SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. 1)
Filed by the Registrant (X)
Filed by a Party other than the Registrant ( )
Check the appropriate box:
(x) Preliminary Proxy Statement
( ) Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
( ) Definitive Proxy Statement
( ) Definitive Additional Materials
( ) Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
COMMUNITY FINANCIAL CORPORATION
(Name of Registrant as Specified in its Charter)
(Name of Person(s) Filing Proxy Statement, if other than Registrant)
Payment of Filing Fee (Check the appropriate box):
( ) $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
( ) $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
( ) Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
(x) Fee paid previously with preliminary materials.
( ) Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule, or Registration Statement No.:
3) Filing Party:
4) Date Filed:
<PAGE>
COMMUNITY FINANCIAL CORPORATION
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
of Community Financial Corporation (the "Company"), which will be held on July
31, 1996 at 7:00 p.m. at the main office of Community Federal Savings Bank,
located at 38 North Central Avenue, Staunton, Virginia.
At the Annual Meeting, three directors will be elected for a three year
term. You also will be asked to consider and vote on an Agreement and Plan of
Reorganization dated as of May 22, 1996 (the "Agreement") under which the
Company's state of incorporation would change from Delaware to Virginia. Under
the Agreement, the Company would merge with a new Virginia corporation, also
named Community Financial Corporation ("CFC Virginia"), and the shareholders of
the Company would become shareholders of CFC Virginia.
The Agreement provides that each outstanding share of the Company's
Common Stock will be converted into one share of CFC Virginia's Common Stock.
The Agreement is summarized in the enclosed Proxy Statement. The Reorganization
is also subject to approval by governmental regulatory authorities. If approved,
the Reorganization will not affect the day-to-day operations of the Company and
operations will continue in the same offices and with the same directors,
officers and employees.
Finally, shareholders will be asked to ratify the appointment of the
Company's auditors for the year ending March 31, 1997 and to approve the
Company's 1996 Incentive Plan.
THE BOARD OF DIRECTORS HAS CONSIDERED AND HAS UNANIMOUSLY APPROVED THE PROPOSED
REINCORPORATION OF THE COMPANY IN VIRGINIA AS BEING IN THE BEST INTERESTS OF THE
COMPANY AND ITS SHAREHOLDERS. THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS THAT
SHAREHOLDERS VOTE FOR THE AGREEMENT.
The accompanying Proxy Statement and related proxy materials set forth
detailed information concerning the proposed reincorporation. The Board of
Directors requests that the shareholders carefully review these materials before
completing the enclosed proxy card.
The affirmative vote of shareholders owning a majority of the Company's
outstanding Common Stock is required to approve the Agreement and the
transactions thereunder. Accordingly, whether or not you plan to attend in
person, it is important that your shares be represented at the Annual Meeting.
Please complete, sign, date and return promptly the form of proxy which is
enclosed in this mailing. If you later decide to attend the Annual Meeting and
vote in person, or if you wish to revoke your proxy for any reason prior to the
vote at the Annual Meeting, you may do so and your proxy will have no further
effect.
The Board of Directors and management of the Company appreciate your
continued support and look forward to seeing you at the Annual Meeting.
Sincerely yours,
THOMAS W. WINFREE
President and
Chief Executive Officer
Staunton, Virginia
July 3, 1996
<PAGE>
COMMUNITY FINANCIAL CORPORATION
38 North Central Avenue
Staunton, Virginia 24401
(540) 886-0796
NOTICE OF ANNUAL MEETING OF SHAREHOLDERS
To be Held on July 31, 1996
Notice is hereby given that the Annual Meeting of Shareholders (the
"Annual Meeting") of Community Financial Corporation (the "Company") will be
held at the main office of Community Federal Savings Bank, located at 38 North
Central Avenue, Staunton, Virginia, on July 31, 1996 at 7:00 P.M.
A Proxy Card and a Proxy Statement for the Annual Meeting are enclosed.
The Meeting is for the purpose of considering and acting upon:
1. The election of three directors of the Company;
2. Changing the Company's state of incorporation from Delaware to
Virginia pursuant to an Agreement and Plan of Reorganization,
dated May 22, 1996 between the Company and a new Virginia
corporation, also named "Community Financial Corporation";
3. Approving the Company's 1996 Incentive Plan;
4. The ratification of the appointment of BDO Seidman, LLP as
auditors for the Company for the fiscal year ending March 31,
1997; and
such other matters as may properly come before the Meeting, or any adjournments
thereof. The Board of Directors is not aware of any other business to come
before the Meeting.
Any action may be taken on any of the foregoing proposals at the Annual
Meeting on the date specified above, or on any date or dates to which the Annual
Meeting may be adjourned. Shareholders of record at the close of business on May
31, 1996 are the shareholders entitled to vote at the Annual Meeting, and any
adjournments thereof.
You are requested to complete and sign the enclosed form of Proxy which
is solicited on behalf of the Board of Directors, and to mail it promptly in the
enclosed envelope. The Proxy will not be used if you attend and vote at the
Meeting in person.
By Order of the Board of Directors
Sarah A. Ralston, Secretary
Staunton, Virginia
July 3, 1996
IMPORTANT: THE PROMPT RETURN OF PROXIES WILL SAVE THE COMPANY THE EXPENSE OF
FURTHER REQUESTS FOR PROXIES TO ENSURE A QUORUM AT THE MEETING. A SELF-
ADDRESSED ENVELOPE IS ENCLOSED FOR YOUR CONVENIENCE. NO POSTAGE IS REQUIRED IF
MAILED WITHIN THE UNITED STATES.
<PAGE>
PROXY STATEMENT OF COMMUNITY FINANCIAL CORPORATION
This Proxy Statement is furnished to holders of Common Stock, par value
$.01 per share ("Company Common Stock"), of the Company, in connection with the
solicitation of proxies by the Board of Directors (the "Board") of the Company
to be used at the Annual Meeting of Shareholders to be held on July 31, 1996 at
7:00 p.m. and at any adjournment thereof (the "Annual Meeting").
At the Annual Meeting, three directors will be elected for a term of
three years each. Shareholders also will be asked to ratify the appointment of
BDO Seidman, LLP as independent auditors for the year ending March 31, 1997, and
to approve the Company's 1996 Incentive Plan.
Also to be considered at the Annual Meeting is an Agreement and Plan of
Reorganization between the Company and a new Virginia corporation, also named
"Community Financial Corporation" ("CFC Virginia"), dated as of May 22, 1996,
previously approved by the Board of Directors (the "Agreement"). Under the
Agreement, each share of Company Common Stock will be exchanged for one share of
CFC Virginia's common stock, par value $.01 per share ("CFC Virginia Common
Stock"). These and the other transactions to be effected in accordance with the
Agreement are hereinafter referred to as the "Reorganization". Following the
consummation of the Reorganization, Community Federal Savings Bank, a
wholly-owned subsidiary of the Company, will conduct its business as a
wholly-owned subsidiary of CFC Virginia with the same directors and principal
officers and in the same manner and from the same offices as at present.
At the Effective Date of the Reorganization, each outstanding share of
Company Common Stock will be converted into one share of CFC Virginia Common
Stock.
The principal offices of the Company and CFC Virginia are at 38 N.
Central Avenue, Staunton, Virginia 24401, telephone: (540) 886-0796.
The accompanying Notice of Meeting and this Proxy Statement are first
being mailed to shareholders on or about July 3, 1996. Certain of the
information provided herein relates to Community Federal Savings Bank, a wholly
owned subsidiary and predecessor of the Company. References herein to the "Bank"
are to Community Federal Savings Bank.
THE SHARES OF CFC VIRGINIA COMMON STOCK ARE NOT SAVINGS OR DEPOSIT ACCOUNTS AND
ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
<PAGE>
TABLE OF CONTENTS
Page
SUMMARY
Annual Meeting................................................................2
Voting and Revocability of Proxy..............................................3
Persons Making the Solicitation...............................................3
Structure of the Agreement....................................................3
Reasons for the Reorganization................................................3
The Company...................................................................3
Federal Income Tax Consequences...............................................3
Government Regulation and Supervision.........................................4
Required Approvals............................................................4
Rights of Dissenting Shareholders.............................................4
Financial Data................................................................4
Differences in Shareholders' Rights...........................................5
Voting Securities and Principal Holders Thereof...............................5
ELECTION OF DIRECTORS
Election of Directors.........................................................5
Board of Directors Meetings and Committees....................................7
Executive Compensation........................................................8
Certain Transactions.........................................................11
Executive Officers...........................................................11
Employment Agreement.........................................................12
Compliance with Section 16(a)................................................12
AGREEMENT AND PLAN OF REORGANIZATION
Description of the Agreement.................................................12
No Surrender of Stock Certificates...........................................13
Reasons for the Reorganization...............................................13
Effect on Stock Options......................................................13
Management Remuneration......................................................13
Market for Common Stock......................................................14
Anticipated Dividend Policy..................................................14
Resales of CFC Virginia Stock................................................15
Anticipated Effective Date ..................................................15
Abandonment or Amendment of the Agreement....................................15
Accounting for the Transaction...............................................15
Federal Income Tax Consequences..............................................15
Rights of Dissenting Shareholders........................................... 16
Differences in Rights of Shareholders........................................17
Material Virginia Laws.......................................................20
The Company..................................................................21
CFC Virginia.................................................................23
1996 INCENTIVE PLAN
General......................................................................24
Administration...............................................................24
Eligibility..................................................................25
Individual Agreements........................................................25
Shares Available.............................................................25
Incentive Stock Options and Non-Qualified Stock Options......................25
<PAGE>
Change of Control............................................................25
Amendment or Termination.....................................................26
Duration of Incentive Plan...................................................26
Tax Status...................................................................26
RATIFICATION OF APPOINTMENT OF AUDITORS......................................27
SHAREHOLDER PROPOSALS........................................................27
ANNUAL REPORT AND FINANCIAL STATEMENTS.......................................27
OTHER MATTERS................................................................28
EXHIBIT A - Agreement and Plan of Reorganization............................A-1
EXHIBIT B - Section 262 of Chapter 1, Title 8, Delaware Code,
regarding Dissenters' Rights of Appraisal.......................B-1
EXHIBIT C - Amended and Restated Articles of Incorporation of
CFC Virginia ...................................................C-1
EXHIBIT D - Bylaws of CFC Virginia..........................................D-1
EXHIBIT E - 1996 Incentive Plan.............................................E-1
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<PAGE>
SUMMARY
The following material is qualified in its entirety by the information
appearing elsewhere in this Proxy Statement and the Exhibits thereto.
Annual Meeting
Date, Time and Place. July 31, 1996 at 7:00 p.m. at the main office of
Community Federal Savings Bank, located at 38 North Central Avenue, Staunton,
Virginia.
Purposes. To elect three (3) directors for a three year term.
Shareholders also will vote on (i) the adoption of the Agreement providing for
the reincorporation of the Company in Virginia through a merger of the Company
with and into CFC Virginia, (ii) the Company's 1996 Incentive Plan, which
provides for the grant of stock options to directors and key officers and
employees and (iii) ratification of the appointment of auditors for the fiscal
year ending March 31, 1997.
Record Date. The Board of Directors has fixed the close of business on
May 31, 1996 as the record date (the "Record Date") for the determination of the
holders of Company Common Stock entitled to receive notice of and to vote at the
Annual Meeting. On the Record Date, there were 1,271,198 shares of Company
Common Stock issued and outstanding and 558 record holders. Each share of
Company Common Stock is entitled to one vote at the Annual Meeting. The Company
had no other class of equity securities outstanding at the Record Date.
Vote Required. The affirmative vote of the holders of a majority of the
shares of Company Common Stock outstanding as of the Record Date, in person or
by proxy, is required to approve the Agreement. Shareholder approval of the 1996
Incentive Plan requires that a majority of the shares present at the Annual
Meeting or represented by proxy vote in favor of it.
In the election of directors, those receiving the greatest number of
votes will be elected even if they do not receive a majority. Abstentions and
broker non-votes will not be considered a vote for, or a vote against, a
director.
As of the Record Date, directors and executive officers of the Company
and their affiliated persons and entities as a group, owned of record and
beneficially a total of 260,844 shares of the Company Common Stock, or
approximately 20.52% of the shares of Company Common Stock outstanding on such
date. Directors and executive officers of the Company have indicated an
intention to vote their shares of Company Common Stock FOR the Agreement, FOR
the nominees identified herein and FOR the 1996 Incentive Plan.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, WILL HAVE THE SAME EFFECT AS A VOTE AGAINST
APPROVAL OF THE AGREEMENT.
A shareholder may abstain with respect to the Agreement or the 1996
Incentive Plan. Abstentions will be counted for purposes of determining the
existence of a quorum. A quorum for the Annual Meeting will exist if holders of
a majority of the shares of the Company Common Stock are present in person or
represented by proxy. Abstentions will not be counted as voting in favor of the
Agreement or the 1996 Incentive Plan. Since approval of the Agreement requires
an affirmative vote of a specified number of shares outstanding, abstentions
will have the effect of a negative vote with respect thereto. Abstentions also
will have the effect of a vote against the 1996 Incentive Plan.
A broker who holds shares in street name has the authority to vote on
certain items when he has not received instructions from the beneficial owner.
Except for certain items for which brokers are prohibited from exercising their
discretion, a broker is entitled to vote on matters put to shareholders without
instructions from the beneficial owner. Where brokers do not have or do not
exercise such discretion, the inability or failure to vote is referred to as a
broker nonvote. Under the circumstances where the broker is not permitted to or
does not exercise
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<PAGE>
its discretion, assuming proper disclosure to the Company of such failure to
vote, broker nonvotes will be counted for purposes of determining the existence
of a quorum, but will not be counted as voting in favor of the Agreement or the
1996 Incentive Plan.
Voting and Revocability of Proxy
The proxy solicited hereby, if properly signed and returned to the
Company and not revoked prior to its use, will be voted in accordance with the
instructions contained thereon. If no contrary instructions are given, each
proxy received will be voted "for" the proposals described herein. Any
shareholder giving a proxy has the power to revoke it at any time before it is
exercised by (i) filing written notice thereof with the Secretary of the
Company, Sarah A. Ralston, Secretary, 38 N. Central Avenue, P. O. Box 1209,
Staunton, VA 24402-1209; (ii) submitting a duly executed proxy bearing a later
date; or (iii) appearing at the Annual Meeting or at any adjournment thereof and
giving the Secretary notice of his or her intention to vote in person. Proxies
solicited hereby may be exercised only at the Annual Meeting and any adjournment
thereof and will not be used for any other meeting.
Persons Making the Solicitation
The cost of soliciting proxies will be borne by the Company. In
addition to solicitation by mail, officers and regular employees of the Company
may solicit proxies in person or by telephone.
Structure of the Agreement
The Company has recently caused the incorporation of CFC Virginia under
the laws of Virginia to facilitate the change of the Company's state of
incorporation from Delaware to Virginia. Upon approval of the Agreement by the
shareholders (i) CFC Virginia will have the same directors and the same
principal officers and will conduct its business in substantially the same
manner, under the same name and from the same offices as the Company has done
before, and (ii) the shareholders of the Company will receive one share of CFC
Virginia Common Stock for each share of Company Common Stock held by them at the
effective date of the Agreement. See "AGREEMENT AND PLAN OF REORGANIZATION -
Description of the Agreement."
THE SHARES TO BE ISSUED PURSUANT TO THE AGREEMENT ARE NOT SAVINGS OR DEPOSIT
ACCOUNTS AND ARE NOT INSURED BY THE FDIC OR ANY OTHER GOVERNMENT AGENCY.
Reasons for the Reorganization
In the opinion of the Company's management and Board of Directors, the
proposed transaction will substantially reduce the Company's annual franchise
tax. The Company currently pays approximately $20,040 per year for the Delaware
franchise tax, while CFC Virginia would pay $850 per year for the Virginia
annual registration fee, a savings of $19,190. The Company has no offices and
conducts no operations in Delaware. See "AGREEMENT AND PLAN OF REORGANIZATION -
Reasons for the Agreement."
The Company
The Company is a savings and loan holding company. Its subsidiary,
Community Federal Savings Bank, conducts banking business from its main office
located at 38 N. Central Avenue, P. O. Box 1209, Staunton, VA 24402-1209. It
also operates branch offices in Waynesboro and Stuarts Draft in Augusta County,
Virginia. As of March 31, 1996, it had assets of $159.8 million, deposits of
$105.0 million and net loans of $141.7 million.
Federal Income Tax Consequences
The Reorganization is intended to qualify for federal income tax
purposes as a reorganization under Section 368(a) of the Internal Revenue Code
of 1986, as amended, in which no gain or loss would be recognized by a Company
shareholder upon the receipt of CFC Virginia Common Stock in exchange for
Company Common Stock. All shareholders of the Company should read carefully the
discussion under "AGREEMENT AND PLAN OF REORGANIZATION - Federal Income Tax
Consequences."
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<PAGE>
Government Regulation and Supervision
The Company is subject to the Savings and Loan Holding Company Act, as
amended (the "Holding Company Act"), and is subject to regulation by the Office
of Thrift Supervision ("OTS") with respect to its operations as a savings and
loan holding company. After the Reorganization, CFC Virginia will be subject to
the Holding Company Act and to regulation by the OTS in the same manner.
Community Federal Savings Bank will continue to be regulated by the OTS and the
Federal Deposit Insurance Corporation, just as it presently is.
Required Approvals
The contemplated Reorganization is subject to receiving regulatory
approval from the OTS. Notice for such approvals have been filed and are pending
as of the date hereof.
Rights of Dissenting Shareholders
Shareholders of the Company who dissent from the proposed transaction
are entitled to rights of appraisal in the event the Reorganization is
consummated. See "AGREEMENT AND PLAN OF REORGANIZATION Rights of Dissenting
Shareholders."
Financial Data
The following table presents per share data applicable to the Company's
Common Stock for each of the last five fiscal years:
Year Ended Cash
March 31, Net Income Dividends Book Value
1996 $1.60 $.42 $17.25
1995 1.44 .35 15.74
1994 1.26 .34 14.74
1993 1.23 .32 13.77
1992 1.13 .31 12.82
Differences in Shareholders' Rights
Under Virginia law and the Articles of Incorporation and Bylaws of CFC
Virginia, the rights of shareholders of CFC Virginia after the Reorganization
would differ materially from the rights of shareholders of the Company under
Delaware law and the Certificate of Incorporation and Bylaws of the Company as
to increased authorized shares of capital stock, payment of dividends, and
liability and indemnification of directors, officers and employees. Approval of
the Reorganization will be deemed to be approval of the Articles of
Incorporation and Bylaws of CFC Virginia. See "AGREEMENT AND PLAN OF
REORGANIZATION - Differences in Rights of Shareholders."
Voting Securities and Principal Holders Thereof
Shareholders of record as of the close of business on May 31, 1996 will
be entitled to one vote for each share then held. As of that date, the Company
had 1,271,198 shares of Common Stock issued and outstanding. The following table
sets forth information regarding persons and entities who were known by
management to
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<PAGE>
beneficially own more than five percent of the outstanding shares of the
Company's Common Stock as of May 31, 1996 and share ownership of all directors
and executive officers of the Company and the Bank as a group.
Shares
Beneficially Percent
Owned at of
Beneficial Owner May 31, 1996 Class
Over 5% Owners:
Wellington Trust Company, N.A. 92,000(1) 7.24%
75 State Street
Boston, Massachusetts 02109
Ryback Management Corporation 118,000(2) 9.28
Lindner Investment Series Trust
7711 Carondelet Avenue
Box 16900
St. Louis, Missouri 63105
All officers and directors as 278,744(3) 21.62
a group (13 persons)
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(1) As reported by the Wellington Trust Company, N.A. in a statement
dated January 23, 1996 on an amendment to Schedule 13G under the Securities
Exchange Act of 1934, as amended. Wellington Trust Company, N.A. a registered
investment advisor, reported shared voting power as to 32,000 shares and shared
investment power as to 92,000 shares as a result of acting as an investment
advisor to numerous investment counseling clients. None of Wellington Trust
Company, N.A.'s clients reported an interest with respect to more than 5% of the
Company's common stock.
(2) As reported by the Ryback Management Corporation and Lindner
Investment Series Trust in a statement dated January 25, 1996 on an amendment to
Schedule 13G under the Securities Exchange Act of 1934, as amended. Lindner
Growth Fund (formerly Lindner Fund, Inc.), a registered investment company and a
separate series of the Lindner Investment Series Trust, reported sole voting and
investment power as to all of the shares.
(3) This amount includes shares held directly as well as an aggregate
of 17,900 shares which the directors and officers have the right to acquire
pursuant to options granted under the Company's 1987 Stock Option and Incentive
Plan and 43,650 shares which have been allocated to individual officer accounts
under the Employee Stock Ownership Agreement and shares held in retirement
accounts, in a fiduciary capacity or by certain family members, with respect to
which shares the respective directors and officers may be deemed to have or
share voting and investment power.
PROPOSAL I
ELECTION OF DIRECTORS
The Company's Board of Directors is currently composed of eight
members. Approximately one-third of the directors are elected annually.
Directors of the Company are generally elected to serve for a three-year period
or until their respective successors shall have been elected and shall qualify.
The table below sets forth certain information regarding the
composition of the Company's Board of Directors, including their terms of
office. It is intended that the proxies solicited on behalf of the Board of
Directors (other than proxies in which the vote is withheld as to one or more
nominees) will be voted at the Meeting for the election of the nominees
identified below for terms of three years. If any nominee is unable to serve,
the shares represented by all such proxies will be voted for the election of
such substitute as the Board of Directors may
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<PAGE>
recommend. At this time, the Board of Directors knows of no reason why any of
the nominees might be unable to serve, if elected. There are no arrangements or
understandings between any nominee and any other person pursuant to which such
nominee was selected.
<TABLE>
<CAPTION>
Shares of
Common Stock
Current Beneficially Percent
Positions Held Director Term to Owned at of
Name Age in the Company Since Expire 04/30/96(1) Class
---- --- -------------- --------- -------- -------------- -----
<S> <C>
NOMINEES
Charles F. Andersen, MD 54 Director 1990 1996 13,320 1.05%
Thomas W. Winfree 51 President, Chief Executive 1995 1996 15,800 1.24
Officer and Director
Charles W. Fairchilds 48 Director 1996 1996 100 *
DIRECTORS CONTINUING IN OFFICE
Kenneth L. Elmore 60 Director 1988 1997 16,710 1.32
James R. Cooke, Jr., DDS 58 Director 1984 1997 44,100 3.46
Jane C. Hickok 59 Vice Chairman of the Board 1983 1998 44,660 3.52
and Director
Dale C. Smith 57 Director 1980 1998 16,050 1.26
Richard E. Bonin 70 Chairman of the Board 1983 1998 30,250 2.38
</TABLE>
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* Indicates less than 1%.
(1) Includes shares held directly, as well as shares subject to options
granted under the Company's Stock Option Agreement, shares held for the benefit
of the listed individuals by the ESOP, and shares held by family members, with
respect to which shares the listed individuals or group members may be deemed to
have sole voting and investment powers. Includes shares that may be acquired
within 60 days upon the exercise of stock options held by individuals as
follows: Dr. Cooke, 3,250 shares; Mr. Winfree, 1,500 shares; Mr. Smith, 1,650
shares; executive officers as a group, 12,500 shares. Includes shares held
solely by the spouse of individuals as follows: Dr. Cooke, 3,666 shares; Mr.
Elmore, 2,372 shares; Mrs. Hickok, 1,650 shares; Mr. Smith, 1,600 shares;
executive officers as a group, 6,671 shares. Includes shares held jointly with
another person, with shared voting power and investment power, by individuals as
follows: Mr. Bonin, 30,250 shares; Dr. Cooke, 28,500 shares; Mrs. Hickok, 28,814
shares; Mr. Smith, 2,676 shares; executive officers as a group, 19,280 shares.
Includes shares held by the children of individuals as follows: Mr. Winfree, 515
shares; executive officers as a group, 350 shares. Includes shares held in the
capacity of a trustee by individuals as follows: Mr. Elmore, 2,000 shares; Mrs.
Hickok, 13,726 shares; Mr. Smith, 1,200 shares; executive officers as a group,
6,396 shares.
The business experience during the last five years of each of the
directors is as follows:
Charles F. Andersen, M.D. Dr. Andersen has been an orthopedic surgeon
in private practice in Waynesboro, Virginia since 1974.
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<PAGE>
Thomas W. Winfree. Mr. Winfree is President and Chief Executive
Officer of the Company and the Bank, positions that he has held since October
1995. From 1984 to 1995, he was President and Chief Executive Officer of
Jefferson Savings and Loan Association.
Charles W. Fairchilds. Mr. Fairchilds has been President of Allied
Ready Mix Co., Waynesboro, Virginia, since 1987.
Kenneth L. Elmore. Mr. Elmore has been a partner of Elmore, Hupp &
Co., a certified public accounting firm since 1991. Mr. Elmore has been a
certified public accountant for over 30 years.
James R. Cooke, Jr., D.D.S. Dr. Cooke has been a practicing dentist in
Staunton, Virginia since 1965.
Jane C. Hickok. Mrs. Hickok was elected as Vice Chairman of the Board
in October 1994. She had previously retired as President and Chief Executive
Officer of the Bank in October 1994 after serving since 1984. Mrs. Hickok had
also retired as President and Chief Executive Officer of the Company in January
1995, but continued to serve as a director of the Company and the Bank. Mrs.
Hickok was elected as a director of Community Federal Savings Bank in 1983 and
as a director of the Company in 1990 when it became the holding company of the
Bank. Prior to that time, Mrs. Hickok was an Executive Vice President and Vice
President of the Bank.
Dale C. Smith. Mr. Smith has been the General Manager and Chief
Executive Officer of Augusta Cooperative Farm Bureau, a farm supply and retail
store.
Richard E. Bonin. Mr. Bonin retired as Vice President - Operations of
American Safety Razor Company, a manufacturer of wet shaving products in 1987
after 10 years of service.
BOARD OF DIRECTORS MEETINGS AND COMMITTEES
Meetings of the Company. During the Company's fiscal year ended March
31, 1996, the Board of Directors of the Company held 15 meetings. No director
attended fewer than 75% of the meetings that the Board of Directors of the
Company and committees on which such Board member served during fiscal 1996. The
following is a description of the committees of the Board of Directors of the
Company.
The Executive and Long Range Planning Committee is responsible for
formulating future plans and discussing objectives and corporate goals. The
current committee members are directors Andersen, Bonin, Winfree and Elmore.
During the Company's fiscal year ended March 31, 1996, no meetings of this
committee were held.
The Stock Option Committee is responsible for administering the
Company's stock option plan. The current committee members are directors Bonin,
Cooke and Smith. During the year ended March 31, 1996, no meetings of this
committee were held.
Meetings of the Bank. During the year ended March 31, 1996, the Board
of Directors of the Bank held 15 meetings. No director attended fewer than 75%
of the total meetings of such Board of Directors and committees on which such
Board member served during this period. Directors who are not employees of the
Bank receive a fee of $700 per month whether or not they attend Board meetings.
The Chairman of the Board receives a fee of $1,400 per month.
The Bank, as the principal subsidiary of the Company, also has
established various committees composed of certain members of the Board of
Directors of the Bank. Except for the Chairman of the Board, members of such
committees are paid $50 for each committee meeting they attend. Set forth below
is a description of the principal committees formed by the Board of Directors of
the Bank.
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<PAGE>
The Loan Committee, currently composed of the Chairman of the Board of
Directors, the President, the Loan Department Manager of the Bank and the Chief
Financial Officer, meets as needed to approve loan applications in the range of
$100,000 to $150,000. During fiscal 1996 the Loan Committee met 15 times.
The Executive and Long-Range Planning Committee is currently composed
of directors Andersen, Bonin, Winfree and Elmore. The Long-Range Planning
Committee was formed in 1986 for the purpose of formulating future plans for
physical plant needs, branching possibilities, funding and liquidity levels and
discussions of objectives and corporate goals. This committee held no meetings
during the year ended March 31, 1996.
The Compensation and Benefits Committee is currently composed of
directors Cooke, Hickok, Winfree and Smith. This committee is responsible for
determining compensation and benefits for all officers of the Bank. This
committee held two meetings during the year ended March 31, 1996.
Neither the Company nor the Bank have standing audit or nominating
committees. The full Board of Directors of the Company acts as the nominating
committee for the annual selection of nominees for election as directors. While
the Board of Directors will consider nominees recommended by others, it has
neither actively solicited recommendations for nominees nor established any
procedures for this purpose.
EXECUTIVE COMPENSATION
The Company has not paid any compensation to its executive officers
since its formation. The Company does not presently anticipate paying any
compensation to such persons until it becomes actively involved in the operation
or acquisition of business other than the Bank and its subsidiaries.
-8-
<PAGE>
The present executive officers of the Company also currently hold the
same positions with the Bank and have received compensation from the Bank. The
following table sets forth the compensation paid or granted by the Company and
its subsidiaries for services rendered during the periods indicated to its
current and former Chief Executive Officers. No other executive officer received
annual compensation in excess of $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long Term
Annual Compensation Compensation
All Other
Name and Bonus Options/ Compensation
Principal Position Year Salary ($) ($) SARs (#) ($) (a)
------------------ ---- ---------- --- -------- -------
<S> <C>
THOMAS W. WINFREE 1996 45,000 4,500 11,500 96
- - President, Chief
Executive Officer and
Director of the Company
and the Bank
JANE C. HICKOK - Vice 1996 55,717 -- -- 1,518
Chairman of the Board, 1995 82,300 4,950 -- 2,433
Former President and 1994 99,000 -- -- 3,049
Chief Executive Officer of
the Company and the Bank
OSCAR H. BEASLEY, III 1996 14,250 -- -- 71,425
- - Former President, Chief 1995 71,667 10,700 -- 951
Executive Officer and
Director of the Company
and the Bank
</TABLE>
- --------------------
(a) Represents the Company's contributions of $1,438 and $2,289 to the
Employee Stock Ownership Agreement and/or the Company's 401(k) Agreement on
behalf of Mrs. Hickok and $80 and $144 in premiums for a term life insurance
policy maintained on behalf of Mrs. Hickok in 1996 and 1995, respectively.
Represents the Company's contributions of $143 and $759 to the Employee Stock
Ownership Agreement and/or the Company's 401(k) Agreement on behalf of Mr.
Beasley and $32 and $192 in premiums for a term life insurance policy maintained
on behalf of Mr. Beasley in 1996 and 1995, respectively. Amount for 1996 also
includes $71,250 of severance pay. Mr. Beasley resigned as President, Chief
Executive Officer and Director of the Company and Bank effective May 22, 1995 in
order to pursue other opportunities. Represents premiums for a term life
insurance policy maintained on behalf of Mr. Winfree in 1996.
-9-
<PAGE>
The following table sets forth certain information concerning grants of
stock options pursuant to the Company's 1987 Stock Option and Incentive Plan to
the named officers for the fiscal year ended March 31, 1996. No stock
appreciation rights or limited stock appreciation rights were granted to any
director or executive officer under the Company's 1987 Stock Option and
Incentive Plan.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation for
Individual Grants (a) Option Term
Percent of Total
Options/ Options/
SARs SARs Granted Exercise
Granted to Employees in Price Expiration
Name (#) Fiscal Year (a) ($/Share) (b) Date 5% ($) 10%($)
---- --- --------------- ------------- ---- ------ ------
<S> <C>
Thomas W. Winfree 10,000 35.6 16.50 10/02/05 103,800 263,000
1,500 5.3 20.00 03/27/06 18,870 47,805
</TABLE>
- -------------------
(a) Options to purchase 28,100 shares of Common Stock were granted to employees
of the Company during the fiscal year ended March 31, 1996.
(b) Stock options were awarded at the fair market value of the shares of Company
Common Stock at the date of award.
-10-
<PAGE>
The following table sets forth certain information concerning the
number and value of stock options at March 31, 1996, held by the Company's
current Chief Executive Officer. The Company's former Chief Executive Officers
exercised no stock options in the last fiscal year and held no unexercised
options at March 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FY-END
OPTION VALUES
<TABLE>
<CAPTION>
Value of
Number of Unexercised
Unexercised In-the-Money
Options at Options at
FY-End (#) FY-End ($)(1)
Shares
Acquired
on Value
Name Exercise (#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
---- ------------ ------------ ----------- ------------- ----------- -------------
<S> <C>
Thomas W. Winfree -0- -0- 1,500 10,000 -0- 35,000
</TABLE>
- -----------
(1) Value is based upon $20.00, the average of the bid and asked price
per share of the Company's Common Stock as reported on the Nasdaq Small-Cap
Stock Market on March 31, 1996, less the exercise price.
CERTAIN TRANSACTIONS
The Bank, like many financial institutions, has followed the policy of
granting loans to its officers, directors and employees for the financing of
their personal residences as well as consumer loans. The loans to executive
officers and directors are made in the ordinary course of business on the same
terms and conditions, as those of comparable transactions prevailing at the
time, and do not involve more than the normal risk of collectibility or present
other unfavorable features.
All loans by the Bank to its directors and executive officers are
subject to federal regulations restricting loan and other transactions with
affiliated persons of the Bank. Loans to all directors and executive officers
and their associates, including outstanding balances and commitments, totaled
$419,975 at March 31, 1996.
EXECUTIVE OFFICERS
The executive officers of the Company are the following persons:
Thomas W. Winfree, age 51. Mr. Winfree is President and Chief
Executive Officer of the Company and the Bank, positions that he has held since
October 1995. From 1984 to 1995, he was President and Chief Executive Officer
of Jefferson Savings and Loan Association.
R. Jerry Giles, age 47. Mr. Giles is a Vice President of the Company
and has been its Chief Financial Officer since April 1994. From August 1992 to
March 1994, Mr. Giles was an associate of Jerry W. Taylor, CPA,
-11-
<PAGE>
a public accounting practice in Hopewell, Virginia. From October 1991 to August
1992, Mr. Giles was controller of Alabama Labels, a printing company in
Birmingham, Alabama. From October 1990 to October 1991, Mr. Giles was a life
insurance agent with New York Life Insurance Company in Hopewell, Virginia.
Angel Negron, Jr., age 49. Mr. Negron has been Vice President -
Director of Lending of the Company and of the Bank since February 1996. From
April 1974 to February 1996, Mr. Negron was a Commercial Relationship Manager
and Vice President with NationsBank in Harrisonburg, Virginia.
Shirley V. Lovegrove, age 57. Ms. Lovegrove has been Vice President -
Operations of the Company and of the Bank since July 1985.
Paul Kevin Martin, age 32. Mr. Martin has been Vice President -
Administration of the Company and of the Bank since March 1996, and was
Assistant Vice President and Branch Manager of the Company and of the Bank from
October 1991 to March 1996.
EMPLOYMENT AGREEMENT
Thomas W. Winfree and the Bank are parties to an agreement for a term
beginning October 1, 1995, and ending March 31, 1997. Under the terms of the
agreement, Mr. Winfree will be entitled to a severance payment in the event that
Mr. Winfree is involuntarily terminated from his position in connection with or
within 12 months of a change in control of the Bank or of the Company, unless
his termination is for cause. The amount of the severance payment will equal 18
months of Mr. Winfree's then current salary. As of May 31, 1996, the cash amount
payable to Mr. Winfree if his employment terminated in connection with or after
a change in control would be $157,500. Mr. Winfree and the Company have agreed
that the Reorganization will not be considered a change of control for purposes
of interpreting or applying his agreement.
COMPLIANCE WITH SECTION 16(a)
Section 16(a) of the Securities Exchange Act of 1934 requires the
Company's directors and executive officers, and any persons who own more than
10% of the common stock of the Company, to file with the Securities and Exchange
Commission reports of ownership and changes in ownership of common stock.
Officers and directors are required by SEC regulation to furnish the Company
with copies of all Section 16(a) forms they file. Based solely on review of the
copies of such reports furnished to the Company or written representation that
no other reports were required, the Company believes that, during 1995, all
filing requirements applicable to its officers and directors were complied with
except that Lawrence F. Smith, former Vice President in Charge of Lending,
inadvertently failed to file a report covering the sale of 13,910 shares of
Company Common Stock on November 7, 1995 at $17 per share. Mr. Smith's
employment with the Company ended in December 1995.
PROPOSAL II
AGREEMENT AND PLAN OF REORGANIZATION
Description of the Agreement
The Board of Directors of the Company has approved the proposed
Agreement whereby a reincorporation in Virginia would be accomplished by merging
the Company into CFC Virginia and converting each share of Company Common Stock
into one share of CFC Virginia Common Stock. CFC Virginia has recently been
organized at the direction of the Company to facilitate the Reorganization. The
full text of the Agreement is attached hereto as Exhibit A, and shareholders of
the Company are urged to read it carefully.
-12-
<PAGE>
Following the Reorganization, the Company's wholly owned subsidiary,
Community Federal Savings Bank, will operate under its present name and will
conduct its business in the same manner as at present, with the same directors,
officers and personnel.
No Surrender of Stock Certificates
After the effective date of the Reorganization (as further defined
hereinafter, the "Effective Date"), certificates that represent shares of
Company Common Stock will automatically represent the same number of shares of
CFC Virginia Common Stock.
SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES .
All CFC Virginia Common Stock issued as a result of the Reorganization
will be deemed issued as of the Effective Date. After the Effective Date,
shareholders of the Company will be entitled to vote the number of shares of CFC
Virginia Common Stock into which their shares of Company Common Stock have been
converted.
Reasons for the Reorganization
The principal reason for the Reorganization is to avoid the Delaware
franchise tax. Currently, the Company's Delaware franchise tax is $20,400 per
year and would increase if the Company's authorized shares of Common or
Preferred Stock increased. By reincorporating in Virginia, the annual fee
payable by CFC Virginia would be a maximum of $2,500, regardless of the number
of authorized shares. Additionally, the Company and its wholly-owned subsidiary,
Community Federal Savings Bank, conduct substantially all of their operations in
Virginia. Neither conducts operations in Delaware.
The Company does not expect that the Reorganization will have any
impact on its operations or the operations of Community Federal Savings Bank.
Effect on Stock Options
At the Effective Date, the stock options of the Company, by virtue of
the Reorganization, will become stock options of CFC Virginia. Stock options
with respect to shares of Company Common Stock granted and outstanding prior to
consummation of the Reorganization will automatically become options to purchase
the same number of shares of CFC Virginia Common Stock upon consummation of the
Reorganization, upon identical terms and conditions and for an identical price,
and CFC Virginia will assume all of the Company's obligations with respect to
such outstanding options.
It is intended that all other employee benefit plans of the Company and
the employment arrangements with executive officers will be unchanged by the
Reorganization.
Management Remuneration
It is not anticipated that separate compensation will be paid to the
officers of CFC Virginia until such time as the officers of CFC Virginia devote
significant time to the separate management of CFC Virginia's affairs, which is
not expected to occur unless CFC Virginia becomes actively involved in
additional businesses. CFC Virginia may determine that such compensation is
appropriate in the future, however.
Upon consummation of the Reorganization, all rights to purchase, sell
or receive Company Common Stock and all rights to elect to make payment in
Company Common Stock under any agreement between the Company and any director,
officer or employee thereof or under any other stock or option plan or program
of the Company shall automatically, by operation of law, be converted into and
shall become an identical right to make payment in CFC Virginia Common Stock
under any such agreement between the Company and any director, officer or
employee thereof or under such plan or program of the Company.
-13-
<PAGE>
Market for Common Stock
Because CFC Virginia is a newly formed corporation and there is
currently no established trading market for its securities, no information can
be provided as to historical market prices for CFC Virginia Common Stock.
The Company's Common Stock trades in the Nasdaq SmallCap Market under
the symbol "CFFC". The following table sets forth the high and low bid and ask
prices of the Common Stock for the period April 1, 1994 to March 31, 1996.
BID ASK
Year Ended High Low High Low
March 31,
1996
Fourth Quarter....................$18.00 $15.00 $20.00 $18.00
Third Quarter..................... 15.00 14.00 18.00 18.00
Second Quarter.................... 15.13 13.50 18.00 16.00
First Quarter..................... 13.50 12.00 16.00 14.00
1995
Fourth Quarter.................... 12.00 12.00 14.00 14.00
Third Quarter..................... 12.50 12.00 13.50 13.50
Second Quarter.................... 12.00 11.00 13.50 12.50
First Quarter..................... 11.00 10.13 12.50 11.63
Anticipated Dividend Policy
The Reorganization is not expected to affect dividend policy. Holders of
CFC Virginia Common Stock will be entitled to receive dividends when, as and if
declared by the Board of Directors of CFC Virginia out of funds legally
available therefor. It is the current policy of the Board of Directors to
determine on a quarterly basis whether or not to pay a quarterly dividend.
Approximately 25% of the Company's net income has been paid out in the form of
dividends in recent quarters. This policy could change from time to time and
there are no assurances that dividends in the future will remain the same.
After consummation of the Reorganization, dividends received from
Community Federal Savings Bank will be CFC Virginia's primary source of funds
for the payment of dividends because CFC Virginia will have no significant
source of income other than such dividends.
The timing and amount of future dividends will be within the discretion
of the Board of Directors of CFC Virginia and will depend on the consolidated
earnings, financial condition, liquidity and capital requirements of CFC
Virginia and its subsidiaries, applicable governmental regulations and policies
and other factors deemed relevant by the Board of Directors.
-14-
<PAGE>
Resales of CFC Virginia Stock
CFC Virginia Common Stock to be issued to shareholders of the Company
in connection with the Reorganization will be freely transferable by those
shareholders not deemed to be "affiliates" of CFC Virginia or the Company.
Affiliates are generally defined as persons who control, are controlled by, or
are under common control with CFC Virginia or the Company.
Shares of CFC Virginia Common Stock acquired by a person who is an
affiliate of CFC Virginia will be subject to the resale restrictions of Rule 144
under the Securities Act of 1933, as amended (the "Securities Act"). Under Rule
144, each affiliate of CFC Virginia who complies with the other conditions of
Rule 144 (including those that require the affiliate's sales to be aggregated
with those of certain other persons) would be able to sell in the public market,
without registration, a number of shares not to exceed, in any three-month
period, the greater of (i) 1% of the outstanding shares of CFC Virginia Common
Stock or (ii) the average weekly trading volume in such shares during the
preceding four calendar weeks. The ability of affiliates to resell shares of CFC
Virginia Common Stock received in the Reorganization under Rule 144 will be
subject to CFC Virginia having satisfied its Exchange Act reporting requirements
for specified periods prior to the time of sale. Affiliates would be permitted
to resell CFC Virginia Common Stock received in the Reorganization pursuant to
an effective registration statement under the Securities Act or an available
exemption from the Securities Act registration requirements.
Anticipated Effective Date
If the holders of a majority of the outstanding shares of the Company
approve the Agreement, it will become effective upon satisfaction of certain
conditions and the receipt of the required regulatory approvals, including
approval by the OTS. When the Virginia State Corporation Commission and the
Secretary of State of Delaware each has issued a Certificate of Merger, the
Reorganization will become effective (the "Effective Date"). Subject to receipt
of all requisite regulatory approvals and the satisfaction of all other
conditions of the Reorganization, the parties believe the Reorganization will be
effective on or about September 1, 1996.
Abandonment or Amendment of the Agreement
Consummation of the Reorganization is subject to certain conditions as
specified in the Agreement, including obtaining the required votes and various
regulatory approvals. The Agreement may be abandoned by the affirmative vote of
a majority of the Board of Directors of either the Company or CFC Virginia,
whether or not the shareholders of the Company or CFC Virginia have cast their
votes with regard thereto. The Agreement may be amended by the mutual consent of
the respective Boards of Directors of the Company and CFC Virginia upon approval
of the amendment by a majority of the directors of each Board. However, the
consideration to be received by holders of Company Common Stock cannot be
changed after such shareholders have approved the Agreement.
Accounting for the Transaction
Upon consummation of the Reorganization, the historical financial
statements of the Company will become the historical financial statements of CFC
Virginia. Total shareholders' equity will be unchanged as a result of the
Reorganization, except to the extent that shareholders exercise their
dissenters' rights.
Federal Income Tax Consequences
In the opinion of Williams, Mullen, Christian & Dobbins, P.C., counsel
to the Company, the Reorganization will qualify as a tax-free reorganization
within the meaning of Section 368(a) of the Internal Revenue Code of 1986, as
amended (the "Code"). As such, the Reorganization will have the following
federal income tax consequences:
(1) No gain, loss or income will be recognized by the Company or
CFC Virginia;
-15-
<PAGE>
(2) No gain or loss will be recognized by the holders of Company Common
Stock upon the conversion of their Company Common Stock to CFC Virginia Common
Stock;
(3) The basis of CFC Virginia Common Stock received by the shareholders
of the Company in the Reorganization will be the same as the basis of the
Company Common Stock surrendered and exchanged therefor;
(4) The holding period of CFC Virginia Common Stock to be received by
the shareholders of the Company in the Reorganization will include the period
during which the Company Common Stock surrendered in exchange therefor was held,
provided such Company Common Stock was held as a capital asset on the date of
the exchange; and
(5) Holders of Company Common Stock who exercise their dissenter's
rights will generally recognize gain or loss equal to the difference between the
amount of money received and their adjusted basis in the Company Common Stock
held immediately before the effective date of the Reorganization.
Each holder of Company Common Stock should consult his or her own
independent tax counsel about the specific federal, state and local tax
consequences to such shareholder of the Reorganization.
Rights of Dissenting Shareholders
If the proposed Reorganization is approved, dissenting shareholders of
the Company will be entitled to demand an appraisal by the Delaware Court of
Chancery of the fair value of their stock exclusive of any element of value
arising from the accomplishment or expectation of the Reorganization, together
with a fair rate of interest, if any, to be paid thereon.
Each holder of record of Company Common Stock who intends to perfect
his right to dissent, and thereby receive the fair value of his shares of
Company Common Stock, must satisfy all of the following conditions.
1. Submit a written demand for appraisal of his shares of Company
Common Stock prior to the taking of the vote on the Reorganization at the Annual
Meeting. He must not have voted any of his shares in favor of the
Reorganization; however, a shareholder who complies with the procedure to
dissent will not waive his appraisal rights by abstaining from voting or failing
to vote against the Reorganization. Merely voting, or delivering a proxy
directing a vote, against the approval and adoption of the Agreement will not
satisfy this condition; a written demand by the shareholder of record (or his
duly authorized representative) for appraisal is essential. The demand cannot be
made by a beneficial owner if he does not own the shares of record. The written
demand must be signed exactly as the shareholder's name appears on the
certificate representing his shares or on the form of proxy accompanying his
copy of this Proxy Statement. A demand for the appraisal of shares owned jointly
by more than one person must identify and be signed by all such persons. Any
person signing a demand for appraisal on behalf of a partnership or corporation
or in any other representative capacity (such as attorney-in-fact, executor,
administrator, trustee or guardian) must indicate his title and, if the Company
so requests, must furnish written proof of his capacity and his authority to
sign the demand. Demands for appraisal should be sent to Community Financial
Corporation, Attention: Sarah A. Ralston, 38 N. Central Avenue, Staunton,
Virginia 24401. CFC Virginia will notify each dissenting shareholder of CFC
Delaware of the Effective Date within 10 days thereafter.
2. Within 120 days after the Effective Date, file a petition in the
Court of Chancery demanding a determination of the value of the shares of
Company Common Stock held by all dissenting shareholders. If the shareholder
does not file the action within 120 days after the Effective Date, his right to
dissent will be deemed waived.
3. At any time within 60 days after the Effective Date, any dissenting
shareholder shall have the right to withdraw his demand for appraisal and to
accept the terms described in the Agreement.
-16-
<PAGE>
4. Within 120 days after the Effective Date, a dissenting shareholder,
upon written request, shall be entitled to receive from CFC Virginia a statement
setting forth the aggregate number of shares not voted in favor of the
Reorganization and with respect to which demands for appraisal have been
received and the aggregate number of such shares.
5. The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable. Upon application of a
shareholder, the Court may order all or a portion of the expenses incurred by
any shareholder in connection with the appraisal proceeding, including, without
limitation, reasonable attorney's fees and the fees and expenses of experts, to
be charged pro rata against the value of the shares entitled to an appraisal.
THE FOREGOING IS ONLY A SUMMARY OF THE RIGHTS OF A DISSENTING HOLDER OF
SHARES OF COMPANY COMMON STOCK. ANY HOLDER OF SHARES OF COMPANY COMMON STOCK WHO
INTENDS TO DISSENT FROM THE REORGANIZATION SHOULD CAREFULLY REVIEW THE TEXT OF
THE APPLICABLE PROVISIONS OF SECTION 262 OF THE DELAWARE GENERAL CORPORATION LAW
SET FORTH IN EXHIBIT B HERETO AND SHOULD ALSO CONSULT WITH SUCH HOLDER'S
ATTORNEY. THE FAILURE OF A HOLDER OF SHARES OF COMPANY COMMON STOCK TO FOLLOW
PRECISELY THE PROCEDURES SUMMARIZED ABOVE, AND SET FORTH IN EXHIBIT B, MAY
RESULT IN THE LOSS OF DISSENTER'S RIGHTS. NO FURTHER NOTICE OF EVENTS GIVING
RISE TO DISSENTER'S RIGHTS OR ANY STEPS ASSOCIATED THEREWITH WILL BE FURNISHED
TO HOLDERS OF SHARES OF COMPANY COMMON STOCK, EXCEPT AS INDICATED ABOVE OR
OTHERWISE REQUIRED BY LAW.
Differences in Rights of Shareholders
Descriptions of Company Common Stock and CFC Virginia Common Stock are
contained herein under the headings "THE COMPANY - Description of Capital
Stock", and "CFC VIRGINIA - Description of Capital Stock," respectively.
As a result of the Reorganization, holders of the Company Common Stock,
whose rights are presently governed by Delaware law and the Certificate of
Incorporation and Bylaws of the Company would become shareholders of CFC
Virginia, a Virginia corporation. Accordingly, their rights would be governed by
Virginia law and the Articles of Incorporation and Bylaws of CFC Virginia.
The following discussion is a summary of the material differences in
the rights of shareholders and is not intended as a complete description of all
of the provisions in the Articles of Incorporation and Bylaws of CFC Virginia
that may affect the rights of shareholders. The Articles of Incorporation and
Bylaws of CFC Virginia, attached hereto as Exhibits C and D, respectively, are
incorporated herein by reference and should be carefully reviewed.
Capital Stock. The Articles of Incorporation of CFC Virginia authorize
the issuance of 10,000,000 shares of CFC Virginia Common Stock and 3,000,000
shares of CFC Virginia Preferred Stock without further shareholder approval. The
Certificate of Incorporation of the Company authorizes the issuance of 3,000,000
shares of Company Common Stock and 1,000,000 shares of Company Preferred Stock
without further shareholder approval. The increased number of authorized capital
stock will enhance the flexibility of CFC Virginia to engage in a variety of
business transactions, including possible acquisitions, stock splits, corporate
financings and issuances of shares in connection with employee benefit programs.
CFC Virginia's larger number of authorized shares of capital stock could be used
by the Board of Directors of CFC Virginia to impede persons seeking to gain
control of CFC Virginia if the Board of Directors considered the actions of such
person not to be in the best interests of the shareholders of CFC Virginia.
However, the Company also has a substantial number of authorized, but unissued
shares of Common Stock and Preferred Stock that could be used for the same
purpose. For example, the issuance of additional authorized shares of capital
stock in general could be used to dilute the stock ownership of a person or
entity seeking to obtain control of CFC Virginia. Such issuance of additional
capital stock, whether or not in connection with a contest for control, would in
most cases, dilute the voting power of each shareholder and may dilute earnings
and book value on a per share basis. CFC Virginia also could issue Preferred
Stock that has more than one vote per share or that could vote as a class on
(and thereby block) mergers or other transactions, thereby limiting the ability
to control CFC Virginia merely through acquisition of shares of Common Stock. A
large number
-17-
<PAGE>
of shares of Common or Preferred Stock also could be privately placed with
purchasers friendly to CFC Virginia in opposing a hostile takeover bid. In any
such situation, each director of CFC Virginia would be required to discharge his
duties in accordance with his good faith business judgment of the best interests
of the corporation.
Except for the shares of CFC Virginia Common Stock to be issued in the
Reorganization, CFC Virginia has no current plans to issue shares of additional
capital stock. Nor are there any plans or arrangements with respect to the
issuance of the increase of the authorized shares after consummation of the
Reorganization. In addition, to the knowledge of CFC Virginia and the Company,
there are no third parties seeking to obtain control of CFC Virginia, either
before or after the Reorganization, by means of a tender offer, share exchange,
merger or otherwise.
Voting Rights. Neither the Articles of Incorporation of CFC Virginia
nor the Certificate of Incorporation of the Company provide that shareholders
have cumulative voting rights in the election of directors. The absence of
cumulative voting allows holders of a majority of the outstanding shares of
voting stock to elect the entire Board of Directors.
The holders of Company Common Stock have the right to vote on certain
business combinations to which the Company is a party or any proposed sale,
lease, exchange or other disposition of all or substantially all of the property
of the Company. Holders of CFC Virginia Common Stock have the same rights with
respect to business combinations and any such asset sales to which CFC Virginia
is a party.
Payment of Dividends. The ability of the Company to pay dividends on
its capital stock is restricted by Delaware law and, indirectly, by OTS
regulations. See "AGREEMENT AND PLAN OF REORGANIZATION Anticipated Dividend
Policy." The restrictions on the ability of Community Federal Savings Bank, as a
federal savings bank, to pay dividends also will indirectly affect CFC Virginia
in the same manner because dividends received from the Bank will be CFC
Virginia's primary source of funds for the payment of dividends to shareholders
of CFC Virginia.
Under the Delaware General Corporation Law, a Delaware corporation may
pay dividends out of its surplus or, if there is no surplus, out of its net
profits for the fiscal year in which the dividend is declared and/or the
preceding fiscal year. If the capital of the corporation, however, has been
diminished by depreciation in the value of its property, or by losses, to an
amount that is less than the aggregate amount of the capital represented by the
issued and outstanding stock of all classes having a preference upon the
distribution of assets, the directors of the corporation cannot declare and pay
out of the net profits any dividends on any shares of any classes of its capital
stock until the deficiency in the amount of capital represented by the issued
and outstanding stock of all classes having a preference upon the distribution
of assets has been repaired.
The ability of CFC Virginia to pay dividends also is limited by
restrictions imposed by the Virginia Stock Corporation Act on Virginia
corporations. In general, dividends paid by a Virginia corporation may be paid
only if, after giving effect to the distribution, (i) the corporation is still
able to pay its debts as they become due in the usual course of business, or
(ii) the corporation's total assets are greater than or equal to the sum of its
total liabilities plus (unless the corporation's articles of incorporation
permit otherwise) the amount that would be needed, if the corporation were to be
dissolved at the time of the distribution, to satisfy the preferential rights,
upon the dissolution, of shareholders whose preferential rights are superior to
those receiving the distribution.
Directors. The Bylaws of the Company and CFC Virginia each provide that
the Board of Directors shall consist of eight members. There are currently eight
directors of the Company and CFC Virginia.
Filling Vacancies on the Board. Vacancies on the Board of Directors of
CFC Virginia, including a vacancy resulting from an increase in the number of
directors, can be filled only by the Board. A vacancy on the Board of Directors
of the Company, including a vacancy resulting from an increase in the number of
directors, can be filled only by the Board.
Removal of Directors. The Certificate of Incorporation of the Company
and the Articles of Incorporation of CFC Virginia each provide that directors
may be removed from office, with cause, by the affirmative vote of holders of a
majority of the shares entitled to vote at an election of directors.
-18-
<PAGE>
Liability and Indemnification of Directors, Officers and Employees.
Under the Articles of Incorporation of CFC Virginia, the liability of officers
and directors to CFC Virginia is eliminated to the fullest extent permitted by
Virginia law. Under Virginia law, the liability of an officer or director cannot
be limited or eliminated if the officer or director engages in willful
misconduct or a knowing violation of the criminal law or of any federal or state
securities law, including, without limitation, any claim of unlawful insider
trading or manipulation of the market for any security.
Under the Restated Certificate of Incorporation of the Company, the
liability of directors to the Company is eliminated to the fullest extent
permitted by Delaware law. Under Delaware law, the liability of a director
cannot be limited or eliminated if the director engages in any breach of the
duty of loyalty, acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law, willful or negligent
misconduct in the unlawful payment of dividends or repurchase of stock, or any
transaction from which the director derives an improper personal benefit.
To the fullest extent permitted by Virginia law, CFC Virginia's
Articles of Incorporation require it to indemnify any director or officer who is
made a party to any proceeding because he or she was or is a director or officer
of CFC Virginia against any liability, including reasonable expenses and legal
fees, incurred in the proceeding. Under the CFC Virginia Articles of
Incorporation, "proceeding" is broadly defined to include pending, threatened or
completed actions of all types, including actions by or in the right of CFC
Virginia. Similarly, "liability" is defined to include, not only judgments, but
also settlements, penalties, fines and certain excise taxes. The CFC Virginia
Articles of Incorporation also provide that it may, but is not obligated to,
indemnify its other employees or agents. CFC Virginia must indemnify any person
who is or was serving at the written request of CFC Virginia as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise, to the full extent provided by Virginia law. The
indemnification provisions also require CFC Virginia to pay reasonable expenses
incurred by a director or officer of CFC Virginia in a proceeding in advance of
the final disposition of any such proceeding, provided that the indemnified
person undertakes to repay CFC Virginia if it is ultimately determined that such
person was not entitled to indemnification. Virginia law does not permit
indemnification against willful misconduct or a knowing violation of the
criminal law.
The Restated Certificate of Incorporation of CFC Delaware also provides
for indemnification of officers and directors to the fullest extent permitted by
Delaware law. Under Delaware law, a Delaware corporation may indemnify any
officer or director for reasonable expenses incurred in any legal proceeding if
the officer or director acted in good faith and in a manner that the officer or
director reasonably believed to be in or not opposed to the best interests of
the corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
The rights of indemnification provided in CFC Virginia's Articles of
Incorporation are not exclusive of any other rights which may be available under
any insurance or other agreement, by vote of shareholders or disinterested
directors or otherwise. In addition, the Articles of Incorporation authorize CFC
Virginia to maintain insurance on behalf of any person who is or was a director,
officer, employee or agent of CFC Virginia, whether or not CFC Virginia would
have the power to provide indemnification to such person.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers or persons controlling CFC Virginia
pursuant to the foregoing provisions, the Company and CFC Virginia have been
informed that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act and
is therefor unenforceable.
Special Meetings of Shareholders. Under the Certificate of
Incorporation and Bylaws of the Company, a special meeting of shareholders may
be called by the Chairman of the Board, the President or a majority of the Board
of Directors and must be called upon the written request of holders of at least
10% of the shares entitled to vote at the meeting, except that a special meeting
of shareholders relating to a change of control of the Company or amendments to
its Certificate of Incorporation may be called only at the direction of the
Board of Directors. The
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provision of the Bylaws of CFC Virginia that addresses special meetings of
shareholders is consistent with the Certificate of Incorporation and Bylaws of
the Company.
Amendment of Governing Instruments. Under Delaware law, the Certificate
of Incorporation of the Company can be amended only if the amendment is approved
by holders of a majority of the issued and outstanding shares of stock entitled
to vote. The Articles of Incorporation of CFC Virginia also can be amended by
the vote of holders of a majority of the issued and outstanding shares of each
voting group of CFC Virginia entitled to vote.
The Bylaws of the Company and CFC Virginia generally may be amended by
either the Board of Directors or the shareholders by a majority vote.
APPROVAL OF AGREEMENT AND PLAN OF REORGANIZATION BY THE SHAREHOLDERS OF
THE COMPANY WILL BE DEEMED TO BE APPROVAL OF THE ARTICLES OF INCORPORATION AND
THE BYLAWS OF CFC VIRGINIA BY THE SHAREHOLDERS OF THE COMPANY.
Mergers, Consolidations and Sales of Assets. Under Delaware law and the
Certificate of Incorporation of the Company, a plan of merger or a direct or
indirect sale, lease, exchange or other disposition of all or substantially all
of the property of the Company must be approved by holders of a majority of the
outstanding shares of each class of stock entitled to vote. Under the Articles
of Incorporation of CFC Virginia, such transactions and any share exchange in
which shares of CFC Virginia stock are acquired by another corporation must be
approved by holders of a majority of the issued and outstanding shares of each
voting group entitled to vote. Additionally, consistent with Virginia law, the
Board of Directors of CFC Virginia may condition its submission of such plan of
merger or share exchange or such a sale or disposition of assets to the
shareholders on any basis, including the requirement of a greater vote than the
required vote described above.
Material Virginia Laws
The Virginia statutes described below under "Affiliated Transactions"
and "Control Share Acquisitions" have the general purpose of deterring certain
corporate takeovers.
Affiliated Transactions. The Virginia Stock Corporation Act (the
"Virginia Act") contains provisions governing "Affiliated Transactions."
Affiliated Transactions include certain mergers and share exchanges, certain
material dispositions of corporate assets not in the ordinary course of
business, any dissolution of a corporation proposed by or on behalf of an
Interested Shareholder (as defined below), and reclassifications, including
reverse stock splits, recapitalizations or mergers of a corporation with its
subsidiaries, or distributions or other transactions which have the effect of
increasing the percentage of voting shares beneficially owned by an Interested
Shareholder by more than 5%. For purposes of the Virginia Act, an Interested
Shareholder is defined as any beneficial owner of more than 10% of any class of
the voting securities of a Virginia corporation.
Subject to certain exceptions discussed below, the provisions governing
Affiliated Transactions require that, for three years following the date upon
which any shareholder becomes an Interested Shareholder, any Affiliated
Transaction must be approved by the affirmative vote of holders of two-thirds of
the outstanding shares of the corporation entitled to vote, other than the
shares beneficially owned by the Interested Shareholder, and by a majority (but
not less than two) of the Disinterested Directors (as defined below). A
Disinterested Director is defined in the Virginia Act as a member of a
corporation's board of directors who (i) was a member before the later of
January 1, 1988 or the date on which an Interested Shareholder became an
Interested Shareholder and (ii) was recommended for election by, or was elected
to fill a vacancy and received the affirmative vote of, a majority of the
Disinterested Directors then on the corporation's board of directors. At the
expiration of the three year period after a shareholder becomes an Interested
Shareholder, these provisions require approval of the Affiliated Transaction by
the affirmative vote of the holders of two-thirds of the outstanding shares of
the corporation entitled to vote, other than those beneficially owned by the
Interested Shareholder.
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The principal exceptions to the special voting requirement apply to
Affiliated Transactions occurring after the three year period has expired and
require either that the transaction be approved by a majority of the
corporation's Disinterested Directors or that the transaction satisfy certain
fair price requirements of the statute. In general, the fair price requirements
provide that the shareholders must receive the higher of: the highest per share
price for their shares as was paid by the Interested Shareholder for his or its
shares, or the fair market value of the shares. The fair price requirements also
require that, during the three years preceding the announcement of the proposed
Affiliated Transaction, all required dividends have been paid and no special
financial accommodations have been accorded the Interested Shareholder, unless
approved by a majority of the Disinterested Directors.
None of the foregoing limitations and special voting requirements
applies to a transaction with an Interested Shareholder who has been an
Interested Shareholder continuously since the effective date of the statute
(January 26, 1988) or who became an Interested Shareholder by gift or
inheritance from such a person or whose acquisition of shares making such person
an Interested Shareholder was approved by a majority of the Disinterested
Directors of the corporation.
These provisions were designed to deter certain takeovers of Virginia
corporations. In addition, the Virginia Act provides that, by affirmative vote
of a majority of the voting shares other than shares owned by any Interested
Shareholder, a corporation may adopt, by meeting certain voting requirements, an
amendment to its articles of incorporation or bylaws providing that the
Affiliated Transactions provisions shall not apply to the corporation. CFC
Virginia has not adopted such an amendment.
Control Share Acquisitions. The Virginia Control Share Acquisitions
statute also is designed to afford shareholders of a public company incorporated
in Virginia protection against certain types of non-negotiated acquisitions in
which a person, entity, or group ("Acquiring Person") seeks to gain voting
control of that corporation. With certain enumerated exceptions, the statute
applies to acquisitions of shares of a corporation which would result in an
Acquiring Person's ownership of the corporation's shares entitled to vote in the
election of directors falling within any one of the following ranges: 20% to
33-1/3%, 33-1/3% to 50% or 50% or more (a "Control Share Acquisition"). Shares
that are the subject of a Control Share Acquisition ("Control Shares") will not
be entitled to voting rights unless the holders of a majority of the
"Disinterested Shares" vote at an annual or special meeting of shareholders of
the corporation to accord the Control Shares with voting rights. Disinterested
Shares do not include shares owned by the Acquiring Person or by officers and
inside directors of the target company. Under certain circumstances, the statute
permits an Acquiring Person to call a special shareholders' meeting for the
purpose of considering granting voting rights to the holders of the Control
Shares. As a condition to having this matter considered at either an annual or
special meeting, the Acquiring Person must provide shareholders with detailed
disclosures about his identity, the method and financing of the Control Share
Acquisition and any plans to engage in certain transactions with, or to make
fundamental changes to, the corporation, its management or business. Under
certain circumstances, the statute grants dissenters' rights to shareholders who
vote against granting voting rights to the Control Shares. The Virginia Control
Share Acquisitions statute also enables a corporation to make provision for
redemption of Control Shares with no voting rights. A corporation may opt-out of
the statute, which CFC Virginia has done, by so providing in its Bylaws. Such
Bylaw provision may be amended by the Board of Directors of CFC Virginia. Among
the acquisitions specifically excluded from the statute are acquisitions to
which the corporation is a party and which, in the case of mergers or share
exchanges, have been approved by the corporation's shareholders under other
provisions of the Virginia Act.
MANAGEMENT AND THE BOARD OF DIRECTORS OF THE COMPANY BELIEVE THE
AGREEMENT IS IN THE BEST INTERESTS OF THE COMPANY'S SHAREHOLDERS AND RECOMMEND A
VOTE FOR THE AGREEMENT.
The Company
History and Business. The Company was incorporated in 1989 and
completed its acquisition of the Bank in 1990.
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The Bank, which opened in 1928, offers a wide range of services,
including demand and time deposits as well as installment, mortgage and other
consumer and commercial real estate lending services.
The Company's primary trade area covers the Virginia counties of
Augusta, Rockingham, Shenandoah, Page, Highland, Albemarle, Bath, Rockbridge and
Nelson.
The Company's main office is located in Staunton, Virginia. The Company
operates three banking offices in its primary trade area.
Dividend Information. It is contemplated that CFC Virginia will, after
the consummation of the Reorganization, follow the Company's current policy of
determining, on a quarterly basis, whether or not to pay a cash dividend.
Properties. The headquarters building of the Company was opened after
remodeling in 1994, is a two-story building of brick construction, with
approximately 17,000 square feet of floor space located in Staunton, Virginia.
The office operates 7 teller windows, including a 3 lane drive-up facility. The
Company operates three banking offices in its primary trade area.
Employees. The Company had 28 full-time employees and 7 part-time
employees as of March 31, 1996. Employee relations have been good.
Competition. Within its primary trade area, the Company competes with
numerous banks credit unions and savings banks.
Legal Proceedings. To the Company's knowledge, there is no action,
suit, proceeding, arbitration, or investigation, pending or threatened against
the Company in any judicial forum or before any administrative body, commission,
or governmental department wherein a result unfavorable to the Company would
have an adverse effect in a material respect on the Company's business,
financial condition, or property.
Description of Company Common Stock. The capital stock of the Company
consists of its Common Stock, $.01 par value, of which a maximum of 3,000,000
shares are authorized and Preferred Stock, $.01, par value of which 1,000,000
shares are authorized. At May 31, 1996 1,271,198 shares of Company Common Stock
were issued and outstanding. No shares of Preferred Stock are issued or
outstanding.
The holders of Company Common Stock are entitled to dividends out of
funds legally available therefor, when and as declared by the Board of
Directors.
Holders of the Company Common Stock are entitled to one vote for each
share held in all matters. Holders do not possess cumulative voting rights in
the election of directors. The holders of Company Common Stock do not have
preemptive rights to subscribe for and purchase additional shares of Company
Common Stock.
The outstanding shares of Company Common Stock are fully paid and
non-assessable. In the event of liquidation of the Company, after payment of all
debts and expenses, the remaining assets of the Company would be distributed to
the holders of Company Common Stock ratably according to the number of shares
held by each of them.
Management. All of the directors of the Company are directors of CFC
Virginia and vice versa. All of the executive officers of CFC Virginia also are
executive officers of the Company.
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CFC Virginia
Description of Capital Stock. The Articles of Incorporation of CFC
Virginia authorize the issuance of 10,000,000 shares of Common Stock, par value
$.01 per share and 3,000,000 shares of Preferred Stock, par value $.01 per
share.
The holders of CFC Virginia Common Stock will be entitled to receive
such dividends as may be declared by the Board of Directors and, in the event of
liquidation or dissolution, to receive the net assets of CFC Virginia in
proportion to their respective holdings.
Holders of CFC Virginia Common Stock will be entitled to one vote for
each share held. The holders of CFC Virginia Common Stock will not possess
cumulative voting rights in the election of directors.
The shares of CFC Virginia Common Stock issued in the Reorganization
will be fully paid and non-assessable. No redemption or conversion provisions
will be applicable to the stock. Holders of CFC Virginia Common Stock will not
have preemptive rights to subscribe for additional shares of stock, and will not
be subject to personal liability for any debts of CFC Virginia.
Capitalization of CFC Virginia. The following table sets forth on a pro
forma basis, as of March 31, 1996 the consolidated capitalization of CFC
Virginia after the Reorganization:
Stockholders' Equity:
Shares outstanding - 1,269,698 $ 12,697
Preferred Stock:
Par value $.01 per share;
Shares authorized - 3,000,000
Common Stock:
Par value $.01 per share;
Shares authorized - 10,000,000
Shares outstanding - none -0-
Capital surplus 4,651,634
Retained Earnings 16,206,237
Mark to Market Adjustment for Securities 1,029,412
Total Stockholders' Equity $21,879,980
Management. The Company's Board of Directors are currently serving as
directors of CFC Virginia, and will continue to serve in that capacity.
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PROPOSAL III
APPROVAL OF THE
1996 INCENTIVE PLAN
On May 22, 1996, the Board of Directors approved the 1996 Incentive
Plan (the "Incentive Plan"). The Incentive Plan is intended to provide a means
for directors and selected key employees of the Company to increase their
personal financial interest in the Company, thereby stimulating the efforts of
these directors and employees and strengthening their desire to remain with the
Company. References to the "Company" in this section will include any subsidiary
corporation.
The principal features of the Incentive Plan are summarized below. The
summary is qualified by reference to the complete text of the Incentive Plan, as
amended, which is attached as Exhibit E.
GENERAL
The Incentive Plan authorizes the issuance of up to 60,000 shares of
the Company Common Stock to assist the Company in recruiting and retaining
directors and key management personnel. At May 31, 1996 the market value of the
60,000 shares that will be issuable under the Incentive Plan was $1,200,000. The
benefits receivable by employees of the Company under the Incentive Plan are not
determinable at this time.
The following table shows the number of shares of Company Common Stock
that will be granted to the non-executive officer directors of the Company under
the Incentive Plan if the Incentive Plan is approved by the shareholders.
NEW PLAN BENEFITS
Position Number of Shares
Non-Executive Officer Director Group
(7 persons) 17,500
Under Article XII of the Incentive Plan, each non-executive officer
director will be granted a non-qualified stock option for 2,500 shares of
Company Common Stock on the date the Incentive Plan is approved by the
shareholders. The option price per share for each grant shall be the fair market
value per share on the date of grant. Each such option shall expire ten years
after the date of grant or 90 days after the grantee ceases to serve as a
director of the Company, whichever occurs first.
For the year ended March 31, 1996, options to purchase 28,100 shares of
Company Common Stock with a total value at March 31, 1996 of $562,000 were
granted under the Company's 1987 Stock Option and Incentive Plan. Individual
grants to the named executive officers are shown in the Summary Compensation
Table.
The Incentive Plan will permit the award of Incentive Stock Options and
Non-Qualified Stock Options to eligible directors, officers and key employees
upon such terms as the Stock Option Committee (the "Committee") of the Board of
Directors may determine, consistent with the terms of the Incentive Plan.
ADMINISTRATION
The Incentive Plan is administered by the Committee, which shall be
composed of two or more directors. Except for grants to directors under Article
XII of the Incentive Plan, the members of the Committee are ineligible to
receive awards under the Incentive Plan. The Committee has the sole discretion,
subject to certain limitations,
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to interpret the Incentive Plan; to select Incentive Plan participants; to
determine the type, size, terms and conditions of awards under the Incentive
Plan; to authorize the grant of such awards; and to adopt, amend and rescind
rules relating to the Incentive Plan. All determinations of the Committee are
conclusive. All expenses of administering the Incentive Plan will be borne by
the Company.
ELIGIBILITY
Any officer or employee of the Company or its subsidiaries who, in the
judgment of the Committee, has contributed significantly or can be expected to
contribute significantly to the profits or growth of the Company or a subsidiary
is eligible to participate in the Incentive Plan. Directors of the Company may
also participate in the Incentive Plan.
INDIVIDUAL AGREEMENTS
The Committee has broad authority to fix the terms and conditions of
the individual agreements with participants. All awards granted under the
Incentive Plan are intended to comply with the applicable requirements of Rule
16b-3 promulgated under the Exchange Act, which exempts, grants and awards under
qualifying employee benefit plans from certain "short-swing" profit recovery
provisions of the Exchange Act.
SHARES AVAILABLE
Subject to the provisions of the Incentive Plan providing for
proportional adjustments in the event of various changes in the capitalization
of the Company, no more than 60,000 shares of authorized by unissued Company
Common Stock may be issued pursuant to the Incentive Plan. Any shares of Company
Common Stock subject to an Incentive Stock Option or Non-Qualified Stock Option
which are not issued prior to the expiration of such awards will again be
available for award under the Incentive Plan.
INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS
The Committee may authorize the grant of either Incentive Stock Options
("ISOs"), as defined under Section 422 of the Internal Revenue Code of 1986, as
amended, or Non-Qualified Stock Options ("NQSOs"), which are subject to certain
terms and conditions including the following: (1) the option price per share
will be determined by the Committee but for ISOs will not, in any event, be less
than 100 percent of the fair market value of the Company Common Stock on the
date the Option is granted; (2) the term of the Option will be fixed by the
Committee, but the maximum period in which an ISO may be exercised shall not, in
any event, exceed ten years from the date the ISO is granted; (3) Options will
not be transferable other than by will or the laws of descent and distribution;
(4) the purchase price of the Company Common Stock upon exercise of an Option
will be paid in full to the Company at the time of the exercise of the Option in
cash, or at the discretion of the Committee, by surrender to the Company of
previously acquired shares of the Company Common Stock, which will be valued at
the fair market value of such shares on the date preceding the date the Option
is exercised; (5) an Option may expire upon termination of employment or within
a specified period of time after termination of employment as provided by the
Committee; (6) the aggregate fair market value (determined on the date of grant)
of the shares of the Company Common Stock with respect to which ISOs are
exercisable for the first time by any individual during any calendar year shall
not exceed $100,000; and (7) the Committee may elect to cash out all or part of
the portion of any Option to be exercised by a participant by payment in cash or
the Company Common Stock of an amount determined in accordance with the
Incentive Plan.
CHANGE OF CONTROL
At the discretion of the Committee, in the event of a Change in
Control, any outstanding Option may become fully exercisable and vested to the
full extent of the original grant. Under the Incentive Plan a "Change of
Control" shall be deemed to have taken place if: (i) a third person, including a
"group" as defined in Section 13(d)(3) of the Exchange Act becomes the
beneficial owner of shares of the Company Common Stock having 20%
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or more of the total number of votes that may be cast for the election of
directors of the Company, or (ii) as the result of, or in connection with, any
cash or exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or
any successor to the Company.
AMENDMENT OR TERMINATION
The Board may amend or terminate the Incentive Plan; however, no
amendment may become effective until shareholder approval is obtained if the
amendment (i) materially increases the aggregate number of shares that may be
issued pursuant to Options, (ii) materially increases the benefits to
participants under the Incentive Plan, or (iii) materially changes the
requirements as to eligibility for participation in the Incentive Plan. No
amendment shall, without a participant's consent, adversely affect any rights of
such participant under any Option award outstanding at the time of such
amendment is made. No amendment shall be made if it would disqualify the
Incentive Plan from the exemption provided by Rule 16b-3.
DURATION OF INCENTIVE PLAN
No Option may be granted under this Agreement after May 22, 2006.
Options granted before May 22, 2006, shall remain valid in accordance with their
terms.
TAX STATUS
Under current Federal income tax laws, the principal Federal tax
consequences to participants and to the Company of the grant and exercise of
Incentive Stock Options and Non-Qualified Stock Options pursuant to the
provisions of the Incentive Plan, are summarized below.
1. Incentive Stock Options. No income results to a participant upon the
grant or exercise of an Incentive Stock Option, provided (1) there is no
disqualifying disposition of option stock within two years after grant of the
Option or one year after the transfer of such option stock to the participant;
and (2) the participant is an employee of the Company or a subsidiary at all
times during the period commencing on the date of grant and ending on the date
three months (or twelve months in the case of a participant who is totally and
permanently disabled) prior to the date of exercise. In the event of a
disposition of option stock following the expiration of two years after the
grant of the Option and one year after the transfer of such stock to the
participant, any gain or loss, equal to the difference between the amount
realized upon such disposition and the option price, generally will be taxable
as long-term capital gain or loss. In the event of a disqualifying disposition
of option stock prior to the expiration of the two or one year holding periods,
the participant will recognize ordinary income equal to the excess of the fair
market value of the option stock at the time of exercise or the amount realized
upon the disqualifying disposition exceeds the fair market value of the option
stock at the time of exercise, the excess will be taxable as short-term capital
gain. If the amount realized upon the disqualifying disposition is less than the
option price, the participant will not recognize ordinary income but will
recognize a short-term capital loss equal to the excess of the option price over
the amount realized. Gain realized upon the exercise of an Incentive Stock
Option will also be taken into account in computing the participant's liability
for the alternative minimum tax.
No deduction is allowable to the Company upon the grant or exercise of
an Incentive Stock Option. In the event that a participant recognizes ordinary
income as a result of a disqualifying disposition of the option stock, the
Company generally will be entitled to a deduction in an amount equal to the
ordinary income recognized by the participant.
2. Non-Qualified Stock Options. No income is recognized upon the grant
of a Non-Qualified Stock Option to a participant assuming that the Option does
not have a readily ascertainable fair market value at the time of the grant. The
participant recognizes ordinary income upon exercise of the Non-Qualified Stock
Option equal to the excess of the fair market value of the option stock on the
date of exercise over the option price. If the
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participant is subject to the provisions of Section 16(b) of the Exchange Act,
recognition of income upon exercise and receipt of the Company Common Stock may
be postponed until any applicable Section 16(b) holding periods or restrictions
have lapsed, unless the participant elects to be taxed at the date of exercise.
The Company is allowed a corresponding tax deduction at the time ordinary income
is recognized by the participant.
THE BOARD OF DIRECTORS RECOMMENDS THAT THE SHAREHOLDERS VOTE IN FAVOR OF THE
1996 INCENTIVE PLAN. AN AFFIRMATIVE VOTE OF A MAJORITY OF THE SHARES PRESENT IN
PERSON OR REPRESENTED BY PROXY AT THE ANNUAL MEETING IS REQUIRED FOR APPROVAL OF
THIS PROPOSAL.
PROPOSAL IV - RATIFICATION OF APPOINTMENT OF AUDITORS
At the Annual Meeting of Shareholders, the shareholders will consider
and vote on the ratification of the appointment of BDO Seidman, LLP as the
Company's independent auditors for the Company's fiscal year ending March 31,
1997. The Board of Directors has heretofore renewed the Company's arrangement
for BDO Seidman, LLP to be its auditors, subject to ratification by the
Company's shareholders.
Representatives of BDO Seidman, LLP are expected to attend the Annual
Meeting to respond to appropriate questions and to make a statement if they so
desire.
THE BOARD OF DIRECTORS RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE RATIFICATION
OF THE APPOINTMENT OF BDO SEIDMAN, LLP AS THE COMPANY'S AUDITORS FOR THE FISCAL
YEAR ENDING MARCH 31, 1997.
SHAREHOLDER PROPOSALS
In order to be eligible for inclusion in the Company's proxy materials
for next year's Annual Meeting of Shareholders, any shareholder proposal to take
action at such meeting must be received at the Company's main office, 38 North
Central Avenue, Staunton, Virginia 24401, no later than March 5, 1997. Any
such proposal shall be subject to the requirements of the proxy rules adopted
under the Exchange Act.
ANNUAL REPORT AND FINANCIAL STATEMENTS
A copy of the Company's Annual Report to Shareholders for the year
ended March 31, 1996 accompanies this Proxy Statement/Prospectus. Additional
copies may be obtained by written request to the Secretary of the Company at the
address indicated below. Such Annual Report is not part of the proxy
solicitation materials.
UPON RECEIPT OF A WRITTEN REQUEST OF ANY PERSON WHO, ON THE RECORD DATE, WAS
RECORD OWNER OF COMPANY COMMON STOCK OR WHO REPRESENTS IN GOOD FAITH THAT HE OR
SHE WAS ON SUCH DATE THE BENEFICIAL OWNER OF SUCH STOCK ENTITLED TO VOTE AT THE
ANNUAL MEETING OF SHAREHOLDERS, THE COMPANY WILL FURNISH TO SUCH PERSON, WITHOUT
CHARGE, A COPY OF ITS ANNUAL REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED MARCH
31, 1996 AND ITS QUARTERLY REPORTS ON FORM 10-Q AND THE EXHIBITS THERETO
REQUIRED TO BE FILED WITH THE SECURITIES AND EXCHANGE COMMISSION UNDER THE
SECURITIES EXCHANGE ACT OF 1934. ANY SUCH REQUEST SHOULD BE MADE IN WRITING TO
SARAH A. RALSTON, SECRETARY, 38 NORTH CENTRAL AVENUE,
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STAUNTON, VIRGINIA 24401. THE FORM 10-K AND QUARTERLY REPORTS ON FORM 10-Q ARE
NOT PART OF THE PROXY SOLICITATION MATERIALS.
OTHER MATTERS
The Board of Directors is not aware of any business to come before the
Meeting other than those matters described above in this Proxy Statement.
However, if any other matter should properly come before the Meeting, it is
intended that holders of the proxies will act in accordance with their best
judgment.
BY ORDER OF THE BOARD OF DIRECTORS
Sarah A. Ralston
Secretary
Staunton, Virginia
July 3, 1996
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EXHIBIT A
AGREEMENT AND PLAN OF REORGANIZATION
BETWEEN
COMMUNITY FINANCIAL CORPORATION
(A DELAWARE CORPORATION)
AND
COMMUNITY FINANCIAL CORPORATION
(A VIRGINIA CORPORATION)
This Agreement and Plan of Reorganization ("Agreement") is made and
entered into as of May 22, 1996 by and between COMMUNITY FINANCIAL CORPORATION,
a Delaware Corporation, ("CFC Delaware"), and COMMUNITY FINANCIAL CORPORATION, a
Virginia corporation, ("CFC Virginia").
RECITALS
1. The Board of Directors of CFC Delaware has determined that it is in
the best interests of CFC Delaware and its shareholders for CFC Delaware to
change its state of incorporation;
2. CFC Delaware has caused CFC Virginia to be organized under Virginia
law to facilitate the reincorporation of CFC Delaware in Virginia; and
3. The reincorporation will be effected by a merger under Delaware and
Virginia law of CFC Delaware with and into CFC Virginia in which each share of
common stock of CFC Delaware is converted into one share of common stock of CFC
Virginia:
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NOW, THEREFORE, CFC Delaware and CFC Virginia do hereby agree as
follows:
1. THE MERGER. Subject to the terms and conditions hereof, CFC Delaware
shall be merged with and into CFC Virginia in a statutory merger under the
Virginia Stock Corporation Act and the Delaware General Corporation Law (the
"Merger"). CFC Virginia shall be the surviving corporation. The Merger shall
become effective when certificates of merger issued by the State Corporation
Commission of Virginia and by the Secretary of the State of Delaware shall have
become effective (the "Effective Time"). At the Effective Time the separate
corporate existence of CFC Delaware shall cease and the Merger shall have the
effects stated in Section 13.1-721 of the Virginia Stock Corporation Act.
2. ARTICLES OF INCORPORATION AND BYLAWS. The Articles of Incorporation
and Bylaws of CFC Virginia in effect immediately prior to the consummation of
the Merger shall be the Articles of Incorporation and Bylaws of the surviving
corporation and shall remain in effect following the Effective Time until
amended or repealed.
3. CONVERSION OF SHARES. At the Effective Time, each share of common
stock, par value $0.01 per share, of CFC Delaware ("CFC Delaware Common Stock")
issued and outstanding immediately prior to the Effective Time, by operation of
law, shall be automatically converted into one share of common stock, par value
$0.01 per share of CFC Virginia ("CFC Virginia Common Stock"). Each stock
certificate that represents shares of CFC Delaware Common Stock, after the
Effective Time, shall represent the same number of
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shares of CFC Virginia Common Stock. Shareholders will not be required to
surrender stock certificates.
4. EMPLOYEE AND DIRECTOR STOCK PLANS. At the Effective Time, all stock
option and stock-based compensation plans of CFC Delaware (the "CFC Delaware
Plans") shall automatically be continued as and become plans of CFC Virginia
("CFC Virginia Plans"). At the Effective Time, there shall be substituted for
the options granted under CFC Delaware Plans ("Old Options"), new options ("New
Options") under CFC Virginia Plans without any action on the part of optionees,
and each New Option shall be for the same number of shares of Corporation Common
Stock, exercisable at the same price and subject to the same terms and
conditions as each Old Option was with respect to CFC Delaware Common Stock. The
substitution of New Options for Old Options shall be done in accordance with the
provisions of Section 425(a) of the Internal Revenue Code of 1986. Under the CFC
Virginia Plans, CFC Virginia shall assume all of the rights and obligations of
CFC Delaware under CFC Delaware Plans.
At the Effective Time, the Board of Directors of CFC Virginia shall be
deemed to have reserved and authorized the issuance of the number of shares of
CFC Virginia Common Stock under CFC Virginia Plans that is equal to the number
of shares of CFC Delaware Common Stock approved by the shareholders of CFC
Delaware for issuance under CFC Delaware Plans that CFC Delaware has not issued
under CFC Delaware Plans prior to the Effective Time.
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At the Effective Time, all rights to purchase, sell or receive CFC
Delaware Common Stock and all rights to elect to make payment in CFC Delaware
Common Stock under any agreement between CFC Delaware and any director, officer
or employee thereof or under any plan or program of CFC Delaware shall
automatically, by operation of law, be converted into and shall become an
identical right to purchase, sell or receive CFC Virginia Common Stock and an
identical right to make payment in CFC Virginia Common Stock under any such
agreement between CFC Delaware and any director, officer or employee thereof or
under such plan or program of CFC Delaware.
5. RIGHTS OF DISSENTING SHAREHOLDERS. Shareholders of CFC Delaware who
object to the Merger will be entitled to the rights and remedies set forth in
Section 262 of the Delaware General Corporation Law.
6. CONDITIONS TO THE MERGER. The Merger shall not be consummated unless
the following conditions have been satisfied:
(a) Holders of the issued and outstanding shares of CFC
Delaware Common Stock shall have approved this Agreement in accordance with
Delaware law and the Certificate of Incorporation of CFC Delaware and the sole
shareholder of CFC Virginia, shall have approved this Agreement. None of such
approvals shall have been revoked at or prior to the Effective Time.
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(b) If, in the opinion of counsel to CFC Virginia, such
registration is required, CFC Virginia Common Stock to be issued to the holders
of CFC Delaware Common Stock pursuant to the Merger shall have been duly
registered pursuant to Section 5 of the Securities Act of 1933 and such
registration shall not be suspended at the Effective Time. Further, to the
extent required in the opinion of legal counsel for CFC Virginia, CFC Virginia
shall have complied with all applicable securities law of states and other
jurisdictions relating to such issuance of CFC Virginia Common Stock.
(c) Any and all approvals or consents shall have been obtained
from the Office of Thrift Supervision and any other governmental agency having
jurisdiction, and from other third parties that are, in the opinion of legal
counsel for CFC Delaware or CFC Virginia, required for the lawful consummation
of the Merger and the issuance and delivery of CFC Virginia Common Stock as
contemplated by this Agreement and such approvals or consents and shall not have
been revoked.
(d) CFC Delaware shall have received either (i) a ruling from
the Internal Revenue Service, acceptable in form and substance to CFC Delaware
and its legal counsel, or (ii) an opinion from Williams, Mullen, Christian &
Dobbins, in either case to the effect that:
(1) The Merger either will constitute a
reorganization under Section 368(a)(1) of the Internal Revenue Code of
1986, as amended (the "Code") and that
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CFC Delaware and CFC Virginia each will qualify as a "party to a
reorganization" within the meaning of Section 368(b) of the Code;
(2) No gain or loss will be recognized by the
shareholders of CFC Delaware upon the exchange of their CFC Delaware
Common Stock solely for Corporation Common Stock;
(3) No gain or loss will be recognized by CFC
Virginia;
(4) The aggregate basis of CFC Virginia Common Stock
received by each shareholder of CFC Delaware in the Merger will, in
each instance, be the same as the aggregate basis of CFC Delaware
Common Stock surrendered in exchange therefor; and
(5) The holding period of CFC Virginia Common Stock
received by each shareholder of CFC Delaware in the Merger will include
the period during which the shareholder held his CFC Delaware Common
Stock exchanged therefor, provided that such CFC Delaware Common Stock
is held as a capital asset on the date of the Merger.
7. ABANDONMENT OF AGREEMENT. This Agreement may be abandoned by CFC
Delaware or CFC Virginia at any time before the Effective Time in the event that
(a) any action, suit, proceeding or claim has been instituted, made or
threatened relating to the
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Agreement which shall make consummation of the transactions contemplated hereby
inadvisable in the opinion of CFC Delaware or CFC Virginia or (b) for any other
reason consummation of the transactions contemplated hereby is inadvisable in
the opinion of CFC Delaware or CFC Virginia. Such abandonment shall be effected
by written notice by CFC Delaware or CFC Virginia to the other Party hereto,
authorized or approved by the Board of Directors of the Party giving such
notice. Upon the giving of such notice, this Agreement shall be terminated and
there shall be no liability hereunder or on account of such termination on the
part of CFC Delaware or CFC Virginia or the directors, officers, employees,
agents or stockholders of any of them. In the event of abandonment of this
Agreement, CFC Delaware shall pay the fees and expenses incurred by itself and
CFC Virginia in connection with this Agreement and the Merger.
8. AMENDMENTS. To the extent permitted by law, this Agreement may be
amended by a subsequent writing signed by the Parties hereto upon the approval
of the Board of Directors of each of the Parties hereto; provided, however, that
the provisions of Section 3 hereof relating to the consideration to be exchanged
for shares of CFC Delaware Common Stock shall not be amended after the meeting
of stockholders of CFC Delaware at which this Agreement is considered so as to
decrease the amount or change the form of such consideration without the
approval of such stockholders.
9. COUNTERPARTS. This Agreement may be executed in one or more
counterparts.
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10. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of Virginia.
IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly executed on its behalf by its officers thereunto duly authorized, all as of
the date first above written.
COMMUNITY FINANCIAL CORPORATION
(a Delaware corporation)
By: _______________________________
Thomas W. Winfree
President
Attest: ________________________________
Secretary
COMMUNITY FINANCIAL CORPORATION
(a Virginia corporation)
By: _______________________________
Thomas W. Winfree
President
Attest: ________________________________
Secretary
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EXHIBIT B
DELAWARE CODE
TITLE 8
CHAPTER 1
ss. 262. APPRAISAL RIGHTS.
(a) Any stockholder of a corporation of this State who holds shares of
stock on the date of the making of a demand pursuant to subsection (d) of this
section with respect to such shares, who continuously holds such shares through
the effective date of the merger or consolidation, who has otherwise complied
with subsection (d) of this section and who has neither voted in favor of the
merger or consolidation nor consented thereto in writing pursuant to ss. 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of his shares of stock under the circumstances described in
subsections (b) and (c) of this section. As used in this section, the word
"stockholder" means a holder of record of stock in a stock corporation and also
a member of record of a nonstock corporation; the words "stock" and "share" mean
and include what is ordinarily meant by those words and also membership or
membership interest of a member of a nonstock corporation; and the words
"depository receipt" mean a receipt or other instrument issued by a depository
representing an interest in one or more shares, or fractions thereof, solely of
stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to
subsection (g) of ss. 251), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss.
264 of this title:
(1) Provided, however, that no appraisal rights under this
section shall be available for the shares of any class or series of
stock, which stock, or depository receipts in respect thereof, at the
record date fixed to determine the stockholders entitled to receive
notice of and to vote at the meeting of stockholders to act upon the
agreement of merger or consolidation, were either (i) listed on a
national securities exchange or designated as a national market system
security on an interdealer quotation system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000
holders; and further provided that no appraisal rights shall be
available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the
vote of the stockholders of the surviving corporation as provided in
subsection (f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection,
appraisal rights under this section shall be available for the shares
of any class or series of stock of a constituent corporation if the
holders thereof are required by the terms of an agreement of merger or
consolidation pursuant to ss.ss. 251, 252, 254, 257, 258, 263 and 264
of this title to accept for such stock anything except:
a. Shares of stock of the corporation surviving or
resulting from such merger or consolidation, or depository
receipts in respect thereof;
b. Shares of stock of any other corporation, or
depository receipts in respect thereof, which shares of stock
or depository receipts at the effective date of the merger or
consolidation will be either listed on a national securities
exchange or designated as a national market system security on
an interdealer quotation system by the National Association of
Securities Dealers, Inc. or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a. and b. of this paragraph; or
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d. Any combination of the shares of stock, depository
receipts and cash in lieu of fractional shares or fractional
depository receipts described in the foregoing subparagraphs
a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware
corporation party to a merger effected under ss. 253 of this title is
not owned by the parent corporation immediately prior to the merger,
appraisal rights shall be available for the shares of the subsidiary
Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation
that appraisal rights under this section shall be available for the shares of
any class or series of its stock as a result of an amendment to its certificate
of incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal
rights are provided under this section is to be submitted for approval
at a meeting of stockholders, the corporation, not less than 20 days
prior to the meeting, shall notify each of its stockholders who was
such on the record date for such meeting with respect to shares for
which appraisal rights are available pursuant to subsection (b) or (c)
hereof that appraisal rights are available for any or all of the shares
of the constituent corporations, and shall include in such notice a
copy of this section. Each stockholder electing to demand the appraisal
of his shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal
of his shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A
proxy or vote against the merger or consolidation shall not constitute
such a demand. A stockholder electing to take such action must do so by
a separate written demand as herein provided. Within 10 days after the
effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that
the merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to
ss. 228 or 253 of this title, the surviving or resulting corporation,
either before the effective date of the merger or consolidation or
within 10 days thereafter, shall notify each of the stockholders
entitled to appraisal rights of the effective date of the merger or
consolidation and that appraisal rights are available for any or all of
the shares of the constituent corporation, and shall include in such
notice a copy of this section. The notice shall be sent by certified or
registered mail, return receipt requested, addressed to the stockholder
at his address as it appears on the records of the corporation. Any
stockholder entitled to appraisal rights may, within 20 days after the
date of mailing of the notice, demand in writing from the surviving or
resulting corporation the appraisal of his shares. Such demand will be
sufficient if it reasonably informs the corporation of the identity of
the stockholder and that the stockholder intends thereby to demand the
appraisal of his shares.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) hereof and who is otherwise entitled to
appraisal rights, may file a petition in the Court of Chancery demanding a
determination of the value of the stock of all such stockholders.
Notwithstanding the foregoing, at any time within 60 days after the effective
date of the merger or consolidation, any stockholder shall have the right to
withdraw his demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or
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consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After determining the stockholders entitled to an appraisal, the
Court shall appraise the shares, determining their fair value exclusive of any
element of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and
taxed upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
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(k) From and after the effective date of the merger or consolidation,
no stockholder who has demanded his appraisal rights as provided in subsection
(d) of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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EXHIBIT C
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
COMMUNITY FINANCIAL CORPORATION
ARTICLE I
NAME
The name of the corporation is Community Financial Corporation.
ARTICLE II
CAPITAL STOCK
Paragraph A. The aggregate number of shares of stock which the
Corporation shall have the authority to issue and the par value per share are as
follows:
Number of
Class Shares Par Value
Common Stock 10,000,000 $0.01
Preferred Stock 3,000,000 $0.01
Paragraph B. No holders of any class of stock of the Corporation shall
have any preemptive or other preferential right to purchase or subscribe to (i)
any shares of any class of stock of the Corporation, whether now or hereafter
authorized, (ii) any warrants, rights or options to purchase any such stock, or
(iii) any obligations convertible into any such stock or into warrants, rights
or options to purchase any such stock.
Paragraph C. The holders of the Common Stock shall, to the exclusion of
the holders of any other class of stock of the Corporation, have the sole and
full power to vote for the election of directors and for all other purposes
without limitation except only as otherwise provided in any articles of
amendment applicable to any series of Preferred Stock, and as otherwise
expressly provided by the then existing statutes of Virginia. The holders of the
Common Stock shall have one vote for each share of Common Stock held by them.
Except as may be set forth in any articles of amendment applicable to shares of
Preferred Stock, the holders of the Common Stock shall be entitled to receive
the net assets of the Corporation upon dissolution.
Paragraph D. Authority is expressly vested in the Board of Directors to
divide the Preferred Stock into, and issue the same in, series and, to the
fullest extent permitted by law,
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to fix and determine the preferences, limitations and relative rights of the
shares of any series so established, and to provide for the issuance thereof.
Prior to the issuance of any shares of a series of Preferred Stock, the
Board of Directors shall establish such series by adopting a resolution setting
forth the designation and number of shares of the series and the preferences,
limitations and relative rights thereof, and the Corporation shall file with the
State Corporation Commission articles of amendment as required by law, and the
State Corporation Commission shall have issued a certificate of amendment.
ARTICLE III
INDEMNIFICATION AND LIMITS ON LIABILITY
OF DIRECTORS AND OFFICERS
Paragraph A. The Corporation shall indemnify any Director or Officer
made a Party to a Proceeding (including without limitation any Proceeding by or
in the right of the Corporation in which the Director or Officer is adjudged
liable to the Corporation) because he or she is or was a Director or Officer of
the Corporation against any Liability incurred in the Proceeding to the fullest
extent permitted by Virginia law, as it may be amended from time to time.
Paragraph B. The Corporation shall not indemnify a Director or Officer
under Paragraph A above (unless authorized or ordered by a court) unless in each
specific case a determination pursuant to Virginia law, as it may be amended
from time to time, has been made that indemnification is permissible under the
circumstances. The termination of a Proceeding by judgment, order, settlement or
conviction is not, of itself, determinative that Director or Officer is not
entitled to indemnification under this Article III.
Paragraph C. Expenses incurred by a Director or Officer in a Proceeding
shall be paid by the Corporation in advance of the final disposition of the
Proceeding if:
1. The Director or Officer furnishes the Corporation a written statement
of his or her good faith belief that he or she is entitled to
indemnification pursuant to this Article III;
2. The Director or Officer furnishes the Corporation a written
undertaking, executed personally or on his or her behalf, to repay the
advance if it is ultimately determined that he or she did not meet the
standard for indemnification pursuant to this Article III; and
3. A determination pursuant to Virginia law, as it may be amended from
time to time, is made that the facts then known to those making the
determination would not preclude indemnification under this Article
III.
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The undertaking required by subsection 2 of this Paragraph C shall be
an unlimited general obligation of the Director or Officer but need not be
secured and may be accepted without reference to his or her financial ability to
make repayment.
Paragraph D. The indemnification provided by this Article III shall not
be exclusive of any other rights to which any Director or Officer may be
entitled, including without limitation rights conferred by applicable law and
any right under policies of insurance that may be purchased and maintained by
the Corporation or others, even as to liabilities against which the Corporation
would not have the power to indemnify such Director or Officer under the
provisions of this Article III.
Paragraph E. The Corporation may purchase and maintain insurance, at
its sole expense, in such amounts and on such terms and conditions as the Board
of Directors may deem reasonable, against all liabilities or losses it may
sustain in consequence of the indemnification provided for in this Article III.
Paragraph F. The Board of Directors shall have the power but not the
obligation, generally and in specific cases, to indemnify employees and agents
of the Corporation to the same extent as provided in this Article III with
respect to Directors or Officers. The Board of Directors is hereby empowered by
a majority vote of a quorum of disinterested Directors to contract in advance to
indemnify any Director or Officer. The Board of Directors is further empowered,
by majority vote of a quorum of disinterested Directors, to cause the
Corporation to contract in advance to indemnify any person who is not a Director
or Officer who was or is a party to any Proceeding, by reason of the fact that
he or she is or was an employee or agent of the Corporation, or was serving at
the request of the Corporation as Director, Officer, employee or agent of
another corporation, partnership, joint venture trust, employee benefit plan or
other enterprise, to the same extent as if such person were a Director or
Officer.
Paragraph G. To the full extent that Virginia law, as it exists on the
date hereof or may hereafter be amended, permits the elimination of the
liability of Directors and Officers for damages in any proceeding brought by or
in the right of the Corporation or brought by or on behalf of the shareholders
of the Corporation, such liability is hereby eliminated.
Paragraph H. In this Article III:
"Director" means an individual who is or was a director of the
Corporation or an individual who, while a director of the Corporation, is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another foreign or domestic corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise. A director is
considered to be serving an employee benefit plan at the Corporation's request
if his duties to the Corporation also impose duties on, or otherwise involve
services by, him to the plan or to participants in or beneficiaries of the plan.
"Director" includes the estate or personal representative of a director.
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"Officer" means an individual who is or was an officer of the
Corporation or an individual who is or was serving at the Corporation's written
request as a director, officer, partner, trustee, employee or agent of another
foreign or domestic corporation, partnership, joint venture, trust, employee
benefit plan, or other enterprise. An officer is considered to be serving an
employee benefit plan at the Corporation's request if his duties to the
Corporation also impose duties on, or otherwise involve services by, him to the
plan or to participants in or beneficiaries of the plan. "Officer" includes the
estate or personal representative of an officer. Except as set forth above
"Officer" does not include officers of corporations controlled by the
Corporation.
"Expenses" includes but is not limited to counsel fees.
"Liability" means the obligation to pay a judgment, settlement,
penalty, fine, including without limitation any excise tax assessed with respect
to an employee benefit plan, and reasonable Expenses incurred with respect to a
Proceeding.
"Party" includes an individual who was, is, or is threatened to be made
a named defendant or respondent in any Proceeding.
"Proceeding" means any threatened, pending or completed action, suit,
or proceeding, whether civil, criminal, administrative or investigative and
whether formal or informal.
ARTICLE IV
DIRECTORS
Paragraph A. Except as otherwise fixed by any articles of amendment
adopted by the Board of Directors pursuant to Paragraph D of Article II relating
to the rights of the holders of any series of Preferred Stock to elect
additional directors under specified circumstances, the number of the directors
of the Corporation shall be fixed from time to time by or pursuant to the Bylaws
of the Corporation. The initial directors, whose terms shall expire at the first
shareholders' meeting at which directors are elected, shall be:
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Richard E. Bonin James R. Cooke, Jr.
905 Blue Ridge Drive 25 North Central Avenue
Staunton, Virginia 24401 Staunton, Virginia 24401
Jane C. Hickok Charles F. Andersen
P. O. Box 309 6 Hickory Hill Lane
Verona, Virginia 24482 Fishersville, Virginia 22939
Dale C. Smith Charles W. Fairchilds
Route 2, Box 361 125 Alta Drive
Staunton, Virginia 24401 Stuarts Draft, Virginia 24477
Kenneth L. Elmore Thomas W. Winfree
P. O. Box 2607 6 Waverly Green
Staunton, Virginia 24402-2607 Staunton, Virginia 24401
Commencing with the first shareholders' meeting at which directors are
elected, the directors, other than those who may be elected by the holders of
any series of Preferred Stock, shall be classified, with respect to the time for
which they severally hold office, into three classes, as nearly equal in number
as possible, one class to be originally elected for a term expiring at the
annual meeting of stockholders to be held in 1997, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 1998 and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 1999, with each class to
hold office until its successor is elected and qualified. At each annual meeting
of the stockholders of the Corporation, the successors of the class of directors
whose term expires at that meeting shall be elected to hold office for a term
expiring at the annual meeting of stockholders held in the third year following
the year of their election.
There shall not be cumulative voting in elections of directors.
Paragraph B. Advance notice of stockholder nominations for the election
of directors shall be given in the manner provided in the Bylaws of the
Corporation.
Paragraph C. Except as otherwise fixed by any articles of amendment
adopted by the Board of Directors pursuant to Paragraph D of Article II relating
to the rights of the holders of any series of Preferred Stock to elect directors
under specified circumstances, newly created directorships resulting from any
increase in the number of directors and any vacancies on the Board of Directors
resulting from death, resignation, disqualification, removal or other cause
shall be filled only by the affirmative vote of a majority of the remaining
directors then in office, even though less than a quorum of the Board of
Directors. Any director elected in accordance with the preceding sentence shall
hold office until the next annual meeting of shareholders and until such
director's successor shall have been elected and qualified. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
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ARTICLE V
BYLAW AMENDMENTS
The Board of Directors shall have power to make, alter, amend and
repeal the Bylaws of the Corporation except so far as any Bylaw of the
Corporation adopted by the stockholders shall otherwise provide. Any Bylaws made
by the directors under the powers conferred hereby may be altered, amended or
repealed by the directors or by the stockholders.
ARTICLE VI
SPECIAL VOTING PROVISIONS
Paragraph A. An amendment to the Articles of Incorporation of the
Corporation shall be approved if a majority of the votes entitled to be cast by
each voting group entitled to vote on such action are cast in favor of such
action.
Paragraph B. Subject to the right of holders of any series of Preferred
Stock to elect or remove directors under specified circumstances, at a special
meeting of shareholders called expressly for that purpose, any director may be
removed for cause by a vote of the holders of a majority of the shares entitled
to vote at an election of directors.
Paragraph C. Any merger or share exchange to which the Corporation is a
party or any direct or indirect sale, lease, exchange or other disposition of
all or substantially all of the Corporation's property, otherwise than in the
usual and regular course of business, shall be approved if a majority of the
votes entitled to be cast by each voting group entitled to vote on such action
are cast in favor of such action.
This Paragraph C shall not affect the power of the Board of Directors
to condition its submission of any plan of merger, share exchange or direct or
indirect sale, lease, exchange or other disposition of all or substantially all
of the Corporation's property, otherwise than in the usual and regular course of
business, on any basis, including the requirement of a greater vote.
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EXHIBIT D
BYLAWS
OF
COMMUNITY FINANCIAL CORPORATION
ARTICLE I
SHAREHOLDER MATTERS
Section 1.1. Annual Meetings.
A. The annual meeting of the shareholders of the Corporation
shall be held at such a place as may be decided by, the Board of Directors on a
date during the month of July, August or September of each and every year, the
exact date, place and hour to be fixed by the Board of Directors.
B. At the annual meeting of the shareholders of the
Corporation, Directors shall be elected and reports of the affairs of the
Corporation shall be received and considered. Any other business may be
transacted which is within the powers of the shareholders, except that, if any
shareholder shall bring new business before the annual meeting, the shareholder
must give advance notice as set forth in Section 1.6 of these Bylaws.
C. The Board of Directors may designate any place, either
within or without the Commonwealth of Virginia, as the place of meeting for any
annual meeting or for any special meeting. If no place is designated by the
Board, the place of meeting shall be the principal office of the Corporation.
Section 1.2. Special Meetings. Unless otherwise prescribed by law or by
the Articles of Incorporation, special meetings of shareholders, for any purpose
or purposes, may be called at any time by the Chairman of the Board, the
President or a majority of the Board of Directors, and shall be called by the
Chairman of the Board, the President, or the Secretary upon the written request
of the holders of not less than one-tenth of all the outstanding capital stock
of the Corporation entitled to vote at the meeting; provided that a special
meeting of shareholders to vote on any amendment to the articles of
Incorporation or to vote on a matter relating to a change of control of the
Corporation may be called only by the Board of Directors. Such written request
shall state the purpose or purposes of the meeting and shall be delivered to the
Principal office of the Corporation addressed to the Chairman of the Board, the
President or the Secretary.
Section 1.3. Notice of Meetings. Notice of the time and place of every
annual meeting or special meeting shall be mailed to each Shareholder of record
entitled to vote at the meeting at his address as it appears on the records of
the Corporation not
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less than ten (10) nor more than sixty (60) days before the date of such meeting
(except as a different time may be specified by law).
Section 1.4. Quorum. A majority of the votes entitled to be cast on a
matter by a voting group constitutes a quorum of such voting group for action on
such matter. If there is not a quorum at the time for which a meeting shall have
been called, the meeting may be adjourned from time to time by a majority of the
shareholders present or represented by proxy without notice, other than by
announcement at the meeting, until there is a quorum.
Section 1.5. Voting. Except as the Articles of Incorporation otherwise
provide, at any meeting of the shareholders, each outstanding share, regardless
of class, is entitled to one vote on each matter voted on at a shareholders'
meeting.
Section 1.6. New Business. At an annual meeting of shareholders only
such new business shall be conducted, and only such proposals shall be acted
upon, as shall have been properly brought before the meeting. For any new
business proposed by management to be properly brought before the annual
meeting, such new business shall be approved by the Board of Directors, either
directly or through its approval of proxy solicitation materials related
thereto, and shall be stated in writing and filed with the Secretary of the
Corporation at least 20 days before the date of the annual meeting, and all
business so stated, proposed and filed shall be considered at the annual
meeting. Any shareholder may make any other proposal at the annual meeting and
the same may be discussed and considered, but unless properly brought before the
meeting such proposal shall not be acted upon at the meeting. For a proposal to
be properly brought before an annual meeting by a shareholder, the shareholder
must have given timely notice thereof in writing to the Secretary of the
Corporation. To be timely, a shareholder's notice must be delivered to or
received at the principal executive offices of the Corporation, not less than 20
days prior to the meeting; provided, however, that in the event that less than
30 days' notice of the date of the meeting is given to shareholders (which
notice shall be accompanied by a proxy or information statement which describes
each matter proposed by the Board of Directors to be acted upon at the meeting),
notice by the shareholder to be timely must be so received not later than the
close of business on the 10th day following the day on which such notice of the
date of the annual meeting was mailed. A shareholder's notice to the Secretary
shall set forth as to each matter the shareholder proposes to bring before the
annual meeting (a) a brief description of the proposal desired to be brought
before the annual meeting, (b) the name and address of the shareholder proposing
such business, and (c) the class and number of shares of the Corporation which
are owned of record by the shareholder. Notwithstanding anything in
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these Bylaws to the contrary, no business shall be conducted at an annual
meeting except in accordance with the procedures set forth in this Section 1.6.
Section 1.7. Order of Business. All meetings of shareholders shall be
conducted in accordance with such rules as are prescribed by the Chairman of the
meeting and the Chairman shall determine the order of business at all meetings
of the shareholders.
Section 1.8. Inspectors. The Board of Directors, in advance of any
meeting of shareholders, may, but shall not be required to, appoint one or more
inspectors to act at such meeting or any adjournment thereof. If any of the
inspectors so appointed shall fail to appear or act, the Chairman of the meeting
may appoint one or more inspectors. The inspectors shall determine the number of
shares of capital stock of the Corporation outstanding and the voting power of
each, the number of shares represented at the meeting, the existence of a
quorum, the validity and effect of proxies, and shall receive votes, ballots or
consents, hear and determine all challenges and questions arising in connection
with the right to vote, count and tabulate all votes, ballots or consents,
determine the results, and do such acts as are proper to conduct the election or
vote with fairness to all shareholders. On request of the Chairman of the
meeting, the inspectors shall make a report of any challenge, request or matter
determined by them and shall execute a certificate of any fact found by them. No
director or candidate for the office of director shall act as an inspector of an
election of directors. Inspectors need not be shareholders.
ARTICLE II
DIRECTORS
Section 2.1. General Powers. The business and affairs of the Corporation
shall be managed under the direction of the Board of Directors and, except as
otherwise expressly provided by law or by the Articles of Incorporation, or by
these Bylaws, all of the powers of the Corporation shall be exercised by or
under the authority of said Board of Directors.
Section 2.2. Number and Qualification. The Board of Directors shall
consist of eight (8) Directors.
Section 2.3. Election of Directors. The Directors shall be elected at
the annual meeting of shareholders, and shall hold their offices until their
successors are elected in accordance with the Articles of Incorporation.
Nominations for the election of Directors shall be given in the manner provided
in Section 2.9.
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Section 2.4. Vacancies. The Board of Directors shall consist of three
classes and, when the number of Directors is changed, the Board of Directors
shall determine the class or classes to which the increased or decreased number
of Directors shall be apportioned; provided, that each class shall be equal or
as nearly equal in size as possible; provided, further, that no decreases in the
number of Directors shall affect the term of any Director then in office.
Any vacancy occurring on the Board of Directors may be filled by the
affirmative vote of a majority of the remaining Directors although less than a
quorum of the Board of Directors. A Director elected to fill a vacancy shall be
elected to serve until the next election of Directors by the shareholders. Any
directorship to be filled by reason of an increase in the number of Directors
may be filled by election by the Board of Directors for a term of office
continuing only until the next election of Directors by the shareholders.
Section 2.5. Honorary and Advisory Directors. The Board may appoint to
the position of Honorary Director or the position of Advisory Director such
person or persons as it deems appropriate. Honorary Directors shall be entitled
to receive notice of, and to attend all meetings of the Board, but they shall
not be Directors and shall not be entitled to vote, nor shall they be counted in
determining a quorum of the Board. Advisory Directors shall be entitled only to
notice of meetings of Advisory or other Boards of the Corporation to which they
shall be appointed. Honorary and Advisory Directors shall receive such
compensation as may be authorized by the Board of Directors for attendance at
meetings of Advisory or other Boards to which such Advisory or Honorary
Directors are appointed.
Section 2.6. Meetings of Directors. Meetings of the Board of Directors
shall be held at places within or without the Commonwealth of Virginia and at
times fixed by resolution of the Board of Directors, or upon call of the
Chairman of the Board of Directors or the President. The Secretary, or officer
performing his duties, shall give at least twenty-four (24) hours' notice by
telegraph, letter, telephone or in person, of all meetings of the Directors;
provided, that notice need not be given of regular meetings held at times and
places fixed by resolution of the Board. Regular meetings of the Board of
Directors shall be held at least six times in every calendar year. Meetings may
be held at any time without notice if all of the Directors are present, or if
those not present waive notice either before or after the meeting. Neither the
business to be transacted nor the purpose of any annual or special meeting of
the Board of Directors need be specified in the notice or waiver of notice of
such meeting.
Section 2.7. Quorum. A majority of the members of the Board of
Directors shall constitute a quorum.
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Section 2.8. Compensation. The Board of Directors shall fix the
compensation of the Directors.
Section 2.9. Nominating Committee. The Board of Directors shall act as a
nominating committee for selecting the management nominees for election as
Directors. Except in the case of a nominee substituted as a result of the death
or other incapacity of a management nominee, the nominating committee shall
deliver written nominations to the Secretary at least 20 days prior to the date
of the annual meeting. Provided such committee makes such nominations, no
nominations for Directors except those made by the nominating committee shall be
voted upon at the annual meeting unless other nominations by shareholders are
made in writing and delivered to the Secretary of the Corporation at least 5
days prior to the date of the annual meeting. Ballots bearing the names of all
the persons nominated by the nominating committee and by shareholders shall be
provided for use at the annual meeting. If the nominating committee shall fail
or refuse to act at least 20 days prior to the annual meeting, nominations for
Directors may be made at the annual meeting by any shareholder entitled to vote
and shall be voted upon.
Section 2.10. Other Committees. The Board of Directors may create
committees and appoint members of committees in accordance with Virginia law.
Section 2.11. Age Limitations. Other than Directors serving as directors
of the Corporation's predecessor as of September 19, 1974, no person shall be
eligible for election, re-election, appointment, or re-appointment to the Board
of Directors of the Corporation if such person is then more than 71 years of
age. Any Director subject to this provision, upon attaining that age, shall
automatically cease to be a Director and the Board of Directors shall fill the
vacancy until the next annual meeting of shareholders.
ARTICLE III
EXECUTIVE COMMITTEE
Section 3.1. Appointment. The Board of Directors, by resolution adopted
by a majority of the full Board, may designate the Chief Executive Officer and
two or more of the other Directors to constitute an Executive Committee. The
designation of any committee pursuant to this Article III and the delegation of
authority thereto shall not operate to relieve the Board of Directors, or any
Director, of any responsibility imposed by law or regulation.
Section 3.2. Authority. The Executive Committee, when the Board of
Directors is not in session, shall have and may exercise all the powers and
authority of the Board of Directors in the management of the business and
affairs of the Corporation, and
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may authorize the seal of the Corporation to be affixed to all papers which may
require it, except to the extent, if any, that such powers and authority shall
be limited by resolution of the Board of Directors or Virginia law.
Section 3.3. Tenure. Each member of the Executive Committee shall hold
office until the next annual regular meeting of the Board of Directors following
his designation and until his successor is designated as a member of the
Executive Committee.
Section 3.4. Meetings. Regular meetings of the Executive Committee may
be held without notice at such times and places as the Executive Committee may
fix from time to time by resolution. Special meetings of the Executive Committee
may be called by any member thereof upon not less than one day's notice stating
the place, date and hour of the meeting, which notice may be written or oral.
Any members of the Executive Committee may waive notice of any meeting and no
notice of any meeting need be given to any member thereof who attends in person.
The notice of a meeting of the Executive Committee need not state the business
proposed to be transacted at the meeting.
ARTICLE IV
OFFICERS
Section 4.1. General. The officers of the Corporation shall be chosen by
the Board of Directors and shall be a President, a Secretary and a Treasurer.
The Chairman of the Board may also be designated as an officer. The Board of
Directors may designate one or more Vice Presidents, Assistant secretaries,
Assistant Treasurers and other officers. The offices of Secretary and Treasurer
may be held by the same person and a Vice President may also be either the
Secretary or the Treasurer. The officers of the Corporation need not be either
shareholders or Directors of the Corporation.
Section 4.2. Election. The Board of Directors at its first meeting held
after the annual meeting of shareholders shall elect annually the officers of
the Corporation who shall exercise such powers and perform such duties as shall
be set forth in these Bylaws and as determined from time to time by the Board of
Directors; and all officers of the Corporation shall hold office until their
successors are chosen and qualified, or until their earlier resignation or
removal. Any officer elected by the Board of Directors may be removed at any
time by the affirmative vote of a majority of the Board of Directors. Any
vacancy occurring in any office of the Corporation shall be filled by the Board
of Directors. The salaries of all officers of the Corporation shall be fixed by
the Board of Directors.
Section 4.3. Removal. Any officer may be removed by the Board of
Directors whenever in its judgment the best interests of
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the Corporation will be served thereby, but such removal, other than for cause,
shall be without prejudice to the contract rights, if any, of the person so
removed.
Section 4.4. Voting Securities Owned by the Corporation. Powers of
attorney, proxies, waivers of notice of meeting, consents and other instruments
relating to securities owned by the Corporation may be executed in the name of
and on behalf of the Corporation by the President or any Vice President, and any
such officer may, in the name of and on behalf of the Corporation, take all such
action as any such officer may deem advisable to vote in person or by proxy at
any meeting of security holders of any corporation which the Corporation may own
securities and at any such meeting shall possess and may exercise any and all
rights and power incident to the ownership of such securities and which, as the
owner thereof, the Corporation might have exercised and possessed if present.
The Board of Directors may, by resolution, from time to time confer like powers
upon any other person or persons.
Section 4.5. President. The President shall be a director of the
Corporation. The President or the Chairman of the Board, as designated by the
Board of Directors, shall be the chief executive officer. The President shall,
subject to the control of the Board of Directors, have general supervision of
the business of the Corporation and shall see that all orders and resolutions of
the Board of Directors are carried into effect. He shall execute all bonds,
mortgages, contracts and other instruments of the Corporation requiring a seal,
under the seal of the Corporation, except where required or permitted by law to
be otherwise signed and executed and except that the other officers of the
Corporation may sign and execute documents when so authorized by these Bylaws,
the Board of Directors or the President. If so designated by the Board of
Directors, the President shall preside at the annual meetings and special
meetings of the shareholders. The President shall also perform such other duties
and may exercise such other powers as from time to time assigned to him by these
Bylaws or by the Board of Directors.
Section 4.6. Vice President. At the request of the President or in his
absence or in the event of his inability or refusal to act, the Vice President
or the Vice Presidents if there is more than one (in the order designated by the
Board of Directors) shall perform the duties of the President, and when so
acting, shall have all the powers and be subject to all the restrictions upon
the President. Each Vice President shall perform such other duties and have such
other powers as the Board of Directors from time to time may prescribe. The
Board of Directors may designate one or more Vice Presidents as executive Vice
President or senior Vice President. If there is no Vice President, the Board of
Directors shall designate the officer of the Corporation who, in the absence of
the President or in the
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event of the inability or refusal of the President to act, shall perform the
duties of the President, and when so acting, shall have all the powers of and be
subject to all the restrictions upon the President.
Section 4.7. Secretary. The Secretary shall attend all meetings of the
Board of Directors and all meetings of shareholders and record all the
proceedings thereat in a book or books to be kept for that purpose; the
Secretary shall also perform like duties for the standing committees when
required. The Secretary shall give, or cause to be given, notice of all meetings
of the shareholders and special meetings of the Board of Directors, and shall
perform such other duties as may be prescribed by the Board of Directors or
President, under whose supervision he shall be. If the Secretary shall be unable
or shall refuse to cause to be given notice of all meetings of the shareholders
and special meetings of the Board of Directors, and if there be no Assistant
Secretary, then either the Board of Directors or the President may choose
another officer to cause such notice to be given. The Secretary shall have
custody of the seal of the Corporation and the Secretary or any Assistant
Secretary, if there is one, shall have authority to affix the same to any
instrument requiring it and when so affixed, it may be attested by the signature
of the Secretary or by the signature of any such Assistant Secretary. The Board
of Directors may give general authority to any other officer to affix the seal
of the Corporation and to attest the affixing by his signature. The Secretary
shall see that all books, reports, statements, certificates and other documents
and records required by law to be kept or filed are properly kept or filed, as
the case may be.
Section 4.8. Treasurer. The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate accounts of
receipts and disbursements in books belonging to the Corporation and shall
deposit all moneys and other valuable effects in the name and to the credit of
the Corporation in such depositories as may be designated by the Board of
Directors. The Treasurer shall disburse the funds of the Corporation as may be
ordered by the Board of Directors, taking proper vouchers for such
disbursements, and shall render to the President and the Board of Directors, at
its regular meetings, or when the Board of Directors so requires, an account of
all his transactions as Treasurer and of the financial condition of the
Corporation. If required by the Board of Directors, the Treasurer shall give the
Corporation a bond in such sum and with such surety or sureties as shall be
satisfactory to the Board of Directors for the faithful performance of the
duties of his office and for the restoration to the Corporation, in case of his
death, resignation, retirement or removal from office, of all books, papers,
vouchers, money and other property of whatever kind in his possession or under
his control belonging to the Corporation.
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Section 4.9. Assistant Secretaries. Except as may be otherwise provided
in these Bylaws, Assistant secretaries, if there is any, shall perform such
duties and have such powers as from time to time may be assigned to them by the
Board of Directors, the President, any Vice President, if there is one, or the
Secretary, and in the absence of the Secretary or in the event of his disability
or refusal to act, shall perform the duties of the Secretary, and when so
acting, shall have all the powers of and be subject to all the restrictions upon
the Secretary.
Section 4.10. Assistant Treasurers. Assistant Treasurers, if there is
any, shall perform such duties and have such powers as from time to time may be
assigned to them by the Board of Directors, the President, any Vice President,
if there is one, or the Treasurer, and in the absence of the Treasurer, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the Treasurer. If required by the Board of Directors, an Assistant
Treasurer shall give the Corporation a bond in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money and other property of whatever
kind in his possession or under his control belonging to the Corporation.
Section 4.11. Other Officers. Such other officers as the Board of
Directors may choose shall perform such duties and have such powers as from time
to time may be assigned to them by the Board of Directors. The Board of
Directors may delegate to any other officer of the Corporation the power to
choose such other officers and to prescribe their respective duties and powers.
ARTICLE V
CAPITAL STOCK
Section 5.1. Issues of Certificate of Stock. Certificates of capital
stock shall be in such form as may be prescribed by law and by the Board of
Directors. All certificates shall be signed by the President and by the
Secretary or an Assistant Secretary, or by any other two Officers authorized by
resolution of the Board of Directors.
Section 5.2. Transfer of Stock. The stock of the corporation shall be
transferable or assignable on the books of the Corporation by the holders in
person or by attorney on surrender of the certificate or certificates for such
shares duly endorsed, and, if sought to be transferred by attorney, accompanied
by a written power of attorney to have such stock transferred on the books of
the Corporation.
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Section 5.3. Restrictions on Transfer of Stock. Any restrictions that
may be imposed by law, by the Articles of Incorporation or Bylaws of the
Corporation, or by an agreement among shareholders of the Corporation, shall be
noted conspicuously on the front or back of all certificates representing shares
of stock of the Corporation.
Section 5.4. Lost, Destroyed or Mutilated Certificates. The holder of
stock of the Corporation shall immediately notify the Corporation of any loss,
destruction, or mutilation of the certificate therefor, and the Corporation may
in its discretion cause one or more new certificates for the same aggregate
number of shares to be issued to such Stockholder upon the surrender of the
mutilated certificate, or upon satisfactory proof of such loss or destruction
accompanied by the deposit of a bond in such form and amount and with such
surety as the Corporation may require.
Section 5.5. Holder of Record. The Corporation shall be entitled to
treat the holder of record of any share or shares of stock as the holder thereof
in fact and shall not be bound to recognize any equitable or other claim to or
interest in such shares of stock on the part of any other person, whether or not
it shall have express or other notice thereof, except as otherwise expressly
provided by law.
Section 5.6. Record Date. The Board of Directors shall fix in advance
the record date in order to make a determination of shareholders for any
purpose, including the determination of shareholders entitled to notice of or to
vote at any shareholders' meeting or entitled to payment of any dividend or
distribution to shareholders. Such record date shall not be more than seventy
(70) days prior to the date on which the particular action requiring such
determination of shareholders is to be taken.
Section 5.7. Control Share Acquisitions. Article 14.1 of the Virginia
Stock Corporation Act shall not apply to the Corporation.
ARTICLE VI
MISCELLANEOUS PROVISIONS
Section 6.1. Seal. The seal of the Corporation shall be circular in
shape with the name of the Corporation around the circumference thereof, and the
word "SEAL" in the center thereof.
Section 6.2. Examination of the Books and Records. The books and
records of account of the Corporation, the minutes of the proceedings of the
shareholders, the Board and Committees appointed by the Board of Directors and
the records of the shareholders showing the names and addresses of all
shareholders
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and the number of shares held by each, shall be subject to inspection during the
normal business hours by any person who is a duly qualified Director of the
Corporation at the time he makes such inspection. Shareholders shall have such
rights to inspect records of the Corporation as are prescribed by applicable
law.
Section 6.3. Checks, Notes and Drafts. Checks, notes, drafts, and
other orders for the payment of money shall be signed by such persons as the
Board of Directors from time to time may authorize.
Section 6.4. Amendments to By-Laws. These Bylaws may be altered,
amended or repealed in accordance with the Articles of Incorporation.
Section 6.5. Voting of Stock Held. Unless otherwise provided by
resolution of the Board of Directors, the Chairman of the Board of Directors,
the President or any Executive Vice President may from time to time appoint an
attorney or attorneys as agent or agents of the Corporation to cast in the name
of the Corporation the votes which the Corporation may be entitled to cast as a
shareholder or otherwise in any other corporation, any of whose stock or
securities may be held by the Corporation, at meetings of the holders of the
stock or other securities of such other corporation, or to consent in writing to
any action by any such other corporation; and such Officers may instruct the
person or persons so appointed as to the manner of casting such votes or giving
such consent, and may execute or cause to be executed on behalf of the
Corporation and under its corporate seal, or otherwise, such written proxies,
consents, waivers, or other instruments as may be necessary or proper in the
premises; or any of such Officers may himself attend any meeting of the holders
of stock or other securities of any such other corporation and there vote or
exercise any or all other powers of the Corporation as the holder of such stock
or other securities of such other corporation.
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EXHIBIT E
COMMUNITY FINANCIAL CORPORATION
1996 INCENTIVE PLAN
ARTICLE 1
DEFINITIONS
1.01 Affiliate means any "subsidiary" or "parent corporation" (within
the meaning of Section 424 of the Code) of the Company.
1.02 Agreement means a written agreement (including any amendment or
supplement thereto) between the Company and a Participant specifying the terms
and conditions of a Grant issued to such Participant.
1.03 Board means the Board of Directors of the Company.
1.04 Change of Control means and shall be deemed to have taken place
if: (i) a third person, including a "group" as defined in Section 13(d)(3) of
the Securities Exchange Act of 1934, who after the effective date of the Plan
becomes the beneficial owner of shares of the Company having 20 percent or more
of the total number of votes that may be cast for the election of Directors of
the Company; or, (ii) as the result of, or in connection with, any cash tender
or exchange offer, merger or other business combination, sale of assets or
contested election, or any combination of the foregoing transactions (a
"Transaction"), the persons who were Directors of the Company before the
Transaction shall cease to constitute a majority of the Board of the Company or
any successor to the Company.
1.05 Change of Control Date is the date on which an event described in
(i) or (ii) of Section 1.04 occurs.
1.06 Code means the Internal Revenue Code of 1986, and any amendments
thereto.
1.07 Committee means the Stock Option Committee of the Board.
1.08 Common Stock means the Common Stock of the Company.
1.09 Company means Community Financial Corporation, a Delaware
corporation.
1.10 Fair Market Value means, on any given date, the average of the bid
and asked prices at closing of a share of Common Stock on the over-the-counter
market on such day or, if the Common Stock was not traded on such day, then on
the next preceding day that the Common Stock was traded on such exchange, all as
reported by such source as the Committee may select.
1.11 Grant means the grant of an Option.
1.12 Incentive Stock Option means an Option that is intended to qualify
as an "incentive stock option" under Section 422 of the Code.
1.13 Non-Qualified Stock Option means an Option other than an Incentive
Stock Option.
1.14 Option means a stock option that entitles the holder to purchase
from the Company a stated number of shares of Common Stock at the price set
forth in an Agreement.
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1.15 Option Price means the price per share for Common Stock purchased
on the exercise of an Option as provided in Article VI.
1.16 Participant means a director of the Company or an employee of the
Company or of a Subsidiary who satisfies the requirements of Article IV and is
selected by the Committee to receive a Grant.
1.17 Plan means the Community Financial Corporation 1996 Incentive
Plan.
1.18 Rule 16b-3 means Rule 16b-3, as promulgated by the Securities and
Exchange Commission under Section 16(b) of the Securities Exchange Act of 1934,
as amended from time to time.
1.19 Securities Broker means the registered securities broker
acceptable to the Company who agrees to effect the cashless exercise of an
option pursuant to Section 8.04 hereof.
1.20 Subsidiary means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations in the chain (other than the last corporation) owns stock
possessing at least 50 percent of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
ARTICLE II
PURPOSES
The Plan is intended to assist the Company in recruiting and retaining
directors and key employees with ability and initiative by enabling directors
and employees who contribute significantly to the Company or an Affiliate to
participate in its future success and to associate their interests with those of
the Company and its shareholders. The Plan is intended to permit the issuance of
Options qualifying as Incentive Stock Options or Non-Qualified Stock Options as
designated by the Committee at time of grant. No Option that is intended to be
an Incentive Stock Option, however, shall be invalid for failure to qualify as
an Incentive Stock Option under Section 422 of the Code but shall be treated as
a Non-Qualified Stock Option.
ARTICLE III
ADMINISTRATION
The Plan shall be administered by the Committee. The Committee shall
have authority to issue Grants upon such terms (not inconsistent with the
provisions of this Plan) as the Committee may consider appropriate. The terms of
such Grants may include conditions (in addition to those contained in this Plan)
on the exercisability of all or any part of an Option. In addition, the
Committee shall have complete authority to interpret all provisions of this
Plan; to prescribe the form of Agreements; to adopt, amend, and rescind rules
and regulations pertaining to the administration of the Plan; and to make all
other determinations necessary or advisable for the administration of this Plan.
The express grant in the Plan of any specific power to the Committee
shall not be construed as limiting any power or authority of the Committee. Any
decision made, or action taken, by the Committee or in connection with the
administration of this Plan shall be final and conclusive. All expenses of
administering this Plan shall be borne by the Company.
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ARTICLE IV
ELIGIBILITY
4.01 General. Any employee of the Company or of any Subsidiary
(including any corporation that becomes a Subsidiary after the adoption of this
Plan) who, in the judgment of the Committee, has contributed significantly or
can be expected to contribute significantly to the profits or growth of the
Company or a Subsidiary may receive one or more Grants. Directors of the Company
are eligible to participate in this Plan. Except as provided in Article XII, a
person who is a member of the Committee may not be issued Grants while he is a
member of the Committee.
4.02 Grants. The Committee will designate individuals to whom Grants
are to be issued and will specify the number of shares of Common Stock subject
to each such Grant. All Grants issued under this Plan shall be evidenced by
Agreements which shall be subject to applicable provisions of this Plan and to
such other provisions as the Committee may adopt. No Participant may be granted
Options that are Incentive Stock Options (under all Incentive Stock Option Plans
of the Company and Affiliates) which are first exercisable in any calendar year
for stock having an aggregate Fair Market Value (determined as of the date an
Option is granted) exceeding $100,000.
4.03 Designation of Option as an Incentive Stock Option or a
Non-Qualified Stock Option. The Committee will designate at the time an Option
is granted whether the Option is to be treated as an Incentive Stock Option or a
Non-Qualified Stock Option. In the absence, however, of any such designation,
such option shall be treated as a Non-Qualified Stock Option.
ARTICLE V
STOCK SUBJECT TO PLAN
The maximum number of shares of Common Stock available for Grants under
the Plan shall be 60,000. Such maximum number of shares of Common Stock is
subject to adjustment as provided in Article IX. Shares of Common Stock subject
to Grants under the Plan may be authorized but previously unissued shares of
Common Stock or previously issued shares of Common Stock reacquired by the
Company.
If any option terminates without being exercised, shares of Common
Stock subject to such Grants shall be available for distribution in connection
with Grants under the Plan.
ARTICLE VI
OPTION PRICE
The price per share for Common Stock purchased on the exercise of an
Option shall be fixed by the Committee on the date of Grant; provided, however,
that in the case of an Option that is an Incentive Stock Option, the price per
share shall not be less than the Fair market Value on such date.
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ARTICLE VII
EXERCISE OF OPTIONS
7.01 Maximum Option Period. The period in which an Option may be
exercised shall be determined by the Committee on the date of grant; provided,
however that an Incentive Stock Option shall not be exercisable after the
expiration of 10 years from the date the Incentive Stock Option was granted.
7.02 Nontransferability. Any Option granted under this Plan shall be
nontransferable except by will or by the laws of descent and distribution. In
the event of any such transfer, the Option must be transferred to the same
person or persons, trust or estate. During the lifetime of the Participant to
whom an Incentive Stock Option is granted, the Option may be exercised only by
the Participant. No right or interest of a Participant in any Option shall be
liable for, or subject to, any lien, obligation, or liability of such
Participant.
7.03 Employee Status. For purposes of determining the applicability of
Section 422 of the Code (relating to Incentive Stock Options), or in the event
that the terms of any Grant provide that it may be exercised only during
employment or within a specified period of time after termination of employment,
the Committee may decide to what extent leaves of absence for governmental or
military service, illness, temporary disability, or other reasons shall not be
deemed interruptions of continuous employment.
ARTICLE VIII
METHOD OF EXERCISE
8.01 Exercise. Subject to the provisions of Articles VII and X, an
Option may be exercised in whole at any time or in part from time to time at
such times and in compliance with such requirements as the Committee shall
determine. An Option granted under this Plan may be exercised with respect to
any number of whole shares less than the full number for which the Option could
be exercised. Such partial exercise of an Option shall not affect the right to
exercise the Option from time to time in accordance with this Plan with respect
to remaining shares subject to the Option.
8.02 Payment. Unless otherwise provided by the Agreement, payment of
the Option Price shall be made in cash. If the Agreement provides, payment of
all or part of the Option Price may be made by withholding shares of Common
Stock upon exercise of an Option or by surrendering already owned shares of
Common Stock to the Company, provided the shares withheld or surrendered have a
Fair Market Value (determined as of the day preceding the date of exercise) that
is not less than such price or part thereof. In addition, the Committee may
establish such payment or other terms as it may deem to be appropriate and
consistent with these purposes.
8.03 Shareholder Rights. No participant shall have any rights as a
shareholder with respect to shares subject to his Option until the date he
exercises such Option.
8.04 Cashless Exercise. To the extent permitted under the applicable
laws and regulations, at the request of the Participant and with the consent of
the Committee, the Company agrees to cooperate in a "cashless exercise" of the
Option. The cashless exercise shall be effected by the Participant delivering to
the Securities Broker instructions to exercise all or part of the Option,
including instructions to sell a sufficient number of shares of Common Stock to
cover the costs and expenses associated therewith.
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ARTICLE IX
ADJUSTMENT UPON CHANGE IN COMMON STOCK
Should the Company effect one or more (x) stock dividends, stock
split-ups, subdivisions or consolidations of shares or other similar changes in
capitalization; (y) spin-offs, spin-outs, split-ups, split-offs, or other such
distribution of assets to shareholders; or (z) direct or indirect assumptions
and/or conversions of outstanding Options due to an acquisition of the Company,
then the maximum number of shares as to which Grants may be issued under this
Plan shall be proportionately adjusted and their terms shall be adjusted as the
Committee shall determine to be equitably required, provided that the number of
shares subject to any Grant shall always be a whole number. Any determination
made under this Article IX by the Committee shall be final and conclusive.
The issuance by the Company of shares of stock of any class, or
securities convertible into shares of stock of any class, for cash or property
or for labor or services, either upon direct sale or upon the exercise of rights
or warrants to subscribe therefor, or upon conversion of shares or obligations
of the Company convertible into such shares or other securities, shall not
affect, and no adjustment by reason thereof shall be made with respect to any
Grant.
ARTICLE X
COMPLIANCE WITH LAW AND APPROVAL OF REGULATORY BODIES
No Grant shall be exercisable, no Common Stock shall be issued, no
certificates for shares of Common Stock shall be delivered, and no payment shall
be made under this Plan except in compliance with all applicable Federal and
state laws and regulations (including, without limitation, withholding tax
requirements) and the rules of all domestic stock exchanges on which the
Company's shares may be listed. The Company may rely on an opinion of its
counsel as to such compliance. Any share certificate issued to evidence Common
Stock for which a Grant is exercised or an Award is issued may bear such legends
and statements as the Committee may deem advisable to assure compliance with
Federal and state laws and regulations. No Grant shall be exercisable, no Common
Stock shall be issued, no certificate for shares shall be delivered, and no
payment shall be made under this Plan until the Company has obtained such
consent or approval as the Committee may deem advisable from regulatory bodies
having jurisdiction over such matters.
ARTICLE XI
GENERAL PROVISIONS
11.01 Effect on Employment. Neither the adoption of this Plan, its
operation, nor any documents describing or referring to this Plan (or any part
thereof) shall confer upon any employee any right to continue in the employ of
the Company or a Subsidiary or in any way affect any right and power of the
Company or a Subsidiary to terminate the employment of any employee at any time
with or without assigning a reason therefor.
11.02 Change of Control. Notwithstanding any other provision in this
Plan to the contrary, unless the Committee provides otherwise in an Agreement, a
Grant may be exercised immediately in full upon a Change of Control.
11.03 Rules of Construction. Headings are given to the articles and
sections of this Plan for ease of reference. The reference to any statute,
regulation, or other provision of law shall be construed to refer to any
amendment to or successor of such provision of law.
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11.04 Amendment. The Board may amend or terminate this Plan from time
to time; provided, however, that no amendment may become effective until
shareholder approval is obtained if the amendment (i) materially increases the
aggregate number of shares that may be issued pursuant to Options, (ii)
materially increases the benefits to Participants under the Agreement, or (iii)
materially changes the class of employees eligible to become Participants. No
amendment shall, without a Participant's consent, adversely affect any rights of
such Participant under any Grant outstanding at the time such amendment is made,
except such an amendment made to cause the Plan to qualify for the Rule 16b-3
exemption. No amendment shall be made if it would disqualify the Plan from the
exemption provided by Rule 16b-3. The Committee may amend the terms of any Grant
theretofore issued under this Plan, prospectively or retrospectively, and
include in such amendment the right of the Committee to pay a Participant cash
in lieu of shares of Common Stock upon the termination (by exercise or
otherwise) of an Option, but no such amendment shall impair the rights of any
Participant without the Participant's consent, except such an amendment made to
cause the Plan, or Grant to qualify for the exemption provided by Rule 16b-3.
11.05 Duration of Plan. No Grant may be issued under this Plan before
May 22, 1996, or after May 21, 2006.
11.06 Shareholder Approval. This Plan has been approved by the Board of
Directors of the Company and shall be effective as of May 22, 1996 subject,
however, to approval by the shareholders of the Company entitled to vote at the
1996 Annual Meeting of Shareholders.
ARTICLE XII
DIRECTOR OPTIONS
On the date the shareholders of the Company approve the Plan, each
director of the Company who is not also a full time employee of the Company
shall be granted a Non-Qualified Stock Option for 2,500 shares of Common Stock.
The Option Price shall be the Fair Market Value on the date of grant. Such
Options shall expire ten years after the date of grant or ninety (90) days after
the grantee ceases to serve as a director of the Company, whichever occurs
first.
To the extent shares of Common Stock are available under the Plan, a
Non-Qualified Stock Option for 2,500 shares of Common Stock shall be granted to
any individual who is not a full time employee of the Company and who becomes a
director of the Company after the shareholders of the Company approve the Plan.
Any such option shall be granted on the date any such individual is first
appointed or elected to the Board. The Option Price shall be the Fair Market
Value on the date of grant. Any such option shall expire ten years after the
date of grant or ninety (90) days after the grantee ceases to serve as a
director of the Company, whichever occurs first.
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COMMUNITY FINANCIAL CORPORATION
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned hereby appoints Jane C. Hickok and James R. Cooke, Jr.,
jointly and severally, proxies, with full power to act alone, and with full
power of substitution, to represent the undersigned and to vote, as designated
below and upon any and all other matters which may properly be brought before
such meeting, all shares of Common Stock which the undersigned would be entitled
to vote at the Annual Meeting of Shareholders of Community Financial
Corporation, a Delaware corporation (the "Corporation") to be held at the main
office of Community Federal Savings Bank, 38 N. Central Avenue, Staunton,
Virginia on July 31, 1996 at 7:00 p.m., local time, or any adjournments thereof,
for the following purposes:
1. To elect as directors the three persons listed as nominees
below.
[ ] FOR nominees listed below [ ] WITHHOLD AUTHORITY to
(except as written on the line below) vote for all nominees
listed below
Charles F. Andersen
Thomas W. Winfree
Charles W. Fairchilds
(INSTRUCTION: To withhold authority to vote for any
individual nominee listed above, write that nominee's name on
the space provided below.)
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2. To approve the Agreement and Plan of Reorganization, dated May 22,
1996, between the Corporation and Community Financial Corporation, a Virginia
corporation ("CFC Virginia"), providing for the reincorporation of the
Corporation from Delaware to Virginia by means of a merger of the Corporation
into CFC Virginia.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. To approve the Corporation's 1996 Incentive Plan.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
4. To ratify the appointment of BDO Seidman, LLP as auditors for the
Corporation for the fiscal year ending March 31, 1997.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
5. In their discretion, the proxies are authorized to vote upon any
other business that may properly come before the meeting, or any adjournment
thereof.
<PAGE>
THIS PROXY, WHEN PROPERLY EXECUTED, WILL BE VOTED IN THE MANNER
DIRECTED HEREIN BY THE SHAREHOLDER. IF NO DIRECTION IS GIVEN, THIS PROXY WILL BE
VOTED FOR ALL NOMINEES LISTED IN ITEM 1 AND FOR ITEMS 2, 3 AND 4.
----------------------------------------
Signature
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Signature
Dated:
(In signing as Attorney, Administrator,
Executor, Guardian or Trustee, please
add your title as such)
PLEASE MARK, DATE, SIGN AND RETURN PROMPTLY
