<PAGE>
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [x]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[x] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to sec. 240.14a-11(c) or sec. 240.14a-12
Baltimore Bancorp
-------------------------------------------------------------------
(Name of Registrant as Specified in its Charter)
Baltimore Bancorp
-------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
[ ] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
[ ] $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
[x] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock
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2) Aggregate number of securities to which transaction applies:
17,181,915*
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3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1/
The Merger Consideration is equal to $20.75 per share of Common Stock.
----------------------------------------------------------------------
4) Proposed maximum aggregate value of transaction:
$347,617,017**
----------------------------------------------------------------------
1/ Set forth the amount on which the filing fee is calculated and state
how it was determined.
[x] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount previously paid:
$69,775.00
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2) Form, Schedule or Registration Statement No.:
Preliminary Proxy Statement
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3) Filing Party:
Baltimore Bancorp
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4) Date Filed:
August 24, 1994
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*Consists of 16,168,741 shares of Common Stock to be canceled in exchange
for the right to receive the Merger Consideration and 1,013,174 shares of
Common Stock that would be issued upon conversion of stock options.
**Includes $12,115,641 representing the aggregate amount to be paid upon
exchange and cancellation of all stock options.
<PAGE>
October 17, 1994
To the Stockholders of
Baltimore Bancorp:
You are cordially invited to attend a Special Meeting of Stockholders of
Baltimore Bancorp to be held at 10:00 a.m. on Monday, November 21, 1994, at The
Bank of Baltimore, 4th Floor, 7 East Baltimore Street, Baltimore, Maryland
21203.
As described in the enclosed Proxy Statement, at the Special Meeting, you
will be asked to consider and vote upon a proposal to approve and adopt an
Agreement and Plan of Merger, dated as of March 21, 1994, as amended October 17,
1994, among First Fidelity Bancorporation, Annabel Lee Corporation, a direct
wholly owned subsidiary of First Fidelity, and Baltimore Bancorp, pursuant to
which First Fidelity will acquire Baltimore Bancorp through the merger of
Annabel Lee with and into Baltimore Bancorp and certain other related
transactions. In the merger, stockholders of Baltimore Bancorp will receive a
cash payment of $20.75 for each share of Baltimore Bancorp Common Stock.
Your Board of Directors has determined that the merger is in the best
interests of Baltimore Bancorp and its stockholders and has unanimously approved
the merger. The Board unanimously recommends that you vote "FOR" approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Consummation of the merger is subject to certain conditions, including
approval and adoption of the Merger Agreement and the transactions contemplated
thereby by the affirmative vote of at least two-thirds of the outstanding shares
of Common Stock entitled to be voted and the approval of the merger by various
regulatory agencies. Only holders of Common Stock of record at the close of
business on October 7, 1994 are entitled to notice of and to vote at the Special
Meeting or any adjournments or postponements thereof.
You are urged to read the accompanying Proxy Statement, which provides you
with a description of the terms of the proposed merger. A copy of the Merger
Agreement is included as Appendix A to the enclosed Proxy Statement.
It is very important that your shares be represented at the Special Meeting.
Whether or not you plan to attend the Special Meeting, you are requested to
complete, date, sign and return the proxy card in the enclosed postage paid
envelope. Failure to return a properly executed proxy card or to vote at the
Special Meeting will have the same effect as a vote against the Merger
Agreement. Please do not send in your stock certificates until you have received
a letter of transmittal, which will be sent to you promptly after the merger is
consummated.
On behalf of the Board of Directors, I urge you to vote "FOR" approval and
adoption of the Merger Agreement and the transactions contemplated thereby.
Sincerely,
/s/ Edwin F. Hale, Sr.
- - - - ------------------------
Edwin F. Hale, Sr.
Chairman of the Board
120 East Baltimore Street - Baltimore, Maryland 21202 - Telephone 410-244-3600
<PAGE>
NOTICE OF SPECIAL MEETING OF
STOCKHOLDERS TO BE HELD ON
NOVEMBER 21, 1994
NOTICE IS HEREBY GIVEN that a special meeting of stockholders (the "Special
Meeting") of Baltimore Bancorp (the "Company") will be held on Monday, November
21, 1994, at 10:00 a.m., at The Bank of Baltimore, 4th Floor, 7 East Baltimore
Street, Baltimore, Maryland 21203, for the following purposes:
(1) To consider and vote upon a proposal to approve and adopt an Agreement
and Plan of Merger, dated as of March 21, 1994, as amended October 17, 1994
(the "Merger Agreement"), by and among First Fidelity Bancorporation, a New
Jersey corporation ("First Fidelity"), Annabel Lee Corporation, a Maryland
corporation and a direct wholly owned subsidiary of First Fidelity ("Merger
Sub"), and the Company (a copy of which is attached to the accompanying Proxy
Statement as Appendix A) and the transactions contemplated thereby. As more
fully described in the Proxy Statement, the Merger Agreement provides that
(i) Merger Sub will be merged with and into the Company (the "Merger" or
"Holding Company Merger"), with the Company being the surviving corporation,
(ii) the Company will thereupon become a direct wholly owned subsidiary of
First Fidelity and (iii) each outstanding share of common stock, par value
$5.00 per share, of the Company (the "Common Stock"), except for shares held
by First Fidelity, will be converted into the right to receive $20.75 in
cash. The Merger will occur as part of the consummation of certain additional
alternative transactions designed to allow First Fidelity to acquire the
Company under existing regulatory restrictions. In this connection, the
Merger Agreement provides First Fidelity with the option of electing to
consummate such alternative transactions pursuant to either the "Thrift
Merger Alternative" or, subject to certain conditions, the "Bank Merger
Alternative" as described in the accompanying Proxy Statement.
(2) To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
The Board of Directors has fixed the close of business on October 7, 1994 as
the record date for the determination of stockholders entitled to notice of and
to vote at the Special Meeting. Only holders of Common Stock of record at the
close of business on that date will be entitled to notice of and to vote at the
Special Meeting or any adjournments or postponements thereof.
The accompanying Proxy Statement describes the Merger Agreement, the proposed
Merger and the actions to be taken in connection with the Merger. To ensure that
your vote will be counted, please complete, date and sign the enclosed proxy
card and return it promptly in the enclosed postage paid envelope, whether or
not you plan to attend the Special Meeting. Your proxy may be revoked in the
manner described in the accompanying Proxy Statement at any time before it is
voted at the Special Meeting.
In the event that there are not sufficient votes to approve and adopt the
Merger Agreement and the transactions contemplated thereby at the time of the
Special Meeting, the Special Meeting may be adjourned in order to permit further
solicitation of proxies by the Company.
By Order of the Board of Directors
/s/ Edwin F. Hale, Sr.
- - - - -------------------------
Edwin F. Hale, Sr.
Chairman of the Board
Baltimore, Maryland
October 17, 1994
<PAGE>
THE BOARD UNANIMOUSLY RECOMMENDS THAT THE HOLDERS OF COMMON STOCK VOTE FOR
APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
THEREBY.
THE AFFIRMATIVE VOTE OF AT LEAST TWO-THIRDS OF THE OUTSTANDING SHARES OF
COMMON STOCK ENTITLED TO BE VOTED IS REQUIRED TO APPROVE AND ADOPT THE MERGER
AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY. WE URGE YOU TO SIGN AND
RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE, WHETHER OR NOT YOU PLAN TO
ATTEND THE MEETING IN PERSON. THE PROXY MAY BE REVOKED AT ANY TIME PRIOR TO ITS
EXERCISE IN THE MANNER DESCRIBED IN THE ATTACHED PROXY STATEMENT. ANY
STOCKHOLDER PRESENT AT THE SPECIAL MEETING, INCLUDING ANY ADJOURNMENT OR
POSTPONEMENT THEREOF, MAY REVOKE SUCH HOLDER'S PROXY AND VOTE PERSONALLY ON THE
MERGER AGREEMENT BEFORE THE SPECIAL MEETING.
PLEASE DO NOT SEND YOUR COMMON STOCK CERTIFICATES AT THIS TIME.
<PAGE>
TABLE OF CONTENTS
PAGE
------
INTRODUCTION....................................................... 1
ADDITIONAL INFORMATION............................................. 2
SUMMARY ........................................................... 3
THE SPECIAL MEETING................................................ 14
Matters To Be Considered at the Special Meeting.................. 14
Record Date and Voting........................................... 14
Vote Required; Revocability of Proxies........................... 14
Appraisal Rights................................................. 15
Solicitation of Proxies.......................................... 15
Security Ownership by Company Management and First Fidelity ..... 15
PARTIES TO THE MERGER.............................................. 16
The Company...................................................... 16
First Fidelity................................................... 16
Merger Sub ...................................................... 16
THE MERGER......................................................... 17
General.......................................................... 17
The Merger....................................................... 17
Background of the Merger......................................... 19
Reasons for the Merger........................................... 20
Opinion of Financial Advisor..................................... 21
Effective Date and Effective Time................................ 24
Effect of the Merger............................................. 24
Exchange of Common Stock for Cash................................ 25
Representations and Warranties................................... 26
Conditions to Consummation of the Merger......................... 26
Regulatory Approvals............................................. 26
Conduct of Business Pending the Merger........................... 27
No Solicitation.................................................. 28
Interests of Certain Persons in the Merger....................... 29
Effect on Company Benefit Plans and Related Matters.............. 31
Waiver and Amendment; Termination................................ 32
Accounting Treatment............................................. 32
Expenses......................................................... 32
THE OPTION AGREEMENT............................................... 32
General.......................................................... 32
Effect of Option Agreement....................................... 32
Terms of Option Agreement........................................ 33
CERTAIN FEDERAL INCOME TAX CONSEQUENCES............................ 34
MARKET PRICES AND DIVIDENDS ON COMMON STOCK........................ 35
Market Prices.................................................... 35
Dividends........................................................ 36
STOCK OWNED BY MANAGEMENT.......................................... 37
PRINCIPAL HOLDERS OF VOTING SECURITIES............................. 38
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE.................... 38
INDEPENDENT AUDITORS............................................... 39
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS................... 39
OTHER MATTERS...................................................... 40
APPENDIX A Agreement and Plan of Merger dated as of March 21,
1994, as amended October 17, 1994 ............................... A-1
APPENDIX B Fairness Opinion of Alex. Brown & Sons Incorporated ... B-1
APPENDIX C Stock Option Agreement dated as of March 22, 1994 ...... C-1
<PAGE>
BALTIMORE BANCORP
120 East Baltimore Street
Baltimore, Maryland 21202
(410) 244-3360
PROXY STATEMENT
SPECIAL MEETING OF STOCKHOLDERS
NOVEMBER 21, 1994
INTRODUCTION
This Proxy Statement is being furnished to the holders of common stock, par
value $5.00 per share (the "Common Stock"), of Baltimore Bancorp, a Maryland
corporation (the "Company"), in connection with the solicitation of proxies by
the Board of Directors of the Company (the "Board of Directors" or the "Board")
for use at the special meeting of stockholders (the "Special Meeting") to be
held on Monday, November 21, 1994 at 10:00 a.m., at The Bank of Baltimore, 4th
Floor, 7 East Baltimore Street, Baltimore, Maryland 21203, and at any
adjournments or postponements thereof. The Board of Directors has fixed the
close of business on October 7, 1994 as the record date (the "Record Date") for
the Special Meeting with respect to this solicitation.
At the Special Meeting, the holders of Common Stock will consider and vote
upon a proposal to approve and adopt an Agreement and Plan of Merger, dated as
of March 21, 1994, as amended October 17, 1994 (the "Merger Agreement"), by and
among First Fidelity Bancorporation, a New Jersey corporation ("First
Fidelity"), Annabel Lee Corporation, a Maryland corporation and a direct wholly
owned subsidiary of First Fidelity ("Merger Sub"), and the Company and the
transactions contemplated thereby. Pursuant to the Merger Agreement, (i) Merger
Sub will be merged with and into the Company (the "Merger" or "Holding Company
Merger"), with the Company being the surviving corporation, (ii) the Company
will thereupon become a direct wholly owned subsidiary of First Fidelity and
(iii) each outstanding share of Common Stock (except for shares held by First
Fidelity) will be converted into the right to receive $20.75 in cash (the
"Merger Consideration"). The Merger will occur as part of the consummation of
certain additional alternative transactions designed to allow First Fidelity to
acquire the Company under existing regulatory restrictions. In this connection,
the Merger Agreement provides First Fidelity with the option of electing to
consummate such alternative transactions pursuant to either the "Thrift Merger
Alternative" or, subject to certain conditions, the "Bank Merger Alternative" as
described in the Proxy Statement. The Merger Agreement is attached to this Proxy
Statement as Appendix A.
The Board of Directors unanimously recommends that stockholders vote "FOR"
approval and adoption of the Merger Agreement and the transactions contemplated
thereby.
All information contained in this Proxy Statement concerning First Fidelity
and Merger Sub has been supplied by First Fidelity. Except as otherwise
indicated, all other information contained in this Proxy Statement has been
supplied by the Company.
No person is authorized to give any information or to make any
representations not contained in this Proxy Statement and, if given or made,
such information or representation should not be relied upon as having been
authorized by the Company.
Stockholders are urged to read and consider carefully the information
contained in the Proxy Statement and to consult with their personal financial
and tax advisors.
This Proxy Statement, the accompanying Notice of Special Meeting and the
accompanying proxy are first being mailed to stockholders on or about October
18, 1994.
<PAGE>
IT IS IMPORTANT THAT PROXIES BE RETURNED PROMPTLY. THEREFORE, WHETHER OR NOT
YOU PLAN TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE, SIGN AND RETURN
THE PROXY CARD IN THE ENCLOSED POSTAGE PAID ENVELOPE.
__________________
The date of this Proxy Statement is October 17, 1994.
__________________
ADDITIONAL INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and the rules and
regulations thereunder, and in accordance therewith files reports, proxy
statements and other information with the Securities and Exchange Commission
("SEC"). Such reports, proxy statements and other information filed by the
Company may be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the SEC's regional offices located at Suite 1400, Citicorp Center,
500 West Madison Street, Chicago, Illinois 60661 and Suite 1300, Seven World
Trade Center, New York, New York 10048. Copies of such material can be obtained
at prescribed rates from the Public Reference Section of the SEC, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Common Stock is listed on
the New York Stock Exchange ("NYSE"), and such reports, proxy statements and
other information concerning the Company are also available for inspection at
the offices of the NYSE, 20 Broad Street, New York, New York 10005.
<PAGE>
SUMMARY
The following is a summary of material information contained elsewhere in
this Proxy Statement. This summary is not intended to be a complete description
and is qualified in its entirety by reference to the more detailed information
contained in this Proxy Statement or incorporated by reference in this Proxy
Statement, or in the documents attached as Appendices hereto. Each stockholder
is urged to give careful consideration to all of the information contained in
this Proxy Statement and the Appendices before voting.
The Special Meeting
Matters To Be Considered at the Special Meeting. The Special Meeting is
scheduled to be held at 10:00 a.m. on Monday, November 21, 1994 at The Bank of
Baltimore, 4th Floor, 7 East Baltimore Street, Baltimore, Maryland 21203. At the
Special Meeting, stockholders of the Company will consider and vote upon (i) a
proposal to approve and adopt the Merger Agreement, by and among First Fidelity,
Merger Sub and the Company and the transactions contemplated thereby and (ii)
such other business as may properly come before the Special Meeting or any
adjournments or postponements thereof. See "The Special Meeting -- Matters To Be
Considered at the Special Meeting."
Record Date and Voting. The Record Date for the Special Meeting is the close
of business on October 7, 1994. At the close of business on the Record Date,
there were 16,775,790 shares of Common Stock outstanding and entitled to vote,
held by 3,449 stockholders of record. Each holder of Common Stock on the Record
Date will be entitled to one vote for each share held of record upon each matter
properly submitted at the Special Meeting or at any postponement or adjournment
thereof. The presence, either in person or by proxy, of a majority of the
outstanding shares of Common Stock entitled to be voted is necessary to
constitute a quorum at the Special Meeting. See "The Special Meeting -- Record
Date and Voting."
Vote Required; Revocability of Proxies. Approval and adoption of the Merger
Agreement and the transactions contemplated thereby will require the affirmative
vote of at least two-thirds of the outstanding shares of Common Stock entitled
to be voted at the Special Meeting.
Since the required vote of the stockholders of the Company on the Merger
Agreement and the transactions contemplated thereby is based upon the total
number of outstanding shares of Common Stock, the failure to submit a proxy card
(or vote in person at the Special Meeting) or the abstention from voting by a
stockholder will have the same effect as a "NO" vote with respect to the Merger
Agreement and the transactions contemplated thereby. See "The Special Meeting --
Vote Required; Revocability of Proxies."
The presence of a stockholder at the Special Meeting will not automatically
revoke such stockholder's proxy. However, a stockholder may revoke a proxy at
any time prior to its exercise by (i) delivering to James A. Gast, Corporate
Secretary, Baltimore Bancorp, 120 East Baltimore Street, Baltimore, Maryland
21202, a written notice of revocation prior to the Special Meeting, (ii)
delivering to the Company prior to the Special Meeting a duly executed proxy
bearing a later date or (iii) attending the Special Meeting and voting in
person.
Appraisal Rights. Stockholders of the Company have no appraisal rights in
connection with the Merger Agreement and the consummation of the transactions
contemplated thereby. See "The Special Meeting -- Appraisal Rights."
Security Ownership by Company Management and First Fidelity. As of the Record
Date, (i) the directors and executive officers of the Company beneficially
owned, in the aggregate, 191,263 shares of Common Stock (excluding shares which
could be acquired upon the exercise of options), representing approximately 1.1%
of such shares outstanding and (ii) First Fidelity beneficially owned 607,049
shares of Common Stock (excluding an option for 3,300,000 shares of Common
<PAGE>
Stock exercisable pursuant to the terms and conditions of the Option Agreement
(as hereinafter defined)), representing 3.6% of such shares outstanding. To the
knowledge of the Company, such directors and executive officers of the Company
and First Fidelity intend to vote their outstanding shares of Common Stock for
the approval and adoption of the Merger Agreement and the transactions
contemplated thereby. See "Stock Owned by Management," "Principal Holders of
Voting Securities" and "The Option Agreement."
Parties to the Merger
The Company. Baltimore Bancorp is a Maryland corporation registered as a bank
holding company under the Bank Holding Company Act of 1956, as amended ("BHCA").
The Company's principal subsidiary is The Bank of Baltimore (the "Bank"). The
Bank is engaged in a general commercial and retail banking business serving
individuals, businesses and governmental units throughout the region from
southern Pennsylvania to northern Virginia with primary emphasis in Baltimore
and in the Baltimore and Washington, D.C. suburbs. As of September 30, 1994, the
Company had total assets, deposits and stockholders' equity of $2.2 billion,
$1.8 billion and $151 million, respectively. With 41 banking offices in
Maryland, the Company was the third largest bank holding company headquartered
in Maryland in terms of assets and deposits. The address of the Company's
principal executive offices is 120 East Baltimore Street, Baltimore, Maryland
21202, and its telephone number is (410) 244-3360. See "Parties to the Merger --
The Company."
First Fidelity. First Fidelity Bancorporation is a New Jersey corporation
registered as a bank holding company under the BHCA. First Fidelity serves the
mid-Atlantic region and provides a full range of banking services through its
subsidiary banks, First Fidelity Bank, N.A., First Fidelity Bank, N.A., New
York, Union Trust Company and First Fidelity Bank, FSB. First Fidelity also
provides leasing, retail brokerage, community development assistance and
insurance services through its non-bank and banking-related subsidiaries. As of
June 30, 1994, First Fidelity had total assets, deposits and stockholders'
equity of $33.9 billion, $27.4 billion and $2.8 billion, respectively. With more
than 650 banking offices in New Jersey, eastern Pennsylvania, New York,
Connecticut and Maryland, First Fidelity ranks as one of the 25 largest United
States bank holding companies and is the largest banking organization
headquartered in New Jersey. The address of First Fidelity's principal executive
offices is 2673 Main Street, P.O. Box 6980, Lawrenceville, New Jersey 08648, and
its telephone number is (201) 565-3200. See "Parties to the Merger -- First
Fidelity."
Merger Sub. Annabel Lee Corporation is a Maryland corporation and a direct
wholly owned subsidiary of First Fidelity. Pursuant to the terms of the Merger
Agreement, at the Effective Time (as hereinafter defined), Merger Sub will be
merged with and into the Company, with the Company being the surviving
corporation. See "Parties to the Merger -- Merger Sub" and "The Merger."
The Merger
The Merger Agreement provides that First Fidelity will acquire the Company
pursuant to the merger of Merger Sub with and into the Company, with the Company
being the surviving corporation. Each outstanding share of Common Stock, except
for certain shares held by First Fidelity, will be converted into the right to
receive a cash payment of $20.75. The Merger will occur as part of the
consummation of certain additional alternative transactions designed to allow
First Fidelity to acquire the Company under existing regulatory restrictions. In
this connection, the Merger Agreement provides First Fidelity with the option of
electing to consummate such alternative transactions pursuant to either the
"Thrift Merger Alternative" or, subject to certain conditions, the "Bank Merger
Alternative" as described below.
Thrift Merger Alternative. The Merger Agreement provides that under the
thrift merger alternative (the "Thrift Merger Alternative"), immediately prior
to the Holding Company Merger, the Bank will be transformed into a federal
savings bank by merging the Bank into a newly-formed
<PAGE>
federal savings bank subsidiary of the Company, which will be known as "The Bank
of Baltimore Interim Federal Savings Bank" ("BOB-FSB") and will be the surviving
entity to the merger (the "First Thrift Merger"). As a result of the First
Thrift Merger, the Company will become a savings and loan holding company and
will no longer be a registered bank holding company. Upon the Holding Company
Merger, the Company will become a wholly owned subsidiary of First Fidelity.
First Fidelity has advised the Company that following the Holding Company Merger
it intends to contribute the outstanding capital stock of its existing wholly
owned federal savings bank subsidiary, First Fidelity Bank, FSB ("FFB-FSB"),
which is headquartered in Beltsville, Maryland, to the Company (the "Thrift
Contribution"). First Fidelity has further advised the Company that immediately
following the Thrift Contribution, it intends to merge BOB-FSB with FFB-FSB,
with FFB-FSB being the surviving institution (the "Second Thrift Merger"). The
Second Thrift Merger would consolidate all of First Fidelity's banking offices
in Maryland into a single federal savings bank subsidiary.
Section 3(d) of the BHCA as in effect until September 28, 1995 -- the
so-called Douglas Amendment -- prohibits the Board of Governors of the Federal
Reserve System (the "Federal Reserve") from approving an application by a bank
holding company to acquire a bank located outside the state in which the
operations of such bank holding company's banking subsidiaries were principally
conducted unless the acquisition of a state bank by an out-of-state bank holding
company is specifically authorized by the laws of the state in which such bank
is located. Maryland law does not specifically authorize for purposes of the
Douglas Amendment the acquisition of a Maryland bank, such as the Bank, by a New
Jersey-based bank holding company, such as First Fidelity. Under the Thrift
Merger Alternative, the Bank would be transformed into a federal savings bank by
the First Thrift Merger, and the Company would not own a "bank" at the time of
the Holding Company Merger, since a federal savings bank is expressly excluded
from the definition of a "bank" under the BHCA. Consequently, the Holding
Company Merger would not then be prohibited by the Douglas Amendment. Although
sections 5-903 and 12-207 of the Maryland banking law on their face would appear
to prohibit the acquisition by an out-of-state bank holding company, such as
First Fidelity, of a federal savings bank located in Maryland, such as BOB-FSB,
the Company has received a copy of an opinion of the Attorney General of the
State of Maryland addressed to the Maryland Bank Commissioner and a reasoned
opinion of First Fidelity's Maryland counsel, Venable, Baetjer and Howard, as to
the legality under Maryland law of the Holding Company Merger following the
First Thrift Merger, when Maryland law is interpreted consistently with the
Commerce Clause of the United States Constitution. While there is no controlling
legal precedent in Maryland as to the constitutionality of certain provisions of
Maryland law governing the Thrift Merger Alternative, both the opinion of the
Maryland Attorney General and the reasoned opinion of First Fidelity's Maryland
counsel conclude that certain provisions of Maryland law governing interstate
acquisitions of federal savings banks, as applied to the Holding Company Merger,
are unconstitutional under the Commerce Clause of the United States
Constitution.
Bank Merger Alternative. Subsequent to entering into the Merger Agreement,
First Fidelity has had discussions with the Office of the Comptroller of the
Currency (the "OCC") concerning, and has filed an application for approval of,
the relocation of the main office of its principal national bank subsidiary,
First Fidelity Bank, N.A. ("FFB-NA"), from Salem, New Jersey to Elkton, Maryland
(the "Main Office Relocation"). The National Bank Act authorizes the OCC to
approve the relocation of a national bank's main office within a distance of 30
miles and does not contain any limitation requiring that such location be within
the same state. If the Main Office Relocation is approved, First Fidelity may
elect to utilize an alternative structure (the "Bank Merger Alternative"), in
lieu of the Thrift Merger Alternative, to acquire the Bank and the Company in a
manner consistent with the Douglas Amendment. Under the Bank Merger Alternative,
FFB-NA would relocate its main office to Elkton, Maryland and establish a branch
office at its current main office location in Salem, New Jersey. After the Main
Office Relocation, the Bank would be merged into FFB-NA, with FFB-NA being the
surviving bank (the "Bank Merger"). As
<PAGE>
part of the Bank Merger, the outstanding common stock of the Bank would be
exchanged for common stock and preferred stock of FFB-NA as set forth in the
Merger Agreement, with the result that the Company would hold not more than 15%
of the total equity of FFB-NA. Immediately after the Bank Merger, the Holding
Company Merger would be consummated. The ability of the Company and First
Fidelity to effect the Bank Merger Alternative will depend, in part, upon a
determination as to the inapplicability of the Douglas Amendment to the Holding
Company Merger after the Bank Merger and that no application will be required
under the BHCA with respect to the transactions contemplated by the Bank Merger
Alternative. There can be no assurances that such a determination will be made.
For essentially the same reasons described above with respect to the Thrift
Merger Alternative, First Fidelity believes that sections 5-903 and 12-207 of
the Maryland banking law, when applied consistently with the Commerce Clause and
Supremacy Clause of the United States Constitution, should not be applied to
prohibit the Bank Merger Alternative.
The Merger Agreement provides that First Fidelity may elect to consummate the
Bank Merger Alternative in lieu of the Thrift Merger Alternative upon written
notice to the Company prior to the Effective Date, provided that such an
election would not cause the Effective Date to occur after the later of January
6, 1995 or the date on which the Thrift Merger Alternative could otherwise be
consummated. The Merger Agreement further provides that, as a condition
precedent to First Fidelity's right to elect to consummate the Bank Merger
Alternative, First Fidelity must cause the Company to be provided with
reasonable assurances as to the legality of the Bank Merger Alternative. If
First Fidelity elects the Bank Merger Alternative and for any reason the Bank
Merger Alternative is not consummated, the Merger Agreement provides that the
parties remain obligated to proceed to consummate the Thrift Merger Alternative
as if such election had not been made.
Under the Maryland General Corporation Law, if the Bank Merger were to be
deemed to constitute a transfer of all or substantially all of the Company's
assets, approval of the Merger Agreement and the transactions contemplated
thereby by the Company's stockholders will be deemed to be approval of such
transfer of assets in connection with the consummation of the Bank Merger
immediately before the consummation of the Holding Company Merger.
Background and Reasons for the Merger
The Board of Directors believes that the terms of the Merger Agreement are in
the best interests of the Company and its stockholders. Accordingly, the Board
has approved the terms of the Merger and unanimously recommends that
stockholders vote "FOR" approval and adoption of the Merger Agreement and the
transactions contemplated thereby. See "The Merger -- Background of the Merger"
and "-- Reasons for the Merger."
Opinion of Financial Advisor
On March 21, 1994, Alex. Brown & Sons Incorporated ("Alex. Brown") delivered
its written opinion to the Board of Directors that, as of such date, the Merger
Consideration to be received by the stockholders of the Company was fair to such
stockholders from a financial point of view. This opinion was updated by Alex.
Brown for the Board of Directors as of the date of this Proxy Statement. The
full text of the opinion of Alex. Brown is attached as Appendix B to this Proxy
Statement. Stockholders are urged to read the opinion in its entirety for a
description of the procedures followed, the assumptions made, the matters
considered and the limits on the review undertaken in rendering the opinion. For
further information concerning Alex. Brown's services as financial advisor, its
opinion and its fees and expense arrangements, see "The Merger -- Opinion of
Financial Advisor."
Effective Date and Effective Time
It is anticipated that articles of merger will be filed with the Maryland
State Department of Assessments and Taxation (the "Maryland Department") in
accordance with the requirements of the Maryland General Corporation Law on (i)
a business day designated by First Fidelity within 10
<PAGE>
days after the date of receipt of all regulatory and stockholder approvals,
expiration of applicable waiting periods and the satisfaction or waiver of all
conditions to the consummation of the Merger or (ii) on such later date as the
parties may agree. The date of such filing with and acceptance by the Maryland
Department of such articles of merger or such date thereafter as is specified in
the articles of merger will be the "Effective Date" of the Merger. The
"Effective Time" of the Merger will be the time of such filing with and
acceptance by the Maryland Department of such articles of merger or as otherwise
specifically set forth therein.
Effect of the Merger
Pursuant to the Merger Agreement, at the Effective Time, the articles of
incorporation and bylaws of the Company will be amended in their entirety to
conform to the articles of incorporation and bylaws of Merger Sub in effect
immediately prior to such time. At the Effective Time, the directors and
officers of Merger Sub will become the directors and officers of the Company as
the surviving corporation.
In connection with the Thrift Merger Alternative, First Fidelity intends to
invite the directors of the Bank serving on the Effective Date to become
directors of FFB-FSB subsequent to the Second Thrift Merger for a period of not
less than two years at a level of compensation not less than that currently paid
to nonemployee directors of the Bank. If the Bank Merger Alternative is
selected, First Fidelity intends to invite such directors of the Bank to become
members of a Maryland regional advisory board of directors of FFB-NA following
the Holding Company Merger for a similar period and compensation. In addition,
following the Holding Company Merger, First Fidelity intends to select from
among the directors of the Bank or other prominent business leaders in the
Maryland community a person to become a director of First Fidelity to serve for
not less than two years. See "The Merger -- Effect of the Merger" and "--
Interests of Certain Persons in the Merger."
Exchange of Common Stock for Cash
Promptly after the Effective Time, First Fidelity Bank, N.A., as exchange
agent (the "Exchange Agent"), will provide written instructions to each
stockholder of record of the Company regarding the manner in which stockholders
of the Company may exchange their shares of Common Stock for payment of the
Merger Consideration. No interest will be paid on the Merger Consideration.
Stockholders should not surrender their shares of Common Stock until they have
received these written instructions from the Exchange Agent. See "The Merger --
Exchange of Common Stock for Cash."
Conditions; Regulatory Approvals
Consummation of the Merger and the payment of the Merger Consideration
pursuant to the Merger Agreement are subject to various conditions, including
receipt of the stockholder approval solicited hereby, receipt of the necessary
regulatory approvals and satisfaction of other customary closing conditions.
The Thrift Merger Alternative would require the prior approval of (i) the
Office of Thrift Supervision (the "OTS") under the Home Owners' Loan Act of
1933, as amended ("HOLA"), for the chartering of BOB-FSB, the acquisition of
BOB-FSB by the Company, the First Thrift Merger, the Holding Company Merger, the
Thrift Contribution and the Second Thrift Merger, (ii) the Federal Reserve under
the BHCA for both the Company and First Fidelity to acquire control of BOB-FSB
as a nonbanking subsidiary and for First Fidelity to acquire control of most of
the Company's and the Bank's existing nonbanking subsidiaries, (iii) the OTS and
the Federal Deposit Insurance Corporation (the "FDIC") under the HOLA and the
Federal Deposit Insurance Act, as amended (the "FDIA"), for BOB-FSB and FFB-FSB
to continue to operate the Bank's existing
<PAGE>
subsidiaries as operating subsidiaries or service corporation subsidiaries after
the First Thrift Merger and the Second Thrift Merger, respectively and (iv) the
OTS under the FDIA for BOB-FSB to acquire, pursuant to the First Thrift Merger,
the deposits of the Bank. In addition, Banco Santander, S.A. ("Banco
Santander"), a Spanish banking organization, which owns approximately 24.9% of
First Fidelity's voting stock, has submitted (i) an application for approval of
the OTS of the Holding Company Merger under HOLA and (ii) an application for
approval of the Federal Reserve to acquire control, indirectly via First
Fidelity, of BOB-FSB as a nonbanking subsidiary and most of the Company's
existing nonbanking subsidiaries. The applications to the OTS were filed on
August 3, 1994, the applications to the Federal Reserve were filed on August 5,
1994 and the applications to the FDIC were filed on August 5, 1994. The FDIC
approval was received on August 30, 1994. In addition, in the event that the
Thrift Contribution and the Second Thrift Merger cannot be consummated, the
Thrift Merger Alternative may also require that BOB-FSB file an application with
the FDIC for insurance of accounts and receive approval thereof.
The Bank Merger Alternative, if elected by First Fidelity in lieu of the
Thrift Merger Alternative, would require the prior approval of the OCC for the
Main Office Relocation, the amendment of FFB-NA's charter to authorize the
preferred stock to be issued in the Bank Merger, the issuance of the common
stock and preferred stock of FFB-NA in the Bank Merger, and the Bank Merger
under the National Bank Act and the FDIA. An application for the Main Office
Relocation was filed on June 21, 1994 and the applications for the other
approvals described above were filed on September 2, 1994.
It is contemplated by First Fidelity that no additional regulatory approvals
will be required for consummation of the Holding Company Merger and either the
Thrift Merger Alternative or the Bank Merger Alternative, as the case may be,
except as described above. There can be no assurance that the requisite
regulatory approvals will be obtained, or, if such regulatory approvals are
obtained, as to the date of any such approvals. There also can be no assurance
that any approvals will not contain a condition or requirement which causes such
approvals to fail to satisfy the conditions set forth in the Merger Agreement.
See "The Merger -- Regulatory Approvals," "-- Conditions to Consummation of the
Merger" and "-- Waiver and Amendment; Termination."
Conduct of Business Pending the Merger
Prior to the Effective Time, the Merger Agreement requires the Company to
conduct its business in the ordinary course consistent with past practice and
subject to certain operating restrictions. The Company has agreed, among other
things, to maintain its current organization, management and capital structure
and to comply with certain limitations on incurrence of indebtedness, increases
in compensation and acquisitions or dispositions of assets. See "The Merger --
Conduct of Business Pending the Merger."
No Solicitation
The Company has agreed in the Merger Agreement that it will not initiate,
solicit or encourage any inquiries or the making of any proposal or offer with
respect to an Acquisition Proposal (as hereinafter defined), and except to the
extent legally required for the discharge by the Board of Directors of its
fiduciary duties as advised in writing by counsel to the Board, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. The Company has agreed to notify First Fidelity immediately if any
such inquiries or requests for information are received or if any such
negotiations are sought. See "The Merger -- No Solicitation."
Interests of Certain Persons in the Merger
Certain members of the Company's management and Board of Directors may be
deemed to have interests in the Merger in addition to their interest as
stockholders of the Company generally. The Bank previously entered into
severance agreements with certain members of the Company's
<PAGE>
and the Bank's senior management. Subject to the terms of such agreements, if
the employment of such officers is terminated involuntarily or voluntarily with
"Good Reason" (as defined) in connection with or within 18 months of the sale of
the Bank, such officers would be entitled to severance payments as a consequence
of the Merger. The Merger Agreement provides that if the Effective Time occurs
prior to January 3, 1995, First Fidelity will not terminate the employment or
reduce the compensation of the officers of the Company with Severance Agreements
prior to January 3, 1995 and will retain Edwin F. Hale, Sr., Chairman of the
Board and Chief Executive Officer of the Company, as a consultant for three
months after January 3, 1995 for total consulting compensation of $123,750. In
addition, the holders of stock options, which include members of the Company's
management and Board of Directors, will have the right to receive cash payments
in exchange for the cancellation of the stock options. The aggregate amount
which may be paid to the Company's executive officers (eight persons) pursuant
to the severance agreements is approximately $2.1 million and the aggregate
amount which may be paid to the Company's executive officers (eight persons) and
to the Company's nonemployee directors (nine persons) upon the exchange and
cancellation of stock options is approximately $8.2 million and $1.2 million,
respectively. The Merger Agreement provides that the directors of the Bank will
be invited to serve as directors of FFB-FSB in the event the Thrift Merger
Alternative is effected or as directors of a Maryland regional advisory board of
directors of FFB-NA in the event the Bank Merger Alternative is effected. In
addition, if the Thrift Merger Alternative is effected, Joseph A. Cicero,
Executive Vice President, Chief Financial Officer and a director of the Company,
would serve as vice chairman and chief operating officer of FFB-FSB, and Alan M.
Leberknight, President and a director of the Company, would serve as president
and chief commercial banking officer of FFB-FSB. Under the Bank Merger
Alternative, Messrs. Cicero and Leberknight would serve in positions with
similar responsibilities as to the Maryland regional operations of FFB-NA. The
Merger Agreement also contains certain provisions relating to indemnification of
the present and former directors and officers of the Company and its
subsidiaries. See "The Merger -- Interests of Certain Persons in the Merger" and
"-- Effect on Company Benefit Plans and Related Matters."
Termination
The Merger Agreement may be terminated, and the Merger abandoned, prior to
the Effective Time, either before or after its approval by the holders of Common
Stock as follows: (i) by the mutual consent of the Company and First Fidelity,
(ii) by the Company or First Fidelity in the event of (a) the failure of the
holders of the Common Stock to approve the Merger Agreement or (b) a material
breach by the other party thereto of any representation, warranty, covenant or
agreement contained in the Merger Agreement (or, in the case of the Company, in
the Option Agreement) which is not cured or curable within 30 days after written
notice of such breach is given, (iii) by the Company or First Fidelity if either
(a) any approval, consent or waiver of a governmental authority required to
permit consummation of the transactions contemplated by the Merger Agreement is
denied or (b) any governmental authority of competent jurisdiction shall have
issued a final, unappealable order enjoining or otherwise prohibiting
consummation of the transactions contemplated by the Merger Agreement and (iv)
by the Company or First Fidelity in the event the Merger is not consummated by
March 31, 1995, unless the failure to consummate by such time is due to a
material breach of any representation, warranty or covenant contained in the
Merger Agreement by the party seeking to terminate. See "The Merger -- Waiver
and Amendment; Termination."
Accounting Treatment
The Merger will be treated as a "purchase" for accounting purposes. See
"The Merger -- Accounting Treatment."
<PAGE>
The Option Agreement
As a condition precedent to First Fidelity's entering into the Merger
Agreement and in consideration therefor (without other consideration or monetary
payment), First Fidelity and the Company entered into a Stock Option Agreement,
dated as of March 22, 1994 (the "Option Agreement"). The Option Agreement may
have the effect of discouraging the making of alternative acquisition-related
proposals and increasing the likelihood that the Merger will be consummated in
accordance with the terms of the Merger Agreement.
Pursuant to the Option Agreement, the Company granted First Fidelity an
option (the "Option") to purchase, under certain circumstances and subject to
adjustment, up to 3,300,000 authorized but unissued shares of Common Stock, or
approximately 19.8% of the shares of Common Stock then outstanding, at a price
of $19.31 per share (the average of the low and high reported sales price per
share on the NYSE on the first trading day after the announcement of the Merger
Agreement). The Option is exercisable upon the occurrence of certain events that
create the potential for a third party to acquire the Company. To the knowledge
of the Company, no event that would permit exercise of the Option has occurred
as of the date hereof. If the Option becomes exercisable, First Fidelity or any
permitted transferee of First Fidelity can, in certain circumstances, require
the Company to repurchase for a formula price the Option (in lieu of its
exercise) or any shares of Common Stock purchased upon exercise of the Option.
The Option Agreement is attached as Appendix C to this Proxy Statement. See "The
Option Agreement."
Certain Federal Income Tax Consequences
The Merger will be a taxable transaction to Company stockholders.
Stockholders of the Company will recognize gain or loss in the Merger in an
amount determined by the difference between the cash received and their tax
basis in the Common Stock exchanged therefor. For further information regarding
certain federal income tax consequences to stockholders, see "Certain Federal
Income Tax Consequences."
Market Prices and Dividends on Common Stock
The Common Stock is listed on the NYSE under the name Baltimore Bancorp and
traded under the symbol "BBB". On January 12, 1994, the last trading day before
the public announcement that the Company was having preliminary discussions with
several major bank holding companies regarding a possible sale of the Company,
the reported closing sale price per share of Common Stock on the NYSE was
$14.00. See "The Merger -- Background of the Merger." On March 18, 1994, the
last trading day before the public announcement of the execution of the Merger
Agreement, the reported closing sale price per share of Common Stock on the NYSE
was $18.00. On October 14, 1994, the last full trading day prior to the date of
this Proxy Statement, the reported closing sale price per share of Common Stock
on the NYSE was $20.25. For additional information concerning historical market
prices of the Common Stock, see "Market Prices and Dividends on Common Stock."
In November 1993, the Company reinstated the payment of quarterly cash
dividends following the suspension of dividends by the Company subsequent to the
third quarter of 1991. The Company has paid quarterly cash dividends of $.05 per
share of Common Stock for the fourth quarter of 1993 and the first three
quarters of 1994. The Merger Agreement restricts the ability of the Company to
make distributions to its stockholders, except for regular quarterly cash
dividends of not more than $.05 per share of Common Stock with declaration,
record and payment dates consistent with past practice, provided that if the
Effective Time occurs subsequent to November 16, 1994, the Company may declare
its regular quarterly cash dividend for the fourth quarter of 1994 at the rate
of $.05 per share and select record and payment dates prior to the Effective
Time even though such record and payment dates would be earlier than the record
and payment dates the Company would otherwise use for the payment of its fourth
quarter dividend.
<PAGE>
Recent Developments
The Company reported net income of $7.2 million, or $.42 per share, and $14.1
million, or $.82 per share, for the three and nine months ended September 30,
1994, respectively. For the comparable three and nine-month periods ended
September 30, 1993, net income amounted to $1.6 million, or $.10 per share, and
$9.1 million, or $.60 per share, respectively. Returns on average assets and
stockholders' equity were 1.35% and 19.08%, respectively, for the third quarter
of 1994, and .88% and 12.16%, respectively, for the nine months ended September
30, 1994. The earnings improvement in 1994 was attributed primarily to reduced
credit costs related to a lower level of nonperforming assets, a higher net
interest margin stemming from reductions in high-cost deposits, an increase in
performing loans, and lower operating expense resulting from a decline in
salaries and commissions, legal expense, FDIC insurance and data processing
costs. The net yield on average earning assets increased to 4.98% and 4.79% for
the three and nine months ended September 30, 1994.
The third quarter 1994 provision for possible loan losses was reduced to $2.1
million from $6.0 million for the third quarter of 1993 in conjunction with
lower net loan charge-offs. For the nine months ended September 30, 1994, the
provision for possible loan losses was $7.1 million compared with $18.0 million
for the same period in the prior year. Other real estate owned expense dropped
to $.2 million for the third quarter of 1994 compared to $3.5 million for the
third quarter of 1993. This reduction was related to a lower level of assets
acquired in foreclosure. For the nine months ended September 30, 1994, other
real estate owned expense was $2.6 million compared to $7.0 million for the same
period in 1993. Nonperforming assets declined for the eighth consecutive quarter
to $57.3 million at September 30, 1994, representing a 57% reduction from
nonperforming assets of $132.6 million at September 30, 1993.
At September 30, 1994, total assets decreased by 6% to 2.2 billion from $2.3
billion at September 30, 1993. Total loans of $1.3 billion at September 30, 1994
reflected a 1% decrease from $1.4 billion at September 30, 1993. Total deposits
of $1.8 billion declined by 12% from $2.0 billion at September 30, 1993 as
depositors transferred funds to higher yielding investments.
Total stockholders' equity was $151 million at September 30, 1994 compared
with $161 million at September 30, 1993. The decline was attributed to net
unrealized losses on available-for-sale securities of $23.4 million, after
taxes, at September 30, 1994 determined under Statement of Financial Accounting
Standards No. 115 adopted by the Company as of year-end 1993.
<PAGE>
Selected Consolidated Financial Data
The following is selected consolidated financial data for the Company and its
subsidiaries for the nine month periods ended September 30, 1994 and 1993 and
for each of the five years ended December 31, 1989 through 1993. The
consolidated financial information for the nine month periods ended September
30, 1994 and 1993 has not been audited, but in the opinion of management of the
Company, all adjustments necessary for a fair presentation have been included.
The results of operations for the nine months ended September 30, 1994 are not
necessarily indicative of the results of operations that may be expected for the
entire year. The data is qualified in its entirety by the detailed information
and financial statements included in the Company's Annual Report on Form 10-K
for the year ended December 31, 1993 and in the Company's Quarterly Reports on
Form 10-Q for the quarters ended March 31, 1994 and June 30, 1994, available as
described under "Incorporation of Certain Documents by Reference," and the other
information contained or incorporated by reference elsewhere in this Proxy
Statement.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS:
Interest income ............... $ 119,145 $ 129,028 $ 171,242 $ 217,008 $ 292,738 $ 331,734 $ 326,001
Interest expense .............. 47,329 58,371 75,993 131,391 215,747 248,038 245,480
Net interest income ........... 71,816 70,657 95,249 85,617 76,991 83,696 80,521
Provision for possible loan
losses ...................... 7,100 18,000 22,000 29,881 125,368 25,120 7,341
Gains (losses) on available-
for-sale securities ......... 521 6,101 9,549 (2,894) 1,782 -- --
Gains (losses) on investment
securities .................. -- 1,031 1,031 3,877 (5,731) 1,747 3,650
Other operating income ........ 24,921 22,971 29,739 50,466 23,825 17,167 11,792
Other operating expenses ...... 70,320 75,514 105,733 92,331 133,728 72,785 63,702
Income taxes (benefit) ........ 5,727 (1,874) (2,435) 400 (35,527) 826 7,598
Extraordinary item(1) ......... -- -- -- 56 213 5,131 308
Net income (loss) ............. 14,111 9,120 10,270 14,510 (126,489) 9,010 17,630
PER SHARE (PRIMARY):
Income (loss) before
extraordinary item .......... $ .82 $ .60 $ .66 $ 1.13 $ (9.94) $ .31 $ 1.36
Extraordinary item(1) ......... -- -- -- -- .02 .40 .02
Net income (loss) ............. .82 .60 .66 1.13 (9.92) .71 1.38
Cash dividends declared ....... .15 -- .05 -- .40 .60 .5375
Book value .................... 9.00 9.67 9.73 9.38 8.42 18.45 18.62
PER SHARE (FULLY DILUTED):
Income (loss) before
extraordinary item .......... $ .82 $ .60 $ .66 $ 1.13 $ (9.94) $ .31 $ 1.34
Extraordinary item(1) ......... -- -- -- -- .02 .40 .02
Net income (loss) ............. .82 .60 .66 1.13 (9.92) .71 1.36
AT PERIOD-END:
Loans held for sale ........... $ 49,017 $ 154,055 $ 167,336 $ 65,101 $ 220,347 $ 14,956 --
Available-for-sale
securities .................. 569,284 183,388 542,196 178,294 155,800 261,232 --
Investment securities ......... -- 390,510 -- 420,666 597,756 646,598 925,655
Loans (net of unearned
income) .................... 1,342,611 1,358,566 1,308,445 1,521,450 1,949,233 2,226,043 2,218,151
Earning assets ................ 2,003,775 2,149,378 2,086,299 2,239,398 3,002,264 3,342,001 3,242,308
Total assets .................. 2,172,717 2,323,047 2,232,191 2,429,329 3,186,293 3,523,429 3,461,722
Core deposits(2) .............. 1,774,196 1,961,140 1,944,737 1,988,952 2,249,689 2,145,865 2,021,265
Total deposits ................ 1,789,233 2,035,165 1,961,517 2,236,370 2,947,978 2,911,255 2,710,283
Borrowings .................... 197,720 98,330 79,226 33,367 74,725 314,560 446,679
Stockholders' equity(3) ....... 150,971 161,134 162,285 126,405 107,195 235,288 237,299
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -----------------------------------------------------------------
1994 1993 1993 1992 1991 1990 1989
---------- ----------- ---------- ---------- ----------- ---------- ------------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
AVERAGE BALANCES:
Loans held for sale............... $ 88,952 $ 80,494 $ 103,549 $ 168,764 $ 33,862 $ 14,072 $ 5,892
Available for sale securities(3) . 588,159 24,374 190,780 73,061 3,604 -- --
Investment securities............. -- 517,453 352,846 566,004 737,106 908,733 917,741
Loans (net of unearned income) ... 1,278,475 1,446,803 1,417,304 1,713,120 2,262,975 2,258,486 2,191,514
Earning assets.................... 2,003,515 2,171,078 2,157,302 2,729,079 3,192,383 3,276,217 3,193,932
Total assets...................... 2,146,622 2,329,778 2,318,310 2,865,895 3,359,263 3,463,207 3,397,961
Core deposits(2).................. 1,876,963 1,985,278 1,978,390 2,113,938 2,182,892 2,070,766 1,955,382
Total deposits.................... 1,892,453 2,122,017 2,092,030 2,634,425 2,875,458 2,763,377 2,762,647
Borrowings........................ 69,245 31,697 46,818 66,412 208,773 395,371 325,134
Stockholders' equity(3)........... 154,776 145,402 149,055 116,136 221,265 241,810 233,286
EARNINGS RATIOS:
Return on average total assets ... .88 % .52 % .44 % .51% (3.77)% .26% .52%
Return on average stockholders'
equity.......................... 12.16 8.36 6.89 12.49 (57.17) 3.73 7.56
Dividend payout ratio............. 18.29 -- 7.58 -- N/M 84.51 38.95
Net yield on average earning
assets.......................... 4.79 4.35 4.42 3.15 2.44 2.59 2.57
CREDIT RATIOS:
Nonperforming loans to total
loans........................... 1.64% 4.51% 2.59% 8.04% 8.63% 2.00% .89%
Nonperforming assets to total
assets.......................... 2.64 5.71 3.66 8.57 7.45 2.01 .85
Allowance to total loans.......... 2.28 3.30 2.96 4.33 3.97 1.59 .76
Allowance to nonperforming
loans .......................... 139.26 73.05 114.12 53.89 45.99 79.54 85.79
Net loan losses to average
loans .......................... 1.59 3.60 3.47 2.41 3.69 .29 .30
CAPITAL RATIOS:
Average stockholders' equity to
average assets.................. 7.21% 6.24% 6.43% 4.05% 6.59% 6.98% 6.87%
Tier 1 risk-based capital......... 10.62 9.02 9.67 6.81 3.98 7.20 N/R
Total risk-based capital.......... 12.24 10.61 11.28 8.39 5.51 8.41 N/R
Bank only:
Adjusted Tier 1 leverage
capital ....................... 8.19 7.13 7.08 5.10 3.34 5.92 N/R
Tier 1 risk-based capital......... 10.82 9.24 9.72 7.12 4.16 7.47 N/R
Total risk-based capital.......... 12.08 10.51 10.99 8.39 5.42 8.28 N/R
NONFINANCIAL DATA:
Employees (full time equivalent
basis).......................... 1,108 1,145 1,163 1,114 1,225 1,101 1,088
Branch offices.................... 41 43 42 51 51 51
Electronic banking facilities
(ATMs).......................... 49 51 50 53 57 57 51
<FN>
(1) Gain, net of taxes, from early extinguishment of debt.
(2) Total deposits, excluding brokered deposits and jumbo certificates of
deposits.
(3) At December 31, 1993 the Company adopted Statement of Financial
Accounting Standards No. 115.
N/M = Not meaningful.
N/R = Not required by banking regulations.
</TABLE>
<PAGE>
THE SPECIAL MEETING
Matters To Be Considered at the Special Meeting
Each copy of this Proxy Statement mailed to holders of Common Stock of the
Company is accompanied by a proxy card furnished in connection with the
solicitation of proxies by the Board of Directors for use at the Special
Meeting. The Special Meeting is scheduled to be held at The Bank of Baltimore,
4th Floor, 7 East Baltimore Street, Baltimore, Maryland 21203, on Monday,
November 21, 1994 at 10:00 a.m. At the Special Meeting, holders of Common Stock
will consider and vote upon (i) the approval and adoption of the Merger
Agreement, by and among First Fidelity, Merger Sub and the Company (a copy of
which is attached to this Proxy Statement as Appendix A) and the transactions
contemplated thereby and (ii) such other matters as may properly be brought
before the Special Meeting.
HOLDERS OF COMMON STOCK ARE REQUESTED PROMPTLY TO COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY CARD TO THE COMPANY IN THE ENCLOSED POSTAGE PAID
ENVELOPE. FAILURE TO RETURN A PROPERLY EXECUTED PROXY CARD OR TO VOTE AT THE
SPECIAL MEETING WILL HAVE THE SAME EFFECT AS A VOTE AGAINST THE MERGER
AGREEMENT.
Record Date and Voting
The Board of Directors has fixed the close of business on October 7, 1994 as
the Record Date for the determination of the holders of Common Stock entitled to
receive notice of and to vote at the Special Meeting. Only holders of record of
Common Stock at the close of business on that date will be entitled to vote at
the Special Meeting or at any postponement or adjournment thereof. At the close
of business on the Record Date, there were 16,775,790 shares of Common Stock
outstanding and entitled to vote at the Special Meeting, held by 3,449
stockholders of record.
Each holder of Common Stock on the Record Date will be entitled to one vote
for each share held of record upon each matter properly submitted at the Special
Meeting or at any postponement or adjournment thereof. The presence, in person
or by proxy, of at least a majority of the outstanding shares of Common Stock
entitled to be voted at the Special Meeting is necessary to constitute a quorum
thereat. Abstentions are included in the calculation of the number of votes
represented at a meeting for purposes of determining whether a quorum has been
achieved.
If the enclosed proxy card is properly executed and received by the Company
in time to be voted at the Special Meeting, the shares represented thereby will
be voted in accordance with the instructions marked thereon. Executed proxies
with no instructions indicated thereon will be voted "FOR" the Merger Agreement
and the transactions contemplated thereby.
The Board is not aware of any matters other than those set forth in the
Notice of Special Meeting of Stockholders that may be brought before the Special
Meeting. If any other matters properly come before the Special Meeting, the
persons named in the accompanying proxy will vote the shares represented by all
properly executed proxies on such matters in such manner as shall be determined
by a majority of the Board.
STOCKHOLDERS SHOULD NOT FORWARD ANY COMMON STOCK CERTIFICATES WITH THEIR
PROXY CARDS. IN THE EVENT THE MERGER IS CONSUMMATED, STOCK CERTIFICATES SHOULD
BE DELIVERED IN ACCORDANCE WITH INSTRUCTIONS SET FORTH IN A LETTER OF
TRANSMITTAL WHICH WOULD BE SENT TO STOCKHOLDERS BY THE EXCHANGE AGENT PROMPTLY
AFTER THE EFFECTIVE TIME.
Vote Required; Revocability of Proxies
The affirmative vote of at least two-thirds of the outstanding shares of
Common Stock entitled to be voted is required in order to approve and adopt the
Merger Agreement and the transactions contemplated thereby.
<PAGE>
THE REQUIRED VOTE OF THE STOCKHOLDERS OF THE COMPANY ON THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY IS BASED UPON THE TOTAL NUMBER OF
OUTSTANDING SHARES OF COMMON STOCK, AND NOT UPON THE NUMBER OF SHARES WHICH ARE
ACTUALLY VOTED. ACCORDINGLY, THE FAILURE TO SUBMIT A PROXY CARD OR TO VOTE IN
PERSON AT THE SPECIAL MEETING OR THE ABSTENTION FROM VOTING BY A STOCKHOLDER
WILL HAVE THE SAME EFFECT AS A "NO" VOTE WITH RESPECT TO THE MERGER AGREEMENT
AND THE TRANSACTIONS CONTEMPLATED THEREBY.
The presence of a stockholder at the Special Meeting will not automatically
revoke such stockholder's proxy. However, a stockholder may revoke a proxy at
any time prior to its exercise by (i) delivering to James A. Gast, Corporate
Secretary, Baltimore Bancorp, 120 East Baltimore Street, Baltimore, Maryland
21202, a written notice of revocation prior to the Special Meeting, (ii)
delivering to the Company prior to the Special Meeting a duly executed proxy
bearing a later date or (iii) attending the Special Meeting and voting in
person.
If a quorum is not obtained, or if fewer shares of Common Stock are voted in
favor of approval and adoption of the Merger Agreement and the transactions
contemplated thereby than the number required for approval, it is expected that
the Special Meeting will be postponed or adjourned for the purpose of allowing
additional time for obtaining additional proxies or votes, and, at any
subsequent reconvening of the Special Meeting, all proxies will be voted in the
same manner as such proxies would have been voted at the original convening of
the Special Meeting (except for any proxies which have theretofore effectively
been revoked or withdrawn).
No vote of First Fidelity stockholders is required in connection with the
Merger Agreement.
The obligations of the Company and First Fidelity to consummate the Merger
Agreement are subject, among other things, to the condition that the
stockholders of the Company approve and adopt the Merger Agreement and the
transactions contemplated thereby.
Appraisal Rights
Stockholders of the Company have no appraisal rights in connection with the
Merger Agreement and the consummation of the transactions contemplated thereby,
and assuming the Merger Agreement is approved and adopted by the Company's
stockholders, any dissenting, nonvoting or objecting stockholders will be bound
by the vote and will not have any appraisal rights under Maryland law.
Solicitation of Proxies
In addition to solicitation by mail, directors, officers and employees of the
Company and its subsidiaries may solicit proxies for the Special Meeting from
stockholders personally or by telephone or telegram without additional
remuneration therefor. The Company will also provide persons, firms, banks and
corporations holding shares in their names or in the names of nominees, which in
either case are beneficially owned by others, proxy material for transmittal to
such beneficial owners and will reimburse such record owners for their
reasonable expenses in doing so. The Company has retained MacKenzie Partners,
Inc., a proxy soliciting firm ("MacKenzie"), to assist in the solicitation of
proxies at a fee of $12,500, plus reimbursement of certain out-of-pocket
expenses. The cost of solicitation of proxies for the Special Meeting, including
the fees of MacKenzie, will be borne by the Company.
Security Ownership by Company Management and First Fidelity
As of the Record Date, (i) the directors and executive officers of the
Company beneficially owned, in the aggregate, 191,263 shares of Common Stock
(excluding shares which could be acquired upon the exercise of options),
representing approximately 1.1% of such shares outstanding and (ii) First
Fidelity beneficially owned 607,049 shares of Common Stock (excluding an option
for 3,300,000 shares of Common Stock exercisable pursuant to the terms and
conditions of the Option Agreement), representing 3.6% of such shares
outstanding. To the knowledge of the Company, such directors and executive
officers of the
<PAGE>
Company and First Fidelity intend to vote their outstanding shares of Common
Stock for the approval and adoption of the Merger Agreement and the transactions
contemplated thereby. See "Stock Owned by Management," "Principal Holders of
Voting Securities" and "The Option Agreement."
PARTIES TO THE MERGER
The Company
Baltimore Bancorp is a Maryland corporation registered as a bank holding
company under the BHCA. The Company's principal subsidiary is The Bank of
Baltimore. The Bank is a commercial bank chartered under the laws of the State
of Maryland, and is the surviving institution in the 1984 merger with The
Savings Bank of Baltimore ("Savings Bank"). The Savings Bank operated as a
Maryland-chartered mutual savings bank, commencing operations in 1818. The
Company and the Bank were formed to facilitate the reorganization of the Savings
Bank into a holding company structure and to give it the ability to access the
capital markets.
The Bank is engaged in a general commercial and retail banking business
serving individuals, businesses and governmental units throughout the region
from southern Pennsylvania to northern Virginia with primary emphasis in
Baltimore and in the Baltimore and Washington, D.C. suburbs. As of September 30,
1994, the Company had total assets, deposits and stockholders' equity of $2.2
billion, $1.8 billion and $151 million, respectively, making the Company the
third largest bank holding company headquartered in Maryland in terms of assets
and deposits.
The Bank operates 41 banking offices throughout nine counties in Maryland and
in Baltimore City as follows: 15 in Baltimore County, 13 in Montgomery County,
four in Baltimore City, three in Anne Arundel County, and one in each of
Carroll, Charles, Harford, Howard, Prince Georges and St. Marys Counties.
The address of the Company's principal executive offices is 120 East
Baltimore Street, Baltimore, Maryland 21202, and its telephone number is (410)
244-3360.
First Fidelity
First Fidelity Bancorporation is a New Jersey corporation registered as a
bank holding company under the BHCA. First Fidelity serves the mid-Atlantic
region and provides a full range of banking services through its subsidiary
banks, First Fidelity Bank, N.A., First Fidelity Bank, N.A., New York, Union
Trust Company and First Fidelity Bank, FSB. As of June 30, 1994, First Fidelity
had total assets, deposits and stockholders' equity of $33.9 billion, $27.4
billion and $2.8 billion, respectively, is the largest banking organization
headquartered in New Jersey and ranks among the 25 largest bank holding
companies in the United States. First Fidelity was incorporated under New Jersey
law in 1987 to succeed to and hold all of the capital stock of First Fidelity
Incorporated, a New Jersey-based bank holding company, and Fidelcor, Inc., a
Pennsylvania-based bank holding company, in a transaction that became effective
in February 1988.
First Fidelity has a centralized organizational structure, with functions
such as asset and liability management, corporate operations and systems, credit
policy, audit, legal services and financial planning being conducted at the
holding company level, while day-to-day banking activities are managed by First
Fidelity's bank subsidiaries. As of June 30, 1994, such subsidiaries operated a
general banking business from more than 650 full-service banking offices located
in New Jersey, eastern Pennsylvania, New York, Connecticut and Maryland. Such
bank subsidiaries also have offices in London and New York City. First Fidelity
also has several nonbank subsidiaries, including entities which provide
insurance brokerage services, community development assistance, retail brokerage
services and automobile and equipment leasing.
The address of First Fidelity's principal executive offices is 2673 Main
Street, P.O. Box 6980, Lawrenceville, New Jersey 08648, and its telephone number
is (201) 565-3200.
Merger Sub
Annabel Lee Corporation is a Maryland corporation and a direct wholly owned
subsidiary of First Fidelity. Pursuant to the terms of the Merger Agreement, at
the Effective Time, Merger Sub will be merged with and into the Company, with
the Company being the surviving corporation and the separate existence of Merger
Sub ceasing. See "The Merger."
<PAGE>
THE MERGER
General
The following information, insofar as it relates to matters contained in the
Merger Agreement or the Option Agreement, is qualified in its entirety by
reference to the Merger Agreement and the Option Agreement, which are
incorporated by reference and attached hereto as Appendix A and Appendix C,
respectively. Stockholders are urged to read the Merger Agreement and the Option
Agreement in their entirety.
The Merger
The Merger Agreement provides that First Fidelity will acquire the Company
pursuant to the merger of Merger Sub with and into the Company, with the Company
being the surviving corporation and the separate existence of Merger Sub
ceasing. Each outstanding share of Common Stock will be converted into the right
to receive a cash payment of $20.75, except for shares held directly or
indirectly by First Fidelity (other than in a fiduciary capacity or in
satisfaction of a debt previously contracted) which will be canceled and for
which no exchange or payment will be made. The Merger will occur as part of the
consummation of certain additional alternative transactions designed to allow
First Fidelity to acquire the Company under existing regulatory restrictions. In
this connection, the Merger Agreement provides First Fidelity with the option of
electing to consummate such alternative transactions pursuant to either the
"Thrift Merger Alternative" or, subject to certain conditions, the "Bank Merger
Alternative" as described below.
Thrift Merger Alternative. The Merger Agreement provides that under the
thrift merger alternative (the "Thrift Merger Alternative"), immediately prior
to the Holding Company Merger, the Bank will be transformed into a federal
savings bank by merging the Bank into a newly-formed federal savings bank
subsidiary of the Company, which will be known as "The Bank of Baltimore Interim
Federal Savings Bank" ("BOB-FSB") and will be the surviving entity to the merger
(the "First Thrift Merger"). As a result of the First Thrift Merger, the Company
will become a savings and loan holding company and will no longer be a
registered bank holding company. Upon the Holding Company Merger, the Company
will become a wholly owned subsidiary of First Fidelity. First Fidelity has
advised the Company that following the Holding Company Merger it intends to
contribute the outstanding capital stock of its existing wholly owned federal
savings bank subsidiary, First Fidelity Bank, FSB ("FFB-FSB"), which is
headquartered in Beltsville, Maryland, to the Company (the "Thrift
Contribution"). First Fidelity has further advised the Company that immediately
following the Thrift Contribution, it intends to merge BOB-FSB with FFB-FSB,
with FFB-FSB being the surviving institution (the "Second Thrift Merger"). The
Second Thrift Merger would consolidate all of First Fidelity's banking offices
in Maryland into a single federal savings bank subsidiary.
Section 3(d) of the BHCA as in effect until September 28, 1995 -- the
so-called Douglas Amendment -- prohibits the Federal Reserve from approving an
application by a bank holding company to acquire a bank located outside the
state in which the operations of such bank holding company's banking
subsidiaries were principally conducted unless the acquisition of a state bank
by an out-of-state bank holding company is specifically authorized by the laws
of the state in which such bank is located. Maryland law does not specifically
authorize for purposes of the Douglas Amendment the acquisition of a Maryland
bank, such as the Bank, by a New Jersey-based bank holding company, such as
First Fidelity. Under the Thrift Merger Alternative, the Bank would be
transformed into a federal savings bank by the First Thrift Merger, and the
Company would not own a "bank" at the time of the Holding Company Merger, since
a federal savings bank is expressly excluded from the definition of a "bank"
under the BHCA. Consequently, the Holding Company Merger would not then be
prohibited by the Douglas Amendment. Although sections 5-903 and 12-207 of the
Maryland banking law on their face would appear to prohibit the acquisition by
an out-of-state bank holding company, such as First Fidelity, of a federal
savings bank located in Maryland, such as BOB-FSB, the Company has received a
copy of an opinion of the Attorney General of the State of Maryland addressed to
the Maryland Bank Commissioner and a reasoned opinion of First Fidelity's
Maryland counsel, Venable, Baetjer and Howard, as to the legality under Maryland
law of the Holding Company Merger following the First Thrift Merger, when
Maryland law is interpreted consistently with the Commerce Clause of the United
States Constitution. While there is no controlling
<PAGE>
legal precedent in Maryland as to the constitutionality of certain provisions of
Maryland law governing the Thrift Merger Alternative, both the opinion of the
Maryland Attorney General and the reasoned opinion of First Fidelity's Maryland
counsel conclude that certain provisions of Maryland law governing interstate
acquisitions of federal savings banks, as applied to the Holding Company Merger,
are unconstitutional under the Commerce Clause of the United States
Constitution.
Bank Merger Alternative. Subsequent to entering into the Merger Agreement,
First Fidelity has had discussions with the OCC concerning, and has filed an
application for approval of, the relocation of the main office of its principal
national bank subsidiary, First Fidelity Bank, N.A. ("FFB-NA"), from Salem, New
Jersey to Elkton, Maryland (the "Main Office Relocation"). The National Bank Act
authorizes the OCC to approve the relocation of a national bank's main office
within a distance of 30 miles and does not contain any limitation requiring that
such location be within the same state. If the Main Office Relocation is
approved, First Fidelity may elect to utilize an alternative structure (the
"Bank Merger Alternative"), in lieu of the Thrift Merger Alternative, to acquire
the Bank and the Company in a manner consistent with the Douglas Amendment.
Under the Bank Merger Alternative, FFB-NA would relocate its main office to
Elkton, Maryland and establish a branch office at its current main office
location in Salem, New Jersey. After the Main Office Relocation, the Bank would
be merged into FFB-NA, with FFB-NA being the surviving bank (the "Bank Merger").
As part of the Bank Merger, the outstanding common stock of the Bank would be
exchanged for common stock and preferred stock of FFB-NA as set forth in the
Merger Agreement, with the result that the Company would hold not more than 15%
of the total equity of FFB-NA. Immediately after the Bank Merger, the Holding
Company Merger would be consummated. The ability of the Company and First
Fidelity to effect the Bank Merger Alternative will depend, in part, upon a
determination as to the inapplicability of the Douglas Amendment to the Holding
Company Merger after the Bank Merger and that no application will be required
under the BHCA with respect to the transactions contemplated by the Bank Merger
Alternative. There can be no assurances that such a determination will be made.
For essentially the same reasons described above with respect to the Thrift
Merger Alternative, First Fidelity believes that sections 5-903 and 12-207 of
the Maryland banking law, when applied consistently with the Commerce Clause and
Supremacy Clause of the United States Constitution, should not be applied to
prohibit the Bank Merger Alternative.
The Merger Agreement provides that First Fidelity may elect to consummate the
Bank Merger Alternative in lieu of the Thrift Merger Alternative upon written
notice to the Company prior to the Effective Date, provided that such an
election would not cause the Effective Date to occur after the later of January
6, 1995 or the date on which the Thrift Merger Alternative could otherwise be
consummated. The Merger Agreement further provides that, as a condition
precedent to First Fidelity's right to elect to consummate the Bank Merger
Alternative, First Fidelity must cause the Company to be provided with
reasonable assurances as to the legality of the Bank Merger Alternative. If
First Fidelity elects the Bank Merger Alternative and for any reason the Bank
Merger Alternative is not consummated, the Merger Agreement provides that the
parties remain obligated to proceed to consummate the Thrift Merger Alternative
as if such election had not been made.
Under the Maryland General Corporation Law, if the Bank Merger were to be
deemed to constitute a transfer of all or substantially all of the Company's
assets, approval of the Merger Agreement and the transactions contemplated
thereby by the Company's stockholders will be deemed to be approval of such
transfer of assets in connection with the consummation of the Bank Merger
immediately before the consummation of the Holding Company Merger.
As described under "The Merger -- Waiver and Amendment; Termination," the
Merger Agreement provides that it may be amended or modified at any time
(including the structure of the transaction); provided, however, that, after the
vote by the holders of the Common Stock, no amendment may be made that would
contravene any applicable law. To the extent that a structure different from the
Thrift Merger Alternative or the Bank Merger Alternative would allow First
Fidelity to acquire the Company under existing regulatory restrictions and allow
First Fidelity to conduct the former operations of the Bank in Maryland through
a commercial bank chartered entity, the Merger Agreement may be amended to
provide for such a structure. Such an amendment may be made after the vote of
stockholders but would not change the consideration to be received in the
Merger.
<PAGE>
Background of the Merger
Since the successful proxy contest against the then-incumbent Board
undertaken in 1991 by a group led by Mr. Hale, the Company has made significant
advancements with respect to its goals of improving its financial condition and
increasing stockholder value. The Company was profitable in the first, second
and third quarters of 1994 and in each quarter of both 1993 and 1992, compared
with a net loss of $126.5 million in 1991. The Bank's adjusted tier 1 leverage
capital ratio increased to 8.19% at September 30, 1994 from 7.08% at December
31, 1993, from 5.10% at December 31, 1992, and increased by 145% over the past
two and three quarter years from 3.34% at December 31, 1991. The Bank's total
risk-based capital ratio increased to 12.08% at September 30, 1994 from 10.99%
at December 31, 1993 and from 8.39% at December 31, 1992. Over the same two and
three quarter year period, the Bank's total risk-based capital ratio increased
by 123% from 5.42% at December 31, 1991. The Bank reduced its nonperforming
assets by 76% over the same two and three quarter year period, while increasing
its ratio of the loan loss allowance to nonperforming loans (coverage ratio) by
203%, to 139% of nonperforming loans at September 30, 1994 from 46% at December
31, 1991. During 1993, the Company's stock price increased by 107% to $14.25 per
share from $6.875 per share at the end of 1992, and increased by 171% over the
past two years, from $5.25 per share at December 31, 1991.
As a result of the Company's improved financial condition in 1992 and 1993,
the Company engaged Alex. Brown on November 1, 1993 to be the Company's
financial advisor and to assist the Company with its strategic planning,
including the possible acquisition of the Company by another financial
institution. In connection with its engagement, Alex. Brown prepared materials
regarding the Company and its financial condition to assist parties that might
be interested in acquiring the Company. Alex. Brown distributed these materials
to 12 financial institutions which had been contacted by Alex. Brown as
potential acquirors of the Company and which following such contact had
expressed a direct interest in the Company. Each such institution was asked to
submit by January 12, 1994 a preliminary, nonbinding indication of value and
other specific and relevant information as a means of ascertaining relative
interest. Five institutions submitted satisfactory levels of interest, three of
which scheduled and completed on-site due diligence examinations of the Company
and its books and records between February 7 and March 4, 1994.
The Board of Directors set a deadline of March 14, 1994 with respect to the
submission of bids to acquire the Company. Prior to such deadline, management
and Alex. Brown met with the institutions that had completed their due diligence
examinations and engaged in various discussions with them regarding their
preliminary levels of interest and the submission of a competitive bid by March
14. As a result of these discussions, two of the three institutions informed
Alex. Brown that they would not be in a position to submit a bid that would
likely be competitive with the preliminary level of interest previously
submitted to Alex. Brown by First Fidelity and accordingly, First Fidelity's bid
was the only proposal received by the Company and considered by the Board.
At a meeting of the Board on March 16, 1994 at which Alex. Brown made a
presentation regarding certain financial aspects of the proposed transaction,
the Board authorized management to negotiate the terms and conditions of a
definitive merger agreement and option agreement based on First Fidelity's bid
of $20.75 per share of Common Stock. After the completion of these negotiations,
at a special meeting of the Board on March 21, 1994 attended by Alex. Brown and
the Company's legal counsel, the Board of Directors considered the proposed
Merger Agreement and Option Agreement. In advance of the special meeting, copies
of the Merger Agreement and Option Agreement were provided to the Board.
Following discussion of the terms of the proposed Merger-related transaction and
of operational, legal and regulatory issues relating to First Fidelity's
proposal, a presentation by Alex. Brown regarding the financial aspects of the
proposed Merger-related transaction and receipt of the written opinion of Alex.
Brown that the consideration to be received by the Company's stockholders
pursuant to the Merger Agreement is fair to the stockholders of the Company, and
an analysis presented by the Company's legal counsel of the reasoned advice of
the Assistant Attorney General of the State of Maryland and the reasoned opinion
of First Fidelity's Maryland counsel, Venable, Baetjer and Howard, as to the
legality of the Thrift Merger Alternative under applicable Maryland law, when
Maryland law is interpreted consistently with the Commerce Clause of the United
States Constitution, the Board of Directors unanimously approved the Merger
Agreement and the Option Agreement and authorized their execu
<PAGE>
tion and delivery. The Merger Agreement and the Option Agreement were executed
and delivered by the parties on March 21 and March 22, 1994, respectively, and
the Company and First Fidelity issued a joint press release on March 21
announcing the proposed Merger. On October 17, 1994, the Merger Agreement was
amended to effect certain changes primarily to permit the Bank Merger
Alternative.
Reasons for the Merger
The Board of Directors has unanimously approved the Merger Agreement and the
transactions contemplated thereby and has determined that the Merger is in the
best interests of the Company and its stockholders. The Board of Directors
therefore unanimously recommends that holders of Common Stock vote "FOR"
approval and adoption of the Merger Agreement and the transactions contemplated
thereby. See "The Merger -- Background of the Merger" and "-- Opinion of
Financial Advisor."
In reaching its determination that the Merger Agreement is in the best
interests of the Company and the holders of Common Stock, the Board considered a
number of factors, including, without limitation, the following:
(i) the presentation by Alex. Brown and the written opinion of Alex. Brown
that the cash consideration of $20.75 per share to be received by the
stockholders of the Company pursuant to the Merger Agreement is fair to such
stockholders from a financial point of view (see "The Merger -- Opinion of
Financial Advisor");
(ii) the relationship of the price to be paid pursuant to the Merger
Agreement to the historical and current market prices for the Common Stock
preceding the announcement of the Merger;
(iii) the fact that the offering price of $20.75 per share represents a
premium of approximately 48% over the $14.00 closing sale price of the Common
Stock on January 12, 1994, the last trading day before the announcement that
the Company was having preliminary discussions with several major bank
holding companies regarding a possible sale of the Company, and approximately
15% over the $18.00 closing sale price of the Common Stock on March 18, 1994,
the last trading day before the announcement of the Merger (see "Market
Prices and Dividends on Common Stock"), and represents a substantial multiple
of the earnings per share of the Common Stock for 1993 and those projected by
the Company for 1994, and constitutes a 113% premium of the proposed price
over stated book value at December 31, 1993;
(iv) the presentation of Alex. Brown indicating that the comparable
acquisition multiples for the Company, based on the price offered by First
Fidelity in the Merger, compare favorably with the other transactions
reviewed by Alex. Brown;
(v) the business, financial condition and recent results of operations of
the Company (see "Recent Developments" and "Selected Consolidated Financial
Data") and management's best estimates of the prospects of the Company (see
"The Merger -- Opinion of Financial Advisor");
(vi) the current and prospective environment in which the Company
operates, including national and local economic conditions, the competitive
environment for financial institutions generally, the increased regulatory
burden on financial institutions generally, and the trend toward
consolidation in the financial services industry;
(vii) the extensive process followed by Alex. Brown to obtain acquisition
proposals and preliminary bids, and the conclusion that First Fidelity's bid
was more favorable than any of the other bid indications from the other
participants who also conducted due diligence examinations of the Company's
books and records;
(viii) the Board's review with its legal and financial advisors of
alternatives to the Merger (including the alternatives of remaining
independent and growing internally, remaining independent for a period of
time and then selling the Company and a "merger of equals" type transaction
with a banking organization of similar size), the range of possible values to
holders of the Common Stock obtainable through implementation of such
alternatives and the timing and likelihood of actually receiving such values;
<PAGE>
(ix) the fact that the terms of the Merger Agreement were determined
through arms'-length negotiations;
(x) the terms of the Merger Agreement as reviewed by the Board with its
legal and financial advisors;
(xi) the Board's assessment that First Fidelity has the financial
capability to acquire the Company for the Merger Consideration and therefore
is likely to consummate the Merger;
(xii) the Board's belief, after consultation with its legal counsel, that
the required regulatory approvals could be obtained for the Merger;
(xiii) the Board's assessment that the Bank would better serve the
convenience and needs of its customers and the communities that it serves
through affiliation with a substantially larger bank holding company, such as
First Fidelity, thereby affording the Bank access to First Fidelity's
financial and managerial resources and the ability to offer an expanded range
of potential products and services; and
(xiv) the compatibility of the respective businesses and management
philosophies of the Company and First Fidelity.
The Board did not quantify or attach any particular weight to the various
factors that it considered in reaching its determination that the Merger is in
the best interests of the Company's stockholders.
Opinion of Financial Advisor
The Company retained Alex. Brown to act as its financial advisor in
connection with the possible acquisition of the Company, including the Merger
and related matters. Alex. Brown has historically provided, and continues to
provide, certain other financial advisory and agency services to the Company.
Alex. Brown was selected to act as the Company's financial advisor based upon
its qualifications, expertise and reputation, as well as Alex. Brown's prior
investment banking relationship and familiarity with the Company. Alex. Brown
regularly publishes research reports regarding the financial services industry
and the businesses and securities of publicly owned companies in that industry.
On March 21, 1994, at the special meeting at which the Board of Directors
approved and adopted the Merger Agreement and the Option Agreement, Alex. Brown
delivered a written opinion to the Board that, as of such date, the
consideration to be received by the stockholders of the Company, consisting of a
cash payment in the amount of $20.75 per share of Common Stock, was fair to the
stockholders of the Company from a financial point of view. That opinion was
updated as of the date of this Proxy Statement. No limitations were imposed by
the Board of Directors upon Alex. Brown with respect to the investigations made
or procedures followed by it in rendering its written opinion.
The full text of the opinion of Alex. Brown, which sets forth a description
of the procedures followed, assumptions made, matters considered and limits on
the review undertaken, is attached to this Proxy Statement as Appendix B and is
incorporated herein by reference. Stockholders are urged to read the opinion in
its entirety. The following summary of the opinion is qualified in its entirety
by reference to the full text of the opinion.
In rendering its opinion, Alex. Brown (i) reviewed the Merger Agreement,
certain publicly available business and financial information concerning the
Company, and certain internal financial analyses and forecasts for the Company
prepared by the Company's management, (ii) held discussions with members of
senior management of the Company regarding the past and current business
operations, financial condition and future prospects of the Company, (iii)
reviewed the reported price and trading activity for the Common Stock and
compared certain financial and stock market information for the Company with
similar information for certain other publicly traded commercial bank
organizations, (iv) reviewed the financial terms of certain recent business
combinations in the financial institutions industry which Alex. Brown deemed
comparable in whole or in part and (v) performed such other studies and analyses
and considered such other factors as Alex. Brown deemed appropriate.
<PAGE>
Alex. Brown relied without independent verification upon the accuracy and
completeness of all of the financial and other information reviewed by and
discussed with it for purposes of its opinion. With respect to the financial
forecasts reviewed by Alex. Brown in rendering its opinion, Alex. Brown assumed
that such financial forecasts were reasonably prepared on bases reflecting the
best currently available estimates and judgments of the management of the
Company as to the future financial performance of the Company. The Company does
not publicly disclose management projections of the type provided to Alex. Brown
in connection with the Merger. Such projections were not prepared with a view
towards public disclosure. The projections were based on numerous variables and
assumptions which are inherently uncertain, including, without limitation,
factors related to general economic and competitive conditions. Alex. Brown did
not make an independent evaluation or appraisal of the assets or liabilities of
the Company nor was it furnished with any such appraisal.
The summary set forth below does not purport to be a complete description of
the analyses performed by Alex. Brown. The preparation of a fairness opinion
involves various determinations as to the most appropriate and relevant methods
of financial analysis and the application of these methods to the particular
circumstances and, therefore, such an opinion is not readily susceptible to
summary description. Accordingly, notwithstanding the separate factors discussed
below, Alex. Brown 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. No one of the analyses performed
by Alex. Brown was assigned a greater significance than any other. In performing
its analyses, Alex. Brown made numerous assumptions with respect to industry
performance, business and economic conditions and other matters, many of which
are beyond the Company's control. The analyses performed by Alex. Brown 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.
Analysis of Selected Publicly Traded Companies. In preparing its opinion,
Alex. Brown, using publicly available information, compared selected financial
information, including latest twelve months ("LTM") earnings, 1994 estimated
earnings, 1995 estimated earnings, stated book value, tangible book value and
total assets, for the Company and a peer group of commercial bank organizations.
The peer group was comprised of 19 commercial bank organizations
headquartered in the mid-Atlantic region (Delaware, Maryland, New Jersey,
Pennsylvania, Virginia and West Virginia) that possessed an asset base between
$1 billion and $8 billion ("Regional Comparables Group"). The Regional
Comparables Group included Wilmington Trust Corporation headquartered in
Delaware; Mercantile Bankshares Corporation, Provident Bankshares Corporation
and Citizens Bancorp headquartered in Maryland; Commerce Bancorp, Inc., Summit
Bancorporation, Trust Company of New Jersey, United Counties Bancorporation,
Valley National Bancorp, Citizens First Bancorp, Inc. and Central Jersey Bancorp
headquartered in New Jersey; Fulton Financial Corporation, Dauphin Deposit
Corporation, Susquehanna Bancshares, Inc. and Keystone Financial, Inc.
headquartered in Pennsylvania; Jefferson Bankshares, Inc. and First Virginia
Banks, Inc. headquartered in Virginia; and One Valley Bancorp of WV, Inc. and
United Bankshares, Inc. headquartered in West Virginia. As of March 17, 1994,
the relative multiples implied by the market price of the Common Stock of the
Company and the mean market price of the common stock of the Regional
Comparables Group to such selected financial data was: to LTM earnings, 27.5x
for the Company and 12.4x for the Regional Comparables Group; to 1994 estimated
earnings per share, 18.5x for the Company and 11.4x for the Regional Comparables
Group; to 1995 estimated earnings per share, 16.0x for the Company and 10.3x for
the Regional Comparables Group; to stated book value, 186.3% for the Company and
163.0% for the Regional Comparables Group; to tangible book value, 202.3% for
the Company and 167.8% for the Regional Comparables Group; and to total assets,
13.5% for the Company and 14.3% for the Regional Comparables Group. In comparing
the market multiples of the Company to the Regional Comparables Group, it is
important to note the following: (i) the Regional Comparables Group exhibited
strong profitability, possessing an annualized return on average assets of 1.22%
during the fourth quarter of 1993, while the Company achieved an annualized
return on average assets of 0.20% during the same period and (ii) the market
<PAGE>
price of the Common Stock increased from $14.00 to $17.375 upon the January 13,
1994 announcement that the Company was soliciting proposals from potential
acquirors.
Analysis of Comparable Acquisition Transactions. Alex. Brown also analyzed
certain comparable merger and acquisition transactions for commercial bank
organizations based upon the acquisition price relative to stated book value,
stated tangible book value, LTM earnings per share (EPS), total assets and the
premiums to core deposits and market price. The analysis involved a review of a
sample of recently effected or pending commercial bank organization acquisitions
nationwide having a transaction value in excess of $100 million which were
announced since January 1, 1992 (a total of 48 transactions) ("Nationwide
Transactions"). As part of the analysis, Alex. Brown grouped the transactions
into different segmentations, including transactions announced since January 1,
1993 (29 transactions) ("Recent Transactions") and transactions in which the
selling commercial bank organization was headquartered in the mid-Atlantic or
the southeast region (21 transactions) ("Regional Transactions").
The comparative value of the Merger Consideration and the high, median and
low multiples of the comparable acquisition transaction segmentations described
above for each category being compared (stated book value, stated tangible book
value, LTM EPS, total assets and the premiums to core deposits and market price)
are provided in the following table:
PURCHASE PRICE AS A MULTIPLE OF: PREMIUM TO:
-------------------------------- ---------------
TANGIBLE
BOOK BOOK LTM TOTAL CORE MARKET
VALUE VALUE EPS(a) ASSETS DEPOSITS PRICE
------- ------- ------ -------- -------- -----
COMPARISON VALUE:
Merger consideration
($20.75 per share).......... 213% 232% 31.4 16% 11% 15%(b)
Nationwide Transactions (48)
High........................ 312% 322% 54.7 27% 26% 75%
Median...................... 200 211 16.3 16 10 36
Low......................... 110 116 6.3 7 1 -6
Recent Transactions (29)
High........................ 262 262 54.7 27 26 59
Median...................... 211 224 16.3 16 11 35
Low......................... 117 118 6.3 8 2 5
Regional Transactions (21)
High........................ 312 322 47.1 20 15 75
Median...................... 196 208 15.8 17 11 36
Low......................... 117 118 15.0 7 2 16
(a) Excludes banks with a loss in last twelve months (negative LTM EPS0)
.
(b) Based on market price one month prior to the public announcement of
the execution of the Merger Agreement on March 21, 1994. If based on the
market price on the day prior to public announcement that the Company was
having preliminary discussions with several major bank holding companies
regarding a possible sale of the Company, the market premium would be 48%.
Discounted Cash Flow Analysis. Using discounted cash flow analysis, Alex.
Brown estimated the present value of the future dividend streams that the
Company could produce over a four year period, under different assumptions as to
required equity levels, if the Company performed in accordance with management's
forecasts and certain variants thereof. Alex. Brown also estimated the terminal
value for the Company's common equity after the four year period by applying
book value (170%-230%) and earnings (13.7-18.6 times) acquisition multiples
currently being received by commercial bank organizations with similar
profitability ratios as the Company is projected to have during its calendar
year ended December 31, 1997. The range of multiples used reflected a variety of
scenarios regarding the growth and profitability prospects of the Company. The
dividend streams and terminal values were then discounted to present values
using discount rates ranging from 12.5% to 17.5%, which reflect different
assumptions regarding the required rates of returns of holders or prospective
buyers of the common equity. Based on the foregoing analysis, Alex. Brown
estimated that a range for the value on a per share basis of the Company's
Common Stock was $14.42 to $22.24.
<PAGE>
Reference Range. Based in part on the several analyses discussed above, Alex.
Brown developed, for purposes of its opinion, a reference range for the value of
the Company's common equity of $16.00 to $20.00 per share of Common Stock. The
values reflected in the foregoing reference range were considered along with the
other analyses performed by Alex. Brown and were not intended to represent the
price at which 100% of the Common Stock could actually be sold. The foregoing
reference ranges were based in part on the application of economic and financial
models and are not necessarily indicative of actual values, which may be
significantly more or less than such estimates. The reference ranges do not
purport to be appraisals.
Compensation of Financial Advisor. Pursuant to the terms of an engagement
letter dated November 1, 1993, the Company has paid Alex. Brown a fee of
$300,000 for acting as its financial advisor in connection with the Merger,
including rendering the fairness opinion. The engagement letter further provides
that the Company will pay Alex. Brown a fee based on the aggregate consideration
to be paid or issued to the Company's stockholders as follows: 0.60% of the
aggregate consideration if the per share purchase price is less than $19.00;
0.65% of the aggregate consideration if the per share purchase price is $19.00
or more but less than $20.00; 0.70% of the aggregate consideration if the per
share purchase price is $20.00 or more but less than $21.00; 0.75% of the
aggregate consideration if the per share purchase price is $21.00 or more but
less than $22.00; and 0.80% of the aggregate consideration if the per share
purchase price is $22.00 or more. Based on the foregoing and the Merger
Consideration, the Company will pay Alex. Brown a fee of 0.70% of the aggregate
consideration to be received by the Company's stockholders in the Merger, less
the $300,000 in fees already paid to Alex. Brown. This fee is payable to Alex.
Brown upon consummation of the Merger and is estimated to be approximately $2.3
million. Whether or not the Merger is consummated, the Company has agreed to
reimburse Alex. Brown for all reasonable out-of-pocket expenses (which expenses
may not exceed $10,000 annually without the prior consent of the Company) and to
indemnify Alex. Brown and certain related persons against certain liabilities
relating to or arising out of its engagement, including liabilities under
federal securities laws.
Effective Date and Effective Time
It is anticipated that articles of merger will be filed with the Maryland
Department in accordance with the requirements of the Maryland General
Corporation Law on (i) a business day designated by First Fidelity within 10
days after the date of receipt of all regulatory and stockholder approvals,
expiration of applicable waiting periods and the satisfaction or waiver of all
conditions to the consummation of the Merger or (ii) on such later date as the
parties may agree. The date of such filing with and acceptance by the Maryland
Department of such articles of merger or such date thereafter as is specified in
the articles of merger will be the "Effective Date" of the Merger. The
"Effective Time" of the Merger will be the time of such filing with and
acceptance by the Maryland Department of such articles of merger or as otherwise
specifically set forth therein.
Effect of the Merger
The Merger Agreement provides for the merger of Merger Sub with and into the
Company. The Company will continue as the surviving corporation as a direct
wholly owned subsidiary of First Fidelity. At the Effective Time, holders of
outstanding shares of Common Stock will have no further ownership interest in
the Company and therefore will not participate in future potential earnings and
growth. Instead, such holders of shares of Common Stock (except shares held
directly or indirectly by First Fidelity other than in a fiduciary capacity or
in satisfaction of a debt previously contracted) will be entitled to receive
$20.75 in cash for each of their shares of Common Stock held of record. In the
Merger, each share of common stock of Merger Sub, issued and outstanding
immediately prior to the Effective Time, will be converted into one share of
common stock of the Company as the surviving corporation of the Merger, which
shares will thereafter constitute all of the issued and outstanding shares of
capital stock of the surviving corporation.
Pursuant to the Merger Agreement, at the Effective Time, the articles of
incorporation and bylaws of the Company will be amended in their entirety to
conform to the articles of incorporation and bylaws of Merger Sub in effect
immediately prior to such time. At the Effective Time, the directors and
officers of Merger Sub will become the directors and officers of the Company as
the surviving corporation.
<PAGE>
In connection with the Thrift Merger Alternative, First Fidelity intends to
invite the directors of the Bank serving on the Effective Date to become
directors of FFB-FSB subsequent to the Second Thrift Merger for a period of not
less than two years at a level of compensation not less than that currently paid
to nonemployee directors of the Bank. If the Bank Merger Alternative is
selected, First Fidelity intends to invite such directors of the Bank to become
members of a Maryland regional advisory board of directors of FFB-NA following
the Holding Company Merger for a similar period and compensation. In addition,
following the Holding Company Merger, First Fidelity intends to select from
among the directors of the Bank or other prominent business leaders in the
Maryland community a person to become a director of First Fidelity to serve for
not less than two years. See "The Merger -- Interests of Certain Persons in the
Merger."
Exchange of Common Stock for Cash
Promptly after the Effective Time, each stockholder of record of the Company
will be provided with written instructions from First Fidelity Bank, N.A., as
Exchange Agent, with respect to the manner in which the Common Stock may be
surrendered and exchanged for payment of the Merger Consideration. CERTIFICATES
EVIDENCING SHARES OF COMMON STOCK SHOULD NOT BE SURRENDERED FOR PAYMENT PRIOR TO
RECEIPT OF WRITTEN INSTRUCTIONS FROM THE EXCHANGE AGENT. As of the Effective
Time, First Fidelity will deposit with the Exchange Agent an amount in cash
equal to the product of the number of shares of Common Stock outstanding
immediately prior to the Effective Time (other than certain shares of Common
Stock that are held by First Fidelity) and the Merger Consideration. The source
of funds for the payment of the Merger Consideration by First Fidelity will be
working capital, which in part is expected to be derived from dividends and
distributions from subsidiaries of First Fidelity.
If payment in respect of the shares of Common Stock is to be made to a person
other than the person in whose name a surrendered certificate is registered, it
will be a condition to such payment that the certificate so surrendered be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment will pay any transfer or other taxes required by reason
of such payment to a person other than the registered holder of the certificate
surrendered or will have established to the satisfaction of First Fidelity that
such tax has been paid or is not applicable.
At the Effective Time, the Company's stock transfer books with respect to
shares of Common Stock will be closed and there will be no further transfers of
such shares. If after the Effective Time certificates for shares of Common Stock
are presented to First Fidelity or the Company as the surviving corporation,
they will be canceled and exchanged for cash in the manner set forth above. One
year after the Effective Time, the Exchange Agent will deliver to First Fidelity
any remaining funds (including the proceeds of any investments thereof) which
were made available to the Exchange Agent to be disbursed to stockholders at the
Effective Time. Thereafter, stockholders will be entitled to look only to First
Fidelity with respect to cash payable upon due surrender of their certificates,
subject to applicable law. If any certificates for shares of Common Stock have
not been surrendered prior to such date on which any payment in respect thereof
would otherwise escheat to or become the property of any governmental unit or
agency, the payment in respect of such certificates will, to the extent
permitted by applicable law, become the property of First Fidelity, free and
clear of all claims or interest of any person previously entitled thereto. First
Fidelity, Merger Sub, the Exchange Agent or any other person shall not be liable
to any former holder of Common Stock for any amount delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
No interest will accrue or be paid on any cash payable upon the surrender of
a certificate or certificates which immediately prior to the Effective Time
represent outstanding shares of Common Stock.
If a certificate for Common Stock has been lost, stolen or destroyed, payment
will be made in accordance with the Merger Agreement upon receipt by the
Exchange Agent of appropriate evidence as to such loss, theft or destruction,
appropriate evidence as to the ownership of such certificate by the claimant,
and customary indemnification.
<PAGE>
Representations and Warranties
The Company and First Fidelity have made certain representations and
warranties to each other in the Merger Agreement. The Company represents and
warrants to First Fidelity, among other things, as to its organization,
capitalization, corporate authority and approvals, ownership of subsidiaries,
enforceability of the Merger Agreement and the Option Agreement as to the
Company, financial statements and public disclosure materials, absence of
material adverse changes, absence of certain claims and regulatory proceedings,
labor matters and employee benefit plans, title to its assets, environmental
matters and compliance with laws. First Fidelity represents and warrants to the
Company, among other things, as to its organization, corporate authority and
approvals, enforceability of the Merger Agreement as to First Fidelity and
Merger Sub and access to funds necessary to consummate the Merger and pay the
Merger Consideration.
Conditions to Consummation of the Merger
The respective obligations of the Company and First Fidelity to cause the
Merger to be consummated are subject to certain conditions, including, among
other things: (i) the approval and adoption of the Merger Agreement and the
transactions contemplated thereby by the holders of the requisite number of
shares of Common Stock, (ii) the receipt and effectiveness of all regulatory
approvals and waivers required to consummate the Merger and the transactions
contemplated thereby without any conditions that would result in a material
adverse effect on First Fidelity or would materially reduce the benefits of the
Merger to First Fidelity such that it would not have entered into the Merger
Agreement had such condition been known prior to the execution thereof, and the
expiration of all applicable statutory waiting periods, (iii) the absence of any
statute, rule, order, decree or injunction which enjoins, prohibits or restricts
the consummation of the Merger and the absence of litigation against the parties
seeking to prevent the consummation of the transactions contemplated by the
Merger Agreement, (iv) the representations and warranties of the other party in
the Merger Agreement (and the Company in the Option Agreement) being true and
correct in all material respects as of the dates specified therein, and the
performance by the other party in all material respects of all agreements and
covenants required by the Merger Agreement (and the Option Agreement for the
Company) to be performed by such party and (v) the delivery to each of the
Company and First Fidelity of officers' certificates as set forth in the Merger
Agreement. In addition, the obligation of First Fidelity to consummate the
Merger is subject to (i) the issuance by the Company's independent certified
public accountants within 15 business days after the date of the mailing of this
Proxy Statement of a review report with respect to the Company's interim
financial statements at and for the nine months ended September 30, 1994 and
(ii) the redemption by the Company of the entire outstanding principal amount of
certain convertible subordinated debentures of the Company which redemption is
to occur on November 30, 1994. See "The Merger -- Conduct of Business Pending
the Merger."
The Company and First Fidelity each may waive any condition of the Merger
Agreement, unless such waiver would result in the violation of any law or
applicable regulation.
Regulatory Approvals
The Thrift Merger Alternative would require the prior approval of (i) the OTS
under HOLA for the chartering of BOB-FSB, the acquisition of BOB-FSB by the
Company, the First Thrift Merger, the Holding Company Merger, the Thrift
Contribution and the Second Thrift Merger, (ii) the Federal Reserve under the
BHCA for both the Company and First Fidelity to acquire control of BOB-FSB as a
nonbanking subsidiary and for First Fidelity to acquire control of most of the
Company's and the Bank's existing nonbanking subsidiaries, (iii) the OTS and the
FDIC under the HOLA and the FDIA, for BOB-FSB and FFB-FSB to continue to operate
the Bank's existing subsidiaries as operating subsidiaries or service
corporation subsidiaries after the First Thrift Merger and the Second Thrift
Merger, respectively and (iv) the OTS under the FDIA for BOB-FSB to acquire,
pursuant to the First Thrift Merger, the deposits of the Bank. In addition,
Banco Santander, a Spanish banking organization, which owns approximately 24.9%
of First Fidelity's voting stock, has submitted (i) an application for approval
of the OTS of the Holding Company Merger under HOLA and (ii) an application for
approval of the Federal
<PAGE>
Reserve to acquire control, indirectly via First Fidelity, of BOB-FSB as a
nonbanking subsidiary and most of the Company's existing nonbanking
subsidiaries. The applications to the OTS were filed on August 3, 1994, the
applications to the Federal Reserve were filed on August 5, 1994 and the
applications to the FDIC were filed on August 5, 1994. The FDIC approval was
received on August 30, 1994. In addition, in the event that the Thrift
Contribution and the Second Thrift Merger cannot be consummated, the Thrift
Merger Alternative may also require that BOB-FSB file an application with the
FDIC for insurance of accounts and receive approval thereof.
The Bank Merger Alternative, if elected by First Fidelity in lieu of the
Thrift Merger Alternative, would require the prior approval of the OCC for the
Main Office Relocation, the amendment of FFB-NA's charter to authorize the
preferred stock to be issued in the Bank Merger, the issuance of the common
stock and preferred stock of FFB-NA in the Bank Merger, and the Bank Merger
under the National Bank Act and the FDIA. An application for the Main Office
Relocation was filed on June 21, 1994 and the applications for the other
approvals described above were filed on September 2, 1994.
The First Thrift Merger, the Second Thrift Merger and the Bank Merger may not
be consummated until 30 days after the required approval of the OTS and the OCC
under the FDIA are received. Under recently enacted legislation, this 30 day
period may under certain circumstances be reduced to as few as 15 days.
First Fidelity is not aware of any other governmental approvals that are
required for consummation of the Holding Company Merger and either the Thrift
Merger Alternative or the Bank Merger Alternative, as the case may be, except as
described above.
The Merger cannot proceed in the absence of the requisite regulatory
approvals. See "The Merger -- Conditions to Consummation of the Merger" and "--
Waiver and Amendment; Termination." There can be no assurance that such
regulatory approvals will be obtained, or, if such regulatory approvals are
obtained, as to the date of any such approvals. There also can be no assurance
that any such approvals will not contain a condition or requirement which causes
such approvals to fail to satisfy the conditions set forth in the Merger
Agreement and described under "The Merger -- Conditions to Consummation of the
Merger."
Conduct of Business Pending the Merger
The Merger Agreement contains certain provisions regarding the conduct of the
Company's business pending consummation of the Merger. In particular, prior to
the Effective Time, the Company has agreed to, and to cause its subsidiaries to,
(i) conduct business in the ordinary course consistent with past practice, (ii)
use best efforts to preserve intact the business organization, employees and
advantageous business relationships and retain the services of officers and key
employees, (iii) take no action which would adversely affect or delay the
ability to obtain any necessary approvals, consents or waivers of any
governmental authority required for the transactions contemplated by the Merger
Agreement or to perform the covenants and agreements on a timely basis under the
Merger Agreement and (iv) take no action that is reasonably likely to have a
"Material Adverse Effect" on the Company. Material Adverse Effect is defined as
any event or occurrence that is reasonably likely to have a material adverse
effect upon (i) the financial condition, properties, business or results of
operations of the Company and its subsidiaries, taken as a whole (other than as
a result of (w) changes in laws or regulations or accounting rules of general
applicability or interpretations thereof, (x) decreases in capital under
Financial Accounting Standards No. 115 attributable to general increases in
interest rates, (y) any reclassification of loans, write downs of real estate
owned, loan loss reserves, or divestiture of assets taken pursuant to a specific
written request of First Fidelity or (z) the Bank Merger Alternative) or (ii)
the ability of the Company to perform its obligations under, and to consummate
the transactions contemplated by, the Merger Agreement and the Option Agreement.
The Company has agreed not to engage, or permit any of its subsidiaries to
engage, in certain transactions without the prior written consent of First
Fidelity. In particular, the Company agreed that it and its subsidiaries will
not, among other things: (i) incur any indebtedness for borrowed money, other
than in the ordinary course of business consistent with past practice, (ii)
adjust, split, combine or reclas
<PAGE>
sify any shares of capital stock; declare or pay any dividend or other
distribution on, or redeem, purchase or acquire any shares of its capital stock
or any securities convertible into or exchangeable for any shares of its capital
stock; grant any stock appreciation rights or any right to acquire any shares of
its capital stock; or issue any shares of capital stock; except with respect to
the foregoing, for regular quarterly cash dividends of not more than $.05 per
share of Common Stock, the issuance of additional shares of capital stock
pursuant to the exercise of stock options outstanding as of the date of the
Merger Agreement, the issuance of additional shares of capital stock in
connection with the Company's 401(k) plan (the "401(k) Plan"), the issuance of
additional shares of capital stock pursuant to the Option Agreement, and the
redemption of certain convertible subordinated debentures of the Company and the
repurchase of certain capital notes of the Company as set forth in the Merger
Agreement, (iii) other than in the ordinary course of business consistent with
past practice or pursuant to contracts or agreements in force on the date of the
Merger Agreement, dispose of any of its material properties or assets or release
or assign any indebtedness or claims of any person, (iv) except to the extent
required pursuant to a plan, program, arrangement or agreement in effect on the
date of the Merger Agreement, increase the compensation or benefits of any of
its employees or directors subject to certain exceptions or voluntarily
accelerate the vesting of any stock options or funding or vesting of other
compensation, (v) except as otherwise contemplated by the Merger Agreement or as
required by changes in generally accepted accounting principles as concurred
with by the Company's independent auditors, change its method of accounting as
in effect at December 31, 1993 or (vi) amend its articles of incorporation or
bylaws. In addition, the Company has agreed not to intentionally take or cause
to be taken, or agree or make any commitment to take, any action that is
reasonably likely to cause any of its representations and warranties not to be
true and correct. See "The Merger -- Representations and Warranties."
The Merger Agreement provides that prior to the Effective Date, the Company
will, on such terms and conditions as First Fidelity deems acceptable, (i)
redeem the $5,229,000 outstanding principal amount of its 6 3/4 % Convertible
Subordinated Debentures due April 1, 2011 and (ii) seek to repurchase the
$870,000 outstanding principal amount of its 10 7/8 % Subordinated Capital Notes
due December 15, 1999. First Fidelity has agreed to provide the Company, upon
the Company's request, with a loan sufficient to effect such redemption and
repurchase on an unsecured basis for three years at an annual interest rate of 6
3/4 %. See "The Merger -- Conditions to Consummation of the Merger."
The Merger Agreement further provides that prior to the Effective Time the
Company will modify and change its loan, litigation and real estate valuation
policies and practices (including loan classifications and levels of reserves)
upon the request of First Fidelity so that such policies and practices are
consistent with those of First Fidelity and generally accepted accounting
principles after the later of (i) the date on which all required approvals are
received and all applicable waiting periods in connection with such approvals
have expired and (ii) the date on which the Merger Agreement is approved by the
Company's stockholders. First Fidelity has agreed under certain circumstances to
indemnify the Company for any losses, damages or costs which the Company may
incur as a result of any such changes effected at the request of First Fidelity
in the event the Merger is not consummated.
No Solicitation
The Company has agreed in the Merger Agreement that neither it, nor any of
its subsidiaries, nor any of the respective officers and directors of the
Company or its subsidiaries will, and the Company will direct, and will use its
best efforts to cause its employees, agents and representatives (including,
without limitation, any investment banker, attorney or accountant retained by it
or any of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to holders of Common Stock) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company or any of its subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or, except to
the extent legally required for the discharge by the Board of Directors of its
fiduciary duties as advised in writing by counsel to the Board, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any
<PAGE>
effort or attempt to make or implement an Acquisition Proposal. The Company has
agreed to notify First Fidelity immediately if any such inquiries or requests
for information are received or if any such negotiations are sought.
Interests of Certain Persons in the Merger
In considering the recommendation of the Board of Directors with respect to
the Merger, stockholders should be aware that certain members of the Board of
Directors and management may be deemed to have interests in the Merger in
addition to their interest as holders of Common Stock.
Severance Agreements. The Bank has previously entered into certain severance
agreements (each a "Severance Agreement" and collectively, the "Severance
Agreements") with certain members of the Company's and the Bank's senior
management. First Fidelity has agreed in the Merger Agreement to cause the
surviving corporation to honor and perform all Severance Agreements. The
Severance Agreements provide for the payment of a lump sum cash payment to the
officer if during the term of the Severance Agreement, there is a sale of the
Bank, and if the officer's employment is terminated involuntarily, or
voluntarily with "Good Reason," in connection with or within 18 months after the
sale, unless such termination is for cause. "Good Reason" is defined to include
a material reduction in the authority, responsibilities, duties or scope of the
officer's position from those that existed before the sale, a reduction in
salary from the rate that existed before the sale, or requirement that the
officer relocate more than 50 miles from the City of Baltimore. The Severance
Agreements also provide for the continuation for a specified period of time of
health, life and disability insurance coverage.
The Merger, if consummated, will constitute a "sale" of the Bank as defined
in the Severance Agreements. If the conditions requiring payment as described
above with respect to termination of employment are satisfied as to the
particular officer, the following executive officers and groups would be
entitled to receive lump sum cash payments in the following amounts (assuming
that such payments are not reduced under the terms of the Severance Agreements
in order to avoid being classified as a "parachute payment" within the meaning
of Section 280G(b)(2) of the Internal Revenue Code of 1986, as amended):
NAME AND POSITION(S) AMOUNT OF PAYMENT
- - - - ----------------------------------------------- ------------------
Edwin F. Hale, Sr. ............................ $1,125,000
Chairman of the Board
and Chief Executive Officer
Alan M. Leberknight ........................... 240,000
President and Director
Joseph A. Cicero .............................. 240,000
Executive Vice President,
Chief Financial Officer
and Director
E. Wayne Edwards .............................. 140,000
Executive Vice President
Larry D. Unger ................................ 150,000
Executive Vice President
Executive Officer Group, including the five
executive officers named above (eight
persons)....................................... 2,145,000
Nonexecutive Officer Employee Group (20
persons)....................................... 1,116,900
<PAGE>
The Merger Agreement provides that if the Effective Time occurs prior to
January 3, 1995, First Fidelity will not terminate the employment or reduce the
compensation of the officers of the Company with Severance Agreements prior to
January 3, 1995 and will retain Mr. Hale as a consultant for three months after
January 3, 1995 for total consulting compensation of $123,750.
Stock Options. As of October 7, 1994, the directors, executive officers and
other employees of the Company in the aggregate held options to purchase
1,013,174 shares of Common Stock pursuant to the Company's 1984 Stock Option
Plan, 1988 Stock Incentive Plan and 1992 Stock Option Plan (the "Option Plans").
In accordance with the Merger Agreement and regardless of whether the options
are vested at the Effective Time, each such option held by a director, officer
or other employee will be canceled in exchange for a cash payment equal to the
product of $20.75 minus the option exercise price multiplied by the number of
shares of Common Stock subject to the option. As of October 7, 1994 and in
connection with the consummation of the Merger Agreement, the executive officers
and groups named below will receive the following amounts upon exchange and
cancellation of the stock options:
<TABLE>
<CAPTION>
NAME AND POSITION(S) AMOUNT OF PAYMENT*
- - - - ------------------------------------------------ -------------------
<S> <C>
Edwin F. Hale, Sr. ............................. $4,896,800
Chairman of the Board
and Chief Executive Officer
Alan M. Leberknight ............................ 903,770
President and Director
Joseph A. Cicero ............................... 903,770
Executive Vice President,
Chief Financial Officer
and Director
E. Wayne Edwards ............................... 306,873
Executive Vice President
Larry D. Unger ................................. 537,920
Executive Vice President
Executive Officer Group, including the five
executive officers named above (eight persons) . 8,241,513
Nonemployee Director Group (nine persons) ...... 1,191,530
Nonexecutive Officer Employee Group (32
persons)........................................ 2,682,598
</TABLE>
* The amounts reflected for such options include the following number of
unvested option shares for each such person and group: Mr. Hale, 75,000 at an
exercise price of $12.875; Mr. Leberknight, 33,000 at an average exercise price
of $9.10; Mr. Cicero, 33,000 at an average exercise price of $9.10; Mr. Edwards,
22,000 at an average exercise price of $10.13; Mr. Unger, 13,200 at an average
exercise price of $7.51; executive officer group, including the five executive
officers named above (eight persons), 206,800 at an average exercise price of
$10.41; nonemployee director group (nine persons), none; and nonexecutive
officer employee group (32 persons), 120,360 at an average exercise price of
$8.81. See "The Merger -- Effect on Company Benefit Plans and Related Matters."
Indemnification. Pursuant to the Merger Agreement, First Fidelity has agreed
that First Fidelity and the surviving corporation will (i) from and after the
Effective Time through the sixth anniversary of the Effective Date, indemnify
the present and former directors and officers of the Company and its
subsidiaries (as well as each officer or employee of the Company or its
subsidiaries that is serving or has served as a director or trustee of another
entity expressly at the Company's request) in connection with any claim,
proceeding or investigation arising out of matters existing or occurring at or
prior to the Effective Time to the fullest extent that the Company would have
been permitted to indemnify them under applicable law and the Company's articles
of incorporation and bylaws prior to the Effective Time and (ii) use reasonable
efforts to maintain the current directors' and officers' liability insurance
policies of
<PAGE>
the Company (or policies providing comparable coverage) for a period of six
years following the Effective Time, provided that First Fidelity shall not be
obligated to expend in excess of 200% of the Company's current annual cost.
Severance Pay. Pursuant to the Merger Agreement, to the extent that employees
of the Company are involuntarily terminated within six months after the
Effective Time for any reason other than cause, such employees will be entitled
to receive two weeks' severance pay for each year of their service with the
Company and the surviving corporation, up to a maximum of 26 weeks.
Continuing Directors and Executive Officers. In connection with the Thrift
Merger Alternative, First Fidelity intends to invite the directors of the Bank
serving on the Effective Date to become directors of FFB-FSB subsequent to the
Second Thrift Merger for a period of not less than two years at a level of
compensation not less than that currently paid to nonemployee directors of the
Bank. In addition, following the Second Thrift Merger, Mr. Cicero would serve as
vice chairman and chief operating officer and Mr. Leberknight would serve as
president and chief commercial banking officer of FFB-FSB. If the Bank Merger
Alternative is selected, First Fidelity intends to invite such directors of the
Bank to become members of a Maryland regional advisory board of directors of
FFB-NA following the Holding Company Merger for a similar period and
compensation and Messrs. Cicero and Leberknight would serve in positions with
similar responsibilities as to the Maryland regional operations of FFB-NA. In
addition, following the Holding Company Merger, First Fidelity intends to select
from among the directors of the Bank or other prominent business leaders in the
Maryland community a person to become a director of First Fidelity to serve for
not less than two years.
In addition to the foregoing, directors and officers of the Company own
shares of Common Stock that will be converted, at the Effective Time, into the
right to receive the Merger Consideration. See "Stock Own by Management."
Effect on Company Benefit Plans and Related Matters
At the Effective Time, each outstanding option to purchase shares of Common
Stock granted pursuant to the Option Plans, whether or not such option is then
vested and exercisable, will be canceled by the Company in exchange for the
right to receive a cash payment equal to the product of (i) the difference
between (x) the per share amount of the Merger Consideration and (y) the per
share exercise price applicable to such option and (ii) the number of shares of
Common Stock subject to such option. First Fidelity has also agreed to honor the
Severance Agreements of the Bank with certain members of the Company's and the
Bank's senior management. See "The Merger -- Interests of Certain Persons in the
Merger."
Shares of Common Stock of the Company held pursuant to the Company's 401(k)
Plan at the Effective Time will be converted into the Merger Consideration. For
purposes of the Special Meeting, such Common Stock will be voted by the plan
administrator as instructed by each plan participant, or in the absence of
instructions, as determined in the discretion of the plan administrator.
Each person employed by the Company prior to the Effective Time who remains
an employee of the surviving corporation or its subsidiaries following the
Effective Time (each a "Continued Employee") will be entitled to participate in
whatever employee benefit plans that may be in effect generally for employees of
First Fidelity's subsidiaries ("First Fidelity's Plans") if such Continued
Employee is eligible or selected for participation. Continued Employees will be
eligible to participate on the same basis as similarly situated employees of
First Fidelity or its subsidiaries. All such participation will be subject to
the terms of the plans as may be in effect from time to time.
First Fidelity or its subsidiaries will, for purposes of vesting and for
purposes of eligibility to begin participation with respect to First Fidelity's
Plans, cause each of First Fidelity's Plans to be amended to recognize credit
for each Continued Employee's term of service with the Company and its
subsidiaries. Upon the Effective Time or as soon thereafter as practicable, no
further benefit accruals will be provided under the Company's defined benefit
pension plan, and each Continued Employee will begin to accrue a benefit under
First Fidelity's defined benefit pension plan.
<PAGE>
Waiver and Amendment; Termination
Waiver and Amendment. Prior to the Effective Time, any provision of the
Merger Agreement may be (i) waived by the party benefited by the provision or
(ii) amended or modified at any time (including the structure of the
transaction) by an agreement in writing between the parties approved by their
respective boards of directors; provided, however, that, after the vote by the
holders of the Common Stock, no amendment may be made that would contravene any
applicable law.
Termination. The Merger Agreement may be terminated, and the Merger
abandoned, prior to the Effective Time, either before or after its approval by
the holders of Common Stock as follows: (i) by the mutual consent of the Company
and First Fidelity after the vote of a majority of the members of each of the
applicable boards of directors, (ii) by the Company or First Fidelity after the
vote of a majority of the members of each of the applicable boards of directors
in the event of (a) the failure of the holders of the Common Stock to approve
the Merger Agreement at the Company's meeting called to consider such approval,
or (b) a material breach by the other party of any representation, warranty,
covenant or agreement contained in the Merger Agreement (or, in the case of the
Company, in the Option Agreement) which is not cured or curable within 30 days
after written notice of such breach is given, (iii) by the Company or First
Fidelity if either (a) any approval, consent or waiver of a governmental
authority required to permit consummation of the transactions contemplated by
the Merger Agreement is denied or (b) any governmental authority of competent
jurisdiction shall have issued a final, unappealable order enjoining or
otherwise prohibiting consummation of the transactions contemplated by the
Merger Agreement and (iv) by the Company or First Fidelity after the vote of a
majority of the members of each of the applicable boards of directors in the
event the Merger is not consummated by March 31, 1995, unless the failure to
consummate by such time is due to a material breach of any representation,
warranty or covenant contained in the Merger Agreement by the party seeking to
terminate.
Accounting Treatment
The Merger, if completed as proposed, will be treated as a purchase for
accounting purposes. Accordingly, under generally accepted accounting
principles, the assets and liabilities of the Company will be recorded on the
books of First Fidelity at their respective fair market values at the time of
the consummation of the Merger.
Expenses
The Merger Agreement provides that the Company and First Fidelity will each
pay its own expenses in connection with the Merger Agreement and the
transactions contemplated thereby, except printing expenses which are to be
shared equally by the Company and First Fidelity.
THE OPTION AGREEMENT
General
As an inducement and a condition to First Fidelity's entering into the Merger
Agreement, First Fidelity and the Company entered into the Option Agreement
pursuant to which the Company granted First Fidelity an option (the "Option")
entitling First Fidelity to purchase up to 3,300,000 fully paid and
nonassessable shares of Common Stock, subject to certain adjustments, or
approximately 19.8% of the shares of Common Stock then outstanding, under the
circumstances described below at a price of $19.31 per share (the average of the
low and high reported sales price per share on the NYSE on the first trading day
after the announcement of the Merger Agreement), subject to adjustment in
certain circumstances.
Effect of Option Agreement
The Option Agreement is intended to increase the likelihood that the Merger
will be consummated in accordance with the terms of the Merger Agreement, and
may discourage persons from proposing a competing offer to acquire the Company,
even if such offer involves a higher price per share for the
<PAGE>
Common Stock than the per share consideration to be paid pursuant to the Merger
Agreement. The existence of the Option would significantly increase the cost to
a potential acquiror of acquiring the Company compared to its cost had the
Company not entered into the Option Agreement. The Company believes that the
exercise of the Option would likely prohibit any acquiror from accounting for an
acquisition of, or merger with, the Company using the pooling-of-interests
accounting method for a period of up to two years. This could discourage or
preclude an acquisition by certain acquirors.
Terms of Option Agreement
The following is a brief summary of certain provisions of the Option
Agreement, which is attached hereto as Appendix C. The following summary is
qualified in its entirety by reference to the Option Agreement.
Subject to applicable law and regulatory restrictions, First Fidelity may
exercise the Option, in whole or in part, if, but only if, a "Purchase Event"
(as defined below) occurs prior to the occurrence of an "Exercise Termination
Event" (as defined below). "Purchase Event" means, in substance, either (i) the
acquisition by any person other than First Fidelity or a subsidiary of First
Fidelity of beneficial ownership of 25% or more of the then outstanding Common
Stock or (ii) the entry by the Company or a material subsidiary of the Company
(without First Fidelity's prior written consent) into an agreement to engage in
an Acquisition Transaction (as defined below) with any person other than First
Fidelity, or the recommendation by the Board of Directors that the stockholders
of the Company approve or accept any Acquisition Transaction with any person
other than First Fidelity. For purposes of the Option Agreement, "Acquisition
Transaction" means (x) a merger or consolidation, or any similar transaction,
involving the Company or a material subsidiary of the Company, (y) a purchase,
lease or other acquisition of all or substantially all of the assets of the
Company or a material subsidiary of the Company or (z) a purchase or other
acquisition (including by way of merger, consolidation, share exchange or
otherwise) of 25% (10% in the case of a "Preliminary Purchase Event" described
below) or more of the voting securities of the Company or a material subsidiary
of the Company. "Exercise Termination Event" means the earliest to occur of the
following: (i) the time immediately preceding the Effective Time of the Merger,
(ii) 12 months after the first occurrence of a Purchase Event, (iii) 12 months
after the termination of the Merger Agreement following the occurrence of a
Preliminary Purchase Event, (iv) termination of the Merger Agreement in
accordance with the terms thereof prior to the occurrence of a Purchase Event or
a Preliminary Purchase Event unless such termination results from a material
breach by the Company, (v) 12 months after the termination of the Merger
Agreement by First Fidelity as a result of a willful and material breach by the
Company or (vi) four months after the termination of the Merger Agreement by
First Fidelity as a result of a material (but not willful) breach by the
Company.
"Preliminary Purchase Event", as defined in the Option Agreement, includes
certain events involving the Company or a material subsidiary of the Company
that are inconsistent with the Company's intent to consummate the transactions
contemplated by the Merger Agreement or actions by third parties evidencing an
intent or desire to acquire control of the Company or a material subsidiary of
the Company. Such events include the Company entering into an agreement to
engage in an Acquisition Transaction with any person other than First Fidelity.
The Option may not be assigned by First Fidelity to any other person without
the express written consent of the Company, except that First Fidelity may
assign its rights under the Option Agreement in whole or in part after the
occurrence of a Preliminary Purchase Event subject to certain restrictions. The
Company has granted First Fidelity certain registration rights under the
Securities Act of 1933, as amended, with respect to the Option Agreement. Upon
the occurrence of a Purchase Event prior to an Exercise Termination Event, at
the request of First Fidelity and upon receipt of applicable regulatory
approvals, the Company will be obligated to repurchase the Option, and any
shares of Common Stock theretofore purchased pursuant to the Option, at prices
determined as set forth in the Option Agreement.
In the event that prior to an Exercise Termination Event, the Company enters
into an agreement (i) to consolidate or merge with any person, other than First
Fidelity, and is not the continuing or surviving corporation in such
consolidation or merger, (ii) to permit any person, other than First Fidelity,
to
<PAGE>
merge into the Company and the Company is the continuing or surviving
corporation, but, in connection with such merger, the then outstanding shares of
Common Stock are 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 will after such merger represent less than 50% of the outstanding
shares and share equivalents of the merged company or (iii) to sell or otherwise
transfer all or substantially all of its or a material subsidiary's assets to
any person, other than First Fidelity, then, and in each such case, the
agreement governing such transaction must make proper provision so that the
Option shall, upon the consummation of such transaction, be converted into, or
exchanged for, an option (the "Substitute Option"), at the election of First
Fidelity, of either (x) the acquiring corporation or (y) any person that
controls the acquiring corporation. The Substitute Option will be exercisable
for shares of the issuer's common stock in such number and at such exercise
price as is set forth in the Option Agreement and will otherwise have the same
terms as the Option except that the number of shares subject to the Substitute
Option may not exceed 19.9% of the issuer's outstanding shares of common stock.
In the event that the Company's stockholders fail to approve the Merger
Agreement, either the Company or First Fidelity may terminate the Merger
Agreement in accordance with its terms. See "The Merger -- Waiver and Amendment;
Termination." If no Purchase Event or Preliminary Purchase Event occurs prior to
such termination and no other Exercise Termination Event has occurred, the
Option Agreement will terminate at such time. If a Purchase Event or a
Preliminary Purchase Event does occur prior to an Exercise Termination Event,
then First Fidelity will be entitled to exercise its rights under the Option
Agreement in accordance with its terms.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following is a general discussion, based on current law, of certain of
the expected federal income tax consequences applicable to stockholders of the
Company who receive cash in exchange for shares of Common Stock pursuant to the
Merger. This summary discusses only certain tax consequences to United States
persons (i.e., citizens or residents of the United States and domestic
corporations) who hold shares of Common Stock as capital assets. It does not
discuss the tax consequences to holders of options issued by the Company who
receive cash in exchange for their options pursuant to the Merger, nor does it
discuss the tax consequences that might be relevant to stockholders who acquired
their shares of Common Stock through the exercise of employee stock options or
otherwise as compensation. In addition, it does not discuss the tax consequences
that might be relevant to stockholders entitled to special treatment under the
federal income tax law (such as Individual Retirement Accounts and other
deferred accounts, life insurance companies and tax exempt organizations) or to
stockholders who hold their shares in special circumstances (such as
stockholders that hold shares as part of a straddle or conversion transaction).
For federal income tax purposes, the Merger will be treated as though First
Fidelity or a subsidiary of First Fidelity purchased the Common Stock directly
from the Company's stockholders. The receipt of cash by a Company stockholder
pursuant to the Merger will be a taxable transaction to such stockholder for
federal income tax purposes. A Company stockholder who receives cash in exchange
for shares of Common Stock will recognize taxable gain or loss for federal
income tax purposes equal to the difference, if any, between the amount of cash
received pursuant to the Merger and such stockholder's tax basis in the shares
of Common Stock surrendered in exchange therefor. In general, such gain or loss
will be capital gain or loss if such shares are capital assets in the hands of
such stockholder at the time of the exchange and will be long-term capital gain
or loss if, at the time of the exchange, such stockholder's holding period for
the shares is more than one year.
Under current law, net capital gains of individuals are taxed at a maximum
federal income tax rate of 28% and corporations are taxed at the same federal
income tax rates as ordinary income. With certain limited exceptions for
individuals, capital losses are deductible only against capital gains and are
not available to offset ordinary income.
Under federal income tax backup withholding rules, the Exchange Agent is
required to withhold and remit to the United States Treasury 31% of the gross
cash proceeds paid to a stockholder or other payee pursuant to the Merger,
unless an exception applies under the applicable law or regulations, or unless
the
<PAGE>
stockholder or other payee signs a Substitute Form W-9 that provides his or her
taxpayer identification number (employer identification number or social
security number) and certifies that such number is correct. Therefore, unless
such an exception exists and can be proved in a manner satisfactory to First
Fidelity and the Exchange Agent, each stockholder should complete and sign the
Substitute Form W-9 which will be included as part of the letter of transmittal
from the Exchange Agent to be used to surrender Common Stock for cash. The
exceptions provide that certain stockholders (including, among others, all
corporations and certain foreign individuals) are not subject to these backup
withholding and reporting requirements. In order for a foreign individual to
qualify as an exempt recipient, however, he or she must submit a statement,
signed under penalties of perjury, attesting to his or her exempt status. Any
amounts withheld will be allowed as a credit against the stockholder's federal
income tax, or, in general, refunded by the Internal Revenue Service ("IRS")
assuming that the appropriate procedures are followed.
No ruling has been requested from the IRS as to any of the tax effects to the
Company's stockholders of the transactions discussed in this Proxy Statement,
and no opinion of counsel has or will be rendered to the Company's stockholders
with respect to any of the tax effects of the Merger or the other related
transactions.
STOCKHOLDERS ARE URGED TO CONSULT THEIR OWN TAX AND FINANCIAL ADVISORS AS TO
THE FEDERAL INCOME TAX CONSEQUENCES OF THE MERGER TO THEM, AND ALSO AS TO ANY
STATE, LOCAL, FOREIGN OR OTHER TAX CONSEQUENCES.
MARKET PRICES AND DIVIDENDS ON COMMON STOCK
Market Prices
The Common Stock is listed on the NYSE under the name Baltimore Bancorp and
traded under the symbol "BBB." The following table sets forth for the fiscal
quarters indicated, the high and low closing sales price per share of Common
Stock traded on the NYSE:
Year Ended
December 31, 1992 High Low
- - - - -------------------- ---------- ---------
First Quarter .................. $ 8.375 $ 5.25
Second Quarter ................. 8.50 5.00
Third Quarter .................. 9.00 6.125
Fourth Quarter ................. 7.375 6.00
Year Ended
December 31, 1992 High Low
- - - - -------------------- ---------- ---------
First Quarter .................. $ 9.125 $ 6.875
Second Quarter ................. 9.75 7.25
Third Quarter .................. 12.625 8.75
Fourth Quarter ................. 14.25 12.25
Year Ended
December 31, 1992 High Low
- - - - -------------------- ---------- ---------
First Quarter .................. $ 19.50 $ 13.875
Second Quarter ................. 19.875 19.25
Third Quarter .................. 20.25 19.875
Fourth Quarter* ................ 20.375 20.25
_______________________
* Through October 14, 1994
<PAGE>
On January 12, 1994, the last trading day before the public announcement that
the Company was having preliminary discussions with several major bank holding
companies regarding a possible sale of the Company, the reported closing sale
price per share of Common Stock on the NYSE was $14.00. See "The Merger --
Background of the Merger." On March 18, 1994, the last trading day before the
public announcement of the execution of the Merger Agreement, the reported
closing sale price per share of Common Stock on the NYSE was $18.00. On October
14, 1994, the last full trading day prior to the date of this Proxy Statement,
the reported closing sale price per share of Common Stock on the NYSE was
$20.25. Stockholders are urged to obtain current information with respect to the
price of the Common Stock.
Dividends
In November 1993, the Company reinstated the payment of quarterly cash
dividends following the suspension of dividends by the Company subsequent to the
third quarter of 1991. The Company has paid quarterly cash dividends of $.05 per
share of Common Stock for the fourth quarter of 1993 and the first three
quarters of 1994. The Merger Agreement restricts the ability of the Company to
make distributions to its stockholders, except for regular quarterly cash
dividends of not more than $.05 per share of Common Stock with declaration,
record and payment dates consistent with past practice, provided that if the
Effective Time occurs subsequent to November 16, 1994, the Company may declare
its regular quarterly cash dividend for the fourth quarter of 1994 at the rate
of $.05 per share and select record and payment dates prior to the Effective
Time even though such record and payment dates would be earlier than the record
and payment dates the Company would otherwise use for the payment of its fourth
quarter dividend. See "The Merger -- Conduct of Business Pending the Merger."
<PAGE>
STOCK OWNED BY MANAGEMENT
The following table sets forth information as of October 7, 1994 with respect
to the amount of the Company's Common Stock beneficially owned by each director
of the Company, the Chief Executive Officer and each of the four most highly
compensated executive officers of the Company serving at December 31, 1993, and
by all directors and executive officers of the Company as a group.
AMOUNT AND PERCENTAGE
NATURE OF BENEFICIAL OF COMMON STOCK
NAME AND POSITION(S) OWNERSHIP (A) OUTSTANDING
----------------------- -------------------- ---------------
Barry B. Bondroff (b)(c) ...................... 19,984 *
Director
Rose M. Cernak (d) ............................ 2,500 *
Director
Joseph A. Cicero (e) .......................... 48,250 *
Executive Vice President, Chief Financial
Officer and Director
Conrad H.C. Everhard (b) ...................... 22,655 *
Director
Edwin F. Hale, Sr. (f) ........................ 452,156 2.6%
Chairman of the Board and Chief Executive
Officer
Bruce H. Hoffman (g) .......................... 16,629 *
Director
Melvin S. Kabik (b) ........................... 14,601 *
Director
Andrew Larkin, Jr. (b)(h) .................. 48,050 *
Director
Alan M. Leberknight (i)........................ 50,586 *
President and Director
James P. O'Conor (j) .......................... 11,215 *
Director
Robert A. Pascal (b)........................... 36,100 *
Director
Dennis F. Rasmussen (b) ....................... 14,979 *
Director
G. Gregory Russell (b) ........................ 38,146 *
Director
E. Wayne Edwards (k) .......................... 17,622 *
Executive Vice President
Larry D. Unger (l) ............................ 44,816 *
Executive Vice President
All directors and executive officers as a
group (18 persons) (m)(n)...................... 876,437 5.0%
___________________
(a) All persons shown in the table have sole investment and voting power
except as otherwise indicated.
(b) Includes options for 12,500 shares that are currently exercisable.
(c) Includes 3,584 shares held jointly by Mr. Bondroff and his wife and
3,900 shares held in an IRA.
(d) Includes 1,000 shares held by a corporation of which Ms. Cernak is a
co-owner. Excludes 12,500 shares owned by Ms. Cernak's husband, as to
which she disclaims beneficial ownership.
(e) Includes 227 shares held under the 401(k) Plan and options for 47,000
shares that are currently exercisable or exercisable within 60 days.
(f) Includes 224 shares held under the 401(k) Plan and options for 400,000
shares that are currently exercisable or exercisable within 60 days.
<PAGE>
(g) Includes options for 10,000 shares that are currently exercisable.
Also includes 1,200 shares held jointly by Mr. Hoffman and his wife.
(h) Includes 32,550 shares held jointly by Mr. Larkin and his wife and
3,000 shares in a self-directed IRA. Excludes 19,400 shares owned by Mr.
Larkin's mother and 500 shares owned by his wife, as to which he disclaims
beneficial ownership.
(i) Includes 226 shares held under the 401(k) Plan and options for 47,000
shares that are currently exercisable or exercisable within 60 days.
(j) Includes options for 10,000 shares that are currently exercisable.
(k) Includes 106 shares held under the 401(k) Plan, options for 15,500
shares that are currently exercisable or exercisable within 60 days and
2,016 shares held jointly by Mr. Edwards and his wife.
(l) Includes 139 shares held under the 401(k) Plan and options for 36,024
shares that are currently exercisable.
(m) Includes a total of 38,148 shares (including 358 shares held under the
401(k) Plan and options for 32,150 shares that are currently exercisable
or exercisable within 60 days) held by three additional executive officers
of the Company.
(n) Includes options currently exercisable or exercisable within 60 days for
an aggregate of 685,174 shares; if such options are not included, all
directors and executive officers as a group would beneficially own 191,263
shares, or 1.1% of the outstanding Common Stock.
* Less than one percent.
PRINCIPAL HOLDERS OF VOTING SECURITIES
The following table sets forth information as of October 7, 1994 with respect
to the ownership of shares of Common Stock of the Company by each person
believed by management to be the beneficial owner of more than five percent of
the Company's outstanding Common Stock. The historical information set forth
below is based on the most recent Schedule 13D or Schedule 13G filed on behalf
of each such person with the SEC or other information provided by such person to
the Company.
AMOUNT AND
NAME AND ADDRESS NATURE OF BENEFICIAL PERCENTAGE OF COMMON
OF BENEFICIAL OWNER OWNERSHIP STOCK OUTSTANDING
- - - - ------------------------------- -------------------- ---------------------
First Fidelity Bancorporation
2673 Main Street
Lawrenceville, New Jersey 08648...... 3,907,049(a) 19.46%
T. Rowe Price Associates, Inc.
100 East Pratt Street
Baltimore, Maryland 21202 ........... 987,154(b) 5.88
________________
(a) First Fidelity has informed the Company that First Fidelity directly owns
607,049 shares of Common Stock, which represents 3.6% of the outstanding
Common Stock. Amendment No. 3 to Schedule 13D dated August 5, 1994 (the
"Amendment No. 3") states that First Fidelity was granted an option
pursuant to the Option Agreement to acquire 3,300,000 shares of authorized
but unissued shares of Common Stock which option has not become
exercisable. In Amendment No. 3, First Fidelity expressly disclaims
beneficial ownership of such option shares. See "The Option Agreement."
(b) A Schedule 13G dated February 14, 1994 states that T. Rowe Price
Associates, Inc., an investment adviser registered under the Investment
Advisers Act of 1940, has sole dispositive power over the 987,154 shares
and sole voting power over 48,500 of these shares.
<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed with the SEC by the Company are incorporated by
reference in this Proxy Statement as of their respective filing dates:
(1) Annual Report on Form 10-K for the year ended December 31, 1993, filed
pursuant to Section 13 of the Exchange Act; provided, however, that the
information referred to in Item 402(a)(8) of Regulation S-K promulgated by the
SEC shall not be deemed to be specifically incorporated by reference herein;
(2) Current Report on Form 8-K, filed on February 18, 1994 pursuant to
Section 13 of the Exchange Act;
(3) Current Report on Form 8-K, filed on March 23, 1994 pursuant to Section
13 of the Exchange Act;
(4) Quarterly Report on Form 10-Q for the quarter ended March 31, 1994, filed
pursuant to Section 13 of the Exchange Act; and
(5) Quarterly Report on Form 10-Q for the quarter ended June 30, 1994, filed
pursuant to Section 13 of the Exchange Act.
All reports subsequently filed by the Company pursuant to Sections 13(a),
13(c) or 15(d) of the Exchange Act after the date of this Proxy Statement and
prior to the date of the Special Meeting shall be deemed incorporated by
reference into this Proxy Statement and to be a part hereof from the date of
filing of such documents. Any statement contained in a document incorporated or
deemed to be incorporated by reference herein shall be deemed to be modified or
superseded for purposes of this Proxy Statement to the extent that a statement
contained herein, or in any subsequently filed document which also is or is
deemed to be incorporated by reference herein, modifies or supersedes such
statement. Any statement so modified or superseded shall not be deemed, except
as so modified or superseded, to constitute a part of this Proxy Statement.
This Proxy Statement incorporates documents by reference that are not
presented herein or delivered herewith. The Company will provide without charge
to any person to whom this Proxy Statement is delivered, including any
beneficial owner of Common Stock, upon written or oral request of such person, a
copy of any or all of the foregoing documents incorporated herein by reference
(other than exhibits to such documents which are not specifically incorporated
therein by reference). Requests for any of these documents should be directed in
writing to or by telephoning David L. Spilman, Treasurer and Director of
Investor Relations, Baltimore Bancorp, 120 East Baltimore Street, Baltimore,
Maryland 21202; (800) 722-8823.
INDEPENDENT AUDITORS
Coopers & Lybrand L.L.P. is the Company's current independent auditors and
served as the Company's independent auditors for 1993, 1992 and 1991. A
representative of Coopers & Lybrand L.L.P. is expected to be present at the
Special Meeting and will be given an opportunity to make a statement if he or
she desires to do so and will be available to respond to appropriate questions.
DEADLINE FOR SUBMISSION OF STOCKHOLDER PROPOSALS
If the Merger is not consummated prior to the Company's 1995 annual meeting,
any stockholder of the Company who intends to present a proposal for action at
such meeting must file a copy thereof with the Corporate Secretary of the
Company not less than 45 days nor more than 90 days prior to the date of the
annual meeting, unless notice or public disclosure of the meeting occurs less
than 60 days prior to the date of the meeting, in which event stockholders may
deliver such notice not later than the 15th day following the day on which
notice of the meeting was mailed or public disclosure thereof was made. If the
proposal or proposals are to be included in the Company's proxy statement and
form of proxy relating to the 1995 annual meeting, they must be received by
December 13, 1994 pursuant to the proxy soliciting rules of the SEC. Nothing in
this paragraph shall be deemed to require the Company to include in its proxy
statement and form of proxy relating to the 1995 annual meeting any stockholder
proposal which may be excluded under SEC regulations in effect at the time such
proposals are received.
<PAGE>
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Special Meeting other than those matters described above in this Proxy
Statement. If, however, any other matters not now known should properly come
before the Special Meeting, the persons named in the accompanying proxy will
vote such proxy on such matters as determined by a majority of the Board of
Directors.
By Order of the Board
/S/ Edwin F. Hale, Sr.
- - - - -------------------------
Edwin F. Hale, Sr.
Chairman of the Board
Baltimore Maryland
October 17, 1994
<PAGE>
APPENDIX A
_______________________________________________________________________________
AGREEMENT AND PLAN OF MERGER
DATED AS OF THE 21st DAY OF MARCH, 1994
BY AND AMONG
FIRST FIDELITY BANCORPORATION,
ANNABEL LEE CORPORATION
AND
BALTIMORE BANCORP
_______________________________________________________________________________
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
Recitals.......................................................................... A-4
ARTICLE I. THE MERGERS
Section 1.1. Structure of the Merger............................................. A-5
Section 1.2. Effect on Outstanding Shares........................................ A-5
Section 1.3. Exchange Procedures................................................. A-5
Section 1.4. Options............................................................. A-6
Section 1.5. Transformation of the Company into a Savings and Loan Holding
Company........................................................................... A-6
Section 1.6. Directors of Company Bank........................................... A-6
ARTICLE II. CONDUCT PENDING THE MERGER
Section 2.1. Conduct of the Company's Business Prior to the Effective Time ...... A-7
Section 2.2. Forbearance by the Company.......................................... A-7
Section 2.3. Cooperation......................................................... A-8
ARTICLE III. REPRESENTATIONS AND WARRANTIES
Section 3.1. Representations and Warranties of the Company....................... A-8
Section 3.2. Representations and Warranties of Acquiror and Merger Sub ..........A-15
ARTICLE IV. COVENANTS
Section 4.1. Acquisition Proposals...............................................A-16
Section 4.2. Certain Policies of the Company.....................................A-16
Section 4.3. Employees...........................................................A-16
Section 4.4. Access and Information..............................................A-17
Section 4.5. Certain Filings, Consents and Arrangements..........................A-18
Section 4.6. Antitakeover Statutes...............................................A-18
Section 4.7. Indemnification; Directors' and Officers' Insurance ................A-18
Section 4.8. Additional Agreements...............................................A-19
Section 4.9. Publicity...........................................................A-19
Section 4.10. Proxy Statement.....................................................A-19
Section 4.11. Shareholders' Meeting...............................................A-20
Section 4.12. Notification of Certain Matters.....................................A-20
Section 4.13. Outstanding Debt....................................................A-20
ARTICLE V. CONDITIONS TO CONSUMMATION
Section 5.1. Conditions to All Parties' Obligations..............................A-20
Section 5.2. Conditions to Obligations of the Acquiror and Merger Sub ...........A-21
Section 5.3. Conditions to the Obligation of the Company.........................A-21
<PAGE>
PAGE
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ARTICLE VI. TERMINATION
Section 6.1. Termination.........................................................A-21
Section 6.2. Effect of Termination...............................................A-22
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
Section 7.1. Effective Date and Effective Time...................................A-22
ARTICLE VIII. OTHER MATTERS
Section 8.1. Certain Definitions; Interpretation.................................A-22
Section 8.2. Survival............................................................A-23
Section 8.3. Waiver..............................................................A-23
Section 8.4. Counterparts........................................................A-23
Section 8.5. Governing Law.......................................................A-23
Section 8.6. Expenses............................................................A-23
Section 8.7. Notices.............................................................A-23
Section 8.8. Entire Agreement; Etc...............................................A-24
Section 8.9. Assignment..........................................................A-24
LIST OF ANNEXES
Annex 1 -- Company Rights (Recital D)
Annex 2 -- Form of Option Agreement (Recital E)
Annex 3 -- Subsidiaries of the Company (Section 3.1(d))
Annex 4 -- Company Benefit Plans (Section 3.1(n))
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of the 21st day of March, 1994 (this
"Plan"), by and among First Fidelity Bancorporation (the "Acquiror"), Annabel
Lee Corporation (the "Merger Sub") and Baltimore Bancorp (the "Company").
RECITALS:
A. The Acquiror. The Acquiror has been duly incorporated and is an existing
corporation in good standing under the laws of the State of New Jersey, with its
principal executive offices located in Lawrenceville, New Jersey. The Acquiror
is a bank holding company duly registered with the Federal Reserve Board (as
defined below) under the Bank Holding Company Act of 1956, as amended (the "BHC
Act").
B. Merger Sub. Merger Sub has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Maryland, with its
principal executive offices located in Baltimore, Maryland. All the outstanding
shares of the capital stock of Merger Sub are owned directly by the Acquiror.
C. The Company. The Company has been duly incorporated and is an existing
corporation in good standing under the laws of the State of Maryland, with its
principal executive offices located in Baltimore, Maryland. As of the date
hereof, the Company has 50,000,000 authorized shares of common stock, par value
$5.00 per share ("Company Common Stock"), of which no more than 16,683,931
shares were outstanding as of the date hereof. The Company is a bank holding
company duly registered with the Federal Reserve Board under the BHC Act.
D. Rights, Etc. The Company does not have any shares of its capital stock
reserved for issuance, any outstanding option, call or commitment relating to
shares of its capital stock or any outstanding securities, obligations or
agreements convertible into or exchangeable for, or giving any person any right
(including, without limitation, preemptive rights) to subscribe for or acquire
from it, any shares of its capital stock (collectively, "Rights"), except (i)
pursuant to the Option Agreement (as defined below), which is expected to be
entered into after the execution and delivery of this Plan; (ii) upon conversion
of approximately $5,229,000 principal amount of 6 3/4 % Convertible Subordinated
Debentures due April 1, 2011 of the Company (the "Convertible Subordinated
Debentures") (convertible into 200,153 shares of Company Common Stock); (iii)
upon exercise of existing stock options granted to directors and employees of
the Company and its subsidiaries (exercisable for 1,106,033 shares of Company
Common Stock at a weighted average exercise price of $9.00 per share); (iv)
pursuant to the $870,000 principal amount of 10 7/8 % Subordinated Capital Notes
due December 15, 1999 (the "Capital Notes") (subject to a commitment to issue at
maturity 48,000 shares of Company Common Stock based on the market price of the
Company Common Stock on March 17, 1994); (v) pursuant to the Company's 401(k)
plan, 68,828 shares of Company Common Stock reserved for issuance; and (vi) as
set forth on Annex 1.
E. The Option Agreement. As an inducement to the willingness of the Acquiror
and Merger Sub to enter into this Plan, the Company expects to enter into a
Stock Option Agreement with the Acquiror in the form set forth in Annex 2 (the
"Option Agreement"), pursuant to which the Company will grant to the Acquiror an
option to purchase authorized but unissued shares of Company Common Stock equal
to 19.9% of the outstanding shares of Company Common Stock upon the terms and
conditions therein contained.
F. Intention of the Parties. It is the intention of the parties to this Plan
that immediately prior to the Effective Time (as defined below) the Company will
cease to be a bank holding company under the BHC Act and become a savings and
loan holding company.
G. Board Approvals. The respective Boards of Directors of the Acquiror,
Merger Sub and the Company have duly approved the Plan and have duly authorized
its execution and delivery.
NOW, THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Plan and prescribe the terms
and conditions hereof and the manner and basis of carrying it into effect, which
shall be as follows:
<PAGE>
ARTICLE I. THE MERGERS
SECTION 1.1. Structure of the Merger. At the Effective Time, the Merger Sub
will merge (the "Merger") with and into the Company, with the Company being the
surviving corporation (the "Surviving Corporation"), pursuant to the provisions
of, and with the effect provided in, the Maryland General Corporation Law
("MGCL"). The separate existence of Merger Sub shall thereupon cease. The
Surviving Corporation shall continue to be governed by the laws of the State of
Maryland and its separate corporate existence with all of its rights,
privileges, immunities, powers and franchises shall continue unaffected by the
Merger. At the Effective Time (as defined in Section 7.1), the articles of
incorporation and by-laws of the Company shall be amended in their entirety to
conform to the articles of incorporation and by-laws of Merger Sub in effect
immediately prior to the Effective Time and shall become the articles of
incorporation and by-laws of the Surviving Corporation. At the Effective Time,
the directors and officers of Merger Sub shall be the directors and officers of
the Surviving Corporation.
SECTION 1.2. Effect on Outstanding Shares. (a) By virtue of the Merger,
automatically and without any action on the part of the holder thereof, each
share of Company Common Stock issued and outstanding at the Effective Time
(except shares held directly or indirectly by the Acquiror other than shares
held by Acquiror in a fiduciary capacity or in satisfaction of a debt previously
contracted) shall be cancelled and become and be converted into the right to
receive $20.75 in cash without interest (the "Merger Consideration"). As of the
Effective Time, each share of Company Common Stock held directly or indirectly
by the Acquiror, other than shares held in a fiduciary capacity or in
satisfaction of a debt previously contracted, shall be cancelled and retired and
cease to exist, and no exchange or payment shall be made with respect thereto.
(b) The shares of common stock of Merger Sub issued and outstanding
immediately prior to the Effective Time shall become shares of the Surviving
Corporation after the Merger and shall thereafter constitute all of the issued
and outstanding shares of the capital stock of the Surviving Corporation.
SECTION 1.3. Exchange Procedures. (a) At and after the Effective Time, each
certificate (each a "Certificate") previously representing shares of Company
Common Stock shall represent only the right to receive the Merger Consideration
in cash without interest.
(b) As of the Effective Time, the Acquiror shall deposit, or shall cause to
be deposited, with such bank or trust company as the Acquiror shall elect (which
may be a subsidiary of the Acquiror) (the "Exchange Agent"), for the benefit of
the holders of shares of Company Common Stock, for exchange in accordance with
this Section 1.3, the Merger Consideration to be paid pursuant to Section 1.2
and deposited pursuant to this Section 1.3 in exchange for outstanding shares of
Company Common Stock.
(c) As promptly as possible after the Effective Time, the Acquiror shall
cause the Exchange Agent to mail to each holder of record of a Certificate or
Certificates the following: (i) a letter of transmittal specifying 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, which shall be in
a form and contain any other provisions as the Acquiror may reasonably
determine; and (ii) instructions for use in effecting the surrender of the
Certificates in exchange for the Merger Consideration. Upon proper surrender of
a Certificate to the Exchange Agent, together with a properly completed and duly
executed letter of transmittal, the holder of such Certificate shall thereupon
be entitled to receive in exchange therefor a check representing the Merger
Consideration which such holder has the right to receive in respect of the
Certificate surrendered pursuant to the provisions hereof, and the Certificate
so surrendered shall forthwith be cancelled. No interest will be paid or accrued
on the Merger Consideration payable to holders of Certificates. In the event of
a transfer of ownership of any shares of Company Common Stock not registered in
the transfer records of the Company, a check for the Merger Consideration may be
issued to the transferee if the Certificate representing such Company Common
Stock is presented to the Exchange Agent, accompanied by documents sufficient,
in the discretion of the Acquiror, (i) to evidence and effect such transfer and
(ii) to evidence that all applicable stock transfer taxes have been paid.
(d) From and after the Effective Time, there shall be no transfers on the
stock transfer records of the Company of any shares of Company Common Stock that
were outstanding immediately prior to the
<PAGE>
Effective Time. If after the Effective Time Certificates are presented to the
Acquiror or the Surviving Corporation, they shall be cancelled and exchanged for
the Merger Consideration deliverable in respect thereof pursuant to this Plan in
accordance with the procedures set forth in this Section 1.3.
(e) Any portion of the aggregate Merger Consideration (including the proceeds
of any investments thereof) that remains unclaimed by the shareholders of the
Company for one year after the Effective Time shall be repaid by the Exchange
Agent to the Acquiror. Any shareholders of the Company who have not theretofore
complied with this Section 1.3 shall thereafter look only to the Acquiror for
payment of their Merger Consideration deliverable in respect of each share of
Company Common Stock such stockholder holds as determined pursuant to this Plan
without any interest thereon. If outstanding certificates for shares of Company
Common Stock are not surrendered or the payment for them not claimed prior to
the date on which such payments would otherwise escheat to or become the
property of any governmental unit or agency, the unclaimed items shall, to the
extent permitted by abandoned property and any other applicable law, become the
property of the Acquiror (and to the extent not in its possession shall be paid
over to it), free and clear of all claims or interest of any person previously
entitled to such claims. Notwithstanding the foregoing, none of the Acquiror,
Merger Sub, the Exchange Agent or any other person shall be liable to any former
holder of Company Common Stock for any amount delivered to a public official
pursuant to applicable abandoned property, escheat or similar laws.
(f) 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 the Acquiror,
the posting by such person of a bond in such amount as the Acquiror 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 Merger Consideration deliverable in respect thereof
pursuant to this Plan.
SECTION 1.4. Options. At the Effective Time, each option granted by the
Company to purchase shares of Company Common Stock, which is outstanding and
unexercised immediately prior to the Effective Time, shall be converted into the
right to receive, in cancellation thereof, an amount in cash computed by
multiplying (i) the difference between (x) the per share amount of the Merger
Consideration and (y) the per share exercise price applicable to such option by
(ii) the number of such shares of Company Common Stock subject to such option.
The Company agrees to take or cause to be taken all action necessary under its
1984 Stock Option Plan, 1988 Stock Incentive Plan and 1992 Stock Option Plan, as
amended prior to the date hereof (the "Company Stock Option Plans"), to provide
for such adjustment. At the Effective Time (or by the first business day
thereafter), the Acquiror will make the payments required to be made to grantees
of options under this Section 1.4.
SECTION 1.5 Transformation of the Company into a Savings and Loan Holding
Company. Prior to the Effective Time, the Company shall use its best efforts to
take all action necessary and appropriate (a) to charter, on the Effective Date
and prior to the Thrift Merger (as defined below), a federal savings bank (the
"FSB") having its main office in Baltimore, Maryland and having a charter and
by-laws acceptable in form and substance to the Acquiror, (b) to acquire, on the
Effective Date and prior to the Thrift Merger, all issued and outstanding shares
of the FSB, (c) to cause, on the Effective Date and prior to the Thrift Merger
(as defined below), the FSB to obtain deposit insurance from, and to become a
member of, the Savings Association Insurance Fund of the Federal Deposit
Insurance Corporation (the "FDIC") and (d) to cause The Bank of Baltimore (the
"Company Bank") to be merged, following completion of (a), (b) and (c) and prior
to the Effective Time, with and into the FSB, with (i) the FSB being the
surviving entity, (ii) all shares of the Company Bank being cancelled and (iii)
the corporate existence of the Company Bank ceasing, on such additional terms
and conditions as are acceptable in form and substance to the Acquiror (the
"Thrift Merger").
SECTION 1.6. Directors of Company Bank. Acquiror intends to invite the
directors of the Company Bank serving on the Effective Date and prior to the
Thrift Merger, who do not become employees of the FSB, to become directors of
the FSB subsequent to the Thrift Merger for a period of not less than two years,
with such directors to be compensated at not less than the annual retainer and
meeting attendance fees being paid to non-employee directors of the Company Bank
on the date hereof. Acquiror
<PAGE>
also intends, in consultation with the board of directors of the Company Bank,
to select from among such directors or other prominent business leaders in the
Maryland community a person to become a director of Acquiror on the Effective
Date, to serve for not less than two years.
ARTICLE II. CONDUCT PENDING THE MERGER
SECTION 2.1. Conduct of the Company's Business Prior to the Effective Time.
Except as expressly provided in this Plan, during the period from the date of
this Plan to the Effective Time, the Company shall, and shall cause its
subsidiaries to, (i) conduct its business in the usual, regular and ordinary
course consistent with past practice, (ii) use its best efforts to maintain and
preserve intact its business organization, employees and advantageous business
relationships and retain the services of its officers and key employees, (iii)
take no action which would adversely affect or delay the ability of the Company,
the Acquiror, Merger Sub or the FSB to obtain any necessary approvals, consents
or waivers of any governmental authority required for the transactions
contemplated hereby or to perform its covenants and agreements on a timely basis
under this Plan and (iv) take no action that is reasonably likely to have a
Material Adverse Effect (as defined in Section 8.1 hereof) on the Company.
SECTION 2.2. Forbearance by the Company. During the period from the date of
this Plan to the Effective Time, the Company shall not, and shall not permit any
of its subsidiaries, without the prior written consent of the Acquiror, to:
(a) other than in the ordinary course of business consistent with past
practice, make any advance or incur any indebtedness for borrowed money, assume,
guarantee, endorse or otherwise as an accommodation become responsible for the
obligations of any other person;
(b) adjust, split, combine or reclassify any capital stock; make, declare or
pay any dividend or make any other distribution on, or directly or indirectly
redeem, purchase or otherwise acquire, any shares of its capital stock or any
securities or obligations convertible into or exchangeable for any shares of its
capital stock (except pursuant to Section 4.13 or as provided in the letter
pursuant to Section 3.1 or through the trustee for the 401(k) Plan), or grant
any stock appreciation rights or grant any person any right to acquire any
shares of its capital stock, except for regular quarterly cash dividends at a
rate per share of Company Common Stock not in excess of $0.05 per share with
declaration, record and payment dates coinciding with the schedule for such
dates relating to the two most recently declared dividends prior to the date
hereof; or issue any additional shares of capital stock (including pursuant to
any dividend reinvestment or other similar type of plan) except pursuant to (i)
the exercise of stock options outstanding as of the date hereof as set forth in
Annex 1 and on the terms in effect on the date hereof, (ii) the Option
Agreement, (iii) the conversion of the Convertible Subordinated Debentures, or
(iv) as provided in the letter pursuant to Section 3.1;
(c) other than in the ordinary course of business consistent with past
practice, sell, transfer, mortgage, encumber or otherwise dispose of any of its
material properties or assets to any individual, corporation or other entity
other than a direct or indirect wholly owned subsidiary of the Company, or
cancel, release or assign any indebtedness of any such person or any claims held
by any such person, except pursuant to contracts or agreements in force at the
date of this Plan or as provided in the letter pursuant to Section 3.1;
(d) increase in any manner the compensation or fringe benefits of any of its
employees or directors or pay any pension or retirement allowance not required
by any existing plan or agreement to any such employees or directors, or become
a party to, amend or commit itself to any pension, retirement, profit-sharing or
welfare benefit plan or agreement or employment agreement with or for the
benefit of any employee or director, other than general increases in
compensation in the ordinary course of business consistent with past practice
not in excess of 4% in any 12-month period, or voluntarily accelerate the
vesting of any stock options or the funding or vesting of other compensation or
benefit; provided, however, that the foregoing shall not apply to prohibit any
increase or acceleration disclosed in writing by the Company to the Acquiror
prior to the execution hereof pursuant to a plan, program, arrangement or
agreement in effect on the date hereof which results from the execution of this
Plan or the consummation of any transaction contemplated hereby;
<PAGE>
(e) except as contemplated by Section 4.2, change its method of accounting as
in effect at December 31, 1993, except as required by changes in generally
accepted accounting principles as concurred in by the Company's independent
auditors; or
(f) amend its articles of incorporation (or equivalent) or its by-laws.
SECTION 2.3. Cooperation. The Company shall, and shall cause its subsidiaries
to, cooperate with Acquiror and Merger Sub in completing the transactions
contemplated hereby and shall not intentionally take, cause to be taken or agree
or make any commitment to take any action: (i) that is reasonably likely to
cause any of the representations or warranties of it that are set forth in
Article III hereof not to be true and correct, or (ii) that is inconsistent with
or prohibited by Section 2.1 or Section 2.2. The Acquiror and Merger Sub shall,
and shall cause their subsidiaries to, cooperate with the Company in completing
the transactions contemplated hereby and shall not intentionally take, cause to
be taken or agree to make any commitment to take any action that is reasonably
likely to cause any of their representations or warranties set forth in Article
III hereof not to be true and correct.
ARTICLE III. REPRESENTATIONS AND WARRANTIES
SECTION 3.1. Representations and Warranties of the Company. The Company
represents and warrants to the Acquiror and Merger Sub, that, except as
specifically disclosed in a letter of the Company delivered to the Acquiror
prior to the execution hereof (and making specific reference to the Section of
this Plan for which an exception is taken) or as disclosed herein or in any
Annex hereto:
(a) Recitals True. The facts set forth in the Recitals of this Plan with
respect to the Company are true and correct.
(b) Capital Stock. All outstanding shares of capital stock of the Company and
its subsidiaries, are duly authorized, validly issued and outstanding, fully
paid and non-assessable, and subject to no preemptive rights.
(c) Authority. Each of the Company and its subsidiaries, has the power and
authority, and is duly qualified in all jurisdictions (except for such
qualifications the absence of which, individually or in the aggregate, would not
have a Material Adverse Effect (as defined in Section 8.1)) where such
qualification is required, to carry on its business as it is now being conducted
and to own all its material properties and assets, and it has all federal,
state, local, and foreign governmental authorizations necessary for it to own or
lease its properties and assets and to carry on its business as it is now being
conducted, except for such powers and authorizations the absence of which,
either individually or in the aggregate, would not have a Material Adverse
Effect.
(d) Subsidiaries. A list of the Company's subsidiaries is contained in Annex
3. The shares of capital stock of each of the Company's subsidiaries are owned
by it free and clear of all liens, claims, encumbrances and restrictions on
transfer and there are no Rights with respect to such capital stock.
(e) Shareholder Approvals. (i) Subject to the receipt of the required
shareholder approval of this Plan, each of this Plan and the Option Agreement
has been authorized by all necessary corporate action of the Company. The
Company has received the written opinion of Alex. Brown & Sons Incorporated to
the effect that the consideration to be received by the shareholders of the
Company pursuant to this Plan is fair to such shareholders from a financial
point of view. Subject to receipt of (A) such shareholder approval and (B) the
required approvals, consents or waivers of governmental authorities referred to
in Section 5.1(b), this Plan is, and upon its execution and delivery the Option
Agreement will be, a valid and binding agreement of the Company enforceable
against it in accordance with its terms, subject as to enforcement to
bankruptcy, insolvency, fraudulent transfer, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles.
<PAGE>
(ii) The affirmative vote of two-thirds ( 2/3 ) of the outstanding stock
of the Company entitled to vote on the Plan is the only shareholder vote of
the Company's shareholders required for approval of this Plan and
consummation of the Merger and the other transactions contemplated hereby.
(f) No Violations. The execution, delivery and performance of this Plan by
the Company do not, the execution, delivery and performance of the Option
Agreement by the Company will not, and the consummation of the transactions
contemplated hereby or thereby by the Company will not, constitute (i) a breach
or violation of, or a default under, any law, rule or regulation or any
judgment, decree, order, governmental permit or license, or agreement, indenture
or instrument of the Company or its subsidiaries or to which the Company or its
subsidiaries (or any of their respective properties) is subject, except for any
of the foregoing that would not have a Material Adverse Effect on the Company or
enable any person to enjoin the Merger, (ii) a breach or violation of, or a
default under, the articles of incorporation or by-laws of the Company or any of
its subsidiaries or (iii) a breach or violation of, or a default under (or an
event which with due notice or lapse of time or both would constitute a default
under), or result in the termination of, accelerate the performance required by,
or result in the creation of any lien, pledge, security interest, charge or
other encumbrance upon any of the properties or assets of the Company or any of
its subsidiaries under, any of the terms, conditions or provisions of any note,
bond, indenture, deed of trust, loan agreement or other agreement, instrument or
obligation to which the Company or any of its subsidiaries is a party, or to
which any of their respective properties or assets may be bound or affected,
except for any of the foregoing that, individually or in the aggregate, would
not have a Material Adverse Effect. The consummation of the transactions
contemplated hereby or, upon its execution and delivery, by the Option Agreement
will not require any approval, consent or waiver under any such law, rule,
regulation, judgment, decree, order, governmental permit or license or the
approval, consent or waiver of any other party to any such agreement, indenture
or instrument, other than (i) the required approvals, consents and waivers of
governmental authorities referred to in Section 5.1(b), (ii) the approval of the
shareholders of the Company referred to in Section 3.1(e), (iii) such approvals,
consents or waivers as are required under the federal and state securities or
"Blue Sky" laws in connection with the transactions contemplated by the Option
Agreement, and (iv) any other approvals, consents or waivers the absence of
which, individually or in the aggregate, would not result in a Material Adverse
Effect or enable any person to enjoin the Merger.
(g) Reports. (i) As of their respective dates or, if amended, as of the
respective dates of the latest amendments thereto, neither the Company's Annual
Report on Form 10-K for the fiscal year ended December 31, 1992, nor any other
document filed by the Company subsequent to December 31, 1992 under Section
13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended
(the "Securities Exchange Act"), each in the form (including exhibits) filed
with the Securities and Exchange Commission (the "SEC") (collectively, the
"Reports"), contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances under which they were
made, not misleading. Each of the balance sheets or statements of condition
contained or incorporated by reference in the Company's Reports (including in
each case any related notes and schedules) fairly presented the financial
position of the entity or entities to which it relates as of its date and each
of the statements of operations and retained earnings and of cash flows and
changes in financial position or equivalent statements contained or incorporated
by reference in the Company's Reports (including in each case any related notes
and schedules), fairly presented the results of operations, retained earnings
and cash flows and changes in financial position, as the case may be, of the
entity or entities to which it relates for the periods set forth therein
(subject, in the case of unaudited interim statements, to normal year-end audit
adjustments that are not material in amount or effect), in each case in
accordance with generally accepted accounting principles consistently applied
during the periods involved, except as may be noted therein.
(ii) 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, 1992 with (i) the SEC, (ii) the Board of Gover
<PAGE>
nors of the Federal Reserve System (the "Federal Reserve Board"), (iii) the
FDIC, (iv) any state banking commission or other regulatory authority ("State
Regulator") (collectively, "Regulatory Agencies"), and (v) the National
Association of Securities Dealers, Inc. and any other self-regulatory
organization ("SRO"), and all other reports and statements required to be
filed by them since December 31, 1992, including, without limitation, any
report or statement required to be filed pursuant to the laws, rules or
regulations of the United States, the SEC, the Federal Reserve Board, the
FDIC, any State Regulator or any SRO, and have paid all fees and assessments
due and payable in connection therewith, except where the failure to make any
such filing or to pay any such fees or assessments or the timing of such
filing would not have a Material Adverse Effect.
(h) Absence of Certain Changes or Events. Since December 31, 1993, the
Company and its subsidiaries have not incurred any material liability, except in
the ordinary course of their business consistent with past practice, nor has
there been any change, or any event involving a prospective change, which,
individually or in the aggregate, has had, or is reasonably likely to have, a
Material Adverse Effect on the Company
(i) Taxes. Except as otherwise would not have a Material Adverse Effect, all
federal, state, local, and foreign tax returns required to be filed by or on
behalf of the Company or any of its subsidiaries have been timely filed or
requests for extensions have been timely filed and any such extension shall have
been granted and not have expired, and all such filed returns are complete and
accurate in all material respects. All taxes shown on such returns, and all
taxes required to be shown on returns for which extensions have been granted,
have been paid in full or adequate provision has been made for any such taxes on
the Company's statement of financial condition (in accordance with generally
accepted accounting principles). As of the date of this Plan, there is no audit
examination, deficiency, or refund litigation with respect to any taxes of the
Company that could result in a determination that would have a Material Adverse
Effect on the Company. All taxes, interest, additions, and penalties due with
respect to completed and settled examinations or concluded litigation relating
to the Company have been paid in full or adequate provision has been made for
any such taxes on the Company's balance sheet (in accordance with generally
accepted accounting principles). Except as otherwise would not have a Material
Adverse Effect, the Company and its subsidiaries have not executed an extension
or waiver of any statute of limitations on the assessment or collection of any
material tax due that is currently in effect.
(j) Absence of Claims. No litigation, proceeding or controversy before any
court or governmental agency is pending, and there is no pending claim, action
or proceeding against the Company or any of its subsidiaries, which is
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect or to materially hinder or delay consummation of the transactions
contemplated hereby, and, to the Company's knowledge, no such litigation,
proceeding, controversy, claim or action has been threatened or is contemplated.
(k) Absence of Regulatory Actions. Except with respect to the Order to Cease
and Desist, dated July 21, 1992, between the Company, the FDIC and the Bank
Commissioner for the State of Maryland (the "Commissioner") and the Agreement,
dated July 21, 1992, between the Company, the Federal Reserve Bank of Richmond
and the Commissioner, neither the Company nor any of its subsidiaries is a party
to any cease and desist order, written agreement or memorandum of understanding
with, or a party to any commitment letter or similar undertaking to, or is
subject to any order or directive by, or is a recipient of any extraordinary
supervisory letter from, or has adopted any board resolutions at the request of,
federal or state governmental authorities charged with the supervision or
regulation of banks, savings banks or bank holding companies or engaged in the
insurance of bank and/or savings and loan deposits ("Government Regulators") nor
has the Company been advised by any Government Regulator that it is
contemplating issuing or requesting (or is considering the appropriateness of
issuing or requesting) any such order, directive, written agreement, memorandum
of understanding, extraordinary supervisory letter, commitment letter, board
resolutions or similar undertaking.
<PAGE>
(l) Agreements. Except for the Option Agreement and arrangements made in the
ordinary course of business, the Company and its subsidiaries are not bound by
any material contract (as defined in Item 601(b)(10) of Regulation S-K) to be
performed after the date hereof that has not been filed with or incorporated by
reference in the Company's Reports filed prior to the date hereof or as
disclosed in the Company's audited consolidated financial statements as of
December 31, 1993 (as furnished to the Acquiror prior to the date hereof).
Except as disclosed in the Company's Reports filed prior to the date of this
Plan or as disclosed in such financial statements as of December 31, 1993, as of
the date of this Plan, neither the Company nor any of its subsidiaries is a
party to a (i) consulting agreement (other than data processing, software
programming and licensing contracts entered into in the ordinary course of
business) not terminable on 90 days' or less notice involving the payment of
more than $100,000 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, (ii)
agreement with any executive officer or other key employee of the Company or any
of its subsidiaries the benefits of which are contingent, or the terms of which
are materially altered, upon the occurrence of a transaction involving the
Company or any of its subsidiaries of the nature contemplated by this Plan or
the Option Agreement and which provides for the payment of in excess of
$100,000, (iii) agreement with respect to any executive officer of the Company
or any of its subsidiaries providing any term of employment or compensation
guarantee extending for a period longer than one year and for the payment of in
excess of $100,000 per annum, (iv) agreement or plan (other than the Company
Stock Option Plans), 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 occurrence of any of the transactions contemplated by this Plan or the
Option 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 Plan or the Option
Agreement or (v) agreement containing covenants that limit the ability of the
Company or any of its subsidiaries to compete in any line of business or with
any person, or that involve any restriction on the geographic area in which, or
method by which, the Company or any of its subsidiaries may carry on its
business (other than as may be required by law or any regulatory agency).
(m) Labor Matters. Neither the Company nor any of its subsidiaries is a party
to, or is bound by, any collective bargaining agreement, contract, or other
agreement or understanding with a labor union or labor organization, nor is the
Company or any of its subsidiaries the subject of any proceeding asserting that
the Company or any such subsidiary has committed an unfair labor practice or
seeking to compel the Company or such subsidiary to bargain with any labor
organization as to wages and conditions of employment, nor is there any strike,
other labor dispute or organizational effort involving the Company or any of its
subsidiaries pending or threatened.
(n) Employee Benefit Plans. All benefit plans, contracts, agreements,
arrangements, including, but not limited to, "employee benefit plans", as
defined in Section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), and employment contracts and deferred compensation plans
and agreements (as set forth in Annex 4 hereto), that cover any of the Company's
or its subsidiaries' employees or directors (hereinafter referred to
collectively as the "Employee Plans"), comply in all material respects with all
applicable requirements of ERISA, the Internal Revenue Code of 1986, as amended
(the "Code"), and other applicable laws; neither the Company nor any of its
subsidiaries nor any Employee Plan subject to ERISA, nor any trust thereunder,
nor, to the best of the Company's knowledge, any trustee or fiduciary thereof,
has engaged in a "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the Code) with respect to any Employee Plan which is likely to
result in any material penalties or taxes under Section 502(i) of ERISA or
Section 4975 of the Code; no liability to the Pension Benefit Guaranty
Corporation has been or is expected by the Company or any of its subsidiaries to
be incurred with respect to any Employee Plan which is subject to Title IV of
ERISA ("Pension Plan"), or with respect to any "single-employer plan" (as
defined in Section 4001(a)(15) of ERISA) currently or formerly maintained by the
Company or any of its subsidiaries or any entity which is considered one
employer with the Company under Section 4001 of ERISA or Section 414 of the Code
(an "ERISA Affiliate"); no Pension Plan had an "accumulated funding deficiency"
<PAGE>
(as defined in Section 302 of ERISA (whether or not waived)) as of the last day
of the end of the most recent plan year ending prior to the date hereof; the
fair market value of the assets of each Pension Plan exceeds the accumulated
benefit obligation (as determined under Statement of Financial Accounting
Standards No. 87) under such Pension Plan as of the end of the most recent plan
year with respect to the respective Pension Plan ending prior to the date
hereof, calculated on the basis of the actuarial assumptions used in the most
recent actuarial valuation for such Pension Plan as of the date hereof; no
notice of a "reportable event" (as defined in Section 4043 of ERISA) for which
the 30-day reporting requirement has not been waived has been required to be
filed for any Pension Plan within the 12-month period ending on the date hereof;
and neither the Company nor any of its subsidiaries has provided, or is required
to provide, security to any Pension Plan or to any single-employer plan of an
ERISA Affiliate pursuant to Section 401(a)(29) of the Code; and the Company and
its subsidiaries have not contributed to any "multiemployer plan", as defined in
Section 3(37) of ERISA, on or after September 26, 1980. Each Employee Plan which
is an "employee pension benefit plan" (as defined in Section 3(2) of ERISA) and
which is intended to be qualified under Section 401(a) of the Code (a "Qualified
Plan") has received a favorable determination letter from the Internal Revenue
Service ("IRS") (other than the Company's 401(k) plan; provided that the
Company's 401(k) plan was established after 1987, and provided further that the
Company is not aware of any circumstances that would prevent the issuance of a
favorable determination letter or that would cause the IRS to determine that the
Company's 401(k) plan in operation was not tax qualified) and the Company and
its subsidiaries are not aware of any circumstances likely to result in
revocation of any such favorable determination letter; each Qualified Plan which
is an "employee stock ownership plan" (as defined in Section 4975(e)(7) of the
Code) has satisfied all of the applicable requirements of Sections 409 and
4975(e)(7) of the Code and the regulations thereunder; there is no pending or
threatened litigation relating to any Employee Plan; there has been no
announcement or legally binding commitment by the Company or its subsidiaries to
create an additional Employee Plan, or to amend an Employee Plan except for
amendments required by applicable law which do not materially increase the cost
of such Employee Plan; and the Company and its subsidiaries do not have any
obligations for retiree health and life benefits under any Employee Plan that
cannot be amended or terminated without incurring any liability thereunder,
except continuation coverage required under Sections 601 through 608 of ERISA.
Except as specifically identified on Annex 4 and subject to the conditions,
limitations and assumptions specified therein, the execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby will
not result in any payment or series of payments by the Company or its
subsidiaries to any person which is an "excess parachute payment" (as defined in
Section 280G of the Code) under any Employee Plan, increase any benefits payable
under any Employee Plan, or accelerate the time of payment or vesting of any
such benefit. With respect to each Employee Plan, the Company has supplied to
the Acquiror and Merger Sub a true and correct copy of (i) the most recent
annual report on the applicable form of the Form 5500 series filed with the
"IRS", (ii) such Employee Plan, including amendments thereto, (iii) each trust
agreement and insurance contract relating to such Plan, including amendments
thereto, (iv) the most recent summary plan description for such Employee Plan,
including amendments thereto, if the Employee Plan is subject to Title I of
ERISA, (v) the most recent actuarial report or valuation if such Employee Plan
is a Pension Plan and (vi) the most recent determination letter issued by the
IRS if such Company Benefit Plan is a Qualified Plan. Annex 4 contains a
complete list of the Employee Plans.
(o) Title to Assets. Each of the Company and its subsidiaries has good and
marketable title to its properties and assets (other than (i) property as to
which it is lessee and (ii) real estate owned as a result of foreclosure,
transfer in lieu of foreclosure or other transfer in satisfaction of a debtor's
obligation previously contracted), except for such defects in title which would
not, individually or in the aggregate, have a Material Adverse Effect.
(p) Knowledge as to Conditions. The Company knows of no reason why the
approvals, consents and waivers of governmental authorities referred to in
Section 5.1(b) should not be obtained without the imposition of any condition of
the type referred to in the proviso thereto.
<PAGE>
(q) Compliance with Laws. The Company and each of its subsidiaries has all
permits, licenses, certificates of authority, orders and approvals of, and has
made all filings, applications and registrations with, federal, state, local and
foreign governmental or regulatory bodies that are required in order to permit
it to carry on its business as it is presently conducted and the absence of
which could, individually or in the aggregate, have a Material Adverse Effect on
the Company; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect, and, to the best knowledge of the
Company, no suspension or cancellation of any of them is threatened.
(r) Fees. Other than financial advisory services performed for the Company by
Alex. Brown & Sons Incorporated (in an amount and pursuant to an agreement both
previously disclosed to the Acquiror), neither the Company nor any of its
subsidiaries, nor any of their respective officers, directors, employees or
agents, has employed any broker or finder or incurred any liability for any
financial advisory fees, brokerage fees, commissions, or finder's fees, and no
broker or finder has acted directly or indirectly for the Company or any of its
subsidiaries, in connection with the Plan or the transactions contemplated
hereby.
(s) Environmental Matters. (i) Except to the extent that the following,
individually or in the aggregate, could not reasonably be expected to have a
Material Adverse Effect:
(A) Each of the Company and its subsidiaries, the Participation
Facilities, and the Loan Properties (each as defined below) are in compliance
with all Environmental Laws (as defined below);
(B) To the knowledge of any employee of the Company or any of its
subsidiaries, there is no suit, claim, action, demand, order, directive,
investigation or proceeding pending or threatened, before any court,
governmental agency or board or other forum against the Company or any of its
subsidiaries, any Participation Facility or any Loan Property with respect to
any Environmental Law or relating to the release or threatened release into
the environment of any Hazardous Substance (as defined below);
(C) To the knowledge of any employee of the Company or any of its
subsidiaries, there is no reasonable basis for any suit, claim, action,
demand, directive or proceeding of a type described in Section 3.1(s)(i)(B);
(D) To the knowledge of any employee of the Company or any of its
subsidiaries, the properties currently or formerly owned or operated by the
Company are not contaminated with Hazardous Substances (as defined below);
provided, however, that with respect to properties formerly owned or operated
by the Company, such representation is limited to the period the Company
owned or operated such properties; and
(E) To the knowledge of any employee of the Company or any of its
subsidiaries, neither the Company nor any of its subsidiaries has received
any notice, demand letter, order, directive or request for information from
any governmental entity or any third party indicating that it may be in
violation of, or liable under, any Environmental Law and there are no
circumstances involving the Company, any of its subsidiaries, any Loan
Property or any Participation Facility which will result in liability to the
Company or its subsidiaries under any Environmental Law.
(ii) The following definitions apply for purposes of this Section
3.1(s): (w) "Loan Property" means any property in which the Company (or a
subsidiary of the Company) holds a security interest or is an owner or
operator of such property; (x) "Participation Facility" means any facility
in which the Company (or a subsidiary of the Company) participates in the
management (including all property held as trustee or in any other
fiduciary or agency capacity) and, where required by the context, includes
the owner or operator of such property, but only with respect to such
property; (y) "Environmental Law" means any law, regulation, agency
requirement, government interpretation, policy, order, decree, judgment,
or judicial opinion as presently in effect relating to (A) the
manufacture, transport, use, treatment, storage, recycling, disposal,
release, threatened release or presence of Hazardous Substances or (B)
relating to the preservation, restoration, or
<PAGE>
protection of the environment, natural resources or human health; and (z)
"Hazardous Substances" means substances which are either: (A) listed,
classified or regulated pursuant to any Environmental Law; (B) any
petroleum products or by-products, asbestos containing material,
polychlorinated biphenyls, radioactive materials or radon gas; or (C) any
other matter to which exposure is prohibited, limited or regulated by any
Environmental Law.
(t) Allowance. The allowance for possible loan losses shown on the Company's
audited statement of financial condition as of December 31, 1993 was, and the
allowance for possible loan losses shown on the statements of financial
condition in the Company's Reports for periods ending after the date of this
Plan will be, adequate, as of the date thereof, under generally accepted
accounting principles applicable to banks and bank holding companies. The
Company has disclosed to the Acquiror in writing prior to the date hereof the
amounts of all loans, leases, advances, credit enhancements, other extensions of
credit, commitments and interest-bearing assets of the Company and its
subsidiaries that have been 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" or words of similar import, and the Company shall
promptly after the end of any month inform the Acquiror of any such
classification arrived at any time after the date hereof. The Other Real Estate
Owned ("OREO") included in any non-performing assets of the Company or any of
its subsidiaries is carried net of reserves at the lower of cost or fair value
based on current independent appraisals or current management appraisals
provided however that "current" shall mean within the past 24 months, except,
where the Company was not the lead participant, "current" shall mean appraisals
provided as of the date selected by the lead participant.
(u) Antitakeover Provisions Inapplicable. (i) The Board of Directors of the
Company has duly adopted an irrevocable and binding resolution as follows:
"RESOLVED, that pursuant to Section 3-603(c)(1)(ii) of the Maryland
General Corporation Law ("MGCL"), the Board of Directors of the Corporation
for the specific purpose of establishing an irrevocable exemption from
Section 3-602 of the MGCL hereby irrevocably exempts therefrom, and hereby
approves thereunder, the entering into, and all of the transactions relating
to and contemplated by, the agreement and plan of merger and the stock option
agreement in substantially the form presented to this meeting of the Board of
Directors of the Corporation to be entered into between First Fidelity
Bancorporation, Annabel Lee Corporation and the Corporation."
(ii) The resolution referred to in subsection (i) is effective to
exempt the Plan, the Option Agreement, the Merger and the transactions
contemplated hereby and thereby from the provisions of the MGCL referred
to therein and the Company has taken all action required to exempt each of
the foregoing from any other Maryland antitakeover laws.
(v) Insurance. The Company and its subsidiaries are presently insured, and
since December 31, 1992, have been insured, for reasonable amounts with
financially sound and reputable insurance companies, against such risks as
companies engaged in a similar business would, in accordance with good business
practice, customarily be insured. All of the insurance policies and bonds
maintained by the Company and its subsidiaries are in full force and effect, the
Company and its subsidiaries are not in default thereunder and all material
claims thereunder have been filed in due and timely fashion. In the best
judgment of the Company's management, such insurance coverage is adequate.
(w) Books and Records. The books and records of the Company and each of its
subsidiaries are maintained in accordance with applicable legal and accounting
requirements and reflect in all material respects the substance of events and
transactions that should be included therein.
(x) Corporate Documents. The Company has delivered to the Acquiror true and
complete copies of (i) its articles of incorporation and by-laws and (ii) the
articles and by-laws of the Company Bank.
<PAGE>
(y) Liquidation Account. Neither the Thrift Merger nor the Merger will result
in any payment or distribution payable out of the Liquidation Account of the
Company Bank.
SECTION 3.2. Representations and Warranties of Acquiror and Merger Sub.
Acquiror represents and warrants to the Company that, except as specifically
disclosed in a letter of the Acquiror delivered to the Company prior to the
execution hereof (and making specific reference to the Section of this Plan for
which an exception is taken) or as disclosed herein or in any Annex hereto:
(a) Recitals True. The facts set forth in the Recitals of this Plan with
respect to the Acquiror and the Merger Sub are true and correct.
(b) Corporate Organization and Qualification. Each of Acquiror and Merger Sub
is a corporation duly incorporated, validly existing and in good standing under
the laws of the States of New Jersey and Maryland, respectively, and is in good
standing as a foreign corporation in each jurisdiction where the properties
owned, leased or operated, or the business conducted, by it requires such
qualification, except for such failure to qualify or be in such good standing
which, when taken together with all other such failures, would not have a
Material Adverse Effect (as defined in Section 8.1). Acquiror and Merger Sub
each has the requisite corporate and other power and authority (including all
federal, state, local and foreign governmental authorizations) to carry on its
respective businesses as they are now being conducted and to own their
respective properties and assets, except for such powers and authorizations the
absence of which, either individually or in the aggregate, would not have a
Material Adverse Effect.
(c) Corporate Authority. Each of Acquiror and Merger Sub has the requisite
corporate power and authority and has taken all corporate action necessary in
order to execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement is a valid and binding agreement of Acquiror
and Merger Sub enforceable against Acquiror and Merger Sub in accordance with
its terms.
(d) No Violations. The execution, delivery and performance of this Agreement
by Acquiror and Merger Sub do not, and the consummation of the transactions
contemplated hereby will not, constitute (i) a breach or violation of, or a
default under, any law, rule or regulation or any judgment, decree, order,
governmental permit or license, or agreement, indenture or instrument of
Acquiror and Merger Sub or to which Acquiror and Merger Sub (or any of their
respective properties) is subject, which breach, violation or default would have
a Material Adverse Effect on Acquiror, or enable any person to enjoin the Merger
or the Thrift Merger, (ii) a breach or violation of, or a default under, the
certificate or articles of incorporation or by-laws of Acquiror or Merger Sub or
(iii) a breach or violation of, or a default under (or an event which with due
notice or lapse of time or both would constitute a default under), or result in
the termination of, accelerate the performance required by, or result in the
creation of any lien, pledge, security interest, charge or other encumbrance
upon any of the properties or assets of Acquiror or Merger Sub under, any of the
terms, conditions or provisions of any note, bond, indenture, deed of trust,
loan agreement or other agreement, instrument or obligation to which Acquiror or
Merger Sub is a party, or to which any of their respective properties or assets
may be bound or affected, except for any of the foregoing that, individually or
in the aggregate, would not have a Material Adverse Effect on Acquiror; and the
consummation of the transactions contemplated hereby will not require any
approval, consent or waiver under any such law, rule, regulation, judgment,
decree, order, governmental permit or license or the approval, consent or waiver
of any other party to any such agreement, indenture or instrument, other than
(i) the required approvals, consents and waivers of governmental authorities
referred to in Section 5.1(b), (ii) any such approval, consent or waiver that
already has been obtained, and (iii) any other approvals, consents or waivers
the absence of which, individually or in the aggregate, would not result in a
Material Adverse Effect on Acquiror or enable any person to enjoin the Merger or
the Thrift Merger.
(e) Access to Funds. Acquiror has, or on the Closing Date will have, all
funds necessary to consummate the Merger and pay the aggregate Merger
Consideration.
<PAGE>
(f) Knowledge as to Conditions. Acquiror knows of no reason why the
approvals, consents and waivers of governmental authorities referred to in
Section 5.1(b) should not be obtained without the imposition of any condition of
the type referred to in the provisos thereto.
(g) Banco Santander S.A. As of the date hereof, Banco Santander, S.A. is a
bank holding company under the BHC Act and, immediately prior to the Effective
Time, Banco Santander, S.A. will be a bank holding company under the BHC Act. As
of the date hereof, Banco Santander, S.A. is not a savings and loan holding
company under HOLA (as herein defined) and, immediately prior to the Effective
Time, Banco Santander, S.A. will not be a savings and loan holding company under
HOLA.
ARTICLE IV. COVENANTS
SECTION 4.1. Acquisition Proposals. The Company agrees that neither it nor
any of its subsidiaries nor any of the respective officers and directors of the
Company or its subsidiaries shall, and the Company shall direct and use its best
efforts to cause its employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or any
of its subsidiaries) not to, initiate, solicit or encourage, directly or
indirectly, any enquiries or the making of any proposal or offer (including,
without limitation, any proposal or offer to stockholders of the Company) with
respect to a merger, consolidation or similar transaction involving, or any
purchase of all or any significant portion of the assets or any equity
securities of, the Company or any of its subsidiaries (any such proposal or
offer being hereinafter referred to as an "Acquisition Proposal") or, except to
the extent legally required for the discharge by the board of directors of its
fiduciary duties as advised in writing by such board's counsel, engage in any
negotiations concerning, or provide any confidential information or data to, or
have any discussions with, any person relating to an Acquisition Proposal, or
otherwise facilitate any effort or attempt to make or implement an Acquisition
Proposal. The Company will immediately cease and cause to be terminated any
existing discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. The Company will take the necessary steps to
inform the appropriate individuals or entities referred to in the first sentence
hereof of the obligations undertaken in this Section 4.1. The Company will
notify the Acquiror 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 the Company and will
enforce the terms of any confidentiality agreement with any other party.
SECTION 4.2. Certain Policies of the Company. At the request of the Acquiror
prior to the Effective Time, the Company shall modify and change its loan,
litigation and real estate valuation policies and practices (including loan
classifications and levels of reserves) after the later of (i) the date on which
all required approvals referred to in Section 5.1(b) are received and all
applicable waiting periods in connection with such approvals expire and (ii) the
date on which the Company receives the approval of its shareholders on the
Merger and this Plan, so that such policies and practices will be consistent on
a mutually satisfactory basis with those of the Acquiror and generally accepted
accounting principles. The Company's representations, warranties and covenants
contained in this Plan shall not be deemed to be untrue or breached in any
respect for any purpose as a consequence of any modifications or changes
undertaken solely on account of this Section 4.2. Acquiror agrees promptly to
indemnify the Company for any losses or damages which it may incur as a result
of the actions taken by the Company pursuant to this Section 4.2 in the event
the Merger is not consummated, unless the failure to so consummate is primarily
due to a material breach of any representation, warranty or covenant contained
in this Plan by the Company.
SECTION 4.3. Employees. (a) Acquiror or any of its affiliates (including,
without limitation, the Surviving Corporation) shall have the right (but not the
obligation) to offer employment, as officers and employees of Acquiror, the
Surviving Corporation or other affiliates of Acquiror immediately following the
Effective Time, to any persons who are officers and employees of the Company
immediately before the Effective Time. Acquiror or its affiliates, as the case
may be, shall use their best efforts to identify, and offer employment
opportunities to qualified, satisfactorily performing employees of the Company
in positions for which such employees are qualified. Acquiror shall give, and
shall cause its affiliates to give,
<PAGE>
priority consideration to all such employees vis-a-vis all individuals other
than current employees of Acquiror and Acquiror's affiliates; provided, however,
that employees of the Company and its subsidiaries shall rank on an equal
footing with the current employees of Acquiror and its affiliates and any other
entities that may in the future be acquired by Acquiror or its affiliates. To
the extent that the employment of any employee of the Company is involuntarily
terminated within six months after the Effective Time for any reason other than
cause, such employee shall be entitled to receive outplacement services in
accordance with Acquiror's normal practices and a severance payment equal to two
weeks' pay for each full year of service with the Company and the Surviving
Corporation, provided, however, that except as may be specifically provided in
(d), below, under no circumstances shall any employee be entitled to more than a
total of 26 weeks' pay in respect of such severance payment. For purposes for
this Section 4.3, the determination of whether the employment of any employee is
terminated for cause shall be made in accordance with Acquiror's or Acquiror's
affiliates' normal employment practices.
(b) Each person employed by the Company prior to the Effective Time who
remains an employee of the Surviving Corporation or its subsidiaries following
the Effective Time (each a "Continued Employee") shall be entitled, as an
employee of a subsidiary of Acquiror, to participate in whatever employee
benefit plans, as defined in Section 3(3) of ERISA, or whatever nonqualified
employee benefit plans or deferred compensation, stock option, bonus or
incentive plans or other employee benefit or fringe benefit programs that may be
in effect generally for employees of Acquiror's subsidiaries from time to time
("Acquiror's Plans"), if such Continued Employee shall be eligible or selected
or selected for participation therein and otherwise shall not be participating
in a similar plan which continues to be maintained by the Surviving Corporation
and its subsidiaries. Continued Employees will be eligible to participate on the
same basis as similarly situated employees of Acquiror or Acquiror's
subsidiaries. All such participation shall be subject to such terms of such
plans as may be in effect from time to time.
(c) Acquiror or Acquiror's subsidiaries shall, for purposes of vesting and
for purposes of eligibility to begin participation with respect to Acquiror's
Plans, cause each of Acquiror's Plans to be amended to recognize credit for each
Continued Employee's terms of service with the Company and the Company's
subsidiaries. Upon the Effective Time, or as soon as practicable thereafter, no
further benefit accruals shall be provided under the Company's defined benefit
pension plan, and each Continued Employee shall begin to accrue a benefit under
Acquiror's defined benefit pension plan according to its terms. The Company
agrees to assist with whatever action (not involving the payment of money) that
is reasonably required (including issuance of a timely notice to employees under
Section 204(h) of ERISA) to effectuate the foregoing.
(d) Acquiror agrees to cause Surviving Corporation to honor and continue to
perform, without modification, all severance contracts for senior management
employees of Company authorized and entered into by Company prior to the date of
this Agreement and which have been provided by Company to Acquiror prior to the
date of this Agreement and listed on Annex 4.
SECTION 4.4. Access and Information. Upon reasonable notice, the Company
shall (and shall cause its subsidiaries to) afford to the Acquiror and its
representatives (including, without limitation, directors, officers and
employees of the Acquiror and its affiliates, and counsel, accountants and other
professionals retained) such access during normal business hours throughout the
period prior to the Effective Time to the books, records (including, without
limitation, tax returns and work papers of independent auditors), properties and
personnel and to such other information as the Acquiror may reasonably request;
provided, however, that no investigation pursuant to this Section 4.4 shall
affect or be deemed to modify any representation or warranty made herein. The
Acquiror will not, and will cause its representatives not to, use any
information obtained pursuant to this Section 4.4 for any purpose unrelated to
the consummation of the transactions contemplated by this Plan. Subject to the
requirements of law, the Acquiror will keep confidential, and will cause its
representatives to keep confidential, all information and documents obtained
pursuant to this Section 4.4 unless such information (i) was already known to
the Acquiror, (ii) becomes available to the Acquiror from other sources not
known by the Acquiror to be bound by a confidentiality obligation, (iii) is
disclosed with the prior written approval of the Company or (iv) is or becomes
readily ascertainable from published information or trade sources. In the event
that this Plan is terminated or the transactions contemplated by this Plan shall
otherwise fail
<PAGE>
to be consummated, each party shall promptly cause all copies of documents or
extracts thereof containing information and data as to another party hereto to
be returned to the party which furnished the same.
SECTION 4.5. Certain Filings, Consents and Arrangements. The Acquiror, Merger
Sub and the Company shall, and the Company shall cause the Bank and the FSB to,
(a) as soon as practicable make any filings and applications required to be
filed in order to obtain all approvals, consents and waivers of governmental
authorities necessary or appropriate for the consummation of the transactions
contemplated hereby or by the Option Agreement, (b) cooperate with one another
(i) in promptly determining what filings are required to be made or approvals,
consents or waivers are required to be obtained under any relevant federal,
state or foreign law or regulation and (ii) in promptly preparing any such
filings, furnishing information required in connection therewith and seeking
timely to obtain any such approvals, consents or waivers and (c) deliver to the
other copies of the publicly available portions of all such filings and
applications in preliminary form for comment prior to their filing and in final
form promptly after they are filed. The Acquiror shall use its best efforts to
cause Banco Santander, S.A. to comply with the provisions of Section 6.05 of the
Investment Agreement, dated as of March 18, 1991, between the Acquiror and Banco
Santander, S.A. to participate and join with Acquiror in taking the action
required thereunder, and Acquiror will seek specific performance thereof
pursuant to Section 12.08 thereof, and in the event that the Merger is not
consummated primarily as a result of a failure by Banco Santander, S.A. to join
with Acquiror in any action required under Section 6.05 thereof, Acquiror shall
seek to be compensated for the amount of Acquiror's damages resulting from such
failure and shall pay over to the Company the amount of any payment for such
damages actually received by the Acquiror from Banco Santander, S.A.
SECTION 4.6. Antitakeover Statutes. The Company shall take all reasonable
steps requested by the Acquiror (i) to exempt the Company and the Plan from the
requirements of any state antitakeover law by action of its board of directors
or otherwise and (ii) to assist at the Acquiror's expense in any challenge by
the Acquiror to the applicability to the Merger of any state antitakeover law.
SECTION 4.7. Indemnification; Directors' and Officers' Insurance. (a) From
and after the Effective Time through the sixth anniversary of the Effective
Date, the Acquiror and the Surviving Corporation agree to indemnify and hold
harmless each present and former director and officer of the Company or its
subsidiaries and each officer or employee of the Company or its subsidiaries who
is serving or has served as a director or trustee of another entity expressly at
the Company's request or direction, determined as of the Effective Time (the
"Indemnified Parties"), against any costs or expenses (including reasonable
attorneys' fees), judgments, fines, losses, claims, damages or liabilities
(collectively, "Costs") incurred in connection with any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative, arising out of matters existing or occurring at or prior to the
Effective Time, whether asserted or claimed prior to, at or after the Effective
Time, to the fullest extent that the Company would have been permitted under
Maryland law and its articles of incorporation or by-laws in effect on the date
hereof to indemnify such person (and the Acquiror or the Surviving Corporation
shall also advance expenses as incurred to the fullest extent permitted under
applicable law and its articles of incorporation and by-laws provided the person
to whom expenses are advanced provides a written affirmation of the person's
good faith belief that the standard of conduct necessary for indemnification by
the Company pursuant to the MGCL has been met and the person's undertaking to
repay such advances if it is ultimately determined that such person is not
entitled to indemnification).
(b) Any Indemnified Party wishing to claim indemnification under Section
4.7(a), upon learning of any such claim, action, suit, proceeding or
investigation, shall promptly notify the Acquiror and the Surviving Corporation
thereof, but the failure to so notify shall not relieve the Acquiror or the
Surviving Corporation of any liability it may have to such Indemnified Party if
such failure does not materially prejudice the indemnifying party. In the event
of any such claim, action, suit, proceeding or investigation (whether arising
before or after the Effective Time), (i) the Acquiror or the Surviving
Corporation shall have the right to assume the defense thereof and neither the
Acquiror nor the Surviving Corporation shall be liable to such Indemnified
Parties for any legal expenses of other counsel or any other expenses
subsequently incurred by such Indemnified Parties in connection with the defense
thereof, except that if
<PAGE>
neither the Acquiror nor the Surviving Corporation elects to assume such defense
or counsel for the Indemnified Parties advises that there are issues which raise
conflicts of interest between the Acquiror or the Surviving Corporation and the
Indemnified Parties, the Indemnified Parties may retain counsel satisfactory to
them, and the Acquiror or the Surviving Corporation shall pay the reasonable
fees and expenses of such counsel for the Indemnified Parties promptly as
statements therefor are received; provided, however, that the Acquiror and the
Surviving Corporation shall be obligated pursuant to this paragraph (b) to pay
for only one firm of counsel for all Indemnified Parties in any jurisdiction
unless the use of one counsel for such Indemnified Parties would present such
counsel with a conflict of interest (ii) the Indemnified Parties will cooperate
in the defense of any such matter and (iii) neither the Acquiror nor the
Surviving Corporation shall be liable for any settlement effected without its
prior written consent; and provided further that neither the Acquiror nor the
Surviving Corporation shall have any 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 the
indemnification of such Indemnified Party in the manner contemplated hereby is
prohibited by applicable law.
(c) For a period of six years after the Effective Time, the Acquiror shall
use all reasonable efforts to cause to be maintained in effect the current
policies of directors' and officers' liability insurance maintained by the
Company (provided that the Acquiror may substitute therefor policies of
comparable coverage with respect to claims arising from facts or events which
occurred before the Effective Time); provided, however, that in no event shall
the Acquiror be obligated to expend, in order to maintain or provide insurance
coverage pursuant to this Subsection 4.7(c), any amount per annum in excess of
200% of the amount of the annual premiums paid as of the date hereof by the
Company for such insurance (the "Maximum Amount"). If the amount of the annual
premiums necessary to maintain or procure such insurance coverage exceeds the
Maximum Amount, the Acquiror shall use all reasonable efforts to maintain the
most advantageous policies of directors' and officers' insurance obtainable for
an annual premium equal to the Maximum Amount.
SECTION 4.8. Additional Agreements. Subject to the terms and conditions
herein provided, each of the parties hereto agrees to use all reasonable efforts
to take promptly, or cause to be taken promptly, all actions and to do promptly,
or cause to be done promptly, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Plan as promptly as practicable, including
using efforts to obtain all necessary actions or non-actions, extensions,
waivers, consents and approvals from all applicable governmental entities,
effecting all necessary registrations, applications and filings (including,
without limitation, filings under any applicable state securities laws) and
obtaining any required contractual consents and regulatory approvals.
SECTION 4.9. Publicity. The initial press release announcing this Plan shall
be a joint press release and thereafter the Company and the Acquiror shall
consult with each other in issuing any press releases with respect to the other
or the transactions contemplated hereby and in making any filings with any
governmental entity or with any national securities exchange with respect
thereto.
SECTION 4.10. Proxy Statement. As soon as practicable after the date hereof,
the Company shall prepare a proxy statement to take shareholder action on the
Merger and this Agreement (the "Proxy Statement"), file it with the SEC, respond
to comments of the Staff of the SEC, clear the Proxy Statement with the Staff of
the SEC and promptly thereafter mail the Proxy Statement to all holders of
record (as of the applicable record date) of shares of Company Common Stock. The
Company represents and covenants that the Proxy Statement and any amendment or
supplement thereto (other than as to information furnished by the Acquiror for
inclusion therein), at the date of mailing to shareholders of the Company and
the date of the meeting of the Company's shareholders to be held in connection
with the Merger, will be in compliance with all relevant rules and regulations
of the SEC and will not contain any untrue statement of a material fact or omit
to state any material fact required to be stated or necessary in order to make
the statements therein, in light of the circumstances under which they were
made, not misleading. The Acquiror and the Company shall cooperate with each
other in the preparation of the Proxy Statement.
<PAGE>
SECTION 4.11. Shareholders' Meeting. The Company shall take all action
necessary, in accordance with applicable law and its articles of incorporation
and by-laws, to convene a meeting of the holders of Company Common Stock (the
"Company Meeting") as promptly as practicable after June 15, 1994 for the
purpose of considering and taking action required by this Plan. Except to the
extent legally required for the discharge by the board of directors of its
fiduciary duties as advised in writing by such board's counsel, the board of
directors of the Company shall recommend that the holders of the Company Common
Stock vote in favor of and approve the Merger and adopt this Plan at the Company
Meeting.
SECTION 4.12. Notification of Certain Matters. Each party shall give prompt
notice to the others of: (a) any notice of, or other communication relating to,
a default or event that, with notice or lapse of time or both, would become a
default, received by it or any of its subsidiaries subsequent to the date of
this Plan and prior to the Effective Time, under any contract material to the
financial condition, properties, businesses or results of operations of the
Company and its subsidiaries taken as a whole to which the Company or any of its
subsidiaries is a party or is subject; and (b) any change which has a Material
Adverse Effect. Each of the Company, the Acquiror and Merger Sub shall give
prompt notice to the other party of any notice or other communication from any
third party alleging that the consent of such third party is or may be required
in connection with the transactions contemplated by this Agreement.
SECTION 4.13. Outstanding Debt. Prior to the Effective Date, the Company
shall (i) effect the redemption of the entire outstanding principal amount of
the Convertible Subordinated Debentures pursuant to the terms of the related
indenture and (ii) seek to repurchase the entire outstanding principal amount of
Capital Notes of the Company on such terms and conditions as shall be acceptable
to the Acquiror. Prior to the Company effecting such redemption or making such
repurchase, Acquiror, upon request of the Company, shall extend a loan to the
Company in an amount sufficient to cover such redemption and repurchase, for
three years at a 6 3/4 % annual interest rate on an unsecured basis and with and
upon such other commercially reasonable terms to be determined by the Acquiror
and the Company at the time of the borrowing.
ARTICLE V. CONDITIONS TO CONSUMMATION
SECTION 5.1. Conditions to All Parties' Obligations. The respective
obligations of the Acquiror, Merger Sub and the Company to effect the
transactions referred to in Section 1.5 and the Merger shall be subject to the
satisfaction or waiver prior to the Effective Time of the following conditions:
(a) The Plan and the transactions contemplated hereby shall have been
approved by the requisite vote of the shareholders of the Company in
accordance with applicable law.
(b) Banco Santander, S.A., the Acquiror, Merger Sub, the Company, the Bank
and the FSB shall have procured the required approvals, consents or waivers
for the transactions contemplated hereby (i) by the Office of Thrift
Supervision (the "OTS"), (ii) by the FDIC, (iii) by the Federal Reserve Board
and (iv) by the Commissioner, and all applicable statutory waiting periods
shall have expired; and the parties and other participants in the
transactions contemplated hereby shall have procured all other regulatory
approvals, consents or waivers of governmental authorities or other persons
that are necessary or appropriate to the consummation of the transactions
contemplated by the Plan; provided, however, that no approval, consent or
waiver referred to in this Section 5.1(b) shall be deemed to have been
received if it shall include any condition or requirement that, individually
or in the aggregate, would (i) result in a Material Adverse Effect on the
Acquiror or (ii) would reduce the benefits of the transactions contemplated
by the Plan to the Acquiror in so significant and material a manner that the
Acquiror, in its good faith reasonable judgment, would not have entered into
this Plan had such condition or requirement been known at the date hereof.
(c) All other requirements prescribed by law which are necessary to the
consummation of the transactions contemplated by this Plan shall have been
satisfied.
(d) No party hereto shall be subject to any order, decree or injunction of
a court or agency of competent jurisdiction which enjoins or prohibits the
consummation of the Merger or any other transaction contemplated by this
Plan, and no litigation or proceeding shall be pending against the Acquiror
or the Company or any of their subsidiaries brought by any governmental
agency seeking to prevent consummation of the transactions contemplated
hereby.
<PAGE>
(e) No statute, rule, regulation, order, injunction or decree shall have
been enacted, entered, promulgated, interpreted or enforced by any
governmental authority or court which prohibits, restricts or makes illegal
consummation of the Merger or any other transaction contemplated by this
Plan.
SECTION 5.2. Conditions to Obligations of the Acquiror and Merger Sub. The
obligations of the Acquiror and Merger Sub to effect the Merger shall be subject
to the satisfaction or waiver prior to the Effective Time of the following
additional conditions:
(a) The Acquiror shall have received from the Company's independent
certified public accountants "cold comfort" letters, dated (i) within five
business days prior to the date of the mailing of the Proxy Statement to the
Company's shareholders and (ii) shortly prior to the Effective Date, with
respect to certain financial information regarding the Company in the form
customarily issued by such accountants at such time in transactions of this
type.
(b) Each of the representations and warranties of the Company contained in
this Plan and the Option Agreement shall have been true and correct on the
date hereof and shall be true and correct on the Effective Date (or on the
date when made in the case of any representation or warranty which
specifically relates to an earlier date or period); provided, however, that
for purposes of this Section 5.2(b) a representation or warranty shall only
fail to be true and correct on the Effective Date if it has not been waived
and if the failure of any such representation or warranty to be true and
correct has or constitutes, or is likely to have or constitute, either
individually or in the aggregate with other representations or warranties, a
Material Adverse Effect; the Company shall have performed, in all material
respects, each of its covenants and agreements contained in this Plan and the
Option Agreement; and the Acquiror shall have received a certificate signed
by the Chief Executive Officer and the Chief Financial Officer of the
Company, dated the Effective Date, to the foregoing effect.
(c) The Company shall have effected the redemption of the entire
outstanding principal amount of its Convertible Subordinated Debentures.
(d) The Thrift Merger shall have occurred, the Company shall no longer be
a bank holding company for purposes of the BHC Act and the Company shall have
become a savings and loan holding company under the Home Owners' Loan Act of
1933, as amended ("HOLA").
SECTION 5.3. Conditions to the Obligation of the Company. The obligation of
the Company to effect the Merger shall be subject to the satisfaction or waiver
prior to the Effective Time of the following additional conditions:
(a) Each of the representations, warranties and covenants of the Acquiror
and Merger Sub contained in this Plan shall have been true and correct on the
date hereof and shall be true and correct on the Effective Date (or on the
date when made in the case of any representation or warranty which
specifically relates to an earlier date); provided, however, that for
purposes of this Section 5.3(a) a representation or warranty shall only fail
to be true and correct on the Effective Date if the failure of any such
representation or warranty to be true and correct has or constitutes, or is
likely to have or constitute, either individually or in the aggregate with
other representations or warranties, a Material Adverse Effect; the Acquiror
and Merger Sub shall have performed, in all material respects, each of its
covenants and agreements contained in this Plan; and the Company shall have
received certificates signed by the Vice Chairman and Chief Financial Officer
of the Acquiror, dated the Effective Date, to the foregoing effect.
ARTICLE VI. TERMINATION
SECTION 6.1. Termination. This Plan may be terminated, and the Merger
abandoned, prior to the Effective Date, either before or after its approval by
the shareholders of the Company and the Acquiror:
(a) by the mutual consent of the Acquiror and the Company, if the board of
directors of each so determines by vote of a majority of the members of its
entire board;
<PAGE>
(b) by the Acquiror or the Company, if its board of directors so
determines by vote of a majority of the members of its entire board, in the
event of (i) the failure of the shareholders of the Company to approve the
Plan at its meeting called to consider such approval, or (ii) a material
breach by the other party hereto of any representation, warranty, covenant or
agreement contained herein (or, in the case of the Company, in the Option
Agreement) which is not cured or not curable within 30 days after written
notice of such breach is given to the party committing such breach by the
other party, if such breach would have a Material Adverse Effect;
(c) by the Acquiror or the Company by written notice to the other party if
either (i) any approval, consent or waiver of a governmental authority
required to permit consummation of the transactions contemplated hereby shall
have been denied or (ii) any governmental authority of competent jurisdiction
shall have issued a final, unappealable order enjoining or otherwise
prohibiting consummation of the transactions contemplated by this Plan;
(d) by the Acquiror or the Company, if its board of directors so
determines by vote of a majority of the members of its entire board, in the
event that the Merger is not consummated by March 31, 1995, unless the
failure to so consummate by such time is primarily due to a material breach
of any representation, warranty or covenant contained in this Plan by the
party seeking to terminate; or
(e) by the Acquiror by written notice to the Company before the close of
business on the day immediately following the date hereof, if the Option
Agreement shall not yet have been entered into.
SECTION 6.2. Effect of Termination. In the event of the termination of this
Plan by either the Acquiror or the Company, as provided above, this Plan shall
thereafter become void and, subject to the provisions of Section 8.2, there
shall be no liability on the part of any party hereto or their respective
officers or directors, except that any such termination shall be without
prejudice to the rights of any party hereto arising out of any willful and
material breach by any other party of any covenant or any willful and material
misrepresentation contained in this Plan.
ARTICLE VII. EFFECTIVE DATE AND EFFECTIVE TIME
SECTION 7.1. Effective Date and Effective Time. On the later of (i) October
31, 1994, (ii) a business day designated by the Acquiror within ten business
days after the receipt of all required regulatory approvals and the expiration
of all applicable waiting periods in connection with such approvals occurs and
all conditions to the consummation of this Plan are satisfied or waived, or
(iii) on such later date as may be agreed by the parties, articles of merger
shall be executed in accordance with all appropriate legal requirements and
shall be filed as required by law, and the Merger provided for herein shall
become effective upon such filing or on such date as may be specified in such
articles of merger. The date of such filing or such later effective date is
herein called the "Effective Date". The "Effective Time" of the Merger shall be
as set forth in or provided by such articles of merger.
ARTICLE VIII. OTHER MATTERS
SECTION 8.1. Certain Definitions; Interpretation. As used in this Plan, the
following terms shall have the meanings indicated:
"material" means material to the Acquiror or the Company (as the case may
be) and its respective subsidiaries, taken as a whole.
"Material Adverse Effect", with respect to a person, means any condition,
event, change or occurrence that is reasonably likely to have a material
adverse effect upon (A) the financial condition, properties, business or
results of operations of such person and its subsidiaries, taken as a whole
(other than as a result of (i) changes in laws or regulations or accounting
rules of general applicability or interpretations thereof, (ii) decreases in
capital under Financial Accounting Standards No. 115 attributable to general
increases in interest rates or (iii) any reclassification of loans, write
<PAGE>
downs of real estate owned or loan loss reserves taken pursuant to a specific
written request of Acquiror (which Company agrees to comply with) or (B) the
ability of such person to perform its obligations under, and to consummate
the transactions contemplated by, this Plan and, in the case of the Company,
the Option Agreement.
"person" includes an individual, corporation, partnership, association,
trust or unincorporated organization.
"Subsidiary", with respect to a person, means any other person controlled
by such person.
When a reference is made in this Plan to Sections or Annexes, such reference
shall be to a Section of, or Annex to, this Plan unless otherwise indicated. The
table of contents, tie sheet and headings contained in this Plan are for ease of
reference only and shall not affect the meaning or interpretation of this Plan.
Whenever the words "include", "includes", or "including" are used in this Plan,
they shall be deemed followed by the words "without limitation". Any singular
term in this Plan shall be deemed to include the plural, and any plural term the
singular.
SECTION 8.2. Survival. Only those agreements and covenants of the parties
that are by their terms applicable in whole or in part after the Effective Time
shall survive the Effective Time. All other representations, warranties,
agreements and covenants shall be deemed to be conditions of the Plan and shall
not survive the Effective Time. If the Plan shall be terminated, the agreements
of the parties in the last three sentences of Section 4.4, the last sentence of
Section 4.5, Section 6.2 and Section 8.6 shall survive such termination.
SECTION 8.3. Waiver. Prior to the Effective Time, any provision of this Plan
may be: (i) waived by the party benefitted by the provision; or (ii) amended or
modified at any time (including the structure of the transaction) by an
agreement in writing between the parties hereto authorized by their respective
boards of directors, except that, after the vote by the shareholders of the
Company, no amendment may be made that would contravene any applicable law.
SECTION 8.4. Counterparts. This Plan may be executed in counterparts each of
which shall be deemed to constitute an original, but all of which together shall
constitute one and the same instrument.
SECTION 8.5. Governing Law. This Plan shall be governed by, and interpreted
in accordance with, the laws of the State of Maryland.
SECTION 8.6. Expenses. Each party hereto will bear all expenses incurred by
it in connection with this Plan and the transactions contemplated hereby, except
printing expenses which shall be shared equally.
SECTION 8.7. Notices. All notices, requests, acknowledgements and other
communications hereunder to a party shall be in writing and shall be deemed to
have been duly given when delivered by hand, telecopy, telegram or telex
(confirmed in writing) to such party at its address set forth below or such
other address as such party may specify by notice to the other party hereto.
If to the Company, to:
Baltimore Bancorp
120 E. Baltimore Street
(25th Floor)
Baltimore, Maryland 21203
Telecopy: (410) 576-0695
Attention: James A. Gast, Esq.
Vice President and Corporate Counsel
<PAGE>
With copies to:
Charles E. Allen, Esq.
Hogan & Hartson L.L.P.
Columbia Square
555 13th Street, N.W.
Washington D.C. 20004
Telecopy: (202) 637-5910
If to the Acquiror or Merger Sub, to:
First Fidelity Bancorporation
550 Broad Street
Newark, New Jersey 07102
Telecopy: (201) 565-2985
Attention: Wolfgang Schoellkopf
Vice-Chairman and Chief
Financial Officer
With copies to:
James L. Mitchell, Esq.
First Fidelity Bancorporation
550 Broad Street
Newark, New Jersey 07102
Telecopy: (201) 565-2985
and
H. Rodgin Cohen, Esq.
Mark J. Menting, Esq.
Sullivan & Cromwell
125 Broad Street
New York, New York 10004
Telecopy: (212) 558-3588
SECTION 8.8. Entire Agreement; Etc. This Plan, together with the Option
Agreement, represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and all
other oral or written agreements heretofore made. All terms and provisions of
the Plan shall be binding upon and shall inure to the benefit of the parties
hereto and their respective successors and assigns. Except as to Section 4.7,
nothing in this Plan is intended to confer upon any other person any rights or
remedies of any nature whatsoever under or by reason of this Plan.
SECTION 8.9. Assignment. This Plan may not be assigned by any party hereto
without the written consent of the other parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Plan to be executed
by their duly authorized officers as of the day and year first above written.
FIRST FIDELITY BANCORPORATION
By: /s/ James L. Mitchell
----------------------------
James L. Mitchell
Executive Vice President, General
Counsel and Secretary
ANNABEL LEE CORPORATION
By: /s/ James L. Mitchell
----------------------------
James L. Mitchell
President
BALTIMORE BANCORP
By: /s/ Edwin F. Hale, Sr.
----------------------------
Edwin F. Hale, Sr.
Chairman and Chief Executive
Officer
<PAGE>
AMENDMENT
Amendment, dated as of October 17, 1994 ("Amendment"), by and among First
Fidelity Bancorporation (the "Acquiror"), Annabel Lee Corporation (the "Merger
Sub") and Baltimore Bancorp (the "Company"), to the Agreement and Plan of
Merger, dated as of 21st day of March, 1994 (the "Plan"), by and among the
Acquiror, Merger Sub and the Company.
RECITALS:
A. Primary Purpose. The Acquiror, the Merger Sub and the Company desire to
amend the Plan pursuant to Section 8.3 thereof (which specifically permits an
amendment to the structure of the transaction) primarily to provide as an
alternative to the Thrift Merger and related transactions as a condition
precedent to the Merger, that, under the circumstances set forth herein, the
Company Bank be merged with and into First Fidelity Bank, National Association,
an indirect wholly-owned subsidiary of the Acquiror ("FFB-NA"), with FFB-NA as
the surviving bank.
B. Additional Purposes. The parties also desire to make certain additional
amendments to the Plan pursuant to Section 8.3 thereof relating to the Effective
Time and consummation of the transactions contemplated by the Plan.
C. Intention of the Parties. It is the intention of the parties to this
Amendment that, if the alternative referred to in Recital A is utilized,
immediately prior to the Effective Time and as a result of the merger referred
to above the Company will cease to be a bank holding company under the BHC Act
and immediately after such merger the Merger will be effected.
D. Board Approvals. The respective Boards of Directors of the Acquiror,
Merger Sub and the Company have duly approved this Amendment and have duly
authorized its execution and delivery.
NOW, THEREFORE, in consideration of their mutual promises and obligations
hereunder, the parties hereto adopt and make this Amendment as follows:
Section 1. Bank Merger. The Acquiror shall have the right, subject to the
conditions set forth herein, to elect between the Thrift Merger (and related
transactions described in Section 1.5 of the Plan) and the Bank Merger (and
related transactions described below) to precede the Merger upon written notice
to the Company prior to the Effective Date; provided that such an election would
not cause the Effective Date to occur after the later of January 6, 1995 or the
date on which the Thrift Merger could otherwise be consummated. Following the
delivery of such notice and prior to the Effective Time, the Acquiror and the
Company shall use their respective best efforts to take all action necessary and
appropriate to cause, at the Effective Time and prior to the Merger, the Company
Bank to be merged with and into FFB-NA under the charter and title of the latter
and pursuant to the terms and conditions of the Agreement to Merge set forth in
Annex 1 to this Amendment (the "Bank Merger"), including causing their
respective subsidiaries, FFB-NA and the Company Bank, to enter into the
Agreement to Merge. The obligations of the Acquiror and the Company to cause
FFB-NA and the Company Bank, respectively, to effect the Bank Merger are subject
to FFB-NA's ability to relocate its main office from Salem, New Jersey to
Elkton, Maryland (the "Main Office Relocation") prior to the Effective Time. The
parties agree that, in addition to the regulatory approvals set forth in Section
5.1(b) of the Plan, the Bank Merger and related transactions will require the
prior approval of the Office of the Comptroller of the Currency ("OCC"). In
order to elect the Bank Merger, the Acquiror shall cause the Company to be
provided with reasonable assurances as to the legality of the Bank Merger. If
the Acquiror elects the Bank Merger and for any reason the Bank Merger is not
consummated, the parties shall be obligated to proceed to consummate the Thrift
Merger, the Merger and related transactions as if such election had not been
made by the Acquiror. If requested by the Acquiror in writing prior to the
Effective Date in connection with the Bank Merger, the Company agrees to use its
best efforts to divest, on the basis specified in such request by the Acquiror,
any Subsidiary of the Company, other than the Company Bank, or the assets of any
such Subsidiary. Upon consummation of such divestiture, any references in the
Plan to any such Subsidiary or assets shall be deemed to be amended to no longer
refer to any such Subsidiary or assets. In the event that the Merger is not
consummated for any reason, the Acquiror
<PAGE>
agrees to indemnify the Company fully for all Costs (as defined in Section 4.7
of the Plan) incurred in connection with such divestiture. The Acquiror
represents and warrants to the Company that the value of the shares of capital
stock of FFB-NA (as set forth in Annex 1 to this Amendment) to be received by
the Company in the Bank Merger is not less than the Merger Consideration, which
representation and warranty shall survive the Bank Merger but not the Effective
Time of the Merger. The Acquiror agrees promptly to indemnify the Company fully
for all Costs (as defined in Section 4.7 of the Plan) incurred in the event that
the Merger is not consummated immediately following the Bank Merger so that the
Company would be in the same position financially as if the Merger had then
occurred. If the Acquiror elects the Bank Merger, the Company agrees to provide
a signed agreement as to limitations on disposition of such shares of capital
stock of FFB-NA that will comply with 12 C.F.R. 16.5(e), which agreement shall
not reduce the Acquiror's obligation to indemnify as referenced in the previous
sentence.
Section 2. The first sentence of Section 1.6 of the Plan is hereby amended in
its entirety to read as follows:
Acquiror intends to invite the directors of the Company Bank serving on
the Effective Date and prior to the Thrift Merger or the Bank Merger, as
applicable, to become either (i) directors of the FSB (or any successor
thereto) subsequent to the Thrift Merger, or (ii) regional advisory directors
of FFB-NA subsequent to the Bank Merger, in either case, for a period of not
less than two years, with such directors or advisory directors to be
compensated at not less than the annual retainer and meeting attendance fees
paid to non-employee directors of the Company Bank on the date of the Plan.
Section 3. Section 5.2(d) of the Plan is hereby amended in its entirety to
read as follows:
(d) Either (i) the Thrift Merger shall have occurred, the Company shall no
longer be a bank holding company for purposes of the BHC Act and the Company
shall have become a savings and loan holding company under the Home Owners'
Loan Act of 1933, as amended ("HOLA"); or (ii) the Main Office Relocation and
Bank Merger shall have occurred and the Company shall no longer be a bank
holding company for the purposes of the BHC Act.
Section 4. The definition of "Material Adverse Effect" contained in Section
8.1 of the Plan is hereby amended in its entirety to read as follows:
"Material Adverse Effect", with respect to a person, means any condition,
event, change or occurrence that is reasonably likely to have a material
adverse effect upon (A) the financial condition, properties, business or
results of operations of such person and its subsidiaries, taken as a whole,
(other than as a result of (i) changes in laws or regulations or accounting
rules of general applicability or interpretations thereof, (ii) decreases in
capital under Financial Accounting Standards No. 115 attributable to general
increases in interest rates, (iii) any reclassification of loans, write downs
of real estate owned, loan loss reserves, or divestiture of assets taken
pursuant to a specific written request of Acquiror, which Company agrees to
comply with, or (iv) the Bank Merger, if the Acquiror makes the election to
effect the Bank Merger), or (B) the ability of such person to perform its
obligations under, and to consummate the transactions contemplated by, this
Plan and, in the case of the Company, the Option Agreement.
Section 5. Section 5.2 (a) of the Plan is amended to read as follows:
(a) The Company's independent certified public accountants shall have
issued a review report within 15 business days after the date of the mailing
of the Proxy Statement to the Company's shareholders on the interim financial
statements of the Company.
Section 6. Notwithstanding Section 2.2(b) of the Plan, if the Effective Time
occurs subsequent to November 16, 1994 (the Company's regular dividend
declaration date for its 1994 fourth quarter dividend), the Company may declare
its regular quarterly cash dividend for such quarter at the rate of $0.05 per
share and select record and payment dates prior to the Effective Time even
though such record and payment dates would be earlier than the record and
payment dates the Company would otherwise use for its 1994 fourth quarter
dividend.
<PAGE>
Section 7. If the Effective Time occurs prior to January 3, 1995, Acquiror
agrees not to terminate the employment or reduce the compensation of any of the
senior management employees of the Company referred to in Section 4.3(d) of the
Plan prior to January 3, 1995 and to retain the chief executive officer of the
Company as a consultant for three months after January 3, 1995 at his current
base compensation.
Section 8. Except as amended as provided for herein, the Plan shall remain
unchanged and in full force and effect and this Amendment shall be considered a
part thereof.
Section 9. Terms used in this Amendment that are not defined herein shall
have the meanings assigned to them in the Plan.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their duly authorized officers as of the day and year first above
written.
FIRST FIDELITY BANCORPORATION
By: /s/ James L. Mitchell
----------------------------
James L. Mitchell
Executive Vice President, General
Counsel and Secretary
ANNABEL LEE CORPORATION
By: /s/ James L. Mitchell
----------------------------
James L. Mitchell
President
BALTIMORE BANCORP
By: /s/ Edwin F. Hale, Sr.
----------------------------
Edwin F. Hale, Sr.
Chairman and Chief Executive
Officer
<PAGE>
ANNEX 1
AGREEMENT TO MERGE
between
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
and
THE BANK OF BALTIMORE
under the charter of
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
under the title of
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
This AGREEMENT made between First Fidelity Bank, National Association
(hereinafter referred to as "FFB-NA"), a banking association organized under the
laws of the United States, being located at 175 West Broadway, Salem Township,
County of Salem, in the State of New Jersey, but with an application pending to
relocate its main office to 202A South Bridge Street, Elkton, County of Cecil,
in the State of Maryland, with a capital, of $430,000,000, divided into
21,500,000 shares of common stock, each of $20.00 par value, surplus of
$985,034,000 and undivided profits, including capital reserves and net
unrealized losses on available-for-sale securities of $1,110,207,000 as of June
30, 1994, and The Bank of Baltimore, a bank organized under the laws of the
State of Maryland, being located at 120 East Baltimore Street, City of
Baltimore, County of Baltimore, in the State of Maryland, with a capital of
$23,604,480, divided into 2,360,448 shares of common stock, each of $10.00 par
value, surplus of $102,971,000 and undivided profits, including capital reserves
and net unrealized losses on available-for-sale securities of $26,080,000 as of
June 30, 1994, each acting pursuant to a resolution of its board of directors,
adopted by the vote of a majority of its directors, pursuant to the authority
given by and in accordance with the provisions of the Act of November 7, 1918,
as amended (12 USC 215a), witnesseth as follows:
Section 1.
The Bank of Baltimore shall be merged with and into FFB-NA under the title
and charter of the latter. The foregoing merger shall be subject to all the
terms and conditions set forth in the Agreement and Plan of Merger, dated as of
the 21st day of March, 1994, as amended (the "Merger Agreement"), by and among
First Fidelity Bancorporation, Annabel Lee Corporation and Baltimore Bancorp,
which is incorporated herein by reference and made a part hereof.
Section 2.
The name of the receiving association (hereinafter referred to as the
"association") shall be First Fidelity Bank, National Association.
Section 3.
The business of the association shall be that of a national banking
association. This business shall be conducted by the association at its main
office as then located and at its legally established branches in operation,
including all the branches and the main office of The Bank of Baltimore
immediately prior to the merger, on the date of the consummation of the merger.
<PAGE>
Section 4.
The amount of outstanding capital stock of the association shall be
$452,156,000, divided into 22,607,781 shares of common stock, each of $20.00 par
value, and 160,540 shares of Non-Cumulative Preferred Stock, each of $1.00 par
value, and at the time the merger shall become effective, the association shall
have a surplus of $1,150,436,000, and undivided profits, including capital
reserves and net unrealized losses on available-for-sale securities of
$1,110,207,000, which when combined with the capital surplus will be equal to
the combined capital structures of the merging banks as stated in the preamble
of this agreement, adjusted, however, for normal earnings, expenses, dividends
and pending acquisitions (including a related capital reduction of FFB-NA),
between June 30, 1994 and the effective time of the merger.
Section 5.
All assets as they exist at the effective time of the merger shall pass to
and vest in the association without any conveyance or other transfer. The
association shall be responsible for all of the liabilities of every kind and
description, including liabilities arising from the operation of a trust
department, of each of the merging banks existing as of the effective time of
the merger. The Chief Executive Officer of FFB-NA shall have satisfied himself
that the statement of condition of each bank as of June 30, 1994 fairly presents
its financial condition and since such date there has been no material change in
the financial condition or business of either bank.
Section 6.
The Bank of Baltimore shall contribute to the association acceptable assets
having a book value, over and above its liabilities to its creditors, of at
least $____________ adjusted, however, for normal earnings and expenses between
June 30, 1994, and the effective time of the merger, and for allowances of cash
payments, if any, permitted under this agreement.
At the effective time of the merger, FFB-NA shall have on hand acceptable
assets having a book value of at least $_____________ over and above its
liabilities to its creditors, adjusted, however, for normal earnings and
expenses between June 30, 1994, and the effective time of the merger, and for
allowances of cash payments, if any, permitted under this agreement.
Section 7.
Of the capital stock of the association, the presently outstanding 21,500,000
shares of common stock of FFB-NA, each of $20.00 par value, shall remain
outstanding as 21,500,000 shares of common stock of the association, and the
holder(s) of them shall retain their present rights, and the shareholder of The
Bank of Baltimore, in exchange for the excess acceptable assets contributed by
The Bank of Baltimore to the association, shall be entitled to receive a total
of 1,107,781 shares of the common stock of the association, each of $20.00 par
value, and a total of 160,540 shares of the Non-Cumulative Preferred Stock of
the association, each of $1.00 par value, the terms of which are set forth in
Exhibit "A" hereto. All outstanding shares of common stock of The Bank of
Baltimore, each of $10.00 par value, will be canceled.
Section 8.
The present board of directors of FFB-NA shall continue to serve as the board
of directors of the association until the next annual meeting or until such time
as their successors have been elected and have qualified.
Section 9.
Effective as of the time this merger shall become effective as specified in
the merger approval to be issued by the Comptroller of the Currency, the
articles of association of the merged bank shall read in their entirety as
provided in Exhibit "A" hereto.
<PAGE>
Section 10.
This agreement shall terminate automatically at the earlier of such time as
(i) the Merger Agreement is terminated or (ii) the Thrift Merger referred to in
the Merger Agreement is consummated.
Section 11.
This agreement shall be ratified and confirmed by the affirmative vote of
shareholders of each of the merging banks owning at least two-thirds of its
capital stock outstanding, at a meeting to be held on the call of the directors
or, to the extent permitted by law, by a written consent; and the merger shall
become effective at the time specified in a merger approval to be issued by the
Comptroller of the Currency of the United States. This agreement may be executed
in counterparts, but shall constitute only one agreement.
WITNESS, the signatures and seals of the said merging banks as of this
_________ day of ___________________, 1994, each set by its chief executive
officer, president or vice president and attested to by its secretary, pursuant
to a resolution of its board of directors, acting by a majority.
Attest: First Fidelity Bank,
National Association
By:____________________________
Wolfgang Schoellkopf
Vice Chairman and
Chief Financial Officer
_____________________________
Secretary
(Seal of Bank)
Attest: The Bank of Baltimore
By: ________________________
Name:
Title:
_____________________________
Secretary
(Seal of Bank)
<PAGE>
STATE OF __________________________)
COUNTY OF__________________________) ss:
On this ___________________________ day of_________________, 1994, before me,
a notary public for this state and county, personally came
______________________________, as president, and _______________________ as
secretary, of _______________________, and each in his/her capacity acknowledged
this instrument to be the act and deed of the association and the seal affixed
to it to be its seal.
WITNESS my official seal and signature this day and year.
____________________________________________
(Seal of Notary) Notary Public, ______________________ County.
My commission expires_______________________
STATE OF __________________________)
COUNTY OF__________________________) ss:
On this ___________________________ day of_________________, 1994, before me,
a notary public for this state and county, personally came
______________________________, as president, and _______________________ as
secretary, of _______________________, and each in his/her capacity acknowledged
this instrument to be the act and deed of the association and the seal affixed
to it to be its seal.
WITNESS my official seal and signature this day and year.
____________________________________________
(Seal of Notary) Notary Public, ______________________ County.
My commission expires_______________________
<PAGE>
EXHIBIT A
FIRST FIDELITY BANK, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
(proposed)
For purposes of organizing an Association to carry on the business of banking
under the laws of the United States, the undersigned do enter into the following
Articles of Association:
FIRST. The title of this Association shall be First Fidelity Bank, National
Association.
SECOND. The Main Office of the Association shall be in Elkton, County of
Cecil, State of Maryland. The general business of the Association shall be
conducted at its main office and its branches.
THIRD. The Board of Directors of this Association shall consist of not less
than five nor more than twenty-five persons, the exact number to be fixed and
determined from time to time by resolution of a majority of the full Board of
Directors or by resolution of the shareholders at any annual or special meeting
thereof. Each Director, during the full term of his directorship, shall own a
minimum of (a) $1,000 par value of stock of this Association or (b) preferred or
common stock of First Fidelity Bancorporation having (i) aggregate par value
equal to or greater than $1,000, (ii) aggregate shareholders' equity equal to or
greater than $1,000 or (iii) aggregate fair market value equal to or greater
than $1,000. Any vacancy in the Board of Directors may be filled by action of
the Board of Directors.
FOURTH. There shall be an annual meeting of the shareholders the purpose of
which shall be the election of Directors and the transaction of whatever other
business may be brought before said meeting. It shall be held at the main office
or other convenient place as the Board of Directors may designate, on the day of
each year specified therefor in the By-laws, but if no election is held on that
day, it may be held on any subsequent day according to such lawful rules as may
be presented by the Board of Directors.
FIFTH. (A) General. The amount of capital stock of this Association shall be
(i) 25,000,000 shares of common stock of the par value of twenty dollars
($20.00) each (the "Common Stock") and (ii) 160,540 shares of preferred stock of
the par value of one dollar ($1.00) each (the "Non-Cumulative Preferred Stock"),
having the rights, privileges and preferences set forth below, but said capital
stock may be increased or decreased from time to time in accordance with the
provisions of the laws of the United States.
(B) Terms of the Non-Cumulative Preferred Stock.
1. General. Each share of Non-Cumulative Preferred Stock shall be identical
in all respects with the other shares of Non-Cumulative Preferred Stock. The
authorized number of shares of Non-Cumulative Preferred Stock may from time to
time be increased or decreased (but not below the number then outstanding) by
the Board of Directors. Shares of Non-Cumulative Preferred Stock redeemed by the
Association shall be canceled and shall revert to authorized but unissued shares
of Non-Cumulative Preferred Stock.
2. Dividends.
(a) General. The holders of Non-Cumulative Preferred Stock shall be entitled
to receive, when, as and if declared by the Board of Directors, but only out of
funds legally available therefor, non-cumulative cash dividends at the annual
rate of $83.75 per share, and no more, payable quarterly on the first days of
December, March, June and September, respectively, in each year with respect to
the quarterly dividend period (or portion thereof) ending on the day preceding
such respective dividend payment date, to shareholders of record on the
respective date, not exceeding fifty days preceding such dividend payment date,
fixed for that purpose by the Board of Directors in advance of payment of each
particular dividend. Notwithstanding the foregoing, the cash dividend to be paid
on the first dividend
<PAGE>
payment date after the initial issuance of Non-Cumulative Preferred Stock and on
any dividend payment date with respect to a partial dividend period shall be
$83.75 per share multiplied by the fraction produced by dividing the number of
days since such initial issuance or in such partial dividend period, as the case
may be, by 360.
(b) Non-cumulative Dividends. Dividends on the shares of Non-Cumulative Stock
shall not be cumulative and no rights shall accrue to the holders of shares of
Non-Cumulative Preferred Stock by reason of the fact that the Association may
fail to declare or pay dividends on the shares of Non-Cumulative Preferred Stock
in any amount in any quarterly dividend period, whether or not the earnings of
the Association in any quarterly dividend period were sufficient to pay such
dividends in whole or in part, and the Association shall have no obligation at
any time to pay any such dividend.
(c) Payment of Dividends. So long as any share of Non-Cumulative Preferred
Stock remains outstanding, no dividend whatsoever shall be paid or declared and
no distribution made on any junior stock other than a dividend payable in junior
stock, and no shares of junior stock shall be purchased, redeemed or otherwise
acquired for consideration by the Association, directly or indirectly (other
than as a result of a reclassification of junior stock, or the exchange or
conversion of one junior stock for or into another junior stock, or other than
through the use of the proceeds of a substantially contemporaneous sale of other
junior stock), unless all dividends on all shares of Non-Cumulative Preferred
Stock and non-cumulative Preferred Stock ranking on a parity as to dividends
with the shares of Non-Cumulative Preferred Stock for the most recent dividend
period ended prior to the date of such payment or declaration shall have been
paid in full and all dividends on all shares of cumulative Preferred Stock
ranking on a parity as to dividends with the shares of Non-Cumulative Stock
(notwithstanding that dividends on such stock are cumulative) for all past
dividend periods shall have been paid in full. Subject to the foregoing, and not
otherwise, such dividends (payable in cash, stock or otherwise) as may be
determined by the Board of Directors may be declared and paid on any junior
stock from time to time out of any funds legally available therefor, and the
Non-Cumulative Preferred Stock shall not be entitled to participate in any such
dividends, whether payable in cash, stock or otherwise. No dividends shall be
paid or declared upon any shares of any class or series of stock of the
Association ranking on a parity (whether dividends on such stock are cumulative
or non-cumulative) with the Non-Cumulative Preferred Stock in the payment of
dividends for any period unless at or prior to the time of such payment or
declaration all dividends payable on the Non-Cumulative Preferred Stock for the
most recent dividend period ended prior to the date of such payment or
declaration shall have been paid in full. When dividends are not paid in full,
as aforesaid, upon the Non-Cumulative Preferred Stock and any other series of
Preferred Stock ranking on a parity as to dividends (whether dividends on such
stock are cumulative or non-cumulative) with the Non-Cumulative Preferred Stock,
all dividends declared upon the Non-Cumulative Preferred Stock and any other
series of Preferred Stock ranking on a parity as to dividends with the
Non-Cumulative Preferred Stock shall be declared pro rata so that the amount of
dividends declared per share on the Non-Cumulative Preferred Stock and such
other Preferred Stock shall in all cases bear to each other the same ratio that
accrued dividends per share on the Non-Cumulative Preferred Stock (but without
any accumulation in respect of any unpaid dividends for prior dividend periods
on the shares of Non-Cumulative Stock) and such other Preferred Stock bear to
each other. No interest, or sum of money in lieu of interest, shall be payable
in respect of any dividend payment or payments on the Non-Cumulative Preferred
Stock which may be in arrears.
3. Voting. The holders of Non-Cumulative Preferred Stock shall not have
any right to vote for the election of directors or for any other purpose.
4. Redemption.
(a) Optional Redemption. The Association, at the option of the Board of
Directors, may redeem the whole or any part of the shares of Non-Cumulative
Preferred Stock at the time outstanding, at any time or from time to time after
the fifth anniversary of the date of original issuance of the Non-Cumulative
Preferred Stock, upon notice given as hereinafter specified, at the redemption
price per share equal to $1,000 plus an amount equal to the amount of accrued
and unpaid dividends from the immediately preceding dividend payment date (but
without any accumulation for unpaid dividends for prior dividend periods on the
shares of Non-Cumulative Preferred Stock) to the redemption date.
<PAGE>
(b) Procedures. Notice of every redemption of shares of Non-Cumulative
Preferred Stock shall be mailed by first class mail, postage prepaid, addressed
to the holders of record of the shares to be redeemed at their respective last
addresses as they shall appear on the books of the Association. Such mailing
shall be at least 10 days and not more than 60 days prior to the date fixed for
redemption. Any notice which is mailed in the manner herein provided shall be
conclusively presumed to have been duly given, whether or not the shareholder
receives such notice, and failure duly to give such notice by mail, or any
defect in such notice, to any holder of shares of Non-Cumulative Preferred Stock
designated for redemption shall not affect the validity of the proceedings for
the redemption of any other shares of Non-Cumulative Preferred Stock.
In case of redemption of a part only of the shares of Non-Cumulative
Preferred Stock at the time outstanding the redemption may be either pro rata or
by lot or by such other means as the Board of Directors of the Association in
its discretion shall determine. The Board of Directors shall have full power and
authority, subject to the provisions herein contained, to prescribe the terms
and conditions upon which shares of the Non-Cumulative Preferred Stock shall be
redeemed from time to time.
If notice of redemption shall have been duly given, and, if on or before the
redemption date specified therein, all funds necessary for such redemption shall
have been set aside by the Association, separate and apart from its other funds,
in trust for the pro rata benefit of the holders of the shares called for
redemption, so as to be and continue to be available therefor, then,
notwithstanding that any certificate for shares so called for redemption shall
not have been surrendered for cancellation, all shares so called for redemption
shall no longer be deemed outstanding on and after such redemption date, and all
rights with respect to such shares shall forthwith on such redemption date cease
and terminate, except only the right of the holders thereof to receive the
amount payable on redemption thereof, without interest.
If such notice of redemption shall have been duly given or if the Association
shall have given to the bank or trust company hereinafter referred to
irrevocable authorization promptly to give such notice, and, if on or before the
redemption date specified therein, the funds necessary for such redemption shall
have been deposited by the Association with such bank or trust company in trust
for the pro rata benefit of the holders of the shares called for redemption,
then, notwithstanding that any certificate for shares so called for redemption
shall not have been surrendered for cancellation, from and after the time of
such deposit, all shares so called for redemption shall no longer be deemed to
be outstanding and all rights with respect to such shares shall forthwith cease
and terminate, except only the right of the holders thereof to receive from such
bank or trust company at any time after the time of such deposit the funds so
deposited, without interest. The aforesaid bank or trust company shall be
organized and in good standing under the laws of the United States of America or
any state thereof, shall have capital, surplus and undivided profits aggregating
at least $50,000,000 according to its last published statement of condition, and
shall be identified in the notice of redemption. Any interest accrued on such
funds shall be paid to the Association from time to time. In case fewer than all
the shares of Non-Cumulative Preferred Stock represented by a stock certificate
are redeemed, a new certificate shall be issued representing the unredeemed
shares without cost to the holder thereof.
Any funds so set aside or deposited, as the case may be, and unclaimed at the
end of the relevant escheat period under applicable state law from such
redemption date shall, to the extent permitted by law, be released or repaid to
the Association, after which repayment the holders of the shares so called for
redemption shall look only to the Association for payment thereof.
5. Liquidation.
(a) Liquidation Preference. In the event of any voluntary liquidation,
dissolution or winding up of the affairs of the Association, the holders of
Non-Cumulative Preferred Stock shall be entitled, before any distribution or
payment is made to the holders of any junior stock, to be paid in full an amount
per share equal to an amount equal to $1,000 plus an amount equal to the amount
of accrued and unpaid dividends per share from the immediately preceding
dividend payment date (but without any accumulation for unpaid dividends for
prior dividend periods on the shares of Non-Cumulative Preferred Stock) per
share to such distribution or payment date (the "liquidation amount").
<PAGE>
In the event of any involuntary liquidation, dissolution or winding up of the
affairs of the Association, then, before any distribution or payment shall be
made to the holders of any junior stock, the holders of Non-Cumulative Preferred
Stock shall be entitled to be paid in full an amount per share equal to the
liquidation amount.
If such payment shall have been made in full to all holders of shares of
Non-Cumulative Preferred Stock, the remaining assets of the Association shall be
distributed among the holders of junior stock, according to their respective
rights and preferences and in each case according to their respective numbers of
shares.
(b) Insufficient Assets. In the event that, upon any such voluntary or
involuntary liquidation, dissolution or winding up, the available assets of the
Association are insufficient to pay such liquidation amount on all outstanding
shares of Non-Cumulative Preferred Stock, then the holders of Non-Cumulative
Preferred Stock shall share ratably in any distribution of assets in proportion
to the full amounts to which they would otherwise be respectively entitled.
(c) Interpretation. For the purposes of this paragraph 5, the consolidation
or merger of the Association with any other corporation or association shall not
be deemed to constitute a liquidation, dissolution or winding up of the
Association.
6. Preemptive Rights. The Non-Cumulative Preferred Stock is not entitled
to any preemptive, subscription, conversion or exchange rights in respect of
any securities of the Association.
7. Definitions. As used herein with respect to the Non-Cumulative
Preferred Stock, the following terms shall have the following meanings:
(a) The term "junior stock" shall mean the Common Stock and any other
class or series of shares of the Association hereafter authorized over which
the Non-Cumulative Preferred Stock has preference or priority in the payment
of dividends or in the distribution of assets on any liquidation, dissolution
or winding up of the Association.
(b) The term "accrued dividends", with respect to any share of any class
or series, shall mean an amount computed at the annual dividend rate for the
class or series of which the particular share is a part, from, if such share
is cumulative, the date on which dividends on such share became cumulative to
and including the date to which such dividends are to be accrued, less the
aggregate amount of all dividends theretofore paid thereon and, if such share
is non-cumulative, the relevant date designated to and including the date to
which such dividends are accrued, less the aggregate amount of all dividends
theretofore paid with respect to such period.
(c) The term "Preferred Stock" shall mean all outstanding shares of all
series of preferred stock of the Association as defined in this Article Fifth
of the Articles of Association, as amended, of the Association.
8. Restriction on Transfer. No shares of Non-Cumulative Preferred Stock, or
any interest therein, may be sold, pledged, transferred or otherwise disposed of
without the prior written consent of the Association. The foregoing restriction
shall be stated on any certificate for any shares of Non-Cumulative Preferred
Stock.
9. Additional Rights. The shares of Non-Cumulative Preferred Stock shall
not have any relative, participating, optional or other special rights and
powers other than as set forth herein.
SIXTH. The Board of Directors shall appoint one of its members President of
this Association, who shall be Chairperson of the Board, unless the Board
appoints another director to be the Chairperson. The Board of Directors shall
have the power to appoint one or more Vice Chairmen and Vice Presidents and such
other officers and employees as may be required to transact the business of this
Association.
The Board of Directors shall have the power to define the duties of the
officers and employees of the Association; to fix the salaries to be paid to
them; to dismiss them; to require bonds from them and to fix the penalty
thereof; to regulate the manner in which any increase of the capital of the
Association
<PAGE>
shall be made; to manage and administer the business and affairs of the
Association; to make all By-laws that it may be lawful for them to make; and
generally to do and perform all acts that it may be legal for a Board of
Directors to do and perform.
SEVENTH. The Board of Directors shall have the power to change the location
of the main office to any other place permitted by law, but subject to the
approval of the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches of the Association to
any other location, without the approval of the shareholders, but subject to the
approval of the Comptroller of the Currency.
EIGHTH. The corporate existence of this Association shall continue until
terminated in accordance with the laws of the United States.
NINTH. The Board of Directors of this Association, or any one or more
shareholders owning, in the aggregate, not less than 25 percent of the stock of
this Association, may call a special meeting of shareholders at any time. Unless
otherwise provided by the laws of the United States, a notice of the time,
place, and purpose of every annual and special meeting of the shareholders shall
be given by first-class mail, postage prepaid, mailed at least ten days prior to
the date of such meeting, to each shareholder of record at his address as shown
upon the books of this Association.
TENTH. (A) Indemnification of Directors
The Association shall, to the fullest extent permitted by applicable banking,
corporate and other law and regulation, indemnify any person who is or was a
director of the Association from and against any and all expenses, liabilities
or other losses arising in connection with any action, suit, appeal or other
proceeding, by reason of the fact that such person is or was serving as a
director of the Association and may, to the fullest extent permitted by
applicable banking, corporate and other law and regulation, advance monies to
such persons for expenses incurred in defending any such action, suit, appeal or
other proceeding on such terms as the Association's Board of Directors shall
determine and as are required by applicable banking, corporate and other law or
regulation or interpretation by the applicable banking regulators. The
Association may purchase insurance for the purpose of indemnifying such persons
and/or reimbursing the Association upon payment of indemnification to such
persons to the extent that indemnification is authorized by the preceding
sentences, except that insurance coverage and corporate indemnification shall
not be available in connection with a formal order by a court or judicial or
governmental body assessing civil money penalties against such person or in the
event that such coverage or indemnification would be prohibited by applicable
banking, corporate and other law or regulation.
(B) Indemnification of Officers, Employees and Agents.
The Association shall indemnify any person who is or was an officer, employee
or agent of the Association or who is or was a director, general partner,
trustee or principal of another entity serving as such at the request of the
Association from and against any and all expenses, liabilities or other losses
arising in connection with any action, suit, appeal or other proceeding, by
reason of the fact that such person is or was serving as an officer, employee or
agent of the Association or as a director of another entity at the request of
the Association, to the extent authorized by the corporate policy of the
Association, as adopted and modified from time to time by the shareholders of
the Association, except to the extent that such indemnification would be
prohibited by applicable banking, corporate and other law or regulation. The
Association may advance monies to such persons for expenses incurred in
defending any such action, suit, appeal or other proceeding in accordance with
the corporate policy of the Association, as adopted and modified from time to
time by the shareholders of the Association, under such terms and procedures as
are required by applicable banking, corporate and other law or regulation or
interpretation by the applicable banking regulators, except to the extent that
such advancement would be prohibited by applicable banking, corporate and other
law or regulation. The Association may purchase insurance for the purpose of
indemnifying such persons and/or reimbursing the Association upon pay ment of
indemnification to such person to the extent that indemnification is authorized
by the preceding sentence, except that insurance coverage and corporate
indemnification shall not be available in connection with a formal order by a
court or judicial or governmental body assessing civil money penalties against
such person or in the event that such coverage or indemnification would be
prohibited by applicable banking, corporate and other law or regulation.
<PAGE>
ELEVENTH. These Articles of Association may be amended at any regular or
special meeting of the shareholders by the affirmative vote of the holders of a
majority of the stock of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case by the vote of the
holders of such greater amount.
<PAGE>
APPENDIX B
October 17, 1994
The Board of Directors
Baltimore Bancorp
The Bank of Baltimore Building
120 East Baltimore Street
Baltimore, MD 21202
Dear Madame and Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of common stock, having a par
value of $5.00 per share (the "Common Stock") of Baltimore Bancorp (the
"Company") of the consideration to be received by the Company's shareholders
pursuant to the Agreement and Plan of Merger dated as of March 21, 1994, as
amended October 17, 1994, between First Fidelity Bancorporation ("First
Fidelity") and the Company (the "Merger"). Pursuant to the Merger, each of the
shares of Common Stock will receive $20.75 in cash (the "Merger Consideration").
Alex. Brown & Sons Incorporated, as a customary part of its investment
banking business, is engaged in the valuation of businesses and their securities
in connection with mergers and acquisitions, negotiated underwritings, private
placements and valuations for estate, corporate and other purposes. We have
acted as financial advisor to the Board of Directors of the Company in
connection with the transaction described above and will receive a fee for our
services, a significant portion of which is contingent upon the consummation of
the transaction contemplated by the Merger. Alex. Brown & Sons Incorporated
maintains a market in the Common Stock and regularly publishes research reports
regarding the financial services industry and the businesses and securities of
publicly owned companies in that industry, including the Company.
In connection with this opinion, we have reviewed certain publicly available
financial information concerning the Company and First Fidelity and certain
internal financial analyses and other information furnished to us by the
Company. We have also held discussions with members of the Company's senior
management regarding the business and prospects of the Company. In addition, we
have (i) reviewed the reported price and trading activity for the shares of
Common Stock, (ii) compared certain financial and stock market information for
the Company with similar information for certain comparable companies whose
securities are publicly traded, (iii) reviewed the Merger and compared the
financial terms of the Merger with those of certain recent business combinations
in the commercial banking industry which we deemed comparable in whole or in
part and (iv) performed such other studies and analyses and considered such
other factors as we deemed appropriate.
We have not independently verified the information described above and for
purposes of this opinion have assumed the accuracy, completeness and fairness
thereof. With respect to information relating to the prospects of the Company,
we have assumed that such information reflects the best currently available
estimates and judgments of the management of the Company as to the likely future
financial performance of the Company. In addition, we have not made an
independent evaluation or appraisal of the assets or liabilities of the Company,
nor have we been furnished with any such evaluation or appraisal. Our opinion is
based on market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
Based upon and subject to the foregoing, it is our opinion that, as of the
date of this letter, the Merger Consideration is fair, from a financial point of
view, to the holders of shares of Common Stock.
Very truly yours,
ALEX. BROWN & SONS INCORPORATED
<PAGE>
APPENDIX C
THE TRANSFER OF THE OPTION GRANTED BY THIS AGREEMENT IS
SUBJECT TO RESALE RESTRICTIONS ARISING UNDER THE
SECURITIES ACT OF 1933, AS AMENDED.
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of the 22nd day of March, 1994 (this
"Agreement"), between First Fidelity Bancorporation, a New Jersey corporation
("Grantee"), and Baltimore Bancorp, a Maryland corporation ("Issuer").
WITNESSETH:
WHEREAS, Grantee and Issuer have entered into an Agreement and Plan of
Merger, dated as of the 21st day of March, 1994 (the "Plan"), which was executed
by the parties hereto prior to the execution of this Agreement; and
WHEREAS, as a condition and inducement to Grantee's entering into the Plan
and in consideration therefor, Issuer has agreed to grant Grantee the Option (as
defined below);
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements set forth herein and in the Plan, the parties hereto agree as
follows:
SECTION 1. Issuer hereby grants to Grantee an unconditional, irrevocable
option (the "Option") to purchase, subject to the terms hereof, up to 3,300,000
fully paid and nonassessable shares of Common Stock, par value $5.00 per share
("Common Stock"), of Issuer at a price per share equal to the average of the low
and high reported sale prices per share on the New York Stock Exchange Composite
Transactions Tape (the "Tape") on the first full trading day after the
announcement of the Plan (the "Initial Price"); provided, however, that in the
event Issuer issues or agrees to issue (other than pursuant to options or other
agreements to issue Common Stock in effect as of the date hereof and employee
and director stock options issued in the ordinary course of business) any shares
of Common Stock at a price less than the Initial Price (as adjusted pursuant to
Section 5(b)), such price shall be equal to such lesser price (such price, as
adjusted as hereinafter provided, the "Option Price"). 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.
SECTION 2. (a) Grantee may exercise the Option, in whole or part, at any time
and from time to time following the occurrence of a Purchase Event (as defined
below); provided that the Option shall terminate and be of no further force and
effect upon the earliest to occur of (i) the time immediately prior to the
Effective Time, (ii) 12 months after the first occurrence of a Purchase Event,
(iii) 12 months after the termination of the Plan following the occurrence of a
Preliminary Purchase Event (as defined below), (iv) termination of the Plan in
accordance with the terms thereof prior to the occurrence of a Purchase Event or
a Preliminary Purchase Event (other than a termination of the Plan by Grantee
pursuant to Section 6.1(b)(ii) thereof), (v) 12 months after the termination of
the Plan by Grantee pursuant to Section 6.1(b)(ii) thereof as a result of any
willful and material breach of the Plan or (vi) 4 months after the termination
of the Plan by Grantee otherwise pursuant to Section 6.1(b)(ii) thereof other
than as a result of a willful and intentional breach. The events described in
clauses (i) -- (vi) in the preceding sentence are hereinafter collectively
referred to as an "Exercise Termination Event."
(b) The term "Preliminary Purchase Event" shall mean any of the following
events or transactions occurring after the date hereof:
<PAGE>
(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 defined below)
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 (the "Securities Exchange Act"), and the rules and
regulations thereunder) other than Grantee or any of its subsidiaries (each a
"Grantee Subsidiary") or the Board of Directors of Issuer shall have
recommended that the shareholders of Issuer approve or accept any Acquisition
Transaction with any person other than Grantee or any Grantee Subsidiary. For
purposes of this Agreement, "Acquisition Transaction" shall mean (x) a merger
or consolidation, or any similar transaction, involving Issuer or any of
Issuer's material subsidiaries ("Material Subsidiaries"), (y) a purchase,
lease or other acquisition of all or substantially all of the assets of
Issuer or any Material Subsidiary or (z) 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 a
Material Subsidiary; provided that the term "Acquisition Transaction" does
not include any internal merger or consolidation involving only Issuer and/or
Issuer Subsidiaries;
(ii) Any person (other than Grantee or any Grantee Subsidiary) shall have
acquired ownership or control of, or the right to vote, 10% or more of the
outstanding shares of Common Stock;
(iii) Any person other than Grantee or any Grantee Subsidiary shall have
made a bona fide proposal to Issuer or its shareholders, by public
announcement or written communication that is or becomes the subject of
public disclosure, to engage in an Acquisition Transaction (including,
without limitation, any situation in which any person other than Grantee or
any subsidiary of Grantee shall have commenced (as such term is defined in
Rule 14d-2 under the Exchange Act), or shall have filed a registration
statement under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to, a tender offer or exchange offer to purchase any
shares of Issuer Common Stock such that, upon consummation of such offer,
such person would own or control 10% or more of the then outstanding shares
of Issuer Common Stock (such an offer being referred to herein as a "Tender
Offer" or an "Exchange Offer", respectively));
(iv) After a bona fide proposal is made by a third party to Issuer or
publicly to its shareholders to engage in an Acquisition Transaction, Issuer
shall have materially breached any covenant or obligation contained in the
Plan and such breach would entitle Grantee to terminate the Plan or the
holders of Issuer Common Stock shall not have approved the Plan at the
meeting of such stockholders held for the purpose of voting on the Plan, such
meeting shall not have been held or shall have been canceled prior to
termination of the Plan or Issuer's Board of Directors shall have withdrawn
or modified in a manner adverse to Grantee the recommendation of Issuer's
Board of Directors with respect to the Plan; or
(v) 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 Board of
Governors of the Federal Reserve System (the "Federal Reserve Board") or
other governmental authority or regulatory or administrative agency or
commission (each, a "Governmental Authority") for approval to engage in an
Acquisition Transaction.
(c) The term "Purchase Event" shall mean either of the following events or
transactions occurring after the date hereof:
(i) The acquisition by any person other than Grantee or any Grantee
Subsidiary of ownership or control of, or the right to vote (other than on
behalf of the Issuer), 25% or more of the then outstanding Common Stock; or
(ii) The occurrence of a Preliminary Purchase Event described in Section
2(b)(i) except that the percentage referred to in clause (z) shall be 25%.
(d) Issuer shall notify Grantee promptly in writing of the occurrence of any
Preliminary Purchase Event or Purchase Event; provided, however, that the giving
of such notice by Issuer shall not be a condition to the right of Grantee to
exercise the Option.
<PAGE>
(e) In the event that Grantee is entitled to and wishes to exercise the
Option, it shall send to Issuer a written notice (the "Option Notice" and the
date of which being hereinafter referred to as the "Notice Date") specifying (i)
the total number of shares of Common Stock it will purchase pursuant to such
exercise and (ii) the time (which shall be on a business day that is not less
than three nor more than ten business days from the Notice Date) on which the
closing of such purchase shall take place (the "Closing Date"); such closing to
take place at the principal office of the Issuer; provided, that, if prior
notification to or approval of the Federal Reserve Board or any other
Governmental Authority is required in connection with such purchase (each, a
"Notification" or an "Approval," as the case may be), (a) Grantee shall promptly
file the required notice or application for approval ("Notice/Application"), (b)
Grantee shall expeditiously process the Notice/Application and (c) for the
purpose of determining the Closing Date pursuant to clause (ii) of this
sentence, the period of time that otherwise would run from the Notice Date shall
instead run from the later of (x) in connection with any Notification, the date
on which any required notification periods have expired or been terminated and
(y) in connection with any Approval, the date on which such approval has been
obtained and any requisite waiting period or periods shall have expired. For
purposes of Section 2(a), any exercise of the Option shall be deemed to occur on
the Notice Date relating thereto. On or prior to the Closing Date, Grantee shall
have the right to revoke its exercise of the Option in the event that the
transaction constituting a Purchase Event that gives rise to such right to
exercise shall not have been consummated.
(f) At the closing referred to in Section 2(e), Grantee shall pay to Issuer
the aggregate purchase price for the number of shares of Common Stock specified
in the Option Notice in immediately available funds by wire transfer to a bank
account designated by Issuer; provided, however, that failure or refusal of
Issuer to designate such a bank account shall not preclude Grantee from
exercising the Option.
(g) At such closing, simultaneously with the delivery of immediately
available funds as provided in Section 2(f), Issuer shall deliver to Grantee a
certificate or certificates representing the number of shares of Common Stock
specified in the Option Notice and, if the Option should be exercised in part
only, a new Option evidencing the rights of Grantee thereof to purchase the
balance of the shares of Common Stock purchasable hereunder.
(h) Certificates for Common Stock delivered at a closing hereunder shall be
endorsed with a restrictive legend substantially as follows:
The transfer of the shares represented by this certificate is subject to
resale restrictions arising under the Securities Act of 1933, as amended, and
applicable state securities laws and to certain provisions of an agreement
between First Fidelity Bancorporation and Baltimore Bancorp ("Issuer") dated
as of the 22nd day of March, 1994. 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.
It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act in the above legend shall be removed by delivery of
substitute certificate(s) without such reference if Grantee shall have delivered
to Issuer a copy of a letter from the staff of the Securities and Exchange
Commission (the "SEC") or Governmental Authority responsible for administering
any applicable state securities laws or an opinion of counsel, in form and
substance satisfactory to Issuer, to the effect that such legend is not required
for purposes of the Securities Act or applicable state securities laws; (ii) the
reference to the provisions of 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 Grantee to Issuer of an Option Notice and the tender
of the applicable purchase price in immediately available funds on the Closing
Date, Grantee shall be deemed to be the holder of record of the number of shares
of Common Stock specified in the Option Notice, notwithstanding that the stock
transfer books of Issuer shall then be closed or that certificates representing
such
<PAGE>
shares of Common Stock shall not then actually be delivered to Grantee. Issuer
shall pay all expenses 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 Grantee.
SECTION 3. Issuer agrees: (i) that it shall at all times until the
termination of this Agreement have reserved for issuance upon the exercise of
the Option that number of authorized and reserved shares of Common Stock equal
to the maximum number of shares of Common Stock at any time and from time to
time issuable hereunder, all of which shares will, upon issuance pursuant
hereto, be duly authorized, validly issued, fully paid, nonassessable, and
delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights; (ii) that it will not, by
amendment of its certificate of incorporation 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 reasonable action as may from time to time be
requested by the Grantee, at Grantee's expense (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 ("BHC Act"), 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 other
Governmental Authority is necessary before the Option may be exercised,
cooperating with Grantee in preparing such applications or notices and providing
such information to each such Governmental Authority as it may require) in order
to permit Grantee to exercise the Option and Issuer duly and effectively to
issue shares of Common Stock pursuant hereto; and (iv) to take all action
provided herein to protect the rights of Grantee against dilution.
SECTION 4. This Agreement (and the Option granted hereby) are exchangeable,
without expense, at the option of Grantee, 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 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.
SECTION 5. The number of shares of Common Stock purchasable upon the exercise
of the Option shall be subject to adjustment from time to time as follows:
(a) In the event of any change in the Common Stock by reason of stock
dividends, split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type and number of shares
of Common Stock purchasable upon exercise hereof shall be appropriately
adjusted and proper provision shall be made so that, in the event that any
additional shares of Common Stock are to be issued or otherwise become
outstanding as a result of any such change (other than pursuant to an
exercise of the Option), the number of shares of Common Stock that remain
subject to the Option shall be increased so that, after such issuance and
together with shares of Common Stock previously issued pursuant to the
exercise of the Option (as adjusted on account of any of the foregoing
changes in the Common Stock), it equals 19.9% of the number of shares of
Common Stock then issued and outstanding.
(b) Whenever the number of shares of Common Stock purchasable upon
exercise hereof is adjusted as provided in this Section 5, the Option Price
shall be adjusted by multiplying the Option Price by a fraction, the
numerator of which shall be equal to the number of shares of Common Stock
purchasable prior to the adjustment and the denominator of which shall be
equal to the number of shares of Common Stock purchasable after the
adjustment.
SECTION 6. (a) Upon the occurrence of a Purchase Event that occurs prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee (whether
on its own behalf or on behalf of any subsequent holder of the Option (or part
thereof) or any of the shares of Common Stock issued pursu
<PAGE>
ant hereto), promptly prepare, file and keep current a shelf registration
statement under the Securities Act covering any shares issued and issuable
pursuant to the Option and shall use its best efforts to cause such registration
statement to become effective, and to remain current and effective for a period
not in excess of 180 days from the day such registration statement first becomes
effective, in order to permit the sale or other disposition of any shares of
Common Stock issued upon total or partial exercise of the Option ("Option
Shares") in accordance with any plan of disposition requested by Grantee;
provided, however, that Issuer may postpone filing a registration statement
relating to a registration request by Grantee under this Section 6 for a period
of time (not in excess of 30 days) if in its judgment such filing would require
the disclosure of material information that Issuer has a bona fide business
purpose for preserving as confidential. 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 the process of 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 offering or inclusion of the Option Shares
would interfere materially 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; provided,
however, that after any such required reduction the number of Option Shares to
be included in such offering for the account of Grantee shall constitute at
least 20% of the total number of shares of Grantee and Issuer covered in such
registration statement; provided further, however, that if such reduction
occurs, then Issuer shall file a registration statement for the balance as
promptly as practicable thereafter as to which no reduction pursuant to this
Section 6(a) shall be permitted or occur and the Grantee shall thereafter be
entitled to one additional registration statement. Grantee shall provide all
information reasonably requested by Issuer for inclusion in any registration
statement to be filed hereunder. In connection with any such registration,
Issuer and Grantee shall provide each other with representations, warranties,
indemnities and other agreements customarily given in connection with such
registrations. If requested by Grantee in connection with such registration,
Issuer and Grantee shall become a party to any underwriting agreement relating
to the sale of such shares, but only to the extent of obligating themselves in
respect of representations, warranties, indemnities and other agreements
customarily included in such underwriting agreements. Notwithstanding the
foregoing, if Grantee revokes any exercise notice or fails to exercise any
Option with respect to any exercise notice pursuant to Section 2(e), Issuer
shall not be obligated to continue any registration process with respect to the
sale of Option Shares issuable upon the exercise of such Option and Grantee
shall not be deemed to have demanded registration of Option Shares.
(b) In the event that Grantee requests Issuer to file a registration
statement following the failure to obtain any approval required to exercise the
Option as described in Section 9, the closing of the sale or other disposition
of the Common Stock or other securities pursuant to such registration statement
shall occur substantially simultaneously with the exercise of the Option.
SECTION 7. (a) Upon the occurrence of a Purchase Event that occurs prior to
an Exercise Termination Event, (i) at the request (the date of such request
being the "Option Repurchase Request Date") of Grantee, Issuer shall repurchase
the Option from Grantee 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 (the date of such request being the "Option
Share Repurchase Request Date") of the owner of Option Shares from time to time
(the "Owner"), 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 after the date hereof and on or prior to the Option
Repurchase Request Date or the Option Share Repurchase Request Date, as the case
may be, (ii) the price per share of Common Stock paid or to be paid by any third
party pursuant to an agreement with Issuer (whether by way of a merger,
consolidation or otherwise), (iii) the average of the 20 highest last sale
prices for shares of Common Stock within the 90-day period ending on the Option
Repurchase Request Date or the Option Share Repurchase Request Date, as the case
may be, quoted on the Tape
<PAGE>
(as reported by The Wall Street Journal, or, if not reported thereby, another
authoritative source), (iv) in the event of a sale of all or substantially all
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 independent investment banking firm selected by Grantee or
the Owner, as the case may be, 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 the value determined
by a nationally-recognized independent investment banking firm selected by
Grantee or the Owner, as the case may be, and reasonably acceptable to the
Issuer, which investment banking firm's determination shall be conclusive and
binding on all parties.
(b) Grantee or the Owner, as the case may be, may exercise its right to
require Issuer to repurchase the Option and/or 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 Grantee or
the Owner, as the case may be, elects to require Issuer to repurchase the Option
and/or the Option Shares in accordance with the provisions of this Section 7. As
promptly as practicable, and in any event within 15 business days after the
surrender of the Option and/or certificates representing Option Shares and the
receipt of such notice or notices relating thereto, Issuer shall deliver or
cause to be delivered to Grantee the Option Repurchase Price or to the Owner the
Option Share Repurchase Price or the portion thereof that Issuer is not then
prohibited from so delivering under applicable law and regulation or as a
consequence of administrative policy (including policies relating to the
maintenance of capital levels and a sound financial condition).
(c) 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 any repurchase contemplated by this Section
7. Nonetheless, to the extent that Issuer is prohibited under applicable law or
regulation, or as a consequence of administrative policy (including policies
relating to the maintenance of capital levels and a sound financial condition),
from repurchasing any Option and/or any Option Shares in full, Issuer shall
promptly so notify Grantee and/or the Owner and thereafter deliver or cause to
be delivered, from time to time, to Grantee 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 Section 7(b) is prohibited under applicable law or
regulation, or as a consequence of administrative policy (including policies
relating to the maintenance of capital levels and a sound financial condition),
from delivering to Grantee and/or the Owner, as appropriate, the Option
Repurchase Price or the Option Share Repurchase Price, respectively, in full,
Grantee or the Owner, as appropriate, may revoke its notice of repurchase of the
Option or the Option Shares either in whole or in part whereupon, in the case of
a revocation in part, Issuer shall promptly (i) deliver to Grantee and/or the
Owner, as appropriate, that portion of the Option Purchase Price or the Option
Share Repurchase Price that Issuer is not prohibited from delivering after
taking into account any such revocation and (ii) deliver, as appropriate, either
(A) to Grantee, a new Agreement evidencing the right of Grantee to purchase that
number of shares of Common Stock equal to the number of shares of Common Stock
purchasable immediately prior to the delivery of the notice of repurchase less
the number of shares of Common Stock covered by the portion of the Option
repurchased or (B) to the Owner, a certificate for the number of Option Shares
covered by the revocation.
(d) Issuer shall not enter into any agreement with any party (other than
Grantee or a Grantee Subsidiary) for an Acquisition Transaction unless the other
party thereto assumes all the obligations of Issuer pursuant to this Section 7
in the event that Grantee or the Owner elects, in its sole discretion, to
require such other party to perform such obligations.
SECTION 8. (a) In the event that prior to an Exercise Termination Event,
Issuer shall enter into an agreement (i) to consolidate or merge with 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
<PAGE>
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
shares and share equivalents of the merged company, or (iii) to sell or
otherwise transfer all or substantially all of its or any Material Subsidiary's
assets to any person, other than Grantee or a Grantee Subsidiary, then, and in
each such case, the agreement governing such transaction shall make proper
provision so that the Option shall, upon the consummation of 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 Grantee,
of either (x) the Acquiring Corporation (as defined below) or (y) any person
that controls the Acquiring Corporation (the Acquiring Corporation and any such
controlling person being hereinafter referred to as the "Substitute Option
Issuer").
(b) The Substitute Option shall be exercisable for such number of shares of
the Substitute Common Stock (as is hereinafter defined) as is equal to the
market/offer price (as defined in Section 7) multiplied by the number of shares
of the Issuer Common Stock for which the Option was theretofore exercisable,
divided by the Average Price (as is hereinafter defined). The exercise price of
the Substitute Option per share of the Substitute Common Stock (the "Substitute
Purchase Price") shall then be equal to the Option Price multiplied by a
fraction in which the numerator is the number of shares of the Issuer Common
Stock for which the Option was theretofore exercisable and the denominator is
the number of shares for which the Substitute Option is exercisable.
(c) The Substitute Option shall otherwise 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 Grantee, provided further that the terms of the
Substitute Option shall include (by way of example and not limitation)
provisions for the repurchase of the Substitute Option and Substitute Common
Stock by the Substitute Option Issuer on the same terms and conditions as
provided in Section 7.
(d) The following terms have the meanings indicated:
(i) "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 any substantial part of the
Issuer's assets (or the assets of Issuer's Material Subsidiary).
(ii) "Substitute Common Stock" shall mean the common stock issued by the
Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "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 the 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 Issuer, the person merging into
Issuer or by any company which controls or is controlled by such merging
person, as Grantee may elect.
(e) In no event, pursuant to any of the foregoing paragraphs, shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of the
shares of the Substitute Common Stock outstanding immediately prior to the
issuance of the Substitute Option. In the event that the Substitute Option would
be exercisable for more than 19.9% of the aggregate of the shares of Substitute
Common Stock but for this clause (e), the Substitute Option Issuer shall make a
cash payment to Grantee 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 the
clause (e). This difference in value shall be determined by a nationally
recognized investment banking firm selected by Grantee and the Substitute Option
Issuer. In addition, the provisions of Section 5(a) shall not apply to the
issuance of any Substitute Option and for purposes of applying Section 5(a)
thereafter to any Substitute Option the percentage referred to in Section 5(a)
shall thereafter equal the percentage that the percentage of the shares of
Substitute Common Stock subject to the Substitute Option bears to the number of
shares of Substitute Common Stock outstanding.
<PAGE>
SECTION 9. Notwithstanding Sections 2, 6 and 7, if Grantee has given the
notice referred to in one or more of such Sections, the exercise of the rights
specified in any such Section shall be extended (a) if the exercise of such
rights requires obtaining regulatory approvals (including any required waiting
periods) to the extent necessary to obtain all regulatory approvals for the
exercise of such rights, and (b) to the extent necessary to avoid liability
under Section 16(b) of the Securities Exchange Act by reason of such exercise;
provided that in no event shall any closing date occur more than 18 months after
the related Notice Date, and, if the closing date shall not have occurred within
such period due to the failure to obtain any required approval by the Federal
Reserve Board or any other Governmental Authority despite the best efforts of
Issuer or the Substitute Option Issuer, as the case may be, to obtain such
approvals, the exercise of the Option shall be deemed to have been rescinded as
of the related Notice Date. In the event (a) Grantee receives official notice
that an approval of the Federal Reserve Board or any other Governmental
Authority required for the purchase and sale of the Option Shares will not be
issued or granted or (b) a closing date has not occurred within 18 months after
the related Notice Date due to the failure to obtain any such required approval,
Grantee shall be entitled to exercise the Option in connection with the resale
of the Option Shares pursuant to a registration statement as provided in Section
6. Nothing contained in this Agreement shall restrict Grantee from specifying
alternative means of exercising rights pursuant to Sections 2, 6 or 7 hereof in
the event that the exercising of any such rights shall not have occurred due to
the failure to obtain any required approval referred to in this Section 9.
SECTION 10. Issuer hereby represents and warrants to Grantee as follows:
(a) Issuer has the requisite 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 approved 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 executed and delivered by, and
constitutes a valid and binding obligation of, Issuer, enforceable against
Issuer in accordance with its terms, except as enforceability thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium and
other similar laws affecting the enforcement of creditors' rights generally and
except that the availability of the equitable remedy of specific performance or
injunctive relief is subject to the discretion of the court before which any
proceeding may be brought.
(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, non-assessable, and
will be delivered free and clear of all claims, liens, encumbrances and security
interests and not subject to any preemptive rights.
SECTION 11. (a) Neither of the parties hereto may assign any of its rights or
delegate any of its obligations under this Agreement or the Option created
hereunder to any other person without the express written consent of the other
party, except that Grantee may assign this Agreement to a wholly owned
subsidiary of Grantee and Grantee may assign its rights hereunder in whole or in
part after the occurrence of a Preliminary Purchase Event; provided, however,
that until the date at which the Federal Reserve Board has approved an
application by Grantee under the BHC Act 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 public distribution on
Grantee's behalf, or (iv) any other manner approved by the Federal Reserve
Board. The term "Grantee" as used in this Agreement shall also be deemed to
refer to Grantee's permitted assigns.
(b) Any assignment of rights of Grantee to any permitted assignee of Grantee
hereunder shall bear the restrictive legend at the beginning thereof
substantially as follows:
<PAGE>
The transfer of the option represented by this assignment and the related
option agreement is subject to resale restrictions arising under the
Securities Act of 1933, as amended, and applicable state securities laws and
to certain provisions of an agreement between First Fidelity Bancorporation
and Baltimore Bancorp, ("Issuer") dated as of the 22nd day of March, 1994. A
copy of such agreement is on file at the principal office of Issuer and will
be provided to any permitted assignee of the Option without change upon
receipt by Issuer of a written request therefor.
It is understood and agreed that (i) the reference to the resale restrictions of
the Securities Act in the above legend shall be removed by delivery of
substitute assignments without such reference if Grantee shall have delivered to
Issuer a copy of a letter from the staff of the SEC or Governmental Authority
responsible for administering any applicable state securities laws, or an
opinion of counsel, in form and substance satisfactory to Issuer, to the effect
that such legend is not required for purposes of the Securities Act or
applicable state securities laws; (ii) the reference to the provisions of this
Agreement in the above legend shall be removed by delivery of substitute
assignments without such reference if the Option has 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 assignments shall bear any other legend as
may be required by law.
SECTION 12. Each of Grantee and Issuer will use its reasonable 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, if necessary, for quotation of the shares of Common Stock issuable
hereunder on the Tape and applying to the Federal Reserve Board under the BHC
Act and to state banking authorities for approval to acquire the shares issuable
hereunder.
SECTION 13. 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 shall hereto be enforceable by either party
hereto through injunctive or other equitable relief. Both parties further agree
to waive any requirement for the securing or posting of any bond in connection
with the obtaining of any such equitable relief and that this provision is
without prejudice to any other rights that the parties hereto may have for any
failure to perform this Agreement.
SECTION 14. 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 Grantee 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) (as adjusted pursuant hereto), it is the express
intention of Issuer to allow Grantee to acquire or to require Issuer to
repurchase such lesser number of shares as may be permissible, without any
amendment or modification hereof.
SECTION 15. 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 Plan.
SECTION 16. This Agreement shall be governed by and construed in accordance
with the laws of the State of Maryland.
SECTION 17. This Agreement may be executed in two or more counterparts, each
of which shall be deemed to be an original, but all of which shall constitute
one and the same agreement and shall be effective at the time of execution and
delivery.
SECTION 18. 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.
<PAGE>
SECTION 19. Except as otherwise expressly provided herein or in the Plan,
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 except as assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
SECTION 20. Capitalized terms used in this Agreement and not defined herein
but defined in the Plan shall have the meanings assigned thereto in the Plan.
SECTION 21. Nothing contained in this Agreement shall be deemed to authorize
or require Issuer or Grantee to breach any provision of the Plan or any
provision of law applicable to the Grantee or Issuer or their subsidiaries.
SECTION 22. In the event that any selection or determination is to be made by
Grantee or the Owner hereunder and at the time of such selection or
determination there is more than one Grantee or Owner, such selection shall be
made by a majority in interest of such Grantees or Owners.
SECTION 23. In the event of any exercise of the option by Grantee, Issuer and
such Grantee shall execute and deliver all other documents and instruments and
take all other action that may be reasonably necessary in order to consummate
the transactions provided for by such exercise.
SECTION 24. Except to the extent Grantee exercises the Option, Grantee shall
have no rights to vote or receive dividends or have any other rights as a
shareholder with respect to shares of Common Stock covered hereby.
IN WITNESS WHEREOF, each of the parties has caused this Stock Option
Agreement to be executed on its behalf by their officers thereunto duly
authorized, all as of the date first above written.
FIRST FIDELITY BANCORPORATION
By: /s/ James L. Mitchell
--------------------------
James L. Mitchell
Executive Vice President,
General Counsel and Secretary
BALTIMORE BANCORP
By: /s/ Edwin F. Hale, Sr.
---------------------------
Edwin F. Hale, Sr.
Chairman and Chief Executive
Officer
<PAGE>
REVOCABLE PROXY
BALTIMORE BANCORP
SPECIAL MEETING OF STOCKHOLDERS
MONDAY, NOVEMBER 21, 1994
This Proxy Is Solicited by the Board
The undersigned stockholder of Baltimore Bancorp (the "Company") hereby
authorizes Barry B. Bondroff, Bruce H. Hoffman and Dennis F. Rasmussen, and each
of them, with full power of substitution, to vote and otherwise represent all
the shares of Common Stock of the Company held of record by the undersigned at
the Special Meeting of Stockholders of the Company (the "Special Meeting") to be
held at The Bank of Baltimore, 4th Floor, 7 East Baltimore Street, Baltimore,
Maryland 21203, on November 21, 1994 at 10:00 a.m., and any at adjournments or
postponements thereof.
This proxy, when properly completed, will be voted in the manner directed
herein by the undersigned stockholder. UNLESS CONTRARY DIRECTION IS GIVEN, THIS
PROXY WILL BE VOTED FOR THE APPROVAL AND ADOPTION OF THE MERGER AGREEMENT AND
THE TRANSACTIONS CONTEMPLATED THEREBY, AND IN ACCORDANCE WITH THE DETERMINATION
OF A MAJORITY OF THE BOARD AS TO OTHER MATTERS.
1. The Agreement and Plan of Merger, dated as of March 21, 1994, as
amended October 17, 1994, among First Fidelity Bancorporation, Annabel Lee
Corporation and the Company and the transactions contemplated thereby.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
2. Upon such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof, as determined by a
majority of the Company's Board of Directors.
The Board unanimously recommends that you vote "FOR" approval and adoption of
the Merger Agreement and the transactions contemplated thereby.
The undersigned stockholder may revoke this Proxy at any time before it is
voted by filing with the Corporate Secretary of the Company a written notice of
revocation, by delivering to the Company a duly executed proxy bearing a later
date, or by attending the Special Meeting and voting in person. The undersigned
stockholder hereby acknowledges receipt of the Notice of Special Meeting of
Stockholders and Proxy Statement and hereby revokes any proxy or proxies
heretofore given.
-------------------------------------
Signature(s) of Stockholder or
Authorized Representative
-------------------------------------
Signature
Date:
-------------------------------------
Please date and sign exactly as name appears
hereon. Each executor, administrator,
trustee, guardian, attorney-in-fact and other
fiduciary should sign and indicate his or her
full title. When stock has been issued in the
name of two or more persons, all should sign.
Please sign and return all proxy cards in the accompanying envelope.
<PAGE>
Stockholders and Board of Directors
Baltimore Bancorp
We have audited the accompanying consolidated statements of financial
condition of Baltimore Bancorp and subsidiaries as of December 31, 1993 and
1992, and the related consolidated statements of income, changes in
stockholders' equity, and cash flows for cash of the three years in the period
ended December 31, 1993. These financial statements are the responsibility of
the Corporation's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Baltimore Bancorp and subsidiaries as of December 31, 1993 and 1992, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1993 in conformity with generally accepted
accounting principles.
As detailed in Note A, Notes to Consolidated Financial Statements, the
Company changed its method of accounting for investments at December 31, 1993
and its method of accounting for income taxes in 1992.
/s/ Coopers & Lybrand
- - - - ------------------------
Baltimore, Maryland
January 28, 1994
<PAGE>
