F&M Bancorp no later
than November 19, 1998 for inclusion in F&M Bancorp's Proxy Statement and Form
of Proxy relating to that meeting.
Monocacy's intention is to hold a 1999 Annual Meeting of Stockholders only
if the Merger is not consummated. In the event of such a meeting, in order to be
considered for inclusion in Monocacy's proxy materials for the 1999 Annual
Meeting of Stockholders, stockholder proposals must have been received at
Monocacy's principal executive offices no later than November 24, 1998.
69
<PAGE>
AVAILABLE INFORMATION
Each of F&M Bancorp and Monocacy is subject to the informational
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and in accordance therewith files reports, proxy statements and other
information with the Commission. The reports, proxy statements and other
information filed by F&M Bancorp and Monocacy with the Commission can be
inspected and copied at the public reference facilities maintained by the
Commission at Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at
the Commission's Regional Offices at 7 World Trade Center, New York, New York
10048 and Citicorp Center, 500 West Madison, Suite 1400, Chicago, Illinois
60661. Copies of such material also can be obtained from the Public Reference
Section of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates or from the Web Site maintained by the Commission at "http:/
/www.sec.gov." In addition, material filed by F&M Bancorp and Monocacy can be
inspected at the offices of the National Association of Securities Dealers,
Inc., 1735 K Street, N.W., Washington, D.C. 20006.
F&M Bancorp has filed with the Commission a Registration Statement on Form
S-4 (together with any amendments thereof, the "Registration Statement") under
the Securities Act of 1933, as amended (the "Securities Act"), with respect to
the shares of F&M Bancorp Common Stock to be issued pursuant to the Merger
Agreement. This Joint Proxy Statement-Prospectus does not contain all the
information set forth in the Registration Statement and the exhibits thereto.
Such additional information may be inspected and copied as set forth above.
Statements contained in this Joint Proxy Statement-Prospectus or in any document
incorporated by reference in this Joint Proxy Statement-Prospectus as to the
contents of any contract or other document referred to herein or therein are not
necessarily complete, and in each instance reference is made to the copy of such
contract or other document filed as an exhibit to the Registration Statement or
such other document, each such statement being qualified in all respects by such
reference.
70
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the Commission by F&M Bancorp (File No.
0-12638) and Monocacy (File No. 0-22536) are incorporated by reference in this
Joint Proxy Statement-Prospectus:
1. F&M Bancorp's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997.
2. F&M Bancorp's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
3. F&M Bancorp's Current Report on Form 8-K, filed on September 10,
1998.
4. The description of F&M Bancorp Common Stock set forth in F&M
Bancorp's registration statements filed by F&M Bancorp pursuant to Section
12 of the Exchange Act including any amendment or report filed for purposes
of updating any such description.
5. F&M Bancorp's Proxy Statement for the Annual Meeting of Stockholders
held on April 21, 1998.
6. Monocacy's Annual Report on Form 10-K for the fiscal year ended
December 31, 1997 (the "1997 Monocacy Form 10-K").
7. Monocacy's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1998 and June 30, 1998.
8. Monocacy's Current Reports on Form 8-K filed on May 21, 1998 and
September 10, 1998.
9. The description of Monocacy Common Stock set forth in Monocacy's
Registration Statement filed by Monocacy pursuant to Section 12 of the
Exchange Act including any amendment or report filed for purposes of
updating any such description.
10. The portions of Monocacy's Proxy Statement for the Annual Meeting of
Stockholders held on April 27, 1998 that have been incorporated by reference
in the 1997 Monocacy Form 10-K.
All documents and reports filed by F&M Bancorp and Monocacy pursuant to
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Joint Proxy Statement-Prospectus and prior to the date of the Special Meetings
shall be deemed to be incorporated by reference in this Joint Proxy Statement-
Prospectus and to be a part hereof from the dates of filing of such documents or
reports. Any statement contained in a document or report incorporated or deemed
to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Joint Proxy Statement-Prospectus to the extent
that a statement contained herein, or in any other subsequently filed document
or report which also is deemed to be incorporated by reference herein, modifies
or supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Joint Proxy Statement-Prospectus.
THIS JOINT PROXY STATEMENT-PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE
WHICH ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. SUCH DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED BY
REFERENCE) ARE AVAILABLE, WITHOUT CHARGE, TO ANY PERSON, INCLUDING ANY
BENEFICIAL OWNER, TO WHOM THIS JOINT PROXY STATEMENT-PROSPECTUS IS DELIVERED, ON
WRITTEN OR ORAL REQUEST, IN THE CASE OF DOCUMENTS RELATING TO F&M BANCORP, TO
F&M BANCORP, 110 THOMAS JOHNSON DRIVE, FREDERICK, MARYLAND 21702, ATTENTION:
DAVID L. SPILMAN, TREASURER, TELEPHONE NUMBER (301) 694-4000, AND IN THE CASE OF
DOCUMENTS RELATING TO MONOCACY, TO MONOCACY BANCSHARES, INC., 222 EAST BALTIMORE
STREET, TANEYTOWN, MARYLAND 21787, ATTENTION: BRIAN M. ETZLER, SECRETARY,
TELEPHONE NUMBER (410) 756-2655. IN ORDER TO ENSURE TIMELY DELIVERY OF THE
DOCUMENTS, REQUESTS SHOULD BE RECEIVED BY NOVEMBER 17, 1998.
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THIS JOINT PROXY STATEMENT-PROSPECTUS CONTAINS CERTAIN FORWARD LOOKING
STATEMENTS WITH RESPECT TO THE FINANCIAL CONDITION, RESULTS OF OPERATIONS AND
BUSINESS OF F&M BANCORP FOLLOWING THE CONSUMMATION OF THE MERGER, INCLUDING
STATEMENTS RELATING TO: (A) THE COST SAVINGS AND REVENUE ENHANCEMENTS THAT ARE
EXPECTED TO BE REALIZED FROM THE MERGER, (B) THE IMPACT ON REVENUES OF THE
MERGER, (C) PROJECTED EARNINGS PER SHARE OF THE COMBINED COMPANY, AND (D) THE
RESTRUCTURING CHARGES EXPECTED TO BE INCURRED IN CONNECTION WITH THE MERGER. SEE
"SUMMARY", "BOARD OF DIRECTORS AND MANAGEMENT FOLLOWING THE MERGER" AND "PRO
FORMA CONDENSED COMBINED FINANCIAL STATEMENTS (UNAUDITED)." FACTORS THAT MAY
CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE CONTEMPLATED BY SUCH
FORWARD LOOKING STATEMENTS INCLUDE, AMONG OTHERS, THE FOLLOWING POSSIBILITIES:
(1) EXPECTED COST SAVINGS FROM THE MERGER CANNOT BE FULLY REALIZED WITHIN THE
EXPECTED TIME FRAME OR THEREAFTER; (2) REVENUES FOLLOWING THE MERGER ARE LOWER
THAN EXPECTED; (3) COMPETITIVE PRESSURE AMONG DEPOSITORY INSTITUTIONS INCREASES
SIGNIFICANTLY; (4) COSTS OR DIFFICULTIES RELATED TO THE INTEGRATION OF THE
BUSINESSES OF F&M BANCORP AND MONOCACY ARE GREATER THAN EXPECTED; (5) CHANGES IN
THE INTEREST RATE ENVIRONMENT REDUCE INTEREST MARGINS; (6) GENERAL ECONOMIC
CONDITIONS, EITHER NATIONALLY OR IN THE MARKETS IN WHICH THE COMBINED COMPANY
WILL BE DOING BUSINESS, ARE LESS FAVORABLE THAN EXPECTED; OR (7) LEGISLATION OR
REGULATORY REQUIREMENTS OR CHANGES ADVERSELY AFFECT THE BUSINESSES IN WHICH THE
COMBINED COMPANY WOULD BE ENGAGED.
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APPENDIX A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND BETWEEN
F&M BANCORP
AND
MONOCACY BANCSHARES, INC.
- ----------------------------------------------------------------------
DATED AS OF SEPTEMBER 4, 1998
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TABLE OF CONTENTS
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ARTICLE I
THE MERGER................................................................................................. 2
1.1. The Merger................................................................................... 2
1.2. Effective Time............................................................................... 2
1.3. Effects of the Merger........................................................................ 2
1.4. Conversion of Company Common Stock........................................................... 2
1.5. Stock Options................................................................................ 4
1.6. Buyer Common Stock........................................................................... 4
1.7. Articles of Incorporation.................................................................... 5
1.8. By-Laws...................................................................................... 5
1.9. Directors and Officers....................................................................... 5
1.10. Tax Consequences; Accounting Treatment....................................................... 5
ARTICLE II
EXCHANGE OF SHARES......................................................................................... 5
2.1. Buyer to Make Shares Available............................................................... 5
2.2. Exchange of Shares........................................................................... 6
ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS FOR REPRESENTATIONS
AND WARRANTIES............................................................................................. 8
3.1. Disclosure Schedules......................................................................... 8
3.2. Standards.................................................................................... 8
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.............................................................. 9
4.1. Corporate Organization....................................................................... 9
4.2. Capitalization............................................................................... 10
4.3. Authority; No Violation...................................................................... 11
4.4. Consents and Approvals....................................................................... 13
4.5. Reports...................................................................................... 14
4.6. Financial Statements......................................................................... 14
4.7. Broker's Fees................................................................................ 15
4.8. Absence of Certain Changes or Events......................................................... 15
4.9. Legal Proceedings............................................................................ 16
4.10. Taxes........................................................................................ 16
4.11. Employees.................................................................................... 17
4.12. SEC Reports.................................................................................. 19
4.13. Company Information.......................................................................... 19
4.14. Compliance with Applicable Law............................................................... 19
4.15. Certain Contracts............................................................................ 19
4.16. Agreements with Regulatory Agencies.......................................................... 20
4.17. Investment Securities........................................................................ 21
4.18. Intellectual Property........................................................................ 21
4.19. State Takeover Laws; Articles of Incorporation............................................... 21
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4.20. Administration of Fiduciary Accounts......................................................... 21
4.21. Environmental Matters........................................................................ 22
4.22. Derivative Transactions...................................................................... 23
4.23. Opinion...................................................................................... 23
4.24. Approvals.................................................................................... 23
4.25. Loan Portfolio............................................................................... 23
4.26. Accounting for the Merger; Reorganization.................................................... 24
4.27. Ownership of Company Common Stock............................................................ 24
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF BUYER.................................................................... 25
5.1. Corporate Organization....................................................................... 25
5.2. Capitalization............................................................................... 26
5.3. Authority; No Violation...................................................................... 26
5.4. Consents and Approvals....................................................................... 28
5.5. Reports...................................................................................... 28
5.6. Financial Statements......................................................................... 29
5.7. Broker's Fees................................................................................ 30
5.8. Absence of Certain Changes or Events......................................................... 30
5.9. Legal Proceedings............................................................................ 30
5.10. Taxes........................................................................................ 30
5.11. Employees.................................................................................... 31
5.12. SEC Reports.................................................................................. 32
5.13. Buyer Information............................................................................ 33
5.14. Compliance with Applicable Law............................................................... 33
5.15. Ownership of Company Common Stock; Affiliates and Associates................................. 33
5.16. Agreements with Regulatory Agencies.......................................................... 33
5.17. Investment Securities........................................................................ 34
5.18. Intellectual Property........................................................................ 34
5.19. Approvals.................................................................................... 34
5.20. Administration of Fiduciary Accounts......................................................... 34
5.21. Accounting for the Merger; Reorganization.................................................... 34
5.22. Opinion...................................................................................... 35
5.23. Environmental Matters........................................................................ 35
5.24. Derivative Transactions...................................................................... 36
5.25. Loan Portfolio............................................................................... 36
5.26. Vote Required................................................................................ 37
ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS.................................................................. 38
6.1. Covenants of the Company..................................................................... 38
6.2. Covenants of Buyer........................................................................... 42
ARTICLE VII
ADDITIONAL AGREEMENTS...................................................................................... 43
7.1. Regulatory Matters........................................................................... 43
7.2. Access to Information........................................................................ 45
7.3. Stockholder Meetings......................................................................... 47
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7.4. Legal Conditions to Merger................................................................... 47
7.5. Affiliates................................................................................... 47
7.6. Stock Exchange Listing....................................................................... 48
7.7. Employee Benefit Plans; Existing Agreements.................................................. 48
7.8. Indemnification.............................................................................. 49
7.9. Additional Agreements........................................................................ 50
7.10. Advice of Changes............................................................................ 51
7.11. Current Information.......................................................................... 51
7.12. Execution and Authorization of Bank Merger Agreement......................................... 51
7.13. Directorship................................................................................. 51
7.14. Coordination of Dividends.................................................................... 52
ARTICLE VIII
CONDITIONS PRECEDENT....................................................................................... 52
8.1. Conditions to Each Party's Obligation To Effect the Merger................................... 52
8.2. Conditions to Obligations of Buyer........................................................... 53
8.3. Conditions to Obligations of the Company..................................................... 54
ARTICLE IX
TERMINATION AND AMENDMENT.................................................................................. 56
9.1. Termination.................................................................................. 56
9.2. Effect of Termination; Expenses.............................................................. 57
9.3. Amendment.................................................................................... 57
9.4. Extension; Waiver............................................................................ 58
ARTICLE X
GENERAL PROVISIONS......................................................................................... 58
10.1. Closing...................................................................................... 58
10.2. Alternative Structure........................................................................ 58
10.3. Nonsurvival of Representations, Warranties and Agreements.................................... 59
10.4. Expenses..................................................................................... 59
10.5. Notices...................................................................................... 59
10.6. Interpretation............................................................................... 60
10.7. Counterparts................................................................................. 60
10.8. Entire Agreement............................................................................. 61
10.9. Governing Law................................................................................ 61
10.10. Enforcement of Agreement..................................................................... 61
10.11. Severability................................................................................. 61
10.12. Publicity.................................................................................... 61
10.13. Assignment; No Third Party Beneficiaries..................................................... 61
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AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 4, 1998, by and between
F&M Bancorp, a Maryland corporation ("Buyer"), and Monocacy Bancshares, Inc., a
Maryland corporation (the "Company"). (Buyer and the Company are sometimes
collectively referred to herein as the "Constituent Corporations".)
WHEREAS, the Boards of Directors of Buyer and the Company have determined
that it is in the best interests of their respective companies and their
stockholders to consummate the business combination transaction provided for
herein in which the Company will, subject to the terms and conditions set forth
herein, merge (the "Merger") with and into Buyer; and
WHEREAS, as soon as practicable after the execution and delivery of this
Agreement, Farmers & Mechanics National Bank, a banking association organized
under the laws of the United States and a wholly owned subsidiary of Buyer
("Buyer Bank," and sometimes referred to herein as the "Surviving Bank"), and
Taneytown Bank & Trust Company, a Maryland-chartered commercial bank and a
wholly owned subsidiary of the Company (the "Company Bank"), will enter into a
Subsidiary Agreement and Plan of Merger in substantially the form set forth on
EXHIBIT A hereto (the "Bank Merger Agreement") providing for the merger (the
"Subsidiary Merger") of the Company Bank with and into Buyer Bank, and it is
intended that the Subsidiary Merger be consummated immediately following the
consummation of the Merger; and
WHEREAS, the parties desire to make certain representations, warranties and
agreements in connection with the Merger and also to prescribe certain
conditions to the Merger; and
WHEREAS, for federal income tax purposes, it is intended that the Merger
will qualify as a reorganization under the provisions of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, for financial accounting purposes, it is intended that the Merger
will be accounted for as a pooling of interests transaction.
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, the parties agree as follows:
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ARTICLE I
THE MERGER
1.1. THE MERGER. Subject to the terms and conditions of this Agreement, in
accordance with the Maryland General Corporation Law (the "MGCL"), at the
Effective Time (as defined in Section 1.2 hereof), the Company shall merge with
and into Buyer. Buyer shall be the surviving corporation (hereinafter sometimes
called the "Surviving Corporation") in the Merger, and shall continue its
corporate existence under the laws of the State of Maryland. The name of the
Surviving Corporation shall continue to be F&M Bancorp. Upon consummation of the
Merger, the separate corporate existence of the Company shall terminate.
1.2. EFFECTIVE TIME. The Merger shall become effective as set forth in the
articles of merger (the "Articles of Merger") which shall be filed with the
State Department of Assessments and Taxation (the "Department") on the Closing
Date (as defined in Section 10.1 hereof). The term "Effective Time" shall be the
date and time when the Merger becomes effective, as set forth in the Articles of
Merger.
1.3. EFFECTS OF THE MERGER. At and after the Effective Time, the Merger
shall have the effects set forth in Section 3-114 of the MGCL.
1.4. CONVERSION OF COMPANY COMMON STOCK. (a) At the Effective Time, subject
to Section 2.2(e) hereof, each share of the common stock, par value $5.00 per
share, of the Company (the "Company Common Stock") issued and outstanding
immediately prior to the Effective Time (other than shares of Company Common
Stock held directly or indirectly by Buyer or the Company or any of their
respective Subsidiaries (as defined below) (except for Trust Account Shares and
DPC Shares, as such terms are defined in Section 1.4(b) hereof)) shall, by
virtue of this Agreement and without any action on the part of the holder
thereof, be converted into and exchangeable for a number of shares of the common
stock, par value $5.00 per share, of Buyer ("Buyer Common Stock") equal to the
quotient obtained by dividing the Share Number (as hereinafter defined) by the
number of shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time (such quotient being hereinafter referred to as the
"Exchange Ratio"). The "Share Number" shall be 2,219,753, PROVIDED, HOWEVER,
that (i) if the Average Closing Price (as hereinafter defined) is less than
$34.425 then the Share Number shall be increased to the extent necessary so that
the product of the Share Number and the Average Closing Price shall equal
$76,415,000, PROVIDED, that in no event shall the Share Number be greater than
2,281,753, and (ii) if the Average Closing Price is greater than $46.575, then
the Share Number shall be reduced to the extent necessary so that the product of
the Share Number and the Average Closing Price shall equal $103,384,996,
PROVIDED, that in no event shall the Share Number be less than 2,157,753. As
used herein, "Average Closing Price" shall mean the average of the last reported
sale prices per share of Buyer Common Stock as reported on The Nasdaq Market's
National Market ("Nasdaq/NMS") (as reported in THE WALL STREET JOURNAL or, if
not reported therein, in another mutually agreed upon authoritative source) for
the 15 consecutive trading days ending on the fifth business day prior to the
Closing Date (as hereinafter defined). All of the shares of Company Common Stock
converted into Buyer Common Stock pursuant to this Article I shall no longer be
outstanding and shall automatically be cancelled and shall cease to exist, and
each certificate (each a "Certificate") previously representing any such shares
of Company Common Stock shall thereafter only represent the right to receive (i)
the number of whole shares of Buyer Common Stock and (ii) the cash in lieu of
fractional shares into which the shares of Company Common Stock represented by
such Certificate have been converted pursuant to this Section 1.4(a) and Section
2.2(e) hereof. Certificates previously representing shares of Company Common
Stock shall be exchanged for certificates representing whole shares of Buyer
Common Stock and cash in lieu of fractional shares issued in consideration
therefor upon the surrender of such Certificates in accordance with Section 2.2
hereof, without any interest thereon. If, between the date of this Agreement and
the Effective Time, the outstanding shares of Buyer Common Stock shall be
changed into a different number
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or class of shares by reason of any reclassification, recapitalization,
split-up, combination, exchange of shares or readjustment, or a stock dividend
thereon shall be declared with a record date within said period, the Exchange
Ratio shall be adjusted accordingly.
(b) At the Effective Time, all shares of Company Common Stock that are owned
directly or indirectly by Buyer or the Company or any of their respective
Subsidiaries (other than shares of Company Common Stock (x) held directly or
indirectly in trust accounts, managed accounts and the like or otherwise held in
a fiduciary capacity for the benefit of third parties (any such shares, and
shares of Buyer Common Stock which are similarly held, whether held directly or
indirectly by Buyer or the Company, as the case may be, being referred to herein
as "Trust Account Shares") and (y) held by Buyer or the Company or any of their
respective Subsidiaries in respect of a debt previously contracted (any such
shares of Company Common Stock, and shares of Buyer Common Stock which are
similarly held, whether held directly or indirectly by Buyer or the Company,
being referred to herein as "DPC Shares")) shall be cancelled and shall cease to
exist and no stock of Buyer or other consideration shall be delivered in
exchange therefor. All shares of Buyer Common Stock that are owned by the
Company or any of its Subsidiaries (other than Trust Account Shares and DPC
Shares) shall become authorized but unissued shares of Buyer Common Stock.
1.5. STOCK OPTIONS. (a) At the Effective Time, each option granted by the
Company (a "Company Option") to purchase shares of Company Common Stock which is
outstanding and unexercised (whether vested or unvested) immediately prior
thereto shall be assumed by Buyer and converted automatically into an option (a
"Buyer Option") to purchase shares of Buyer Common Stock in an amount and at an
exercise price determined as provided below (and otherwise subject to the terms
of the Company's 1994 Stock Incentive Plan and the Company's 1997 Independent
Directors' Stock Option Plan (collectively, the "Company Plans")):
(1) the number of shares of Buyer Common Stock to be subject to the new
option shall be equal to the product of the number of shares of Company
Common Stock subject to the original option and the Exchange Ratio, provided
that any fractional shares of Buyer Common Stock resulting from such
multiplication shall be rounded down to the nearest whole share; and
(2) the exercise price per share of Buyer Common Stock under the new
option shall be equal to the exercise price per share of Company Common
Stock under the original option divided by the Exchange Ratio, provided that
such exercise price shall be rounded up to the nearest whole cent.
The adjustment provided herein with respect to any options which are
"incentive stock options" (as defined in Section 422 of the Code) shall be and
is intended to be effected in a manner which is consistent with Section 424(a)
of the Code and, to the extent it is not so consistent, such Section 424(a)
shall override anything to the contrary contained herein. The duration and other
terms of the new option shall be the same as the original option, except that
all references to the Company shall be deemed to be references to Buyer.
(b) Buyer shall take all corporate action necessary to reserve for issuance
a sufficient number of shares of Buyer Common Stock for delivery upon exercise
of Buyer Options, and, at or prior to the Effective Time, Buyer shall file a
registration statement on Form S-8 (or other appropriate form) with respect to
the shares of Buyer Common Stock subject to Buyer Options, and shall use its
best efforts to maintain the effectiveness of such registration statement for so
long as any Buyer Options remain outstanding.
1.6. BUYER COMMON STOCK. Except for shares of Buyer Common Stock owned by
the Company or any of its Subsidiaries (other than Trust Account Shares and DPC
Shares), which shall constitute authorized but unissued shares of Buyer Common
Stock as contemplated by Section 1.4 hereof, the shares of Buyer Common Stock
issued and outstanding immediately prior to the Effective Time shall be
unaffected by the Merger and such shares shall remain issued and outstanding.
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1.7. ARTICLES OF INCORPORATION. At the Effective Time, the Articles of
Incorporation of Buyer, as in effect at the Effective Time, shall be the
Articles of Incorporation of the Surviving Corporation.
1.8. BY-LAWS. At the Effective Time, the By-Laws of Buyer, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation until thereafter amended in accordance with applicable law.
1.9. DIRECTORS AND OFFICERS. Except as contemplated by Section 7.13 hereof,
the directors and officers of Buyer immediately prior to the Effective Time
shall be the directors and officers of the Surviving Corporation, each to hold
office in accordance with the Articles of Incorporation and By-Laws of the
Surviving Corporation until their respective successors are duly elected or
appointed and qualified.
1.10. TAX CONSEQUENCES; Accounting Treatment. It is intended that the Merger
shall (i) constitute a reorganization within the meaning of Section 368(a) of
the Code, and that this Agreement shall constitute a "plan of reorganization"
for purposes of Section 368 of the Code, and (ii) be accounted for as a
"pooling-of-interests" under GAAP (as defined herein).
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ARTICLE II
EXCHANGE OF SHARES
2.1. BUYER TO MAKE SHARES AVAILABLE. At or prior to the Effective Time,
Buyer shall deposit, or shall cause to be deposited, with a bank or trust
company (which may be a Subsidiary of Buyer) (the "Exchange Agent"), selected by
Buyer and reasonably satisfactory to the Company, for the benefit of the holders
of Certificates, for exchange in accordance with this Article II, certificates
representing the shares of Buyer Common Stock and the cash in lieu of fractional
shares (such cash and certificates for shares of Buyer Common Stock, together
with any dividends or distributions with respect thereto, being hereinafter
referred to as the "Exchange Fund") to be issued pursuant to Section 1.4 and
paid pursuant to Section 2.2(a) in exchange for outstanding shares of Company
Common Stock.
2.2. EXCHANGE OF SHARES. (a) As soon as practicable after the Effective
Time, and in no event more than five business days thereafter, the Exchange
Agent shall mail to each holder of record of a Certificate or Certificates a
form letter of transmittal (which shall specify that delivery shall be effected,
and risk of loss and title to the Certificates shall pass, only upon delivery of
the Certificates to the Exchange Agent) advising such holder of the
effectiveness of the Merger and instructions for use in effecting the surrender
of the Certificates in exchange for certificates representing the shares of
Buyer Common Stock and the cash in lieu of fractional shares into which the
shares of Company Common Stock represented by such Certificate or Certificates
shall have been converted pursuant to this Agreement. The Company shall have the
right to review both the letter of transmittal and the instructions not less
than five (5) business days prior to the Effective Time and provide reasonable
comments thereon. Upon surrender of a Certificate for exchange and cancellation
to the Exchange Agent, together with such letter of transmittal, duly executed,
the holder of such Certificate shall be entitled to receive in exchange therefor
(x) a certificate representing that number of whole shares of Buyer Common Stock
to which such holder of Company Common Stock shall have become entitled pursuant
to the provisions of Article I hereof and (y) a check representing the amount of
cash in lieu of fractional shares, if any, which such holder has the right to
receive in respect of the Certificate surrendered pursuant to the provisions of
this Article II, and the Certificate so surrendered shall forthwith be
cancelled. No interest will be paid or accrued on the cash in lieu of fractional
shares and unpaid dividends and distributions, if any, payable to holders of
Certificates.
(b) Whenever a dividend or other distribution is declared by Buyer on Buyer
Common Stock, the record date for which is at or after the Effective Time, the
declaration shall include dividends or other distributions on all shares of
Buyer Common Stock issuable pursuant to the Merger. No dividends or other
distributions declared at or after the Effective Time with respect to Buyer
Common Stock and payable to the holders of record thereof shall be paid to the
holder of any unsurrendered Certificate until the holder thereof shall surrender
such Certificate in accordance with this Article II. After the surrender of a
Certificate in accordance with this Article II, the record holder thereof shall
be entitled to receive any such dividends or other distributions, without any
interest thereon, which theretofore had become payable with respect to shares of
Buyer Common Stock represented by such Certificate. No holder of an
unsurrendered Certificate shall be entitled, until the surrender of such
Certificate, to vote the shares of Buyer Common Stock into which his Company
Common Stock shall have been converted.
(c) If any certificate representing shares of Buyer Common Stock is to be
issued in a name other than that in which the Certificate surrendered in
exchange therefor is registered, it shall be a condition of the issuance thereof
that the Certificate so surrendered shall be properly endorsed (or accompanied
by an appropriate instrument of transfer) and otherwise in proper form for
transfer, and that the person requesting such exchange shall pay to the Exchange
Agent in advance any transfer or other taxes required by reason of the issuance
of a certificate representing shares of Buyer Common Stock in any name other
than that of the registered holder of the Certificate surrendered, or required
for any other reason, or shall establish to the satisfaction of the Exchange
Agent that such tax has been paid or is not payable.
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(d) After the Effective Time, there shall be no transfers on the stock
transfer books of the Company of the shares of Company Common Stock which were
issued and outstanding immediately prior to the Effective Time. If, after the
Effective Time, Certificates representing such shares are presented for transfer
to the Exchange Agent, they shall be cancelled and exchanged for certificates
representing shares of Buyer Common Stock as provided in this Article II.
(e) Notwithstanding anything to the contrary contained herein, no
certificates or scrip representing fractional shares of Buyer Common Stock shall
be issued upon the surrender for exchange of Certificates, no dividend or
distribution with respect to Buyer Common Stock shall be payable on or with
respect to any fractional share, and such fractional share interests shall not
entitle the owner thereof to vote or to any other rights of a stockholder of
Buyer. In lieu of the issuance of any such fractional share, Buyer shall pay to
each former stockholder of the Company who otherwise would be entitled to
receive a fractional share of Buyer Common Stock an amount in cash determined by
multiplying (i) the Average Closing Price by (ii) the fraction of a share of
Buyer Common Stock to which such holder would otherwise be entitled to receive
pursuant to Section 1.4 hereof.
(f) Any portion of the Exchange Fund that remains unclaimed by the
stockholders of the Company for six months after the Effective Time shall be
delivered by the Exchange Agent to Buyer. Any stockholders of the Company who
have not theretofore complied with this Article II shall thereafter be entitled
to look to Buyer for payment of their shares of Buyer Common Stock, cash in lieu
of fractional shares and unpaid dividends and distributions on Buyer Common
Stock deliverable in respect of each share of Company Common Stock such
stockholder holds as determined pursuant to this Agreement, in each case,
without any interest thereon. Notwithstanding the foregoing, none of Buyer, the
Company, the Exchange Agent or any other person shall be liable to any former
holder of shares of Company Common Stock for any amount properly delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws.
(g) In the event any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the person claiming such
Certificate to be lost, stolen or destroyed and, if required by Buyer, the
posting by such person of a bond in such amount as Buyer reasonably may direct
as indemnity against any claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for such lost, stolen or
destroyed Certificate the shares of Buyer Common Stock, cash in lieu of
fractional shares and unpaid dividends and distributions deliverable in respect
thereof pursuant to this Agreement.
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ARTICLE III
DISCLOSURE SCHEDULES; STANDARDS
FOR REPRESENTATIONS AND WARRANTIES
3.1. DISCLOSURE SCHEDULES. Prior to the execution and delivery of this
Agreement, the Company has delivered to Buyer, and Buyer has delivered to the
Company, a schedule (in the case of the Company, the "Company Disclosure
Schedule," and in the case of Buyer, the "Buyer Disclosure Schedule") setting
forth, among other things, items the disclosure of which is necessary or
appropriate either in response to an express disclosure requirement contained in
a provision hereof or as an exception to one or more of such party's
representations or warranties contained in Article IV, in the case of the
Company, or Article V, in the case of Buyer, or to one or more of such party's
covenants contained in Article VI; PROVIDED, HOWEVER, that notwithstanding
anything in this Agreement to the contrary (a) no such item is required to be
set forth in the Disclosure Schedule as an exception to a representation or
warranty if its absence would not result in the related representation or
warranty being deemed untrue or incorrect under the standard established by
Section 3.2, and (b) the mere inclusion of an item in a Disclosure Schedule as
an exception to a representation or warranty shall not be deemed an admission by
a party that such item represents a material exception or material fact, event
or circumstance or that such item has had or would have a Material Adverse
Effect (as defined herein) with respect to either the Company or Buyer,
respectively.
3.2. STANDARDS. (a) No representation or warranty of the Company contained
in Article IV or of Buyer in Article V shall be deemed untrue or incorrect for
any purpose under this Agreement, including for purposes of Section 8.2(a) and
Section 8.3(a), and no party hereto shall be deemed to have breached a
representation or warranty for any purpose under this Agreement, in any case as
a consequence of the existence or absence of any fact, circumstance or event
unless such fact, circumstance or event, individually or when taken together
with all other facts, circumstances or events inconsistent with any
representations or warranties contained in Article IV, in the case of the
Company, or Article V, in the case of Buyer, has had or is reasonably likely to
have a Material Adverse Effect with respect to the Company or Buyer,
respectively.
(b) As used in this Agreement, the term "Material Adverse Effect" means,
with respect to Buyer or the Company, as the case may be, a material adverse
effect on (i) the business, results of operations or financial condition of such
party and its Subsidiaries taken as a whole, other than any such effect
attributable to or resulting from (x) any change in banking or similar laws,
rules or regulations of general applicability or interpretations thereof by
courts or governmental authorities, (y) any change in GAAP (as defined herein)
or regulatory accounting principles applicable to banks or their holding
companies generally, or (z) any action or omission of the Company or Buyer or
any Subsidiary of either of them taken with the prior written consent of the
other party hereto or (ii) the ability of such party and its Subsidiaries to
consummate the transactions contemplated hereby. As used in this Agreement, the
word "Subsidiary" when used with respect to any party means any corporation,
partnership or other organization, whether incorporated or unincorporated, which
is consolidated with such party for financial reporting purposes.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Buyer as follows:
4.1. CORPORATE ORGANIZATION. (a) The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Maryland. The Company has the corporate power and authority to own or lease all
of its properties and assets and to carry on its business as it is now being
conducted, and is duly qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such qualification necessary.
The Company is duly registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"). The Articles of Incorporation
and By-laws of the Company, copies of which have previously been delivered to
Buyer, are true, complete and correct copies of such documents as in effect as
of the date of this Agreement.
(b) The Company Bank is a commercial bank duly organized, validly existing
and in good standing under the laws of the State of Maryland. The deposit
accounts of the Company Bank are insured by the Federal Deposit Insurance
Corporation (the "FDIC") through the Bank Insurance Fund ("BIF") and/or the
Savings Association Insurance Fund ("SAIF") to the fullest extent permitted by
law, and all premiums and assessments required to be paid in connection
therewith have been paid when due by the Company Bank. Each of the Company's
other Subsidiaries is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation or organization.
Each of the Company's Subsidiaries has the corporate power and authority to own
or lease all of its properties and assets and to carry on its business as it is
now being conducted and is duly qualified to do business in each jurisdiction in
which the nature of the business conducted by it or the character or the
location of the properties and assets owned or leased by it makes such
qualification necessary. Except as set forth in Section 4.1(b) of the Company
Disclosure Schedule, the articles of incorporation, by-laws and similar
governing documents of each Subsidiary of the Company, copies of which have
previously been delivered to Buyer, are true, complete and correct copies of
such documents as in effect as of the date of this Agreement.
(c) Except as set forth in Section 4.1(c) of the Company Disclosure
Schedule, the minute books of the Company and each of its Subsidiaries contain
true, complete and accurate records in all material respects of all meetings and
other corporate actions held or taken since December 31, 1995 of their
respective stockholders and Boards of Directors (including committees of their
respective Boards of Directors).
4.2. CAPITALIZATION. (a) The authorized capital stock of the Company
consists of 4,000,000 shares of Company Common Stock. As of the date of this
Agreement, there are (x) 1,799,005 shares of Company Common Stock outstanding
and (y) no shares of Company Common Stock reserved for issuance upon exercise of
outstanding stock options or otherwise except for (i) 390,309 shares of Company
Common Stock reserved for issuance pursuant to the Company Option Plans and
described in Section 4.2(a) of the Disclosure Schedule which is being delivered
to Buyer concurrently herewith (the "Company Disclosure Schedule") and (ii)
358,002 shares of Company Common Stock reserved for issuance upon exercise of
the option issued to Buyer pursuant to the Stock Option Agreement, dated
September 4, 1998, between Buyer and the Company (the "Company Option
Agreement"). All of the issued and outstanding shares of Company Common Stock
have been duly authorized and validly issued and are fully paid and
nonassessable, with no personal liability attaching to the ownership thereof.
Except as referred to above or reflected in Section 4.2(a) of the Company
Disclosure Schedule, and except for the Company Option Agreement, the Company
does not have and is not bound by any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character calling for the
purchase or issuance of any shares of Company Common Stock or any other equity
security of the Company or any securities representing the right to purchase or
otherwise receive any shares of Company Common Stock or any other equity
security of the Company. The number of shares subject to each option to purchase
Company Common Stock granted and the price at which each such option may be
exercised are set forth in Section 4.2(a) of the
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Company Disclosure Schedule. The names of the optionees, the date of each option
to purchase Company Common Stock granted, and the expiration date of each such
option under the Company Option Plans are set forth in Section 4.2(a) of the
Company Disclosure Schedule.
(b) Section 4.2(b) of the Company Disclosure Schedule sets forth a true and
correct list of all of the Subsidiaries of the Company. Except as set forth in
Section 4.2(b) of the Company Disclosure Schedule, the Company owns, directly or
indirectly, all of the issued and outstanding shares of the capital stock of
each of such Subsidiaries, free and clear of all liens, charges, encumbrances
and security interests whatsoever, and all of such shares are duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. No
Subsidiary of the Company has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character calling for
the purchase or issuance of any shares of capital stock or any other equity
security of such Subsidiary or any securities representing the right to purchase
or otherwise receive any shares of capital stock or any other equity security of
such Subsidiary. Assuming compliance by Buyer with Section 1.5 hereof, at the
Effective Time, there will not be any outstanding subscriptions, options,
warrants, calls, commitments or agreements of any character by which the Company
or any of its Subsidiaries will be bound calling for the purchase or issuance of
any shares of the capital stock of the Company or any of its Subsidiaries.
4.3. AUTHORITY; NO VIOLATION. (a) The Company has full corporate power and
authority to execute and deliver this Agreement and the Company Option Agreement
(this Agreement and the Company Option Agreement, collectively, the "Company
Documents") and to consummate the transactions contemplated hereby and thereby.
The execution and delivery of each of the Company Documents and the consummation
of the transactions contemplated hereby and thereby have been duly and validly
approved by the Board of Directors of the Company. The Board of Directors of the
Company has directed that this Agreement and the transactions contemplated
hereby be submitted to the Company's stockholders for approval at a meeting of
such stockholders and, except for the approval of the Merger and this Agreement
by the requisite vote of the Company's stockholders, no other corporate
proceedings on the part of the Company are necessary to approve the Company
Documents and to consummate the transactions contemplated hereby and thereby.
Without limiting the foregoing, the Board of Directors of the Company has
adopted a resolution declaring that this Agreement, the Merger and the
transactions contemplated hereby and thereby are advisable on substantially the
terms set forth herein and that such proposed transactions be submitted for
consideration at a special meeting of the stockholders of the Company. Each of
the Company Documents has been duly and validly executed and delivered by the
Company and (assuming due authorization, execution and delivery by Buyer) this
Agreement constitutes a valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(b) The Company Bank has full corporate power and authority to execute and
deliver the Bank Merger Agreement and to consummate the transactions
contemplated thereby. The execution and delivery of the Bank Merger Agreement
and the consummation of the transactions contemplated thereby will be duly and
validly approved by the Board of Directors of the Company Bank. Upon the due and
valid approval of the Bank Merger Agreement by the Board of Directors of the
Company Bank and by the Company as the sole stockholder of the Company Bank, no
other corporate proceedings on the part of the Company Bank will be necessary to
consummate the transactions contemplated thereby. The Bank Merger Agreement,
upon execution and delivery by the Company Bank, will be duly and validly
executed and delivered by the Company Bank and will (assuming due authorization,
execution and delivery by Buyer Bank) constitute a valid and binding obligation
of the Company Bank, enforceable against the Company Bank in accordance with its
terms, except as enforcement may be limited by general principles of equity
whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
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(c) Except as set forth in Section 4.3(c) of the Company Disclosure
Schedule, neither the execution and delivery of the Company Documents by the
Company or the Bank Merger Agreement by the Company Bank, nor the consummation
by the Company or the Company Bank, as the case may be, of the transactions
contemplated hereby or thereby, nor compliance by the Company or the Company
Bank, as the case may be, with any of the terms or provisions hereof or thereof,
will (i) violate any provision of the Articles of Incorporation or By-Laws of
the Company or the articles of incorporation, by-laws or similar governing
documents of any of its Subsidiaries, or (ii) assuming that the consents and
approvals referred to in Section 4.4 hereof are duly obtained prior to the
Effective Time, (x) violate any statute, code, ordinance, rule, regulation,
judgment, order, writ, decree or injunction applicable to the Company or any of
its Subsidiaries, or any of their respective properties or assets, or (y)
violate, conflict with, result in a breach of any provision of or the loss of
any benefit under, constitute a default (or an event which, with notice or lapse
of time, or both, would constitute a default) under, result in the termination
of or a right of termination or cancellation under, accelerate the performance
required by, or result in the creation of any lien, pledge, security interest,
charge or other encumbrance upon any of the respective properties or assets of
the Company or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which the Company or any
of its Subsidiaries is a party, or by which they or any of their respective
properties or assets may be bound or affected.
4.4. CONSENTS AND APPROVALS. Except for (a) the filing of applications and
notices, as applicable, with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board") under the BHC Act and the Office of the
Comptroller of the Currency under the Bank Merger Act and approval of such
applications and notices, (b) the filing with the Securities and Exchange
Commission (the "SEC") of a joint proxy statement in definitive form relating to
the meetings of the Company's stockholders and Buyer's stockholders to be held
in connection with this Agreement and the transactions contemplated hereby (the
"Proxy Statement") and the filing and declaration of effectiveness of the
registration statement on Form S-4 (the "S-4") in which the Proxy Statement will
be included as a prospectus, (c) the approval of the Merger and this Agreement
by the requisite vote of the stockholders of the Company, (d) the filing of the
Articles of Merger with the Department pursuant to the MGCL, (e) the filings
required by or in connection with the Bank Merger Agreement, (f) the approval of
the Bank Merger Agreement by the Company as the sole stockholder of the Company
Bank, (g) authorization for quotation of Buyer Common Stock to be issued in the
Merger on the Nasdaq/NMS, (h) approval of the transactions contemplated by this
Agreement and the Bank Merger Agreement by the Maryland Commissioner of
Financial Regulation and/or filings in connection therewith pursuant to the
Financial Institutions Article of the Annotated Code of Maryland, (i) filings
under state securities and blue sky laws, (j) filings with or approvals of the
State Insurance Commissioner and (k) such filings, authorizations or approvals
as may be set forth in Section 4.4 of the Company Disclosure Schedule, no
consents or approvals of or filings or registrations with any court,
administrative agency or commission or other governmental authority or
instrumentality (each a "Governmental Entity") or with any third party are
necessary in connection with (1) the execution and delivery by the Company of
the Company Documents, (2) the consummation by the Company of the Merger and the
other transactions contemplated hereby and thereby, (3) the execution and
delivery by the Company Bank of the Bank Merger Agreement, and (4) the
consummation by the Company Bank of the Subsidiary Merger and the transactions
contemplated thereby.
4.5. REPORTS. The Company and each of its Subsidiaries have timely filed
all reports, registrations and statements, together with any amendments required
to be made with respect thereto, that they were required to file since December
31, 1995 with (i) the Federal Reserve Board, (ii) the FDIC, (iii) any state
banking commissions or any other state regulatory authority (each a "State
Regulator") and (iv) the National Association of Securities Dealers, Inc. and
any other self-regulatory organization ("SRO") (collectively, the "Regulatory
Agencies"), and have paid all fees and assessments due and payable in connection
therewith. Except for normal examinations conducted by a Regulatory Agency in
the regular course of the business of the Company and its Subsidiaries, and
except as set forth in Section 4.5 of the
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Company Disclosure Schedule, no Regulatory Agency has initiated any proceeding
or investigation into the business or operations of the Company or any of its
Subsidiaries since December 31, 1995. There is no unresolved material violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of the Company or any of its
Subsidiaries.
4.6. FINANCIAL STATEMENTS. The Company has previously made available to
Buyer copies of (a) the consolidated balance sheets of Company and its
Subsidiaries as of December 31 for the fiscal years 1996 and 1997, and the
related consolidated statements of income, changes in stockholders' equity and
cash flows for the fiscal years 1995 through 1997, inclusive, as reported in the
Company's Annual Report on Form 10-KSB for the fiscal year ended December 31,
1997 filed with the SEC under the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), in each case accompanied by the audit report of Stegman &
Company, independent public accountants with respect to the Company, and (b) the
unaudited consolidated statements of financial condition of the Company and its
Subsidiaries as of June 30, 1998 and June 30, 1997 and the related unaudited
consolidated statements of income and comprehensive income, stockholders' equity
and cash flows for the six-month periods then ended as reported in the Company's
Quarterly Report on Form 10-Q for the period ended June 30, 1998 filed with the
SEC under the Exchange Act. The December 31, 1997 consolidated balance sheet of
the Company (including the related notes, where applicable) fairly presents the
consolidated financial position of the Company and its Subsidiaries as of the
date thereof, and the other financial statements referred to in this Section 4.6
(including the related notes, where applicable) fairly present (subject, in the
case of the unaudited statements, to recurring audit adjustments normal in
nature and amount), and the financial statements to be filed with the SEC after
the date hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and consolidated financial position of
the Company and its Subsidiaries for the respective fiscal periods or as of the
respective dates therein set forth; each of such statements (including the
related notes, where applicable) comply, and the financial statements to be
filed with the SEC after the date hereof will comply, with applicable accounting
requirements and with the published rules and regulations of the SEC with
respect thereto; and each of such statements (including the related notes, where
applicable) has been, and the financial statements to be filed with the SEC
after the date hereof will be, prepared in accordance with generally accepted
accounting principles ("GAAP") consistently applied during the periods involved,
except as indicated in the notes thereto or, in the case of unaudited
statements, as permitted by Form 10-Q. The books and records of the Company and
its Subsidiaries have been, and are being, maintained in accordance with
applicable legal and accounting requirements.
4.7. BROKER'S FEES. Neither the Company nor any Subsidiary of the Company
nor any of their respective officers or directors has employed any broker or
finder or incurred any liability for any broker's fees, commissions or finder's
fees in connection with any of the transactions contemplated by the Company
Documents or the Bank Merger Agreement, except that the Company has engaged, and
will pay a fee or commission to, RP Financial LC in accordance with the terms of
a letter agreement between RP Financial LC and the Company, a true, complete and
correct copy of which has been previously delivered by the Company to Buyer.
4.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. (a) Except as may be set forth
in Section 4.8(a) of the Company Disclosure Schedule and except in connection
with the execution of the Company Documents and the Bank Merger Agreement, or as
disclosed in any Company Report (as defined in Section 4.12) filed with the SEC
prior to the date of this Agreement, since December 31, 1997, there has been no
change or development or combination of changes or developments which,
individually or in the aggregate, has had or is reasonably likely to have a
Material Adverse Effect on the Company.
(b) Except as set forth in Section 4.8(b) of the Company Disclosure Schedule
and except in connection with the execution of the Company Documents and the
Bank Merger Agreement, since December 31, 1997, the Company and its Subsidiaries
have carried on their respective businesses in the ordinary course consistent
with their past practices.
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(c) Except as set forth in Section 4.8(c) of the Company Disclosure
Schedule, since June 30, 1998, neither the Company nor any of its Subsidiaries
has (i) increased the wages, salaries, compensation, pension, or other fringe
benefits or perquisites payable to any executive officer, employee, or director
from the amount thereof in effect as of June 30, 1998 (which amounts have been
previously disclosed to Buyer), granted any severance or termination pay,
entered into any contract to make or grant any severance or termination pay, or
paid any bonus other than year-end bonuses for fiscal 1998 as listed in Section
4.8 of the Company Disclosure Schedule, (ii) suffered any strike, work stoppage,
slow-down, or other labor disturbance, (iii) been a party to a collective
bargaining agreement, contract or other agreement or understanding with a labor
union or organization, or (iv) had any union organizing activities.
4.9. LEGAL PROCEEDINGS. (a) Except as set forth in Section 4.9 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to any, and there are no pending or, to the Company's knowledge,
threatened, legal, administrative, arbitral or other proceedings, claims,
actions or governmental or regulatory investigations of any nature against the
Company or any of its Subsidiaries or challenging the validity or propriety of
the transactions contemplated by any of the Company Documents or the Bank Merger
Agreement.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon the Company, any of its Subsidiaries or the assets of
the Company or any of its Subsidiaries.
4.10. TAXES. (a) Except as set forth in Section 4.10(a) of the Company
Disclosure Schedule, each of the Company and its Subsidiaries (i) has duly and
timely filed (including applicable extensions granted without penalty) all Tax
Returns (as hereinafter defined) required to be filed on or prior to the date
hereof and will duly and timely file all Tax Returns after the date hereof and
prior to the Effective Time, and such Tax Returns are or will be true, correct
and complete, and (ii) has paid or will pay in full or to the extent necessary
made or will make adequate provision in the financial statements of the Company
(in accordance with GAAP) for all Taxes (as hereinafter defined). Except as set
forth in Section 4.10(a) of the Company Disclosure Schedule, no deficiencies for
any Taxes have been proposed, asserted, assessed or, to the knowledge of the
Company, threatened against or with respect to the Company or any of its
Subsidiaries. Except as set forth in Section 4.10(a) of the Company Disclosure
Schedule, (i) there are no liens for Taxes upon the assets of either the Company
or its Subsidiaries except for statutory liens for current Taxes not yet due,
(ii) neither the Company nor any of its Subsidiaries has requested any extension
of time within which to file any Tax Returns in respect of any fiscal year which
have not since been filed and no request for waivers of the time to assess any
Taxes are pending or outstanding, (iii) with respect to each taxable period of
the Company and its Subsidiaries, the federal and state income Tax Returns of
the Company and its Subsidiaries have been audited by the Internal Revenue
Service or appropriate state tax authorities or the time for assessing and
collecting income Tax with respect to such taxable period has closed and such
taxable period is not subject to review, (iv) neither the Company nor any of its
Subsidiaries has filed or been included in a combined, consolidated or unitary
income Tax Return other than one in which the Company was the parent of the
group filing such Tax Return, (v) neither the Company nor any of its
Subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes (other than the allocation of federal income taxes as provided by
Regulation 1.1552-1(a)(1) under the Code), (vi) neither the Company nor any of
its Subsidiaries is required to include in income any adjustment pursuant to
Section 481(a) of the Code (or any similar or corresponding provision or
requirement of state, local or foreign income Tax law), by reason of the
voluntary change in accounting method (nor has any taxing authority proposed in
writing any such adjustment or change of accounting method), (vii) neither the
Company nor any of its Subsidiaries has filed a consent pursuant to Section
341(f) of the Code, (viii) neither the Company nor any of its Subsidiaries has
made any payment or will be obligated to make any payment (by contract or
otherwise) which will not be deductible by reason of Section 280G of the Code
and (ix) none of the Company, any of its Subsidiaries or any entity acquired by
the Company or its Subsidiaries is or was (a) a domestic building and loan
association, (b) a mutual savings bank or (c) a
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cooperative bank without capital stock organized and operated for mutual
purposes and without profit, which has taken a deduction for additions to a
reserve for bad debts under Section 593 of the Code.
(b) For the purposes of this Agreement, "Taxes" shall mean all taxes,
charges, fees, levies, penalties or other assessments imposed by any United
States federal, state, local or foreign taxing authority, including, but not
limited to income, excise, property, sales, transfer, franchise, payroll,
withholding, social security or other taxes, including any interest, penalties
or additions attributable thereto. For purposes of this Agreement, "Tax Return"
shall mean any return, report, information return or other document (including
any related or supporting information) with respect to Taxes.
4.11. EMPLOYEES. (a) Section 4.11(a) of the Company Disclosure Schedule
sets forth a true and complete list of each deferred compensation plan,
incentive compensation plan, equity compensation plan, "welfare" plan, fund or
program (within the meaning of section 3(1) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")); "pension" plan, fund or program
(within the meaning of section 3(2) of ERISA); each employment, termination or
severance agreement; and each other employee benefit plan, fund, program,
agreement or arrangement, in each case, that is sponsored, maintained or
contributed to or required to be contributed to (the "Plans") by the Company,
any of its Subsidiaries or by any trade or business, whether or not incorporated
(an "ERISA Affiliate"), all of which together with the Company would be deemed a
"single employer" within the meaning of Section 4001 of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), for the benefit of any
employee or former employee of the Company, any Subsidiary or any ERISA
Affiliate.
(b) The Company has heretofore made available to Buyer true and complete
copies of each of the Plans and all related documents, including but not limited
to (i) the actuarial report for such Plan (if applicable) for each of the last
two years, and (ii) the most recent determination letter from the Internal
Revenue Service (if applicable) for such Plan.
(c) Except as set forth in Section 4.11(c) of the Company Disclosure
Schedule, (i) each of the Plans has been operated and administered in all
material respects in accordance with its terms and applicable law, including but
not limited to ERISA and the Code, (ii) each of the Plans intended to be
"qualified" within the meaning of Section 401(a) of the Code either (1) has
received a favorable determination letter from the IRS, or (2) is or will be the
subject of an application for a favorable determination letter, and the Company
is not aware of any circumstances likely to result in the revocation or denial
of any such favorable determination letter, (iii) with respect to each Plan
which is subject to Title IV of ERISA, the present value of accrued benefits
under such Plan, based upon the actuarial assumptions used for funding purposes
in the most recent actuarial report prepared by such Plan's actuary with respect
to such Plan, did not, as of its latest valuation date, exceed the then current
value of the assets of such Plan allocable to such accrued benefits, (iv) no
Plan provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of the
Company, its Subsidiaries or any ERISA Affiliate beyond their retirement or
other termination of service, other than (w) coverage mandated by applicable
law, (x) death benefits or retirement benefits under any "employee pension
plan," as that term is defined in Section 3(2) of ERISA, (y) deferred
compensation benefits accrued as liabilities on the books of the Company, its
Subsidiaries or the ERISA Affiliates or (z) benefits the full cost of which is
borne by the current or former employee (or his beneficiary), (v) no liability
under Title IV of ERISA has been incurred by the Company, its Subsidiaries or
any ERISA Affiliate that has not been satisfied in full, and no condition exists
that presents a material risk to the Company, its Subsidiaries or an ERISA
Affiliate of incurring a material liability thereunder, (vi) no Plan is a
"multiemployer pension plan," as such term is defined in Section 3(37) of ERISA,
(vii) all contributions or other amounts payable by the Company, its
Subsidiaries or any ERISA Affiliates as of the Effective Time with respect to
each Plan in respect of current or prior plan years have been paid or accrued in
accordance with generally accepted accounting practices and Section 412 of the
Code, (viii) neither the Company, its Subsidiaries nor any ERISA Affiliate has
engaged in a transaction in connection with which the Company, its Subsidiaries
or any ERISA Affiliate could be subject to either a civil penalty assessed
pursuant to Section 409 or 502(i) of
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ERISA or a tax imposed pursuant to Section 4975 or 4976 of the Code, (ix) there
are no pending, or, to the best knowledge of the Company, threatened or
anticipated claims (other than routine claims for benefits) by, on behalf of or
against any of the Plans or any trusts related thereto and (x) the consummation
of the transactions contemplated by this Agreement or the Bank Merger Agreement
will not (y) entitle any current or former employee or officer of the Company or
any ERISA Affiliate to severance pay, termination pay or any other payment or
benefit, except as expressly provided in this Agreement or (z) accelerate the
time of payment or vesting or increase the amount or value of compensation or
benefits due any such employee or officer.
4.12. SEC REPORTS. The Company has previously made available to Buyer an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1996 by
the Company with the SEC pursuant to the Securities Act of 1933, as amended (the
"Securities Act") or the Exchange Act (the "Company Reports") and (b)
communication mailed by the Company to its stockholders since January 1, 1996,
and no such registration statement, prospectus, report, schedule, proxy
statement or communication contained any untrue statement of a material fact or
omitted to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances in which
they were made, not misleading, except that information as of a later date shall
be deemed to modify information as of an earlier date. Except as set forth in
Section 4.12 of the Company Disclosure Schedule, the Company has timely filed
all Company Reports and other documents required to be filed by it under the
Securities Act and the Exchange Act, and, as of their respective dates, all
Company Reports complied with the published rules and regulations of the SEC
with respect thereto.
4.13. COMPANY INFORMATION. The information relating to the Company and its
Subsidiaries which is provided to Buyer by the Company specifically for
inclusion in the Proxy Statement and the S-4, or in any other document filed
with any other regulatory agency in connection herewith, will not contain any
untrue statement of a material fact or omit to state a material fact necessary
to make the statements therein, in light of the circumstances in which they are
made, not misleading.
4.14. COMPLIANCE WITH APPLICABLE LAW. The Company and each of its
Subsidiaries hold, and have at all times held, all licenses, franchises, permits
and authorizations necessary for the lawful conduct of their respective
businesses under and pursuant to all, and have complied with and are not in
default in any respect under any, applicable law, statute, order, rule,
regulation, policy and/or guideline of any Governmental Entity relating to the
Company or any of its Subsidiaries, and neither the Company nor any of its
Subsidiaries has received notice of, any violations of any of the above.
4.15. CERTAIN CONTRACTS. (a) Except as set forth in Section 4.15(a) of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to or bound by any contract, arrangement, commitment or understanding
(whether written or oral) (i) with respect to the employment of any directors,
officers, employees or consultants, (ii) which, upon the consummation of the
transactions contemplated by this Agreement or the Bank Merger Agreement, will
(either alone or upon the occurrence of any additional acts or events) result in
any payment or benefits (whether of severance pay or otherwise) becoming due, or
the acceleration or vesting of any rights to any payment or benefits, from
Buyer, the Company, the Surviving Corporation, the Surviving Bank or any of
their respective Subsidiaries to any officer, director, consultant or employee
thereof, (iii) which is a material contract (as defined in Item 601(b)(10) of
Regulation S-K of the SEC) to be performed after the date of this Agreement that
has not been filed or incorporated by reference in the Company Reports, (iv)
which is a consulting agreement (including data processing, software programming
and licensing contracts) not terminable on 60 days or less notice involving the
payment of more than $50,000 per annum, in the case of any such agreement with
an individual, or $100,000 per annum, in the case of any other such agreement,
(v) which materially restricts the conduct of any line of business by the
Company or any of its Subsidiaries or (vi) (including any stock option plan,
stock appreciation rights plan, restricted stock plan or stock purchase plan)
any of the benefits of which will be increased, or the vesting of the benefits
of which will be accelerated, by the
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occurrence of any of the transactions contemplated by this Agreement or the Bank
Merger Agreement, or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or the Bank Merger Agreement. Each contract, arrangement, commitment
or understanding of the type described in this Section 4.15(a), whether or not
set forth in Section IV.15(a) of the Company Disclosure Schedule, is referred to
herein as a "Company Contract". The Company has previously delivered or made
available to Buyer true and correct copies of each Company Contract.
(b) Except as set forth in Section 4.15(b) of the Company Disclosure
Schedule, (i) each Company Contract is valid and binding and in full force and
effect, (ii) the Company and each of its Subsidiaries has performed all
obligations required to be performed by it to date under each Company Contract,
(iii) no event or condition exists which constitutes or, after notice or lapse
of time or both, would constitute, a default on the part of the Company or any
of its Subsidiaries under any such Company Contract, and (iv) no other party to
such Company Contract is, to the knowledge of the Company, in default in any
respect thereunder.
4.16. AGREEMENTS WITH REGULATORY AGENCIES. Neither the Company nor any of
its Subsidiaries is subject to any cease-and-desist or other order issued by, or
is a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth on Section 4.16 of the Company
Disclosure Schedule, a "Regulatory Agreement"), any Regulatory Agency or other
Governmental Entity that restricts the conduct of its business or that in any
manner relates to its capital adequacy, its credit policies, its management or
its business, nor has the Company or any of its Subsidiaries been advised in
writing by any Regulatory Agency or other Governmental Entity that it is
considering issuing or requesting any Regulatory Agreement.
4.17. INVESTMENT SECURITIES. Section 4.17 of the Company Disclosure
Schedule sets forth the book and market value as of July 31, 1998 of the
investment securities and securities available for sale of the Company and its
Subsidiaries.
4.18. INTELLECTUAL PROPERTY. The Company and each of its Subsidiaries owns
or possesses valid and binding licenses and other rights to use without payment
all patents, copyrights, trade secrets, trade names, servicemarks and trademarks
used in its businesses; and neither the Company nor any of its Subsidiaries has
received any notice of conflict with respect thereto that asserts the right of
others.
4.19. STATE TAKEOVER LAWS; ARTICLES OF INCORPORATION. (a) The Board of
Directors of the Company has approved this Agreement, the Stock Option Agreement
and the transaction contemplated hereby prior to the date of this Agreement such
that the provisions of Section 3-602 of the MGCL will not, assuming the accuracy
of the representations contained in Section 5.15 hereof, apply to this
Agreement, the Bank Merger Agreement or the Company Option Agreement or any of
the transactions contemplated hereby or thereby.
(b) The Board of Directors of the Company has approved this Agreement and
the transactions contemplated hereby by a vote of at least eighty percent of all
of the members of the Board of Directors such that the 80% vote requirement of
clause (A) of paragraph a(9) of Article Eighth of the Company's Articles of
Incorporation will not apply to this Agreement and the transactions contemplated
hereby.
4.20. ADMINISTRATION OF FIDUCIARY ACCOUNTS. The Company and each of its
Subsidiaries has properly administered all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulation and common law. Neither the
Company nor any of its Subsidiaries nor any of their respective directors,
officers or employees has committed any breach of trust with respect to any such
fiduciary
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account, and the accountings for each such fiduciary account are true and
correct and accurately reflect the assets of such fiduciary account.
4.21. ENVIRONMENTAL MATTERS. Except as set forth in Section 4.21 of the
Company Disclosure Schedule:
(a) Each of the Company and its Subsidiaries and to the best knowledge of
the Company, the Participation Facilities and the Loan Properties (each as
hereinafter defined) are, and have been, in compliance with all applicable
federal, state and local laws including common law, regulations and ordinances
and with all applicable decrees, orders and contractual obligations relating to
pollution or the discharge of, or exposure to Hazardous Materials (as
hereinafter defined) in the environment or workplace ("Environmental Laws");
(b) There is no suit, claim, action or proceeding, pending or, to the best
knowledge of the Company, threatened, before any Governmental Entity or other
forum in which the Company, any of its Subsidiaries or to the best knowledge of
the Company, any Participation Facility or any Loan Property, has been or, with
respect to threatened proceedings, may be, named as a defendant (x) for alleged
noncompliance (including by any predecessor), with any Environmental Laws, or
(y) relating to the release, threatened release or exposure to any Hazardous
Material whether or not occurring at or on a site owned, leased or operated by
the Company or any of its Subsidiaries, any Participation Facility or any Loan
Property;
(c) During the period of (x) the Company's or any of its Subsidiaries'
ownership or operation of any of their respective current or former properties,
(y) the Company's or any of its Subsidiaries' participation in the management of
any Participation Facility, or (z) the Company's or any of its Subsidiaries'
holding of a security interest in a Loan Property, to the best knowledge of the
Company, there has been no release of Hazardous Materials in, on, under or
affecting any such property. Prior to the period of (x) the Company's or any of
its Subsidiaries' ownership or operation of any of their respective current or
former properties, (y) the Company's or any of its Subsidiaries' participation
in the management of any Participation Facility, or (z) the Company's or any of
its Subsidiaries' holding of a security interest in a Loan Property, to the best
knowledge of the Company, there was no release or threatened release of
Hazardous Materials in, on, under or affecting any such property, Participation
Facility or Loan Property; and
(d) The following definitions apply for purposes of this Section 4.21: (x)
"Hazardous Materials" means any chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum or other regulated substances or materials, (y)
"Loan Property" means any property in which the Company or any of its
Subsidiaries holds a security interest, and, where required by the context, said
term means the owner or operator of such property; and (z) "Participation
Facility" means any facility in which the Company or any of its Subsidiaries
participates in the management and, where required by the context, said term
means the owner or operator of such property.
4.22. DERIVATIVE TRANSACTIONS. Except as set forth in Section 4.22 of the
Company Disclosure Schedule, since December 31, 1997, neither Company nor any of
its Subsidiaries has engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments except (i) as agent on
the order and for the account of others, or (ii) as principal for purposes of
hedging interest rate risk on U.S. dollar-denominated securities and other
financial instruments. None of the counterparties to any contract or agreement
with respect to any such instrument is in default with respect to such contract
or agreement and no such contract or agreement, were it to be a Loan (as defined
below) held by the Company or any of its Subsidiaries, would be classified as
"Other Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful",
"Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or
words of similar import. The financial position of the Company and its
Subsidiaries on a consolidated basis under or with respect to each such
instrument has been reflected in the books and records of the Company and such
Subsidiaries in accordance with GAAP consistently applied, and no open exposure
of the Company or any of its Subsidiaries with respect to any such instrument
(or with respect to multiple instruments with respect to any single
counterparty) exceeds $100,000.
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4.23. OPINION. Prior to the execution of this Agreement, the Company has
received an opinion from RP Financial LC to the effect that, as of the date
hereof and based upon and subject to the matters set forth therein, the
consideration to be received by the stockholders of the Company pursuant to this
Agreement is fair to the Company's stockholders from a financial point of view.
Such opinion has not been amended or rescinded as of the date of this Agreement.
4.24. APPROVALS. As of the date of this Agreement, the Company knows of no
reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained.
4.25. LOAN PORTFOLIO. (a) Except as set forth in Section 4.25 of the
Company Disclosure Schedule, neither the Company nor any of its Subsidiaries is
a party to any written or oral (i) loan agreement, note or borrowing arrangement
(including, without limitation, leases, credit enhancements, commitments,
guarantees and interest-bearing assets) (collectively, "Loans"), other than any
Loan the unpaid principal balance of which does not exceed $50,000, under the
terms of which the obligor is, as of the date of this Agreement, over 90 days
delinquent in payment of principal or interest or in default of any other
provision, or (ii) Loan with any director, executive officer or five percent or
greater stockholder of the Company or any of its Subsidiaries, or to the
knowledge of the Company, any person, corporation or enterprise controlling,
controlled by or under common control with any of the foregoing. Section 4.25 of
the Company Disclosure Schedule sets forth (i) all of the Loans in original
principal amount in excess of $50,000 of the Company or any of its Subsidiaries
that as of the date of this Agreement are classified by any bank examiner
(whether regulatory or internal) as "Other Loans Specially Mentioned", "Special
Mention", "Substandard", "Doubtful", "Loss", "Classified", "Criticized", "Credit
Risk Assets", "Concerned Loans", "Watch List" or words of similar import,
together with the principal amount of and accrued and unpaid interest on each
such Loan and the identity of the borrower thereunder, (ii) by category of Loan
(i.e., commercial, consumer, etc.), all of the other Loans of the Company and
its Subsidiaries that as of the date of this Agreement are classified as such,
together with the aggregate principal amount of and accrued and unpaid interest
on such Loans by category and (iii) each asset of the Company that as of the
date of this Agreement is classified as "Other Real Estate Owned" and the book
value thereof. The Company shall promptly inform Buyer in writing of any Loan
that becomes classified in the manner described in the previous sentence, or any
Loan the classification of which is changed, at any time after the date of this
Agreement.
(b) Each Loan in original principal amount in excess of $50,000 (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
4.26. ACCOUNTING FOR THE MERGER; REORGANIZATION. As of the date of this
Agreement, the Company has no reason to believe that the Merger will fail to
qualify (i) for pooling-of-interests treatment under GAAP or (ii) as a
reorganization under Section 368(a) of the Code.
4.27. OWNERSHIP OF COMPANY COMMON STOCK. Immediately prior to the
Effective Time, none of the Company or its Subsidiaries will beneficially own,
directly or indirectly, any Company Common Stock that will be cancelled,
pursuant to Section 1.4(b) hereof, at the Effective Time.
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ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF BUYER
Buyer hereby represents and warrants to the Company as follows:
5.1. CORPORATE ORGANIZATION. (a) Buyer is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland.
Buyer has the corporate power and authority to own or lease all of its
properties and assets and to carry on its business as it is now being conducted,
and is duly licensed or qualified to do business in each jurisdiction in which
the nature of the business conducted by it or the character or location of the
properties and assets owned or leased by it makes such licensing or
qualification necessary. Buyer is duly registered as a bank holding company
under the BHC Act. The Articles of Incorporation and By-laws of Buyer, copies of
which have previously been made available to the Company, are true, complete and
correct copies of such documents as in effect as of the date of this Agreement.
(b) Buyer Bank is a banking association duly organized, validly existing and
in good standing under the laws of the United States. The deposit accounts of
Buyer Bank are insured by the FDIC through the BIF and the SAIF to the fullest
extent permitted by law, and all premiums and assessments required in connection
therewith have been paid by Buyer Bank. Each of Buyer's other Subsidiaries is
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation. Each Subsidiary of Buyer has the corporate
power and authority to own or lease all of its properties and assets and to
carry on its business as it is now being conducted, and is duly licensed or
qualified to do business in each jurisdiction in which the nature of the
business conducted by it or the character or location of the properties and
assets owned or leased by it makes such licensing or qualification necessary.
The articles of incorporation and by-laws of Buyer Bank, copies of which have
previously been made available to the Company, are true, complete and correct
copies of such documents as in effect as of the date of this Agreement.
(c) The minute books of Buyer and each of its Subsidiaries contain true,
complete and accurate records in all material respects of all meetings and other
corporate actions held or taken since December 31, 1995 of their respective
stockholders and Boards of Directors (including committees of their respective
Boards of Directors).
5.2. CAPITALIZATION. (a) As of the date of this Agreement, the authorized
capital stock of Buyer consists of 50,000,000 shares of Buyer Common Stock. As
of August 10, 1998, there were 6,395,629 shares of Buyer Common Stock issued and
outstanding. As of the date of this Agreement, no shares of Buyer Common Stock
were reserved for issuance, except that (i) 60,775 shares of Buyer Common Stock
were reserved for issuance pursuant to Buyer's dividend reinvestment and stock
purchase plans and (ii) 129,259 shares of Buyer Common Stock were reserved for
issuance upon the exercise of stock options pursuant to the Buyer 1983 Incentive
Stock Option Plan, as amended, the Buyer 1995 Stock Option Plan and the Buyer
Employee Stock Purchase Plan (collectively, the "Buyer Stock Plans"). All of the
issued and outstanding shares of Buyer Common Stock have been duly authorized
and validly issued and are fully paid, nonassessable and free of preemptive
rights, with no personal liability attaching to the ownership thereof. As of the
date of this Agreement, except as referred to above or reflected in Section
5.2(a) of the Buyer Disclosure Schedule, Buyer does not have and is not bound by
any outstanding subscriptions, options, warrants, calls, commitments or
agreements of any character calling for the purchase or issuance of any shares
of Buyer Common Stock or any other equity securities of Buyer or any securities
representing the right to purchase or otherwise receive any shares of Buyer
Common Stock. The shares of Buyer Common Stock to be issued pursuant to the
Merger will be duly authorized and validly issued and, at the Effective Time,
all such shares will be fully paid, nonassessable and free of preemptive rights,
with no personal liability attaching to the ownership thereof.
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(b) Section 5.2(b) of the Buyer Disclosure Schedule sets forth a true and
correct list of all of Buyer Subsidiaries as of the date of this Agreement.
Except as set forth in Section 5.2(b) of the Buyer Disclosure Schedule, as of
the date of this Agreement, Buyer owns, directly or indirectly, all of the
issued and outstanding shares of capital stock of each of the Subsidiaries of
Buyer, free and clear of all liens, charges, encumbrances and security interests
whatsoever, and all of such shares are duly authorized and validly issued and
are fully paid, nonassessable and free of preemptive rights, with no personal
liability attaching to the ownership thereof. As of the date of this Agreement,
no Subsidiary of Buyer has or is bound by any outstanding subscriptions,
options, warrants, calls, commitments or agreements of any character with any
party that is not a direct or indirect Subsidiary of Buyer calling for the
purchase or issuance of any shares of capital stock or any other equity security
of such Subsidiary or any securities representing the right to purchase or
otherwise receive any shares of capital stock or any other equity security of
such Subsidiary.
5.3. AUTHORITY; NO VIOLATION. (a) Buyer has full corporate power and
authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Buyer. The Board of Directors of
Buyer has directed that this Agreement and the transactions contemplated hereby
be submitted to Buyer's stockholders for approval at a meeting of such
stockholders and, except for the adoption of this Agreement by the requisite
vote of Buyer's stockholders, no other corporate proceedings on the part of
Buyer are necessary to approve this Agreement and to consummate the transactions
contemplated hereby. Without limiting the foregoing, the Board of Directors of
Buyer has adopted a resolution declaring that this Agreement, the Merger and the
transactions contemplated hereby and thereby are advisable on substantially the
terms set forth herein and that such proposed transactions be submitted for
consideration at a special meeting of the stockholders of Buyer. This Agreement
has been duly and validly executed and delivered by Buyer and (assuming due
authorization, execution and delivery by the Company) this Agreement constitutes
a valid and binding obligation of Buyer, enforceable against Buyer in accordance
with its terms, except as enforcement may be limited by general principles of
equity whether applied in a court of law or a court of equity and by bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally.
(b) Buyer Bank has full corporate power and authority to execute and deliver
the Bank Merger Agreement and to consummate the transactions contemplated
thereby. The execution and delivery of the Bank Merger Agreement and the
consummation of the transactions contemplated thereby will be duly and validly
approved by the Board of Directors of Buyer Bank. Upon the due and valid
approval of the Bank Merger Agreement by Buyer as the sole stockholder of Buyer
Bank, and by the Board of Directors of Buyer Bank, no other corporate
proceedings on the part of Buyer Bank will be necessary to consummate the
transactions contemplated thereby. The Bank Merger Agreement, upon execution and
delivery by Buyer Bank, will be duly and validly executed and delivered by Buyer
Bank and will (assuming due authorization, execution and delivery by the Company
Bank) constitute a valid and binding obligation of Buyer Bank, enforceable
against Buyer Bank in accordance with its terms, except as enforcement may be
limited by general principles of equity whether applied in a court of law or a
court of equity and by bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally.
(c) Except as set forth in Section 5.3(c) of the Buyer Disclosure Schedule,
neither the execution and delivery of this Agreement by Buyer or the Bank Merger
Agreement by Buyer Bank, nor the consummation by Buyer or Buyer Bank, as the
case may be, of the transactions contemplated hereby or thereby, nor compliance
by Buyer or Buyer Bank, as the case may be, with any of the terms or provisions
hereof or thereof, will (i) violate any provision of the Articles of
Incorporation or By-Laws of Buyer, or the articles of incorporation or by-laws
or similar governing documents of any of its Subsidiaries or (ii) assuming that
the consents and approvals referred to in Section 5.4 are duly obtained, (x)
violate any statute, code, ordinance, rule, regulation, judgment, order, writ,
decree or injunction applicable to Buyer or any of its Subsidiaries or any of
their respective properties or assets, or (y) violate, conflict with, result in
a breach of any provision of or the loss of any benefit under, constitute a
default (or an event which, with notice or
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lapse of time, or both, would constitute a default) under, result in the
termination of or a right of termination or cancellation under, accelerate the
performance required by, or result in the creation of any lien, pledge, security
interest, charge or other encumbrance upon any of the respective properties or
assets of Buyer or any of its Subsidiaries under, any of the terms, conditions
or provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer or any of its
Subsidiaries is a party, or by which they or any of their respective properties
or assets may be bound or affected.
5.4. CONSENTS AND APPROVALS. Except for (a) the filing of applications and
notices, as applicable, with the Federal Reserve Board under the BHC Act and the
Office of the Comptroller of the Currency under the Bank Merger Act, and
approval of such applications and notices, (b) the filing with the SEC of the
Proxy Statement and the filing and declaration of effectiveness of the S-4, (c)
the approval of the Merger and this Agreement by the requisite vote of the
stockholders of Buyer, (d) the filing of the Articles of Merger with the
Department pursuant to the MGCL, (e) such filings and approvals as are required
to be made or obtained under the securities or "Blue Sky" laws of various states
in connection with the issuance of the shares of Buyer Common Stock pursuant to
this Agreement, (f) filings required by the Bank Merger Agreement, (g) the
approval of the Bank Merger Agreement by the stockholder of Buyer Bank, (h)
authorization for quotation of Buyer Common Stock to be issued in the Merger on
the Nasdaq/ NMS, (i) approval of the transactions contemplated by this Agreement
and the Bank Merger Agreement by the Maryland Commissioner of Financial
Regulation and/or filings in connection therewith pursuant to the Financial
Institutions Article of the Annotated Code of Maryland, (j) filings with the
State Insurance Commissioner and (k) such filings, authorizations or approvals
as may be set forth in Section 5.4 of the Buyer Disclosure Schedule, no consents
or approvals of or filings or registrations with any Governmental Entity or with
any third party are necessary in connection with (1) the execution and delivery
by Buyer of this Agreement, (2) the consummation by Buyer of the Merger and the
other transactions contemplated hereby, (3) the execution and delivery by Buyer
Bank of the Bank Merger Agreement, and (4) the consummation of Buyer Bank of the
transactions contemplated by the Bank Merger Agreement.
5.5. REPORTS. Buyer and each of its Subsidiaries have timely filed all
reports, registrations and statements, together with any amendments required to
be made with respect thereto, that they were required to file since December 31,
1995 with any state banking regulatory agency or authority (each a "State
Regulator") or any Regulatory Agency, and have paid all fees and assessments due
and payable in connection therewith. Except for normal examinations conducted by
a Regulatory Agency or State Regulator in the regular course of the business of
Buyer and its Subsidiaries, and except as set forth in Section V.5 of the Buyer
Disclosure Schedule, no Regulatory Agency or State Regulator has initiated any
proceeding or investigation into the business or operations of Buyer or any of
its Subsidiaries since December 31, 1995. There is no unresolved violation,
criticism, or exception by any Regulatory Agency with respect to any report or
statement relating to any examinations of Buyer or any of its Subsidiaries.
5.6. FINANCIAL STATEMENTS. Buyer has previously delivered to the Company
copies of (a) the consolidated balance sheets of Buyer and its Subsidiaries as
of December 31 for the fiscal years 1996 and 1997 and the related consolidated
statements of income, changes in shareholders' equity and cash flows for the
fiscal years 1995 through 1997, inclusive, as reported in Buyer's Annual Report
on Form 10-K for the fiscal year ended December 31, 1997 filed with the SEC
under the Exchange Act, in each case accompanied by the audit report of Arthur
Andersen, LLP, independent public accountants with respect to Buyer, and (b) the
unaudited consolidated balance sheet of Buyer and its Subsidiaries as of June
30, 1998 and June 30, 1997 and the related unaudited consolidated statements of
income and comprehensive income, changes in shareholders' equity and cash flows
for the six-month periods then ended as reported in Buyer's Quarterly Report on
Form 10-Q for the period ended June 30, 1998 filed with the SEC under the
Exchange Act. The December 31, 1997 consolidated balance sheet of Buyer
(including the related notes, where applicable) fairly presents the consolidated
financial position of Buyer and its Subsidiaries as of the date thereof, and the
other financial statements referred to in this Section 5.6 (including the
related notes, where applicable)
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fairly present and the financial statements to be filed with the SEC after the
date hereof will fairly present (subject, in the case of the unaudited
statements, to recurring audit adjustments normal in nature and amount), the
results of the consolidated operations and changes in shareholders' equity and
consolidated financial position of Buyer and its Subsidiaries for the respective
fiscal periods or as of the respective dates therein set forth; each of such
statements (including the related notes, where applicable) comply, and the
financial statements to be filed with the SEC after the date hereof will comply,
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto; and each of such statements
(including the related notes, where applicable) has been, and the financial
statements to be filed with the SEC after the date hereof will be, prepared in
accordance with GAAP consistently applied during the periods involved, except as
indicated in the notes thereto or, in the case of unaudited statements, as
permitted by Form 10-Q. The books and records of Buyer and its Subsidiaries have
been, and are being, maintained in accordance with GAAP and any other applicable
legal and accounting requirements.
5.7. BROKER'S FEES. Neither Buyer nor any Subsidiary of Buyer, nor any of
their respective officers or directors, has employed any broker or finder or
incurred any liability for any broker's fees, commissions or finder's fees in
connection with any of the transactions contemplated by this Agreement, the
Company Option Agreement or the Bank Merger Agreement, except that Buyer has
engaged, and will pay a fee or commission to, Wheat First Securities, Inc..
5.8. ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as may be set forth in
Section 5.8 of the Buyer Disclosure Schedule, or as disclosed in any Buyer
Report (as defined in Section 5.12) filed with the SEC prior to the date of this
Agreement, since December 31, 1997, there has been no change or development or
combination of changes or developments which, individually or in the aggregate,
has had or is reasonably likely to have a Material Adverse Effect on Buyer.
5.9. LEGAL PROCEEDINGS. (a) Except as set forth in Section 5.9 of the
Buyer Disclosure Schedule, neither Buyer nor any of its Subsidiaries is a party
to any and there are no pending or, to Buyer's knowledge, threatened, material
legal, administrative, arbitral or other proceedings, claims, actions or
governmental or regulatory investigations of any nature against Buyer or any of
its Subsidiaries or challenging the validity or propriety of the transactions
contemplated by this Agreement or the Bank Merger Agreement.
(b) There is no injunction, order, judgment, decree, or regulatory
restriction imposed upon Buyer, any of its Subsidiaries or the assets of Buyer
or any of its Subsidiaries.
5.10. TAXES. Except as set forth in Section 5.10 of the Buyer Disclosure
Schedule, each of Buyer and its Subsidiaries (i) has duly and timely filed
(including applicable extensions granted without penalty) all Tax Returns
required to be filed on or prior to the date hereof and will duly and timely
file all Tax Returns after the date hereof and prior to the Effective Time, and
such Tax Returns are or will be true, correct and complete, and (ii) has paid or
will pay in full or to the extent necessary made or will make adequate provision
in the financial statements of Buyer (in accordance with GAAP) for all Taxes.
Except as set forth in Section 5.10 of the Buyer Disclosure Schedule, no
deficiencies for any Taxes have been proposed, asserted, assessed or, to the
knowledge of Buyer, threatened against or with respect to Buyer or any of its
Subsidiaries. Except as set forth in Section 5.10 of the Buyer Disclosure
Schedule, (i) there are no liens for Taxes upon the assets of either Buyer or
its Subsidiaries except for statutory liens for current Taxes not yet due, (ii)
neither Buyer nor any of its Subsidiaries has requested any extension of time
within which to file any Tax Returns in respect of any fiscal year which have
not since been filed and no request for waivers of the time to assess any Taxes
are pending or outstanding, (iii) with respect to each taxable period of Buyer
and its Subsidiaries, the federal and state income Tax Returns of Buyer and its
Subsidiaries have been audited by the Internal Revenue Service or appropriate
state tax authorities or the time for assessing and collecting income Tax with
respect to such taxable period has closed and such taxable period is not subject
to review, (iv) neither Buyer nor any of its Subsidiaries has filed or been
included in a combined,
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consolidated or unitary income Tax Return other than one in which Buyer was the
parent of the group filing such Tax Return, (v) neither Buyer nor any of its
Subsidiaries is a party to any agreement providing for the allocation or sharing
of Taxes (other than the allocation of federal income taxes as provided by
Regulation 1.1552-1(a)(1) under the Code), (vi) neither Buyer nor any of its
Subsidiaries is required to include in income any adjustment pursuant to Section
481(a) of the Code (or any similar or corresponding provision or requirement of
state, local or foreign income Tax law), by reason of the voluntary change in
accounting method (nor has any taxing authority proposed in writing any such
adjustment or change of accounting method), (vii) neither Buyer nor any of its
Subsidiaries has filed a consent pursuant to Section 341(f) of the Code, and
(viii) neither Buyer nor any of its Subsidiaries has made any payment or will be
obligated to make any payment (by contract or otherwise) which will not be
deductible by reason of Section 280G of the Code.
5.11. EMPLOYEES. (a) Section 5.11(a) of the Buyer Disclosure Schedule sets
forth a true and complete list of each deferred compensation plan, incentive
compensation plan, equity compensation plan, "welfare" plan, fund or program
(within the meaning of section 3(1) of the ERISA); "pension" plan, fund or
program (within the meaning of section 3(2) of ERISA); each employment,
termination or severance agreement; and each other employee benefit plan, fund,
program, agreement or arrangement, in each case, that is sponsored, maintained
or contributed to or required to be contributed to as of the date of this
Agreement (the "Buyer Plans") by Buyer, any of its Subsidiaries or by any trade
or business, whether or not incorporated (a "Buyer ERISA Affiliate"), all of
which together with Buyer would be deemed a "single employer" within the meaning
of Section 4001 of ERISA, for the benefit of any employee or former employee of
Buyer, any Subsidiary or any ERISA Affiliate.
(b) Except as set forth in Section 5.11(b) of the Buyer Disclosure Schedule,
(i) each of the Buyer Plans has been operated and administered in accordance
with its terms and applicable law, including but not limited to ERISA and the
Code, (ii) each of the Buyer Plans intended to be "qualified" within the meaning
of Section 401(a) of the Code has either (1) received a favorable determination
letter from the IRS, or (2) is or will be the subject of an application for a
favorable determination letter, and Buyer is not aware of any circumstances
likely to result in the revocation or denial of any such favorable determination
letter, (iii) with respect to each Buyer Plan which is subject to Title IV of
ERISA, the present value of accrued benefits under such Buyer Plan, based upon
the actuarial assumptions used for funding purposes in the most recent actuarial
report prepared by such Buyer Plan's actuary with respect to such Buyer Plan,
did not, as of its latest valuation date, exceed the then current value of the
assets of such Buyer Plan allocable to such accrued benefits, (iv) no Plan
provides benefits, including without limitation death or medical benefits
(whether or not insured), with respect to current or former employees of Buyer,
its Subsidiaries or any ERISA Affiliate beyond their retirement or other
termination of service, other than (w) coverage mandated by applicable law, (x)
death benefits or retirement benefits under any "employee pension plan," as that
term is defined in Section 3(2) of ERISA, (y) deferred compensation benefits
accrued as liabilities on the books of Buyer, its Subsidiaries or the ERISA
Affiliates or (z) benefits the full cost of which is borne by the current or
former employee (or his beneficiary), (v) no liability under Title IV of ERISA
has been incurred by Buyer, its Subsidiaries or any Buyer ERISA Affiliate that
has not been satisfied in full, (vi) no Buyer Plan is a "multiemployer pension
plan," as such term is defined in Section 3(37) of ERISA, (vii) all
contributions or other amounts payable by Buyer, its Subsidiaries or any ERISA
Affiliate as of the Effective Time with respect to each Plan in respect of
current or prior plan years have been paid or accrued in accordance with
generally accepted accounting practices and Section 412 of the Code, (viii)
neither Buyer, its Subsidiaries nor any ERISA Affiliate has engaged in a
transaction in connection with which Buyer, its Subsidiaries or any ERISA
Affiliate could be subject to either a civil penalty assessed pursuant to
Section 409 or 502(i) of ERISA or a tax imposed pursuant to Section 4975 or 4976
of the Code, (ix) there are no pending, or, to the best knowledge of Buyer,
threatened or anticipated claims (other than routine claims for benefits) by, on
behalf of or against any of the Buyer Plans or any trusts related thereto and
(x) the consummation of the transactions contemplated by this Agreement or the
Bank Merger Agreement will not (y) entitle any current or former employee or
officer of Buyer or any
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ERISA Affiliate to severance pay, termination pay or any other payment or
benefit, except as expressly provided in this Agreement or (z) accelerate the
time of payment or vesting or increase in the amount or value of compensation or
benefits due any such employee or officer.
5.12. SEC REPORTS. Buyer has previously made available to the Company an
accurate and complete copy of each (a) final registration statement, prospectus,
report, schedule and definitive proxy statement filed since January 1, 1996 by
Buyer with the SEC pursuant to the Securities Act or the Exchange Act (the
"Buyer Reports") and (b) communication mailed by Buyer to its stockholders since
January 1, 1996, and no such registration statement, prospectus, report,
schedule, proxy statement or communication contained any untrue statement of a
material fact or omitted to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances in which they were made, not misleading, except that information
as of a later date shall be deemed to modify information as of an earlier date.
Buyer has timely filed all Buyer Reports and other documents required to be
filed by it under the Securities Act and the Exchange Act, and, as of their
respective dates, all Buyer Reports complied with the published rules and
regulations of the SEC with respect thereto.
5.13. BUYER INFORMATION. The information relating to Buyer and its
Subsidiaries which is provided to Buyer by the Company for inclusion in the
Proxy Statement and the S-4, or in any other document filed with any other
regulatory agency in connection herewith, will not contain any untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in light of the circumstances in which they are made, not
misleading.
5.14. COMPLIANCE WITH APPLICABLE LAW. Buyer and each of its Subsidiaries
holds, and has at all times held, all licenses, franchises, permits and
authorizations necessary for the lawful conduct of their respective businesses
under and pursuant to all, and have complied with and are not in default in any
respect under any, applicable law, statute, order, rule, regulation, policy
and/or guideline of any Governmental Entity relating to Buyer or any of its
Subsidiaries, and neither Buyer nor any of its Subsidiaries knows of, or has
received notice of violation of, any violations of any of the above.
5.15. OWNERSHIP OF COMPANY COMMON STOCK; AFFILIATES AND ASSOCIATES. (a)
Except for the Company Option Agreement, neither Buyer nor any of its affiliates
or associates (as such terms are defined under the Exchange Act), (i)
beneficially owns, directly or indirectly, or (ii) is a party to any agreement,
arrangement or understanding for the purpose of acquiring, holding, voting or
disposing of, in each case, any shares of capital stock of the Company (other
than Trust Account Shares and DPC Shares); and
(b) Neither Buyer nor any of its Subsidiaries is an "affiliate" (as such
term is defined in MGCL Section 3-601) or an "associate" (as such term is
defined in MGCL Section 3-601) of the Company or an "Interested Stockholder" (as
such term is defined in MGCL Section 3-601) of the Company.
5.16. AGREEMENTS WITH REGULATORY AGENCIES. Neither Buyer nor any of its
Subsidiaries is subject to any cease-and-desist or other order issued by, or is
a party to any written agreement, consent agreement or memorandum of
understanding with, or is a party to any commitment letter or similar
undertaking to, or is subject to any order or directive by, or is a recipient of
any extraordinary supervisory letter from, or has adopted any board resolutions
at the request of (each, whether or not set forth in Section V.16 of the Buyer
Disclosure Schedule, a "Buyer Regulatory Agreement"), any Regulatory Agency or
other Governmental Entity that restricts the conduct of its business or that in
any manner relates to its capital adequacy, its credit policies, its management
or its business, nor has Buyer or any of its Subsidiaries been advised by any
Regulatory Agency or other Governmental Entity that it is considering issuing or
requesting any Regulatory Agreement.
5.17. INVESTMENT SECURITIES. Section 5.17 of the Buyer Disclosure Schedule
sets forth the book and market value of July 31, 1998 of the investment
securities and securities available for sale of Buyer and its Subsidiaries.
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5.18. INTELLECTUAL PROPERTY. Except as set forth in Section 5.18 of the
Buyer Disclosure Schedule, Buyer and each of its Subsidiaries owns or possesses
valid and binding licenses and other rights to use without payment all patents,
copyrights, trade secrets, trade names, servicemarks and trademarks used in its
businesses; and neither Buyer nor any of its Subsidiaries has received any
notice of conflict with respect thereto that asserts the right of others.
5.19. APPROVALS. As of the date of this Agreement, Buyer knows of no
reason why all regulatory approvals required for the consummation of the
transactions contemplated hereby (including, without limitation, the Merger and
the Subsidiary Merger) should not be obtained.
5.20. ADMINISTRATION OF FIDUCIARY ACCOUNTS. Buyer and each of its
Subsidiaries has properly administered all accounts for which it acts as a
fiduciary, including but not limited to accounts for which it serves as a
trustee, agent, custodian, personal representative, guardian, conservator or
investment advisor, in accordance with the terms of the governing documents and
applicable state and federal law and regulation and common law. Neither Buyer
nor any of its Subsidiaries nor any of their respective directors, officers or
employees has committed any breach of trust with respect to any such fiduciary
account, and the accountings for each such fiduciary account are true and
correct and accurately reflect the assets of such fiduciary account.
5.21. ACCOUNTING FOR THE MERGER; REORGANIZATION. As of the date hereof,
(i) after consulting with its independent auditors, Buyer has no reason to
believe that the Merger will fail to qualify for pooling-of-interests treatment
under GAAP. Buyer has no reason to believe that the Merger will fail to qualify
as a reorganization under Section 368(a) of the Code. Buyer has no plan or
intention to reacquire any shares of Buyer Common Stock issued in the Merger
that would cause the Merger to fail to qualify as a reorganization under Section
368(a). Buyer has no plan or intention to sell or otherwise dispose of any of
the assets of the Company or any of its Subsidiaries after the Effective Time
except for dispositions permitted under Section 368(a) of the Code. There is no
intercorporate indebtedness existing between Buyer or any of its Subsidiaries on
the one hand and the Company or any of its Subsidiaries on the other that was
issued, settled, acquired or will be settled at a discount. It is understood and
agreed that counsel to Seller and counsel to Buyer each have the right to seek
additional representations, warranties and covenants from the parties to this
Agreement in connection with the issuance of tax opinions to be rendered in
connection with the Merger.
5.22. OPINION. Prior to the execution of this Agreement, Buyer has
received an opinion from Wheat First Securities, Inc. to the effect that as of
the date thereof and based upon and subject to the matters set forth therein,
the Exchange Ratio is fair from a financial point of view to stockholders of
Buyer. Such opinion has not been amended or rescinded as of the date of this
Agreement.
5.23. ENVIRONMENTAL MATTERS. Except as set forth in Section 5.23 of the
Buyer Disclosure Schedule:
(a) Each of Buyer and its Subsidiaries and to the best knowledge of Buyer,
the Participation Facilities and the Loan Properties (each as hereinafter
defined) are, and have been, in compliance with all applicable federal, state
and local laws including common law, regulations and ordinances and with all
applicable decrees, orders and contractual obligations relating to pollution or
the discharge of, or exposure to Hazardous Materials (as hereinafter defined) in
the environment or workplace ("Environmental Laws");
(b) There is no suit, claim, action or proceeding, pending or, to the best
knowledge of Buyer, threatened, before any Governmental Entity or other forum in
which Buyer, any of its Subsidiaries or to the best knowledge of Buyer, any
Participation Facility or any Loan Property, has been or, with respect to
threatened proceedings, may be, named as a defendant (x) for alleged
noncompliance (including by any predecessor), with any Environmental Laws, or
(y) relating to the release, threatened release or exposure to any Hazardous
Material whether or not occurring at or on a site owned, leased or operated by
Buyer or any of its Subsidiaries, any Participation Facility or any Loan
Property;
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(c) During the period of (x) Buyer's or any of its Subsidiaries' ownership
or operation of any of their respective current or former properties, (y)
Buyer's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Buyer's or any of its Subsidiaries' holding of a
security interest in a Loan Property, to the best knowledge of Buyer, there has
been no release of Hazardous Materials in, on, under or affecting any such
property. Prior to the period of (x) Buyer's or any of its Subsidiaries'
ownership or operation of any of their respective current or former properties,
(y) Buyer's or any of its Subsidiaries' participation in the management of any
Participation Facility, or (z) Buyer's or any of its Subsidiaries' holding of a
security interest in a Loan Property, to the best knowledge of Buyer, there was
no release or threatened release of Hazardous Materials in, on, under or
affecting any such property, Participation Facility or Loan Property; and
(d) The following definitions apply for purposes of this Section 5.23: (x)
"Hazardous Materials" means any chemicals, pollutants, contaminants, wastes,
toxic substances, petroleum or other regulated substances or materials, (y)
"Loan Property" means any property in which Buyer or any of its Subsidiaries
holds a security interest, and, where required by the context, said term means
the owner or operator of such property; and (z) "Participation Facility" means
any facility in which Buyer or any of its Subsidiaries participates in the
management and, where required by the context, said term means the owner or
operator of such property.
5.24. DERIVATIVE TRANSACTIONS. Except as set forth in Section 5.24 of the
Buyer Disclosure Schedule, since December 31, 1997, neither Buyer nor any of its
Subsidiaries has engaged in transactions in or involving forwards, futures,
options on futures, swaps or other derivative instruments except (i) as agent on
the order and for the account of others, or (ii) as principal for purposes of
hedging interest rate risk on U.S. dollar-denominated securities and other
financial instruments. None of the counterparties to any contract or agreement
with respect to any such instrument is in default with respect to such contract
or agreement and no such contract or agreement, were it to be a Loan (as defined
below) held by Buyer or any of its Subsidiaries, would be classified as "Other
Loans Specially Mentioned", "Special Mention", "Substandard", "Doubtful",
"Loss", "Classified", "Criticized", "Credit Risk Assets", "Concerned Loans" or
words of similar import. The financial position of Buyer and its Subsidiaries on
a consolidated basis under or with respect to each such instrument has been
reflected in the books and records of Buyer and such Subsidiaries in accordance
with GAAP consistently applied, and no open exposure of Buyer or any of its
Subsidiaries with respect to any such instrument (or with respect to multiple
instruments with respect to any single counterparty) exceeds $100,000.
5.25. LOAN PORTFOLIO. (a) Except as set forth in Section 5.25 of the Buyer
Disclosure Schedule, neither Buyer nor any of its Subsidiaries is a party to any
written or oral (i) loan agreement, note or borrowing arrangement (including,
without limitation, leases, credit enhancements, commitments, guarantees and
interest-bearing assets) (collectively, "Loans"), other than Loans the unpaid
principal balance of which does not exceed $100,000, under the terms of which
the obligor is, as of the date of this Agreement, over 90 days delinquent in
payment of principal or interest or in default of any other provision, or (ii)
Loan with any director, executive officer or five percent or greater stockholder
of Buyer or any of its Subsidiaries, or to the knowledge of Buyer, any person,
corporation or enterprise controlling, controlled by or under common control
with any of the foregoing. Section 5.25 of the Buyer Disclosure Schedule sets
forth (i) all of the Loans in original principal amount in excess of $100,000 of
Buyer or any of its Subsidiaries that as of the date of this Agreement are
classified by any bank examiner (whether regulatory or internal) as "Other Loans
Specially Mentioned", "Special Mention", "Substandard", "Doubtful", "Loss",
"Classified", "Criticized", "Credit Risk Assets", "Concerned Loans", "Watch
List" or words of similar import, together with the principal amount of and
accrued and unpaid interest on each such Loan and the identity of the borrower
thereunder, (ii) by category of Loan (i.e., commercial, consumer, etc.), all of
the other Loans of Buyer and its Subsidiaries that as of the date of this
Agreement are classified as such, together with the aggregate principal amount
of and accrued and unpaid interest on such Loans by category and (iii) each
asset of Buyer that as of the date of this Agreement is classified as "Other
Real
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Estate Owned" and the book value thereof. Buyer shall promptly inform the
Company in writing of any Loan that becomes classified in the manner described
in the previous sentence, or any Loan the classification of which is changed, at
any time after the date of this Agreement.
(b) Each Loan in original principal amount in excess of $100,000 (i) is
evidenced by notes, agreements or other evidences of indebtedness which are
true, genuine and what they purport to be, (ii) to the extent secured, has been
secured by valid liens and security interests which have been perfected and
(iii) is the legal, valid and binding obligation of the obligor named therein,
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
5.26. VOTE REQUIRED. The affirmative vote of the holders of two-thirds of
the total votes entitled to vote of Buyer Common Stock is the only vote of the
holders of any class or series of Buyer capital stock necessary to approve this
Agreement and the transactions contemplated hereby.
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ARTICLE VI
COVENANTS RELATING TO CONDUCT OF BUSINESS
6.1. COVENANTS OF THE COMPANY. During the period from the date of this
Agreement and continuing until the Effective Time, except as expressly
contemplated or permitted by this Agreement, the Bank Merger Agreement or the
Company Option Agreement or with the prior written consent of Buyer, the Company
and its Subsidiaries shall carry on their respective businesses in the ordinary
course consistent with past practice and consistent with prudent banking
practice. The Company will use its commercially reasonable efforts to (x)
preserve its business organization and that of its Subsidiaries intact, (y) keep
available to itself and Buyer the present services of the employees of the
Company and its Subsidiaries and (z) preserve for itself and Buyer the goodwill
of the customers of the Company and its Subsidiaries and others with whom
business relationships exist. Without limiting the generality of the foregoing,
and except as set forth on Section 6.1 of the Company Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by Buyer,
the Company shall not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of the Company, declare or pay any dividends on, or
make other distributions in respect of, any of its capital stock, other than
normal quarterly dividends not in excess of $0.12 per share of Company Common
Stock; (b) (i) split, combine or reclassify any shares of its capital stock or
issue or authorize or propose the issuance of any other securities in respect
of, in lieu of or in substitution for shares of its capital stock except upon
the exercise or fulfillment of rights or options issued or existing pursuant to
employee benefit plans, programs or arrangements, all to the extent outstanding
and in existence on the date of this Agreement and in accordance with their
present terms, and except pursuant to the Company Option Agreement, or (ii)
repurchase, redeem or otherwise acquire (except for the acquisition of Trust
Account Shares and DPC Shares, as such terms are defined in Section 1.4(b)
hereof) any shares of the capital stock of the Company or any Subsidiary of the
Company, or any securities convertible into or exercisable for any shares of the
capital stock of the Company or any Subsidiary of the Company;
(c) issue, deliver or sell, or authorize or propose the issuance, delivery
or sale of, any shares of its capital stock or any securities convertible into
or exercisable for, or any rights, warrants or options to acquire, any such
shares, or enter into any agreement with respect to any of the foregoing, other
than (i) the issuance of Company Common Stock pursuant to stock options or
similar rights to acquire Company Common Stock granted pursuant to the Company
Option Plans and outstanding prior to the date of this Agreement, in each case
in accordance with their present terms and (ii) pursuant to the Company Option
Agreement;
(d) amend its Articles of Incorporation, By-laws or other similar governing
documents;
(e) authorize or permit any of its officers, directors, employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly through another person, (i) solicit, initiate, encourage or
facilitate any inquiries relating to, or the making of any proposal which
constitutes, a "takeover proposal" (as defined below), or (ii) recommend or
endorse any takeover proposal, or enter into, encourage or facilitate any
discussions or negotiations regarding, or furnish to any person any information
with respect to, the making of any proposal that constitutes, or may reasonably
be expected to lead to or constitute an effort to facilitate, any proposal
relating to or involving a takeover proposal; PROVIDED, HOWEVER, that the
Company may communicate information about any such takeover proposal to its
stockholders if, in the judgment of the Company's Board of Directors, based upon
the advice of outside counsel, such communication is required under applicable
law; PROVIDED, FURTHER, however, that nothing contained in this Section 6.1(e)
shall prohibit the Board of Directors of the Company from (i) to the extent
applicable, complying with Rule 14e-2 and/or Rule 14d-9 promulgated under the
Exchange Act or (ii) furnishing information to, or entering into
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discussions or negotiations with, any person or entity that makes an
unsolicited, written BONA FIDE proposal regarding a takeover proposal if, and
only to the extent that (A) the Board of Directors of the Company concludes in
good faith, after consultation with and based upon the advice of outside
counsel, that it is legally required to furnish such information or enter into
such discussions or negotiations in order to comply with its fiduciary duties to
stockholders under applicable law, (B) prior to taking such action, the Company
receives from such person or entity an executed confidentiality agreement and an
executed standstill agreement, each in reasonably customary form (provided that
such agreement is at least as limiting as any such agreement between Buyer and
the Company), and (C) the Board of Directors of the Company, after consultation
with and based upon the advice of its financial advisor, concludes in good faith
that the proposal regarding the takeover proposal contains an offer of
consideration that is greater than the consideration set forth herein (a
"Superior Takeover Proposal"). The Company will immediately cease and cause to
be terminated any existing activities, discussions or negotiations previously
conducted with any parties other than Buyer with respect to any of the
foregoing. The Company will take all actions necessary or advisable to inform
the appropriate individuals or entities referred to in the first sentence hereof
of the obligations undertaken in this Section 6.1(e). The Company will notify
Buyer immediately if any such inquiries or takeover proposals are received by,
any such information is requested from, or any such negotiations or discussions
are sought to be initiated or continued with, the Company, and the Company will
promptly inform Buyer in writing of all of the relevant details with respect to
the foregoing. Without limiting the foregoing, it is understood that any
violation of the restrictions set forth in the first sentence of this Section
6.1(e) by any officer or director of the Company or any Subsidiary thereof or
any investment banker, attorney or other advisor, representative or agent of the
Company or any Subsidiary thereof, acting on behalf of or at the request of the
Board of Directors of the Company, shall be deemed to be a breach of this
Section 6.1(e) by the Company. As used in this Agreement, "takeover proposal"
shall mean any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving the Company or any Subsidiary of the
Company or any proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, the Company or any
Subsidiary of the Company other than the transactions contemplated or permitted
by this Agreement, the Bank Merger Agreement and the Company Option Agreement;
(f) make any capital expenditures other than those which (i) are made in the
ordinary course of business or are necessary to maintain existing assets in good
repair and (ii) in any event are in an amount of no more than $100,000 in the
aggregate;
(g) enter into any new line of business;
(h) acquire or agree to acquire, by merging or consolidating with, or by
purchasing a substantial equity interest in or a substantial portion of the
assets of, or by any other manner, any business or any corporation, partnership,
association or other business organization or division thereof or otherwise
acquire any assets, which would be material, individually or in the aggregate,
to the Company, other than in connection with foreclosures, settlements in lieu
of foreclosure or troubled loan or debt restructurings in the ordinary course of
business consistent with prudent banking practices;
(i) take any action that is intended or may reasonably be expected to result
in any of the conditions to the Merger set forth in Article VIII not being
satisfied;
(j) change its methods of accounting in effect at June 30, 1998, except as
required by changes in GAAP or regulatory accounting principles as concurred to
by the Company's independent auditors;
(k) (i) except as required by applicable law or to maintain qualification
pursuant to the Code, adopt, amend, renew or terminate any employee benefit plan
(including, without limitation, any Plan) or any agreement, arrangement, plan or
policy between the Company or any Subsidiary of the Company and one or more of
its current or former directors, officers or employees or (ii) except for normal
increases in the ordinary course of business consistent with past practice or
except as required by applicable law, increase in any manner the compensation or
fringe benefits of any director, officer or employee or pay any benefit
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not required by any Plan or agreement as in effect as of the date hereof
(including, without limitation, the granting of stock options, stock
appreciation rights, restricted stock, restricted stock units or performance
units or shares);
(l) take or cause to be taken any action which would disqualify the Merger
as a "pooling of interests" for accounting purposes or a tax free reorganization
under Section 368(a) of the Code, PROVIDED, HOWEVER, that nothing contained
herein shall limit the ability of Buyer to exercise its rights under the Company
Option Agreement;
(m) other than activities in the ordinary course of business consistent with
past practice, sell, lease, encumber, assign or otherwise dispose of, or agree
to sell, lease, encumber, assign or otherwise dispose of, any of its material
assets, properties or other rights or agreements;
(n) other than in the ordinary course of business consistent with past
practice, incur any indebtedness for borrowed money or assume, guarantee,
endorse or otherwise as an accommodation become responsible for the obligations
of any other individual, corporation or other entity;
(o) file any application to relocate or terminate the operations of any
banking office of it or any of its Subsidiaries;
(p) make any equity investment or commitment to make such an investment in
real estate or in any real estate development project, other than in connection
with foreclosures, settlements in lieu of foreclosure or troubled loan or debt
restructurings in the ordinary course of business consistent with prudent
banking practices;
(q) create, renew, amend or terminate or give notice of a proposed renewal,
amendment or termination of, any material contract, agreement or lease for
goods, services or office space to which the Company or any of its Subsidiaries
is a party or by which the Company or any of its Subsidiaries or their
respective properties is bound;
(r) other than in prior consultation with Buyer, restructure or materially
change its investment securities portfolio or its gap position, through
purchases, sales or otherwise, or the manner in which the portfolio is
classified or reported;
(s) other than in prior consultation with Buyer, make, purchase or renew, or
commit to make, purchase or renew, any loan or loans, or extend any line of
credit, to any borrower and its affiliates in an aggregate principal amount
greater than $500,000 or in an amount which, when aggregated with any existing
indebtedness to the Company and its Subsidiaries and lines of credit from the
Company and its Subsidiaries of such borrower and its affiliates, would exceed
$500,000; or
(t) agree to do any of the foregoing.
6.2. COVENANTS OF BUYER. During the period from the date of this Agreement
and continuing until the Effective Time, except as expressly contemplated or
permitted by this Agreement, the Bank Merger Agreement or the Company Option
Agreement or with the prior written consent of the Company, Buyer and its
Subsidiaries shall carry on their respective businesses in the ordinary course
consistent with prudent banking practice. Buyer will use its best efforts to (x)
preserve its business organization and that of its Subsidiaries intact, (y) keep
available to itself and the Company the present services of the employees of
Buyer and its Subsidiaries and (z) preserve for itself and the Company the
goodwill of the customers of Buyer and its Subsidiaries and others with whom
business relationships exist. Without limiting the generality of the foregoing,
and except as set forth on Section 6.2 of the Buyer Disclosure Schedule or as
otherwise contemplated by this Agreement or consented to in writing by the
Company, Buyer shall not, and shall not permit any of its Subsidiaries to:
(a) solely in the case of Buyer, declare or pay any extraordinary or special
dividends on or make any other extraordinary or special distributions in respect
of any of its capital stock; PROVIDED, HOWEVER, that
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nothing contained herein shall prohibit Buyer from increasing the quarterly cash
dividend on Buyer Common Stock;
(b) take any action that is intended or may reasonably be expected to result
in any of the conditions to the Merger set forth in Article VIII not being
satisfied;
(c) change its methods of accounting in effect at June 30, 1998, except in
accordance with changes in GAAP or regulatory accounting principles as concurred
to by Buyer's independent auditors;
(d) take or cause to be taken any action which would disqualify the Merger
as a "pooling of interests" for accounting purposes or a tax free reorganization
under Section 368(a) of the Code, PROVIDED, HOWEVER, that nothing contained
herein shall limit the ability of Buyer to exercise its rights under the Company
Option Agreement;
(e) knowingly take any action that would result in a failure to maintain the
authorization for quotation of Buyer Comon Stock on the Nasdaq/NMS;
(f) enter into any agreement relating to a merger, acquisition or similar
transaction which would prevent or adversely decrease the probability of the
consummation of the transactions contemplated by this Agreement;
(g) enter into any agreement contemplating the acquisition of Buyer or Buyer
Bank, whether by merger or otherwise, unless the other party thereto expressly
agrees to be bound by the terms of this Agreement; or
(h) agree to do any of the foregoing.
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ARTICLE VII
ADDITIONAL AGREEMENTS
7.1. REGULATORY MATTERS. (a) Buyer and the Company shall promptly prepare
and file with the SEC the Proxy Statement and Buyer shall promptly prepare and
file with the SEC the S-4, in which the Proxy Statement will be included as a
prospectus. Each of the Company and Buyer shall use all reasonable efforts to
have the S-4 declared effective under the Securities Act as promptly as
practicable after such filing, and each of the Company and Buyer shall
thereafter mail the Proxy Statement to each of its respective stockholders.
Buyer shall also use all reasonable efforts to obtain all necessary state
securities law or "Blue Sky" permits and approvals required to carry out the
transactions contemplated by this Agreement and the Bank Merger Agreement, and
the Company shall furnish all information concerning the Company and the holders
of Company Common Stock as may be reasonably requested in connection with any
such action.
(b) The parties hereto shall cooperate with each other and use their
commercially reasonable efforts to promptly prepare and file all necessary
documentation, to effect all applications, notices, petitions and filings, and
to obtain as promptly as practicable all permits, consents, approvals and
authorizations of all third parties and Governmental Entities which are
necessary or advisable to consummate the transactions contemplated by this
Agreement (including without limitation the Merger and the Subsidiary Merger)
(it being understood that any amendments to the S-4 or a resolicitation of
proxies as consequence of a subsequent proposed merger, stock purchase or
similar acquisition by Buyer or any of its Subsidiaries shall not violate this
covenant). The Company and Buyer shall have the right to review in advance, and
to the extent practicable each will consult the other on, in each case subject
to applicable laws relating to the exchange of information, all the information
relating to the Company or Buyer, as the case may be, and any of their
respective Subsidiaries, which appears in any filing made with, or written
materials submitted to, any third party or any Governmental Entity in connection
with the transactions contemplated by this Agreement. In exercising the
foregoing right, each of the parties hereto shall act reasonably and as promptly
as practicable. The parties hereto agree that they will consult with each other
with respect to the obtaining of all permits, consents, approvals and
authorizations of all third parties and Governmental Entities necessary or
advisable to consummate the transactions contemplated by this Agreement and each
party will keep the other apprised of the status of matters relating to
completion of the transactions contemplated herein.
(c) Buyer and the Company shall, upon request, furnish each other with all
information concerning themselves, their Subsidiaries, directors, officers and
stockholders and such other matters as may be reasonably necessary or advisable
in connection with the Proxy Statement, the S-4 or any other statement, filing,
notice or application made by or on behalf of Buyer, the Company or any of their
respective Subsidiaries to any Governmental Entity in connection with the Merger
and the other transactions contemplated by this Agreement.
(d) Buyer and the Company shall promptly furnish each other with copies of
written communications received by Buyer or the Company, as the case may be, or
any of their respective Subsidiaries, Affiliates or Associates (as such terms
are defined in Rule 12b-2 under the Exchange Act as in effect on the date of
this Agreement) from, or delivered by any of the foregoing to, any Governmental
Entity in respect of the transactions contemplated hereby.
(e) The information supplied by the Company for inclusion in the S-4 shall
not, at the time the S-4 is declared effective, contain any untrue statement of
a material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The
information supplied by the Company for inclusion in the Proxy Statement shall
not, at the date the Proxy Statement (or any supplement thereto) is first mailed
to stockholders, at the time of the Company's stockholders meeting or at the
Effective Time contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein,
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in light of the circumstances under which they are made not misleading. If at
any time prior to the Effective Time, any event or circumstance relating to the
Company or any of its affiliates, or its or their respective officers or
directors, should be discovered by the Company that should be set forth in an
amendment to the S-4 or a supplement to the Proxy Statement, the Company shall
promptly inform Buyer thereof in writing. All documents that the Company is
responsible for filing with the SEC in connection with the transactions
contemplated herein will comply as to form in all material respects with
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
(f) The information supplied by Buyer for inclusion in the S-4 shall not, at
the time the S-4 is declared effective, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein not misleading. The
information supplied by Buyer for inclusion in the Proxy Statement shall not, at
the date the Proxy Statement (or any supplement thereto) is first mailed to
stockholders, at the time of the Buyer's stockholders meeting or at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. If at any time prior to the Effective Time, any event or
circumstance relating to Buyer or any of its affiliates, or to their respective
officers or directors, should be discovered by Buyer that should be set forth in
an amendment to the S-4 or a supplement to the Proxy Statement, Buyer shall
promptly inform the Company thereof in writing. All documents that Buyer is
responsible for filing with the SEC in connection with the transactions
contemplated hereby will comply as to form in all material respects with the
applicable requirements of the Securities Act and the rules and regulations
thereunder and the Exchange Act and the rules and regulations thereunder.
7.2. ACCESS TO INFORMATION. (a) Upon reasonable notice and subject to
applicable laws relating to the exchange of information, the Company shall, and
shall cause each of its Subsidiaries to, afford to the officers, employees,
accountants, counsel and other representatives of Buyer, access, during normal
business hours during the period prior to the Effective Time, to all its
properties, books, contracts, commitments, records, officers, employees,
accountants, counsel and other representatives and, during such period, the
Company shall, and shall cause its Subsidiaries to, make available to Buyer (i)
a copy of each report, schedule, registration statement and other document filed
or received by it during such period pursuant to the requirements of Federal
securities laws or Federal or state banking laws (other than reports or
documents which the Company is not permitted to disclose under applicable law)
and (ii) all other information concerning its business, properties and personnel
as Buyer may reasonably request. Neither the Company nor any of its Subsidiaries
shall be required to provide access to or to disclose information where such
access or disclosure would violate or prejudice the rights of the Company's
customers, jeopardize any attorney-client privilege or contravene any law, rule,
regulation, order, judgment, decree, fiduciary duty or binding agreement entered
into prior to the date of this Agreement. Buyer will hold, and will cause its
officers, directors, employees, accountants, counsel and other representatives
to hold, all such information in confidence to the extent required by, and in
accordance with, the provisions of the confidentiality agreement, dated July 29,
1998, by and among the Company, Buyer, the Company Bank and Buyer Bank (the
"Confidentiality Agreement").
(b) Upon reasonable notice and subject to applicable laws relating to the
exchange of information, Buyer shall, and shall cause its Subsidiaries to,
afford to the officers, employees, accountants, counsel and other
representatives of the Company, access, during normal business hours during the
period prior to the Effective Time, to such information regarding Buyer and its
Subsidiaries as shall be reasonably necessary for the Company to fulfill its
obligations pursuant to this Agreement to assist in the preparation of the Proxy
Statement or which may be reasonably necessary for the Company to confirm that
the representations and warranties of Buyer contained herein are true and
correct and that the covenants of Buyer contained herein have been performed in
all material respects. Neither Buyer nor any of its Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would
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violate or prejudice the rights of Buyer's customers, jeopardize any
attorney-client privilege or contravene any law, rule, regulation, order,
judgment, decree, fiduciary duty or binding agreement entered into prior to the
date of this Agreement. The parties hereto will make appropriate substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(c) All information furnished by Buyer to the Company or its representatives
pursuant hereto shall be held in confidence to the extent required by, and in
accordance with the provisions of the Confidentiality Agreement.
(d) No investigation by either of the parties or their respective
representatives shall affect the representations, warranties, covenants or
agreements of the other set forth herein.
7.3. STOCKHOLDER MEETINGS. (a) The Company and Buyer each shall take all
steps necessary to duly call, give notice of, convene and hold a meeting of its
stockholders to be held as soon as is reasonably practicable after the date on
which the S-4 becomes effective for the purpose of voting upon the approval of
this Agreement and the consummation of the transactions contemplated hereby. The
Company and Buyer each will, through its Board of Directors, except in the case
of the Company as provided in Section 7.3(b) hereof, recommend to its
stockholders approval of this Agreement and the transactions contemplated hereby
and such other matters as may be submitted to its stockholders in connection
with this Agreement. The Company and Buyer shall coordinate and cooperate with
respect to the foregoing matters with a view towards, among other things,
holding their stockholders meetings on the same day.
(b) Notwithstanding the provisions of Section 7.3(a) above, the Board of
Directors of the Company may withdraw or modify, or propose publicly to withdraw
or modify, in a manner adverse to Buyer, the approval or recommendation by such
Board of Directors or such committee of the Merger or this Agreement if the
Company receives an unsolicited, written BONA FIDE proposal regarding a takeover
proposal, and (i) the Board of Directors of the Company concludes in good faith
that it is required to take such action, but only after consultation with and
based upon the advice of outside counsel that the failure to take such action
would result in a violation of any fiduciary duties of the Board of Directors to
its stockholders under applicable law, and (ii) the Board of Directors of the
Company, after consultation with and based upon the advice of its financial
advisor, concludes in good faith that such takeover proposal is a Superior
Takeover Proposal.
7.4. LEGAL CONDITIONS TO MERGER. Each of Buyer and the Company shall, and
shall cause its Subsidiaries to, use their commercially reasonable efforts (a)
to take, or cause to be taken, all actions necessary, proper or advisable to
comply promptly with all legal requirements which may be imposed on such party
or its Subsidiaries with respect to the Merger or the Subsidiary Merger and,
subject to the conditions set forth in Article VIII hereof, to consummate the
transactions contemplated by this Agreement and (b) to obtain (and to cooperate
with the other party to obtain) any consent, authorization, order or approval
of, or any exemption by, any Governmental Entity and any other third party which
is required to be obtained by the Company or Buyer or any of their respective
Subsidiaries in connection with the Merger and the Subsidiary Merger and the
other transactions contemplated by this Agreement, and to comply with the terms
and conditions of such consent, authorization, order or approval.
7.5. AFFILIATES. (a) Each of Buyer and the Company shall use its
commercially reasonable efforts to cause each director, executive officer and
other person who is an "affiliate" (for purposes of Rule 145 under the
Securities Act and for purposes of qualifying the Merger for
"pooling-of-interests" accounting treatment) of such party to deliver to the
other party hereto, as soon as practicable after the date of this Agreement, a
written agreement, in the form of Exhibit 7.5(a) hereto (in the case of
affiliates of Buyer) or 7.5(b) hereto (in the case of affiliates of the
Company).
(b) Buyer shall use its commercially reasonable efforts to publish, not
later than 15 days after the end of the first full calendar month following the
month in which the Effective Time occurs, financial results
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covering at least 30 days of post-Merger combined operations as contemplated by
SEC Accounting Series Release No. 135.
7.6. STOCK EXCHANGE LISTING. Buyer shall use all commercially reasonable
efforts to cause the shares of Buyer Common Stock to be issued in the Merger to
be authorized for quotation on the Nasdaq/NMS, subject to official notice of
issuance, as of the Effective Time.
7.7. EMPLOYEE BENEFIT PLANS; EXISTING AGREEMENTS. (a) As soon as practicable
following the Effective Time, the employees of the Company and its Subsidiaries
(the "Company Employees") shall be entitled to participate in Buyer's employee
benefit plans in which similarly situated employees of Buyer or its Subsidiaries
participate, to the same extent as comparable employees of Buyer or its
Subsidiaries (it being understood that inclusion of Company Employees in Buyer's
employee benefit plans may occur at different times with respect to different
plans).
(b) With respect to each Buyer Plan, for purposes of determining eligibility
to participate, vesting, and entitlement to benefits, including for severance
benefits and vacation entitlement (but not for accrual of pension benefits),
service with the Company (or predecessor employers to the extent the Company
provides past service credit) shall be treated as service with Buyer; PROVIDED
HOWEVER, that such service shall not be recognized to the extent that such
recognition would result in a duplication of benefits. Such service also shall
apply for purposes of satisfying any waiting periods, evidence of insurability
requirements, or the application of any preexisting condition limitations.
Company Employees shall be given credit for amounts paid under a corresponding
benefit plan during the same period for purposes of applying deductibles,
copayments and out-of-pocket maximums as though such amounts had been paid in
accordance with the terms and conditions of the Buyer Plan.
(c) Following the Effective Time, Buyer shall honor and shall cause the
Surviving Bank to honor in accordance with their terms all employment, severance
and other compensation agreements and arrangements existing prior to the
execution of this Agreement which are between the Company and any director,
officer or employee thereof and which have been disclosed in the Company
Disclosure Schedule and previously have been made available to Buyer.
7.8. INDEMNIFICATION. (a) In the event of any threatened or actual claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, including, without limitation, any such claim,
action, suit, proceeding or investigation in which any person who is now, or has
been at any time prior to the date of this Agreement, or who becomes prior to
the Effective Time, a director or officer of the Company or any of its
Subsidiaries (the "Indemnified Parties") is, or is threatened to be, made a
party based in whole or in part on, or arising in whole or in part out of, or
pertaining to (i) the fact that he is or was a director or officer of the
Company, any of the Subsidiaries of the Company or any of their respective
predecessors or (ii) this Agreement or any of the transactions contemplated
hereby, whether in any case asserted or arising before or after the Effective
Time, the parties hereto agree to cooperate and use their best efforts to defend
against and respond thereto. It is understood and agreed that after the
Effective Time, Buyer shall indemnify and hold harmless, as and to the extent
permitted by Maryland law, each such Indemnified Party against any losses,
claims, damages, liabilities, costs, expenses (including reasonable attorney's
fees and expenses in advance of the final disposition of any claim, suit,
proceeding or investigation to each Indemnified Party to the fullest extent
permitted by law upon receipt of any undertaking required by applicable law),
judgments, fines and amounts paid in settlement in connection with any such
threatened or actual claim, action, suit, proceeding or investigation, and in
the event of any such threatened or actual claim, action, suit, proceeding or
investigation (whether asserted or arising before or after the Effective Time),
the Indemnified Parties may retain counsel reasonably satisfactory to them after
consultation with Buyer; PROVIDED, HOWEVER, that (1) Buyer shall have the right
to assume the defense thereof and upon such assumption Buyer shall not be liable
to any Indemnified Party for any legal expenses of other counsel or any other
expenses subsequently incurred by any Indemnified Party in connection with the
defense thereof, except that if Buyer elects not to assume such defense or
counsel for
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the Indemnified Parties reasonably advises that there are issues which raise
conflicts of interest between Buyer and the Indemnified Parties, the Indemnified
Parties may retain counsel reasonably satisfactory to them after consultation
with Buyer, and Buyer shall pay the reasonable fees and expenses of such counsel
for the Indemnified Parties, (2) Buyer shall in all cases be obligated pursuant
to this paragraph to pay for only one firm of counsel for all Indemnified
Parties, (3) Buyer shall not be liable for any settlement effected without its
prior written consent (which consent shall not be unreasonably withheld) and (4)
Buyer shall have no obligation hereunder to any Indemnified Party when and if a
court of competent jurisdiction shall ultimately determine, and such
determination shall have become final and nonappealable, that indemnification of
such Indemnified Party in the manner contemplated hereby is prohibited by
applicable law. Any Indemnified Party wishing to claim Indemnification under
this Section 7.8, upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify Buyer thereof, provided that the failure to
so notify shall not affect the obligations of Buyer under this Section 7.8
except to the extent such failure to notify prejudices Buyer. Buyer's
obligations under this Section 7.8 shall continue in full force and effect for a
period of six (6) years from the Effective Time; PROVIDED, HOWEVER, that all
rights to indemnification in respect of any claim (a "Claim") asserted or made
within such period shall continue until the final disposition of such Claim.
(b) Prior to the Effective Time the Company shall purchase, and for a period
of six years after the Effective Time, Buyer shall use its commercially
reasonable efforts to maintain, directors and officers liability insurance
"tail" or "runoff" coverage with respect to wrongful acts and/or omissions
committed or allegedly committed prior to the Effective Time. Such coverage
shall have an aggregate coverage limit over the term of such policy in an amount
no less than the annual aggregate coverage limit under the Company's existing
directors and officers liability policy, and in all other respects shall be at
least comparable to such existing policy.
(c) In the event Buyer or any of its successors or assigns (i) consolidates
with or merges into any other person and shall not be the continuing or
surviving corporation or entity of such consolidation or merger, or (ii)
transfers or conveys all or substantially all of its properties and assets to
any person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of Buyer assume the
obligations set forth in this section.
(d) The provisions of this Section 7.8 are intended to be for the benefit
of, and shall be enforceable by, each Indemnified Party and his or her heirs and
representatives.
7.9. ADDITIONAL AGREEMENTS. In case at any time after the Effective Time any
further action is necessary or desirable to carry out the purposes of this
Agreement or the Bank Merger Agreement or to vest the Surviving Corporation or
the Surviving Bank with full title to all properties, assets, rights, approvals,
immunities and franchises of any of the parties to the Merger or the Subsidiary
Merger, the proper officers and directors of each party to this Agreement and
their respective Subsidiaries shall take all such necessary action as may be
reasonably requested by Buyer.
7.10. ADVICE OF CHANGES. Buyer and the Company shall promptly advise the
other party of any change or event having a Material Adverse Effect on it or
which it believes would or would be reasonably likely to cause or constitute a
material breach of any of its representations, warranties or covenants contained
herein. From time to time prior to the Effective Time (and on the date prior to
the Closing Date), each party will promptly supplement or amend the Disclosure
Schedules delivered in connection with the execution of this Agreement to
reflect any matter which, if existing, occurring or known at the date of this
Agreement, would have been required to be set forth or described in such
Disclosure Schedules or which is necessary to correct any information in such
Disclosure Schedules which has been rendered inaccurate thereby. No supplement
or amendment to such Disclosure Schedules shall have any effect for the purpose
of determining satisfaction of the conditions set forth in Sections 8.2(a) or
8.3(a) hereof, as the case may be, or the compliance by the Company or Buyer, as
the case may be, with the respective covenants and agreements of such parties
contained herein.
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7.11. CURRENT INFORMATION. During the period from the date of this Agreement
to the Effective Time, the Company will cause one or more of its designated
representatives to confer on a regular and frequent basis (not less than
monthly) with representatives of Buyer and to report the general status of the
ongoing operations of the Company and its Subsidiaries. The Company will
promptly notify Buyer of any material change in the normal course of business or
in the operation of the properties of the Company or any of its Subsidiaries and
of any governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), or the institution or the threat
of significant litigation involving the Company or any of its Subsidiaries, and
will keep Buyer fully informed of such events.
7.12. EXECUTION AND AUTHORIZATION OF BANK MERGER AGREEMENT. As soon as
reasonably practicable after the date of this Agreement, (a) Buyer shall (i)
cause the Board of Directors of Buyer Bank to approve the Bank Merger Agreement,
(ii) cause Buyer Bank to execute and deliver the Bank Merger Agreement, and
(iii) approve the Bank Merger Agreement as the sole stockholder of Buyer Bank,
and (b) the Company shall (i) cause the Board of Directors of the Company Bank
to approve the Bank Merger Agreement, (ii) cause the Company Bank to execute and
deliver the Bank Merger Agreement, and (iii) approve the Bank Merger Agreement
as the sole stockholder of the Company Bank.
7.13. DIRECTORSHIP. Prior to Closing, Buyer shall take all action as may be
necessary or appropriate to cause Eric E. Glass and Donald R. Hull (or any other
person or persons designated by the Board of Directors of the Company and
acceptable to the Buyer) to be directors of each of Buyer and Buyer Bank as of
the Effective Time for three year terms, each to hold office in accordance with
the charter and bylaws of Buyer or Buyer Bank, as the case may be, in each case
until their respective successors are duly elected or appointed and qualified.
7.14. COORDINATION OF DIVIDENDS. After the date of this Agreement each of
Buyer and the Company shall coordinate with the other the declaration of any
dividends in respect of Buyer Common Stock and the Company Common Stock and the
record dates and payments dates relating thereto, it being the intention of the
parties that the holders of Buyer Common Stock or Company Common Stock shall not
receive more than one dividend, or fail to receive one dividend, for any single
calendar quarter with respect to their shares of Buyer Common Stock and/or
Company Common Stock and any shares of Buyer Common Stock any holder of Company
Common Stock receives in exchange therefor in the Merger.
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ARTICLE VIII
CONDITIONS PRECEDENT
8.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligation of each party to effect the Merger shall be subject to the
satisfaction at or prior to the Effective Time of the following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement shall have been approved and
adopted by the requisite vote of the holders of Company Common Stock under
applicable law and by the requisite vote of the holders of Buyer Common
Stock under applicable law.
(b) NASDAQ/NMS LISTING. The shares of Buyer Common Stock which shall be
issued to the stockholders of the Company upon consummation of the Merger
shall have been authorized for quotation on the Nasdaq/NMS, subject to
official notice of issuance.
(c) OTHER APPROVALS. All regulatory approvals required to consummate the
transactions contemplated hereby (including the Merger and the Subsidiary
Merger) shall have been obtained and shall remain in full force and effect
and all statutory waiting periods in respect thereof shall have expired (all
such approvals and the expiration of all such waiting periods being referred
to herein as the "Requisite Regulatory Approvals").
(d) S-4. The S-4 shall have become effective under the Securities Act
and no stop order suspending the effectiveness of the S-4 shall have been
issued and no proceedings for that purpose shall have been initiated or
threatened by the SEC.
(e) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No order, injunction or
decree issued by any court or agency of competent jurisdiction or other
legal restraint or prohibition (an "Injunction") preventing the consummation
of the Merger, the Subsidiary Merger or any of the other transactions
contemplated by this Agreement or the Bank Merger Agreement shall be in
effect. No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated or enforced by any Governmental Entity
which prohibits, restricts or makes illegal consummation of the Merger or
the Subsidiary Merger.
8.2. CONDITIONS TO OBLIGATIONS OF BUYER. The obligation of Buyer to effect
the Merger is also subject to the satisfaction or waiver by Buyer at or prior to
the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Subject to Section 3.2, the
representations and warranties of the Company set forth in this Agreement
shall be true and correct as of the date of this Agreement and (except to
the extent such representations and warranties speak as of an earlier date)
as of the Closing Date as though made on and as of the Closing Date. Buyer
shall have received a certificate signed on behalf of the Company by the
Chief Executive Officer and the Chief Financial Officer of the Company to
the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The Company shall have
performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Closing Date, and Buyer shall
have received a certificate signed on behalf of the Company by the Chief
Executive Officer and the Chief Financial Officer of the Company to such
effect.
(c) NO PENDING GOVERNMENTAL ACTIONS. No proceeding initiated by any
federal agency or state banking authority seeking an Injunction shall be
pending.
(d) FEDERAL TAX OPINION. Buyer shall have received an opinion of
Skadden, Arps, Slate, Meagher & Flom LLP, counsel to Buyer ("Buyer's
Counsel"), in form and substance reasonably satisfactory to Buyer,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time, the Merger
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will be treated as a reorganization within the meaning of Section 368(a) of
the Code. In rendering such opinion, Buyer's Counsel may require and rely
upon representations and covenants, including those contained in
certificates of officers of Buyer, Buyer Bank, the Company, the Company Bank
and others, including certain stockholders of the Company who own 5% or more
of the outstanding shares of Company Common Stock, reasonably satisfactory
in form and substance to such counsel; provided, however, that the failure
to obtain any such representation or covenant from a stockholder of the
Company who owns 5% or more of the outstanding shares of Company Common
Stock that is not, in the reasonable judgment of Buyer's Counsel, necessary
in order for Buyer's Counsel to render such opinion shall not be grounds for
Buyer's Counsel to refuse to deliver such opinion.
(e) POOLING OF INTERESTS. Buyer shall have received a letter from Arthur
Andersen, LLP addressed to Buyer, to the effect that the Merger will qualify
for "pooling of interests" accounting treatment.
8.3. CONDITIONS TO OBLIGATIONS OF THE COMPANY. The obligation of the Company
to effect the Merger is also subject to the satisfaction or waiver by the
Company at or prior to the Effective Time of the following conditions:
(a) REPRESENTATIONS AND WARRANTIES. Subject to Section 3.2, the
representations and warranties of Buyer set forth in this Agreement shall be
true and correct as of the date of this Agreement and (except to the extent
such representations and warranties speak as of an earlier date) as of the
Closing Date as though made on and as of the Closing Date. The Company shall
have received a certificate signed on behalf of Buyer by the Chief Executive
Officer and the Chief Financial Officer of Buyer to the foregoing effect.
(b) PERFORMANCE OF OBLIGATIONS OF BUYER. Buyer shall have performed in
all material respects all obligations required to be performed by it under
this Agreement at or prior to the Closing Date, and the Company shall have
received a certificate signed on behalf of Buyer by the Chief Executive
Officer and the Chief Financial Officer of Buyer to such effect.
(c) NO PENDING GOVERNMENTAL ACTIONS. No proceeding initiated by any
federal agency or state banking authority seeking an Injunction shall be
pending.
(d) FEDERAL TAX OPINION. The Company shall have received an opinion of
Miles & Stockbridge P.C. (the "Company's Counsel"), in form and substance
reasonably satisfactory to the Company, dated as of the Effective Time,
substantially to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state of
facts existing at the Effective Time, the Merger and the Subsidiary Merger
will be treated as reorganizations within the meaning of Section 368(a) of
the Code and that accordingly for federal income tax purposes:
(i) No gain or loss will be recognized by the Company as a result of the
Merger;
(ii) No gain or loss will be recognized by the Company Bank as a result
of the Subsidiary Merger (except to the extent the Company Bank or Buyer
Bank may be required to recognize income due to the recapture of bad debt
reserves as a result of the Subsidiary Merger);
(iii) No gain or loss will be recognized by the stockholders of the
Company who exchange all of their Company Common Stock solely for Buyer
Common Stock pursuant to the Merger (except with respect to cash received in
lieu of a fractional share interest in Buyer Common Stock); and
(iv) The aggregate tax basis of Buyer Common Stock received by
stockholders who exchange all of their Company Common Stock solely for
Common Stock pursuant to the Merger will be the same as the aggregate tax
basis of the Company Common Stock surrendered in exchange therefor (reduced
by any amount allocable to a fractional share interest for which cash is
received).
In rendering such opinion, the Company's Counsel may require and rely
upon representations and covenants, including those contained in
certificates of officers of Buyer, Buyer Bank, the
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Company, the Company Bank and others, including certain stockholders of the
Company who own 5% or more of the outstanding shares of Company Common
Stock, reasonably satisfactory in form and substance to such counsel;
provided, however, that the failure to obtain any such representation or
covenant from a stockholder of the Company who owns 5% or more of the
outstanding shares of Company Common Stock that is not, in the reasonable
judgment of the Company's Counsel, necessary in order for the Company's
Counsel to render such opinion shall not be grounds for the Company's
Counsel to refuse to deliver such opinion.
(e) POOLING OF INTERESTS. Buyer shall have received a letter from Arthur
Andersen, LLP addressed to Buyer, to the effect that the Merger will qualify
for "pooling of interests" accounting treatment.
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<PAGE>
ARTICLE IX
TERMINATION AND AMENDMENT
9.1. TERMINATION. This Agreement may be terminated at any time prior to
the Effective Time, whether before or after approval of the matters presented in
connection with the Merger by the stockholders of both the Company and Buyer:
(a) by mutual consent of the Company and Buyer in a written instrument,
if the Board of Directors of each so determines by a vote of a majority of
the members of its entire Board;
(b) by either Buyer or the Company upon written notice to the other
party (i) 60 days after the date on which any request or application for a
Requisite Regulatory Approval shall have been denied by any Governmental
Entity which must grant such Requisite Regulatory Approval, unless within
the 60-day period following such denial or withdrawal a petition for
rehearing or an amended application has been filed with the applicable
Governmental Entity, PROVIDED, HOWEVER, that no party shall have the right
to terminate this Agreement pursuant to this Section 9.1(b)(i) if such
denial shall be due to the failure of the party seeking to terminate this
Agreement to perform or observe the covenants and agreements of such party
set forth herein or (ii) if any Governmental Entity of competent
jurisdiction shall have issued a final nonappealable order enjoining or
otherwise prohibiting the Merger or the Subsidiary Merger;
(c) by either Buyer or the Company if the Merger shall not have been
consummated on or before June 30, 1999, unless the failure of the Closing to
occur by such date shall be due to the failure of the party seeking to
terminate this Agreement to perform or observe the covenants and agreements
of such party set forth herein;
(d) by either Buyer or the Company (provided that the terminating party
shall not be in material breach of any of its obligations under Section 7.3)
if any approval of the stockholders of either of the Company or Buyer
required for the consummation of the Merger shall not have been obtained by
reason of the failure to obtain the required vote at a duly held meeting of
such stockholders or at any adjournment or postponement thereof;
(e) by either Buyer or the Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material breach
of any of the representations or warranties set forth in this Agreement on
the part of the other party, which breach is not cured within thirty days
following written notice to the party committing such breach, or which
breach, by its nature, cannot be cured prior to the Closing; PROVIDED,
HOWEVER, that neither party shall have the right to terminate this Agreement
pursuant to this Section 9.1(e) unless the breach of representation or
warranty, together with all other such breaches, would entitle the party
receiving such representation not to consummate the transactions
contemplated hereby under Section 8.2(a) (in the case of a breach of
representation or warranty by the Company) or Section 8.3(a) (in the case of
a breach of representation or warranty by Buyer);
(f) by either Buyer or the Company (provided that the terminating party
is not then in material breach of any representation, warranty, covenant or
other agreement contained herein) if there shall have been a material breach
of any of the covenants or agreements set forth in this Agreement on the
part of the other party, which breach shall not have been cured within
thirty days following receipt by the breaching party of written notice of
such breach from the other party hereto, or which breach, by its nature,
cannot be cured prior to the Closing;
(g) by Buyer, if the Board of Directors of the Company does not publicly
recommend in the Proxy Statement that the Company's stockholders approve
this Agreement or if, after recommending in the Proxy Statement that
stockholders approve this Agreement, the Board of Directors of the
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Company shall have withdrawn, modified or amended such recommendation in any
respect materially adverse to Buyer; or
(h) by the Company, if the Board of Directors of Buyer does not publicly
recommend in the Proxy Statement that Buyer's stockholders approve this
Agreement or if, after recommending in the Proxy Statement that stockholders
approve this Agreement, the Board of Directors of Buyer shall have
withdrawn, modified or amended such recommendation in any respect materially
adverse to the Company.
9.2. EFFECT OF TERMINATION; Expenses. In the event of termination of this
Agreement by either Buyer or the Company as provided in Section 9.1, this
Agreement shall forthwith become void and have no effect except (i) the last
sentence of Section 7.2(a), and Sections 7.2(c), 9.2 and 10.4, shall survive any
termination of this Agreement, and that notwithstanding anything to the contrary
contained in this Agreement, no party shall be relieved or released from any
liabilities or damages arising out of its willful breach of any provision of
this Agreement.
9.3. AMENDMENT. Subject to compliance with applicable law, this Agreement
may be amended by the parties hereto, by action taken or authorized by their
respective Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the stockholders of either
the Company or Buyer; PROVIDED, HOWEVER, that after any approval of the
transactions contemplated by this Agreement by the Company's stockholders, there
may not be, without further approval of such stockholders, any amendment of this
Agreement which reduces the amount or changes the form of the consideration to
be delivered to the Company stockholders hereunder other than as contemplated by
this Agreement. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
9.4. EXTENSION; WAIVER. At any time prior to the Effective Time, the
parties hereto, by action taken or authorized by their respective Board of
Directors, may, to the extent legally allowed, (a) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of a party hereto to any such extension or waiver shall be valid only if
set forth in a written instrument signed on behalf of such party, but such
extension or waiver or failure to insist on strict compliance with an
obligation, covenant, agreement or condition shall not operate as a waiver of,
or estoppel with respect to, any subsequent or other failure.
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<PAGE>
ARTICLE X
GENERAL PROVISIONS
10.1. CLOSING. Subject to the terms and conditions of this Agreement and the
Bank Merger Agreement, the closing of the Merger (the "Closing") will take place
at 10:00 a.m. on the first day which is (a) the last business day of a month and
(b) at least two business days after the satisfaction or waiver (subject to
applicable law) of the latest to occur of the conditions set forth in Article
VIII hereof (other than those conditions which relate to actions to be taken at
the Closing)(the "Closing Date"), at the offices of Buyer's Counsel unless
another time, date or place is agreed to in writing by the parties hereto.
10.2. ALTERNATIVE STRUCTURE. Notwithstanding anything to the contrary
contained in this Agreement, prior to the Effective Time, Buyer shall be
entitled to revise the structure of the Merger and/or the Subsidiary Merger and
related transactions in order to (x) substitute a subsidiary of Buyer as a
Constituent Corporation in the Merger or (y) provide that a different entity
shall be the surviving corporation in a merger provided that each of the
transactions comprising such revised structure shall (i) fully qualify as, or
fully be treated as part of, one or more tax-free reorganizations within the
meaning of Section 368(a) of the Code, and not change the amount of
consideration to be received by such stockholders, (ii) be properly treated for
financial reporting purposes as a pooling of interests, (iii) be capable of
consummation in as timely a manner as the structure contemplated herein and (iv)
not otherwise be prejudicial to the interests of the stockholders of the
Company. This Agreement and any related documents shall be appropriately amended
in order to reflect any such revised structure.
10.3. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. None of the
representations, warranties, covenants and agreements in this Agreement or in
any instrument delivered pursuant to this Agreement (other than pursuant to the
Company Option Agreement which shall terminate in accordance with its terms)
shall survive the Effective Time, except for those covenants and agreements
contained herein and therein which by their terms apply in whole or in part
after the Effective Time.
10.4. EXPENSES. All costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such expense, provided, however, that the costs and expenses of
printing and mailing the Proxy Statement to the stockholders of the Company and
Buyer, and all filing and other fees paid to the SEC or any other Governmental
Entity in connection with the Merger, the Subsidiary Merger and the other
transactions contemplated hereby, shall be borne equally by Buyer and the
Company, provided, further, however, that nothing contained herein shall limit
either party's rights to recover any liabilities or damages arising out of the
other party's willful breach of any provision of this Agreement.
10.5. NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation), mailed by registered or certified mail (return receipt requested)
or delivered by an express courier (with confirmation) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):
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(a) if to Buyer, to:
F&M Bancorp
110 Thomas Johnson Drive
Frederick, Maryland 21702
Attention: Chief Executive Officer
with a copy to:
Skadden, Arps Slate, Meagher & Flom
LLP
919 Third Avenue
New York, New York 10022
Attn: William S. Rubenstein, Esq.
and
(b) if to the Company, to:
Monocacy Bancshares, Inc.
222 East Baltimore Street
Taneytown, Maryland 21787
Attention: Chairman of the Board of
Directors
with a copy to:
Miles & Stockbridge P.C.
10 Light Street
Baltimore, Maryland 21210
Attention: David Gibbons, Esq.
10.6. INTERPRETATION. When a reference is made in this Agreement to
Sections, Exhibits or Schedules, such reference shall be to a Section of or
Exhibit or Schedule to this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation". The phrases "the date of this Agreement", "the date hereof" and
terms of similar import, unless the context otherwise requires, shall be deemed
to refer to September 4, 1998.
10.7. COUNTERPARTS. This Agreement may be executed by facsimile or otherwise
in counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each of the parties
and delivered to the other parties, it being understood that all parties need
not sign the same counterpart.
10.8. ENTIRE AGREEMENT. This Agreement (including the documents and the
instruments referred to herein), together with the Confidentiality Agreement,
the Stock Option Agreement and the Bank Merger Agreement, constitutes the entire
agreement and supersedes all prior agreements and understandings, both written
and oral, among the parties with respect to the subject matter hereof.
10.9. GOVERNING LAW. This Agreement shall be governed and construed in
accordance with the laws of the State of Maryland, without regard to any
applicable conflicts of law.
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<PAGE>
10.10. ENFORCEMENT OF AGREEMENT. The parties hereto agree that irreparable
damage would occur in the event that the provisions contained in the last
sentence of Section 7.2(a) and in Section 7.2(c) of this Agreement were not
performed in accordance with its specific terms or was otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of the last sentence of Section 7.2(a) and
Section 7.2(c) of this Agreement and to enforce specifically the terms and
provisions thereof in any court of the United States or any state having
jurisdiction, this being in addition to any other remedy to which they are
entitled at law or in equity.
10.11. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction shall, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision shall be interpreted
to be only so broad as is enforceable.
10.12. PUBLICITY. Except as otherwise required by law or the rules of the
Nasdaq/NMS, so long as this Agreement is in effect, neither Buyer nor the
Company shall, or shall permit any of its Subsidiaries to, issue or cause the
publication of any press release or other public announcement with respect to,
or otherwise make any public statement concerning, the transactions contemplated
by this Agreement without the consent of the other party, which consent shall
not be unreasonably withheld.
10.13. ASSIGNMENT; NO THIRD PARTY BENEFICIARIES. Neither this Agreement nor
any of the rights, interests or obligations hereunder shall be assigned by any
of the parties hereto (whether by operation of law or otherwise) without the
prior written consent of the other parties. Subject to the preceding sentence,
this Agreement will be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns. Except as otherwise
expressly provided herein, this Agreement (including the documents and
instruments referred to herein) is not intended to confer upon any person other
than the parties hereto any rights or remedies hereunder.
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<PAGE>
IN WITNESS WHEREOF, Buyer and the Company have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
<TABLE>
<S> <C> <C>
F&M BANCORP
By: /s/ FAYE E. CANNON
-----------------------------------------
Name: Faye E. Cannon
Title: President & Chief Executive
Officer
</TABLE>
Attest:
/s/ GORDON M. COOLEY
- -------------------------------------------
Name: Gordon M. Cooley
<TABLE>
<S> <C> <C>
MONOCACY BANCSHARES, INC.
By: /s/ ERIC E. GLASS
-----------------------------------------
Name: Eric E. Glass
Title: Chairman of the Board of Directors
</TABLE>
Attest:
/s/ BRIAN M. ETZLER
- -------------------------------------------
Name: Brian M. Etzler
<PAGE>
APPENDIX B
THE TRANSFER OF THIS AGREEMENT IS SUBJECT TO
CERTAIN PROVISIONS CONTAINED HEREIN AND TO
RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated September 4, 1998, between Monocacy
Bancshares, Inc., a Maryland corporation ("Issuer"), and F&M Bancorp, a Maryland
corporation ("Grantee").
W I T N E S S E T H :
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger of even date herewith (the "Merger Agreement"), which agreement has been
executed by the parties hereto immediately prior to this Stock Option Agreement
(the "Agreement"); and
WHEREAS, as a condition to Grantee's entering into the Merger Agreement and
in consideration therefor, Issuer has agreed to grant Grantee the Option (as
hereinafter defined);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Merger Agreement, the parties hereto
agree as follows:
1. (a) Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to
358,002 fully paid and nonassessable shares of Issuer's Common Stock, par
value $5.00 per share ("Common Stock"), of Issuer at a price of $33.00 per
share as adjusted, if applicable (the "Option Price"); PROVIDED, HOWEVER,
that in no event shall the number of shares of Common Stock for which this
Option is exercisable exceed 19.9% of the Issuer's issued and outstanding
shares of Common Stock without giving effect to any shares subject to or
issued pursuant to the Option. The number of shares of Common Stock that may
be received upon the exercise of the Option and the Option Price are subject
to adjustment as herein set forth.
(b) In the event that any additional shares of Common Stock are (i)
issued or otherwise become outstanding after the date of this Agreement
(other than pursuant to this Agreement or as permitted under the terms of
the Merger Agreement or, as the result of the exercise or conversion of
options or other rights to acquire Common Stock that are outstanding as of
the date hereof) or (ii) redeemed, repurchased, retired or otherwise cease
to be outstanding after the date of the Agreement, the number of shares of
Common Stock subject to the Option shall be increased or decreased, as
appropriate, so that such number equals 19.9% of the number of shares of
Common Stock then issued and outstanding without giving effect to any shares
subject to or issued pursuant to the Option. Nothing contained in this
Section 1(b) or elsewhere in this Agreement shall be deemed to authorize
Issuer or Grantee to breach any provision of the Merger Agreement.
2. (a) The Holder (as hereinafter defined) may exercise the Option, in
whole or part, and from time to time, if, but only if, both an Initial
Triggering Event (as hereinafter defined) and a Subsequent Triggering Event
(as hereinafter defined) shall have occurred prior to the occurrence of an
Exercise Termination Event (as hereinafter defined), PROVIDED that the
Holder shall have sent the written notice of such exercise (as provided in
subsection (e) of this Section 2) within six months following such
Subsequent Triggering Event, PROVIDED FURTHER, HOWEVER, that if the Option
cannot be exercised on any day because of any injunction, order or similar
restraint issued by a court of competent jurisdiction, the period during
which the Option may be exercised shall be extended so that the Option shall
expire no earlier than on the 10th business day after such injunction, order
or restraint shall have been dissolved or when such injunction, order or
restraint shall have become permanent and no longer subject to appeal, as
the case may be. Each of the following shall be an "Exercise Termination
Event":
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<PAGE>
(i) the Effective Time (as defined in the Merger Agreement) of the Merger;
(ii) termination of the Merger Agreement in accordance with the provisions
thereof if such termination occurs prior to the occurrence of an Initial
Triggering Event (other than a termination resulting from a willful breach
by Issuer of a provision of the Merger Agreement); or (iii) the passage of
18 months after termination of the Merger Agreement if such termination
follows the occurrence of an Initial Triggering Event or is a termination by
Grantee pursuant to Section 9.1(f) of the Merger Agreement resulting from a
willful breach by Issuer of a provision of the Merger Agreement. The term
"Holder" shall mean the holder or holders of the Option.
(b) The term "Initial Triggering Event" shall mean any of the
following events or transactions occurring after the date hereof:
(i) Issuer or any of its Subsidiaries (each an "Issuer
Subsidiary"), without having received Grantee's prior written
consent, shall have entered into an agreement to engage in an
Acquisition Transaction (as hereinafter defined) with any
person (the term "person" for purposes of this Agreement
having the meaning assigned thereto in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as amended
(the "1934 Act"), and the rules and regulations promulgated
thereunder) other than Grantee or any of its Subsidiaries
(each a "Grantee Subsidiary") or Issuer or its Board of
Directors shall have authorized or proposed or publicly
announced its intention to authorize or propose an
Acquisition Transaction, or shall have recommended or
publicly announced its intention to recommend that the
stockholders of Issuer approve or accept any Acquisition
Transaction. For purposes of this Agreement, "Acquisition
Transaction" shall mean with respect to any person except
Grantee or any Grantee Subsidiary (w) a merger or
consolidation, or any similar transaction, involving Issuer
or any Significant Subsidiary (as defined in Rule 1-02 of
Regulation S-X promulgated by the Securities and Exchange
Commission (the "SEC")) of Issuer, (x) a purchase, lease or
other acquisition or assumption of all or a substantial
portion of the assets or deposits of Issuer or any
Significant Subsidiary of Issuer, (y) a purchase or other
acquisition (including by way of merger, consolidation, share
exchange or otherwise) of securities representing 10% or more
of the voting power of Issuer, or (z) any substantially
similar transaction; PROVIDED, HOWEVER, that in no event
shall any merger, consolidation, purchase or similar
transaction involving only the Issuer and one or more of its
Subsidiaries or involving only any two or more of such
Subsidiaries, be deemed to be an Acquisition Transaction,
provided that any such transaction is not entered into in
violation of the terms of the Merger Agreement;
(ii) Issuer or its Board of Directors shall have publicly
withdrawn or modified, or publicly announced its intent to
withdraw or modify, in any manner adverse to Grantee, its
recommendation that the stockholders of Issuer approve the
transactions contemplated by the Merger Agreement;
(iii) Any person other than Grantee, any Grantee Subsidiary or
any Issuer Subsidiary acting in a fiduciary capacity in the
ordinary course of its business shall have acquired
beneficial ownership or the right to acquire beneficial
ownership of 10% or more of the outstanding shares of Common
Stock (the term "beneficial ownership" for purposes of this
Agreement having the meaning assigned thereto in Section
13(d) of the 1934 Act, and the rules and regulations
thereunder) or any person other than Grantee or any Grantee
Subsidiary shall have commenced (as such term is defined
under the rules and regulations of the SEC), or shall have
filed or publicly disseminated a registration statement or
similar disclosure statement with respect to, a tender offer
or exchange offer to purchase any shares of Common
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<PAGE>
Stock such that, upon consummation of such offer, such person
would own or control 10% or more of the then outstanding
shares of Common Stock;
(iv) Any person other than Grantee or any Grantee Subsidiary
shall have made a BONA FIDE proposal to Issuer or its
stockholders by public announcement or written communication
that is or becomes the subject of public disclosure to engage
in an Acquisition Transaction;
(v) After a proposal is made by a third party to Issuer or its
stockholders to engage in an Acquisition Transaction, Issuer
shall have breached any covenant or obligation contained in
the Merger Agreement and such breach (x) would entitle
Grantee to terminate the Merger Agreement and (y) shall not
have been cured prior to the Notice Date (as defined below);
or
(vi) Any person other than Grantee or any Grantee Subsidiary,
other than in connection with a transaction to which Grantee
has given its prior written consent, shall have filed an
application or notice with the Federal Reserve Board, or
other federal or state bank regulatory authority, which
application or notice has been accepted for processing, for
approval to engage in an Acquisition Transaction.
(c) The term "Subsequent Triggering Event" shall mean either of the
following events or transactions occurring after the date hereof:
(i) The acquisition by any person of beneficial ownership of 20%
or more of the then outstanding Common Stock; or
(ii) The occurrence of the Initial Triggering Event described in
paragraph (i) of subsection (b) of this Section 2, except
that the percentage referred to in clause (y) shall be 20%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence
of any Initial Triggering Event or Subsequent Triggering Event of which it
has notice (together, a "Triggering Event"), it being understood that the
giving of such notice by Issuer shall not be a condition to the right of the
Holder to exercise the Option.
(e) In the event the Holder is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the date of which being
herein referred to as the "Notice Date") specifying (i) the total number of
shares it will purchase pursuant to such exercise and (ii) a place and date
not earlier than three business days nor later than 60 business days from
the Notice Date for the closing of such purchase (the "Closing Date");
PROVIDED that if prior notification to or approval of the Federal Reserve
Board or any other regulatory agency is required in connection with such
purchase, the Holder shall promptly file the required notice or application
for approval and shall expeditiously process the same and the period of time
that otherwise would run pursuant to this sentence shall run instead from
the date on which any required notification periods have expired or been
terminated or such approvals have been obtained and any requisite waiting
period or periods shall have passed. Any exercise of the Option shall be
deemed to occur on the Notice Date relating thereto.
(f) At the closing referred to in subsection (e) of this Section 2,
the Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in United
States dollars, in immediately available funds by wire transfer to a bank
account designated by Issuer, PROVIDED that failure or refusal of Issuer to
designate such a bank account shall not preclude the Holder from exercising
the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in subsection (f) of this Section 2, Issuer
shall deliver to the Holder a certificate or certificates representing the
number of shares of Common Stock purchased by the Holder and, if the
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<PAGE>
Option should be exercised in part only, a new Option evidencing the rights
of the Holder thereof to purchase the balance of the shares purchasable
hereunder, and the Holder shall deliver to Issuer a copy of this Agreement
and a letter agreeing that the Holder will not offer to sell or otherwise
dispose of such shares in violation of applicable law or the provisions of
this Agreement.
(h) Certificates for Common Stock delivered at a closing hereunder
shall be endorsed with a restrictive legend that shall read substantially as
follows:
"The transfer of the shares represented by this certificate is subject to
certain provisions of an agreement between the registered holder hereof.
A copy of such agreement is on file at the principal office of Issuer and
will be provided to the holder hereof without charge upon receipt by
Issuer of a written request therefor. The shares represented by this
certificate have not been registered under the Securities Act of 1933, as
amended, under the Maryland Securities Act, or under the securities acts
of any other state or jurisdiction. No sale, offer to sell or other
transfer of these securities may be made unless pursuant to an effective
registration statement, or unless in the opinion of counsel to the Holder
reasonably satisfactory to the Issuer, the proposed disposition may be
made pursuant to a valid exemption from the registration provisions of
those acts."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "1933 Act"), in the
above legend shall be removed by delivery of substitute certificate(s) without
such reference if the Holder shall have delivered to Issuer a copy of a letter
from the staff of the SEC, or an opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the 1933 Act; (ii) the reference to the provisions to
this Agreement in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if the shares have been sold or
transferred in compliance with the provisions of this Agreement and under
circumstances that do not require the retention of such reference; and (iii) the
legend shall be removed in its entirety if the conditions in the preceding
clauses (i) and (ii) are both satisfied. In addition, such certificates shall
bear any other legend as may be required by law.
(i) Upon the giving by the Holder to Issuer of the written notice of
exercise of the Option provided for under subsection (e) of this Section 2
and the tender of the applicable purchase price in immediately available
funds, the Holder shall be deemed to be the holder of record of the shares
of Common Stock issuable upon such exercise, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates
representing such shares of Common Stock shall not then be actually
delivered to the Holder. Issuer shall pay all expenses, and any and all
United States federal, state and local taxes and other charges that may be
payable in connection with the preparation, issue and delivery of stock
certificates under this Section 2 in the name of the Holder or its assignee,
transferee or designee.
3. Issuer agrees: (i) that it shall at all times maintain, free from
preemptive rights, sufficient authorized but unissued shares of Common Stock
so that the Option may be exercised without additional authorization of
Common Stock after giving effect to all other options, warrants, convertible
securities and other rights to purchase Common Stock; (ii) that it will not,
by charter amendment or through reorganization, consolidation, merger,
dissolution or sale of assets, or by any other voluntary act, avoid or seek
to avoid the observance or performance of any of the covenants, stipulations
or conditions to be observed or performed hereunder by Issuer; (iii)
promptly to take all action as may from time to time be required (including
(x) complying with all premerger notification, reporting and waiting period
requirements specified in 15 U.S.C. Section 18a and regulations promulgated
thereunder and (y) in the event, under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), or the Change in Bank Control Act of 1978, as
amended, or any state banking law, prior approval of or notice to the
Federal Reserve Board or to any state regulatory authority is necessary
before the Option may be exercised, cooperating fully with the Holder in
preparing such applications
B-4
<PAGE>
or notices and providing such information to the Federal Reserve Board or
such state regulatory authority as they may require) in order to permit the
Holder to exercise the Option and Issuer duly and effectively to issue
shares of Common Stock pursuant hereto; and (iv) promptly to take all action
specifically required by this Agreement to protect the rights of the Holder
against dilution.
4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of the Holder, upon presentation and
surrender of this Agreement at the principal office of Issuer, for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase, on the same terms and subject to the same
conditions as are set forth herein, in the aggregate the same number of
shares of Common Stock purchasable hereunder. The terms "Agreement" and
"Option" as used herein include any Stock Option Agreements and related
Options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon receipt by Issuer of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of this Agreement, and (in the
case of loss, theft or destruction) of reasonably satisfactory
indemnification, and upon surrender and cancellation of this Agreement, if
mutilated, Issuer will execute and deliver a new Agreement of like tenor and
date. Any such new Agreement executed and delivered shall constitute an
additional contractual obligation on the part of Issuer, whether or not the
Agreement so lost, stolen, destroyed or mutilated shall at any time be
enforceable by anyone.
5. In addition to the adjustment in the number of shares of Common Stock
that are purchasable upon exercise of the Option pursuant to Section 1 of
this Agreement, the number of shares of Common Stock purchasable upon the
exercise of the Option and the Option Price shall be subject to adjustment
from time to time as provided in this Section 5. In the event of any change
in, or distributions in respect of, the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations,
subdivisions, conversions, exchanges of shares, distributions on or in
respect of the Common Stock that would be prohibited under the terms of the
Merger Agreement, or the like, the type and number of shares of Common Stock
purchasable upon exercise hereof and the Option Price shall be appropriately
adjusted in such manner as shall fully preserve the economic benefits
provided hereunder and proper provision shall be made in any agreement
governing any such transaction to provide for such proper adjustment and the
full satisfaction of the Issuer's obligations hereunder.
6. Upon the occurrence of a Subsequent Triggering Event that occurs
prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered within six months of such Subsequent Triggering Event
(whether on its own behalf or on behalf of any subsequent holder of this
Option (or part thereof) or any of the shares of Common Stock issued
pursuant hereto), promptly prepare, file and keep current a registration
statement under the 1933 Act covering any shares issued and issuable
pursuant to this Option and shall use its best efforts to cause such
registration statement to become effective and remain current in order to
permit the sale or other disposition of any shares of Common Stock issued
upon total or partial exercise of this Option ("Option Shares") in
accordance with any plan of disposition requested by Grantee. Issuer will
use its best efforts to cause such registration statement first to become
effective and then to remain effective for such period not in excess of 180
days from the day such registration statement first becomes effective or
such shorter time as may be reasonably necessary to effect such sales or
other dispositions. Grantee shall have the right to demand two such
registrations. The foregoing notwithstanding, if, at the time of any request
by Grantee for registration of Option Shares as provided above, Issuer is in
registration with respect to an underwritten public offering of shares of
Common Stock, and if in the good faith judgment of the managing underwriter
or managing underwriters, or, if none, the sole underwriter or underwriters,
of such offering the inclusion of the Option Shares would interfere with the
successful marketing of the shares of Common Stock offered by Issuer, the
number of Option Shares otherwise to be covered in the registration
statement contemplated hereby may be reduced; and PROVIDED, HOWEVER, that
after any such required reduction the number of Option Shares to be included
in such offering for the
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<PAGE>
account of the Holder shall constitute at least 25% of the total number of
shares to be sold by the Holder and Issuer in the aggregate; and PROVIDED
FURTHER, however, that if such reduction occurs, then the Issuer shall file
a registration statement for the balance as promptly as practicable and no
reduction shall thereafter occur. Each such Holder shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. If requested by any such Holder in
connection with such registration, Issuer shall become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating itself in respect of representations, warranties,
indemnities and other agreements customarily included in secondary offering
underwriting agreements for the Issuer. Upon receiving any request under
this Section 6 from any Holder, Issuer agrees to send a copy thereof to any
other person known to Issuer to be entitled to registration rights under
this Section 6, in each case by promptly mailing the same, postage prepaid,
to the address of record of the persons entitled to receive such copies.
Notwithstanding anything to the contrary contained herein, in no event shall
Issuer be obligated to effect more than two registrations pursuant to this
Section 6 by reason of the fact that there shall be more than one Grantee as
a result of any assignment or division of this Agreement.
7. (a) Immediately prior to the occurrence of a Repurchase Event (as
defined below), (i) following a request of the Holder, delivered prior to an
Exercise Termination Event, Issuer (or any successor thereto) shall
repurchase the Option from the Holder at a price (the "Option Repurchase
Price") equal to the amount by which (A) the Market/Offer Price (as defined
below) exceeds (B) the Option Price, multiplied by the number of shares for
which this Option may then be exercised and (ii) at the request of the owner
of Option Shares from time to time (the "Owner"), delivered within 90 days
of such occurrence (or such later period as provided in Section 10), Issuer
shall repurchase such number of the Option Shares from the Owner as the
Owner shall designate at a price (the "Option Share Repurchase Price") equal
to the Market/Offer Price multiplied by the number of Option Shares so
designated. The term "Market/Offer Price" shall mean the highest of (i) the
price per share of Common Stock at which a tender offer or exchange offer
therefor has been made, (ii) the price per share of Common Stock to be paid
by any third party pursuant to an agreement with Issuer, (iii) the highest
closing price for shares of Common Stock within the six-month period
immediately preceding the date the Holder gives notice of the required
repurchase of this Option or the Owner gives notice of the required
repurchase of Option Shares, as the case may be, or (iv) in the event of a
sale of all or a substantial portion of Issuer's assets, the sum of the
price paid in such sale for such assets and the current market value of the
remaining assets of Issuer as determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may
be, and reasonably acceptable to Issuer, divided by the number of shares of
Common Stock of Issuer outstanding at the time of such sale. In determining
the Market/Offer Price, the value of consideration other than cash shall be
determined by a nationally recognized investment banking firm selected by
the Holder or Owner, as the case may be, and reasonably acceptable to
Issuer.
(b) The Holder and the Owner, as the case may be, may exercise its
right to require Issuer to repurchase the Option and any Option Shares
pursuant to this Section 7 by surrendering for such purpose to Issuer, at
its principal office, a copy of this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating
that the Holder or the Owner, as the case may be, elects to require Issuer
to repurchase this Option and/or the Option Shares in accordance with the
provisions of this Section 7. Within the later to occur of (x) five business
days after the surrender of the Option and/or certificates representing
Option Shares and the receipt of such notice or notices relating thereto and
(y) the time that is immediately prior to the occurrence of a Repurchase
Event, Issuer shall deliver or cause to be delivered to the Holder the
Option Repurchase Price and/or to the Owner the Option Share Repurchase
Price therefor or the portion thereof if any that Issuer is not then
prohibited under applicable law and regulation from so delivering.
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<PAGE>
(c) To the extent that Issuer is prohibited under applicable law or
regulation from repurchasing the Option and/or the Option Shares in full,
Issuer shall immediately so notify the Holder and/or the Owner and
thereafter deliver or cause to be delivered, from time to time, to the
Holder and/or the Owner, as appropriate, the portion of the Option
Repurchase Price and the Option Share Repurchase Price, respectively, that
it is no longer prohibited from delivering, within five business days after
the date on which Issuer is no longer so prohibited; PROVIDED, HOWEVER, that
if Issuer at any time after delivery of a notice of repurchase pursuant to
paragraph (b) of this Section 7 is prohibited under applicable law or
regulation from delivering to the Holder and/or the Owner, as appropriate,
the Option Repurchase Price and the Option Share Repurchase Price,
respectively, in full (and Issuer hereby undertakes to use its best efforts
to obtain all required regulatory and legal approvals and to file any
required notices as promptly as practicable in order to accomplish such
repurchase), the Holder or Owner may revoke its notice of repurchase of the
Option or the Option Shares either in whole or to the extent of the
prohibition, whereupon, in the latter case, Issuer shall promptly (i)
deliver to the Holder and/or the Owner, as appropriate, that portion of the
Option Repurchase Price or the Option Share Repurchase Price that Issuer is
not prohibited from delivering; and (ii) deliver, as appropriate, either (A)
to the Holder, a new Stock Option Agreement evidencing the right of the
Holder to purchase that number of shares of Common Stock obtained by
multiplying the number of shares of Common Stock for which the surrendered
Stock Option Agreement was exercisable at the time of delivery of the notice
of repurchase by a fraction, the numerator of which is the Option Repurchase
Price less the portion thereof theretofore delivered to the Holder and the
denominator of which is the Option Repurchase Price, or (B) to the Owner, a
certificate for the Option Shares it is then so prohibited from
repurchasing.
(d) For purposes of this Section 7, a Repurchase Event shall be deemed
to have occurred (i) upon the consummation of any merger, consolidation or
similar transaction involving Issuer or any purchase, lease or other
acquisition of all or a substantial portion of the assets of Issuer, other
than any such transaction which would not constitute an Acquisition
Transaction pursuant to the provisos to Section 2(b)(i) hereof or (ii) upon
the acquisition by any person of beneficial ownership of 50% or more of the
then outstanding shares of Common Stock, provided that no such event shall
constitute a Repurchase Event unless a Subsequent Triggering Event shall
have occurred prior to an Exercise Termination Event. The parties hereto
agree that Issuer's obligations to repurchase the Option or Option Shares
under this Section 7 shall not terminate upon the occurrence of an Exercise
Termination Event unless no Subsequent Triggering Event shall have occurred
prior to the occurrence of an Exercise Termination Event.
8. (a) In the event that prior to an Exercise Termination Event, Issuer
shall enter into an agreement (i) to consolidate with or merge into any
person, other than Grantee or a Grantee Subsidiary, and shall not be the
continuing or surviving corporation of such consolidation or merger, (ii) to
permit any person, other than Grantee or a Grantee Subsidiary, to merge into
Issuer and Issuer shall be the continuing or surviving corporation, but, in
connection with such merger, the then outstanding shares of Common Stock
shall be changed into or exchanged for stock or other securities of any
other person or cash or any other property or the then outstanding shares of
Common Stock shall after such merger represent less than 50% of the
outstanding voting shares and voting share equivalents of the merged
company, or (iii) to sell or otherwise transfer all or substantially all of
its assets to any person, other than Grantee or one of its Subsidiaries,
then, and in each such case, the agreement governing such transaction shall
make proper provision so that the Option shall, upon the consummation of any
such transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of the Holder, of either (x) the Acquiring Corporation (as
hereinafter defined) or (y) any person that controls the Acquiring
Corporation.
(b) The following terms have the meanings indicated:
B-7
<PAGE>
(1) "Acquiring Corporation" shall mean (i) the continuing or
surviving corporation of a consolidation or merger with Issuer (if
other than Issuer), (ii) Issuer in a merger in which Issuer is the
continuing or surviving person, and (iii) the transferee of all or
substantially all of Issuer's assets.
(2) "Substitute Common Stock" shall mean the common stock issued
by the issuer of the Substitute Option upon exercise of the
Substitute Option.
(3) "Assigned Value" shall mean the Market/ Offer Price, as
defined in Section 7.
(4) "Average Price" shall mean the average closing price of a
share of the Substitute Common Stock for the one year immediately
preceding the consolidation, merger or sale in question, but in no
event higher than the closing price of the shares of Substitute
Common Stock on the day preceding such consolidation, merger or sale;
PROVIDED that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common
stock issued by the person merging into Issuer or by any company
which controls or is controlled by such person, as the Holder may
elect.
(c) The Substitute Option shall have the same terms as the Option,
PROVIDED, that if the terms of the Substitute Option cannot, for legal
reasons, be the same as the Option, such terms shall be as similar as
possible and in no event less advantageous to the Holder. The issuer of the
Substitute Option shall also enter into an agreement with the then Holder or
Holders of the Substitute Option in substantially the same form as this
Agreement, which shall be applicable to the Substitute Option.
(d) The Substitute Option shall be exercisable for such number of
shares of Substitute Common Stock as is equal to the Assigned Value
multiplied by the number of shares of Common Stock for which the Option is
then exercisable, divided by the Average Price. The exercise price of the
Substitute Option per share of Substitute Common Stock shall then be equal
to the Option Price multiplied by a fraction, the numerator of which shall
be the number of shares of Common Stock for which the Option is then
exercisable and the denominator of which shall be the number of shares of
Substitute Common Stock for which the Substitute Option is exercisable.
(e) In no event, pursuant to any of the foregoing paragraphs, shall
the Substitute Option be exercisable for more than 19.9% of the shares of
Substitute Common Stock outstanding prior to exercise of the Substitute
Option without giving effect to the exercise of the Substitute Option. In
the event that the Substitute Option would be exercisable for more than
19.9% of the shares of Substitute Common Stock outstanding prior to exercise
but for this clause (e), the issuer of the Substitute Option (the
"Substitute Option Issuer") shall make a cash payment to Holder equal to the
excess of (i) the value of the Substitute Option without giving effect to
the limitation in this clause (e) over (ii) the value of the Substitute
Option after giving effect to the limitation in this clause (e). This
difference in value shall be determined by a nationally recognized
investment banking firm selected by the Holder or the Owner, as the case may
be, and reasonably acceptable to the Acquiring Corporation.
(f) Issuer shall not enter into any transaction described in
subsection (a) of this Section 8 unless the Acquiring Corporation and any
person that controls the Acquiring Corporation assume in writing all the
obligations of Issuer hereunder.
9. (a) At the request of the holder of the Substitute Option (the
"Substitute Option Holder"), the Substitute Option Issuer shall repurchase
the Substitute Option from the Substitute Option Holder at a price (the
"Substitute Option Repurchase Price") equal to the amount by which (i) the
Highest Closing Price (as hereinafter defined) exceeds (ii) the exercise
price of the Substitute Option, multiplied by the number of shares of
Substitute Common Stock for which the Substitute Option may then be
exercised, and at the request of the owner (the "Substitute Share Owner") of
shares of Substitute Common Stock (the "Substitute Shares"), the Substitute
Option Issuer shall repurchase the Substitute Shares at a price (the
"Substitute Share Repurchase Price") equal to the Highest Closing
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<PAGE>
Price multiplied by the number of Substitute Shares so designated. The term
"Highest Closing Price" shall mean the highest closing price for shares of
Substitute Common Stock within the six-month period immediately preceding
the date the Substitute Option Holder gives notice of the required
repurchase of the Substitute Option or the Substitute Share Owner gives
notice of the required repurchase of the Substitute Shares, as applicable.
(b) The Substitute Option Holder and the Substitute Share Owner, as
the case may be, may exercise its respective right to require the Substitute
Option Issuer to repurchase the Substitute Option and the Substitute Shares
pursuant to this Section 9 by surrendering for such purpose to the
Substitute Option Issuer, at its principal office, the agreement for such
Substitute Option (or, in the absence of such an agreement, a copy of this
Agreement) and certificates for Substitute Shares accompanied by a written
notice or notices stating that the Substitute Option Holder or the
Substitute Share Owner, as the case may be, elects to require the Substitute
Option Issuer to repurchase the Substitute Option and/or the Substitute
Shares in accordance with the provisions of this Section 9. As promptly as
practicable, and in any event within five business days after the surrender
of the Substitute Option and/or certificates representing Substitute Shares
and the receipt of such notice or notices relating thereto, the Substitute
Option Issuer shall deliver or cause to be delivered to the Substitute
Option Holder the Substitute Option Repurchase Price and/or to the
Substitute Share Owner the Substitute Share Repurchase Price therefor or, in
either case, the portion thereof which the Substitute Option Issuer is not
then prohibited under applicable law and regulation from so delivering.
(c) To the extent that the Substitute Option Issuer is prohibited
under applicable law or regulation from repurchasing the Substitute Option
and/or the Substitute Shares in part or in full, the Substitute Option
Issuer following a request for repurchase pursuant to this Section 9 shall
immediately so notify the Substitute Option Holder and/ or the Substitute
Share Owner and thereafter deliver or cause to be delivered, from time to
time, to the Substitute Option Holder and/or the Substitute Share Owner, as
appropriate, the portion of the Substitute Share Repurchase Price,
respectively, which it is no longer prohibited from delivering, within five
business days after the date on which the Substitute Option Issuer is no
longer so prohibited; PROVIDED, HOWEVER, that if the Substitute Option
Issuer is at any time after delivery of a notice of repurchase pursuant to
subsection (b) of this Section 9 prohibited under applicable law or
regulation from delivering to the Substitute Option Holder and/ or the
Substitute Share Owner, as appropriate, the Substitute Option Repurchase
Price and the Substitute Share Repurchase Price, respectively, in full (and
the Substitute Option Issuer shall use its best efforts to obtain all
required regulatory and legal approvals as promptly as practicable in order
to accomplish such repurchase), the Substitute Option Holder or Substitute
Share Owner may revoke its notice of repurchase of the Substitute Option or
the Substitute Shares either in whole or to the extent of the prohibition,
whereupon, in the latter case, the Substitute Option Issuer shall promptly
(i) deliver to the Substitute Option Holder or Substitute Share Owner, as
appropriate, that portion of the Substitute Option Repurchase Price or the
Substitute Share Repurchase Price that the Substitute Option Issuer is not
prohibited from delivering; and (ii) deliver, as appropriate, either (A) to
the Substitute Option Holder, a new Substitute Option evidencing the right
of the Substitute Option Holder to purchase that number of shares of the
Substitute Common Stock obtained by multiplying the number of shares of the
Substitute Common Stock for which the surrendered Substitute Option was
exercisable at the time of delivery of the notice of repurchase by a
fraction, the numerator of which is the Substitute Option Repurchase Price
less the portion thereof theretofore delivered to the Substitute Option
Holder and the denominator of which is the Substitute Option Repurchase
Price, or (B) to the Substitute Share Owner, a certificate for the
Substitute Common Shares it is then so prohibited from repurchasing.
10. The 90-day or six-month period for exercise of certain rights under
Sections 2, 6, 7 and 13 shall be extended: (i) to the extent necessary to
obtain all regulatory approvals for the exercise of such
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<PAGE>
rights, and for the expiration of all statutory waiting periods; and (ii) to
the extent necessary to avoid liability under Section 16(b) of the 1934 Act
by reason of such exercise.
11. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has full corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated
hereby. The execution and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized
by the Board of Directors of Issuer and no other corporate proceedings on
the part of Issuer are necessary to authorize this Agreement or to
consummate the transactions so contemplated. This Agreement has been duly
and validly executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate action to authorize and
reserve and to permit it to issue, and at all times from the date hereof
through the termination of this Agreement in accordance with its terms will
have reserved for issuance upon the exercise of the Option, that number of
shares of Common Stock equal to the maximum number of shares of Common Stock
at any time and from time to time issuable hereunder, and all such shares,
upon issuance pursuant hereto, will be duly authorized, validly issued,
fully paid, nonassessable, and will be delivered free and clear of all
claims, liens, encumbrance and security interests and not subject to any
preemptive rights.
12. Grantee hereby represents and warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter
into this Agreement and, subject to any approvals or consents referred to
herein, to consummate the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate
action on the part of Grantee. This Agreement has been duly executed and
delivered by Grantee.
(b) Grantee is an "accredited investor" within the meaning of Rule
501(a) of Regulation D under the Securities Act. Upon exercise of this
Option, Grantee shall be deemed to have represented and warranted at such
time that Grantee has received from the Issuer all information that it
requested and considers necessary or appropriate for deciding whether to
purchase the Common Stock and that it has had an opportunity to ask
questions and receive answers from the Issuer regarding the terms and
conditions of the purchase of the Common Stock. Grantee understands that
this Option and the Option Shares will be "restricted securities" under the
Securities Act inasmuch as they are being acquired from the Issuer in a
transaction not involving a public offering, and that, under the Securities
Act and applicable regulations thereunder, such securities may be resold
without registration under the Securities Act only in certain limited
circumstances. The Option is not being, and any shares of Common Stock or
other securities acquired by Grantee upon exercise of the Option will not
be, acquired with a view to the public distribution thereof and will not be
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
13. Neither of the parties hereto may assign any of its rights or
obligations under this Option Agreement or the Option created hereunder to
any other person, without the express written consent of the other party,
except that in the event a Subsequent Triggering Event shall have occurred
prior to an Exercise Termination Event, Grantee, subject to the express
provisions hereof, may assign in whole or in part its rights and obligations
hereunder within six months following such Subsequent Triggering Event (or
such later period as provided in Section 10); PROVIDED, HOWEVER, that until
the date 15 days following the date on which the Federal Reserve Board
approves an application by Grantee to acquire the shares of Common Stock
subject to the Option, Grantee may not assign its rights under the Option
except in (i) a widely dispersed public distribution, (ii) a private
placement in which no one party acquires the right to purchase in excess of
2% of the voting shares of Issuer, (iii) an assignment to a single party
(E.G., a broker or investment banker) for the purpose of conducting a widely
dispersed
B-10
<PAGE>
public distribution on Grantee's behalf, or (iv) any other manner approved
by the Federal Reserve Board.
14. Each of Grantee and Issuer will use its best efforts to make all
filings with, and to obtain consents of, all third parties and governmental
authorities necessary to the consummation of the transactions contemplated
by this Agreement, including without limitation making application to
authorize for quotation the shares of Common Stock issuable hereunder on The
Nasdaq Stock Market's National Market or such other market or exchange on
which the shares of Issuer may be quoted or listed upon official notice of
issuance and applying to the Federal Reserve Board under the BHCA for
approval to acquire the shares issuable hereunder, but Grantee shall not be
obligated to apply to state banking authorities for approval to acquire the
shares of Common Stock issuable hereunder until such time, if ever, as it
deems appropriate to do so.
15. The parties hereto acknowledge that damages would be an inadequate
remedy for a breach of this Agreement by either party hereto and that the
obligations of the parties hereto shall be enforceable by either party
hereto through injunctive or other equitable relief.
16. If any term, provision, covenant or restriction contained in this
Agreement is held by a court or a federal or state regulatory agency of
competent jurisdiction to be invalid, void or unenforceable, the remainder
of the terms, provisions and covenants and restrictions contained in this
Agreement shall remain in full force and effect, and shall in no way be
affected, impaired or invalidated. If for any reason such court or
regulatory agency determines that the Holder is not permitted to acquire, or
Issuer is not permitted to repurchase pursuant to Section 7, the full number
of shares of Common Stock provided in Section 1(a) hereof (as adjusted
pursuant to Section 1(b) or 5 hereof), it is the express intention of Issuer
to allow the Holder to acquire or to require Issuer to repurchase such
lesser number of shares as may be permissible, without any amendment or
modification hereof.
17. All notices, requests, claims, demands and other communications
hereunder shall be deemed to have been duly given when delivered in person,
by cable, telegram, telecopy or telex, or by registered or certified mail
(postage prepaid, return receipt requested) at the respective addresses of
the parties set forth in the Merger Agreement.
18. This Agreement shall be governed by and construed in accordance with
the laws of the State of Maryland, regardless of the laws that might
otherwise govern under applicable principles of conflicts of laws thereof.
19. This Agreement may be executed in two counterparts, each of which
shall be deemed to be an original, but all of which shall constitute one and
the same agreement.
20. Except as otherwise expressly provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder, including
fees and expenses of its own financial consultants, investment bankers,
accountants and counsel.
21. Except as otherwise expressly provided herein or in the Merger
Agreement, this Agreement contains the entire agreement between the parties
with respect to the transactions contemplated hereunder and supersedes all
prior arrangements or understandings with respect thereof, written or oral.
The terms and conditions of this Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided herein.
22. Capitalized terms used in this Agreement and not defined herein
shall have the meanings assigned thereto in the Merger Agreement.
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized, all as of the
date first above written.
<TABLE>
<S> <C> <C>
F&M BANCORP
By: /s/ FAYE E. CANNON
-----------------------------------------
Name: Faye E. Cannon
Title: President & Chief Executive Officer
MONOCACY BANCSHARES, INC.
By: /s/ ERIC E. GLASS
-----------------------------------------
Name: Eric E. Glass
Title: Chairman of the Board of Directors
</TABLE>
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APPENDIX C
October , 1998
Board of Directors
F&M Bancorp
110 Thomas Johnson Drive
Frederick, Maryland 21701
Members of the Board:
F&M Bancorp ("F&M Bancorp") and Monocacy Bancshares, Inc. ("Monocacy") have
entered into an Agreement and Plan of Merger, to be dated as of September 4,
1998 (the "Agreement"), pursuant to which Monocacy will combine with F&M by
means of the merger (the "Merger") of Monocacy with and into F&M. Upon
consummation of the Merger, all of the issued and outstanding shares of the
$5.00 par value common stock of Monocacy ("Monocacy Stock") will be converted
into 2,219,753 shares of the $5.00 par value common stock of F&M ("F&M Stock"),
as adjusted in accordance with the terms of the Agreement (the "Exchange
Ratio"). The terms of the Merger are more fully set forth in the Agreement.
Wheat First Securities, Inc. ("Wheat First") as part of its investment
banking business, is regularly engaged in the valuation of businesses and their
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for estate, corporate and
other purposes. In the ordinary course of our business as a broker-dealer, we
may, from time to time, have a long or short position in, and buy or sell, debt
or equity securities of F&M or Monocacy for our own account or for the accounts
of our customers. Wheat First will receive a fee from F&M for its services,
which include the rendering of this opinion.
You have asked us whether, in our opinion, the Exchange Ratio is fair, from
a financial point of view, to the holders of F&M Stock. We understand that the
Merger is conditioned upon the occurrence of a number of contingencies as set
forth in the Agreement.
In arriving at the opinion set forth below, we have conducted discussions
with members of senior management of F&M and Monocacy concerning their
businesses and prospects and have reviewed and relied upon certain publicly
available business and financial information and certain other information
prepared or provided to us in connection with the Merger, including, among other
things, the following:
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(1) F&M's Annual Reports to Stockholders, Annual Reports on Form 10-K and related
financial information for the three fiscal years ended December 31, 1997;
(2) F&M's quarterly reports on Form 10-Q and related financial information for the
periods ended June 30, 1998, and March 31, 1998;
(3) Monocacy's Annual Reports to Stockholders, Annual Reports on Form 10-K and related
financial information for the three fiscal years ended December 31, 1997;
(4) Monocacy's Quarterly Reports on Form 10-Q and related financial information for
the periods ended ended June 30, 1998, and March 31, 1998, and certain information
made available by the management of Monocacy for the period ended July 31, 1998;
(5) Certain publicly available information with respect to historical market prices
and trading activities for F&M Stock and Monocacy Stock and for certain publicly
traded financial institutions which Wheat First deemed relevant;
(6) Certain publicly available information with respect to banking companies and the
financial terms of certain other mergers and acquisitions which Wheat First deemed
relevant;
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(7) The Agreement;
(8) Certain estimates of the cost savings, revenue enhancements and divestitures
projected by F&M and Monocacy for the combined company;
(9) Other financial information concerning the businesses and operations of F&M and
Monocacy, and certain internal financial analyses and forecasts for F&M and
Monocacy prepared by the senior managements of these companies; and
(10) Such financial studies, analyses, inquiries and other matters as we deemed
necessary.
</TABLE>
In preparing our opinion, as contemplated under the terms of our engagement,
we have relied on and assumed the accuracy and completeness of all information
provided to us or publicly available, including the representations and
warranties of F&M and Monocacy included in the Agreement, and we have not
assumed any responsibility for the accuracy, completeness or reasonableness of,
or any obligation to verify, the same or to conduct any appraisal of assets or
liabilities. We have relied upon the managements of F&M and Monocacy as to the
reasonableness and achievability of their financial and operational forecasts
and projections, including the estimates of cost savings and revenue
enhancements expected to result from the Merger, and the assumptions and bases
therefor, provided to us, and, with your consent, we have assumed that such
forecasts and projections reflect the best currently available estimates and
judgments of such managements, and that such forecasts and projections will be
realized in the amounts and in the time periods currently estimated by such
managements. We also assumed, without independent verification, that the
aggregate allowances for loan losses and other contingencies for F&M and
Monocacy are adequate to cover such losses. Wheat First did not review any
individual credit files of F&M and Monocacy, nor did it make an independent
evaluation or appraisal of the assets or liabilities of F&M and Monocacy. We
also assumed that, in the course of obtaining the necessary regulatory approvals
for the Merger, no conditions will be imposed that will have a material adverse
effect on the contemplated benefits of the Merger, on a pro forma basis, to F&M.
Our opinion is necessarily based upon market, economic and other conditions
as they exist and can be evaluated on the date hereof and the information made
available to us through the date hereof. Events occurring after that date could
materially affect the assumptions and conclusions contained in our opinion. We
have not undertaken to reaffirm or revise this opinion or otherwise comment on
any events occurring after the date hereof. Wheat First's opinion is directed
only to the fairness, from a financial point of view, of the Exchange Ratio to
the holders of F&M Stock and does not address any other aspect of the Merger,
nor does it constitute a recommendation to any shareholder of F&M as to how such
shareholder should vote with respect to the Merger, and it is understood that
this letter is solely for the information of the Board of Directors of F&M.
Wheat First's opinion does not address the relative merits of the Merger as
compared to any alternative business strategies that might exist for F&M, nor
does it address the effect of any other business combination in which F&M might
engage.
It is understood that this opinion may be included in its entirety in the
Joint Proxy Statement/ Prospectus. This opinion may not, however, be summarized,
excerpted from or otherwise publicly referred to without our prior written
consent.
On the basis of and subject to the foregoing, we are of the opinion that as
of the date hereof the Exchange Ratio is fair, from a financial point of view,
to the holders of F&M Stock.
Very truly yours,
/s/ WHEAT FIRST SECURITIES, INC.
WHEAT FIRST SECURITIES, INC.
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<PAGE>
APPENDIX D
October , 1998
Board of Directors
Monocacy Bancshares, Inc.
222 East Baltimore Street
Taneytown, Maryland 21787
Members of the Board:
You have requested RP Financial, LC. ("RP Financial") to provide you with
its opinion as to the fairness from a financial point of view to the
stockholders of Monocacy Bancshares, Inc., Taneytown, Maryland ("Monocacy
Bancshares"), the Maryland bank holding company for Taneytown Bank & Trust
Company, of the Agreement and Plan of Merger (the "Agreement") by and between
Monocacy Bancshares and F&M Bancorp, Frederick, Maryland ("F&M Bancorp"), a
Maryland multi-bank holding company for Farmers and Mechanics National Bank in
Frederick and Home Federal Savings Bank in Hagerstown. Unless otherwise defined,
all capitalized terms incorporated herein have the meanings ascribed to them in
the Agreement, which is incorporated herein by reference.
SUMMARY DESCRIPTION OF MERGER CONSIDERATION
The following summary description of the "Merger Consideration" does not
purport to be a complete description, and incorporates by reference the complete
description of the Merger Consideration as set forth in the Agreement.
At the Effective Time of the Merger, each share of common stock of Monocacy
Bancshares, par value $5.00 per share, issued and outstanding immediately prior
to the Effective Time (other than shares of Monocacy Bancshares common stock
held directly or indirectly by F&M Bancorp or its subsidiaries) shall, by virtue
of the Agreement and without any action on the part of the holder thereof, be
converted into and exchangeable for a number of shares of the common stock of
F&M Bancorp, par value $5.00 per share, equal to the quotient obtained by
dividing the Share Number (defined below) by the number of shares of Monocacy
Bancshares common stock issued and outstanding immediately prior to the
Effective Time ("the Exchange Ratio"). The "Share Number" shall be 2,219,753,
provided, however, that (i) if the Average Closing Price (as hereinafter
defined) is less than $34.425, then the Share Number shall be increased to the
extent necessary so that the product of the Share Number and the Average Closing
Price shall equal $76,415,000, provided, that in no event shall the Share Number
be greater than 2,281,753, and (ii) if the Average Closing Price is greater than
$46.575, then the Share Number shall be reduced to the extent necessary so that
the product of the Share Number and Average Closing Price shall equal
$103,384,996, provided that in no event shall the Share Number be less than
2,157,753. As used herein, "Average Closing Price" shall mean the average of the
last reported sale prices per share of F&M Bancorp common stock as reported on
the NASDAQ National Market System ("NASDAQ/NMS") for the 15 consecutive trading
days ending on the fifth business day prior to the closing date. The Exchange
Ratio shall be adjusted for changes in F&M Bancorp's common stock prior to, or
declared with a record date prior to, the Effective Time by reason of any
reclassification, recapitalization, split-up, combination, exchange or shares or
readjustment, or a stock dividend. Cash will be paid in lieu of fractional
shares. At the Effective Time, each Monocacy Bancshares option to purchase
shares of Monocacy Bancshares common stock which is outstanding and unexercised
immediately prior thereto, pursuant to Monocacy Bancshares' 1994 Stock Incentive
Plan and 1997 Independent Directors' Stock Option Plan (collectively, the "Stock
Option Plans") shall be converted automatically into an option to purchase
shares of F&M
D-1
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BOARD OF DIRECTORS
OCTOBER , 1998
PAGE 2
Bancorp common stock as follows: (1) the number of shares of F&M Bancorp common
stock to be subject to the new option shall be equal to the product of the
number of shares of Monocacy Bancshares common stock subject to the original
option and the Exchange Ratio rounded down to the nearest whole share; and (2)
the exercise price per share of F&M Bancorp common stock under the new option
shall be equal to the exercise price per share of Monocacy Bancshares common
stock under the original option divided by the Exchange Ratio rounded up to the
nearest cent.
RP FINANCIAL BACKGROUND AND EXPERIENCE
RP Financial, as part of its valuation and consulting practice for the
financial services industry, is regularly engaged in the valuation of financial
institution securities (and their respective holding companies, if applicable),
in connection with mergers and acquisitions of commercial banks and thrift
institutions, initial and secondary offerings, and business valuations for other
corporate purposes for financial institutions and other financial
intermediaries. As specialists in the securities of financial institutions (and
their respective holding companies, if applicable), RP Financial has experience
in, and knowledge of, the Maryland and Mid-Atlantic markets for financial
institution securities and financial institutions operating in Maryland.
MATERIALS REVIEWED
In rendering this fairness opinion, RP Financial reviewed the following
material: (1) the Agreement, including exhibits; (2) financial and other
information for Monocacy Bancshares, all with regard to balance and off-balance
sheet composition, profitability, interest rates, volumes, maturities, trends,
credit risk, interest rate risk, liquidity risk and operations and shareholder
information from (a) audited financial statements for the three last three
fiscal years, and unaudited financial statements for the current fiscal year to
date, incorporated in stockholder, regulatory and internal financial and other
reports, (b) the most recent two proxy statements, and (c) executive management
and Board comments regarding historical, current and anticipated business,
operations and financial performance and condition; and (3) financial and other
information for F&M Bancorp, with regard to balance and off-balance sheet
composition, profitability, interest rates, volumes, maturities, trends, credit
risk, interest rate risk, liquidity risk and operations and shareholder
information from F&M Bancorp's (a) audited financial statements for the three
last fiscal years and unaudited financial statements for the current fiscal year
to date incorporated in stockholder, regulatory and internal financial and other
reports, (b) the most recent three proxy statements, and (c) executive
management comments regarding historical, current and anticipated business,
operations and financial performance and condition.
RP Financial reviewed financial, operational, market area and stock price
and trading characteristics for Monocacy Bancshares and F&M Bancorp relative to
publicly-traded banks and bank holding companies, respectively, with comparable
resources, financial condition, earnings, operations and markets. RP Financial
also considered the economic and demographic characteristics in the local market
area, and the potential impact of the regulatory, legislative and economic
environments on operations for Monocacy Bancshares and F&M Bancorp and the
public perception of the banking industry. RP Financial also considered: the
financial terms, financial and operating condition and market area of other
recently completed acquisitions of comparable banks both regionally and
nationally; discounted cash flow analyses incorporating future prospects; the
financial aspects of expressions of interest by third party financial
institutions evaluating the prospects of a business combination with Monocacy
Bancshares; and the pro forma impact on F&M Bancorp of the acquisition of
Monocacy Bancshares, which is expected to be accounted for as a pooling.
D-2
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BOARD OF DIRECTORS
OCTOBER , 1998
PAGE 3
In rendering its opinion, RP Financial relied, without independent
verification, on the accuracy and completeness of the information concerning
Monocacy Bancshares and F&M Bancorp furnished by the respective institutions to
RP Financial for review, as well as publicly-available information regarding
other financial institutions and other third party data and information
referenced above. Monocacy Bancshares and F&M Bancorp did not restrict RP
Financial as to the material it was permitted to review. RP Financial did not
perform or obtain any independent appraisals or evaluations of the assets and
liabilities and potential and/or contingent liabilities of Monocacy Bancshares
or F&M Bancorp.
RP Financial expresses no opinion on matters of a legal, regulatory, tax or
accounting nature or the ability of the merger as set forth in the Agreement to
be consummated. In rendering its opinion, RP Financial assumed that, in the
course of obtaining the necessary regulatory and governmental approvals for the
proposed Merger, no restriction will be imposed on F&M Bancorp that would have a
material adverse effect on the ability of the Merger to be consummated as set
forth in the Agreement.
OPINION
It is understood that this letter is directed to the Board of Directors of
Monocacy Bancshares in its consideration of the Agreement, and does not
constitute a recommendation to any stockholder of Monocacy Bancshares as to any
action that such stockholder should take in connection with the Agreement, or
otherwise.
It is understood that this opinion is based on market conditions and other
circumstances existing on the date hereof.
It is understood that this opinion may be included in its entirety in any
communication by Monocacy Bancshares or its Board of Directors to the
stockholders of Monocacy Bancshares. It is also understood that this opinion may
be included in its entirety in any regulatory filing by Monocacy Bancshares or
F&M Bancorp, and that RP Financial consents to the summary of the opinion in the
proxy materials of Monocacy Bancshares, and any amendments thereto. Except as
described above, this opinion may not be summarized, excerpted from or otherwise
publicly referred to without RP Financial's prior written consent.
Based upon and subject to the foregoing, and other such matters considered
relevant, it is RP Financial's opinion that, as of the date hereof, the Merger
Consideration to be received by Monocacy Bancshares' stockholders, as described
in the Agreement, is fair to such stockholders from a financial point of view.
Respectfully submitted,
/s/ RP Financial, LC
RP FINANCIAL, LC
D-3
<PAGE>
PART II--INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
(a) The Maryland General Corporation Law permits a corporation to indemnify
its present and former directors, among others, against judgments, penalties,
fines, settlements and reasonable expenses actually incurred by them in
connection with any proceeding to which they may be made a party by reason of
their services in those capacities, unless it is established that (a) the act or
omission of the director or officer was material to the matter giving rise to
such proceeding and (i) was committed in bad faith or (ii) was the result of
active and deliberate dishonesty; or (b) the director actually received an
improper personal benefit in money, property, or services; or (c) in the case of
any criminal proceeding, the director had reasonable cause to believe that the
act or omission was unlawful. Maryland law permits a corporation to indemnify a
present and former officer to the same extent as a director. In addition to the
foregoing, a court of appropriate jurisdiction may under certain circumstances
order indemnification if it determines that the director or officer is fairly
and reasonably entitled to indemnification in view of all of the relevant
circumstances, whether or not the director or officer has met the standards of
conduct set forth in the preceding provisions or has been adjudged liable on the
basis that a personal benefit was improperly received in a proceeding charging
improper personal benefit to the director or the officer. If the proceeding was
an action by or in the right of the corporation or involved a determination that
the director or officer received an improper personal benefit, however, no
indemnification may be made if the individual is adjudged liable to the
corporation, except to the extent of expenses approved by a court of appropriate
jurisdiction. In addition, the Maryland General Corporation Law permits a
corporation to pay or reimburse, in advance of the final disposition of a
proceeding, reasonable expenses (including attorney's fees) incurred by a
present or former director or officer made a party to the proceeding by reason
of his service in that capacity, provided that the corporation shall have
received (a) a written affirmation by the director or officer of his good faith
belief that he has met the standard of conduct necessary for indemnification by
the corporation; and (b) a written undertaking by or on behalf of the director
to repay the amount paid or reimbursed by the corporation if it shall ultimately
be determined that the standard of conduct was not met.
The Registrant has provided for indemnification of directors, officers,
employees, and agents in Article Eighth, Section (5) of its charter, as amended.
This provision reads as follows:
(5) The Corporation shall indemnify (a) its directors and officers,
whether serving the Corporation or at its request any other entity, to the
full extent required or permitted by the General Laws of the State of
Maryland now or hereafter in force, including the advance of expenses under
the procedures and to the full extent permitted by law; (b) other employees
and agents to such extent as shall be authorized by the Board of Directors
or the Corporation's By-laws and be permitted by law. The foregoing rights
of indemnification shall not be exclusive of any other rights to which those
seeking indemnification may be entitled. The Board of Directors may take
such action as is necessary to carry out these indemnification provisions
and is expressly empowered to adopt, approve and amend from time to time
such by-laws, resolutions or contracts implementing such provisions or such
further indemnification arrangements as may be permitted by law. No
amendment of the charter of the Corporation or repeal of any of its
provisions shall limit or eliminate the right to indemnification provided
hereunder with respect to acts or omissions occurring prior to such
amendment or repeal.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the foregoing provisions, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction
<PAGE>
the question of whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
(b) The Maryland General Corporation Law authorizes a Maryland corporation
to limit by provision in its charter the liability of directors and officers to
the corporation or to its stockholders for money damages except to the extent
that (i) the director or officer actually received an improper benefit or profit
in money, property, or services, for the amount of the benefit or profit
actually received, or (ii) a judgment or other final adjudication adverse to the
director or officer is entered in a proceeding based on a finding in the
proceeding that the director's or officer's action, or failure to act, was the
result of active and deliberate dishonesty and was material to the cause of
action adjudicated in the proceeding.
The Registrant has limited the liability of its directors and officers for
money damages in Article Eighth, Section (6) of its charter. This provision
reads as follows:
(6) To the fullest extent permitted by Maryland statutory or decisional
law, as amended or interpreted, no director or officer of this Corporation
shall be personally liable to the Corporation or its stockholders for money
damages. No amendment of the charter of the Corporation or repeal of any of
its provisions shall limit or eliminate the benefits provided to directors
and officers under this provision with respect to any act or omission which
occurred prior to such amendment or repeal.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT, SCHEDULES.
(a) Exhibits.
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2.1 Agreement and Plan of Merger, dated as of September 4, 1998 between F&M Bancorp, and
Monocacy Bancshares, Inc. (included as Appendix A to the Joint Proxy
Statement-Prospectus which is part of this Registration Statement).
3.1 Articles of Incorporation of the Registrant with all Articles of Amendment
(incorporated by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form
10-Q for the period ended June 30, 1997).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1997).
5.1 Opinion of Gordon M. Cooley, General Counsel of the Registrant as to the legality of
the securities being registered.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters.
8.2 Opinion of Miles & Stockbridge P.C. regarding tax matters.
10.1 Stock Option Agreement, dated September 4, 1998, between F&M Bancorp and Monocacy
Bancshares, Inc. (included as Appendix B to the Joint Proxy Statement/Prospectus which
is part of this Registration Statement).
23.1 Consent of Arthur Andersen, LLP, Vienna, Virginia.
23.2 Consent of Stegman & Co., Towson, Maryland.
23.3 Consent of Smith Elliott Kearns and Company, LLC, Hagerstown, Maryland.
23.4 Consent of Wheat First Securities, Inc., Richmond, Virginia.
23.5 Consent of RP Financial, LC, Arlington, Virginia.
23.6 Consent of Gordon M. Cooley (included in Exhibit 5.1 hereto).
23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.1 hereto).
23.8 Consent of Miles & Stockbridge P.C. (included in Exhibit 8.2 hereto).
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99.1 Opinion of Wheat First Securities, Inc. (included as Appendix C to the Joint Proxy
Statement-Prospectus which is part of this Registration Statement).
99.2 Opinion of RP Financial, LC (included as Appendix D to the Joint Proxy
Statement-Prospectus which is part of this Registration Statement).
99.3 Form of Proxy to be used by the Registrant.
99.4 Form of Proxy to be used by Monocacy Bancshares, Inc.
</TABLE>
(b) Financial Statement Schedules.
None.
(c) Item 4(b) Information.
None.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made,
a post-effective amendment to this registration statement:
(i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of this registration statement (or the most recent
post-effective amendment hereof) which, individually or in the aggregate,
represent a fundamental change in the information set forth in this
registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in this registration statement or
any material change to such information in this registration statement;
provided, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if
the registration statement is on Form S-3 or Form S-8, and the information
required to be included in a post-effective amendment by those paragraphs is
contained in periodic reports filed by the registrant pursuant to Section 13
or 15(d) of the Securities Exchange Act of 1934 that are incorporated by
reference in the registration statement;
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(b) The undersigned registrant hereby undertakes as follows: that prior to
any public reoffering of the securities registered hereunder, through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the Meaning of Rule 145(c) of
the Securities Act of 1933, the issuer undertakes that such reoffering
prospectus will contain the information called for by the applicable
registration form with respect to reofferings by persons who may be deemed
underwriters, in addition to the information called for by the other items of
the applicable form.
(c) The undersigned registrant hereby undertakes that every prospectus (i)
that is filed pursuant to the paragraph immediately preceding, or (ii) that
purports to meet the requirements of Section 10(a)(3) of the Securities Act of
1933 and is used in connection with an offering of securities subject to Rule
415 of the
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Securities Act of 1933, will be filed as a part of an amendment to the
registration statement and will not be used until such amendment is effective,
and that, for purposes of determining any liability under the Securities Act of
1933, each such post-effective amendment shall be deemed to be a new
registration statement relating to the securities offered therein, and the
offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
(d) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses
incurred or paid by a director, officer or controlling person of the registrants
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
(e) The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Item 4, 10(b), 11, or 13 of this form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through the
date of responding to the request.
(f) The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in this
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
(g) The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
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SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized in the City of Frederick, State of
Maryland, on October 15, 1998.
F&M BANCORP
By: /s/ FAYE E. CANNON
-----------------------------------------
Faye E. Cannon
PRESIDENT AND CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed by the following persons in the
capacities and on October 15, 1998.
We, the undersigned officers and directors of F&M Bancorp hereby severally
and individually constitute and appoint each of Faye E. Cannon and David L.
Spilman, the true and lawful attorney and agent (with full power of substitution
and resubstitution in each case) of each of us to execute in the name, place and
stead of each of us (individually and in any capacity stated below) any and all
amendments to this registration statement and all instruments necessary or
advisable in connection therewith and to file the same with the Securities and
Exchange Commission, said attorney and agent to have power to act and to have
full power and authority to do and perform in the name and on behalf of each of
the undersigned every act whatsoever necessary or advisable to be done in the
premises as fully and to all intents and purposes as any of the undersigned
might or could do in person and we hereby ratify and confirm our signatures as
they may be signed by our said attorney and agent to any and all such amendments
and instruments.
NAME TITLE DATE
- ------------------------------ -------------------------- ----
President and Chief
/s/ FAYE E. CANNON Executive Officer October
- ------------------------------ (Principal Executive 15,
Faye E. Cannon Officer) 1998
/s/ DAVID L. SPILMAN October
- ------------------------------ Treasurer (Principal 15,
David L. Spilman Accounting Officer) 1998
/s/ R. CARL BENNA October
- ------------------------------ Director 15,
R. Carl Benna 1998
- ------------------------------ Director
Howard B. Bowen
- ------------------------------ Director
John D. Brunk
/s/ BEVERLY B. BYRON October
- ------------------------------ Director 15,
Beverly B. Byron 1998
/s/ FAYE E. CANNON October
- ------------------------------ Director 15,
Faye E. Cannon 1998
- ------------------------------ Director
Martha E. Church
II-5
<PAGE>
NAME TITLE DATE
- ------------------------------ -------------------------- ----
/s/ ALBERT H. COHEN October
- ------------------------------ Director 15,
Albert H. Cohen 1998
/s/ MAURICE A. GLADHILL October
- ------------------------------ Director 15,
Maurice A. Gladhill 1998
- ------------------------------ Director
Charles W. Hoff, III
/s/ JAMES K. KLUTTZ October
- ------------------------------ Director 15,
James K. Kluttz 1998
- ------------------------------ Director
Charles A. Nicodemus
/s/ RICHARD W. PHOEBUS October
- ------------------------------ Director 15,
Richard W. Phoebus 1998
/s/ H. DEETS WARFIELD October
- ------------------------------ Director 15,
H. Deets Warfield 1998
- ------------------------------ Director
John C. Warfield
- ------------------------------ Director
Thomas R. Winkler
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT SEQUENTIAL
SEQUENTIAL PAGE
NUMBER NUMBER
- ------------- -------------
<C> <S> <C>
2.1 Agreement and Plan of Merger, dated as of September 4, 1998, between F&M Bancorp, and
Monocacy Bancshares, Inc. (included as Appendix A to the Joint Proxy Statement-Prospectus
which is part of this Registration Statement).
3.1 Articles of Incorporation of the Registrant with all Articles of Amendment (incorporated
by reference to Exhibit 3.1 of the Registrant's Quarterly Report on Form 10-Q for the
period ended June 30, 1997).
3.2 Bylaws of the Registrant (incorporated by reference to Exhibit 3.2 of the Registrant's
Quarterly Report on Form 10-Q for the period ended September 30, 1997).
5.1 Opinion of Gordon M. Cooley, General Counsel to the Registrant regarding the legality of
the securities being registered.
8.1 Opinion of Skadden, Arps, Slate, Meagher & Flom LLP regarding tax matters.
8.2 Opinion of Miles & Stockbridge P.C. regarding tax matters.
10.1 Stock Option Agreement, dated September 4, 1998, between F&M Bancorp and Monocacy
Bancshares, Inc. (included as Appendix B to the Joint Proxy Statement-Prospectus which is
part of this Registration Statement).
23.1 Consent of Arthur Andersen, LLP, Vienna, Virginia.
23.2 Consent of Stegman & Co., Towson, Maryland.
23.3 Consent of Smith Elliott Kearns & Company, LLC, Hagerstown, Maryland.
23.4 Consent of Wheat First Securities, Inc., Richmond, Virginia.
23.5 Consent of RP Financial, LC, Arlington, Virginia.
23.6 Consent of Gordon M. Cooley (included in Exhibit 5.1 hereto).
23.7 Consent of Skadden, Arps, Slate, Meagher & Flom LLP (included in Exhibit 8.1 hereto).
23.8 Consent of Miles & Stockbridge P.C. (included in Exhibit 8.2 hereto).
99.1 Opinion of Wheat First Securities, Inc. (included as Appendix C to the Joint Proxy
Statement-Prospectus which is part of this Registration Statement).
99.2 Opinion of RP Financial, LC (included as Appendix D to the Joint Proxy
Statement-Prospectus which is part of this Registration Statement).
99.3 Form of Proxy to be used by the Registrant.
99.4 Form of Proxy to be used by Monocacy Bancshares, Inc.
</TABLE>
II-7
<PAGE>
EXHIBIT 5.1
October 15, 1998
Board of Directors
F&M Bancorp
110 Thomas Johnson Drive
Frederick, Maryland 21702
Re: F&M Bancorp
Registration Statement on Form S-4
Gentlemen and Mesdames:
I have acted as General Counsel to F&M Bancorp, a Maryland corporation (the
"Company"), in connection with the issuance and sale by the Company of an
aggregate of up to 2,281,753 shares of common stock, par value $5.00 per share
(the "Common Stock"), of the Company pursuant to an Agreement and Plan of
Merger, dated as of September 4, 1998 (the "Merger Agreement"), by and between
the Company and Monocacy Bancshares, Inc., a Maryland corporation.
This opinion is delivered in accordance with the requirements of Item
601(b)(5) of Regulation S-K under the Securities Act of 1933, as amended.
In connection with this opinion, I have examined originals or copies,
certified or otherwise identified to my satisfaction, of (i) the Registration
Statement of the Company on Form S-4 (File No. 333- )filed with the
Securities and Exchange Commission (the "Commission") on the date hereof (the
"Registration Statement"), (ii) the Merger Agreement, (iii) the form of
certificates to be used to represent the shares of Common Stock, (iv) the
Articles of Incorporation and Bylaws of the Company, as amended to date, (v)
resolutions adopted by the Board of Directors of the Company relating to the
Merger Agreement and the issuance of the shares of Common Stock pursuant
thereto, and (vi) such other documents as I have deemed necessary or appropriate
as a basis for the opinions set forth below.
In my examination, I have assumed the genuineness of all signatures, the
legal capacity of all natural persons, the authenticity of all documents
submitted to me as originals, the conformity to original documents of all
documents submitted to me as certified, conformed or photostatic copies, and the
authenticity of originals of such copies. As to any facts material to this
opinion which I did not independently establish or verify, I have relied upon
statements or representations of officers and other representatives of the
Company and others.
I am admitted to the bar in the State of Maryland, and express no opinion as
to the laws of any other jurisdiction.
Based upon and subject to the foregoing, and assuming the due execution
delivery of certificates representing the shares of Common Stock in the form
examined by me, I am of the opinion that the shares of Common Stock to be issued
by the Company pursuant to the Merger Agreement, when issued in accordance with
the terms of the Merger Agreement, will be duly authorized, validly issued,
fully paid and non-assessable.
I hereby consent to the filing of this opinion with the Commission as
exhibit 5.1 to the Registration Statement. I also consent to the reference to me
under the caption "LEGAL MATTERS" in the Registration Statement. In giving such
consent I do not thereby admit that I am in the category of persons whose
consent is required under Section 7 of the Act.
Very truly yours,
/s/ Gordon M. Cooley
Gordon M. Cooley
General Counsel
<PAGE>
EXHIBIT 8.1
SKADDEN, ARPS, SLATE, MEAGHER & FLOM LLP
TAX OPINION
October 15, 1998
F&M Bancorp
110 Thomas Johnson Drive
Frederick, Maryland 21702
Ladies and Gentlemen:
We have acted as counsel to F&M Bancorp, a Maryland corporation ("F&M"), in
connection with the contemplated merger (the "Merger") under the Maryland
General Corporation Law of Monocacy Bancshares, Inc., a Maryland corporation
("Monocacy") with and into F&M and the subsequent merger ("Subsidiary Bank
Merger") under the applicable provisions of 12 U.S.C. 215a(a) of Taneytown Bank
& Trust Company, a Maryland-chartered commercial bank and wholly owned
subsidiary of Monocacy ("Taneytown"), with and into Farmers & Mechanics National
Bank, a banking association organized under the laws of the United States and
wholly owned subsidiary of F&M ("F&M Bank"), pursuant to the Agreement and Plan
of Merger, dated September 4, 1998, by and between F&M and Monocacy (the "Merger
Agreement") as described in the Registration Statement and the Subsidiary
Agreement and Plan of Merger, dated September 4, 1998, between F&M Bank and
Taneytown (the "Subsidiary Merger Agreement").(1) In connection with the
Registration Statement filed on October 15, 1998 with the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act") and in accordance with the requirements of Item 601(b)(8) of
Regulation S-K under the Securities Act, we are rendering our opinion concerning
certain federal income tax consequences of the Merger. The delivery of this
opinion, dated as of the Effective Time, is a condition to the Merger pursuant
to Section 8.2 of the Merger Agreement.
In rendering our opinion, we have examined and relied upon the accuracy and
completeness of the facts, information, covenants and representations contained
in originals or copies, certified or otherwise identified to our satisfaction,
of the Merger Agreement, the Registration Statement, the Subsidiary Merger
Agreement and such other documents as we have deemed necessary or appropriate as
a basis for the opinion set forth below. In addition, we have relied upon
certain statements, representations and agreements made by F&M, F&M Bank,
Monocacy, Taneytown and others, including representations set forth in letters
dated the date hereof from officers of F&M, F&M Bank, Monocacy and Taneytown
(the "Representation Letters"). Our opinion is conditioned on, among other
things, the initial and continuing accuracy of the facts, information, covenants
and representations set forth in the documents referred to above and the
statements, representations and agreements made by F&M, F&M Bank, Monocacy and
Taneytown, including those set forth in the Representation Letters. Furthermore,
we have assumed that the Representation Letters will be complete, and will be
re-executed by appropriate officers of F&M, F&M Bank, Monocacy and Taneytown at
the Effective Time.
In our examination we have assumed the genuineness of all signatures, the
legal capacity of natural persons, the authenticity of all documents submitted
to us as originals, the conformity to original documents of all documents
submitted to us as certified or photostatic copies and the authenticity of the
originals of such documents. We also have assumed that the transactions related
to the Merger and the Subsidiary Bank Merger or contemplated by the Merger
Agreement or the Subsidiary Merger Agreement
- ------------------------
(1) Unless otherwise indicated, all defined terms used herein shall have the
meanings assigned to them in F&M's Registration Statement on Form S-4 (the
"Registration Statement") filed in connection with the Merger with the
Securities and Exchange Commission under the Securities Act of 1933, as
amended.
<PAGE>
will be consummated in accordance with the Merger Agreement as described in the
Registration Statement and the Subsidiary Merger Agreement, and that none of the
terms and conditions contained therein will have been waived or modified in any
respect prior to the Effective Time. Finally, we have assumed that the Merger
will qualify as a statutory merger under the applicable provisions of the
Maryland General Corporation Law, and the Subsidiary Bank Merger will qualify as
a statutory merger under the applicable provisions of 12 U.S.C. 215a(a).
In rendering our opinion, we have considered applicable provisions of the
Internal Revenue Code of 1986, as amended (the "Code"), Treasury Regulations
promulgated thereunder (the "Regulations"), pertinent judicial authorities,
rulings of the Internal Revenue Service and such other authorities as we have
considered relevant. It should be noted that such laws, Code, Regulations,
judicial decisions and administrative interpretations are subject to change at
any time and, in some circumstances, with retroactive effect. A change in any of
the authorities upon which our opinion is based could affect our conclusions
herein.
OPINION
Based solely upon the foregoing, we are of the opinion that the Merger will
be treated, under current law, as a reorganization within the meaning of Section
368(a) of the Code.
Except as set forth above, we express no opinion to any party as to the tax
consequences, whether federal, state, local or foreign, of the Merger, the
Subsidiary Bank Merger, or of any transactions related thereto or contemplated
by the Merger Agreement, as described in the Registration Statement, or the
Subsidiary Merger Agreement. We disclaim any undertaking to advise you of any
subsequent changes of the facts stated or assumed herein or any subsequent
changes in applicable law. We are furnishing this opinion to you solely in
connection with Section 8.2 of the Merger Agreement. This opinion is solely for
your benefit and is not to be used, circulated, quoted or otherwise referred to
for any purpose without our express written permission, except that we consent
to the filing of this opinion as Exhibit 8.1 of the Registration Statement. In
giving such consent, we do not thereby admit that we are in the category of
persons whose consent is required under Section 7 of the Securities Act.
Very truly yours,
/s/ Skadden, Arps, Slate, Meagher &
Flom LLP
2
<PAGE>
EXHIBIT 8.2
[MILES & STOCKBRIDGE P. C. LETTERHEAD]
OCTOBER 15, 1998
Monocacy Bancshares, Inc.
222 E. Baltimore St.
Taneytown, Maryland 21787
Ladies and Gentlemen:
We have acted as counsel to Monocacy Bancshares, Inc., a Maryland
corporation ("Monocacy"), in connection with the merger (the "Merger") of
Monocacy with and into F&M Bancorp, a Maryland corporation ("F&M") pursuant to
and in accordance with the terms and conditions of the Agreement and Plan of
Merger dated as of September 4, 1998 by and between F&M and Monocacy (the
"Agreement"), and the subsequent merger (the "Subsidiary Bank Merger") of
Taneytown Bank & Trust Company, a Maryland-chartered commercial bank and a
wholly owned subsidiary of Monocacy ("Taneytown") with and into Farmers &
Mechanics National Bank, a banking association organized under the laws of the
United States and a wholly owned subsidiary of F&M ("F&M Bank") pursuant to and
in accordance with the terms and conditions of the Subsidiary Agreement and Plan
of Merger dated as of September 4, 1998 by and between F&M Bank and Taneytown
(the "Subsidiary Merger Agreement"), and it is intended that the Subsidiary Bank
Merger be consummated immediately following the consummation of the Merger. This
letter and the opinions expressed herein are being delivered in connection with
the Agreement. Capitalized terms used but not defined in this letter have the
respective meanings given to them in the Agreement.
In giving the opinions set forth in this letter, we have examined and relied
upon originals or copies of such documents, corporate records, certificates of
officers of Monocacy and F&M, certificates of public officials and other
instruments, including the Agreement and the Articles of Merger between Monocacy
and F&M being filed on the date hereof with the State Department of Assessments
and Taxation of the State of Maryland, and have conducted such other
investigations of fact and law as we deemed necessary or advisable.
In giving the opinions set forth herein, we have assumed that (i) all
documents submitted to us as originals are authentic, (ii) all documents
submitted to us as certified or photostatic copies conform to the original
documents, (iii) all signatures on all documents submitted to us for examination
are genuine, (iv) all natural persons who executed any of the documents that
were reviewed or relied upon by us had full legal capacity at the time of such
execution, and (v) all public records reviewed by us or on our behalf are
accurate and complete. We also have assumed that the Agreement constitutes the
valid, binding and enforceable agreement of each of Monocacy and F&M, and that
all representations and warranties or statements of fact set forth in the
Agreement and the Articles (except to the extent such representations and
warranties constitute conclusions of law to which this letter expresses our
opinion) were when made and, as of the Closing Date are, true, correct and
complete, and that all obligations imposed on the parties to the Agreement have
been or will be performed or satisfied in accordance with their terms. We have
further assumed that you have disclosed to us all of the documents that are
relevant to the transactions that are the subject of the opinions set forth
herein.
<PAGE>
Based upon the aforementioned consultations and certificates, we also have
assumed with your consent that the following representations are true on the
date of this letter and will be true at the Effective Time:
1. The fair market value of the F&M Common Stock and other consideration to
be received by each Monocacy stockholder in the Merger will be approximately
equal to the fair market value of the Monocacy Common Stock surrendered by each
such stockholder in the Merger.
2. On the Closing Date, the fair market value of the assets of Monocacy will
exceed the sum of its liabilities and the liabilities, if any, to which its
assets are subject and the fair market value of the assets of Taneytown will
exceed the sum of its liabilities and the liabilities, if any, to which its
assets are subject.
3. None of the compensation received by any stockholder-employees of
Monocacy will be separate consideration for, or allocable to, any of the shares
of Monocacy Common Stock owned by such stockholder-employees, and any of the
aforementioned compensation will be for services actually rendered and will be
commensurate with amounts paid to third parties bargaining at arms-length for
similar services.
4. F&M has no plan or intention to reacquire any of its stock issued in the
Merger.
5. The liabilities of Monocacy assumed by F&M and the liabilities to which
the transferred assets of Monocacy are subject were incurred by Monocacy in the
ordinary course of its business and the liabilities of Taneytown assumed by F&M
Bank and the liabilities to which the transferred assets of Taneytown are
subject were incurred by Taneytown in the ordinary course of its business.
6. The number of shares of F&M Common Stock and/or the amount of cash
received by each Monocacy stockholder in exchange for his or her Monocacy Common
Stock was determined in arms-length negotiations between F&M and Monocacy.
7. No fractional shares of F&M Common Stock will be issued in the Merger.
Rather, any shareholder of Monocacy entitled to a fractional interest in F&M
Common Stock will receive cash in lieu thereof. The payment of cash in lieu of
fractional share interests of F&M Common Stock will be solely for the purpose of
avoiding the expense and inconvenience to F&M of issuing fractional shares, and
it does not represent separately bargained-for consideration. The total cash
consideration that will be paid in the Merger to the Monocacy shareholders
instead of issuing fractional shares of F&M Common Stock will not exceed one
percent of the total consideration that will be issued in the Merger to the
Monocacy shareholders in exchange for their Monocacy Common Stock. The
fractional share interests of each Monocacy shareholder will be aggregated, and
no Monocacy shareholder will receive cash in an amount equal to or greater than
the value of one full share of F&M Common Stock.
8. As a result of the Merger, at least 45% of the outstanding stock of
Monocacy will be exchanged for stock in F&M. For purposes of this
representation, shares of Monocacy Common Stock exchanged for cash (including
Monocacy shares exchanged for cash in lieu of fractional shares of F&M Common
Stock) will be considered outstanding stock of Monocacy as of the date of the
Merger.
9. Following the Merger, F&M will continue the historic business of Monocacy
or use a significant portion of Monocacy's business assets in a business and
following the Subsidiary Bank Merger, F&M Bank will continue the historic
business of Taneytown or use a significant portion of Taneytown's business
assets in a business.
10. There is no intercorporate indebtedness existing between F&M and
Monocacy, or between F&M Bank and Taneytown, that was issued, acquired, or will
be settled at a discount.
11. No parties to the transaction are investment companies as defined in
Section 368(a)(2)(F)(iii) and (iv) of the Code.
12. Neither Monocacy nor Taneytown is under the jurisdiction of a court in a
Title 11 or similar case within the meaning of Section 368(a)(3)(A) of the Code.
We have undertaken no independent investigation or verification with respect
to any of the foregoing representations or any of the other factual matters on
which our opinion is based.
<PAGE>
Based upon the foregoing and subject to the limitations, assumptions and
qualifications set forth herein, we are of the opinion that:
1. The Merger and the Subsidiary Bank Merger will each constitute a
reorganization within the meaning of Section 368(a) of the Code, and Monocacy
and F&M, with respect to the Merger, and Taneytown and F&M Bank, with respect to
the Subsidiary Bank Merger, will each be "a party to a reorganization" within
the meaning of Section 368(b) of the Code; and
2. No gain or loss for United States federal income tax purposes will be
recognized by Monocacy as a result of the Merger.
3. No gain or loss for United States federal income tax purposes will be
recognized by Taneytown as a result of the Subsidiary Bank Merger.
4. No gain or loss for United States federal income tax purposes will be
recognized by the Monocacy shareholders upon the exchange of their Monocacy
Common Stock solely for F&M Common Stock pursuant to the Merger (except with
respect to cash received in lieu of a fractional share interest in F&M Common
Stock).
5. The aggregate tax basis of F&M Common Stock received by Monocacy
shareholders who exchange all of their Monocacy Common Stock solely for F&M
Common Stock pursuant to the Merger will be the same as the aggregate tax basis
of the Monocacy Common Stock surrendered in exchange therefor (reduced by any
amount allocable to a fractional share interest for which cash is received).
The opinions in this letter are limited to the United States federal income
tax matters specifically covered herein. We have not been asked to express, and
we do not express, an opinion in respect of any other tax consequences of the
Merger. Without limiting the generality of the foregoing, no opinion is
expressed with respect to the tax consequences of the Merger under any other
provisions of the Code or the regulations thereunder or in respect of the tax
consequences of any conditions existing at the Effective Time, or effects
resulting from the Merger, that are not specifically addressed in this letter.
No opinion is expressed in this letter in respect of the tax consequences of the
Merger under applicable foreign, state or local laws or regulations.
This letter is delivered, and the opinions set forth herein are given,
solely to you in connection with the transactions contemplated by the Agreement.
The opinions set forth herein may not be relied upon if any of the facts
contained in the documents referred to herein or otherwise assumed herein are or
later become inaccurate, or if any of the representations and warranties assumed
by us herein are or later become inaccurate. In addition, our opinions are based
upon existing law and applicable rules, regulations, rulings and court decisions
in effect as of the date of this letter, all of which are subject to change at
any time either prospectively or with retroactive effect. Any such change could
modify or adversely affect the opinions set forth herein. We undertake no
obligation to update or modify our opinions or this letter with respect to any
changes in or affecting the Merger or any of the foregoing that may occur after
the date of this letter.
This letter and the opinions set forth herein may not be relied upon by you
for any purpose other than that expressly set forth herein, and may not be
relied upon, used, circulated, quoted from or otherwise referred to by any other
person without our prior written consent. The opinions expressed herein are
limited to the matters set forth in this letter, and no other opinions should be
inferred beyond the matters expressly stated.
<TABLE>
<S> <C> <C>
MILES & STOCKBRIDGE P.C.
By: /s/ JEFFREY A. MARKOWITZ
-----------------------------------------
Principal
</TABLE>
<PAGE>
EXHIBIT 23.1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference of our report dated January 20, 1998 relating to the consolidated
balance sheets of F&M Bancorp and its subsidiaries as of December 31, 1997 and
1996 and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1997 which report is included in the Registration Statement S-4,
which is to be filed on October 15, 1998 regarding F&M Bancorp's acquisition of
Monocacy Bancshares, Inc.
/s/ Arthur Andersen LLP
--------------------------------------
ARTHUR ANDERSEN LLP
Washington, D.C.
October 15, 1998
<PAGE>
EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the incorporation by reference in this Registration Statement
on Form S-4 of our report dated January 23, 1998 on the consolidated financial
statements of Monocacy Bancshares, Inc. as of December 31, 1997 and 1996, and
for each of the three years in the period ended December 31, 1997, which report
is incorporated by reference from Monocacy's Annual Report on Form 10-K for the
year ended December 31, 1997, and to the reference to us under the caption
"Experts" in the Prospectus.
/s/ Stegman & Company
----------------------------
Stegman & Company
Baltimore, Maryland
October 14, 1998
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation by
reference in this registration statement of our report dated February 16, 1996
included in F&M Bancorp's Form 10-K for the year ended December 31, 1997 and to
all references to our firm included in this registration statement.
/s/ Smith Elliott Kearns & Company,
LLC
--------------------------------------
SMITH ELLIOTT KEARNS & COMPANY, LLC
Hagerstown, Maryland
October 15, 1998
<PAGE>
EXHIBIT 23.4
CONSENT OF FINANCIAL ADVISOR
We hereby consent to the use in this Registration Statement on Form S-4 of
the form of our letter to be issued to the Board of Directors of F&M Bancorp,
included as Appendix C to the Joint Proxy Statement-Prospectus that is a part of
this Registration Statement, and to the references to such letter and to our
firm in such Joint Proxy Statement-Prospectus. In giving such consent we do not
thereby admit that we come within the category of persons whose consent is
required under Section 7 of the Securities Act of 1933 or the rules and
regulations of the Securities and Exchange Commission thereunder.
/s/ Wheat First Securities, Inc.
--------------------------------------
WHEAT FIRST SECURITIES, INC.
Richmond, Virginia
Date: October 14, 1998
<PAGE>
EXHIBIT 23.5
October 14, 1998
Board of Directors
Monocacy Bancshares, Inc.
222 East Baltimore Street
Taneytown, Maryland 21787
Members of the Board:
We hereby consent to the use of our firm's name in the Form S-4 Registration
Statement of F&M Bancorp/Monocacy Bancshares, Inc. and any amendments thereto,
and the inclusion of, summary of and references to our fairness opinion in such
filings including the Joint Proxy Statement/Prospectus of F&M Bancorp/Monocacy
Bancshares, Inc.
Very truly yours,
RP FINANCIAL, LC.
/s/ James J. Oren
James J. Oren
Senior Vice President
<PAGE>
EXHIBIT 99.3
REVOCABLE PROXY
F&M BANCORP
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
OF F&M BANCORP FOR THE SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON NOVEMBER 24, 1998
The undersigned hereby appoints Faye E. Cannon, David R. Stauffer and Alice
E. Stonebreaker, each with full power of substitution, to act as attorneys and
proxies for the undersigned, and to vote all shares of Common Stock of F&M
Bancorp (the "Company") which the undersigned may be entitled to vote at the
Special Meeting of Stockholders (the "Special Meeting") to be held on November
24, 1998 at: 10:00 a.m. Eastern Standard time at 110 Thomas Johnson Drive,
Frederick, Maryland, and at any and all adjournments or postponements thereof,
as follows:
1. Approval and adoption of the Agreement and Plan of Merger, dated as of
September 4, 1998, by and between F&M Bancorp and Monocacy Bancshares, Inc.,
pursuant to which, among other things, Monocacy Bancshares, Inc. will merge with
and into F&M Bancorp
/ / FOR / / AGAINST / / ABSTAIN
THIS PROXY IS REVOCABLE AND WILL BE VOTED AS DIRECTED, BUT IF NO
INSTRUCTIONS ARE SPECIFIED, THIS PROXY WILL BE VOTED "FOR" THE PROPOSAL LISTED.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE PROPOSAL.
<PAGE>
If any other matters are properly brought before the Special Meeting, shares
represented by properly executed proxies will be voted in the discretion of the
proxies in accordance with their best judgment. F&M Bancorp does not have any
knowledge of any matters to be presented at the Special Meeting other than the
matters set forth above.
The undersigned hereby acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of the Special Meeting of Stockholders and
the Proxy Statement/Prospectus, dated , 1998, for the Special
Meeting to be held on November 24, 1998.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your full
title. If shares are held jointly, each holder may sign but only one signature
is required.
__________________________________
Signature of Stockholder
__________________________________
Signature of Stockholder
Dated ______________________, 1998
PLEASE COMPLETE, SIGN, DATE AND MAIL THIS PROXY PROMPTLY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE.
<PAGE>
Exhibit 99.4
- --------------------------------------------------------------------------------
REVOCABLE PROXY
MONOCACY BANCSHARES, INC.
/X/ PLEASE MARK VOTES
AS IN THIS EXAMPLE
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
MONOCACY BANCSHARES, INC. FOR THE SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON NOVEMBER 24, 1998
The undersigned hereby appoints Eric E. Glass, Donald R. Hull and David M.
Abramson, each with full power of substitution, to act as attorneys and
proxies for the undersigned, and to vote all shares of Common Stock of
Monocacy Bancshares, Inc. (the "Company") which the undersigned may be
entitled to vote at the Special Meeting of Stockholders (the "Special
Meeting") to be held on November 24, 1998 at 3:00 p.m. Eastern Standard time
at 222 East Baltimore Street, Taneytown, Maryland 21787, and at any and all
adjournments or postponements thereof, as follows:
--------------------------
Dated ____________, 1998
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Signature of Stockholder Signature of Stockholder
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Print Name of Stockholder Print Name of Stockholder
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FOR AGAINST ABSTAIN
1. Approval and adoption of the Agreement and Plan of / / / / / /
Merger, dated as of September 4, 1998, by and
between F&M Bancorp and Monocacy Bancshares, Inc.,
pursuant to which, among other things, Monocacy
Bancshares, Inc. will merge with and into F&M
Bancorp.
This proxy is revocable and will be voted as directed, but if no
instructions are specified, this proxy will be voted "FOR" the proposal
listed. The Board of Directors recommends a vote "FOR" the proposal.
If any other matters are properly brought before the Special Meeting,
shares represented by properly executed proxies will be voted in the
discretion of the proxies in accordance with their best judgement. Monocacy
Bancshares, Inc. does not have any knowledge of any matters to be presented
at the Special Meeting other than the matters set forth above.
The undersigned hereby acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of the Special Meeting of Stockholders
and the Proxy Statement/Prospectus, dated October ,1998, for the Special
Meeting to be held on November 24, 1998.
Please sign exactly as your name appears on this card. When signing as
attorney, executor, administrator, trustee or guardian, please give your
full title. If shares are held jointly, each holder may sign but only one
signature is required.
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^FOLD AND DETACH HERE^
PLEASE COMPLETE, SIGN, DATE, AND MAIL THIS PROXY PROMPTLY IN THE ENCLOSED
POSTAGE-PAID ENVELOPE.
