Registration Statement No. 333-66697
Pursuant to Rule 424(b)(3)
FCNB CORP
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 30, 1998
TO THE SHAREHOLDERS OF FCNB CORP:
A Special Meeting of Shareholders (the "Meeting") of FCNB Corp ("FCNB")
will be held on Wednesday, December 30, 1998 at 11:00 A.M. local time, at FCNB's
headquarters, 7200 FCNB Court, Frederick, Maryland, for the following purposes:
(1) To consider and vote on a proposal to approve the Agreement and Plan of
Merger, dated as of September 2, 1998 and amended as of November 2, 1998 (the
"Agreement") among FCNB, its wholly owned subsidiaries, FCNB Bank (the "Bank"),
First Choice Insurance Company, Inc. ("First Choice") and Frederick
Underwriters, Inc. ("Frederick Underwriters"), Phillips Insurance Agency, Inc.
("Phillips"), Carroll County Insurance Agency, Inc. ("Carroll County"), pursuant
to which:
(i) Frederick Underwriters will be merged with and into the Bank and
each outstanding share of Frederick Underwriters Common Stock will be
automatically converted into 372.67 shares of FCNB Common Stock;
(ii) Phillips will be merged with and into the Bank and each
outstanding share of Phillips Common Stock will be automatically converted
into 78.42 shares of FCNB Common Stock; and
(iii) Carroll County will be merged with and into the Bank and each
outstanding share of Carroll County Common Stock will be automatically
converted into 33.12 shares of FCNB Common Stock;
subject in each case to adjustment and limitation as set forth in the Agreement.
Cash will be paid in lieu of fractional shares. A copy of the Agreement is
attached as Exhibit A to the accompanying Combined Proxy Statement/Prospectus.
(2) To transact such other business as may properly come before the Meeting
or any adjournment or postponement thereof.
Shareholders of FCNB as of the close of business on November 18, 1998 are
entitled to notice of, and vote at, the Meeting and any adjournments thereof.
The Combined Proxy Statement/Prospectus is set forth on the following pages
and a proxy card is enclosed herewith. To ensure that your vote is counted,
please complete, sign, date and return the proxy card in the enclosed,
postage-paid return envelope, whether or not you plan to attend the Meeting in
person. If you attend the Meeting, you may revoke your proxy and vote your
shares in person. However, attendance at the Meeting will not of itself
constitute revocation of a proxy. If your shares are not registered in your own
name, you will need additional documentation from your recordholder in order to
vote personally at the Meeting.
By Order of the Board of Directors
Helen G. Hahn, Secretary
November 20, 1998
PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE>
FREDERICK UNDERWRITERS, INC.
PHILLIPS INSURANCE AGENCY, INC.
CARROLL COUNTY INSURANCE AGENCY, INC.
NOTICE OF JOINT SPECIAL MEETINGS OF SHAREHOLDERS
TO BE HELD ON
DECEMBER 22, 1998
TO THE SHAREHOLDERS OF: Frederick Underwriters, Inc.
Phillips Insurance Agency, Inc.
Carroll County Insurance Agency, Inc.
A Joint Special Meeting of Shareholders (the "Meeting") of Frederick
Underwriters, Inc., Phillips Insurance Agency, Inc., and Carroll County
Insurance Agency, Inc., will be held on Tuesday, December 22, 1998 at 8:15 A.M.
local time, at 1201 East Patrick Street, Frederick, Maryland, for the following
purposes:
(1) To consider and vote on a proposal to approve the Agreement and Plan of
Merger, dated as of September 2, 1998 and amended as of November 2, 1998 (the
"Agreement") among FCNB Corp, its wholly owned subsidiaries, FCNB Bank (the
"Bank"), First Choice Insurance Agency, Inc. ("First Choice"), and Frederick
Underwriters, Inc. ("Frederick Underwriters"), Phillips Insurance Agency, Inc.
("Phillips") and Carroll County Insurance Agency, Inc. ("Carroll County"),
pursuant to which:
(i) Frederick Underwriters will be merged with and into the Bank
and each outstanding share of Frederick Underwriters Common Stock will be
automatically converted into 372.67 shares of FCNB Common Stock;
(ii) Phillips will be merged with and into the Bank and each
outstanding share of Phillips Common Stock will be automatically converted
into 78.42 shares of FCNB Common Stock; and
(iii) Carroll County will be merged with and into the Bank and each
outstanding share of Carroll County Common Stock will be automatically
converted into 33.12 shares of FCNB Common Stock;
subject in each case to adjustment and limitation as set forth in the Agreement.
Cash will be paid in lieu of fractional shares. A copy of the Agreement is
attached as Exhibit A to the accompanying Combined Proxy Statement/Prospectus.
(2) To transact such other business as may properly come before the Meeting
or any adjournment or postponement thereof.
The Combined Proxy Statement/Prospectus is set forth on the following pages
and a proxy card is enclosed herewith. To ensure that your vote is counted,
please complete, sign, date and return the proxy card in the enclosed,
postage-paid return envelope, whether or not you plan to attend the Meeting in
person. If you attend the Meeting, you may revoke your proxy and vote your
shares in person. However, attendance at the Meeting will not of itself
constitute revocation of a proxy. If your shares are not registered in your own
name, you will need additional documentation from your recordholder in order to
vote personally at the Meeting.
By Order of the Boards of Directors
J. R. Ramsburg, Jr. President
November 20, 1998
PLEASE COMPLETE AND SIGN THE ENCLOSED PROXY AND RETURN IT PROMPTLY IN THE
ENVELOPE PROVIDED, WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING.
<PAGE>
COMBINED PROXY STATEMENT/PROSPECTUS
Proxy Statement Proxy Statement
Special Meeting of Shareholders Joint Special Meetings of Shareholders
of FREDERICK UNDERWRITERS, INC.
FCNB CORP PHILLIPS INSURANCE AGENCY, INC.
December 30, 1998 CARROLL COUNTY INSURANCE AGENCY, INC.
December 22, 1998
Prospectus
Relating to 413,327 Shares of Common Stock of FCNB Corp
-------------------------------------------
This Proxy Statement and Prospectus (the "Proxy Statement") is being
furnished to the holders of the common stock of Frederick Underwriters, Inc.,
Phillips Insurance Agency, Inc. and Carroll County Insurance Agency, Inc., and
to the holders of the common stock of FCNB Corp. The Boards of Directors of
these companies are seeking your proxy for use at the Special Meetings of
Shareholders of Frederick Underwriters, Phillips and Carroll County to be held
on December 22, 1998, and at the Special Meeting of Shareholders of FCNB to be
held on Wednesday, December 30, 1998, or at any postponement or adjournment
thereof. This Proxy Statement is initially being mailed on or about November 20,
1998.
The purposes of the Special Meetings are to: (1) To consider and vote on a
proposal to approve the Agreement and Plan of Merger, dated as of September 2,
1998 and amended as of November 2, 1998, among FCNB Corp, its wholly owned
subsidiaries, FCNB Bank, First Choice Insurance Company, Inc. and Frederick
Underwriters, Phillips, and Carroll County, pursuant to which each share of
common stock of Frederick Underwriters, Phillips, and Carroll County will be
converted into the number of shares of FCNB Common Stock set forth below:
Frederick Underwriters 372.67 shares of FCNB Common Stock
Phillips 78.42 shares of FCNB Common Stock
Carroll County 33.12 shares of FCNB Common Stock
A copy of the Agreement is attached as Exhibit A to this Proxy Statement.
(2) To transact such other business as may properly come before the Meeting
or any adjournment or postponement thereof.
The date, time and place of the Meetings are as follows:
FCNB CORP UNDERWRITERS COMPANIES
Wednesday, December 30, 1998 Tuesday, December 22, 1998
11:00 A.M. 8:15 A.M.
7200 FCNB Court 1201 East Patrick Street
Frederick, Maryland 21703 Frederick, Maryland 21701
This Proxy Statement also constitutes the Prospectus relating to the
issuance of up to 413,327 shares of the FCNB Common Stock to be issued under the
Agreement. FCNB Common Stock is listed on the Nasdaq National Market with the
symbol of "FCNB".
NEITHER THE SECURITIES AND EXCHANGE COMMISSION, THE SECURITIES COMMISSION OF ANY
STATE NOR THE BOARD OF GOVERNORS OF THE FEDERAL RESERVE SYSTEM OR ANY OTHER
FEDERAL REGULATORY AGENCY HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR THE
MERGER DESCRIBED HEREIN, OR DETERMINED IF THE DISCLOSURES IN THIS PROXY
STATEMENT ARE ACCURATE OR ADEQUATE, OR IF THE MERGER IS FAIR. ANY REPRESENTATION
TO THE CONTRARY IS A CRIMINAL OFFENSE. THE SECURITIES DESCRIBED HEREIN HAVE NOT
BEEN APPROVED OR DISAPPROVED BY THE MARYLAND COMMISSIONER OF FINANCIAL
REGULATION OR ANY OTHER REGULATORY AGENCY OF ANY STATE, NOR HAS THE COMMISSIONER
OR ANY SUCH AGENCY PASSED UPON THE ADEQUACY OF THIS PROXY STATEMENT. ANY
REPRESENTATION OF THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Proxy Statement is November 16, 1998.
<PAGE>
FREDERICK UNDERWRITERS, PHILLIPS AND CARROLL COUNTY HAVE SUBSTANTIAL COMMON
OWNERSHIP, AND EACH OPERATES UNDER THE NAME "FREDERICK UNDERWRITERS". THEY ARE
COLLECTIVELY REFERRED TO AS THE "UNDERWRITERS COMPANIES", AND EACH IS REFERRED
TO AS AN "UNDERWRITERS COMPANY" IN THIS PROXY STATEMENT.
ADDITIONAL INFORMATION ABOUT FCNB CORP
FCNB files annual, quarterly and special reports, proxy statements and
other information with the Securities and Exchange Commission (the "SEC"). You
may read and copy any reports, proxy statements and other information FCNB files
with the SEC at the Public Reference Room of the SEC, 450 Fifth Street, NW,
Washington, DC 20549. You may obtain information on the operation of the Public
Reference Room by calling the SEC at 1-800-SEC-0330. Copies of FCNB's filings
can also be obtained from commercial document retrieval services and from the
website maintained by the SEC at http://www.sec.gov.
The SEC allows companies which file information with it to provide
information by "incorporating by reference" into a proxy statement or
prospectus. This means that important information can be disclosed by referring
you to another document, filed separately with the SEC. Information incorporated
by reference is deemed to be part of this Proxy Statement, except for any
information superseded in a document with a later date, or in this Proxy
Statement.
The following documents filed by FCNB with the SEC, which contain important
information about FCNB and its finances, are incorporated herein by reference:
(1) FCNB's Annual Report on Form 10-K for the year ended December 31,
1997;
(2) FCNB's Quarterly Reports on Form 10-Q for the quarters ended March 31,
1998 and June 30, 1998;
(3) FCNB's Current Reports on Form 8-K dated June 9, 1998, June 23, 1998,
July 14, 1998 and September 2, 1998;
(4) The description of FCNB Common Stock contained in FCNB's Registration
Statement on Form 8-A filed April 24, 1997;
(5) Financial information regarding Capital Bank, National Association,
and proforma financial information reflecting the combination of FCNB
and Capital Bank, included in the combined Proxy Statement/Prospectus
relating to the Special Meeting of Shareholders of FCNB to be held on
November 4, 1998.
All other documents filed by FCNB pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Securities Exchange Act of 1934 after the date of this Proxy
Statement and prior to final adjournment of the Meetings are also deemed to be
incorporated by reference in this Proxy Statement and to be a part hereof from
the date of filing of such documents.
FCNB WILL PROVIDE COPIES OF ANY OF THE FCNB DOCUMENTS INCORPORATED BY
REFERENCE HEREIN AND NOT DELIVERED HEREWITH (NOT INCLUDING EXHIBITS UNLESS SUCH
EXHIBITS ARE SPECIFICALLY INCORPORATED BY REFERENCE HEREIN), TO ANY PERSON
RECEIVING A COPY OF THIS PROXY STATEMENT, WITHOUT CHARGE, UPON WRITTEN OR ORAL
REQUEST DIRECTED TO:
MARK A. SEVERSON, SENIOR VICE PRESIDENT AND TREASURER
FCNB CORP
7200 FCNB COURT
FREDERICK, MARYLAND 21703
(301) 662-2191
IN ORDER TO INSURE TIMELY DELIVERY OF DOCUMENTS INCORPORATED BY REFERENCE, ANY
REQUEST SHOULD BE RECEIVED BY
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<PAGE>
FCNB NO LATER THAN DECEMBER 23, 1998 FOR SHAREHOLDERS OF FCNB, AND DECEMBER 15,
1998 FOR SHAREHOLDERS OF THE UNDERWRITERS COMPANIES.
Neither FCNB nor the Underwriters Companies have authorized any person to
give any information or make any representation about them, other than those
contained in this Proxy Statement, and you should not rely on any of such
information or representations. Neither the delivery of this Proxy Statement nor
the issuance of any shares creates, under any circumstances, any implication
that there has been no change in the affairs of FCNB or the Underwriters
Companies since the date of this Proxy Statement. This Proxy Statement does not
constitute an offer to sell or a solicitation of an offer to buy any securities
offered hereby in any jurisdiction in which such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
authorized or in which the person making such offer or solicitation is not
qualified to do so or to anyone to whom it is unlawful to make such offer or
solicitation.
Forward Looking Statements. This Proxy Statement contains forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933, as
amended (the "Securities Act"), and Section 21E of the Securities Exchange Act
of 1934, as amended (the "Exchange Act"), about the financial condition, results
of operations and business of FCNB following consummation of the Merger,
including statements relating to cost savings, and business enhancements
anticipated to be realized as a result of the Merger, and the impact of the
Merger on FCNB's financial performance, and also including statements of goals,
intentions, and expectations, regarding or based upon general economic
conditions, interest rates, developments in national and local markets, and
other matters, and which, by their nature, are subject to significant
uncertainties.
Factors which may cause actual results to differ from those contemplated by
these forward looking statements include, but are not limited to, the following:
expected cost savings may not be fully realized; customer loss and revenue loss
following the Merger may be greater than anticipated; the cost of, or
difficulties related to integration of Capital Bank into FCNB may be greater
than anticipated; changes in the general interest rate environment, reduce
interest rate margins; or changes in economic conditions in general, nationally
or regionally, may result in a deterioration of credit quality, among other
things. Additionally, FCNB's future financial performance may be adversely
impacted by the inability of FCNB to cause its information, communications and
environmental systems to be capable of correctly recognizing and processing
dates after December 31, 1999 ("Y2K Compliant") as currently anticipated, and in
any event, prior to January 1, 2000. Factors which may cause actual results to
differ from current Y2K compliance plans include increased costs of achieving
Y2K Compliance, delayed timeframes for implementing and testing Y2K compliance
measures, and delays by FCNB's vendors in becoming Y2K Compliant, or the
inability of such vendors to become Y2K Compliant prior to January 1, 2000.
Additionally, FCNB's performance may be adversely affected by the failure of its
customers or governmental authorities to become Y2K Compliant prior to January
1, 2000. Because of these uncertainties and the assumptions on which statements
in this Proxy Statement are based, actual future results may differ materially
from those contemplated by such statements.
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<PAGE>
Table of Contents
<TABLE>
<CAPTION>
Page
<S> <C>
Additional Information About FCNB Corp............................................................................2
Summary Information...............................................................................................5
Selected Consolidated Financial and Other Data...................................................................10
The Meetings.....................................................................................................15
The Merger.......................................................................................................17
FCNB Corp........................................................................................................27
Comparison of Shareholder Rights and Certain Provisions of the Articles of Incorporation of FCNB.................30
The Underwriters Companies.......................................................................................32
Legal Matters....................................................................................................35
Experts..........................................................................................................35
Index to Audited Combined Financial Statements...................................................................36
Index to Unaudited Combined Financial Statements...............................................................F-16
Exhibit A - Agreement and Plan of Reorganization and Merger.....................................................A-1
Exhibit B - Title 3, Subtitle 2 of the Maryland General Corporation Law.........................................B-1
</TABLE>
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<PAGE>
SUMMARY INFORMATION
The following summary information does not contain all of the information
regarding FCNB, the Underwriters Companies and the Merger which is important.
This Summary should be read in conjunction with the more detailed information
and financial statements, including the notes thereto, appearing elsewhere in
this Proxy Statement, including the exhibits hereto, and the documents
incorporated by reference herein. Shareholders are urged to carefully read this
Proxy Statement in its entirety.
THE PARTIES TO THE MERGER
FCNB. FCNB is a bank holding company registered under the Bank Holding
Company Act of 1956, as amended (the "BHCA"), and as of September 30, 1998 had
approximately $1.07 billion in total assets and $82.97 million of shareholders'
equity. FCNB's principal subsidiary, FCNB Bank (the "Bank"), currently operates
twenty-eight offices in Frederick, Anne Arundel, Baltimore, Carroll, Howard,
Montgomery and Prince George's Counties, Maryland. As of the date of this Proxy
Statement, FCNB is awaiting completion of its acquisition of Capital Bank,
National Association. On or about November 19, 1998, Capital Bank will be merged
into FCNB Bank. As of September 30, 1998, Capital Bank had approximately $172.07
million in assets, $12.28 million in shareholder equity and operated four
offices, one in Rockville, Maryland, one in Tysons Corner, Virginia and two in
Washington, D.C. FCNB's principal executive offices are located at 7200 FCNB
Court, Frederick, Maryland 21703, and its telephone number is (301) 662- 2191.
First Choice is the wholly owned insurance subsidiary of Bank. Prior to
this Merger, First Choice engaged mainly in the sale of annuities and insurance
investment products. The Agreement, as amended, provides that the assets and
liabilities of the Underwriters Companies will be transferred to First Choice
immediately after effectiveness of the Merger. First Choice will change its name
to "Frederick Underwriters, Inc." after the Merger, and will continue the
business of the Underwriters Companies. Following the Merger, First Choices'
main office will be located in Middletown, Maryland.
For additional information concerning FCNB, its business, financial
condition, and results of operations, see "Additional Information About FCNB
Corp"; "Selected Consolidated Financial and Other Data" and "FCNB Corp."
As of September 30, 1998 there were 7,905,917 shares of FCNB Common
Stock outstanding. Between 1,626,068 and 1,987,357 shares will be issued to
shareholders of Capital Bank upon completion of that merger. FCNB Common Stock
is quoted on Nasdaq under the symbol "FCNB".
The Underwriters Companies. Frederick Underwriters, Phillips and
Carroll County are multiline general insurance agencies operating in central
Maryland under the name "Frederick Underwriters". Frederick Underwriters,
Phillips and Carroll County have substantial common ownership, and each operates
under the name "Frederick Underwriters". They are collectively referred to as
the "Underwriters Companies", and each is referred to as an Underwriters Company
in this Proxy Statement. The Underwriters Companies had aggregate revenues of
approximately $5.4 million in 1997 (excluding non-recurring securities gains)
and $4.3 million for the first nine months of 1998.
The President and principal shareholder of each of the Underwriters
Companies is J.R. Ramsburg, Jr., a director of FCNB Corp and FCNB Bank.
THE MERGER
General. The Underwriters Companies and FCNB, together with the Bank
and First Choice, have entered into an Agreement and Plan of Merger (as amended,
the "Agreement") under which each of the Underwriters Companies will be merged
with and into the Bank (the "Merger"). In connection with the Merger, each
outstanding share of Common Stock of the Underwriters Companies will,
automatically and without further action, be converted into shares of FCNB
Common Stock as follows:
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<PAGE>
<TABLE>
<CAPTION>
Number of Shares of
Company FCNB Common Stock
<S> <C>
Frederick Underwriters 372.67
Phillips 78.42
Carroll County 33.12
</TABLE>
EXCHANGE OF UNDERWRITERS COMPANY STOCK CERTIFICATES
The conversion of Underwriters Company Common Stock into FCNB Common
Stock will occur automatically upon effectiveness of the Merger. However, until
you surrender your Underwriters Company stock certificates in exchange for FCNB
Common Stock certificates, you will not be entitled to receive dividends or
other distributions on FCNB Common Stock. Promptly after the effectiveness of
the Merger, FCNB or FCNB's transfer agent (the "Exchange Agent") will mail each
Underwriters Company shareholder information regarding the exchange of his or
her shares.
UNDERWRITERS COMPANY SHAREHOLDERS SHOULD NOT FORWARD THEIR STOCK
CERTIFICATES TO FCNB, THE EXCHANGE AGENT OR THE UNDERWRITERS COMPANIES UNTIL
THEY HAVE RECEIVED TRANSMITTAL FORMS. SHAREHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED FORM OF PROXY.
Each share of FCNB Common Stock outstanding immediately prior to the
Merger will be unchanged by the Merger, and will continue to represent one share
of FCNB Common Stock. See "The Merger -- Consideration to be Received by
Shareholders of the Underwriters Companies," "Description of FCNB Common Stock."
It is anticipated that FCNB shareholders will not experience any
immediate dilution in earnings per share as a result of the Merger, based upon
FCNB's expectations of the earnings of First Choice following the Merger. These
expectations include assumptions regarding cost savings, operating efficiencies
and growth opportunities to be achieved as a result of the Merger. There can be
no assurance that these expectations will be realized. FCNB shareholders will
experience dilution of their percentage ownership interest in FCNB, and in their
relative voting power.
Closing Date. Under the Agreement, the Closing of the Merger will occur
on a date specified in writing by the parties (the "Closing Date"), which date
shall be as soon as practicable, but not more than fifteen (15) days, after the
last condition precedent to the consummation of the Merger set forth in the
Agreement has been fulfilled or waived. See "The Merger -- Conditions to the
Merger." It is the intention of the parties to seek to close the transaction in
1998, although there can be no assurance that they will be able to do so.
Reasons for the Merger. The Boards of Directors of FCNB and the
Underwriters Companies are in unanimous agreement that the proposed Merger of
the Underwriters Companies with the Bank is in the best interests of each of
their respective companies. The acquisition of the Underwriters Company
insurance brokerage business will enable FCNB to expand the range of products it
offers to its customers, and to increase the amount of its non-interest income
and the percentage of total income coming from non-interest, non-banking,
sources. FCNB believes that the expanded business and cross-selling
opportunities presented by the acquisition of the Underwriters Companies is in
the best interests of FCNB and its shareholders.
The Board of Directors of each of the Underwriters Companies has
determined that the Merger is fair, and in the best interests of their
shareholders. In considering the terms and conditions of the Merger, the Boards
of the Underwriters Companies considered, among other things: the financial
terms of the Merger; the financial condition and historical performance of FCNB;
and the operational and competitive benefits of the Merger. See "The Merger --
Reasons for the Merger" and "-- Background of the Merger."
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<PAGE>
Recommendations of the Board of Directors. The respective Boards of
Directors of FCNB and each of the Underwriters Companies have unanimously
approved the proposed Merger and recommend that their shareholders vote "FOR"
the proposed Merger.
Special Meetings and Vote Required. The Joint Shareholder Meeting of
the Underwriters Companies at which the Merger will be considered will be held
on Tuesday, December 22, 1998 at 8:15 A.M. local time, at 1201 East Patrick
Street, Frederick, Maryland. Holders of record on November 18, 1998 (the
"Underwriters Record Date") will be entitled to notice of and to vote at the
Underwriters Shareholder Meeting. At least a majority of the total number of
shares of Common Stock of each Underwriters Company is necessary to constitute a
quorum at the Underwriters Companies Shareholder Meeting.
The affirmative vote of at least two-thirds of the outstanding Common
Stock of each Underwriters Company is required to approve the Merger. Each share
of Common Stock of each Underwriters Company is entitled to one vote in respect
of the Merger. See "The Meetings -- The Underwriters Company Shareholder
Meeting."
As of the Underwriters Companies Record Date, there were 986 shares of
Frederick Underwriters Common Stock outstanding, 120 shares of Phillips Common
Stock and 1,391 shares of Carroll County Common Stock. Mr. J.R. Ramsburg, Jr.,
the President of each of the Underwriters Companies and a director of FCNB, has
the power to vote 79.51% of the outstanding Frederick Underwriters Common Stock,
100% of the outstanding Phillips Common Stock and 81.9% of the outstanding
Carroll County Common Stock (including 290 shares of Carroll County Common Stock
owned by Frederick Underwriters). Mr. Ramsburg has stated that he will vote all
of the shares he has the power to vote in each company for the Merger. As a
result, approval of the Merger at the Underwriters Companies Meeting is assured.
See "The Merger -- Certain Related Agreements and Interests of Certain Persons."
See "The Underwriters Shareholder Meeting -- Purpose of the Shareholder Meeting
and Vote Required."
The FCNB Shareholder Meeting at which the Merger will be considered
will be held on Wednesday, December 30, 1998 at 11:00 A.M. local time, at FCNB
headquarters, 7200 FCNB Court, Frederick, Maryland. Holders of record on
November 18, 1998 (the "FCNB Record Date") will be entitled to notice of and to
vote at the FCNB Shareholder Meeting. The presence, in person or by proxy, of at
least a majority of the total number of shares entitled to vote is necessary to
conduct business at the FCNB Shareholder Meeting.
The affirmative vote of at least two-thirds of all votes entitled to be
cast at the FCNB Shareholder Meeting is required to approve the Merger. Each
share of FCNB Common Stock is entitled to one vote. As of the FCNB Record Date,
there were 7,819,403 shares of FCNB Common Stock outstanding and entitled to
vote. As of the FCNB Record Date, directors and executive officers of FCNB
beneficially owning an aggregate of approximately 792,487 shares (12.2%) of the
issued and outstanding FCNB Common Stock have indicated that they intend to vote
in favor of the Merger.
Voting and Revocation of Proxies. Shares of Common Stock of the
Underwriters Companies represented by properly executed proxies received at or
prior to the Underwriters Companies Meeting and not subsequently revoked will be
voted as directed by shareholders. Shares as to which the "ABSTAIN" box has been
marked, and shares held in street name by brokers for which no voting
instructions are given ("broker non-votes"), will be treated as shares present
and entitled to vote for quorum purposes, but will have the effect of a vote
against the Merger. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROPERLY EXECUTED
PROXIES WILL BE VOTED FOR THE PROPOSAL TO APPROVE THE MERGER.
Any holder of Underwriters Company Common Stock who has delivered a
proxy may revoke it at any time before it is voted by (i) delivering written
notice of revocation to J.R. Ramsburg, Jr., President of the Underwriters
Companies, prior to the Underwriters Companies Meeting, (ii) granting and
delivering a later dated proxy, or (iii) by attending the Underwriters Companies
Meeting and voting the shares in person.
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<PAGE>
Shares of FCNB Common Stock represented by properly executed proxies
received at or prior to the FCNB Shareholder Meeting and not subsequently
revoked will be voted as directed by shareholders. Shares as to which the
"ABSTAIN" box has been marked and broker non-votes will be treated as shares
present and entitled to vote for quorum purposes, but will have the effect of a
vote against the Merger. IN THE ABSENCE OF SPECIFIC INSTRUCTIONS, PROPERLY
EXECUTED PROXIES WILL BE VOTED FOR THE PROPOSALS TO APPROVE THE MERGER.
Any holder of FCNB Common Stock who has delivered a proxy may revoke it
at any time prior to the exercise of the authority granted thereby by (i)
delivering written notice of such revocation to Helen G. Hahn, Secretary of
FCNB, prior to the FCNB Shareholder Meeting, (ii) granting and delivering a
later dated proxy, or (iii) attending the FCNB Shareholder Meeting and voting
the shares in person.
If your shares are not registered in your name, you will need
additional documentation from your recordholder to vote the shares in person.
Conditions to the Merger. Completion of the Merger is subject to
numerous conditions, including but not limited to, obtaining the approval by the
required vote of the shareholders of each of the Underwriters Companies and
FCNB, receipt of certain regulatory approvals, and the receipt of certain tax
and accounting opinions and letters. See "The Merger -- Conditions to the
Merger."
Dissenters' Rights. Holders of Underwriters Companies Common Stock who
object to the Merger and comply with certain procedural requirements, are
entitled to obtain payment in cash of the fair value of such holder's shares. In
order to be entitled to appraisal rights a shareholder must (a) deliver a
written objection to the Merger at or prior to the Underwriters Shareholder
Meeting; (b) ensure that his or her shares are not voted (or deemed to have been
voted) to approve the Merger, and (c) after the Merger is consummated, make
timely written demand for payment. If a judicial determination of the fair value
of Underwriters Company common stock held by such shareholder is necessary, such
determination may result in a value that is more than, less than, or equal to
the consideration which would have been paid by FCNB pursuant to the Agreement.
Holders of FCNB Common Stock will not be entitled to dissent from the Merger or
obtain the payment in cash of the fair value of such holders' shares. See "The
Merger -- Dissenters' Rights."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The Merger has been structured so that shareholders of the Underwriters
Companies will not recognize gain or loss as a result of the conversion of their
shares of Common Stock into shares of FCNB Common Stock, except to the extent
they receive cash in lieu of fractional shares of FCNB Common Stock. FCNB and
the Underwriters Companies have received an opinion of Kevin P. Kennedy,
Esquire, special tax counsel to FCNB, as to certain anticipated federal income
tax consequences of the Merger. For a more extensive discussion of the
anticipated federal income tax consequences of the Merger to shareholders of the
Underwriters Companies, see "The Merger -- Certain Federal Income Tax
Consequences."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of the management of the Underwriters Companies have
interests in the Merger that are in addition to their interests as shareholders
of the Underwriters Companies. In particular, Mr. J.R. "Ray" Ramsburg, III, Vice
President of the Underwriters Companies, has entered into an employment
agreement with First Choice and the Bank providing for his continued employment
as President of First Choice following the Merger. Mr. J.R. Ramsburg, Jr.,
President of the Underwriters Companies, has entered into an agreement with
First Choice under which he will act as a consultant to First Choice following
the Merger. See "The Merger -- Certain Related Agreements and Interests of
Certain Persons."
ACCOUNTING TREATMENT
- 8 -
<PAGE>
It is anticipated that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. See "The Merger --
Accounting Treatment."
COMPARISON OF SHAREHOLDER RIGHTS
Upon consummation of the Merger, holders of Underwriters Companies
Common Stock, will become shareholders of FCNB. Accordingly, their rights will
be governed by the Maryland General Corporation Law (the "MGCL") as it affects
large public companies, and the Articles of Incorporation, as amended, and
Bylaws of FCNB. Certain differences in shareholders' rights arise from
differences between the Articles of Incorporation and Bylaws of the Underwriters
Companies and FCNB, including, among other things, the number of authorized
shares of capital stock, the voting rights of certain shareholders, the notice
requirements for nominations of directors and presentation of new business at
meetings of shareholders, the number and term of directors, removal and
vacancies on the Boards of Directors and the applicability of certain
anti-takeover provisions of law. See "Comparison of Shareholder Rights and
Certain Provisions of the Articles of Incorporation of FCNB."
UNDERWRITERS COMPANY SHAREHOLDERS SHOULD NOT FORWARD THEIR STOCK
CERTIFICATES TO FCNB, THE EXCHANGE AGENT OR THE UNDERWRITERS COMPANIES UNTIL
THEY HAVE RECEIVED TRANSMITTAL FORMS. SHAREHOLDERS SHOULD NOT RETURN STOCK
CERTIFICATES WITH THE ENCLOSED FORM OF PROXY.
MARKET FOR COMMON STOCK
FCNB Common Stock is traded by eight market makers and is quoted on
Nasdaq under the symbol "FCNB". The Underwriters Company Common Stocks have
historically been traded only on a limited basis in privately negotiated
transactions. No dealers offer to make a market in the Underwriters Companies
Common Stocks, and they are not quoted on any organized market.
The following table sets forth the last trade prices per share of FCNB
Common Stock as reported on Nasdaq on September 1, 1998, the last business day
preceding the public announcement of the Merger and the equivalent per share
price of the Underwriters Company Common Stocks. The equivalent per share price
shown below is the product of multiplying the number of shares into which the
Underwriters Companies Common Stocks will be converted by the last trade
price of FCNB Common Stock on September 2, 1998, of $26.00 per share.
<TABLE>
<CAPTION>
PRICE AT FCNB COMMON STOCK
COMPANY SEPTEMBER 1, 1998 CONVERSION RATIO AT SEPTEMBER 1, 1998 EQUIVALENT PER SHARE PRICE
<S> <C> <C> <C> <C>
Frederick Underwriters (1) 372.67 $26.00 $9689.42
Phillips (1) 78.42 $26.00 $2038.92
Carroll County (1) 33.12 $26.00 $861.12
</TABLE>
(1) To the knowledge of the Underwriters Companies, there have been no sales of
the Common Stock of any Underwriters Company within the last two years.
- 9 -
<PAGE>
SELECTED CONSOLIDATED FINANCIAL AND OTHER DATA
The following tables show summarized historical financial data for FCNB
and the Underwriter Companies. Because FCNB is in the process of seeking
shareholder and regulatory approvals for the acquisition of Capital Bank,
historical information is also shown for FCNB and Capital Bank combined.
The information presented is based on historical financial statements
for each company. The information shown for the six month periods is derived
from unaudited financial statements and includes, in the opinion of management,
all adjustments (consisting of only normal recurring adjustments) necessary to
present fairly the data for such period. The results for the six month periods
do not necessarily indicate performance for the full year. The financial and
other data set forth below is not complete and should be read together with, and
is qualified in its entirety by, the more detailed information, including the
consolidated financial statements of FCNB and related notes, appearing in its
1997 Annual Report to Shareholders, incorporated by reference herein, and the
consolidated financial statements of Capital Bank included in its 1997 Annual
Report to Shareholders, incorporated by reference herein and the combined
financial statements of the Underwriters Companies included elsewhere in this
proxy statement.
- 10 -
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA FOR FCNB
<TABLE>
<CAPTION>
At or for the six
months ended June 30, At or for the years ended December 31,
------------------------- -------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per share data)
SUMMARY OF OPERATING RESULTS:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 34,265 $ 30,181 $ 63,191 $ 54,653 $ 51,126 $ 43,892 $ 41,691
Total interest expense(1) 17,495 14,342 31,012 25,014 22,759 17,010 16,054
------------------------- --------------------------------- ----------------------
Net interest income 16,770 15,839 32,179 29,639 28,367 26,882 25,637
Provision for credit losses 450 462 1,329 318 710 525 765
------------------------- --------------------------------- ----------------------
Net interest income after
provision for credit losses 16,320 15,377 30,850 29,321 27,657 26,357 24,872
Net securities gains (losses) 313 144 580 193 123 375 (1,183)
Non-interest income (excluding net
securities gains (losses)) 3,490 2,601 5,540 4,068 3,795 2,503 4,497
Non-interest expenses 13,109 12,082 23,949 24,470 20,689 19,191 18,013
------------------------- --------------------------------- ----------------------
Income before provision for income taxes 7,014 6,040 13,021 9,112 10,886 10,044 10,173
Provision for income taxes 2,214 1,983 4,218 3,245 3,888 3,272 3,301
------------------------- --------------------------------- ----------------------
Net income 4,800 4,057 $ 8,803 $ 5,867 $ 6,998 $ 6,772 $ 6,872
Other comprehensive income (loss),
net of taxes 695 683 2,912 (26) 2,680 (3,285) 1,135
------------------------- --------------------------------- ----------------------
Comprehensive income $ 5,495 $ 4,740 $ 11,715 $ 5,841 $ 9,678 $ 3,487 $ 8,007
========================= ================================= ======================
Net income before merger-related
expenses $ 4,834 $ 4,342 $ 9,088 $ 7,778 $ 7,301 $ 6,999 $ 6,872
========================= ================================= ======================
PER SHARE DATA:(2)
Basic earnings $ 0.61 $ 0.52 $ 1.12 $ 0.74 $ 0.89 $ 0.86 $ 0.88
Diluted earnings 0.61 0.52 1.12 0.74 0.89 0.86 0.88
Cash dividends declared 0.263 0.204 0.428 0.368 0.375 0.330 0.263
Book value at period-end 10.27 9.17 9.83 8.78 8.52 7.64 7.47
Shares outstanding at period-end 7,887,257 7,859,221 7,883,045 7,868,021 7,770,929 7,729,159 7,719,749
Weighted average shares outstanding:
Basic 7,886,671 7,862,624 7,871,824 7,893,303 7,841,505 7,855,109 7,822,380
Diluted 7,921,303 7,877,009 7,891,428 7,911,215 7,861,071 7,873,581 7,831,051
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $1,021,646 $ 849,615 $ 918,084 $ 779,169 $660,984 $ 627,050 $603,497
Total loans, net of unearned income 587,022 533,433 574,105 497,995 439,794 390,177 336,916
Total deposits 681,570 608,191 616,512 587,074 529,988 505,202 485,543
Federal funds purchased and securities
sold under agreements to repurchase 65,129 38,090 65,163 40,739 21,043 25,103 32,304
Other short-term borrowings 187,136 126,140 152,138 76,516 32,426 26,089 13,776
Long-term debt -- -- -- -- 5,680 7,000 10,106
Total shareholders' equity 80,977 72,072 77,518 69,110 66,219 59,037 57,689
PERFORMANCE RATIOS:
Return on average total assets(3) 1.04% 1.02% 1.07% 0.84% 1.09% 1.14% 1.23%
Return on average total assets before
merger-related expenses(3) 1.05 1.09 1.09 1.11 1.14 1.17 1.23
Return on average shareholders' equity(3) 12.22 11.69 12.25 8.92 11.21 11.79 12.73
Return on average shareholder's equity
before merger-related expenses(3) 12.31 12.51 12.65 11.82 11.70 12.18 12.73
Average equity to average assets 8.53 8.72 8.65 9.39 9.73 9.63 9.67
Cash dividends declared to net income 43.13 39.64 38.77 49.86 41.61 36.62 30.32
- -------------------------------------
</TABLE>
(1) Net of $108,000 and $300,000 of capitalized construction period interest in
1996 and 1995, respectively.
(2) Adjusted to reflect the four for three stock split in the form of a dividend
paid in April 1998 (the "Stock Split").
(3) Information for the six month periods is annualized.
- 11 -
<PAGE>
PRO FORMA COMBINED SELECTED CONSOLIDATED FINANCIAL DATA
FOR FCNB AND CAPITAL
<TABLE>
<CAPTION>
At or for the six
months ended June 30, At or for the years ended December 31,
------------------------ ---------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per share data)
SUMMARY OF OPERATING RESULTS:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 40,573 $ 35,623 $ 74,627 $ 63,757 $ 58,413 $ 50,078 $ 47,094
Total interest expense(1) 20,200 16,495 35,721 28,569 25,576 19,009 17,997
------------------------ ----------------------------------- -------------------------
Net interest income 20,373 19,128 38,906 35,188 32,837 31,069 29,097
Provision for credit losses 570 557 1,524 408 1,080 705 1,035
------------------------ ----------------------------------- -------------------------
Net interest income after
provision for credit losses 19,803 18,571 37,382 34,780 31,757 30,364 28,062
Net securities gains (losses) 313 146 580 193 123 377 (1,095)
Non-interest income (excluding net
securities gains (losses)) 3,935 2,969 6,386 4,799 4,571 3,294 5,387
Non-interest expenses 15,689 14,645 29,293 29,138 24,994 23,085 21,790
------------------------ ----------------------------------- -------------------------
Income before provision for income taxes 8,362 7,041 15,055 10,634 11,457 10,950 10,564
Provision for income taxes 2,740 2,383 5,029 3,836 3,183 3,072 2,911
------------------------ ----------------------------------- -------------------------
Net income 5,622 4,658 10,026 6,798 8,274 7,878 7,653
Other comprehensive income (loss),
net of taxes 687 641 2,897 (26) 2,875 (3,435) 1,135
------------------------ ----------------------------------- -------------------------
Comprehensive income $ 6,309 $ 5,299 $ 12,923 $ 6,772 $ 11,149 $ 4,443 $ 8,788
======================== =================================== =========================
Net income before merger-related
expenses $ 5,656 $ 4,943 $ 10,311 $ 8,709 $ 8,577 $ 8,105 $ 7,653
======================== =================================== =========================
PER SHARE DATA:(2)
Basic earnings $ 0.59 $ 0.49 $ 1.05 $ 0.71 $ 0.88 $ 0.85 $ 0.83
Diluted earnings 0.58 0.49 1.05 0.71 0.88 0.85 0.83
Cash dividends declared 0.217 0.169 0.354 0.305 0.314 0.281 0.224
Book value at period-end 9.68 8.64 9.26 8.27 7.95 7.15 6.90
Shares outstanding at period-end 9,573,239 9,503,014 9,524,574 9,505,713 9,381,934 9,062,101 9,052,410
Weighted average shares outstanding
Basic 9,547,061 9,501,309 9,511,612 9,512,584 9,354,005 9,235,569 9,185,622
Diluted 9,612,831 9,550,665 9,576,973 9,546,849 9,379,143 9,256,451 9,194,293
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $1,188,818 $ 990,102 $1,079,571 $ 909,603 $ 766,572 $ 711,898 $ 681,332
Total loans, net of unearned income 692,979 626,459 674,568 583,826 501,283 445,814 391,954
Total deposits 816,813 727,858 745,486 690,710 615,084 576,052 552,702
Federal funds purchased and securities
sold under agreements to repurchase 83,262 47,497 84,827 55,203 32,251 29,896 37,577
Other short-term borrowings 183,023 127,038 153,387 76,946 32,826 29,215 13,967
Long-term debt -- -- -- -- 5,680 7,000 10,106
Total shareholders' equity 92,712 82,107 88,209 78,567 74,615 64,783 62,748
PERFORMANCE RATIOS:
Return on average total assets(3) 1.04% 1.00% 1.03% 0.84% 1.13% 1.17% 1.21%
Return on average total assets before
merger-related expenses(3) 1.05 1.07 1.06 1.07 1.17 1.20 1.21
Return on average shareholders' equity 12.53 11.78 12.24 9.12 11.89 12.55 13.13
Return on average shareholder's equity
before merger-related expenses(3) 12.61 12.50 12.59 11.68 12.32 12.91 13.13
Average equity to average assets 8.31 8.53 8.44 9.16 9.51 9.30 9.25
Cash dividends declared to net income 36.82 34.53 34.04 43.03 35.21 31.48 27.23
- -----------------------------------
</TABLE>
(1) Net of $108,000 and $300,000 of capitalized construction period interest in
1996 and 1995, respectively.
(2) Adjusted to reflect the Stock Split. Additionally, the amounts shown reflect
the conversion of Capital Bank common stock at an assumed conversion ratio
of 1.6864 shares of FCNB Common Stock per share of Capital Bank common
stock.
(3) Information for the six month periods is annualized.
- 12 -
<PAGE>
SELECTED COMBINED FINANCIAL DATA FOR THE UNDERWRITERS COMPANIES
<TABLE>
<CAPTION>
At or for the six
months ended June 30, At or for the years ended December 31,
----------------------- --------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
(dollars in thousands, except per share data)
SUMMARY OF OPERATING RESULTS:
<S> <C> <C> <C> <C> <C> <C> <C>
Total interest income $ 4 $ 5 $ 48 $ 45 $ 50 $ 45 $ 46
Total interest expense 137 104 257 156 145 123 138
--------------------- ------------------------ -------------------------------
Net interest income (loss) (133) (99) (209) (111) (95) (78) (92)
Provision for credit losses - - - - - - -
--------------------- ------------------------ -------------------------------
Net interest income (loss) after
provision for credit losses (133) (99) (209) (111) (95) (78) (92)
Net securities gains (losses) 375 - 158 - - - 35
Non-interest income (excluding net
securities gains (losses)) 2,879 2,825 5,405 5,962 5,929 5,770 5,447
Non-interest expenses 2,670 2,501 5,244 5,718 5,612 5,518 5,208
--------------------- ------------------------ -------------------------------
Income before provision for income taxes 451 225 110 133 222 174 182
Provision for income taxes 174 87 41 55 15 (19) 48
--------------------- ------------------------ -------------------------------
Net income 277 138 69 78 207 193 134
Other comprehensive income (loss),
net of taxes (213) 61 22 (7) 35 76 30
--------------------- ------------------------ -------------------------------
Comprehensive income $ 64 $ 199 $ 91 $ 71 $ 242 $ 269 $ 164
===================== ======================== ===============================
Net income before merger-related
expenses $ 277 $ 138 $ 69 $ 78 $ 207 $ 193 $ 134
===================== ======================== ===============================
PER SHARE DATA:
Basic earnings $ 110.93 $ 55.27 $ 27.63 $ 31.24 $ 82.90 $ 74.32 $ 51.60
Diluted earnings 110.93 55.27 27.63 31.24 82.90 74.32 51.60
Cash dividends declared - - 50.50 34.11 43.08 32.73 39.64
Book value (deficit) at period-end (25.63) (36.64) (77.29) (94.11) (93.31) (166.73) (257.99)
Shares outstanding at period-end 2,497 2,497 2,497 2,497 2,497 2,597 2,597
Weighted average shares outstanding:
Basic 2,497 2,497 2,497 2,497 2,497 2,597 2,597
Diluted 2,497 2,497 2,497 2,497 2,497 2,597 2,597
BALANCE SHEET DATA (AT PERIOD-END):
Total assets $ 3,441 $ 4,262 $ 4,327 $ 4,605 $ 4,466 $ 4,711 $ 3,437
Total loans, net of unearned income - - - - - - -
Total deposits - - - - - - -
Federal funds purchased and securities
sold under agreements to repurchase -- - - - - - -
Other short-term borrowings 250 1,008 - 1,228 500 650 300
Long-term debt 1,328 1,545 1,406 647 927 1,088 830
Total shareholders' equity (deficit)(1) (64) (89) (193) (235) (233) (433) (670)
PERFORMANCE RATIOS:
Return on average total assets 16.10%(2) 6.48%(2) 1.55% 1.72% 4.51% 4.74% 3.87%
Return on average total assets before
merger-related expenses 16.10%(2) 6.48%(2) 1.55% 1.72% 4.51% 4.74% 3.87%
Return on average shareholders' equity - - - - - - -
Return on average shareholder's equity
before merger-related expenses(3) - - - - - - -
Average equity to average assets (53.77) (47.89) (20.87) (19.38) (13.78) (7.39) (4.72)
Cash dividends declared to net income - - 182.75 109.20 51.97 44.04 76.82
- -----------------------------------
</TABLE>
(1) Stockholders' equity at December 31, 1996 has been reduced to reflect prior
period adjustments of $8,300.
(2) Annualized
(3) The ratio is not measurable due to the deficit position of stockholders'
equity
- 13 -
<PAGE>
COMPARATIVE HISTORICAL DATA
<TABLE>
<CAPTION>
At or for the six
months ended June 30, At or for the years ended December 31,
-------------------------- ------------------------------------------------------
1998 1997 1997 1996 1995 1994 1993
---- ---- ---- ---- ---- ---- ----
FCNB Corp.
<S> <C> <C> <C> <C> <C> <C> <C>
Basic earnings per common share: $ 0.61 $ 0.52 $ 1.12 $ 0.74 $ 0.89 $ 0.86 $ 0.88
Diluted earnings per common share 0.61 0.52 1.12 0.74 0.89 0.86 0.88
Dividends per common share 0.26 0.20 0.43 0.37 0.38 0.33 0.26
Book value per common share 10.27 9.17 9.83 8.78 8.52 7.64 7.47
Frederick Underwriters
Basic earnings (loss) per common share $ 445.70 $ 227.10 $(37.13) $ 86.22 $ 265.48 $ 85.53 $ 64.88
Diluted earnings (loss) per common share 445.70 227.10 (37.13) 86.22 265.48 85.53 64.88
Dividends per common share - - 50.50 34.11 43.08 29.72 35.99
Book value (deficit) per common share 420.61 366.06 156.46 138.96 93.62 (162.33) (369.17)
Carroll County
Basic earnings (loss) per common share $ 7.89 $ 4.61 $ 22.61 $ (5.02) $ (47.12) $ 86.54 $ 41.06
Diluted earnings (loss) per common share 7.89 4.61 22.61 (5.02) (47.12) 86.54 41.06
Dividends per common share - - - - - - -
Book value (deficit) per common share (147.16) (173.05) (155.05) (177.66) (172.64) (125.52) (212.06)
Phillips
Basic earnings (loss) per common share $ (108.72) $ (133.80) $(124.68) $ (0.01) $ (23.29) $ (169.33) $ 59.58
Diluted earnings (loss) per common share (108.72) (133.80) (124.68) (0.01) (23.29) (169.33) 59.58
Dividends per common share - - - - - - -
Book value (deficit) per common share (804.90) (841.20) (696.18) (707.40) (707.39) (684.11) (514.77)
</TABLE>
- 14 -
<PAGE>
THE MEETINGS
THE UNDERWRITERS COMPANIES SHAREHOLDER MEETINGS
General. The joint meetings of shareholders of the Underwriters
Companies will be held at 1201 East Patrick Street, Frederick, Maryland, on
Tuesday, December 22, 1998, 8:15 A.M. local time.
The Board of Directors of each Underwriters Company has chosen the close
of business on November 18, 1998 as the record date (the "Underwriter Companies
Record Date") for purposes of determining the shareholders entitled to notice
of, and to vote at, the Underwriter Companies Shareholder Meeting. As of the
Underwriters Companies Record Date there were:
986 shares of Frederick Underwriters
120 shares of Phillips and
1,391 shares of Carroll County
issued and outstanding and entitled to vote. Shareholders of the Underwriters
Companies are entitled to one vote on all matters to be acted on at the meeting
for each share held of record by them on the Underwriters Companies Record Date.
The presence at the meeting, in person or by proxy, of the holders a majority of
the total number of outstanding shares of Common Stock of each Underwriters
Company is necessary to constitute a quorum. In the event that there are not
sufficient votes for a quorum or to approve the Merger at the meeting, the
meeting may be adjourned in order to permit further solicitation of proxies.
Purpose of the Underwriters Companies Meeting and Vote Required. The
purpose of the Underwriters Companies Meeting is to consider and vote on the
proposal to approve the Merger pursuant to which each of the Underwriters
Companies will be merged with and into the Bank and each outstanding share of
Underwriters Company Common Stocks will automatically, and without further
action, be converted into shares of FCNB Common Stock as follows:
<TABLE>
<CAPTION>
NUMBER OF SHARES OF
COMPANY FCNB COMMON STOCK
<S> <C>
Frederick Underwriters 372.67
Phillips 78.42
Carroll County 33.12
</TABLE>
and to transact such other business as may properly come before the meeting or
any adjournment or postponement thereof.
The affirmative vote of two-thirds of the outstanding shares of Common
Stock of each Underwriters Company is required to approve the Merger. Mr. J.R.
Ramsburg, Jr., President of each of the Underwriters Companies and a director of
FCNB, has the power to vote 79.51% of the outstanding shares of Frederick
Underwriters Common Stock; 100% of the outstanding Phillips Common Stock; and
81.9% of the outstanding Carroll County Common Stock (including 290 shares of
Carroll County Common Stock owned by Underwriters). Mr. Ramsburg has stated that
he will vote all of the shares of each company which he has the power to vote in
favor of the Merger. As a result, approval of the Merger by shareholders of the
Underwriters Companies at the meeting is assured.
THE BOARD OF DIRECTORS OF EACH UNDERWRITER COMPANY HAS UNANIMOUSLY
APPROVED THE MERGER AND UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL AND ADOPTION
OF THE MERGER. MR. RAMSBURG DID NOT PARTICIPATE IN THE CONSIDERATION OF THE
MERGER BY THE FCNB BOARD OF DIRECTORS.
- 15 -
<PAGE>
Voting and Revocation of Proxies. If the enclosed form of proxy is
properly executed and returned in time to be voted at the Underwriters Companies
Meeting, the shares represented thereby will be voted as specified by the
shareholder executing the proxy. In the absence of specific instructions,
proxies received will be voted in favor of the proposal to approve the Merger.
Management does not know of any matters that will be brought before the meeting,
other than as described herein. If other matters are properly brought before the
meeting, the persons named in the proxy intend to vote such shares to which the
proxies relate in accordance with their best judgment, unless such authority is
withheld. A proxy may be revoked at any time prior to the exercise of the
authority granted thereby by (i) delivering written notice of such revocation to
J.R. Ramsburg, Jr., President of the Underwriters Companies, prior to the
meeting, (ii) granting and delivering a later dated proxy with respect to such
shares, or (iii) by attending the Underwriters Companies Meeting in person and
voting the shares. If your shares are not registered in your name, you will need
additional documentation from your recordholder in order to vote personally at
the meeting.
Votes cast by proxy or in person at the Underwriters Companies Meeting
will be tabulated by the election inspectors appointed for the meeting who will
determine whether or not a quorum is present. Where, as to any matter submitted
to the shareholders for a vote, proxies are marked as abstentions (or
shareholders appear in person but abstain from voting), such abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Broker non-votes will also be considered
present for purposes of determining a quorum. Since approval of the Merger
requires a two-thirds majority of the outstanding shares of each Underwriters
Company, an abstention or broker non-vote will have the effect of a vote against
the Merger.
The enclosed proxy is being solicited on behalf of the respective Board
of Directors of the Underwriters Companies and the Underwriters Companies will
bear the cost of such solicitation. In addition to solicitation by mail,
officers, directors and employees of the Underwriters Companies may solicit
proxies by telecopier, telegram, in person or otherwise. Such persons will not
receive any additional or special remuneration or payment for such solicitation.
Additionally, officers, directors or employees of FCNB may solicit proxies by
mail, telecopier, telegram, in person or otherwise. FCNB will pay all expenses
of printing and distributing this Proxy Statement.
THE FCNB SHAREHOLDER MEETING
General. The FCNB Shareholder Meeting will be held at FCNB's
headquarters, 7200 FCNB Court, Frederick, Maryland, on Wednesday, December 30,
1998 at 11:00 A.M. local time.
The Board of Directors of FCNB (the "FCNB Board") has chosen the close
of business on November 18, 1998 as the record date (the "FCNB Record Date") for
purposes of determining the shareholders entitled to notice of, and to vote at,
the FCNB Shareholder Meeting. As of the FCNB Record Date, 7,819,403 shares of
FCNB Common Stock were issued and outstanding. Shareholders of FCNB are entitled
to one vote on all matters to be acted on at the FCNB Shareholder Meeting for
each share of FCNB Common Stock held of record by them on the FCNB Record Date.
The presence at the FCNB Shareholder Meeting, in person or by proxy, of a
majority of the total number of outstanding shares of FCNB Common Stock is
necessary to constitute a quorum.
Purpose of the FCNB Shareholder Meeting and Vote Required. The purpose
of the FCNB Shareholder Meeting is to consider and vote on the proposal to
approve the Merger, pursuant to which each of the Underwriters Companies will be
merged with and into First Choice and each outstanding share of Underwriters
Company Common Stocks will be converted into shares of FCNB Common Stock as
follows:
<TABLE>
<CAPTION>
Number of Shares of
Company FCNB Common Stock
<S> <C>
Frederick Underwriters 372.67
Phillips 78.42
Carroll County 33.12
</TABLE>
- 16 -
<PAGE>
and to transact such other business as may properly come before the FCNB
Shareholder Meeting or at any adjournment or postponement thereof.
FCNB is not required to obtain the approval of FCNB shareholders in
order to effect the Merger under Maryland law or the rules of Nasdaq. The FCNB
Board has elected to condition the Merger on shareholder approval because the
principal shareholder and officer of each of the Underwriters Companies is a
director of FCNB, and because at the time first considered by the Board, the
Merger would have resulted in the issuance of more than 5% of the outstanding
FCNB Common Stock. Under Nasdaq rules, the issuance of that number of shares in
a transaction involving an insider requires shareholder approval. The subsequent
merger agreement involving Capital Bank reduced the percentage of shares to be
issued to shareholders of the Underwriters Companies to below 5%.
The affirmative vote of two-thirds of the votes entitled to be cast at
the FCNB Shareholder Meeting is required to approve the Merger. Directors of
FCNB owning or having the power to vote or direct the voting of approximately
792,487 shares of FCNB Common Stock have indicated their intention to vote in
favor of the Merger.
THE FCNB BOARD HAS UNANIMOUSLY APPROVED THE MERGER AND RECOMMENDS THAT
HOLDERS OF FCNB COMMON STOCK VOTE FOR THE MERGER. MR. RAMSBURG DID NOT
PARTICIPATE IN THE FCNB BOARD'S CONSIDERATION OF THE MERGER.
Voting and Revocation of Proxies. If the enclosed form of proxy is
properly executed and returned in time to be voted at the FCNB Shareholder
Meeting, the shares represented thereby will be voted as specified by
shareholders. In the absence of specific instructions, proxies received will be
voted in favor of the proposal to approve the Merger. Management does not know
of any matters that will be brought before the FCNB Shareholder Meeting, other
than as described herein. If other matters are properly brought before the FCNB
Shareholder Meeting, the persons named in the proxy intend to vote such shares
to which the proxies relate in accordance with their best judgment unless such
authority is withheld. A proxy may be revoked at any time prior to the exercise
of the authority granted thereby by (i) delivering written notice of such
revocation to Helen G. Hahn, Secretary of FCNB, prior to the FCNB Shareholder
Meeting, (ii) granting and delivering a later dated proxy with respect to such
shares, or (iii) attending the FCNB Shareholder Meeting in person and voting the
shares.
Votes cast by proxy or in person at the FCNB Shareholder Meeting will
be tabulated by the election inspectors appointed for the meeting who will
determine whether or not a quorum is present. Where, as to any matter submitted
to the FCNB shareholders for a vote, proxies are marked as abstentions (or FCNB
shareholders appear in person but abstain from voting), such abstentions will be
treated as shares that are present and entitled to vote for purposes of
determining the presence of a quorum. Broker non-votes will also be considered
present for purposes of determining a quorum. Since approval of the Merger
requires a two-thirds majority of the votes entitled to be cast, an abstention
or broker non-vote will have the effect of a vote against the Merger.
The enclosed proxy is being solicited on behalf of the FCNB Board and
FCNB shall bear the entire cost of such solicitation. In addition to
solicitation by mail, officers, directors and employees of FCNB may solicit
proxies by telecopier, telegram, in person or otherwise. Such persons will not
receive any additional or special remuneration or payment for such solicitation.
As of the date hereof, FCNB has not retained any third party to assist it in the
solicitation of proxies, although it may determine to do so prior to the date of
the FCNB Shareholder Meeting.
THE MERGER
FCNB, First Choice and the Underwriters Companies entered into the
Agreement on September 2, 1998. The Agreement was amended on November 2, 1998.
Following shareholder approval of the Merger, and the satisfaction or waiver of
certain other conditions to the Merger, each of the Underwriters Companies will
be merged into the Bank. The following brief description of the Merger and the
Agreement does not purport to be a comprehensive description of all facets of
the Merger or the transactional or other documents prepared in connection
therewith, and is qualified in
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its entirety by reference to the Agreement in the form of Exhibit A attached
hereto and made a part hereof, to which shareholders are urged to refer, and the
other documents referred to herein.
THE AGREEMENT
The Agreement provides that each of the Underwriters Companies will be
merged with and into the Bank with the Bank surviving the Merger. Upon
effectiveness of the Merger, each of the outstanding shares of common stock of
the Underwriters Companies will automatically be converted into shares of FCNB
Common Stock. Following effectiveness of the Merger, the Bank will contribute
all of the assets and liabilities of the Underwriters Companies to First Choice.
First Choice will change its name to "Frederick Underwriters, Inc." See "The
Merger -- Consideration to be Received by Shareholders of the Underwriters
Companies" and "FCNB Corp -- Description of FCNB Capital Stock." Each of the
shares of FCNB Common Stock outstanding prior to the effectiveness of the Merger
will be unchanged, and will continue to represent shares of FCNB Common Stock.
THE BOARDS OF DIRECTORS OF FCNB AND EACH OF THE UNDERWRITERS COMPANIES
HAVE UNANIMOUSLY APPROVED THE MERGER AND RECOMMEND THAT THEIR RESPECTIVE
SHAREHOLDERS VOTE "FOR" THE MERGER. MR. RAMSBURG DID NOT PARTICIPATE IN THE
CONSIDERATION OF THE MERGER BY THE FCNB BOARD.
CONSIDERATION TO BE RECEIVED BY SHAREHOLDERS OF THE UNDERWRITERS COMPANIES
Conversion of Underwriters Company Common Stock. Upon effectiveness of
the Merger, each outstanding share of Common Stock of the Underwriters Companies
except for shares of an Underwriters Company held by that Company in treasury,
shares of an Underwriters Company held by another Underwriters Company and
dissenting shares, will automatically, and without further action, be converted
into shares of FCNB Common Stock. The number of shares of FCNB Common Stock into
which each share of common stock of the Underwriters Companies will be converted
is shown in the following table:
<TABLE>
<CAPTION>
PERCENTAGE OF
NUMBER OF SHARES OF FCNB AGGREGATE NUMBER OF SHARES OF OUTSTANDING FCNB
UNDERWRITERS COMPANY COMMON STOCK PER SHARE FCNB COMMON STOCK ISSUABLE COMMON STOCK(1)
- ---------------------- ------------------------ --------------------------- -----------------
<S> <C> <C> <C>
Frederick Underwriters 372.67 367,452 3.64%
Phillips 78.42 9,410 0.09%
Carroll County 33.12 36,465 0.37%
- -------------- ------- -----
Total 413,327 4.08%
</TABLE>
(1) As of September 30, 1998. Assumes issuance of 1,804,198 shares of FCNB
Common Stock in the Capital Bank Merger. The number of shares of FCNB
Common Stock to be issued in the Capital Bank Merger ranges from
1,626,068 to 1,987,357.
No fractional shares of FCNB Common Stock will be issued in connection
with the Merger. Holders of Underwriters Company Common Stock entitled to
receive fractional shares of FCNB Common Stock will receive cash in lieu of such
fractional shares, without interest, based upon the average of the bid and asked
prices of a share of FCNB Common Stock as reported by Nasdaq on the Closing
Date.
Each share of FCNB Common Stock outstanding immediately prior to the
Merger will be unchanged by the Merger, and will continue to represent one share
of FCNB Common Stock. See "FCNB Corp -- Description of FCNB Capital Stock."
It is anticipated that FCNB shareholders will not experience any
immediate dilution in earnings per share as a result of the Merger, based upon
FCNB's expectations of the earnings of First Choice following the Merger. These
expectations include assumptions regarding cost savings, operating efficiencies
and growth opportunities to be achieved
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<PAGE>
as a result of the Merger. There can be no assurance that these expectations
will be realized. FCNB shareholders will experience dilution of their percentage
ownership interest in FCNB, and in their relative voting power.
There can be no assurance as to the market, trading or intrinsic value
of shares of FCNB Common Stock received by shareholders of the Underwriters
Companies in exchange for their shares. There can be no assurance as to the
level at which shares of FCNB Common Stock can be sold, or as to whether an
active and liquid market in FCNB Common Stock can be maintained, following the
Merger.
BACKGROUND OF THE MERGER
During the last decade, there have been significant developments in the
manner of delivery of financial services, including insurance services. As legal
and regulatory barriers separating the operation of banking, securities and
insurance companies have diminished or fallen, there has been a marked trend, if
not a stampede, toward consolidation within each of those industries, and toward
combination of businesses involved in the different industries. Each reader of
this Proxy Statement has no doubt received offers of securities brokerage and
insurance services from banks, bank-like accounts from securities firms, and
annuity products from both. The marketplace for financial services is becoming,
at an ever increasing rate, less a group of specialized shops and more a
one-stop shopping financial supermarket.
The Boards and management of the Underwriters Companies believe that it
will be increasingly difficult for independent agencies such as the Underwriters
Companies to effectively compete against the greater financial resources of the
financial supermarkets. The Underwriters Companies, during their many years of
operation, have competed on the basis of providing effective, efficient service
to their customers, knowledge of their markets, and through the establishment
and maintenance of personalized relationships with their many customers.
Frederick Underwriters has also developed its business over the years through
the acquisition of several smaller, independent agencies located in the
Frederick County market. However, as customers become more able to obtain all of
their financial services from one place, with greater convenience, and the
multi-service providers become able to offer better pricing and options as a
result of their greater resources and larger customer bases, the traditional
bases of competition on which the Underwriters Companies have relied may not be
enough to enable the Underwriters Companies to compete successfully in the
future on an independent basis.
Over the years, the Underwriters Companies have entertained a number of
opportunities to be acquired by bank holding companies, including discussions in
1995 with FCNB. None of these earlier discussions resulted in a proposal which
was acceptable to the Underwriters Companies. In early spring 1998, FCNB and the
Underwriters again began discussing their possible affiliation. In early summer,
FCNB presented the offer reflected by the Agreement. Over the course of the next
several weeks, remaining issues were discussed and a definitive agreement was
prepared. The Agreement was signed on September 2, 1998.
The Boards of Directors of the Underwriters Companies believe that the
Merger is in the best interests of the shareholders of the Underwriters
Companies and their customers. FCNB, a well capitalized, community focused,
progressive banking company, has taken numerous steps toward enhancing its
competitiveness in the new financial services marketplace, offering more
services, such as trust services, financial planning, and securities brokerage
services, and greater convenience, through enhanced technology services and an
expanded branch network. It can combine the traditional customer oriented,
personalized service manner of competition with the financial supermarket
concepts necessary to success in the future.
In determining to accept FCNB's offer, the Underwriters Companies'
Boards considered the well capitalized condition, financial strength, share
price, and dividend and earnings history of FCNB, as well as the prospects for
FCNB following completion of the Capital merger. They also considered that the
common stocks of the Underwriters Companies are illiquid due to the closely held
nature of the companies, and the fact that the shares of FCNB Common Stock to be
received in the Merger will be fully registered and eligible for trading on the
Nasdaq National Market, and
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<PAGE>
FCNB's history of regular quarterly dividend payments. Also considered was the
fact that FCNB would allow the historic business of the Underwriters Companies
to continue to operate under the same day to day management and employees as
previously (except for J.R. Ramsburg, Jr.'s retirement from day to day
activities), and the fact that FCNB's greater capitalization, financial strength
and credit rating, as well as its larger customer base, would provide an
opportunity for the Underwriters Companies to expand the scope and size of the
business they conduct.
RECOMMENDATION OF THE BOARDS OF DIRECTORS OF THE UNDERWRITERS COMPANIES
The Board of Directors of each of the Underwriters Companies believes
that the Merger is fair to, and in the best interest of, their respective
company and its shareholders. ACCORDINGLY, EACH BOARD HAS UNANIMOUSLY APPROVED
THE MERGER AND UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE FOR THE APPROVAL OF
THE MERGER. See "-- Opinion of Financial Advisor."
RECOMMENDATION OF THE FCNB BOARD; REASONS FOR THE MERGER
The Board of Directors of FCNB, believes that the proposed Merger of the
Underwriters Companies with and into the Bank is in the best interests of FCNB
and its shareholders. The acquisition of the insurance agency businesses of the
Underwriters Companies will enable FCNB to expand the range of products it
offers to its customers, and to increase the amount of its non-interest income
and the percentage of total income coming from non-interest, non-banking,
sources. FCNB believes that the expanded business and cross-selling
opportunities presented, including the potential to expand the geographic base
of the Underwriters Companies' business, will enable FCNB to better meet the
competitive challenges arising out of the changing financial services industry,
and as such is in the best interests of FCNB and its shareholders. There can be
no assurance, however, that FCNB will be able to successfully operate or expand
the Underwriters Companies' business, or that FCNB's non-interest income or
total income will increase as a result of the Merger.
In considering the expansion of its insurance business, internally and
by acquisition of the Underwriters Companies, the Board of Directors reviewed
information prepared by FCNB's personnel, who were assisted by independent
advisors having expertise in the valuation and acquisition of insurance agency
and brokerage businesses.
ACCORDINGLY, THE FCNB BOARD (MR. RAMSBURG NOT PARTICIPATING) HAS
UNANIMOUSLY APPROVED THE MERGER AND UNANIMOUSLY RECOMMENDS THAT HOLDERS OF FCNB
COMMON STOCK VOTE FOR THE APPROVAL OF THE MERGER.
CONDITIONS TO THE MERGER
The obligation of each of the Underwriters Companies to consummate the
Merger is subject to various conditions, including the following: (i) the
continued accuracy of the representations and warranties of FCNB and First
Choice; (ii) the performance, in all material respects, of all of the covenants
and agreements of FCNB and First Choice under the Agreement; (iii) the approval
of the Merger by the shareholders of each of the Underwriters Companies and
FCNB; (iv) the effectiveness of the Registration Statement (of which this Proxy
Statement forms a part) on Form S-4 relating to the FCNB Common Stock to be
issued to shareholders of the Underwriters Companies in the Merger; (v) the
approval for quotation on Nasdaq, upon notice of issuance, of the shares of FCNB
Common Stock to be issued to Underwriters Company shareholders in connection
with the Merger; and (vi) the absence of any order, decree, or injunction (or
proceeding seeking any of the foregoing) enjoining or prohibiting consummation
of the Merger and the transactions contemplated by the Agreement.
The obligation of FCNB and First Choice to consummate the Merger is
subject to various conditions, including the following: (i) the continued
accuracy of the representations and warranties of the Underwriters Companies;
(ii) the performance, in all material respects, of the obligations of the
Underwriters Companies under the Agreement; (iii) the receipt of all requisite
regulatory approvals, which approvals shall not contain conditions other than
those as are generally imposed, and which are not, in the opinion of FCNB and
First Choice, unduly burdensome; (iv) the approval
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<PAGE>
of the Merger by the shareholders of each of the Underwriters Companies and
FCNB; (v) the receipt of an opinion of FCNB's independent accountants, or FCNB's
otherwise satisfying itself, that the Merger can be accounted for as a pooling
of interests; (vi) the absence of any material adverse change in the business,
operations, assets, financial condition, prospects or results of operations of
the Underwriters Companies; (vii) the absence of any injunction, proceeding,
statute or regulation preventing consummation of the Merger or making it
unlawful, or in the reasonable judgment of FCNB, inadvisable, to consummate the
Merger; (viii) the absence of litigation which, if successful, would in the
reasonable judgement of FCNB, have a material adverse effect on the financial
condition, operations, business or prospects of the Underwriters Companies; (ix)
the execution of employment, consulting and/or noncompetition agreements by J.R.
Ramsburg, Jr. and J.R. Ramsburg, III; and (x) the receipt of a satisfactory
"comfort letter" from the Underwriters Companies' outside accountants, and an
opinion of counsel to the Underwriters Companies.
For purposes of subsection (vi) above, the determination there has been
no material adverse change includes FCNB and First Choice determining, in their
discretion based upon the results of their due diligence examinations, that as
of the Closing Date (a) the Underwriters Companies have an aggregate sustainable
net revenue base of $5.4 million (determined prior to payment of performance
bonuses to J.R. Ramsburg, III); (b) the working capital deficit of the
Underwriters Companies does not exceed $350,000; and (c) the Underwriters
Companies have a sustainable annual pretax income of $1.1 million (determined
after payment of performance based incentive compensation to J.R. Ramsburg,
III). In determining the sustainable pretax income of the Underwriters
Companies, FCNB will take into account, among other things, cost savings and
operating efficiencies expected to be achieved as a result of the restructuring
of the financing arrangements utilized by the Underwriters Companies, and the
termination of certain salary and other payments to employees and shareholders
of the Underwriters Companies.
Additionally, Mr. J.R. Ramsburg, Jr. must enter into the Receivables
Agreement discussed below under "Certain Related Agreements and Interests of
Certain Persons." See "The Merger -- Termination," "-- Certain Related
Agreements and Interests of Certain Persons" and "-- Accounting Treatment."
Pending effectiveness of the Merger, the Underwriters Companies are
required to conduct their business in the ordinary course, and in substantially
the same manner as they have conducted business to date. Additionally, the
Underwriters Companies have agreed not to take certain actions, including, but
not limited to paying any dividends, redeeming, repurchasing or issuing any
shares of common stock; incurring any obligations or liabilities except in the
ordinary course of business; granting any salary increases, effecting any
merger, sale of assets or other transaction not in the ordinary course of
business; or soliciting or authorizing any inquiries or proposals with respect
to any extraordinary transactions other than the Merger.
The Agreement provides that as promptly as practicable after the date
of the Agreement and the Underwriters Companies furnishing any information
regarding the Underwriters Companies required to be included, FCNB will file the
Registration Statement with the Commission and applications or notices with the
Board of Governors of the Federal Reserve (the "Federal Reserve"), the Maryland
Commissioner of Financial Regulation, the Maryland Insurance Administration and
any other appropriate state or federal regulatory agency for approval of the
Merger. As of the date hereof, FCNB believes that it has received all necessary
regulatory approvals.
TERMINATION
The Agreement may be terminated, and the Merger abandoned, at any time
prior to the effectiveness of the Merger, whether or not such termination occurs
before or after approval of the Merger by the shareholders of the Underwriters
Companies and FCNB, and without further action by shareholders of the
Underwriters Companies and FCNB, in the following circumstances: (i) by mutual
consent of all parties to the Agreement; (ii) unilaterally by either FCNB or any
Underwriters Company at any time after June 30, 1999; (iii) unilaterally, by
either any Underwriters Company or FCNB in the event of a material breach by the
other of any representation, warranty or agreement contained in the Agreement;
(iv) unilaterally, by either any Underwriters Company or FCNB in the event of a
material adverse change in the financial condition results of operations,
business or prospects of the other; or (v) by FCNB, in the event
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<PAGE>
that the Merger is not approved at the FCNB Shareholder Meeting. If the
Agreement is terminated under any of the foregoing circumstances, no party shall
have any liability or obligation to the other relating to the Agreement, other
than with respect to confidentiality of documents and expenses, and except in
the event of a wilful breach of a material provision.
AMENDMENT AND WAIVER
Any of the terms and conditions of the Agreement may be amended or
modified by the Underwriters Companies and FCNB in writing, at any time before
or after approval by shareholders, except that no amendment or modification
after approval by the shareholders of the Underwriters Companies may reduce the
value or change the form of consideration to be received by shareholders of the
Underwriters Companies. Any term or condition of the Agreement may be waived at
any time, in writing, by the party which, or the shareholders of which, is
entitled to the benefit of such waived term or condition. See "The Merger --
Conditions to the Merger."
EFFECTIVENESS OF THE MERGER
The Closing Date of the Merger shall take place within 15 days of the
receipt of all required approvals and authorizations of government and
regulatory authorities and the expiration of all applicable waiting periods, and
the satisfaction or waiver of all conditions to the Merger. The Merger shall
become effective upon the later of the filing of Articles of Merger with the
Maryland Department of Assessments and Taxation or the date indicated in such
Articles of Merger. It is expected that the Merger will become effective within
one business day of the Closing. It is the intention of the parties to have the
Closing Date fall in 1998, although there can be no assurance that the Merger
will close in 1998.
SURRENDER OF CERTIFICATES
Upon effectiveness of the Merger, certificates which formerly
represented shares of Underwriters Companies Common Stock will represent the
number of shares of FCNB Common Stock into which shares shall have been
converted, except that until exchanged for FCNB Common Stock certificates, the
holders of Underwriters Company Common Stock certificates will not be entitled
to receive dividends or other distributions or payments on FCNB Common Stock.
Promptly following effectiveness of the Merger, FCNB or American Stock
Transfer & Trust Company, FCNB's transfer agent (the "Exchange Agent"), will
mail to each Underwriters Company shareholder information regarding the exchange
of his or her shares of Underwriter Company Common Stock, including procedures
to be followed in the event that a shareholder has lost his or her certificates.
UNDERWRITERS COMPANY SHAREHOLDERS SHOULD NOT DELIVER CERTIFICATES REPRESENTING
UNDERWRITERS COMPANY COMMON STOCK UNTIL THEY HAVE RECEIVED TRANSMITTAL FORMS,
AND SHOULD NOT RETURN CERTIFICATES WITH THE ENCLOSED FORM OF PROXY. Upon
surrender of certificates representing shares of Underwriters Company Common
Stock, the Exchange Agent will issue to such shareholder one or more
certificates representing the number of whole shares of FCNB Common Stock into
which such shareholder's shares shall have been converted, together with a check
representing payment, without interest, of cash in lieu of any fractional share
of FCNB Common Stock to which such shareholder may be entitled, and, if
appropriate, a check representing payment, without interest, of any dividend or
other cash payment or distribution on such shareholder's shares of FCNB Common
Stock which may have been withheld as a result of such shareholder's failure to
earlier surrender his or her Underwriters Company share certificates for
redemption.
If any Underwriters Company shareholder shall not have surrendered his
or her certificates for exchange within two years of the effectiveness of the
Merger, the shares to which such shareholder would be entitled may, at the
option of FCNB, be sold and the proceeds of such sale, together with any cash in
lieu of fractional shares and previously accrued dividends, held in a
non-interest bearing account for such shareholder's benefit. Such shareholder's
only right
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<PAGE>
shall be to collect, without interest, and subject to applicable laws of
escheat, such net proceeds, cash and accumulated dividends, upon surrender of
his or her Underwriters Company share certificates.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
FCNB and the Underwriters Companies have received an opinion from Kevin
P. Kennedy, Esquire, special tax counsel to FCNB in respect of the Merger, as to
certain federal income tax consequences of the Merger. The opinion provides that
the Merger of the Underwriters Companies with and into the Bank pursuant to the
Agreement, and the subsequent transfer of the assets and liabilities of the
Underwriters Companies to First Choice, will qualify as a reorganization under
Section 368(a)(1)(A) of the Internal Revenue Code of 1986, as amended. The
following is a description of the expected federal income tax consequences of
the Merger to FCNB, the Underwriters Companies and the shareholders of the
Underwriters Companies.
No gain or loss will be recognized by the Underwriters Companies upon
consummation of the Merger.
No gain or loss will be recognized by the Bank upon the receipt of the
Underwriters Companies' assets in exchange for FCNB Common Stock, cash and the
assumption of the Underwriters Companies' liabilities. The federal income tax
basis of the assets of the Underwriters Companies' in the hands of the Bank will
be the same as the tax basis of such assets in the hands of the Underwriters
Companies' immediately prior to the effective time of the Merger. The holding
period of the assets of the Underwriters Companies transferred to the Bank will
include the period during which such assets were held by the Underwriters
Companies prior to the effective time of the Merger.
No gain or loss will be recognized by the shareholders of the
Underwriters Companies on the receipt of shares of FCNB Common Stock pursuant to
the Merger. The federal income tax basis of the shares of FCNB Common Stock
received by a shareholder of the Underwriters Companies will be the same as the
basis of the Underwriters Company shares surrendered in exchange therefor. The
holding period of the FCNB Common Stock received by a shareholder of the
Underwriters Companies will be the same as the holding period of the
Underwriters Company shares surrendered in exchange therefor provided the stock
was held by the shareholder as a capital asset.
Cash received by shareholders of the Underwriters Companies in lieu of
fractional shares of FCNB Common Stock will be treated as received by such
shareholders as distributions in redemption of such shares. Such shareholders
should generally recognize capital gain or loss for federal income tax purposes
measured by the difference between the amount of cash received and the portion
of the basis of the Underwriters Companies shares allocable to such fractional
share interests.
Shareholders of the Underwriters Companies who receive solely cash for
their shares will be treated as having received such cash in redemption of such
shares subject to the limitations and conditions of Section 302 of the Internal
Revenue Code of 1986.
The opinion of Mr. Kennedy is not binding on the IRS and the IRS could
disagree with the conclusions reached therein. In the event of such
disagreement, there is no assurance that the IRS would not prevail in a judicial
or administrative proceeding.
As a result of the complexity of the tax laws and the impact of each
shareholder's particular circumstances upon the tax consequences of the Merger,
the information set forth above regarding the federal income tax consequences of
the Merger is not intended to be individualized tax or legal advice to the
shareholders of the Underwriters Companies. EACH SHAREHOLDER SHOULD CONSULT HIS
OR HER OWN TAX OR FINANCIAL COUNSEL AS TO THE SPECIFIC FEDERAL, STATE, AND LOCAL
TAX CONSEQUENCES OF THE MERGER, IF ANY, TO SUCH SHAREHOLDER.
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ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling of
interests under generally accepted accounting principles. The obligations of
FCNB and First Choice to consummate the Merger is conditioned upon the receipt
by FCNB of an opinion of its independent accountants or FCNB otherwise
satisfying itself that the Merger can be accounted for as a pooling of
interests, under generally accepted accounting principles, if consummated in
accordance with the Agreement. Under the pooling of interests method of
accounting, the historical basis of the assets and liabilities of the First
Choice and the Underwriters Companies will be combined at the Closing and
carried forward at their previously recorded amounts. Income and other financial
statements of FCNB issued after consummation of the Merger will be restated
retroactively to reflect the consolidated operations of First Choice and the
Underwriters Companies as if the Merger had taken place prior to the periods
covered by such financial statements.
In order for the Merger to qualify for pooling of interests accounting
treatment, substantially all of the outstanding common stock of the Underwriters
Companies must be exchanged for FCNB Common Stock. In the event that any of the
conditions to the pooling of interests method of accounting treatment are not
satisfied, the Merger would not qualify for the pooling of interests method of
accounting, and a condition to the consummation of the Merger would not be
fulfilled. See "The Merger -- Conditions to the Merger."
Under generally accepted accounting principles, the pooling of interests
method records neither the acquiring of assets nor the obtaining of capital.
Therefore, all costs incurred to effect a combination accounted for as a pooling
of interests are expenses of the combined enterprise rather than additions to
assets or reductions to shareholders' equity. Accordingly, the costs incurred in
connection with the Merger will be charged to expense and deducted in
determining the results of operations of the combined entity.
Expenses of a pooling of interests typically include, but are not
limited to, registration fees and expenses, proxy solicitation costs, legal and
accounting fees, salaries and other expenses related to services of employees,
and costs of combining operations of the previously separate companies. In
connection with the Merger, additional accounting adjustments and accruals will
be required to recognize certain specific one-time costs associated with the
Merger. These adjustments and accruals will cause significant reductions to the
combined entity's results of operations for the initial period following
consummation of the Merger.
Management and Operations of FCNB and First Choice Following the Merger.
Following effectiveness of the Merger, the officers and directors of FCNB as of
the effectiveness of the Merger will continue to serve as the officers and
directors of FCNB. J.R. "Ray" Ramsburg, III, currently Vice President of
Frederick Underwriters, and each of the Underwriters Companies, will serve as
President of First Choice following the Merger. It is anticipated that most of
the employees of the Underwriters Companies will continue as employees of First
Choice.
Employment, Consulting and Non-Competition Agreements. As a condition to
the obligation of FCNB and First Choice to consummate the Merger, J.R. "Ray"
Ramsburg, III, will enter into an employment agreement with First Choice,
pursuant to which he will serve as President of First Choice. Mr. Ramsburg's
agreement will provide for a three year initial term, during which he will
receive a base salary of $156,000, subject to annual cost of living adjustment
beginning in 2000. Mr. Ramsburg will also be entitled to receive performance
based compensation based upon First Choice's pretax income as follows: 25% of
pretax income between $800,000 and $1.2 million plus 10% of pretax income in
excess of $1.2 million, in the first year of the agreement, with the pretax
income targets increasing by 10% in each calendar year. Mr. Ramsburg will be
entitled to benefits, including stock options, on the same basis as other
officers of FCNB, certain paid club memberships and a vehicle. The Agreement
will contain provisions prohibiting Mr. Ramsburg from engaging in activity in
competition with First Choice during the term of the contract and for a period
of up to 18 months following termination of the agreement.
Additionally, as a condition to the obligations of FCNB and First Choice
to consummate the Merger, J.R. Ramsburg, Jr., a director of FCNB and the father
of Mr. J.R. "Ray" Ramsburg, III, has entered into an independent
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<PAGE>
contractor agreement with First Choice pursuant to which he will provide
consulting services to First Choice. Mr. Ramsburg's agreement will provide for a
three year term during which he will receive compensation of $52,000 per year.
First Choice will also assume the obligation of Frederick Underwriters to
provide Mr. Ramsburg with an automobile and health insurance until the age of
sixty five.
Mr. J.R. Ramsburg, Jr. has also entered into a non-competition agreement
with First Choice and FCNB. The Non-Compete provides that for a three year
period after the effectiveness of the Merger (subject to reduction to one year
in the event of a change in control of FCNB) (the "Covenant Period"), subject to
limited exceptions Mr. Ramsburg shall not, directly or indirectly, engage or
participate in the ownership, management, operation, control or financing of, or
otherwise be connected with or have any interest in, whether as organizer,
director, advisory director, officer, employee, consultant, partner, contractor,
stockholder or otherwise, of any entity competitive with First Choice which
operates in the designated area in which First Choice will operate (the
"Designated Area"), including but not limited to any entity engaged in, or which
controls any entity engaged in, insurance brokerage, consulting, advisory
procurement or similar services. The Non-Compete also contains provisions
regarding the use and disclosure of confidential or other non-public information
of FCNB and the Underwriters Companies, the solicitation of customers of the
Underwriters Companies and the solicitation and hiring of employees of the
Underwriters Companies during the Covenant Period.
Receivables Agreement. As a condition to the obligation of FCNB and
First Choice to complete the Merger, First Choice, Frederick Underwriters and
J.R. Ramsburg, Jr. must enter into an agreement setting forth the terms and
conditions of the advance represented by the note payable by Frederick
Underwriters to J.R. Ramsburg, Jr. Such agreement must provide, inter alia, (i)
that in the event that any of the accounts receivable of Frederick Underwriters
reflected on the receivables report as of the month end prior to the Closing
Date have not been collected by the date which is 120 days after the Closing,
then the note payable to J.R. Ramsburg, Jr, shall be reduced, on a dollar for
dollar basis, by the amount of the uncollected receivables to the extent the
principal amount of the uncollected receivables exceed $25,000, which
receivables shall be assigned, set over and transferred to J.R. Ramsburg, Jr.,
without recourse to FCNB, FCNB Bank, First Choice or Frederick Underwriters, in
full satisfaction of that portion of the note payable equal to the original
principal amount of the receivables so assigned; and (ii) that following the
Effective Time, interest shall accrue on said note payable at an annual rate of
six percent. At September 30, 1998, the principal amount of the note was
approximately $1.15 million.
RESTRICTIONS ON RESALE OF FCNB COMMON STOCK BY CONTROLLING PERSONS
The FCNB Common Stock issued in connection with the Merger will be
freely transferable under the Securities Act of 1933 as amended (the "Securities
Act"), except for shares issued to any Underwriters Company shareholders who may
be deemed to be affiliates of the Underwriters Companies under Rule 145
promulgated pursuant to the Securities Act. This proxy statement is not to be
used by affiliates of the Underwriters Companies or other persons who may deemed
to be underwriters under Rule 145(c) for resale of shares received in connection
with the Merger.
DISSENTERS' RIGHTS
Any shareholder of an Underwriters Company who does not vote in favor of
the Merger and the transactions contemplated by the Agreement and who has given
prior written notice to the Underwriters Company of such shareholder's objection
to the proposed transaction and who otherwise complies with the procedures set
forth in Title 3, Subtitle 2 of the Maryland General Corporation Law (the
"MGCL"), shall be entitled to receive payment in cash of the fair value of such
shareholder's shares of Underwriters Company Common Stock. A copy of Title 3,
Subtitle 2 of the MGCL is attached hereto as Exhibit B.
Shareholders of FCNB are not entitled to demand the payment in cash of
the fair value of their shares of FCNB Common Stock.
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<PAGE>
An Underwriters Company shareholder wishing to demand payment of the
fair value of any part of all of his or her shares of Underwriters Company
Common Stock must submit a written notice to the Secretary of Underwriters
Company at or prior to the Meeting, stating that such shareholder objects to the
proposed Merger. The shareholder must then not vote those shares in favor of the
Merger. Merely voting against the Merger or not voting in favor of the Merger
will not constitute notice of objection or dissent and will not entitle a
shareholder to payment in cash of the value of his or her shares. Promptly
following the effectiveness of the Merger, FCNB, as the successor to the
Underwriters Companies, will notify in writing each shareholder of the
Underwriters Companies who filed a notice of objection to the Merger, of the
date on which the Articles of Merger were accepted for record. Within twenty
(20) days of the date on which the Articles of Merger were accepted for record,
an objecting shareholder must make a written demand for payment of the fair
value of his or her stock, stating the number and class of shares for which
payment is demanded. The notice of objection and the written demand for payment
should be sent to the Underwriters Companies at 1201 East Patrick Street,
Frederick, Maryland 21701, Attention: J.R. Ramsburg, Jr.
FCNB's notice of the date on which the Articles of Merger were accepted
may contain an offer of payment and certain financial disclosures. If an
objecting shareholder who has followed all of the procedural steps required to
demand payment of fair value has not received payment for his or her shares, he
or she may, or FCNB may, within fifty (50) days of the acceptance of the
Articles of Merger, petition the court of equity in Frederick County for
appraisal of the fair value of his or her shares of Underwriters Company Common
Stock as of the date of the Underwriters Companies Meeting, without including
any appreciation or depreciation resulting directly or indirectly from the
Merger or its proposal. Any shareholder who files a notice of objection, but
fails to file a written demand for the payment of fair value in a timely manner
will be bound by the shareholder vote and will not be entitled to receive
payment in cash as a holder of dissenting shares. A shareholder who demands
payment for his or her stock as a dissenting shareholder has no right to receive
any dividends or other distributions on such shares (or the shares of FCNB
Common Stock into which such dissenting shares would be converted), after close
of business on the date of the Underwriters Companies Meeting at which the
Merger is approved, and has no other rights, including voting rights, with
respect to such shares, except the payment of fair value. The rights of a
shareholder who demands payment will be restored if the demand for payment is
withdrawn, a petition of appraisal is not filed within the time required, a
court determines that the shareholder is not entitled to relief, or the Merger
is abandoned or rescinded.
If the court finds that the objecting shareholder is entitled to an
appraisal of his or her stock, the court shall appoint three disinterested
appraisers to determine the fair value of the stock. Within sixty (60) days
after appointment (or such longer period as the court may direct), the
appraisers shall file with the court and mail to each dissenting shareholder
their report stating their conclusion as to the fair value of the stock. Within
fifteen (15) days after the filing of the report, any party may object to the
report and request a rehearing. The court, upon motion of any party, will enter
an order either confirming, modifying or rejecting the report and, if confirmed
or modified, enter judgment directing the time within which payment must be
made. If the report is rejected, the court may determine the fair value or remit
the proceeding to the same or other appraisers. Any judgment entered pursuant to
a court proceeding will include interest from the date of the shareholders' vote
at the Meeting, unless the court finds that the shareholder's refusal to accept
a written offer to purchase the shares was arbitrary, vexatious and not in good
faith.
The expenses of the appraisal proceedings, not including fees and
expenses of counsel, and not including fees or expenses of experts if FCNB made
an offer for the dissenting shareholders stock if such offer materially exceeds
the amount offered, will be the responsibility of FCNB, except that all or any
part of such expenses may be assessed against any or all of the dissenting
shareholders to whom an offer to pay for such shareholder's shares has been
made, if the court finds the failure to accept such offer was arbitrary,
vexatious or not in good faith.
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<PAGE>
FCNB CORP
Financial and other information relating to FCNB is set forth in FCNB's
Annual Report to Shareholders for the year ended December 31, 1997, and its
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998, incorporated
by reference herein. Additional financial and other information relating to
FCNB, including information relating to FCNB's directors and executive officers,
is included in FCNB's Annual Report on Form 10-K, and FCNB's Proxy Statement
relating to its Annual Meeting of Shareholders held on April 21, 1998, copies of
which may be obtained without cost from FCNB. Financial and other information
relating to Capital Bank is set forth in Capital Bank's Annual Report on Form
10-KSB for the year ended December 31, 1997, and its Quarterly Report on Form
10-QSB for the quarter ended June 30, 1998 each of which is incorporated by
reference in FCNB's Registration Statement on Form S-4 relating to the Capital
Bank Merger and is included in the prospectus relating to FCNB's Special Meeting
of Shareholders to be held on November 4, 1998. See "Additional Information
About FCNB Corp."
HISTORY AND BUSINESS
FCNB was organized in 1986 to serve as the holding company for the Bank,
its principal operating subsidiary. The Bank, which was originally chartered in
1818, was converted from a national bank charter to a Maryland commercial bank
in 1993, and is engaged in a general commercial and consumer banking business,
serving individuals and businesses in Frederick, Anne Arundel, Baltimore,
Carroll, Howard, Montgomery and Prince George's counties in Maryland. The Bank
is the sixth largest commercial banking institution headquartered in Maryland.
At September 30, 1998, FCNB had assets of approximately $1.07 billion, total
deposits of approximately $719.34 million, and total shareholders' equity of
approximately $82.97 million. The principal executive office of FCNB is located
at 7200 FCNB Court, Frederick, Maryland 21703, and its telephone number is (301)
662-2191.
Over the past five years, FCNB has achieved significant growth in
assets. From 1993 to 1997, FCNB's assets grew at an 11.1% compound annual growth
rate, and increased by $151.04 million, or 16.07% in the first nine months of
1998. FCNB has achieved its growth both internally and through acquisition. FCNB
has completed three whole bank acquisitions since 1995, consummating the
acquisition of Elkridge Bank (March 1995), Laurel Federal Savings Bank (January
1996) and Odenton Federal Savings and Loan Association (April 1996), as well as
a number of branch transactions, including most recently the acquisition of
seven branches, holding approximately $44.8 million in deposits as of June 26,
1998, from two subsidiaries of First Virginia Banks, Inc.
On June 23, 1998 FCNB entered into an Agreement and Plan of
Reorganization and Merger pursuant to which it will acquire Capital Bank through
the merger of Capital Bank with and into the FCNB Bank. Capital Bank, the main
office of which is in Rockville, Maryland, has three branches, two located in
the District of Columbia and one in Tysons Corner, Virginia. FCNB will issue
between 1,626,068 and 1,987,357 shares of Common Stock in connection with the
transaction. At September 30, 1998, Capital had total assets of approximately
$172.07 million, deposits of $151.04 million, and total shareholders's equity of
$12.28 million. For the nine months ended September 30, 1998, and the year ended
December 31, 1997, Capital had net income of $1.2 million and $1.2 million,
respectively. It is anticipated that the merger will be accounted for as a
pooling of interests. It is anticipated that the Capital Bank transaction will
be completed on November 19, 1998.
FCNB has also had a history of earnings growth. Net income (before
extraordinary charges and merger related expenses) grew at a compound annual
growth rate of 7.2% from 1993 to 1997. For the five year period from 1993 to
1997, FCNB's average annual return on average assets (before merger-related
expenses) was 1.15%. The annualized return on average equity and the annualized
return on average assets for the nine months ended September 30, 1998 were
12.16% and 1.02%, respectively.
On July 20, 1998 FCNB raised $40.25 million in capital (before expenses
and commissions) through the public issuance of 1,610,000 8.25% Trust Preferred
Securities by its subsidiary FCNB Capital Trust, a Delaware business trust
- 27 -
<PAGE>
organized for the purpose of issuing the Preferred Securities. In connection
with the issuance of the Preferred Securities, FCNB issued $40.25 million of its
8.25% subordinated debentures, due July 31, 2028, to FCNB Capital Trust.
FCNB routinely explores opportunities for additional growth and
expansion of its core banking business and related activities, including the
acquisition of companies engaged in banking or other related activities, and
internally generated growth. There can be no assurance, however, that FCNB will
be able to grow, or if it does, that any such growth or expansion will result in
an increase in FCNB's earnings, dividends, book value or market value of its
securities.
DESCRIPTION OF FCNB CAPITAL STOCK
FCNB is authorized to issue an aggregate of twenty-one million
(21,000,000) shares of capital stock, of which twenty million (20,000,000) is
common stock, par value $1.00 per share, and one million (1,000,000) is
undesignated preferred stock. As of the FCNB Record Date there were 7,819,403
shares of FCNB Common Stock outstanding, held of record by approximately 2,500
shareholders, and options to purchase 284,970 shares of FCNB Common Stock were
issued and outstanding. No shares of preferred stock were outstanding as of that
date.
FCNB Common Stock. Each share of FCNB Common Stock is entitled to one
noncumulative vote on all matters to be submitted to a vote of shareholders. The
holders of FCNB Common Stock are not entitled to any preemptive or preferential
right to acquire any shares of any class of capital stock or other securities of
FCNB, except as the FCNB Board may expressly provide in connection with any
offering of capital stock or other securities. Holders of FCNB Common Stock are
entitled to receive dividends as and when declared by the FCNB Board.
FCNB maintains a Dividend Reinvestment and Stock Purchase Plan (the "DRI
Plan") providing for the purchase of additional shares of FCNB Common Stock by
reinvestment of cash dividends paid on outstanding shares of FCNB Common Stock
and/or by optional direct cash payments by shareholders. Shares purchased under
the Plan with reinvested cash dividends and optional cash payments can be
acquired at 97% of current market prices. No commissions or other fees are
charged. Optional cash payments pursuant to the DRI Plan are limited to $2,500
for any shareholder in each calendar quarter. The DRI Plan allows FCNB, at its
election, to use shares purchased in the open market, or authorized but unissued
shares, to satisfy demand under the plan.
Upon liquidation, dissolution or winding up of FCNB, the holders of FCNB
Common Stock would be entitled to ratably receive all of the assets of FCNB
available for distribution after payment of all debts and liabilities of FCNB,
subject to the rights, if any, of the holders of any class of preferred stock
which may be issued with a priority in liquidation or dissolution over the
holders of FCNB Common Stock.
Preferred Stock. The FCNB Board may, from time to time, by action of a
majority of the Board of Directors, issue shares of the authorized, undesignated
preferred stock, in one or more classes or series. In connection with any such
issuance, the Board may by resolution determine the designation, voting rights,
preferences as to dividends, in liquidation or otherwise, participation,
redemption, sinking fund, conversion, dividend or other special rights or
powers, and the limitations, qualifications and restrictions of such shares of
preferred stock. As of the date hereof, no shares of preferred stock are
outstanding.
MARKET FOR FCNB COMMON STOCK AND DIVIDENDS
Market for Common Stock. FCNB Common Stock is listed for quotation on
Nasdaq under the symbol "FCNB." Eight brokerage firms, Ferris, Baker, Watts &
Co., Legg Mason Wood Walker, Inc., Ryan, Beck & Co., Wheat First Securities,
Inc. Sandler O'Neill & Partners, L.P., Janney Montgomery Scott, Inc., F.J.
Morrisey & Co., Inc., and Herzog, Heine, Geduld, Inc., currently offer to make a
market in FCNB Common Stock on a regular basis.
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<PAGE>
Dividends. Holders of FCNB Common Stock are entitled to receive
dividends as and when declared by the FCNB Board. Historically, FCNB has paid
quarterly cash dividends on or about January 31, April 30, July 31, and October
31 of each year. Funds for the payment of dividends will, for the foreseeable
future, be obtained from dividends paid to FCNB by the Bank, which dividends are
subject to statutory limitations.
In addition, FCNB and its banking subsidiary are subject to capital
ratio requirements imposed by the Federal Reserve. The effect of the payment of
dividends on FCNB's or its subsidiary's capital ratios may be a factor in the
determination of the FCNB Board, or the ability of FCNB, to pay dividends. To
the extent that such ratios are inadequate for regulatory purposes or would be
if dividends were paid by its banking subsidiaries to FCNB, or by FCNB to its
shareholders, FCNB's banking subsidiaries or FCNB, as applicable, would be
precluded from paying dividends. Although the management of FCNB believes that
sufficient funds for the payment of dividends will be available, there can be no
assurance that funds for the payment of dividends will continue to be available
in sufficient amounts to pay dividends in accordance with FCNB's past practice,
or even if available, that the FCNB Board will elect to expend resources in the
payment of dividends, as opposed to retaining earnings to fund growth or
expansion, or for other corporate purposes.
Set forth below are the high and low prices for FCNB Common Stock for
each quarter since January 1, 1996, as well as the amount of cash dividends
declared in each quarter.
<TABLE>
<CAPTION>
Quarter Ended High(1) Low(1) Dividends Declared(1)
------------- ------- ------ ---------------------
<S> <C> <C> <C>
March 31, 1998 $24.38 $20.81 $0.128
June 30, 1998 $24.94 $23.44 $0.135
September 30, 1998 $26.81 $23.88 $0.143
March 31, 1997 $15.34 $13.64 $0.102
June 30, 1997 $15.00 $13.64 $0.102
September 30, 1997 $23.87 $13.98 $0.109
December 31, 1997 $23.69 $20.80 $0.116
March 31, 1996 $15.00 $12.11 $0.082
June 30, 1996 $13.30 $11.76 $0.095
September 30, 1996 $13.64 $11.59 $0.095
December 31, 1996 $14.15 $13.13 $0.095
</TABLE>
(1) Information for periods prior to September 30, 1998 are adjusted to reflect
the Stock Split.
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<PAGE>
COMPARISON OF SHAREHOLDER RIGHTS AND CERTAIN PROVISIONS OF
THE ARTICLES OF INCORPORATION OF FCNB
Following effectiveness of the Merger of the Underwriters Companies with
and into the Bank, the former holders of Underwriter Company Common Stock will
become holders of FCNB Common Stock, and the rights of such holders will be
determined by reference to the Maryland General Corporation Law (the "MGCL") as
it applies to large, public companies, the Restated Articles of Incorporation
("Articles") and Bylaws of FCNB, rather than the Articles of Incorporation
("Articles"), and Bylaws of the respective Underwriters Companies.
Authorized Shares. The Articles of FCNB authorize the FCNB Board to
issue, without further authorization by shareholders, up to twenty million
(20,000,000) shares of FCNB Common Stock, and one million (1,000,000) shares of
preferred stock having such rights as the Board in its discretion may determine.
See "Description of FCNB Capital Stock." The Articles of Frederick Underwriters
authorize the issuance of 2,000 shares of Frederick Underwriters Common Stock.
The Articles of Phillips authorize the issuance of 400 shares of Phillips Common
Stock, and the Articles of Carroll County authorize the issuance of 10,000
shares of Carroll County Common Stock. None of the Underwriters Companies has an
authorized class of preferred stock. The existence of a class of authorized,
undesignated preferred stock could have the effect of discouraging or rendering
more difficult an attempted takeover of FCNB, or, alternatively, of facilitating
a negotiated acquisition. The availability of additional shares of capital stock
for issuance could have the effect of diluting the ownership interest of holders
of FCNB Common Stock.
Voting Rights. The holders of FCNB Common Stock are entitled to one vote
per share on all matters submitted for a vote of shareholders, and are not
permitted to cumulate votes in the election of directors. The undesignated
preferred shares authorized by FCNB's Articles could be issued with such voting
rights as the FCNB Board of Directors determines at the time of issuance. The
holders of Underwriters Company Common Stock are entitled to one vote per share
on all matters submitted for the vote of shareholders, and are not permitted to
cumulate votes in the election of directors.
Directors. The Articles and the Bylaws of FCNB call for a Board of
Directors of between three and fifteen directors, with the exact number to be
determined by the resolution of the Board of Directors. Currently, as a result
there are fourteen directors which are divided into one class of four directors,
and two classes of five directors. At each annual meeting, one class is elected
for a three year term and until their successors shall have been duly elected
and qualified. The Articles and Bylaws of Frederick Underwriters call for a
Board of Directors of between three and six directors, with the exact number to
be determined by resolution of the Board of Directors. The full board is elected
annually for a one year term. The Articles and Bylaws of Phillips call for a
Board of Directors of three directors. The full board is elected annually for a
one year term. The Articles and Bylaws of Carroll County call for a Board of
Directors of between three and seven directors. The full board is elected
annually for a one year term. In determining the rights of any class or series
of preferred stock which may in the future be issued, the Board of Directors of
FCNB may provide that any such class or series is entitled to elect one or more
directors separately from the holders of other classes of capital stock.
The Articles of FCNB provide that directors may be removed at any time,
but only for cause and upon the vote of the holders of eighty percent (80%) or
more of the total number of votes entitled to be cast generally in the election
of directors. The provision regarding the removal of directors may be amended
only upon the vote of holders of eighty percent (80%) of all votes entitled to
be cast in the election of directors. The Bylaws of each of the Underwriters
Companies provide that any director may be removed without cause, upon the vote
of a majority of the shares outstanding.
Special Meetings. Special meetings of the shareholders of FCNB may be
called by the Chairman of the Board, President or a majority of the Board of
Directors, or by the request of the holders of at least twenty five percent
(25%) of the votes entitled to be cast at the meeting. FCNB's Bylaws provide
that if any matter to be acted upon at the meeting is substantially the same as
a matter voted upon at any special meeting of shareholders held during the
preceding twelve
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<PAGE>
months, the holders of at least fifty percent (50%) of the votes entitled to be
cast at the meeting must request the meeting with respect to such matter.
Additionally, shareholders of FCNB requesting a special meeting must pay the
reasonably estimated costs of preparing and mailing a notice of such meeting
prior to issuance of a notice for the meeting. Special meetings of the
shareholders of each of the Underwriters Companies may be called for any
legitimate purpose by the Board of Directors, the President or Vice President,
or upon the request of shareholders owning in the aggregate at least a majority
of the outstanding shares of such company's common stock. The conduct of
business at special meetings of both FCNB and the Underwriters Companies is
limited to the matters set forth in the notice.
Amendment of Articles. Except where applicable law or the Articles of
FCNB provide otherwise, the Articles of FCNB may be amended by the affirmative
vote of two-thirds of the votes entitled to be cast thereon. The provision of
the FCNB Articles relating to removal of directors may be amended only upon the
vote of the holders of eighty percent (80%) of the votes entitled to be cast in
the election of directors, voting as a single class. Except to the extent a
greater vote is required by law, the Articles of each Underwriters Company may
be amended by a vote of a majority of the outstanding common stock of such
company.
Consideration of Business Combinations. The Articles of FCNB provide
that where the Board of Directors evaluates any actual or proposed transaction
which would or may involve a change in control of FCNB, the Board of Directors
shall, in connection with the exercise of its business judgement in determining
what is in the best interests of FCNB and its shareholders and in making any
recommendation to its shareholders, give due consideration to all relevant
factors, including, but not limited to the economic effect, both immediate and
long term, upon FCNB's shareholders, if any, not to participate in the
transaction; the social and economic effect on the employees, depositors and
customers of, and others dealing with, FCNB and its subsidiaries and on the
communities in which FCNB and its subsidiaries operate or are located; whether
the proposal is acceptable based on the historical and current operating results
or financial condition of FCNB; whether a more favorable price could be obtained
for the FCNB Common Stock or other securities in the future; the reputation and
business practices of the offeror and its management and affiliates as they
would affect the employees of FCNB and its subsidiaries; the future value of the
stock or other securities of FCNB; and any antitrust or other legal and
regulatory issues that are raised by the proposal. If the Board of Directors
determines that any such transaction should be rejected, it may take any lawful
action to defeat such transaction. The Articles and Bylaws of the Underwriters
Companies do not contain any comparable provisions.
Advance Written Notice of Shareholder Proposals and Nominations. The
Articles of FCNB provide that any shareholder entitled to vote at a meeting of
shareholders who desires to nominate any person for election as director of FCNB
or who desires to bring up any new business at the meeting, but who does not
seek to have such nomination or proposal included in the proxy materials
prepared by FCNB, give at least 30 days, but not more than 60 days, written
notice to FCNB of such nomination or business. Where less than 31 days notice of
the meeting was given to shareholders by FCNB, notice must be given by the
shareholder within 10 days of the date on which the meeting was announced to
shareholders. If notice by the shareholder is not given in proper form and in a
timely manner, the matter will be laid over until the next meeting of
shareholders held more than 30 days following the meeting at which the
nomination or proposal, was made. The Articles and Bylaws of Capital require at
least 14 days but not more than 50 days notice of any shareholder nomination for
election as a director, provided that if less than 21 days notice of the meeting
at which the election of directors will be held is given, seven days notice is
required. The Articles and Bylaws of the Underwriters Companies do not contain
any provisions regarding shareholder business proposals to be brought up at a
meeting of shareholders.
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<PAGE>
Restrictions on Business Combinations with Interested Shareholders.
Section 3-602 of the MGCL imposes conditions and restrictions on certain
"business combinations" (including, among other various transactions, a merger,
consolidation, share exchange, or, in certain circumstances, an asset transfer
or issuance of equity securities) between a Maryland corporation and any person
who beneficially owns at least 10% of the corporation's stock (an "interested
shareholder"). Unless approved in advance by the board of directors, or
otherwise exempted by the statute, such a business combination is prohibited for
a period of five years after the most recent date on which the interested
shareholder became an interested shareholder. After such five-year period, a
business combination with an interested shareholder must be: (a) recommended by
the corporation's board of directors, and (b) approved by the affirmative vote
of at least (i) 80% of the corporation's outstanding shares entitled to vote and
(ii) two-thirds of the outstanding shares entitled to vote which are not held by
the interested shareholder with whom the business combination is to be effected,
unless, among other things, the corporation's common shareholders receive a
"fair price" (as defined by the statute) for their shares and the consideration
is received in cash or in the same form as previously paid by the interested
shareholder for his or her shares. Section 3-602 is not applicable to the
Underwriters Companies. The Articles and Bylaws of the Underwriters Companies do
not include any provisions imposing any special approval requirements for a
transaction with a major shareholder.
Control Share Acquisition Statute. Under the MGCL's control share
acquisition law, voting rights of shares of stock of a Maryland corporation
acquired by an acquiring person at ownership levels of 20%, 33-1/3% and 50% of
the outstanding shares are denied unless conferred by a special shareholder vote
of two-thirds of the outstanding shares held by persons other than the acquiring
person and officers and directors of the corporation or, among other exceptions,
such acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's charter or bylaws permit the acquisition of
such shares prior to the acquiring person's acquisition thereof. Unless a
corporation's charter or bylaws provide otherwise, the statute permits such
corporation to redeem the acquired shares at "fair value" if the voting rights
are not approved or if the acquiring person does not deliver a "control share
acquisition statement" to the corporation on or before the tenth day after the
control share acquisition. The acquiring person may call a shareholder's meeting
to consider authorizing voting rights for control shares subject to certain
disclosure obligations and payment of certain costs. If voting rights are
approved for more than fifty percent of the outstanding stock, objecting
shareholders may have their shares appraised and repurchased by the corporation
for cash. The control share acquisition law is not applicable to the
Underwriters Companies. The Articles and Bylaws of the Underwriters Companies do
not include any provisions restricting the voting ability of major shareholders.
THE UNDERWRITERS COMPANIES
Frederick Underwriters, Inc., Carroll County Insurance Agency, Inc. and
Phillips Insurance Agency, Inc. are collectively referred to herein as the
"Underwriters Companies".
Frederick Underwriters, Inc. was incorporated in the State of Maryland
on September 5, 1936. The principal purpose for which the corporation was formed
was to conduct a general insurance agency and underwriting in each and every
line of insurance. The principal executive office of Frederick Underwriters, is
located at 1201 East Street, Frederick, Maryland 21701. Frederick Underwriters
currently has a total of 54 employees, 50 of which are full time employees.
Frederick Underwriters one of the largest independent insurance agencies in
Maryland, engages principally in insurance brokerage activity, writing policies
for properties and businesses located across the country. The majority of
Frederick Underwriters customers are based in Frederick County, Maryland, and in
the surrounding central Maryland market. Over the years, Frederick Underwriters
has acquired a number of small independent insurance agencies in the Frederick
County Market.
Carroll County Insurance Agency, Inc. was incorporated in the State of
Maryland on October 6, 1980. The principal purpose for which the corporation was
formed was to conduct a general insurance agency and underwriting in each and
every line of insurance. The principal executive office of Carroll County is
located at 125 Airport Drive, #20, Westminster, Maryland 21158. Carroll County
has a total of 9 employees, all of which are full time. Carroll County operates
principally in the Carroll County Market.
Phillips Insurance Agency, Incorporated was incorporated in the State of
Maryland on July 17, 1968. The predecessor to Phillips was Phillips Insurance
Agency. Phillips Insurance Agency was purchased by Jacob R.
- 32 -
<PAGE>
Ramsburg, Sr. & Associates by Agreement of Sale dated June 6, 1968 and
incorporated as Phillips Insurance Agency, Inc., as stated above. The principal
purpose for which the corporation was formed was to act as an agent for
insurance companies in soliciting and receiving applications for fire, casualty,
plate glass, boiler, elevator, accident, health, burglary, rent, marine, credit,
life and all other kinds of insurance and to conduct a general insurance agency
and insurance brokerage business. The principal and executive office of Phillips
is located at 50 Souder Road, Brunswick, Maryland 21716. Phillips Insurance
Agency has two employees, both of which are full time. Phillips operates
principally in the Brunswick region of Frederick County, Maryland.
The Underwriters Companies have substantial common ownership and the
President and principal shareholder of each of the Underwriters Companies is
J.R. Ramsburg, Jr., a director of FCNB and FCNB Bank. Following this merger with
FCNB, Frederick Underwriters, Inc. and Phillips Insurance Agency, Inc. will
operate as "Frederick Underwriters, Inc." Carroll County Insurance Agency, Inc.
will operate as "Frederick Underwriters, Inc. t/a Carroll County Insurance
Agency."
The Underwriters Companies had aggregate revenues of approximately
$5,400,000 in 1997 (excluding non-recurring securities gains) and $4,300,000 for
the first nine months of 1998.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion and analysis provides information which
management of the Underwriters Companies believes is relevant to an assessment
and understanding of the results of operations nd financial condition of the
Underwriters Companies. This discussion should be read in conjunction with
combined financial statements for the year ended December 31, 1997 and notes
thereto, and the unaudited combined financial statements for the six months
ended June 30, 1998, appearing elsewhere herein.
CONTINUING OPERATIONS
During 1997 the Underwriters Companies experienced a $336,881 decrease
in commission revenue, or 6% below the level during 1996. This decrease was the
result of continually decreasing contingency commissions.
Decreases in the Company's operating expenses of $474,131 during 1997
offset the decreased commission revenue and resulted in operating income of
$87,693. This reduction is a result of salary decreases of $388,947 during 1997
due to the reduction of the workforce as part of the Company's cost cutting
efforts. In addition, payroll taxes and other employee costs decreased by
approximately $57,000.
In 1997, the Company realized a gain on the sale of marketable equity
securities of $158,558 as a resulting from the sale of 7,750 shares of FCNB
Corp.
Interest expense increased to $256,994 in 1997 which represents a 64%
increase over the level at the end of 1996. This was due to $1,333,000 in new
borrowings on long-term debt from the principal shareholder.
As a result of the foregoing, after tax net income of the Underwriters
Companies was $69,411 in 1997 compared net income of $78,030 in 1996. This
represents earnings per share of $28 in 1997 and $31 in 1996. Return on average
total assets decreased from 1.72% in 1996 to 1.55% in 1997.
For the first six months of 1998, aggregate revenues were approximately
$3.26 million compared to $2.82 million during the comparable period in 1997.
The increase results primarily from a gain on the sale of securities of
$375,000. Net income for the six month period in 1998 was $276,000 an increase
of $177,000 from the same period in 1997. Operating expenses for the six months
ended June 30, 1998 increased approximately $171,000 from 1997, reflecting a
$125,000 increase in bad debt provisions.
- 33 -
<PAGE>
INCOME TAXES
The provision for income tax expense decreased to $41,366 in 1997,
compared to $54,737, reflecting the lower level of pre-tax income in 1997. The
Underwriters Companies' effective tax rate was 37.3% in 1997, compared to 41.2%
in 1996. The Company's income tax expense differs from the amount computed at
statutory rates primarily due to nondeductible expenses, the benefit of a
federal surtax exemption, changes in the valuation allowance for the deferred
tax assets and state income taxes. Note 8 to the combined financial statements
reconciles expected income tax at the statutory rate with income tax expense
included in the combined statement of income.
LIQUIDITY AND CAPITAL RESOURCES
Cash increased during 1997 by $66,889 to $291,672. The net increase in
cash can be attributed to cash provided by operating activities of $87,324 and
cash provided by investing activities of $327,943 which was partially offset by
cash used in financing activities of $348,378. The cash provided by investing
activities was the result of the sale of marketable equity securities and
payments received on stockholder notes receivable.
The Company continues to hold investments in marketable equity
securities which it expects to liquidate in 1998.
INFLATION
Inflationary factors in recent years have not had a significant effect
on the Company's operations. As long as the Company maintains its borrowings
from related parties, changes in interest rates will not have a significant
impact on such interest expense.
YEAR 2000
The Company is currently addressing the many areas affected by the Year
2000 computer issue. A Year 2000 plan has been prepared which includes
contacting all of the software vendors that maintain the computer programs that
the Company relies upon. This plan provides that the Company will obtain
assurances from these software vendors that their products will be year 2000
compliant. All systems potentially affected will be evaluated. The plan also
includes the employment of a computer specialist to provide leadership in
addressing these issues. At this time, it is anticipated that systems testing
will be complete by June 1, 1999. Since many of the programs used by the Company
are "off-the- shelf" as compared to "highly customized," the cost to address
these matters is not expected to have a material impact on future operating
results or financial condition. This area is changing very rapidly and the
actual results may differ from what has been anticipated.
MARKET FOR COMMON STOCK AND DIVIDENDS
There is no established trading market for shares of common stock of any
of the Underwriters Companies, and there are no dealers who offer to make a
market in the Underwriters Companies Common Stocks on a regular basis. Common
Stock of the Underwriters Companies is subject to infrequent trades, in
individually negotiated transactions. To the knowledge of the Underwriters
Companies, there have been no sales of the Common Stock of any Underwriters
Company within the last two years.
For information regarding the dividend history of the Underwriters
Companies, refer to the audited combined statement of the Underwriters Companies
included herein.
- 34 -
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of FCNB Common Stock offered
hereby will be passed upon for FCNB by Kennedy, Baris & Lundy, L.L.P., Bethesda,
Maryland. Certain federal income tax consequences of the transaction have been
passed upon by Kevin P. Kennedy, Esquire.
EXPERTS
The combined financial statements of the Underwriters Companies
incorporated by reference herein and delivered herewith have been audited by
Keller Bruner & Company, L.L.C. independent certified public accountants, as
indicated in their report dated October 14, 1998 with respect thereto, and are
incorporated by reference herein in reliance upon the authority of said firm as
experts in accounting and auditing.
The consolidated financial statements of FCNB incorporated by reference
herein have been audited by Keller Bruner & Company, L.L.C., independent
certified public accountants, as indicated in their reports dated January 23,
1998 with respect thereto, and are incorporated by reference herein in reliance
upon the authority of said firm as experts in accounting and auditing.
- 35 -
<PAGE>
INDEX TO AUDITED COMBINED FINANCIAL STATEMENTS
COMBINED FINANCIAL REPORT (AUDITED) FOR THE YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Independent Auditor's Report...............................................................F-1
Combined Balance Sheet.....................................................................F-2
Combined Statement of Income...............................................................F-4
Combined Statement of Stockholders' Equity.................................................F-5
Combined Statement of Cash Flows...........................................................F-6
Notes to the Combined Financial Statements.................................................F-8
</TABLE>
- 36 -
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Stockholders and Board of Directors
Frederick Underwriters, Inc.
Frederick, Maryland
We have audited the accompanying combined balance sheet of Frederick
Underwriters, Inc. and affiliates (the Company) as of December 31, 1997, and the
related combined statements of income, stockholders' equity, and cash flows for
the year then ended. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the combined financial statements referred to above present
fairly, in all material respects, the financial position of Frederick
Underwriters, Inc. and affiliates as of December 31, 1997, and the results of
their operations and their cash flows for the year then ended in conformity with
generally accepted accounting principles.
As described in Note 1 to the combined financial statements, Frederick
Underwriters, Inc. changed its reporting entity to include Carroll County
Insurance Agency, Inc., and Phillips Insurance Agency, Inc., companies which are
affiliated through common ownership. The financial statements present the
combined operations of these three companies.
The statement of income for 1996, which is included for comparative purposes
only, is not intended to constitute an adequate presentation of the Company's
results of operations. It was compiled by combining the financial statements of
the individual companies for that year, which were previously compiled by us.
/s/ KELLER BRUNER & COMPANY, L.L.C.
Frederick, Maryland
October 14, 1998
F-1
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED BALANCE SHEET
DECEMBER 31, 1997
ASSETS
- --------------------------------------------------------------------------------
Current Asset
Cash $ 291,672
Accounts receivable:
Customers, less allowance for doubtful
accounts of $101,000 1,427,856
Commissions 348,809
Deferred taxes 94,147
-------------
TOTAL CURRENT ASSETS 2,162,484
-------------
Investments and Long-Term Receivables
Investments 444,495
Cash value of life insurance 338,362
Notes receivable - stockholder 529,449
-------------
1,312,306
-------------
Property and Equipment, less accumulated
depreciation of $1,120,204 648,271
-------------
Other Assets
Intangible assets - net of amortization 138,789
Prepaid pension costs 48,811
Deferred taxes 15,754
Deposits 566
-------------
203,920
-------------
$ 4,326,981
=============
See Notes to Combined Financial Statements.
F-2
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
- -------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt $ 290,379
Accounts payable:
Insurance companies 1,662,923
Other 30,657
Premiums paid in advance 1,125,683
Income taxes payable 48,114
Deferred taxes 81,455
Dividend payable 11,499
Accrued payroll taxes and other expenses 44,514
------------
TOTAL CURRENT LIABILITIES 3,295,224
------------
Long-term Debt, less current maturities 1,116,454
------------
Deferred Taxes 108,399
------------
Commitment and Contingencies
Stockholders' Equity (Deficit)
Common stock 55,490
Retained earnings (deficit) (461,274)
Unrealized gains on investment securities, net 212,688
------------
(193,096)
------------
$ 4,326,981
============
F-3
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31, 1997
(WITH COMPARATIVE COMBINED AMOUNTS FOR 1996)
SEE AUDITOR'S REPORT
1996
1997 (Compiled)
- -------------------------------------------------------------------------------
Commissions earned $ 5,331,510 $ 5,668,391
-----------------------------------
Operating expenses:
Salaries 1,633,449 1,858,591
Officers' salaries 1,295,431 1,459,236
Advertising and promotion 313,643 318,319
Amortization expense 84,507 90,919
Auto expense 72,418 78,526
Bad debts 36,201 47,148
Commission expense 339,764 344,390
Depreciation expense 157,098 156,212
Insurance - group 129,869 164,404
Insurance - liability 57,017 68,485
Insurance - other 56,295 19,320
Janitorial 22,757 27,041
Office supplies and expense 193,675 182,097
Payroll taxes 200,069 220,403
Pension 36,425 73,138
Professional fees 171,544 147,509
Rent 191,875 201,609
Telephone 132,057 125,982
Other operating expenses 119,723 134,619
-----------------------------------
5,243,817 5,717,948
-----------------------------------
OPERATING INCOME (LOSS) 87,693 (49,557)
-----------------------------------
Other income (expenses):
Gain on disposition of assets 152,868 246,939
Interest income 48,076 45,026
Other income 79,134 46,697
Interest (expense) (256,994) (156,338)
-----------------------------------
23,084 182,324
-----------------------------------
INCOME BEFORE INCOME TAXES 110,777 132,767
Provision for income tax expense 41,366 54,737
-----------------------------------
NET INCOME $ 69,411 $ 78,030
===================================
See Notes to Combined Financial Statements.
F-4
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED STATEMENT OF STOCKHOLDERS' EQUITY
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
Net Total
Retained Unrealized Stockholders'
Common Earnings Gains on Equity
Stock (deficit) Securities (Deficit)
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance, December 31, 1996,
as previously reported $ 29,580 $ (54,320) $ 212,688 $ 187,948
Cumulative effect of change
in reporting entity 25,910 (434,853) (22,153) (431,096)
Effect of prior period adjustments - 8,288 - 8,288
------------------------------------------------------------
Balance, December 31, 1996,
as restated 55,490 (480,885) 190,535 (234,860)
Net income - 69,411 - 69,411
Dividends - (49,800) - (49,800)
Fair value adjustment for securities
available for sale, net - - 22,153 22,153
------------------------------------------------------------
Balance, December 31, 1997 $ 55,490 $ (461,274) $ 212,688 $ (193,096)
============================================================
</TABLE>
See Notes to Combined Financial Statements.
F-5
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
- -------------------------------------------------------------------------------
Cash Flows from Operating Activities
Cash received from customers $ 4,625,419
Cash paid to suppliers and employees (4,325,882)
Interest and dividends received 19,415
Interest paid (252,731)
Income tax refunds 21,103
------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES 87,324
------------
Cash Flows from Investing Activities
Proceed from the sale of securities 223,660
Purchase of cash value of life insurance (39,507)
Payments on notes receivable - principally stockholders 162,565
Proceeds from disposition of property and equipment 9,400
Purchase of property and equipment (28,175)
------------
NET CASH PROVIDED BY
INVESTING ACTIVITIES 327,943
------------
Cash Flows from Financing Activities
Proceeds from borrowings on related-party debt 1,333,000
Proceeds from borrowings on note payable 500,000
Principal payments on notes payable (2,181,378)
------------
NET CASH (USED IN)
FINANCING ACTIVITIES (348,378)
------------
NET INCREASE IN CASH 66,889
Cash:
Beginning 224,783
------------
Ending $ 291,672
============
(Continued)
F-6
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED STATEMENT OF CASH FLOWS (CONTINUED)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities
Net income $ 69,411
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 157,098
Amortization 84,507
Deferred taxes (22,775)
Reduction of notes receivable - stockholder
by increasing salary 64,355
Gain on disposition of assets (152,868)
Partnership (income) loss 154
Income from life insurance policies 19,327
Interest income on stockholders' loans paid
by declaring a dividend (39,495)
Reduced commission income used to repay borrowings (115,737)
Changes in assets and liabilities:
(Increase) decrease in:
Accounts receivable (343,671)
Income tax deposits in excess of liability 22,400
Prepaid pension costs (26,364)
Increase (decrease) in:
Accounts payable 372,049
Premiums paid in advance (46,305)
Income taxes payable 48,114
Accrued expenses (2,876)
-------------
NET CASH PROVIDED BY
OPERATING ACTIVITIES $ 87,324
=============
Supplemental Schedule of Noncash Investing and
Financing Activities
Dividends and salary used to pay interest on notes receivable $ 42,381
=============
Reduction of notes receivable - stockholder by increasing salary $ 64,355
=============
Commissions used to repay borrowing
plus interest from insurance company $ 120,000
=============
Dividends declared and unpaid $ 10,305
=============
</TABLE>
See Notes to Combined Financial Statements.
F-7
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of business: Frederick Underwriters, Inc. and its affiliates Carroll
County Insurance Agency, Inc. and Phillips Insurance Agency, Inc. are
independent insurance agencies with offices in Frederick and Carroll County,
Maryland. The Company grants credit to customers, substantially all of whom are
local residents.
A summary of the significant accounting policies follows:
Principles of combination and change in reporting entity: During the year ended
December 31, 1997, Frederick Underwriters, Inc. adopted the policy of including
Carroll County Insurance Agency, Inc. and Phillips Insurance Agency, Inc.,
affiliated companies through common ownership, on a combined basis. The
accompanying combined financial statements include the accounts of all three
entities (the Company). All material related party balances and transactions
have been eliminated in combination.
Method of accounting: The Company follows the accrual method of accounting for
both financial and income tax reporting purposes.
Estimates: The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash: The Company maintains its cash in bank deposit accounts which, at times,
may exceed federally insured limits. The Company has not experienced any losses
on such accounts. The Company believes it is not exposed to any significant
credit risk on cash.
Provision for doubtful accounts: The Company provides an allowance for doubtful
receivables based on estimated collection losses that will be incurred. The
estimated losses are based on the historical relationship of prior year's
collection losses to sales and on a review of the current status of existing
receivables.
Property and equipment: Property and equipment are carried at original cost less
accumulated depreciation to date. Depreciation is computed on the straight-line
method at rates calculated to amortize the cost of applicable assets over their
estimated useful lives.
Investments: All investments other than marketable equity securities are carried
at cost, except where there is a permanent impairment of value, in which case
they are carried at estimated realizable value.
Management classified its marketable equity securities as available-for-sale.
These securities are carried at market value, with any unrealized gains or
losses reported in stockholders' equity, net of the related deferred tax.
F-8
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(CONTINUED)
Intangible assets: Intangible assets are reflected in these financial statements
at original acquisition cost net of accumulated amortization to date. The
Company amortizes intangible assets over their estimated period of benefit of 3
to 15 years.
Advertising: Advertising cost are expensed to operations when incurred.
Income taxes: Deferred income tax assets and liabilities are computed annually
for differences between the financial statement and tax bases of assets and
liabilities based on enacted tax laws and rates. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized. The provision for income taxes is the tax payable or refundable
for the period plus or minus the change during the period in deferred tax assets
and liabilities.
Prior year amounts: The financial statements include certain prior-year combined
comparative information. Such information does not include sufficient detail to
constitute a presentation in conformity with generally accepted accounting
principles. Accordingly, such information should be read in conjunction with the
compiled financial statements of Frederick Underwriters, Inc., Carroll County
Insurance, Inc. and Phillips Insurance Agency, Inc. for the year ended December
31, 1996, from which the combined information was derived.
NOTE 2. INVESTMENTS
Investments consist of the following at December 31, 1997:
- --------------------------------------------------------------------------------
Marketable equity securities $ 420,195
Investment in jointly-owned real estate 18,568
Other investments 5,732
------------
$ 444,495
============
At December 31, 1997 marketable equity securities consist of 15,116 shares of
FCNB Corp. detailed as follows:
- --------------------------------------------------------------------------------
Cost $ 126,052
Unrealized gain 294,143
------------
Market value $ 420,195
============
During the year ended December 31, 1997, the Company sold 7,750 shares of FCNB
Corp resulting in a gain of $158,558.
The Company and an unrelated corporation jointly own rental real estate located
at 431 Carrollton Drive, Frederick, Maryland costing $68,630 and a joint
checking account used to manage the property with a balance of $17,290 at
December 31, 1997. There are no liabilities encumbering this real estate. The
investment is recorded at one half of the total of depreciated cost and cash.
F-9
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 3. LONG-TERM NOTES RECEIVABLE
Long-term notes receivable of $529,449 at December 31, 1997 are unsecured and
due from stockholders. They bear interest at applicable federal rates which
range from 5.68% to 5.79% and mature from October 1998 to October 2001.
NOTE 4. PROPERTY, EQUIPMENT AND DEPRECIATION
Property and equipment consists of the following as of December 31, 1997:
- --------------------------------------------------------------------------------
Office equipment $ 1,127,022
Automobiles 404,453
Leasehold improvements 237,000
------------
1,768,475
Less accumulated depreciation 1,120,204
------------
$ 648,271
============
Depreciation expense for the year ended December 31, 1997 is outlined below:
Asset Category Estimated Lives
- --------------------------------------------------------------------------------
Office equipment 5 - 10 years $ 86,669
Automobiles 5 years 67,509
Leasehold improvements 7 - 31.5 years 2,920
------------
$ 157,098
============
NOTE 5. INTANGIBLE ASSETS AND AMORTIZATION
Intangible assets consist of the following at December 31, 1997:
- --------------------------------------------------------------------------------
Expirations and dailies $ 339,535
Covenant not to compete 167,500
Goodwill 75,375
------------
582,410
Less accumulated amortization 443,621
------------
$ 138,789
============
Amortization expense for the year ended December 31, 1997 is as follows:
Asset Category Estimated Lives
- --------------------------------------------------------------------------------
Expirations and dailies 10-15 years $ 24,654
Covenant not to compete 3 years 55,834
Goodwill 10-15 years 4,019
------------
$ 84,507
============
F-10
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 6. LONG-TERM DEBT
The long-term debt consists of the following at December 31, 1997:
- --------------------------------------------------------------------------------
Notes payable principal stockholder; interest at 20%;
due April 1, 2002; payable in monthly principal and interest
installments of $37,630; unsecured $ 1,301,917
Bank note payable; interest at 10%, due March 1999,
payable in monthly installments of $4,836 including
interest; secured by computer equipment and guaranteed
by principal stockholder 68,259
Note payable to Aetna; interest at 6%; payable in
monthly principal installments of $1,801, including interest;
due April,1999; secured by commissions to be earned in
future years 27,634
Various bank auto loans with interest ranging from
8.2% to 9.1%; due dates from January 1998 to
May 1999, payable in monthly principal and
interest installments ranging from $472 to
$500; secured by automobiles 9,023
------------
$ 1,406,833
============
Maturities of long-term debt are as follows:
Years ending December 31,
- --------------------------------------------------------------------------------
1998 $ 290,379
1999 279,959
2000 311,817
2001 380,227
2002 144,451
------------
$ 1,406,833
============
NOTE 7. EMPLOYEE 401(K) RETIREMENT PLAN
The Company sponsors a multi-employer 401(k) retirement plan that covers
substantially all of the employees of Frederick Underwriters and its affiliates.
The Plan provides for discretionary employer contributions. Currently, the
Company matches 50% of employee contributions up to 2.5% of compensation.
Contributions to this plan for the year ended December 31, 1997 was $57,566.
F-11
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 8. DEFINED BENEFIT PENSION PLAN
Net pension (benefit) for the Company's defined benefit pension plan consists of
the following components for the year ended December 31, 1997:
- -------------------------------------------------------------------------------
Service cost of current period $ -
Interest cost on projected benefit obligation 122,357
Actual return on plan assets (322,530)
Net amortization and deferral 173,809
------------
$ (26,364)
============
The following table sets forth the plan's funded status and amounts recognized
in the accompanying balance sheets as of December 31, 1997:
- --------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits $ 1,545,479
============
Accumulated benefits $ 1,545,479
============
Projected benefits $(1,545,479)
Plan assets at fair value 1,928,656
------------
Projected benefit obligation less than (in excess of) plan assets 383,177
Unrecognized net (gain) loss (177,941)
Unrecognized transition obligation (asset) (156,425)
Unrecognized prior service cost (benefit) -
------------
Asset (liability) on balance sheet $ 48,811
============
The weighted average discount rate and the expected long-term rate of return
used in determining the actuarial present value of the benefit obligation was
8.5% for 1997.
NOTE 9. INCOME TAXES
The provision for income taxes consist of the following at December 31, 1997:
- --------------------------------------------------------------------------------
Federal income taxes currently payable $ 37,486
State income taxes currently payable 10,628
------------
Income taxes currently payable 48,114
Deferred tax (benefit) (6,748)
------------
$ 41,366
============
F-12
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 9. INCOME TAXES (CONTINUED)
Deferred tax assets and liabilities consist of the following components at
December 31, 1997:
- --------------------------------------------------------------------------------
Deferred tax assets attributable to:
Provision for doubtful accounts $ 29,878
Covenant not to compete 42,039
Net operating loss carryforwards 45,708
General business tax credit carryforwards 1,227
------------
Net deferred tax assets 118,852
Valuation allowance for net deferred tax assets (8,951)
------------
$ 109,901
============
Deferred tax liabilities attributable to:
Deferred gains on equipment dispositions and
additional depreciation for tax purposes $ 93,747
Net unrealized gains on securities 81,455
Other, primarily prepaid pension costs 14,652
------------
Net deferred tax liabilities $ 189,854
============
The income tax provision differs from the amount of income tax determined by
applying the U.S. federal income tax rate of 34% to pretax income for the year
ended December 31, 1997 due to the following:
- --------------------------------------------------------------------------------
Income tax at statutory rate $ 37,207
Increase (decrease) in income taxes resulting from:
Nondeductible expenses 31,536
Changes in valuation allowance for net deferred tax assets (24,273)
Benefit of federal surtax exemption (9,740)
State income taxes, net of federal income tax benefit 8,288
Other (1,652)
------------
$ 41,366
============
NOTE 10. STOCKHOLDERS' EQUITY
The elements of common stock at December 31, 1997 are as follows:
Frederick Underwriters, Inc.
Common stock; $30 par value; authorized 2,000 shares;
issued and outstanding 986 shares $ 29,580
Carroll County Insurance Agency, Inc.
Common stock; $10 par value; authorized 10,000 shares;
issued and outstanding, 1,391 shares 13,910
Phillips Insurance Agency, Inc.
Common stock; $100 par value; authorized 1,000 shares;
issued and outstanding 120 shares 12,000
------------
$ 55,490
============
F-13
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 11. LEASE COMMITMENTS
The Company leases its office space under leases which are accounted for as
operating leases. These leases provide for minimum monthly rental, annual
increases based on the Consumer Price Index (CPI) and a share of common area
maintenance (CAM) and real estate taxes. The following is a schedule of minimum
future rental payments required under these operating leases at December 31,
1997:
Years ending December 31,
- --------------------------------------------------------------------------------
1998 $ 95,676
1999 80,976
2000 80,976
2001 20,244
------------
$ 277,872
============
The Company also rents a beach front condominium. This property is rented on a
month to month basis and there is no signed lease.
The composition of rental expense for the year ended December 31, 1997 follows:
- --------------------------------------------------------------------------------
Minimum rentals on office space $ 100,576
CPI, CAM and real estate taxes related to office space 24,691
Month to month rental on condominium 24,000
Other rental expenses 42,608
------------
$ 191,875
============
NOTE 12. RELATED PARTY TRANSACTIONS
A summary of the related party transactions for the year ended December 31,
1997, and the amounts due to and from these related parties at December 31, 1997
follows:
- --------------------------------------------------------------------------------
Interest on notes receivable - principally stockholders; paid by
declaring dividends to the majority stockholder of $39,495 and
added compensation to minority stockholders and others
of $2,887 for the year ended December 31, 1997 $ 42,382
Rent paid to the majority stockholder 24,000
Interest on notes payable majority stockholder 172,790
Amounts due from related parties:
Notes receivable - stockholder 529,449
Amounts due to related party:
Notes payable to majority stockholder 1,301,917
F-14
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
NOTES TO COMBINED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
NOTE 12. RELATED PARTY TRANSACTIONS (CONTINUED)
Additionally, the Company is the cosigner on a line of credit agreement between
the principal shareholder and FCNB. As a result of advances taken by the
principal shareholder, the line of credit had an outstanding balance of
$500,000, as of December 31, 1997.
On April 7, 1997 the principal stockholder received a $3,000,000 bank term loan,
which is guaranteed by the Company. This term loan has a principal balance
outstanding at December 31, 1997 of $2,965,517.
NOTE 13. PRIOR PERIOD ADJUSTMENT
During the year ended December 31, 1997, the Company recorded the following
adjustments to prior periods:
The Company had previously elected not to incur the cost necessary to record
the pension obligation, and provide the additional pension information, as
required by Financial Accounting Standard No. 87, "Employers' Accounting for
Pension." The effect of recording this asset was to increase retained
earnings by $16,283, net of the tax effect.
The Company has reduced investments for a permanent decline in the value of
the Whites Ferry Cabin property. The effect of the decline in value is a
decrease of $9,774 to retained earnings.
The Company has increased investments for the cost of a residential lot
owned by the Company which was previously unrecorded. The effect of
recording this investment is an increase of $2,973 to retained earnings, net
of the tax effect.
The Company has recorded outstanding dividends payable attributable to 1996.
The effect of recording this dividend is a decrease of $1,194 to retained
earnings.
NOTE 14. SUBSEQUENT EVENTS
On February 10, 1998, the Company disposed of all marketable equity securities
and received cash proceeds of $492,746, resulting in a realized gain on
disposition of $367,448.
On September 2, 1998 the Company entered into a definitive agreement whereby
Frederick Underwriters, Inc., Carroll County Insurance Agency, Inc., and
Phillips Insurance Agency, Inc. will be merged into FCNB Corp.
F - 15
<PAGE>
INDEX TO UNAUDITED COMBINED FINANCIAL STATEMENTS
COMBINED FINANCIAL REPORT (UNAUDITED) FOR THE SIX MONTHS ENDED JUNE 30, 1998 AND
1997
<TABLE>
<S> <C>
Combined Balance Sheet (Unaudited) at June 30, 1998......................................F-17
Combined Statement of Income (Unaudited) for the Six Months Ended June 30, 1998..........F-19
Combined Balance Sheet (Unaudited) at June 30, 1997......................................F-20
Combined Statement of Income (Unaudited) for the Six Months Ended June 30, 1997..........F-22
</TABLE>
F - 16
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1998
ASSETS
- --------------------------------------------------------------------------------
Current Assets
Cash $ 199,868
Accounts receivable:
Customers, less allowance for doubtful
accounts of $101,000 843,552
Commissions 415,724
Prepaid expense 37,170
Income tax deposit in excess of liability 24,440
Deferred taxes 77,240
------------
TOTAL CURRENT ASSETS 1,597,994
------------
Investments and Long-Term Receivables
Investments 17,667
Cash value of life insurance 338,362
Notes receivable - stockholder 529,500
------------
885,529
------------
Property and Equipment, less accumulated
depreciation of $1,157,566 690,570
------------
Other Assets
Intangible assets - net of amortization 119,482
Prepaid pension costs 61,993
Deferred taxes 32,661
Deposits 2,199
------------
216,335
------------
$ 3,390,428
============
F-17
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt $ 311,031
Outstanding checks in excess of deposits 250,000
Accounts payable:
Insurance companies 981,012
Other 26,407
Premiums paid in advance 226,754
Income taxes payable 174,011
Dividend payable 11,499
Due to officer 390,374
Accrued payroll taxes and other expenses 23,671
------------
TOTAL CURRENT LIABILITIES 2,394,759
------------
Long-term Debt, less current maturities 1,016,493
------------
Deferred Taxes 108,399
------------
Commitment and Contingencies
Stockholders' Equity (Deficit)
Common stock 55,490
Retained earnings (deficit) (184,713)
------------
(129,223)
------------
$ 3,390,428
============
F-18
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
PERIOD ENDED JUNE 30, 1998
- --------------------------------------------------------------------------------
Commissions earned $ 2,871,471
------------
Operating expenses:
Salaries 851,131
Officers' salaries 633,860
Advertising and promotion 142,996
Amortization expense 19,307
Auto expense 31,267
Bad debts 139,907
Commission expense 154,228
Depreciation expense 78,003
Insurance - group 59,418
Insurance - other 30,894
Janitorial 15,569
Office supplies and expense 80,392
Payroll taxes 115,758
Pension 19,010
Professional fees 47,159
Rent 89,654
Telephone 58,304
Other operating expenses 102,718
------------
2,669,575
------------
OPERATING INCOME (LOSS) 201,896
------------
Other income (expenses):
Gain on disposition of assets 374,505
Interest income 4,137
Other income 7,029
Interest (expense) (136,995)
------------
248,676
------------
INCOME BEFORE INCOME TAXES 450,572
Provision for income tax expense 174,011
------------
NET INCOME $ 276,561
============
F - 19
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED BALANCE SHEET
(UNAUDITED)
JUNE 30, 1997
ASSETS
- --------------------------------------------------------------------------------
Current Assets
Cash $ 174,937
Accounts receivable:
Customers, less allowance for doubtful
accounts of $101,000 1,048,891
Commissions 287,000
Prepaid expenses 29,511
Due from officers 82,640
Income tax deposit in excess of liability 22,400
Deferred taxes 87,895
------------
TOTAL CURRENT ASSETS 1,733,274
------------
Investments and Long-Term Receivables
Investments 477,483
Cash value of life insurance 335,781
Notes receivable - stockholder 743,500
------------
1,556,764
------------
Property and Equipment, less accumulated
depreciation of $1,049,439 746,535
------------
Other Assets
Intangible assets - net of amortization 180,492
Prepaid pension costs 33,671
Deposits 11,257
------------
225,420
------------
$ 4,261,993
============
F-20
<PAGE>
LIABILITIES AND STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
Current Liabilities
Current maturities of long-term debt $ 298,029
Outstanding checks in excess of deposits 805,635
Accounts payable:
Insurance companies 966,325
Note payable demand 202,151
Premiums paid in advance 557,341
Income taxes payable 87,090
Dividend payable 1,194
Accrued payroll taxes and other expenses 26,480
------------
TOTAL CURRENT LIABILITIES 2,944,245
------------
Long-term Debt, less current maturities 1,246,784
------------
Deferred Taxes 160,122
-----------=
Commitment and Contingencies
Stockholders' Equity (Deficit)
Common stock 55,490
Retained earnings (deficit) (335,183)
Unrealized gains on investment securities, net 190,535
------------
(89,158)
------------
$ 4,261,993
============
F-21
<PAGE>
FREDERICK UNDERWRITERS, INC. AND AFFILIATES
COMBINED STATEMENTS OF INCOME
(UNAUDITED)
PERIOD ENDED JUNE 30, 1997
- --------------------------------------------------------------------------------
Commissions earned $ 2,787,041
------------
Operating expenses:
Salaries 810,623
Officers' salaries 605,787
Advertising and promotion 131,850
Amortization expense 42,091
Auto expense 34,477
Bad debts 14,692
Commission expense 155,606
Depreciation expense 54,113
Insurance - group 69,681
Insurance - liability 6,155
Insurance - other 28,659
Janitorial 13,938
Office supplies and expense 88,533
Payroll taxes 106,566
Pension 21,374
Professional fees 60,605
Rent 89,808
Telephone 61,160
Other operating expenses 102,892
------------
2,498,610
------------
OPERATING INCOME (LOSS) 288,431
------------
Other income (expenses):
(Loss) on disposition of assets (2,239)
Interest income 5,204
Other income 38,288
Interest (expense) (104,179)
------------
(62,926)
------------
INCOME BEFORE INCOME TAXES 225,505
Provision for income tax expense 87,092
------------
NET INCOME $ 138,413
===========
F-22
<PAGE>
EXHIBIT A
Agreement and Plan of Reorganization and Merger
<PAGE>
This Amended and Restated Plan and Agreement of Merger (the
"Agreement"), made as of this 2nd day of September, 1998, by and among FCNB Corp
("FCNB"), a corporation organized and existing under the laws of the State of
Maryland and having its principal office at 7200 FCNB Court, Frederick,
Maryland, FCNB Bank (the "Bank"), a corporation organized and existing under the
laws of the State of Maryland and having its principal office at 7200 FCNB
Court, Frederick, Maryland First Choice Insurance Agency, Inc. ("First"), a
corporation organized and existing under the laws of the State of Maryland and
having its principal office at Frederick, Maryland, and the wholly owned
subsidiary of FCNB, Frederick Underwriters, Inc. ("Underwriters"), a corporation
organized and existing under the laws of the State of Maryland and having its
principal offices at Frederick, Maryland, Phillips Insurance Agency, Inc.
("Phillips"), a corporation organized and existing under the laws of the State
of Maryland and having its principal offices at Frederick, Maryland, and Carroll
County Insurance Agency, Inc. ("Carroll"), a corporation organized and existing
under the laws of the State of Maryland and having its principal offices at
Frederick, Maryland, as amended by Amendment No. 1 thereto, dated as of November
2, 1998.
WHEREAS, Underwriters, Phillips and Carroll are each engaged in the
business of multi-line insurance agencies; and
WHEREAS, Phillips and Carroll operate under the name of, and in
conjunction, with Frederick Underwriters; and
WHEREAS, Underwriters, Phillips and Carroll (hereinafter referred to
collectively as the "Underwriters Companies"), have significant common
ownership; and
WHEREAS, the Board of Directors of FCNB and First believe that it would
be in the best interests of FCNB and First that each of the Underwriters
Companies be merged with and into First, with First being the company surviving
such merger (the "Merger"); and
WHEREAS, each of the Underwriters Companies desires to be merged with
and into First, upon the terms, and subject to the conditions, set forth in this
Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements hereafter set forth, and intending to be legally bound
hereby, the parties hereto agree as follows:
ARTICLE I
THE MERGER
1.1 Merger. Subject to the terms and conditions hereafter set forth, at
the Effective Time, each of Underwriters, Phillips and Carroll shall be merged
with and into the Bank, in accordance with the applicable provisions of the
Maryland General Corporation Law, as amended (the "MGCL") and the Maryland
Financial Institutions Code, with the Bank being the surviving corporation
resulting from the Merger.
1.2 Name. The name of the Bank as the surviving corporation (the
"Surviving Corporation" when reference is made to it after the Effective Time
(hereinafter defined)) shall be "FCNB Bank".
1.3 Certificate of Incorporation; Bylaws. The Articles of Incorporation
of the Bank in effect at the Effective Time shall be the Articles of
Incorporation of the Surviving Corporation. The Bylaws of the Bank in effect at
the Effective Time, shall be the Bylaws of the Surviving Corporation.
1.4 Board of Directors; Officers. (a) The Board of Directors of the Bank
at the Effective Time shall serve as the Board of Directors of the Surviving
Corporation until their successors are duly elected and qualified.
A - 1
<PAGE>
(b) The Officers of the Bank at the Effective Time shall serve as the officers
of the Surviving Corporation until their successors are duly appointed by the
Board of Directors.
1.5 Effect of the Merger. At the Effective Time, the separate corporate
existence of each of Underwriters, Phillips and Carroll shall cease and the Bank
as the Surviving Corporation shall succeed to and possess all of the properties,
rights, powers, privileges, franchises, patents, trademarks, licenses,
registrations, and other assets of every kind and description of each of the
Underwriters Companies, and shall be subject to, and be responsible for, all
debts, liabilities, and obligations of each of the Underwriters Companies, all
without further act or deed, and in accordance with the applicable provisions of
the MGCL.
1.6 Closing; Effective Time. (a) The closing of the Merger (the
"Closing") shall occur at the principal offices of the Bank, at a time and on a
date specified in writing by the parties, which date shall be as soon as
practicable, but not more than fifteen (15) days, after the receipt of all
requisite approvals and authorizations of regulatory and governmental
authorities, the expiration of all applicable waiting periods and the
satisfaction or waiver of all conditions hereto. The date at which the Closing
occurs is occasionally referred to herein as the "Closing Date."
(b) The Merger shall become effective upon the later of (i) the filing of the
articles of merger in substantially the form attached hereto as Exhibit A (the
"Articles of Merger") with the Maryland State Department of Taxation and
Assessments (the "Department") or (ii) the time set forth in the Articles of
Merger filed with the Department (the "Effective Time"). Except as otherwise
agreed in writing, the Effective Time shall be within one business day of the
Closing.
ARTICLE II
CONVERSION OF SHARES
2.1 Conversion of Shares. (a) At the Effective Time, each of the 986
outstanding shares of common stock, par value $30.00 per share, of Underwriters
("Underwriters Common Stock") (excluding shares of Underwriters Common Stock
held in treasury, by any Underwriters Subsidiary, by any other Underwriters
Company. or as to which the holders have perfected objectors' right in
accordance with the MGCL ss.3-201 ("objecting shares")), shall automatically,
and without further action, be converted into 376.67 shares of the common stock,
par value $1.00 per share, of FCNB ("FCNB Common Stock") (the "Underwriters
Conversion Ratio").
(b) At the Effective Time, each of the 120 outstanding shares of common stock,
par value $100.00 per share, of Phillips ("Phillips Common Stock") (excluding
shares of Phillips Common Stock held in treasury, by any Phillips Subsidiary or
by any other Underwriters Company, or as to which the holders have perfected
objectors' right in accordance with the MGCL ss.3-201 ("objecting shares")),
shall automatically, and without further action, be converted into 78.42 shares
of FCNB Common Stock (the "Phillips Conversion Ratio").
(c) At the Effective Time, each of the 1,101 outstanding shares of common stock,
par value $10.00 per share, of Carroll ("Carroll Common Stock") (excluding
shares of Carroll Common Stock held in treasury, by any Carroll Subsidiary or by
any other Underwriters Company, or as to which the holders have perfected
objectors' right in accordance with the MGCL ss.3-201 ("objecting shares")),
shall automatically, and without further action, be converted into 33.12 shares
of FCNB Common Stock (the "Carroll Conversion Ratio").
(d) Accounting from the date of this contract, the Underwriters Conversion
Ratio, the Phillips Conversion Ratio and the Carroll Conversion Ratio shall be
proportionately adjusted for dividends on FCNB Common Stock payable in shares of
FCNB Common Stock or any combination or subdivision of the FCNB Common Stock.
Following the Effective Time, certificates which formerly represented shares of
Underwriters Common Stock, Phillips Common Stock or Carroll Common Stock (except
for certificates representing shares held in treasury, by any Underwriters
Company Subsidiary or by any other Underwriters Company, and dissenting shares)
shall be deemed for all purposes to represent shares of FCNB Common Stock,
except that until exchanged in accordance with the provisions of Section 2.2
hereof, the holders
A - 2
<PAGE>
of such shares shall not be entitled to vote in respect of any matter submitted
for the consideration of holders of FCNB Common Stock, or to receive dividends
or other distributions or payments in respect of FCNB Common Stock.
(e) No certificate for fractional shares of FCNB Common Stock will be issued in
connection with the exchanges contemplated by the Merger, and holders of
Underwriters Common Stock Phillips Common Stock or Carroll Common Stock entitled
to fractional shares shall be paid cash in lieu of such fractional shares,
without interest, on the basis of the average of the bid and asked prices of a
share of FCNB Common Stock as reported by Nasdaq on the Closing Date.
(f) Each share of the common stock, $10.00 par value, of the Bank outstanding
immediately prior to the Effective Time shall be unchanged, and shall continue
to be issued and outstanding shares of Bank common stock.
(g) All shares of Underwriters Common Stock, Phillips Common Stock or Carroll
Common Stock, held by such companies, respectively, as treasury shares, held by
any subsidiary of such company, or held by any other Underwriters Company shall
be canceled and shall not be converted as provided in Section 2.1(a) - (c).
2.2 Exchange of Share Certificates. Certificates formerly representing
shares of, Underwriters Common Stock, Phillips Common Stock and Carroll Common
Stock shall be exchanged for FCNB Common Stock certificates in accordance with
the following procedures:
(a) Exchange Agent. At FCNB's election, FCNB or the transfer agent for FCNB
shall act as exchange agent ("Exchange Agent") to receive certificates from the
holders thereof and to exchange such stock certificates for FCNB Common Stock
certificates, and if appropriate, to pay cash for fractional shares of FCNB
Common Stock pursuant to Section 2.1 hereof The Exchange Agent shall, promptly
after the Effective Time, mail to each former shareholder of the Underwriters
Companies a notice specifying the procedures to be followed in surrendering such
shareholder's certificates.
(b) Surrender of Certificates. As promptly as possible after receipt of the
Exchange Agent notice, each former shareholder of the Underwriters Companies
shall surrender his or her certificates to the Exchange Agent; provided, that if
any former shareholder of any Underwriters Company shall be unable to surrender
his certificates due to loss or mutilation thereof, he or she may make a
constructive surrender by following the procedures customarily followed by FCNB
in the replacement of lost or mutilated certificates, including, if necessary,
the posting of appropriate bond. Upon actual or constructive surrender of
certificates from a former Underwriters Company shareholder, the Exchange Agent
shall issue such shareholder, in exchange therefore, one or more certificates
representing the number of whole shares of FCNB Common Stock into which such
shareholder's shares of Underwriters, Phillips or Carroll, as the case may be,
have been converted, together with a check in the amount of any cash in lieu of
fractional shares of FCNB Common Stock.
(c) Dividend Withholding. Dividends or other distributions, if any, payable by
FCNB after the Effective Time to any former shareholder of the Underwriters
Companies who has not prior to the payment date surrendered his or her
certificates shall be withheld. Any dividends or other distributions so withheld
shall be paid, without interest, to such former shareholder upon proper
surrender of his certificates.
(d) Failure to Surrender Certificates. All Underwriters Company certificates
must be surrendered to the Exchange Agent within two (2) years of the Effective
Time. In the event that any former shareholder of the Underwriters Companies
shall not have properly surrendered his or her certificates within such period,
the shares of FCNB Common Stock that would otherwise have been issued to such
shareholder may, at the option of FCNB, be sold and the net proceeds of such
sale, together with any cash in respect of fractional shares and any previously
accrued dividends, shall be held in a non-interest bearing account for such
shareholder's benefit. From and after such sale, the sole right of such
shareholder shall be the right to collect such net proceeds, cash and
accumulated dividends. Subject to all applicable laws of escheat, such amount
shall be paid to such former shareholder, without interest, upon proper
surrender of his or her certificates.
A - 3
<PAGE>
A - 4
<PAGE>
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF FCNB AND FIRST
FCNB and First represent and warrant to the Underwriters Companies as
follows:
3.1 Organization and Authority. FCNB is a corporation duly organized,
validly existing and in good standing under the laws of the State of Maryland,
is a registered bank holding company under the Bank Holding Company Act of 1956,
as amended (the "BHCA"), and has the corporate power and authority to own its
properties and assets and to carry on its business, and the business of its
subsidiaries, as now being conducted and to enter into and carry out its
obligations under this Agreement. FCNB is qualified to do business as a foreign
corporation in each jurisdiction where such qualification is necessary, except
where the failure to obtain such qualification would not have a material adverse
effect on FCNB's operations, assets, financial condition or results of
operations. FCNB has all necessary governmental authorizations to own or lease
its properties and assets, and those of its subsidiaries, with the exception of
those authorizations which the failure to obtain would not have a material
adverse effect on the business, operations, financial condition, or results of
operations of FCNB and its subsidiaries, taken as a whole. First is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Maryland, and has the corporate power and authority to own its
properties and assets and to carry on its business as now being conducted and to
enter into and carry out its obligations under this Agreement. First is
qualified to do business as a foreign corporation in each jurisdiction where
such qualification is necessary, except where the failure to obtain such
qualification would not have a material adverse effect on First's operations,
assets, financial condition or results of operations.
3.2 Capital Structure of FCNB. As of May 31, 1998, the authorized
capital stock of FCNB consisted of 20,000,000 shares of common stock, par value
$1.00 per share ("FCNB Common Stock"), of which at such date, 5,915,413 shares
were issued and outstanding and 1,000,000 shares of undesignated preferred
stock, par value $1.00 per share, of which at such date no shares were issued or
outstanding. Additionally, 502,010 shares of Common Stock have been reserved for
issuance pursuant to FCNB's 1992 Stock Option Plan and the FCNB 1997 Directors
Stock Option Plan (the "FCNB Option Plans"), under which options to purchase an
aggregate of 167,067 shares of Common Stock are issued and outstanding as of the
date hereof. Additionally, 202,476 shares of FCNB Common Stock are reserved for
issuance in connection with the FCNB Dividend Reinvestment and Stock Purchase
Plan ("DRI Plan"). Other than as set forth in this Section 3.2, there are no
other shares of capital stock or other equity securities of FCNB outstanding and
no other outstanding options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, shares of any capital stock of FCNB, or
contracts, commitments, understandings, or arrangements by which FCNB was or may
become bound to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock.
3.3 Subsidiaries. FCNB directly owns all the shares of the outstanding
capital stock of FCNB Bank, a Maryland chartered commercial bank (the "Bank"),
and the Bank owns all of the outstanding capital stock of First. No equity
securities of the Bank or First are or may become required to be issued by
reason of any options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever, relative to, or concerning securities
or rights convertible into, or exchangeable for, shares of any class of capital
stock of the Bank or First and there are no other contracts, commitments,
understandings or arrangements by which the Bank or First is bound to issue
additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock. All of the
shares of capital stock of the Bank and First so owned by FCNB and the Bank,
respectively, are fully paid and non-assessable and are owned by it free and
clear of any claim, lien, encumbrance or agreement with respect thereto. The
Bank is a commercial bank duly organized, validly existing and in good standing
under the laws of the State of Maryland and has the corporate power and
authority and all necessary federal, state, local and foreign authorizations to
own or lease its properties and assets and to carry on its business as it is now
being conducted. The deposits of the Bank are insured to the applicable legal
limits by the FDIC.
A - 5
<PAGE>
3.4 Authorization. The execution, delivery and performance of this
Agreement by FCNB and the consummation of the transactions contemplated hereby
have been duly authorized by the Board of Directors of FCNB and First, and
except for approval by the shareholders of FCNB, no other corporate proceedings
on the part of FCNB are necessary to authorize this Agreement and the
transactions contemplated hereby. Subject to shareholder approval and the
approvals of government agencies having regulatory authority over FCNB as may be
required by statute or regulation, this Agreement is the valid and binding
obligation of FCNB and First, enforceable in accordance with its terms, except
as may be limited by applicable bankruptcy, insolvency, reorganization or
moratorium or other similar laws affecting creditors' rights generally and
subject to general equitable principles which may limit the enforcement of
certain remedies.
Neither the execution, delivery and performance of this Agreement by
FCNB and First, nor the consummation of the transactions contemplated hereby,
nor compliance by FCNB and First with any of the provisions of this Agreement,
will (i) violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice of lapse of time or both,
would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration, or the creation of any lien, security interest, charge or
encumbrance upon any of the properties or assets of FCNB or First, under any of
the terms, conditions or provisions of, (x) the Articles of Incorporation or
Bylaws of FCNB or First, or (y) any note, bond, mortgage, indenture, deed of
trust, license, lease, agreement or other instrument or obligation to which FCNB
or First is a party or by which FCNB or First may be bound, or to which FCNB,
First or any of their properties or assets may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in the next paragraph,
to FCNB's knowledge, violate any judgment, ruling, order, writ, injunction,
decree, statute, rule or regulation applicable to FCNB, First or any of their
properties or assets.
Other than in connection or in compliance with the applicable provisions
of the Maryland General Corporation Law (the "MGCL"), the Maryland Financial
Institutions Code (the "MFIC"), the Securities Act of 1933, as amended, and the
rules and regulations thereunder (the "Securities Act"), the Securities Exchange
Act of 1934, a~ amended, and the rules and regulations thereunder (the "Exchange
Act"), the blue sky laws of the State of Maryland, and consents, authorizations,
approvals or exemptions required under the BHCA, or any applicable federal or
state banking or insurance statute, no notice to, filing with, authorization of,
exemption by, or consent or approval of, any public body or authority is
necessary for the consummation by FCNB and First of the transactions
contemplated by this Agreement. FCNB and First have no reason to believe that
any required regulatory consent or approval will not be received or will be
received with conditions or restrictions which it would deem unduly burdensome,
or which would have an adverse impact on its capacity to consummate the
transactions contemplated hereby.
3.5 Litigation and Other Proceedings. Neither FCNB nor First is a party
to any pending, or to the knowledge of FCNB and First, threatened claim, action,
suit, investigation or proc eeding, or subject to any order, judgment or decree,
except for matters which, in the aggregate, will not have, or cannot reasonably
be expected to have, a material adverse effect on the financial condition,
results of operations, business or prospects of FCNB and First taken as a whole.
3.6 SEC Filings. FCNB has filed all reports, forms, statements and other
documents with the SEC that it was required to file since January 1, 1995 (the
"SEC filings"), all of which complied in all material respects with the
applicable requirements of the Securities Act and/or Exchange Act. As of their
respective dates, and except as revised, amended or modified by a subsequently
filed document, each such SEC filing did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading.
3.7 Absence of Material Adverse Changes. Since December 31, 1997, there
has not been any change in the financial condition, results of operations or
business of FCNB and its subsidiaries that has had a material adverse effect on
the financial condition, results of operations or business of FCNB and its
subsidiaries, taken as a whole, or on the ability of FCNB to consummate the
transactions contemplated hereby.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE UNDERWRITERS COMPANIES
Except to the extent specifically limited to a specific Underwriters
Company, the Underwriters Companies each represent and warrant to FCNB and First
that:
4.1 Organization and Authority. (a) Underwriters represents that
Underwriters is a corporation duly organized, validly existing and in good
standing under the laws of the State of Maryland, and has the corporate power
and authority to own its properties and assets and to carry on its business as
now being conducted. Underwriters and its agents are duly licensed by the
Maryland Department of Insurance to transact the lines of business which it has
transacted through the date hereof and the Closing, and are duly licensed and
qualified to do business in any other state or other jurisdiction in which the
nature of its operations so requires. A list of all such jurisdictions is set
forth on Schedule 4.1 attached hereto and made a part hereof. Underwriters has
all necessary governmental authorizations to own or lease its properties and
assets, and to carry on its business, as now being conducted.
(b) Phillips represents that Phillips is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, and has
the corporate power and authority to own its properties and assets and to carry
on its business as now being conducted. Underwriters and its agents are duly
licensed by the Maryland Department of Insurance to transact the lines of
business which it has transacted through the date hereof and the Closing, and
are duly licensed and qualified to do business in any other state or other
jurisdiction in which the nature of its operations so requires. A list of all
such jurisdictions is set forth on Schedule 4.1 attached hereto and made a part
hereof. Phillips has all necessary governmental authorizations to own or lease
its properties and assets, and to carry on its business, as now being conducted.
(c) Carroll represents that Carroll is a corporation duly organized, validly
existing and in good standing under the laws of the State of Maryland, and has
the corporate power and authority to own its properties and assets and to carry
on its business as now being conducted. Underwriters and its agents are duly
licensed by the Maryland Department of Insurance to transact the lines of
business which it has transacted through the date hereof and the Closing, and
are duly licensed and qualified to do business in any other state or other
jurisdiction in which the nature of its operations so requires. A list of all
such jurisdictions is set forth on Schedule 4.1 attached hereto and made a part
hereof Carroll has all necessary governmental authorizations to own or lease its
properties and assets, and to carry on its business, as now being conducted.
4.2 Subsidiaries. Each of the Underwriters Companies represents that it
does not have any subsidiaries, and does not own any capital stock or other
interests in any entity in excess of five percent of the outstanding equity
interests of such entity (including, without limitation, corporations,
partnerships, joint ventures, and inactive corporations), except as set forth on
Schedule 4.2 attached hereto and made a part hereof.
4.3 Capitalization. (a) As of June 1, 1998, the authorized capital stock
of Underwriters consisted of 2,000 shares of Underwriters common stock, par
value $30.00 per share. As of June 1, 1998, 986 shares of Underwriters common
stock were issued and outstanding. There are no other shares of capital stock or
other equity securities of Underwriters outstanding and no other outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of capital stock of Underwriters, or contracts,
commitments, understandings, or arrangements by which Underwriters was or may
become bound to issue additional shares of its capital stock or options,
warrants or rights to purchase or acquire any additional shares of its capital
stock.
(b) As of June 1, 1998, the authorized capital stock of Phillips consisted of
400 shares of Phillips common stock, par value $100.00 per share. As of June 1,
1998, 120 shares of Phillips common stock were issued and outstanding. There are
no other shares of capital stock or other equity securities of Phillips
outstanding and no other outstanding options,
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warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exchangeable
for, shares of capital stock of Phillips or contracts, commitments,
understandings, or arrangements by which Underwriters was or may become bound to
issue additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock.
(c) As of June 1,1998, the authorized capital stock of Carroll consisted of
10,000 shares of Carroll common stock, par value of $10.00 per share. As of June
1, 1998, 1,391 shares of Carroll common stock were issued and outstanding
(including shares held by Underwriters). There are no other shares of capital
stock or other equity securities of Carroll outstanding and no other outstanding
options, warrants, scrip, rights to subscribe to, calls or commitments of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for, shares of capital stock of Carroll, or contracts, commitments,
understandings, or arrangements by which Carroll was or may become bound to
issue additional shares of its capital stock or options, warrants or rights to
purchase or acquire any additional shares of its capital stock.
4.4 Insurance Relationships. Each of the Underwriters Companies has
appointments with insurance carriers to transact the lines of business which it
has been transacting through the date hereof and which it will transact through
the Closing Date, all of which appointments are in full force and effect, and
which are listed on Schedule 4.4 attached hereto and made a part hereof.
All of the accounts payable of each Underwriters Company due to
insurance carrier markets (including any insurance agencies through which such
Underwriters Company brokers business) have been paid in full. No insurance
carrier or market which such Underwriters Company conducts business has given
notice of its intent to terminate any existing agreements with such Underwriters
Company.
4.5 Authorization. Except for the approval by the Board of Directors and
the shareholders of each Underwriters Company, no other corporate proceedings on
the part of the Underwriters Companies are necessary to authorize this Agreement
and the transactions contemplated hereby. Subject to shareholder approval, this
Agreement is the valid and binding obligation of each Underwriters Company,
enforceable against it in accordance with its terms, except as may be limited by
applicable bankruptcy, insolvency, reorganization or moratorium or other similar
laws or equitable principles affecting creditors' rights generally and subject
to general equitable principles which may limit the enforcement of certain
remedies.
Neither the execution, delivery and performance of this Agreement by the
Underwriters Companies, nor the consummation of the transactions contemplated
hereby, nor compliance by the Underwriters Companies with any of the provisions
hereof will (i) violate, conflict with, or result in a breach of any provisions
of, or constitute a default (or an event which, with notice or lapse of time or
both, would constitute a default) under, or result in the termination of, or
accelerate the performance required by, or result in a right of termination or
acceleration or the creation of any lien, security interest, charge or
encumbrance upon the shares or any of the properties or assets of any of the
Underwriters Companies, under any of the terms, conditions or provisions of (x)
the Articles of Incorporation or Charter or Bylaws of any Underwriters Company,
or (y) any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or other instrument or obligation to which any Underwriters Company
may be bound, or to which any Underwriters Company or any of their respective
properties or assets may be subject; or (ii) violate any judgment, ruling,
order, writ, injunction, decree, statute, rule or regulation applicable to any
Underwriters Company or any of their respective properties or assets.
No notice to, filing with, authorization of, exemption by, or consent or
approval of, any public body or authority is necessary for the consummation by
the Underwriters Companies of the transactions contemplated by this Agreement.
The Underwriters Companies have no reason to believe that any required
regulatory consent or approval will not be received or will be received with
conditions or restrictions which FCNB would reasonably deem unduly burdensome,
or which would have an adverse impact on its capacity to consummate the
transactions contemplated hereby.
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4.6 Financial Statements. The balance sheet compilations as of December
31, 1997 and the related statements of financial condition, operations, changes
in stockholders' equity and cash flows for the three years ended December 31,
1997, and the balance sheets of as of March 31, 1998, and the related statements
of financial condition, operations, changes in stockholders equity and cash
flows for the three month period then ended, of each Underwriters Company have
previously been furnished by the Underwriters Companies to FCNB (collectively
the "Underwriters Companies Financial Statements"), and like financial
information provided to FCNB subsequent to the date hereof, have been and will
be prepared in accordance with generally accepted accounting principles applied
on a consistent basis, and present and will present fairly the financial
position of each respective Underwriters Company at the dates, and the results
of operations, stockholders' equity, and changes in the financial position of
each Underwriters Company for the periods stated therein. In the case of interim
fiscal periods, all adjustments, consisting only of normal recurring items, have
been and will be made, subject to year-end audit adjustments.
4.7 Books of Account; Corporate Records. The books of account of each
Underwriters Company are maintained in compliance in all material respects with
all applicable legal and accounting requirements. The minute books of each
Underwriters Company accurately disclose all material corporate actions of their
respective shareholders and Board of Directors and of all committees thereof.
4.8 Reports. As of May 31, 1998, each Underwriters Company has filed,
since that date have filed, and subsequent to the date hereof will file, all
reports, registrations and statements, if any, together with any amendments
required to be made with respect thereto, that were and are required to be filed
with the Maryland Insurance Department and the insurance regulator of any other
jurisdiction in which any Underwriters Company any of their respective agents or
employees is or is required to be licensed. As of their respective dates such
reports complied and will comply in all material respects with all the statutes,
rules and regulations enforced or promulgated by the regulatory authority with
which they were filed and did not and will not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they are made, not misleading.
4.9 Absence of Certain Changes. Each Underwriters Company represents and
warrants that since March 31, 1998, there has not been any change, in the nature
of the business, results of operations, assets, financial condition, prospects,
method of accounting or accounting practice, or manner of conducting the
business of such Underwriters Company, or otherwise, any of which changes has
had, or may reasonably be expected to have, individually or in the aggregate, a
material adverse effect on the financial condition, results of operations,
business or prospects of such Underwriters Company taken as a whole. Not in
limitation of the foregoing, no insurance company appointment of such
Underwriters Company has terminated or been canceled, and no notice or threat of
cancellation or termination has been received by such Underwriters Company.
4.10 Properties, Leases and Other Agreements. Except as set forth on
Schedule 4.10 attached hereto and made a part hereof, and except for any lien
for current taxes not yet delinquent, and except for imperfections of title,
encumbrances and easements, if any, as are not substantial in character, amount
or extent and do not materially detract from the value, or interfere with the
present or proposed use of, such properties or assets, each Underwriters Company
has good title, free and clear of any liens, claims, charges, options or other
encumbrances, to all of the personal and real property reflected in the balance
sheet of such Underwriters Company as of March 31, 1998 referred to above in
Section 4.6, and all personal and real property acquired since such date, except
such personal and real property as has been disposed of for fair value in the
ordinary course of business. All leases material to each Underwriters Company
pursuant to which such Underwriters Company as lessee, leases real or personal
property, are valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any material existing default by
Underwriters or any event which with notice or lapse of time or both would
constitute such a material default. Schedule 4.10 sets forth a complete list and
brief description of all real estate owned or leased by Underwriters, and all
personal property having a value in excess of $25,000 owned or leased by any
Underwriters Company. Each Underwriters Company represents and warrants that
each item of real estate described in Schedule 4.10 and used in the conduct of
the business of such Underwriters Company is in good repair and insurable at
market rates; no notice of violation of zoning laws, building
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or fire codes or other statutes, ordinances or regulations relating to the use
or operation of such property has been received by or is known of by
Underwriters and there are no condemnation or similar proceedings pending or
threatened against any such property or any portion thereof
4.11 Taxes. Each Underwriters Company represents and warrants that (i)
it has duly filed, or will file, all federal, state, local and foreign tax
returns ("Returns") required by applicable law to be filed on or before the
Closing (all such Returns being accurate and complete -in all material
respects), and have paid or have set up adequate reserves or accruals for the
payment of all taxes required to be paid in respect of the periods covered by
such Returns, and will pay, or where payment is not yet due, will set up
adequate reserves or accruals adequate in all material respects for the payment
of all taxes for any subsequent periods ending on or prior to the Closing or any
portion of a subsequent period which includes the Closing and ends subsequent
thereto; (ii) it will not have any material liability for any such taxes in
excess of the amounts so paid or reserved or accruals so established; (iii) it
is not delinquent in the payment of any material tax, assessment or governmental
charge and has not requested any extension of time within which to file any tax
returns in respect of any fiscal year which have not since been filed (iv) no
material deficiencies for any tax, assessment or governmental charge have been
proposed, asserted or assessed (tentatively or definitively) against it which
have not been settled and paid and, as of the date of this Agreement, no
requests for waivers of the time to assess any tax, or waivers of the statutory
period of limitation, are pending or have been granted, and (v) it does not have
in effect any currently effective power of attorney or authorization to any
person to represent it in connection with any taxes.
4.12 Intangible Property. Each Underwriters Company owns or possesses
the right, free of the claims of any third party, to use all material
trademarks, service marks, trade names, copyrights, patents, and licenses
currently used by it in the conduct of their respective businesses, each of
which is described in Schedule 4.12. No material product or service offered and
no material trademark, service mark or similar right used by them infringes any
rights of any other person, and, as of the date hereof, such Underwriters
Company has received no written or oral notice of any claim of such
infringement.
4.13 Employee Relations. As of the date hereof, each Underwriters
Company is in all material respects in compliance with all federal and state
laws, regulations, and orders respecting employment and employment practices
(including Title 7 of the Civil Rights Act of 1964), terms and conditions of
employment, and wages and hours, and none of them is engaged in any unfair labor
practice. As of the date hereof, no dispute exists between any Underwriters
Company and any of its employee groups regarding employee organization, wages,
hours, or conditions of employment which would materially interfere with the
business or operations of Underwriters taken as a whole. As of the date hereof,
there are no labor or collective bargaining agreements binding upon any
Underwriters Company or to which any Underwriters Company is a party, and except
as set forth in Schedule 4.13, no employment or consulting agreements binding
upon any Underwriters Company or to which any of them is a party. As of the date
hereof there are no attempts to organize a collective bargaining unit to
represent any of their respective employee groups. All contributions due on or
prior to the date hereof to any pension, profit-sharing, or similar plan of any
Underwriters Company have been paid or provided for in accordance with the
Employee Retirement Income Security Act of 1974, as amended, and all other
applicable federal and state statutes and regulations. Schedule 4.13 sets forth
each employment contract, deferred compensation, non-competition, bonus, stock
option, profit sharing, pension, retirement, incentive and insurance arrangement
or plan, and any other remunerative or fringe benefit arrangement applicable to
any Underwriters Company, including the amounts currently payable pursuant to
any employment agreement or other remunerative arrangement.
4.14 ERISA. Schedule 4.14 sets forth a complete list of Underwriters
Company employee pension benefit plans within the meaning of Section 3(2) of the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), profit
sharing plans, stock purchase plans, deferred compensation and supplemental
income plans, group insurance plans and all other employee welfare benefits
plans within the meaning of Section 3(1) of ERISA, maintained for the benefit of
the employees or former employees, including any beneficiaries thereof, and
directors or former directors of any Underwriters Company. Each Underwriters
Company has delivered to FCNB a true and correct copy
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of each such employee benefit plan. Other than as set forth in Schedule 4.14 no
Underwriters company maintains any plans of the type described in this Section.
All "employee benefit plans" (as defined in Section 3(3) of ERISA)
comply in all material respects with all applicable provisions of ERISA, the
Code, and all other federal, state, or local laws. The assets of the
Underwriters Companies are not subject to any liens under ERISA or the Code with
respect to any employee benefit plan of an Underwriters Company or an Affiliate
(as defined below), and no event has occurred, or condition exists, which could
subject Underwriters or its assets to a future liability, obligation, or lien
arising out of any employee benefit plan of any Underwriters Company or an
Affiliate.
All employee benefit plans currently or previously maintained,
sponsored, or contributed to by any Underwriters Company have been administered,
maintained, and operated in accordance with their terms. All contributions,
payments, fees or expenses relating to each such employee benefit plan that were
deducted by such Underwriters Company for income tax purposes were properly
deductible in the year claimed. There are no actions, claims (other than routine
benefit claims made in the ordinary course), proceedings or inquiries, pending
or threatened, with respect to any such employee benefit plan, and no knowledge
of any fact which could give rise to any such action, claim, proceeding or
inquiry. Neither any Underwriters Company nor any other person or entity who or
which is a party in interest (as defined in Section 3(14) of ERISA) or
disqualified person (as defined in Section 4975(e)(2) of the Code) has acted or
failed to act with respect to any such employee benefit plan in any manner which
constitutes: (a) a breach of fiduciary responsibility under ERISA; (2) a
prohibited transaction under Section 406 of ERISA or Section 4975 of the Code;
or (3) any other violation of ERISA or the Code, except as set forth Except in
the Schedule 4.13. Except as set forth in Schedule, 4.13, no Underwriters
Company is obligated to indemnify, reimburse, or contribute to the liabilities
or expenses of any person or entity who may have committed or been involved in
any such fiduciary breach, prohibited transaction, or ERISA or Code violation.
Each such employee benefit plan which is intended to meet the requirements for
tax-favored treatment under Subtitle A, Chapter 1 of the Code meets such
requirements. Each such employee benefit plan that was intended to constitute a
qualified plan under Section 401(a) of the Code has, at all times, been
qualified, in form and operation, under Section 401(a) of the Code, and any
related trust is and has, at all times, been exempt from income tax. Neither any
Underwriters Company nor any Affiliate (as defined below) has ever maintained or
contributed to a multi-employer plan (as defined in Section 3(37) of ERISA).
Neither any Underwriters Company nor any Affiliate has any current liability for
contributions to a defined benefit plan (as defined in Section 3(35) of ERISA).
All returns, reports, statements, notices, declarations or documents relating to
an employee benefit plan that are required by law to be filed with or furnished
to any federal, state, or local governmental agency have been timely filed. Any
employee benefit plan (including any employee benefit plan of an Affiliate) that
is a group health plan (as defined in Section 5000(b)(l) of the Code) has
complied in each and every case with the requirements of Sections 601 through
607 of ERISA and Section 4980B of the Code and all other applicable federal,
state, and local laws relating to continuation coverage (collectively "COBRA"),
and no such plan provides benefits to former employees or their beneficiaries
(except to the extent required under COBRA). Each employee benefit plan can be
amended, modified, or terminated without participant consent and without
additional liability accruing to Underwriters after the date of Plan
termination. For this purpose, liabilities accrued on or before the date of Plan
termination shall be limited to the following: (1) in the case of an employee
benefit pension plan (within the meaning of Section 3(2) of ERISA), the
participant's accrued benefit," as defined in Section 3(23) of ERISA; and (2) in
the case of an employee welfare benefit plan (within the meaning of Section 3(1)
of ERISA), claims for expenses, costs, or services (including, but not limited
to, medical and other health care services) actually performed or incurred
before the date of the Plan termination. Any prior amendment, modification, or
termination of an employee benefit plan has been made in accordance with the
terms of the Plan and applicable law.
For purposes of this Section 4.14, the term Affiliate means an entity
that are treated as part of the same controlled group under Section 4 14(b),
(c), (m) or (o) of the Code.
4.15 Contracts. Except as disclosed in the Schedule 4.15 attached hereto
and made a part hereof, Underwriters is not a party to, and no property or
assets of any Underwriters Company is subject to any contract, agreement, lease,
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sublease, license, arrangement, understanding or instrument calling for payments
in excess of $25,000 over the term of the contract or in any year ("Material
Contract"). Each such Material Contract is valid and in full force and effect,
and all parties thereto have in all material respects performed all obligations
thereunder required to be performed to date, and are not in material default.
Each Material Contract is assumable and assignable without consent of the other
party thereto and do not contain any provision, increasing or accelerating
payments otherwise due, or change or modify the provisions or terms of such
Material Contract as a result of this Agreement or the transactions contemplated
hereby.
4.16 Related Party Transactions. Except as set forth in the Schedule
4.16 attached hereto and made a part hereof, or as disclosed in the Financial
Statements, no Underwriters Company has any contract, extension of credit,
business arrangement, or other relationship with (i) any present or former
director or officer of such Underwriters Company; (ii) any shareholder of such
Underwriters Company; or (iii) any affiliate or associate of the foregoing. Each
such relationship has been made in the ordinary course of business, and on the
same terms as those prevailing at the time for comparable arms'-length
transactions, and do not involve more than the normal risk of collectibility or
present other unfavorable features.
4.17 Accounts Receivable. Each of the accounts receivable and
commissions receivable of each Underwriters Company reflected as the receivables
report of such Underwriters Company as of the date of the Agreement and as of
the date of Closing represents the legal, valid and binding obligation of the
customers reflected thereon, enforceable in accordance with its terms, except as
such enforcement may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws relating to or affecting the
enforcement of creditors' rights generally, and subject to general principles of
equity which may limit the enforcement of certain remedies. No default
(including any event or circumstance which with the passage of time or the
giving of notice or both would constitute a default) in respect of any material
provision of any receivable exists, and such Underwriters Company has no
knowledge of any person's or entity's inability to repay any of such receivables
when due, whether or not such person or entity is currently in default or
delinquent.
4.18 Environmental Matters. Each Underwriters Company has no knowledge
that any environmental contaminant, pollutant, toxic or hazardous waste or
similar or like substance has been generated, used, stored, processed, disposed
of, discharged at, or was or is otherwise present at any real estate now or
previously owned or acquired (including without limitation any real estate
acquired by means of exercise of any creditor's right) or leased by such
Underwriters Company. There is no legal, administrative, arbitrarial or other
proceeding, claim, action, cause of action or governmental proceeding or
investigation of any nature whatsoever, seeking to impose, or that could result
in the imposition, on such Underwriters Company of any liability arising under
any local, state, or federal environmental statute, regulation, rule or
ordinance, pending or, to the knowledge of such Underwriters Company, threatened
against such Underwriters Company; and there is no reasonable basis for any of
the foregoing; and such Underwriters Company is not subject to any agreement,
order, judgment, decree or memorandum of any court, governmental authority,
regulatory agency or third party imposing any such liability.
4.19 Litigation and Other Proceedings. Each Underwriters Company is not
a party to any pending, or, to the knowledge of such Underwriters Company,
threatened claim, action, suit, investigation or proceeding or subject to any
order, judgment or decree, except for matters which, in the aggregate, cannot
reasonably be anticipated to have, a material adverse effect on the financial
condition, results of operations, business, properties or prospects of such
Underwriters Company taken as a whole. Schedule 4.19 sets forth a complete and
accurate list of all actions, suits~ investigations or proceedings to which
Underwriters is a party or which relate to any of their respective assets.
4.20 Compliance with Laws. Each Underwriters Company has all permits,
licenses, certificates of authority, orders and approvals of, and has made all
filings, applications and registrations with, federal, state, local or foreign
governmental or regulatory bodies that are required in order to permit them to
carry on their respective business as presently conducted and the absence of
which would have a material adverse effect on such business; all such permits,
licenses, certificates of authority, orders and approvals are in full force and
effect, and, to the best knowledge of such Underwriters Company, no suspension
or cancellation of any of them is threatened; and all such filings, applications
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and registrations are current. The conduct of its business by each Underwriters
Company does not violate, in any material respect, any applicable domestic
(federal, state or local) or foreign law, statute, ordinance, license or
regulation now in effect. Each Underwriters Company is not in default under any
order, license, regulation or demand of any federal, state, local or other
governmental agency or with respect to any order, writ, injunction or decree of
any court. Except for statutory or regulatory restrictions of general
application, no federal, state, local or other governmental authority has placed
any restrictions on the business of any Underwriters Company.
4.21 Proxy Statement, Etc. None of the information supplied or to be
supplied by the Underwriters Companies for inclusion, or included, in (i) the
Proxy Statement or (ii) any other documents to be filed with the SEC or any
regulatory agency in connection with the transactions contemplated hereby will,
to the best knowledge of such Underwriters Companies, and at the respective
times such information is supplied or such documents are filed or mailed, be
false or misleading with respect to any material fact, or omit to state any
material fact necessary in order to make the statements therein not misleading.
All documents which any Underwriters Company is responsible for filing with the
SEC and any regulatory agency in connection with the Merger and all information
provided by any Underwriters Company to FCNB for inclusion in any such filings
by FCNB, will comply as to form in all material respects with the provisions of
applicable law.
4.22 Brokers and Finders. Other than a payment of $50,000.00 to
Danielson Associates, Inc., no Underwriters Company, nor any officer, director
or shareholder thereof, 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
any Underwriters Company in connection with this Agreement or the transactions
contemplated hereby.
ARTICLE V
CONDUCT OF BUSINESS PRIOR TO THE CLOSING
5.1 Forbearance by Underwriters Companies. From the date hereof until
the Closing, each Underwriters Company covenants and agrees that it will not do,
or agree or commit to do, or permit or suffer such Underwriters Company to do or
agree or commit to do, without the prior written consent of FCNB and First, any
of the following:
(a) except as in the ordinary course of business consistent with past practice,
enter into or assume any Material Contract, make any material commitment, incur
any material liabilities or material obligations, whether directly or by way of
guaranty, including any obligation for borrowed money whether or not evidenced
by a note, bond, debenture or similar instrument, acquire or dispose of any
material property or asset, or engage in any transaction not in the ordinary
course of business consistent with past practice, or subject any of Underwriters
assets or properties, or subject any or all of the Shares, to any lien, claim,
charge or encumbrances whatsoever;
(b) grant any general increase in compensation to its employees or officers or
directors or effect any increase in retirement benefits to any class of
employees or its officers (unless any such change shall be required by
applicable law);
(c) declare, set aside or pay any dividend or other distribution on such
Underwriters' Company's common stock;
(d) 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; merge into any other entity or permit any other corporation to
merge into it, or consolidate with any other entity; liquidate, sell or dispose
of any assets or acquire any assets, otherwise than in the ordinary course of
its business consistent with past practice; or agree to do any of the foregoing;
(e) issue any share of such Underwriters Company's capital stock or permit any
share of its capital stock held in its treasury to become outstanding, or to
sell, convey or transfer ownership of any outstanding shares of its common
stock;
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(f) amend the Articles of Incorporation or Charter or Bylaws of such
Underwriters Company;
(g) effect any capital reclassification, stock dividend, stock split,
consolidation of shares or similar change in capitalization;
(h) take, cause or permit the occurrence of any change or event which would
render any of its representations and warranties contained herein untrue in any
material respect at and as of the Closing;
(i) solicit, encourage, or authorize any person, including but not limited to
directors, officers, shareholders, or employees, to solicit from, or communicate
with, any third party, inquiries or proposals relating to the disposition of its
business or assets, or the acquisition of its voting securities, or the merger
of any such Underwriters Company with any person other than FCNB or any
subsidiary of FCNB, or provide any such person with information or assistance or
negotiate or conduct any discussions with any such person in furtherance of such
inquiries or to obtain a proposal, or continue any such activities in progress
on the date hereof, and Underwriters shall promptly notify FCNB of all of the
relevant details, including the identity of such third party and the nature of
any such third party proposal, relating to all inquiries and proposals which it
may receive relating to any of such matters;
(j) knowingly take any action which would (i) adversely affect the ability to
obtain the necessary approvals of governmental authorities required for the
transactions contemplated hereby; (ii) adversely affect the eligibility of the
transactions contemplated hereby for treatment as a pooling of interests for
financial reporting purposes; or (iii) adversely affect the ability to perform
the covenants and agreements under the Agreement; or
(k) repay, refinance, renegotiate or otherwise alter the terms, conditions,
provisions or the principal amount of the note payable by Underwriters to J.R.
Ramsburg, Jr.; or
(l) suffer, permit, or allow any of the licenses or insurance carrier
appointments of such Underwriters Company or any of its agents to lapse.
5.2 Conduct of Business. From the date hereof until the Closing, each
Underwriters Company covenants and agrees that, except as otherwise consented to
by FCNB and First in writing it shall;
(a) carry on its business, and maintain its books of account and other corporate
records, in the ordinary course consistent with past practice and legal and
regulatory requirements;
(b) to the extent consistent with prudent business judgment, use all reasonable
efforts to preserve its present business organization, to retain the services of
its officers and employees, and maintain all customer, insurance carrier, agency
and other business relationships;
(c) maintain all of the structures, equipment, and other real and personal
property of such Underwriters Company in good repair, order and condition,
ordinary wear and tear and unavoidable casualty excepted;
(d) use all reasonable efforts to preserve or collect all material claims or
causes of action of such Underwriters Company;
(e) keep in full force and effect all insurance coverage maintained by such
Underwriters Company;
(f) perform in all material respects all obligations under all material
agreements, contracts, commitments and other instruments which such Underwriters
Company is a party or by which it may be bound or which relate to or affect any
of their respective assets or properties; and
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(g) comply in all material respects with all statutes, laws, regulations, rules,
ordinances, orders, decrees, consent agreements, examination reports and other
federal, state and local governmental or regulatory directives applicable to any
Underwriters Company and the conduct of their respective businesses.
5.3 Conduct of Business by FCNB. FCNB covenants that it shall, from the
date hereof until the Closing, use its best efforts to (i) preserve its business
organization intact in all material respects; (ii) maintain good relationships
with its employees; and (iii) preserve for itself the goodwill of its and its
subsidiaries' customer and other business relationships. FCNB covenants that
from the date hereof until the Closing, it shall not, without the prior written
consent of Ramsburg, knowingly take any action which would (i) adversely affect
the ability to obtain the necessary approvals of governmental authorities
required for the transactions contemplated hereby; (ii) adversely affect the
eligibility of the transactions contemplated hereby for treatment as a pooling
of interests for financial reporting purposes; or (iii) adversely affect the
ability to perform the covenants and agreements under the Agreement.
5.4 Approval of FCNB Shareholders. Subject to the effectiveness of the
Registration Statement (defined in Section 6.2 below), FCNB shall cause a
meeting of its shareholders (the "FCNB Shareholder Meeting") to be held as soon
as reasonably possible, but no later than sixty (60) days after the
effectiveness of the Registration Statement, for the purpose of considering the
approval of the Merger and adoption of this Agreement. FCNB shall cause to be
distributed to each shareholder of record of FCNB (according to the transfer
records of FCNB as of the record date for the FCNB Shareholder Meeting), such
material required by applicable statutes and regulations including but not
limited to a copy of the joint Prospectus/Proxy Statement (the "Proxy
Statement") to be prepared by FCNB in connection with the Merger and to be
included in the Registration Statement. The Proxy Statement shall be mailed by
FCNB on the date (the "Mailing Date") at least twenty (20) days prior to the
date of the FCNB Shareholder Meeting. The Board of Directors of FCNB shall
recommend to its shareholders that they vote the shares held by them to approve
the Merger and to adopt this Agreement and FCNB shall use its best efforts in
good faith to obtain its shareholders' approval of the Merger.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access and Information. (a) Each Underwriters Company shall afford
to FCNB, and to FCNB's accountants, counsel and other representatives,
reasonable access during normal business hours, during the period prior to the
Closing, to all of its properties, books, contracts, commitments and records
and, during such a period, shall furnish promptly to FCNB (a) a copy of each
report, schedule and other document filed or received by it during such period
with or from (i) the SEC; (ii) the Federal Reserve Board; (iii) the Department;
(iv) the Maryland Insurance Department; and (b) all other information concerning
its business, properties and personnel as FCNB may reasonably request. FCNB
shall cause all information obtained by it or its representatives pursuant to
this Agreement or in connection with the negotiation thereof to be treated as
confidential and shall not use, nor knowingly permit others to use, any such
information for any purpose other than in connection with the transactions
contemplated hereby, unless such information becomes generally available to the
public or is required to be disclosed pursuant to the order of a court of
competent jurisdiction or otherwise in accordance with applicable law, and in
the event of the termination of this Agreement shall promptly return all
documents (including copies thereof) obtained hereunder from Underwriters, and
shall destroy all copies of any analyses, compilations, notes, studies or other
documents prepared from any such material by FCNB or for FCNB's use.
6.2 Registration Statement; Other Information; Applications;
Cooperation. (a) As promptly as practicable after the date hereof and the
furnishing by the Underwriters Companies of all information regarding
Underwriters required to be reflected therein, FCNB shall file (i) a
registration statement (the "Registration Statement") with the SEC on Form S-4
under the Securities Act, containing the Proxy Statement to be used in
connection with the Shareholder Meeting regarding the Merger, (ii) the
applications for Federal Reserve and for Department approval, and (iii) any
other applications for regulatory or other approvals deemed necessary or
appropriate by FCNB. FCNB will use reasonable
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efforts to cause said Registration Statement to be declared effective as soon as
practicable thereafter. The parties hereto agree, that at the time the
Registration Statement becomes effective and at the Mailing Date of the Proxy
Statement, the Registration Statement will comply as to form in all material
respects with the applicable provisions of the Securities Act, and the
Registration Statement, at the time it becomes effective, and the Proxy
Statement, in either case as amended or supplemented by any amendment or
supplement filed with the SEC, will not contain any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading; provided, however, that information as of a later date included
therein shall be deemed to modify information of an earlier date, and with
respect to either party, the foregoing statement shall not apply to statements
in or omissions from the Registration Statement or Proxy Statement made in
reliance upon and in conformity with information furnished by the other party
for use in the Registration Statement or Proxy Statement. After becoming aware
of any statement or omission which renders the statement set forth in the
preceding sentence not true or correct, FCNB will promptly amend, supplement or
revise such material in order to make the statement in the preceding sentence
true and correct at all times up to and including the Closing.
(b) FCNB agrees to use its best efforts to prepare and file all material
applications, notices or other filings with respect to the Merger required to be
made with the Federal Reserve Board, the Department and any other regulatory
agency, not later than sixty (60) days from the date hereof, subject to the
timely furnishing by the Underwriters Companies of all information regarding the
Underwriters Companies required to be included therein or necessary for the
preparation of such applications.
(c) FCNB and each Underwriters Company agree that notwithstanding the foregoing,
in the event that FCNB shall enter into one or more additional acquisition
transactions prior to the date of the FCNB Shareholder Meeting, FCNB shall be
entitled to delay the filing and/or effectiveness of the Registration Statement
and the filing of the applications, and FCNB shall delay the Shareholder
Meetings, in order to appropriately reflect and disclose such additional
transaction(s) to the shareholders of FCNB and the Underwriters Companies and to
re-solicit shareholder approval if required.
6.3 Notice of Actual or Threatened Breach. Each party will promptly give
written notice to the other party upon becoming aware of any impending or
threatened occurrence of any event or the failure of any event to occur which
would cause or constitute a breach of any of the representations, warranties or
covenants made by such party in this Agreement, any other changes or
inaccuracies in any data previously given or made available to the other party,
or which would threaten consummation of the transaction contemplated hereby.
6.4 Current Information. During the period from the date of this
Agreement to the Closing, each Underwriters Company will cause one or more of
its representatives to confer on a regular and frequent basis with
representatives of FCNB and to report the general status of its ongoing
operations. Each Underwriters Company will promptly notify FCNB and First of any
material change in the normal course of its business or in the operation of its
properties and, to the extent permitted by applicable law, of any governmental
complaints, investigations or hearings (or communications indicating that the
same may be contemplated), or the institution or the threat of material
litigation involving such Underwriters Company, and will keep FCNB and First
fully informed with respect to such events. FCNB shall provide copies of all
reports filed by FCNB pursuant to Section 13 of the Exchange Act to Underwriters
upon the filing of such reports.
6.5 Expenses. Each party hereto shall pay its own expenses incident to
preparing for, entering into and carrying out this Agreement and to the
consummation of the Merger and the transactions contemplated hereby, except that
FCNB shall pay all of the cost of preparing the registration of the shares of
FCNB Common Stock to be issued to shareholders of the Underwriters Companies
hereunder (other than the legal or other expenses of the Underwriters Companies
for reviewing or preparing any portion thereof) and each Underwriters Company
shall pay all expenses which it incurs in connection herewith.
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6.6 Miscellaneous Agreements and Consents. Subject to the terms and
conditions herein provided, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary, proper or advisable under applicable
laws and regulations to consummate and make effective the transactions
contemplated by this Agreement, including, without limitation, using reasonable
efforts to lift or rescind any injunction or restraining order or other order
adversely affecting the ability, of the parties to consummate the transactions
contemplated hereby. FCNB and First, and each Underwriters Company, will use
their respective best efforts to obtain consents of all third parties and
governmental bodies necessary or desirable for the consummation of the
transactions contemplated by this Agreement.
6.7 Press Releases. FCNB and First, and each Underwriters Company will
consult with each other as to the form, substance and timing of any press
release or other public disclosure of matters related to this Agreement or any
of the transactions contemplated hereby. Notwithstanding the foregoing, the
parties hereto agree that FCNB shall, immediately following the execution
hereof, issue a press release and file a Form 8-K Current Report, announcing the
execution of the Agreement and the proposed Merger.
6.8 Indemnification. (a) The Underwriters Companies agree that they
shall jointly and severally indemnify, defend and hold harmless FCNB and First
from and against any cost, expense, loss or liability suffered directly or
indirectly by FCNB or First (including through any Underwriters Company) arising
out of any action, suit, investigation or other proceeding, commenced or
threatened to be commenced, prior to, or on or after the Closing Date, which
relates to the operations of any Underwriters Company, or which arise out of any
wrongful act or omission, or negligence in respect of the operations of any
Underwriters Company, prior to the Closing Date.
(b) FCNB and First agree that they shall jointly and severally indemnify, defend
and hold harmless each Underwriters Company from and against any cost, expense,
loss or liability suffered directly or indirectly by them, arising out of any
action, suit, investigation or other proceeding, commenced or threatened to be
commenced, prior to, or on or after the Closing Date, which relates to the
operations of the Underwriters Companies, or which arise out of any wrongful act
or omission, or negligence of, FCNB or First in respect of the operations of the
Underwriters Companies prior to, or on or after the Closing Date.
ARTICLE VII
CONDITIONS
7.1 Conditions to Each Party 's Obligation to Effect the Merger. The
obligations of each party to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the following conditions:
(a) Shareholder Approval. The Mergers shall have been approved by the requisite
majority of the shareholders of FCNB, and the requisite majority of the
shareholders of Underwriters, Phillips and Carroll shall have approved the
merger of such company with and into First.
7.2 Conditions to Obligation of FCNB and First to Effect the Merger. The
obligation of FCNB and First to effect the Merger shall be subject to the
fulfillment or waiver at or prior to the Closing of the following additional
conditions:
(a) Representations and Warranties; Corporate Proceedings. The representations
and warranties of the Underwriters Companies set forth in Article IV hereof
shall be true and correct in all material respects as of the date of this
Agreement and as of the Closing and FCNB and First shall have received a
certificate of the president of each of the Underwriters Companies to that
effect.
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(b) Performance of Obligations. Each Underwriters Company shall have in all
material respects performed all obligations required to be performed by it under
this Agreement prior to the Closing and FCNB and First shall have received a
certificate of the Underwriters Companies to that effect.
(c) Permits, Authorizations, Etc. The Underwriters Companies shall have obtained
any and all permits, authorizations, consents, waivers, clearances or approvals
required for the lawful consummation of the Merger.
(d) No Material Adverse Change, Due Diligence. There shall not have been any
material adverse change in the financial condition, assets, results of
operations, business or prospects of the Underwriters Companies. Not in
limitation of the foregoing, FCNB and First shall have determined, in the
reasonable exercise of discretion based upon the results of the due diligence
investigations performed by them, that as of the Closing Date (i) the
Underwriters Companies have, in the aggregate, a sustainable net revenue base of
not less than $5.4 million per year (prior to payment of any performance based
incentive compensation to J.R. Ramsburg, III in his capacity as President of the
Surviving Corporation); (ii) the working capital deficit of Underwriters does
not exceed $350,000, including the cash surrender value of life insurance; and
(iii) the Underwriters Companies have, in the aggregate, a sustainable annual
pre-tax income of not less than $1.1 million per year (determined after payment
of any performance based incentive compensation to J.R. Ramsburg, III in his
capacity as President of the Surviving Corporation).
(e) Regulatory Approvals. FCNB and First shall have received unconditional
approval of the Merger contemplated by this Agreement from the Federal Reserve
Board, the Commissioner and any other federal or state regulatory agencies whose
approval is required for consummation of such transaction (except for such
conditions as are ordinarily imposed in connection with transactions of the type
contemplated hereby and which are not, in the reasonable exercise of judgement
by FCNB and First unduly burdensome), and all notice and waiting periods after
the granting of any such approval shall have expired.
(f) No Injunction. No injunction, restraining order, stop order or other order
or action of any federal or state court or agency in the United States which
prevents the consummation of the Merger shall be in effect, and no action shall
have been instituted or threatened, and no statute, rule or regulation shall
have been enacted, by any state or federal government or government agency,
which makes the consummation of the Merger unlawful or which in the reasonable
judgment of FCNB and First would make it inadvisable to consummate the
transactions contemplated by this Agreement.
(g) Litigation. At the Closing, there shall not be pending or threatened against
any of the Underwriters Companies or the officers, directors or shareholders
thereof in their capacity as such, any suit action or proceeding (including
antitrust actions) which, if successful, would, in the reasonable judgment of
FCNB and First, have a material adverse effect on the financial condition,
operations, business or prospects of the Underwriters Companies.
(h) Employment Agreements. J.R. Ramsburg, Jr. and J.R. Ramsburg, III, shall have
entered into with FCNB and First consulting and employment respectively
agreements in a form satisfactory to FCNB and First.
(i) Comfort Letter. FCNB and First shall have received from Keller Bruner &
Company, L.L.C., a letter in form and substance reasonably satisfactory to FCNB
and First to the effect that based upon the procedures set forth therein,
nothing has come to the attention of such firm that would cause it to believe
that there has been a material adverse change in the financial position of any
of the Underwriters Companies since December 31, 1997 not reflected in the
subsequent financial statements or compilations of such Underwriters Company.
(j) Opinion of Counsel. The Underwriters Companies shall have delivered to FCNB
and First an opinion, dated the Closing, of John M. Quinn, counsel to the
Underwriters Companies, in form and substance reasonably satisfactory to FCNB
and First and their counsel, to the effect that:
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(i) Each of Underwriters, Phillips and Carroll is a
corporation duly organized, validly existing and in good standing
under the laws of the State of Maryland; and each of Underwriters,
Phillips and Carroll has full corporate power to own and operate its
respective business and properties and to carry on its respective
business as currently conducted; Underwriters, Phillips and Carroll
and their respective agents are duly licensed to transact the lines of
business which it is currently transacting, by the [Maryland Insurance
Department] and the comparable regulatory authority of each other
jurisdiction in which the nature and conduct of its business so
requires;
(ii) the authorized capital stock of Underwriters consists
solely of 2,000 shares of Underwriters common stock, par value $30.00
per share, of which 986 shares are validly issued and outstanding,
fully paid and nonassessable and have not been issued in violation of
the preemptive rights of any person; the authorized capital stock of
Phillips consists solely of 400 shares of Phillips common stock, par
value $100.00 per share, of which 120 shares are validly issued and
outstanding, fully paid and nonassessable and have not been issued in
violation of the preemptive rights of any person; the authorized
capital stock of Carroll consists solely of 10,000 shares of Carroll
common stock, par value $10.00 per share, of which 1,101 shares are
validly issued and outstanding, fully paid and nonassessable and have
not been issued in violation of the preemptive rights of any person;
(iii) there are no outstanding subscriptions, warrants, or
rights to acquire from Underwriters to issue, or any outstanding
securities or obligations convertible into, shares of Underwriters
common stock; there are no outstanding subscriptions, warrants, or
rights to acquire from Phillips to issue, or any outstanding
securities or obligations convertible into, shares of Phillips common
stock; there are no outstanding subscriptions, warrants, or rights to
acquire from Carroll to issue, or any outstanding securities or
obligations convertible into, shares of Carroll common stock;
(iv) to the knowledge of such counsel, there are no
outstanding obligations of Underwriters, Phillips or Carroll to
purchase, reacquire or redeem any shares of their respective, common
stock;
(v) execution, delivery and performance of this Agreement by
each Underwriters Company and consummation of the transactions
contemplated in this Agreement do not and will not conflict with, or
result in the breach of, or constitute a default under, any of the
provisions of the Articles of Incorporation or Charter or Bylaws of
such Underwriters Company or any material agreement to which such
Underwriters Company is a party or by which its properties or assets
may be bound; and
(vi) each Underwriters Company has full corporate power and
corporate authority to make, execute, deliver and perform the
Agreement and the Agreement has been duly authorized and approved by
all requisite corporate action of such Underwriters Company, the
Agreement constitutes the valid and legally binding obligation of such
Underwriters Company in accordance with its terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and
similar laws relating to or affecting creditors' rights generally and
subject to general equity principles which may limit the enforcement
of certain remedies;
(vii) such counsel does not know of any claim, litigation,
arbitration proceeding, labor dispute or investigation of any kind
pending or threatened against any Underwriters Company in any court or
before any federal, .state or municipal or other governmental agency
or instrumentality relating in any way to the transactions
contemplated in this Agreement, or which is determined adversely to
such Underwriters Company would have a material adverse effect on the
financial condition, results of operations, business, properties, or
assets of such Underwriters Company;
(viii) to the knowledge of such counsel, such counsel has no
reason to believe that (except as to financial statements and other
financial or statistical data, or as to materials relating to or
supplied by FCNB or the FCNB subsidiaries for inclusion in the Proxy
Statement, as to which no belief need be expressed) the
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Proxy Statement, as it may be amended or supplemented, contained an
untrue statement of a material fact or omitted any material fact
required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances in which they were
made, not misleading, as of the time the Registration Statement became
effective, the time of the Shareholder Meetings or as of the Closing
Date; and
(k) Affiliate Letters. The Underwriters Companies shall deliver or cause to be
delivered to FCNB a letter from each officer, director or shareholder of the
Underwriters Companies who may be deemed to be an "affiliate" (as defined for
purposes of Rules 145 and 405 promulgated under the 1933 Act) of Underwriters,
in form and substance reasonably satisfactory to FCNB, under the terms of which
each such officer, director, and shareholder acknowledges and agrees to abide by
and comply with all limitations imposed by the 1933 Act and all rules,
regulations and releases promulgated thereunder with respect to the sale or
other disposition of the shares of FCNB Common Stock received by such person in
connection with this Agreement, including those accounting rules, regulations,
releases and guidelines which govern the eligibility of the transactions
governed hereby for treatment as a pooling of interests, including those which
impose limitations or restrictions on the sale, disposition or other
transactions with respect to shares of Underwriters common stock and FCNB Common
Stock prior to the Closing.
(l) Accounting Treatment. FCNB shall have received an opinion of Keller Bruner &
Company, L.L.C., or otherwise determined to its satisfaction, that the
transactions contemplated hereby can be accounted for as a pooling of interests
for financial reporting purposes.
(m) Third Party Consents. The Underwriters Companies or FCNB shall have obtained
all material third party consents under any agreement, contract, lease, note,
license, permit or other document by which any Underwriters Company is bound or
to which any of their respective properties is subject required for the
consummation of the transactions contemplated hereby.
(n) Receivables Agreement. First, Underwriters and J.R. Ramsburg, Jr. shall have
entered into an agreement setting forth the terms and conditions of the advance
represented by the. note payable by Underwriters to J.R. Ramsburg, Jr. Such
agreement shall provide, inter alia, (z)that in the event that any of the
accounts receivable of Underwriters reflected on the receivables report as of
September 30, 1998 shall not have been collected by the date which is 120 days
after the Closing, then the note payable to J. R. Ramsburg, Jr. shall be
reduced, on a dollar for dollar basis, by the amount of the aggregate
uncollected receivables, over and above the $101,000 presently allocated to be
written office by "Underwriters", which additional receivables shall be
assigned, set over and transferred to J.R. Ramsburg, Jr., without recourse to
FCNB, the Bank, First or Underwriters, in full satisfaction of that portion of
the note payable equal to the original principal amount (including interest, if
any, accrued in accordance with Underwriter's receivables collection practices)
of the receivables so assigned; and (ii) that following the Effective Time,
interest shall accrue on said note payable at an annual rate of six percent.
6.3 Conditions to Obligation of Underwriters Companies to Effect the
Merger. The obligations of the Underwriters Companies to effect the Merger shall
be subject to the fulfillment at or prior to the Closing of the following
additional conditions:
(a) Representations and Warranties; Corporate Proceedings. The representations
and warranties of FCNB and First set forth in Article II hereof shall be true
and correct in all material respects as of the date of this Agreement and as of
the Closing as though made at and as of the Closing, and the Underwriters
Companies shall have received a signed certificate of the President of FCNB and
First to that effect. All corporate action required to have been taken by, or on
the part of, FCNB and first to authorize the execution, delivery and performance
of this Agreement and the Merger, respectively, shall have been duly and validly
taken, and the Underwriters Companies shall have received certified copies of
the resolutions evidencing such authorizations.
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(b) Performance of Obligations. FCNB and First shall have in all material
respects performed all obligations required to be performed by it under this
Agreement prior to the Closing, and Ramsburg shall have received a certificate
of the President of FCNB and First to that effect.
(c) Registration Statement. The Registration Statement of FCNB under the
Securities Act relating to the FCNB Common Stock shall have been declared
effective, and no stop order with respect to the Registration Statement shall
have been issued. In addition, all state securities and blue sky permits and
approvals required to carry out the transactions contemplated hereby shall have
been obtained.
(d) Opinion of Counsel. FCNB shall have delivered to the Underwriters Companies
an opinion, dated the Closing of Kennedy, Baris & Lundy, L.L.P., in form and
substance reasonably satisfactory to the Underwriters Companies and their
counsel, to the effect that:
(i) FCNB is a corporation duly organized, validly existing and
in good standing under the laws of the State of Maryland; is
registered as a bank holding company under the BHCA; and FCNB has full
corporate power and authority to own and operate its business and
properties and to carry on its business as currently conducted;
(ii) the authorized capital stock of FCNB consists solely of
20,000,000 shares of Common Stock, of which 5,915,413 shares are
validly issued and outstanding (subject to the possible issuance of
additional shares of FCNB Common Stock pursuant to the exercise of
options issued under the FCNB Option Plans, the DRI Plan or the
non-qualified options to acquire FCNB Common Stock and to the possible
repurchase of shares by FCNB in accordance with FCNB's share
repurchase program), fully paid and nonassessable and have not been
issued in violation of the preemptive rights of any person, and
1,000,000 shares of undesignated preferred stock, no shares of which
were outstanding immediately prior to the Closing;
(iii) except as set forth in such opinion, to the best
knowledge of such counsel, there are no outstanding subscriptions,
warrants, options or rights to acquire from FCNB, or requiring FCNB to
issue, or any outstanding securities or obligations convertible into,
shares of FCNB Common Stock;
(iv) except as set forth in such opinion, to the best
knowledge of such counsel, there are no outstanding commitments or
obligations of FCNB to purchase, reacquire or redeem any shares of
FCNB Common Stock;
(v) the FCNB Common Stock issued pursuant to the Merger, when
issued in exchange for the Shares, will be validly issued and
outstanding, fully paid and nonassessable;
(vi) execution, delivery and performance of the Agreement by
FCNB and First and consummation of the transactions contemplated in
the Agreement do not and will not conflict with, or result in the
breach of, or constitute a default under, any of the provisions of the
Articles of Incorporation or Bylaws of FCNB and First or, to the best
knowledge of such counsel, any material agreement to which FCNB or
First is a party or by which its properties or assets may be bound;
(vii) FCNB and First each have full corporate power and
corporate authority to make, execute, deliver and perform the
Agreement and the Agreement has been duly authorized and approved by
all requisite corporate action of FCNB and First and constitutes the
valid and legally binding obligations of FCNB and First in accordance
with its terms, subject to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting
creditors' rights generally and subject to general equity principles
which may limit the enforcement of certain remedies;
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(viii) all material filings and registrations with, and
notifications to, all federal, state and local authorities required on
the part of FCNB and First for the consummation of the Merger have
been made, all approvals and authorizations of all federal, state and
local authorities required on the part of FCNB and First for
consummation of the Merger are in full force and effect and all
applicable waiting periods have passed; and
(ix) such counsel does not know of any claim, litigation,
arbitration proceeding, labor dispute or investigation of any kind
pending or threatened against FCNB or First in any court or before any
federal, state or municipal or governmental agency or instrumentality
relating in any way to the transactions contemplated in this
Agreement.
6.7 Nasdaq Listing. The shares of FCNB Common Stock to be issued in
connection with the Merger shall have been approved for quotation, upon notice
of issuance, on Nasdaq.
6.8 No Injunction. There shall not be in effect any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated hereby, nor shall there
be any pending proceeding of any agency of competent jurisdiction seeking any of
the foregoing.
6.9 Contribution of Assets of the Underwriters Companies. The Bank
agrees that following the Effective Time, it shall not directly conduct or
operate the business of the Underwriters Companies, but that it shall,
immediately following the Effective Time contribute, by such means as may be
appropriate, all assets and liabilities of the Underwriters Companies, of every
type whatsoever, acquired as a result of the Merger, to First, its wholly owned
subsidiary. FCNB agrees that it shall cause FCNB Bank to take such actions as
may be necessary to result in the contribution of the assets and liabilities of
the Underwriters Companies to First. The parties acknowledge and agree that it
is the intention of the parties hereto that First shall conduct the business
previously conducted by the Underwriters Companies. In connection with the
contributions, FCNB Bank and First shall continue to possess and be entitled to
exercise all corporate rights and privileges granted to them in their respective
charters and under the laws of the United States and the laws of the State of
Maryland.
6.10. Change of Name of First. Following the Effective Time, the name
of First shall be changed to "Frederick Underwriters, Inc." FCNB, First and FCNB
Bank, agree that they shall take such actions as may be required to effect the
change of name of Fist to Frederick Underwriters, Inc. as of the Effective Time,
or as soon thereafter as may be reasonably practicable.
6.11. Directors and Officers of First. (a) The Board of Directors of
First at the Effective Time, together with J.R. Ramsburg, III, shall serve as
the Board of Directors of First as the Surviving Corporation until their
successors are duly elected and qualified.
(b) The Officers of First at the Effective Time shall serve as the officers of
First until their successors are duly appointed by the Board of Directors except
that from and after the Effective Time, J.R. Ramsburg, III shall serve as the
President of the Surviving Corporation.
(c) As soon as practicable following the Effective Time, First shall take such
actions as shall be required to effect the election of J.R. Ramsburg, III, as
President of the Surviving Corporation, to serve in accordance with the bylaws
of the Surviving Corporation.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
the Closing:
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(a) by mutual consent of all of the parties hereto;
(b) by either FCNB or any Underwriters Company, at anytime after December 1,
1998, if the Merger shall not theretofore have been consummated, unless the date
reflected in this Section 7.1(b) shall be extended in writing by the parties
hereto;
(c) by FCNB in the event of the material breach by any Underwriters Company of
any representation, warranty or agreement contained herein;
(d) by any Underwriters Company in the event of the material breach by FCNB or
First of any representation, warranty or agreement contained herein;
(e) by FCNB or any Underwriters Company if any governmental or regulatory
approval required for consummation of the Merger and the transactions
contemplated hereby shall have been denied by final, non-appealable order, or
any such denial shall not have been appealed within the time available for such
appeal.
(f) by FCNB in the event a material adverse change occurs in the financial
condition, results of operations, business or prospects of the Underwriters
Companies, taken as a whole, subsequent to the date of this Agreement;
(g) by any Underwriters Company in the event a material adverse change occurs in
the financial condition, results of operations, business or prospects of FCNB
subsequent to the date of this Agreement;
(h) by FCNB, in the exercise of its reasonable discretion, in the event that the
Merger and the Agreement are not approved by the requisite majority of the
shareholders of FCNB at the FCNB shareholder meeting.
7.2 Effect of Termination. In the event of termination of this Agreement by
FCNB or any Underwriters Company as provided in Section 7.1 above, this
Agreement shall forthwith become void and there shall be no liability on the
part of either FCNB, First or the Underwriters Companies or their respective
officers or directors, except in the event of wilful breach of a material
provision of this Agreement.
7.3 Amendment. This Agreement may be amended by the parties hereto at any
time before or after approval of the Merger by the shareholders of FCNB. This
Agreement may not be amended except by an instrument in writing signed on behalf
of each of the parties hereto.
7.4 Waiver. Any term, condition or provision of this Agreement may be
waived in writing at any time by the party which is, or whose shareholders are,
entitled to the benefits thereof.
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<PAGE>
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-survival of Representations, Warranties and Agreements. No
investigation by the parties hereto made heretofore or hereafter shall affect
the representations and warranties of the parties which are contained herein and
each such representation and warranty shall survive such investigation. All
representations, warranties and agreements in this Agreement of the Underwriters
Companies and FCNB and First or in any instrument delivered by the Underwriters
Companies and FCNB and First pursuant to this Agreement shall expire one year
after the Closing, or upon termination of this Agreement in accordance with its
terms.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed to have been duly received (i) on the date given if
delivered personally or by telecopier, cable, telegram or telex or (ii) on the
date received if sent by overnight delivery service or if mailed by registered
or certified mail (return receipt requested), to the parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
(a) if to FCNB or First:
A. Patrick Linton, President
FCNB Corp
7200 FCNB Court
Frederick, Maryland 21703
Copy to:
David H. Baris, Esq.
Kennedy, Baris & Lundy, L.L.P.
Suite 300
4719 Hampden Lane
Bethesda, MD 20814
(b) if to the Underwriters Companies:
J.R. Ramsburg, Jr.
1201 East Street
Frederick, Maryland 21701
Copy to:
John M. Quinn, Esquire
Quinn, McAuliffe, Rowan & Falconer
204 Monroe Street, Suite 109
Rockville, Maryland 20850
8.3 Severability. Any invalidity, illegality or unenforceability of
any provision of this Agreement in any jurisdiction shall not invalidate or
render illegal or unenforceable the remaining provisions hereof in such
jurisdiction and shall not invalidate or render illegal or unenforceable such
provision in any other jurisdiction.
8.4 Headings. The headings of the Articles and Sections of this
Agreement are for convenience of reference only and shall not be deemed to be a
part of this Agreement.
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8.5 Attorneys' Fees. In any action or proceeding brought to enforce
any provision of this Agreement, or where any provision hereof is validly
asserted as a defense, the successful party shall be entitled to recover
reasonable attorneys' fees in addition to any other remedy.
8.6 Miscellaneous. This Agreement (including exhibits, documents and
instruments referred to herein).
(a) together with all Schedules, exhibits, documents and instruments attached
hereto or required to be delivered herewith, or at or prior to Closing,
constitutes the entire agreement and supersedes all other prior agreements and
understandings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof,
(b) is not intended to confer upon any person not a party hereto any rights or
remedies hereunder;
(c) shall not be assigned by operation of law or otherwise, except that FCNB may
without prior notice to or approval by the Underwriters Companies assign this
Agreement to a wholly-owned subsidiary of FCNB;
(d) shall be governed in all respects by the laws of the State of Maryland; and
(e) may be executed in two or more counterparts which together shall constitute
a single agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
signed by their respective officers thereunto duly authorized and their
respective corporate seals to be affixed hereto, all as of the date first
written above.
ATTEST: [SEAL] FCNB CORP
/s/ Helen G. Hahn By: /s/ A. Patrick Linton
- ----------------------------- --------------------------
Name: Helen G. Hahn Name: A. Patrick Linton
Title: Secretary Title: President
ATTEST: [SEAL] FCNB BANK
/s/ Helen G. Hahn By: /s/ A. Patrick Linton
- ----------------------------- --------------------------
Name: Helen G. Hahn Name: A. Patrick Linton
Title: Secretary Title: President
ATTEST: [SEAL] FIRST CHOICE INSURANCE
AGENCY, INC.
/s/ Mark A. Severson By: /s/ William R. Talley, Jr.
- ----------------------------- --------------------------
Name: Mark A. Severson Name: William R. Talley, Jr.
Title: Vice President Title: President
ATTEST: [SEAL] FREDERICK UNDERWRITERS, INC.
/s/ Jacob R. Ramsburg, III By: /s/ Jacob R. Ramsburg, Jr.
- ----------------------------- ----------------------
Name: Jacob R. Ramsburg, III Name: Jacob R. Ramsburg, Jr.
Title: Secretary Title: President
[Signatures continued on next page]
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[Signatures continued from previous page]
ATTEST: [SEAL] PHILLIPS INSURANCE AGENCY, INC.
/s/ Jacob R. Ramsburg, III By: /s/ Jacob R. Ramsburg, Jr.
- ----------------------------- -----------------------------
Name: Jacob R. Ramsburg, III Name: Jacob R. Ramsburg, Jr.
Title: Secretary Title: President
ATTEST: [SEAL] CARROLL COUNTY INSURANCE
AGENCY, INC.
/s/ Jacob R. Ramsburg, III By: /s/ Jacob R. Ramsburg, Jr.
- ----------------------------- -----------------------------
Name: Jacob R. Ramsburg, III Name: Jacob R. Ramsburg, Jr.
Title: Secretary Title: President
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EXHIBIT B
Title 3, Subtitle 2 of the Maryland General Corporation Law
<PAGE>
ANNOTATED CODE OF MARYLAND
CORPORATIONS AND ASSOCIATIONS.
TITLE 3. CORPORATIONS IN GENERAL -- EXTRAORDINARY ACTIONS.
Subtitle 2. Rights of Objecting Stockholders.
ss.3-201 "Successor" defined.
(a) Corporation amending charter. -- In this subtitle, except as
provided in subsection (b) of this section, "successor" includes a corporation
which amends its charter in a way which alters the contract rights, as expressly
set forth in the charter, of any outstanding stock, unless the right to do so is
reserved by the charter of the corporation.
(b) Corporation whose stock is acquired. -- When used with reference
to a share exchange, "successor" means the corporation the stock of which was
acquired in the share exchange.
ss.3-202 Right to fair value of stock.
(a) General rule. -- Except as provided in subsection (c) of this
section, a stockholder of a Maryland corporation has the right to demand and
receive payment of the fair value of the stockholder's stock from the successor
if:
(1) The corporation consolidates or merges with another corporation;
(2) The stockholder's stock is to be acquired in a share exchange;
(3) The corporation transfers its assets in a manner requiring corporate action
under ss.3-105 of this title;
(4) The corporation amends its charter in a way which alters the contract
rights, as expressly set forth in the charter, of any outstanding stock and
substantially adversely affects the stockholder's rights, unless the right to do
so is reserved by the charter of the corporation; or
(5) The transaction is governed by ss.3-602 of this title or exempted by
ss.3-603 (b) of this title.
(b) Basis of fair value. -- (1) Fair value is determined as of the
close of business: (i) With respect to a merger under ss.3-106 of this title of
a 90 percent or more owned subsidiary into its parent, on the day notice is
given or waived under ss. 3-106; or (ii) With respect to any other transaction,
on the day the stockholders voted on the transaction objected to.
(2) Except as provided in paragraph (3) of this subsection, fair value may not
include any appreciation or depreciation which directly or indirectly results
from the transaction objected to or from its proposal.
(3) In any transaction governed by ss.3-602 of this title or exempted by
ss.3-603 (b) of this title, fair value shall be value determined in accordance
with the requirements of ss.3-603 (b) of this title.
(c) When right to fair value does not apply. -- Unless the transaction
is governed by ss.3-602 of this title or is exempted by ss.3-603 (b) of this
title, a stockholder may not demand the fair value of his stock and is bound by
the terms of the transaction if:
(1) The stock is listed on a national securities exchange or is designated as a
national market system security on an interdealer quotation system by the
National Association of Securities Dealers, Inc.: (i) With respect to a merger
under ss.3-106 of this title of a 90 percent or more owned subsidiary into its
parent, on the date notice is given or waived under
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ss.3-106; or (ii) With respect to any other transaction, on the record date for
determining stockholders entitled to vote on the transaction objected to;
(2) The stock is that of the successor in a merger, unless: (i) The merger
alters the contract rights of the stock as expressly set forth in the charter,
and the charter does not reserve the right to do so; or (ii) The stock is to be
changed or converted in whole or in part in the merger into something other than
either stock in the successor or cash, scrip, or other rights or interests
arising out of provisions for the treatment of fractional shares of stock in the
successor; or
(3) The stock is that of an open-end investment company registered with the
Securities and Exchange Commission under the Investment Company Act of 1940 and
the value placed on the stock in the transaction is its net asset value.
ss.3-203 Procedure by stockholder.
(a) Specific duties. -- A stockholder of a corporation who desires to
receive payment of the fair value of his stock under this subtitle:
(1) Shall file with the corporation a written objection to the proposed
transaction: (i) With respect to a merger under ss.3- 106 of this title of a 90
percent or more owned subsidiary into its parent, within 30 days after notice is
given or waived under ss.3-106; or (ii) With respect to any other transaction,
at or before the stockholders' meeting at which the transaction will be
considered;
(2) May not vote in favor of the transaction; and
(3) Within 20 days after the Department accepts the articles for record, shall
make a written demand on the successor for payment for his stock, stating the
number and class of shares for which he demands payment.
(b) Failure to comply with section. -- A stockholder who fails to
comply with this section is bound by the terms of the consolidation, merger,
share exchange, transfer of assets, or charter amendment.
ss.3-204 Effect of demand on dividend and other rights.
A stockholder who demands payment for his stock under this subtitle:
(1) Has no right to receive any dividends or distributions payable to holders of
record of that stock on a record date after the close of business on the day as
at which fair value is to be determined under ss.3-202 of this subtitle; and
(2) Ceases to have any rights of a stockholder with respect to that stock,
except the right to receive payment of its fair value.
ss.3-205 Withdrawal of demand.
A demand for payment may be withdrawn only with the consent of the
successor.
ss.3-206 Restoration of dividend and other rights.
(a) When rights restored. -- The rights of a stockholder who demands
payment are restored in full, if:
(1) The demand for payment is withdrawn;
(2) A petition for an appraisal is not filed within the time required by this
subtitle;
(3) A court determines that the stockholder is not entitled to relief; or
(4) The transaction objected to is abandoned or rescinded.
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(b) Effect of restoration. -- The restoration of a stockholder's
rights entitles him to receive the dividends, distributions, and other rights he
would have received if he had not demanded payment for his stock. However, the
restoration does not prejudice any corporate proceedings taken before the
restoration.
ss.3-207 Notice and offer to stockholders.
(a) Duty of successor. -- (1) The successor promptly shall notify each
objecting stockholder in writing of the date the articles are accepted for
record by the Department.
(2) The successor also may send a written offer to pay the objecting stockholder
what it considers to be the fair value of his stock. Each offer shall be
accompanied by the following information relating to the corporation which
issued the stock: (i) A balance sheet as of a date not more than six months
before the date of the offer; (ii) A profit and loss statement for the 12 months
ending on the date of the balance sheet; and (iii) Any other information the
successor considers pertinent.
(b) Manner of sending notice. -- The successor shall deliver the notice
and offer to each objecting stockholder personally or mail them to him by
certified mail, return receipt requested, bearing a postmark from the United
States Postal Service, at the address he gives the successor in writing, or, if
none, at his address as it appears on the records of the corporation which
issued the stock.
ss.3-208 Petition for appraisal; consolidation of proceedings; joinder of
objectors.
(a) Petition for appraisal. -- Within 50 days after the Department
accepts the articles for record, the successor or an objecting stockholder who
has not received payment for his stock may petition a court of equity in the
county where the principal office of the successor is located or, if it does not
have a principal office in this State, where the resident agent of the successor
is located, for an appraisal to determine the fair value of the stock.
(b) Consolidation of suits; joinder of objectors. -- (1) If more than
one appraisal proceeding is instituted, the court shall direct the consolidation
of all the proceedings on terms and conditions it considers proper.
(2) Two or more objecting stockholders may join or be joined in an appraisal
proceeding.
ss.3-209 Notation on stock certificate.
(a) Submission of certificate. -- At any time after a petition for
appraisal is filed, the court may require the objecting stockholders parties to
the proceeding to submit their stock certificates to the clerk of the court for
notation on them that the appraisal proceeding is pending. If a stockholder
fails to comply with the order, the court may dismiss the proceeding as to him
or grant other appropriate relief.
(b) Transfer of stock bearing notation. -- If any stock represented by
a certificate which bears a notation is subsequently transferred, the new
certificate issued for the stock shall bear a similar notation and the name of
the original objecting stockholder. The transferee of this stock does not
acquire rights of any character with respect to the stock other than the rights
of the original objecting stockholder.
ss.3-210 Appraisal of fair value.
(a) Court to appoint appraisers. -- If the court finds that the
objecting stockholder is entitled to an appraisal of his stock, it shall appoint
three disinterested appraisers to determine the fair value of the stock on terms
and conditions the court considers proper. Each appraiser shall take an oath to
discharge his duties honestly and faithfully.
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(b) Report of appraisers -- Filing. -- Within 60 days after their
appointment, unless the court sets a longer time, the appraisers shall determine
the fair value of the stock as of the appropriate date and file a report stating
the conclusion of the majority as to the fair value of the stock.
(c) Same -- Contents. -- The report shall state the reasons for the
conclusion and shall include a transcript of all testimony and exhibits offered.
(d) Same -- Service; objection. -- (1) On the same day that the report
is filed, the appraisers shall mail a copy of it to each party to the
proceedings.
(2) Within 15 days after the report is filed, any party may object to it and
request a hearing.
ss.3-211 Action by court on appraisers' report.
(a) Order of court. -- The court shall consider the report and, on
motion of any party to the proceeding, enter an order which: (1) Confirms,
modifies, or rejects it; and
(2) If appropriate, sets the time for payment to the stockholder.
(b) Procedure after order. -- (1) If the appraisers' report is
confirmed or modified by the order, judgment shall be entered against the
successor and in favor of each objecting stockholder party to the proceeding for
the appraised fair value of his stock.
(2) If the appraisers' report is rejected, the court may: (i) Determine the fair
value of the stock and enter judgment for the stockholder; or (ii) Remit the
proceedings to the same or other appraisers on terms and conditions it considers
proper.
(c) Judgment includes interest. -- (1) Except as provided in paragraph
(2) of this subsection, a judgment for the stockholder shall award the value of
the stock and interest from the date as at which fair value is to be determined
under ss.3-202 of this subtitle.
(2) The court may not allow interest if it finds that the failure of the
stockholder to accept an offer for the stock made under ss.3-207 of this
subtitle was arbitrary and vexatious or not in good faith. In making this
finding, the court shall consider: (i) The price which the successor offered for
the stock; (ii) The financial statements and other information furnished to the
stockholder; and (iii) Any other circumstances it considers relevant.
(d) Costs of proceedings. -- (1) The costs of the proceedings,
including reasonable compensation and expenses of the appraisers, shall be set
by the court and assessed against the successor. However, the court may direct
the costs to be apportioned and assessed against any objecting stockholder if
the court finds that the failure of the stockholder to accept an offer for the
stock made under ss.3-207 of this subtitle was arbitrary and vexatious or not in
good faith. In making this finding, the court shall consider: (i) The price
which the successor offered for the stock; (ii) The financial statements and
other information furnished to the stockholder; and (iii) Any other
circumstances it considers relevant.
(2) Costs may not include attorney's fees or expenses. The reasonable fees and
expenses of experts may be included only if: (i) The successor did not make an
offer for the stock under ss.3-207 of this subtitle; or (ii) The value of the
stock determined in the proceeding materially exceeds the amount offered by the
successor.
(e) Effect of judgment. -- The judgment is final and conclusive on all
parties and has the same force and effect as other decrees in equity. The
judgment constitutes a lien on the assets of the successor with priority over
any mortgage or other lien attaching on or after the effective date of the
consolidation, merger, transfer, or charter amendment.
ss.3-212 Surrender of stock.
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The successor is not required to pay for the stock of an objecting
stockholder or to pay a judgment rendered against it in a proceeding for an
appraisal unless, simultaneously with payment: (1) The certificates representing
the stock are surrendered to it, indorsed in blank, and in proper form for
transfer; or
(2) Satisfactory evidence of the loss or destruction of the certificates and
sufficient indemnity bond are furnished.
ss.3-213 Rights of successor with respect to stock.
(a) General rule. -- A successor which acquires the stock of an
objecting stockholder is entitled to any dividends or distributions payable to
holders of record of that stock on a record date after the close of business on
the day as at which fair value is to be determined under ss.3-202 of this
subtitle.
(b) Successor in transfer of assets. -- After acquiring the stock of an
objecting stockholder, a successor in a transfer of assets may exercise all the
rights of an owner of the stock.
(c) Successor in consolidation, merger, or share exchange. -- Unless the
articles provide otherwise, stock in the successor of a consolidation, merger,
or share exchange otherwise deliverable in exchange for the stock of an
objecting stockholder has the status of authorized but unissued stock of the
successor. However, a proceeding for reduction of the capital of the successor
is not necessary to retire the stock or to reduce the capital of the successor
represented by the stock.
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