As Filed with the Securities and Exchange Commission on June 16, 1998
Registration No. 333 -
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
BB&T Corporation
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
North Carolina 6060 56-0939887
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
200 West Second Street
Winston-Salem, North Carolina 27101
(336) 733-2000
(Address, including Zip Code, and telephone number, including
area code, of registrant's principal executive offices)
Jerone C. Herring, Esq.
200 West Second Street, 3rd Floor
Winston-Salem, North Carolina 27101
(336) 733-2180
(Name, address, including Zip Code, and telephone number,
including area code, of agent for service)
The Commission is requested to send copies of
all communications to:
<TABLE>
<S> <C>
Douglas A. Mays Gerard L. Hawkins
Womble Carlyle Sandridge & Rice, PLLC Elias, Matz, Tiernan & Herrick L.L.P.
3300 One First Union Center 734 Fifteenth Street, N.W.
Charlotte, North Carolina 28202-6025 Washington, D.C. 20005
</TABLE>
---------------
Approximate date of commencement of proposed sale of the securities to the
public:
As soon as practicable after the effective date of this Registration Statement.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box:[ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering:[ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering:[ ]
---------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Proposed maximum Proposed maximum Amount of
Title of each class of Amount to be offering price aggregate registration
securities to be registered registered per unit offering price fee
<S> <C> <C> <C> <C>
Common Stock, par value
$5.00 per share(1) .......... 4,344,519 (2) $ 275,893,335.00(3) $ 29,926.15(4)
</TABLE>
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(1) Each share of the registrant's common stock includes one preferred share
purchase right.
(2) Not applicable.
(3) Computed in accordance with Rule 457(f) based on the average of the high
($39.13) and low ($38.38) sales price of the common stock of Maryland
Federal Bancorp, Inc. on June 12, 1998 as reported on The Nasdaq National
Market.
(4) Pursuant to Rule 457(b), the registration fee has been reduced by an amount
equal to the fee of $51,462.38 paid upon the filing with the Commission of
the preliminary proxy materials of Maryland Federal Bancorp, Inc. on May
6, 1998.
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<PAGE>
MARYLAND FEDERAL BANCORP, INC.
3505 Hamilton Street
Hyattsville, Maryland 20782
June 15, 1998
Dear Shareholders:
You are cordially invited to attend the Annual Meeting of Shareholders
(the "Meeting") of Maryland Federal Bancorp, Inc. ("Maryland Federal"), to be
held at La Fontaine Bleu, located at 7963 Annapolis Road, Lanham, Maryland on
Tuesday, July 21, 1998 at 10:00 a.m., Eastern Time. At the Meeting, you will be
asked to consider and vote on the Agreement and Plan of Reorganization, dated
as of February 25, 1998, as amended and restated (the "Reorganization
Agreement"), between Maryland Federal and BB&T Corporation, a North Carolina
corporation ("BB& T"), and a related Plan of Merger (the "Plan of Merger").
Pursuant to the Reorganization Agreement and the Plan of Merger, Maryland
Federal will merge with and into BB&T (the "Merger"), and each share of common
stock of Maryland Federal ("Maryland Federal Common Stock") outstanding
immediately prior thereto will be converted into the right to receive 0.5975 of
a share of common stock of BB&T ("BB&T Common Stock"), subject to possible
adjustment as set forth in the Reorganization Agreement and the Plan of Merger,
plus cash in lieu of any fractional share interest. BB&T will be the surviving
corporation in the Merger, and shareholders of Maryland Federal will become
shareholders of BB&T.
Consummation of the Merger is subject to certain conditions, including
approval of the Reorganization Agreement and the Plan of Merger by the Maryland
Federal shareholders, approval of the Merger by various regulatory agencies and
satisfaction or waiver of certain other contractual conditions. It is also a
condition to the Merger that the exchange of BB&T Common Stock solely for
shares of Maryland Federal Common Stock will be a reorganization for federal
income tax purposes, with the result that, except for cash received in lieu of
fractional share interests, holders of Maryland Federal Common Stock who
receive BB&T Common Stock pursuant to the Merger generally will not recognize
gain or loss for such purposes.
In addition to considering the Reorganization Agreement and the Plan of
Merger at the Meeting, you will be asked (a) to elect three directors for terms
expiring at the earlier of the effective time of the Merger, the date of the
2001 annual meeting of Maryland Federal shareholders or such time as their
respective successors are elected and qualified and (b) to ratify the
appointment of Stoy, Malone & Company, P.C. as Maryland Federal's independent
auditors for the fiscal year ending February 28, 1999 if the Merger is not
completed.
The enclosed Notice of Meeting and Proxy Statement/Prospectus contain
important information concerning the Meeting and the proposed Merger, including
details as to the determination of the consideration to be received in the
Merger. Please carefully read these materials and thoroughly consider the
information contained in them.
Whether or not you plan to attend the Meeting, you are urged to complete,
sign, date and promptly return the enclosed proxy card to assure that your
shares will be voted at the Meeting. If you attend the Meeting, you may vote in
person regardless of whether you have previously submitted a proxy. Failure to
return a properly executed proxy or to vote at the Meeting will have the same
effect as a vote against the Reorganization Agreement and the Plan of Merger.
The Board of Directors of Maryland Federal unanimously approved the
Reorganization Agreement and the Plan of Merger and believes that the Merger is
fair to, and in the best interests of, the shareholders of Maryland Federal.
Accordingly, the Board of Directors of Maryland Federal unanimously recommends
that shareholders of Maryland Federal vote "FOR" approval of the Reorganization
Agreement and the Plan of Merger. The Board of Directors of Maryland Federal
also recommends that shareholders of Maryland Federal vote "FOR" the proposed
slate of directors and "FOR" ratification of the appointment of Stoy, Malone &
Company, P.C. as Maryland Federal's independent auditors for the fiscal year
ending February 28, 1999.
Sincerely,
/s/ Richard B. Bland
RICHARD B. BLAND
Chairman of the Board
/s/ Robert H. Halleck
ROBERT H. HALLECK
President and Chief Executive Officer
<PAGE>
MARYLAND FEDERAL BANCORP, INC.
3505 Hamilton Street
Hyattsville, Maryland 20782
---------------------------------
NOTICE OF MEETING OF SHAREHOLDERS
To be held on July 21, 1998
---------------------------------
TO THE SHAREHOLDERS OF MARYLAND FEDERAL BANCORP, INC.:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Shareholders (the
"Meeting") of Maryland Federal Bancorp, Inc., a Maryland corporation ("Maryland
Federal"), will be held at La Fontaine Bleu, located at 7963 Annapolis Road,
Lanham, Maryland on Tuesday, July 21, 1998 at 10:00 a.m., Eastern Time, for the
following purposes:
1. Merger. To consider and vote upon a proposal to approve the Agreement
and Plan of Reorganization, dated as of February 25, 1998, as amended and
restated (the "Reorganization Agreement"), between Maryland Federal and
BB&T Corporation, a North Carolina corporation ("BB& T"), and a related
Plan of Merger (the "Plan of Merger"), pursuant to which Maryland Federal
will merge with and into BB&T, and each share of common stock of Maryland
Federal outstanding immediately prior thereto will be converted into the
right to receive 0.5975 of a share of common stock of BB&T, subject to
possible adjustment as set forth in the Reorganization Agreement and the
Plan of Merger, plus cash in lieu of any fractional share interest. A copy
of the Reorganization Agreement and the Plan of Merger set forth therein
is attached to the accompanying Proxy Statement/Prospectus as Appendix I.
2. Election of Directors. To elect three directors for terms expiring at
the earlier of the effective time of the Merger, the date of the 2001
annual meeting of Maryland Federal shareholders or such time as their
respective successors are elected and qualified.
3. Appointment of Auditors. To ratify the appointment of Stoy, Malone &
Company, P.C. as Maryland Federal's independent auditors for the fiscal
year ending February 28, 1999 if the Merger is not completed.
4. To transact such other business as may be properly brought before the
Meeting or at any and all adjournments or postponements thereof.
Shareholders of Maryland Federal of record at the close of business on
June 5, 1998 are entitled to notice of and to vote at the Meeting. You are
cordially invited to attend the Meeting in person; however, whether or not you
plan to attend, we urge you to complete, date and sign the accompanying proxy
card and to return it promptly in the enclosed postage prepaid envelope.
By Order of the Board of Directors
/s/ Sarah M. Costlow
SARAH M. COSTLOW
Secretary
Hyattsville, Maryland
June 15, 1998
PLEASE COMPLETE, SIGN, DATE AND RETURN THE ENCLOSED PROXY CARD PROMPTLY WHETHER
OR NOT YOU PLAN TO BE PRESENT AT THE MEETING. FAILURE TO RETURN A PROPERLY
EXECUTED PROXY OR TO VOTE AT THE MEETING WILL HAVE THE SAME EFFECT AS A VOTE
AGAINST THE REORGANIZATION AGREEMENT AND THE PLAN OF MERGER. PLEASE DO NOT SEND
IN ANY CERTIFICATES FOR YOUR SHARES AT THIS TIME.
<PAGE>
PROXY STATEMENT
MARYLAND FEDERAL BANCORP, INC.
---------------
PROSPECTUS
BB&T CORPORATION
COMMON STOCK
This Proxy Statement/Prospectus is being furnished to the holders of the
common stock of Maryland Federal Bancorp, Inc., a Maryland corporation
("Maryland Federal"), in connection with the solicitation of proxies by the
Board of Directors of Maryland Federal (the "Maryland Federal Board") for use
at the annual meeting of shareholders of Maryland Federal, or any adjournment
or postponement thereof (the "Meeting"), to be held at La Fontaine Bleu,
located at 7963 Annapolis Road, Lanham, Maryland on Tuesday, July 21, 1998 at
10:00 a.m., Eastern Time. At the Meeting, the shareholders of Maryland Federal
will be asked to consider and vote upon a proposal to approve an Agreement and
Plan of Reorganization, dated as of February 25, 1998, as amended and restated
(the "Reorganization Agreement"), between Maryland Federal and BB&T
Corporation, a North Carolina corporation ("BB&T"), and the related Plan of
Merger (the "Plan of Merger"). A copy of the Reorganization Agreement and the
Plan of Merger set forth therein is attached hereto as Appendix I. At the
Meeting shareholders of Maryland Federal also will be asked to elect three
directors of Maryland Federal for terms expiring at the earlier of the
Effective Time (as defined herein), the date of the 2001 annual meeting of
Maryland Federal shareholders or such time as their successors are elected and
qualified and (b) to ratify the appointment of Stoy, Malone & Company, P.C. as
Maryland Federal's independent auditors for the fiscal year ending February 28,
1999 if the Merger is not completed.
The Reorganization Agreement and the Plan of Merger provide for the merger
of Maryland Federal with and into BB&T (the "Merger"). As a result of the
Merger, each issued and outstanding share of the common stock, par value $0.01
per share, of Maryland Federal ("Maryland Federal Common Stock") will be
converted into and exchanged for a fraction of a share of common stock, par
value $5.00 per share, of BB&T ("BB&T Common Stock") determined as set forth in
the Reorganization Agreement and the Plan of Merger, plus cash in lieu of any
fractional share interest. As described herein, each share of Maryland Federal
Common Stock will be converted into the right to receive a minimum of 0.5975 of
a share of BB&T Common Stock, which amount may be increased to up to 0.6102 of
a share of BB&T Common Stock and may be subject to possible additional upward
adjustment (the "Exchange Ratio"). The Exchange Ratio is adjustable upward in
excess of 0.6102 only if certain conditions are met concerning the reported
price of BB&T Common Stock, and then only with the concurrence of BB&T. The
Maryland Federal Board has the right to elect to terminate the Reorganization
Agreement if such conditions should occur, in which case the Board of Directors
of BB&T (the "BB&T Board") would be required to determine whether to proceed
with the Merger at a higher Exchange Ratio. See "THE MERGER -- Exchange Ratio."
This Proxy Statement/Prospectus also constitutes a prospectus of BB&T with
respect to up to 4,344,519 shares of BB&T Common Stock to be issued to holders
of the outstanding shares Maryland Federal Common Stock in accordance with the
Reorganization Agreement and the Plan of Merger. BB&T Common Stock is listed
for trading on the New York Stock Exchange, Inc. (the "NYSE") under the trading
symbol "BBK." On June 12, 1998, the last sale price of BB&T Common Stock as
reported on the NYSE was $65.75. Maryland Federal Common Stock is listed for
trading on the Nasdaq National Market under the trading symbol "MFSL." On June
12, 1998, the last sale price of Maryland Federal Common Stock as reported on
the Nasdaq National Market was $38.75. On February 24, 1998, the last trading
day before Maryland Federal announced that it had entered into the
Reorganization Agreement, the last reported sale price of Maryland Federal
Common Stock on the Nasdaq National Market was $31.75.
This Proxy Statement/Prospectus, the Notice of Meeting, and the
accompanying proxy card are first being mailed to the shareholders of Maryland
Federal on or about June 19, 1998.
NEITHER THE MERGER NOR THE SECURITIES OFFERED HEREBY HAVE BEEN APPROVED OR
DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR
ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO
THE CONTRARY IS A CRIMINAL OFFENSE.
THE SHARES OF BB&T COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR NON-BANK SUBSIDIARY OF BB&T AND
ARE NOT INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER
GOVERNMENT AGENCY.
The date of this Proxy Statement/Prospectus is June 15, 1998.
<PAGE>
AVAILABLE INFORMATION
BB&T and Maryland Federal are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements, and other information with
the Commission. The reports, proxy statements and other information filed with
the Commission can be inspected and copied at the public reference facilities
maintained by the Commission at 450 Fifth Street, N.W., Judiciary Plaza,
Washington, D.C. 20549 and at the following Regional Offices of the Commission:
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, Suite 1300, New York, New York 10048. Copies of such material can be
obtained at prescribed rates from the Public Reference Section of the
Commission at 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549.
The Commission maintains a World Wide Web site on the Internet at
http://www.sec.gov that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission, including BB&T and Maryland Federal.
Shares of BB&T Common Stock and Maryland Federal Common Stock are,
respectively, listed on the NYSE and traded on the Nasdaq National Market, and
proxy statements, reports and other information concerning BB&T and Maryland
Federal also can be inspected and copied at the offices of the NYSE, 20 Broad
Street, New York, New York 10005 and the National Association of Securities
Dealers, Inc., 1735 K Street, N.W., Washington, D.C. 20006, respectively.
BB&T has filed a Registration Statement on Form S-4 (together with all
amendments, exhibits, and schedules thereto, the "Registration Statement") with
the Commission under the Securities Act of 1933, as amended (the "Securities
Act"), with respect to the shares of BB&T Common Stock to be issued in the
Merger. This Proxy Statement/Prospectus does not include all of the information
set forth in the Registration Statement, as permitted by the rules and
regulations of the Commission. The Registration Statement, including any
amendments, schedules, and exhibits filed or incorporated by reference as a
part thereof, is available for inspection and copying as set forth above.
Statements contained in this Proxy Statement/ Prospectus or in any document
incorporated herein by reference as to the contents of any contract or other
document referred to herein or therein are not necessarily complete and in each
instance reference is made to the copy of such contract or other document filed
as an exhibit to the Registration Statement or such other document, and each
such statement shall be deemed qualified in its entirety by such reference.
The information contained herein with respect to BB&T has been provided by
BB&T, and the information contained herein with respect to Maryland Federal
before the Merger has been provided by Maryland Federal.
No person has been authorized to give any information or make any
representation in connection with the solicitation of proxies or the offering
of securities made hereby other than those contained or incorporated by
reference in this Proxy Statement/Prospectus, and, if given or made, such
information or representation must not be relied upon as having been authorized
by BB&T or Maryland Federal. This Proxy Statement/Prospectus does not
constitute an offer to sell or a solicitation of an offer to buy the securities
covered by this Proxy Statement/Prospectus or a solicitation of a proxy in any
jurisdiction where, or to or from any person to whom, it is unlawful to make
such offer, solicitation of an offer or proxy solicitation in such
jurisdiction. Neither the delivery of this Proxy Statement/ Prospectus nor any
distribution of securities made hereunder shall, under any circumstances,
create any implication that there has been no change in the affairs of BB&T or
Maryland Federal since the date hereof or that the information contained or
incorporated by reference herein is correct as of any time subsequent to its
date.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents previously filed by BB&T with the Commission under
the Exchange Act are incorporated herein by reference:
(a) BB&T's Annual Report on Form 10-K for the fiscal year ended December 31,
1997;
(b) BB&T's Quarterly Report on Form 10-Q for the fiscal quarter ended March
31, 1998;
(c) BB&T's Current Reports on Form 8-K, dated January 15, 1998, February 26,
1998, February 27, 1998, April 13, 1998 and May 13, 1998;
(d) BB&T's Registration Statement on Form 8-A, dated January 10, 1997, with
respect to the adoption of its shareholder rights plan; and
(e) The description of BB&T Common Stock in BB&T's registration statement
filed under the Exchange Act with respect to BB&T Common Stock, including
all amendments and reports filed for the purpose of updating such
description.
i
<PAGE>
The following documents previously filed by Maryland Federal with the
Commission under the Exchange Act are incorporated herein by reference:
(a) Maryland Federal's Annual Report on Form 10-K for the fiscal year ended
February 28, 1998;
(b) Maryland Federal's Current Report on Form 8-K, dated March 3, 1998;
(c) Maryland Federal's Registration Statement on Form 8-A, dated January 29,
1990, with respect to the adoption of its shareholder rights plan; and
(d) The description of Maryland Federal Common Stock in Maryland Federal's
registration statement filed under the Exchange Act with respect to
Maryland Federal Common Stock, including all amendments and reports filed
for the purpose of updating such description.
All documents filed by BB&T or Maryland Federal pursuant to Sections
13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this Proxy
Statement/Prospectus and before the Meeting shall be deemed to be incorporated
by reference into this Proxy Statement/Prospectus and to be a part hereof from
the date of the filing of such documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes hereof to the extent that a statement contained herein (or in any
subsequently filed document that is or is deemed to be incorporated by
reference herein) modifies or supersedes such previous statement. Any statement
so modified or superseded shall not be deemed to constitute a part hereof
except as so modified or superseded. In particular, reference is made to BB&T's
Current Report on Form 8-K dated May 13, 1998, which includes supplemental
consolidated financial statements giving effect to the acquisition of Life
Bancorp, Inc. consummated March 1, 1998 and accounted for as a pooling of
interests. See "INFORMATION ABOUT BB&T."
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN
EXHIBITS TO SUCH DOCUMENTS UNLESS SUCH EXHIBITS ARE SPECIFICALLY INCORPORATED
BY REFERENCE HEREIN) ARE AVAILABLE WITHOUT CHARGE, UPON WRITTEN OR ORAL REQUEST
BY ANY PERSON, INCLUDING ANY BENEFICIAL OWNER OF MARYLAND FEDERAL COMMON STOCK,
TO WHOM THIS PROXY STATEMENT/PROSPECTUS HAS BEEN DELIVERED. REQUESTS FOR
DOCUMENTS RELATING TO BB&T SHOULD BE DIRECTED TO INVESTOR RELATIONS, BB&T
CORPORATION, 223 WEST NASH STREET, WILSON, NORTH CAROLINA 27893 OR TELEPHONE:
(919) 246-4219. REQUESTS FOR DOCUMENTS RELATING TO MARYLAND FEDERAL SHOULD BE
DIRECTED TO INVESTOR RELATIONS, MARYLAND FEDERAL BANCORP, INC., 3505 HAMILTON
STREET, HYATTSVILLE, MARYLAND 20782 OR TELEPHONE: (301) 779-1200. IN ORDER TO
ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY SUCH REQUEST SHOULD BE RECEIVED BY
JULY 14, 1998.
ii
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
AVAILABLE INFORMATION ................................................ i
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE ...................... i
SUMMARY .............................................................. 1
Meeting of Shareholders .......................................... 1
Parties to the Merger ............................................ 1
The Merger ....................................................... 2
Comparative Market Prices and Dividends .......................... 5
Selected Consolidated Financial Data ............................. 6
Comparative Per Share Data ....................................... 9
MEETING OF SHAREHOLDERS .............................................. 10
General .......................................................... 10
Record Date, Voting Rights and Vote Required ..................... 10
Voting and Revocation of Proxies ................................. 10
Solicitation of Proxies .......................................... 11
Recommendations of the Maryland Federal Board .................... 11
THE MERGER ........................................................... 12
General .......................................................... 12
Background of the Merger ......................................... 12
Reasons for the Merger ........................................... 13
Opinion of Maryland Federal's Financial Advisor .................. 14
Exchange Ratio ................................................... 18
Exchange of Maryland Federal Common Stock Certificates ........... 20
The Reorganization Agreement ..................................... 21
Interests of Certain Persons in the Merger ....................... 25
Regulatory Considerations ........................................ 27
Certain Federal Income Tax Consequences of the Merger ............ 29
Accounting Treatment ............................................. 29
The Option Agreement ............................................. 29
Effect on Employees, Employee Benefit Plans and Stock Options .... 32
Restrictions on Resales by Affiliates ............................ 33
INFORMATION ABOUT BB&T ............................................... 34
General .......................................................... 34
Subsidiaries ..................................................... 34
Acquisitions ..................................................... 34
Capital .......................................................... 35
Deposit Insurance Assessments .................................... 36
INFORMATION ABOUT MARYLAND FEDERAL ................................... 36
DESCRIPTION OF BB&T CAPITAL STOCK .................................... 37
General .......................................................... 37
BB&T Common Stock ................................................ 37
BB&T Preferred Stock ............................................. 37
Shareholder Rights Plan .......................................... 37
Certain Provisions of the NCBCA, BB&T Articles and BB&T Bylaws ... 39
</TABLE>
iii
<PAGE>
<TABLE>
<S> <C>
COMPARISON OF SHAREHOLDERS' RIGHTS .................................................... 41
Authorized Capital Stock .......................................................... 41
Special Meetings of Shareholders and Action by Shareholders without a Meeting ..... 41
Directors ......................................................................... 41
Dividends and Other Distributions ................................................. 42
Notice of Shareholder Nominations and Shareholder Proposals ....................... 42
Exculpation and Indemnification ................................................... 43
Mergers, Share Exchanges and Sales of Assets ...................................... 44
Anti-takeover Statutes ............................................................ 44
Amendments to Articles of Incorporation and Bylaws ................................ 45
Shareholders' Rights of Dissent and Appraisal ..................................... 45
Liquidation Rights ................................................................ 46
ELECTION OF DIRECTORS ................................................................. 48
Nominees for Director ............................................................. 48
Stockholder Nominations ........................................................... 49
Board Meetings and Committees ..................................................... 49
Compensation of Directors ......................................................... 49
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS ................................... 49
EXCUTIVE OFFICERS WHO ARE NOT DIRECTORS ............................................... 50
BENEFICIAL OWNERSHIP OF MARYLAND FEDERAL COMMON STOCK BY CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT ................................................................ 51
Beneficial Ownership .............................................................. 51
Compliance with Section 16(a) of the Exchange Act ................................. 52
EXECUTIVE COMPENSATION ................................................................ 53
Summary Compensation Table ........................................................ 53
Aggregated Option Exercises and Year-End Option Values ............................ 53
Pension Plan ...................................................................... 53
Non-Qualified Executive Deferred Compensation Plan ................................ 54
Compensation Committee ............................................................ 54
Report of the Compensation Committee .............................................. 54
Performance Graph ................................................................. 55
Employment Agreements ............................................................. 57
Indebtedness of Management ........................................................ 58
Certain Transactions .............................................................. 58
STOCKHOLDER PROPOSALS ................................................................. 59
OTHER BUSINESS ........................................................................ 59
ANNUAL REPORTS ........................................................................ 59
LEGAL MATTERS ......................................................................... 59
EXPERTS ............................................................................... 59
Appendix I -- Agreement and Plan of Reorganization and Plan of Merger
Appendix II -- Opinion of Sandler O'Neill & Partners, L.P.
</TABLE>
iv
<PAGE>
SUMMARY
The following summary is intended only to highlight certain information
contained elsewhere in this Proxy Statement/Prospectus and in the documents
incorporated herein by reference. This summary is not intended to be complete
and is qualified in its entirety by the more detailed information contained
elsewhere in this Proxy Statement/Prospectus, the Appendices hereto and the
documents incorporated by reference or otherwise referred to herein.
Shareholders are urged to review carefully this entire Proxy
Statement/Prospectus, including the Appendices hereto. Unless otherwise
indicated, information herein relating to Maryland Federal Common Stock has been
adjusted to give effect to a two-for-one stock split effected in the form of a
100% stock dividend paid on November 21, 1997.
Meeting of Shareholders
The Meeting will be held on Tuesday, July 21, 1998 at 10:00 a.m. Eastern
Time at La Fontaine Bleu, located at 7963 Annapolis Road, Lanham, Maryland. At
the Meeting, the shareholders of Maryland Federal will vote upon a proposal to
approve the Reorganization Agreement and the Plan of Merger attached hereto as
Appendix I. Shareholders of Maryland Federal will also be asked (a) to elect
three directors of Maryland Federal for terms expiring at the earlier of the
effective time of the Merger (the "Effective Time"), the date of the 2001
annual meeting of Maryland Federal shareholders or such time as their
respective successors are elected and qualified and (b) to ratify the
appointment of Stoy, Malone & Company, P.C. as Maryland Federal's independent
auditors for the fiscal year ending February 28, 1999 if the Merger is not
completed. On June 5, 1998, the record date for the Meeting (the "Record
Date"), there were approximately 2,400 holders of record of the 6,571,961
shares of Maryland Federal Common Stock then outstanding and entitled to vote
at the Meeting.
The affirmative vote of the holders of two thirds of the outstanding
shares of Maryland Federal Common Stock is required to approve the
Reorganization Agreement and the Plan of Merger. As of the Record Date,
directors and executive officers of Maryland Federal and their affiliates
beneficially owned 420,163 outstanding shares or 6.39% of the Maryland Federal
Common Stock entitled to vote at the Meeting, all of which are expected to be
voted in favor of the Merger. Neither the directors and executive officers of
BB&T and their affiliates nor BB&T and its subsidiaries beneficially owned, as
of the Record Date, any shares of Maryland Federal Common Stock.
The election of each director nominee requires the affirmative vote of a
plurality of the shares of Maryland Federal Common Stock voted in the election
of directors; holders of Maryland Federal Common Stock do not have cumulative
voting rights in the election of directors. Ratification of the appointment of
Stoy, Malone & Company, P.C. as Maryland Federal's independent auditors for
fiscal year 1999 requires the affirmative vote of a majority of the shares of
Maryland Federal Common Stock voted on such matter. See "MEETING OF
SHAREHOLDERS," "ELECTION OF DIRECTORS" and "RATIFICATION OF APPOINTMENT OF
INDEPENDENT AUDITORS."
Parties to the Merger
BB&T
BB&T is a multi-bank holding company headquartered in Winston-Salem, North
Carolina. BB&T conducts its operations in North Carolina, South Carolina and
Virginia primarily through its commercial banking subsidiaries and, to a lesser
extent, through its other subsidiaries. BB&T's bank subsidiaries are Branch
Banking and Trust Company ("BB&T-NC"), a North Carolina chartered bank that
currently operates 353 banking offices throughout North Carolina; Branch
Banking and Trust Company of South Carolina ("BB&T-SC"), a South Carolina
chartered bank that currently operates 93 banking offices throughout South
Carolina; Branch Banking and Trust Company of Virginia ("BB&T-VA"), a Virginia
chartered bank that currently operates 52 banking offices in the Hampton Roads
and Richmond areas and the southern, central and southwestern regions of
Virginia; and Life Savings Bank, F.S.B. ("LSB"), a federally chartered savings
bank that currently operates 20 banking offices in the Hampton Roads region of
Virginia.
The mailing address and telephone number of BB&T's principal executive
offices are 200 West Second Street, Winston-Salem, North Carolina 27101, (336)
733-2000. Additional information with respect to BB&T and its subsidiaries is
included elsewhere in this Proxy Statement/Prospectus and in documents
incorporated by reference in this Proxy Statement/ Prospectus. See "AVAILABLE
INFORMATION," "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" and
"INFORMATION ABOUT BB&T."
Maryland Federal
Maryland Federal was incorporated under the laws of the State of Maryland
in June 1989 and is the unitary savings and loan holding company and sole
shareholder of Maryland Federal Bank ("MFB"). Maryland Federal does not
presently
1
<PAGE>
own or operate any subsidiary except for MFB. MFB's business is conducted
through 28 branch offices located in Prince George's, Montgomery, Charles,
Calvert and Anne Arundel counties, Maryland, five loan production offices, and
one wholly-owned subsidiary. The principal executive offices of both Maryland
Federal and MFB are located at 3505 Hamilton Street, Hyattsville, Maryland
20782, and their telephone number is (301) 779-1200.
On a consolidated basis, at February 28, 1998, Maryland Federal had total
assets of $1.19 billion, total liabilities of $1.09 billion and total
stockholders' equity of $104.5 million or $16.07 per share based on 6,500,824
shares of Maryland Federal Common Stock outstanding on such date. Maryland
Federal had net income of $8.8 million for the fiscal year ended February 28,
1998.
MFB is primarily engaged in the business of attracting deposits from the
general public and investing such deposits primarily in permanent loans secured
by first liens on one- to four-family residential properties and, to a lesser
extent, in commercial real estate located in MFB's market area and in consumer
loans. MFB also maintains a substantial portfolio of mortgage-backed securities
as well as United States Government and agency securities and other permissible
investments and, through a subsidiary, engages in insurance agency activities
to a limited extent.
The Merger
General
At the Effective Time, Maryland Federal will be merged with and into BB&T,
and BB&T will be the surviving corporation in the Merger. It is expected that
MFB will be merged into BB&T-NC during the fourth quarter of 1998, with BB&T-NC
as the surviving entity (the "MFB Bank Merger").
Exchange Ratio
Upon consummation of the Merger, each share of Maryland Federal Common
Stock outstanding at the Effective Time will be converted into the right to
receive between 0.5975 and 0.6102 shares of BB&T Common Stock, subject to
possible upward adjustment as described in the following paragraph. The
Exchange Ratio will be determined by reference to the average closing price of
BB&T Common Stock on the NYSE for the ten trading days immediately preceding
the tenth calendar day preceding the Effective Time (the "Average Closing
Price"). The Exchange Ratio has been initially set at 0.5975 of a share of BB&T
Common Stock per share of Maryland Federal Common Stock; however, if the
implied market value (based on the Average Closing Price) of the BB&T Common
Stock to be received for each share of Maryland Federal Common Stock, using an
Exchange Ratio of 0.5975, is less than $36.00 (i.e., if the Average Closing
Price is less than $60.25), then the Exchange Ratio will be increased to the
lesser of (i) the amount necessary to increase the implied market value to
$36.00 or (ii) 0.6102 of a share of BB&T Common Stock per share of Maryland
Federal Common Stock. The result is that the Exchange Ratio would float between
0.5975 and 0.6102 in the event that the Average Closing Price is less than
$60.25 but more than $59.00, and be fixed at 0.6102 in the event that the
Average Closing Price is $59.00 or less.
In the event that both:
(1) the implied market value (based on the Average Closing Price) of the
BB&T Common Stock to be received for each share of Maryland Federal Common
Stock, using an Exchange Ratio of 0.6102 of a share of BB&T Common Stock
per share of Maryland Federal Common Stock, is less than $30.60 (i.e., the
Average Closing Price is less than $50.15), and
(2) (i) the amount obtained by dividing the Average Closing Price by
$62.00 (the closing price of BB&T Common Stock on February 24, 1998) is
less than (ii) 90% of the amount obtained by dividing the weighted average
of the closing prices of a specified index of 14 bank holding company
stocks on the tenth calendar day preceding the date designated by BB&T as
the closing date of the Merger by the weighted average of the closing
prices of such stocks on February 25, 1998,
then Maryland Federal would have the right to terminate the Reorganization
Agreement unless BB&T elects to increase the Exchange Ratio so that holders of
Maryland Federal Common Stock would receive consideration having an implied
market value (based on the Average Closing Price) of $30.60 per share of
Maryland Federal Common Stock. Under no circumstances would the Exchange Ratio
be less than 0.5975 of a share of BB&T Common Stock for each share of Maryland
Federal Common Stock.
No fractional shares of BB&T Common Stock will be issued in the Merger.
Holders of Maryland Federal Common Stock otherwise entitled to a fractional
share will be paid an amount in cash determined by multiplying the fractional
part of such share of BB&T Common Stock by the Average Closing Price. See "THE
MERGER -- Exchange Ratio."
2
<PAGE>
Effective Date and Time of the Merger
The Merger will be effective on the date and at the time specified in the
Articles of Merger to be filed with the Department of Assessments and Taxation
of the State of Maryland and the Office of the Secretary of State of North
Carolina. Assuming the Reorganization Agreement and the Plan of Merger are
approved by Maryland Federal shareholders at the Meeting, it is currently
anticipated that the filing of the Articles of Merger and the consummation of
the Merger will occur by September 30, 1998. See "THE MERGER -- The
Reorganization Agreement -- Effective Date and Time of the Merger."
Recommendation of the Maryland Federal Board; Reasons for the Merger
The Maryland Federal Board has unanimously approved the Reorganization
Agreement and the Plan of Merger and the transactions contemplated thereby. The
Maryland Federal Board believes that the Merger is in the best interests of
Maryland Federal and its shareholders and unanimously recommends that the
shareholders of Maryland Federal vote "FOR" approval of the Reorganization
Agreement and the Plan of Merger. For further discussion of the factors
considered by the Maryland Federal Board in reaching its conclusions, see "THE
MERGER -- Background of the Merger" and " -- Reasons for the Merger."
Opinion of Maryland Federal's Financial Advisor
Maryland Federal has retained Sandler O'Neill & Partners, L.P. ("Sandler")
to act as its financial advisor in connection with the Merger, and Sandler has
rendered its opinion to the Maryland Federal Board that, as of the date of such
opinion, the consideration to be received in the Merger is fair to the
shareholders of Maryland Federal from a financial point of view. The full text
of the Sandler opinion, dated as of the date hereof, is set forth as Appendix
II to this Proxy Statement/ Prospectus, and should be read in its entirety
with respect to the assumptions made, matters considered and qualifications and
limitations on the review undertaken by Sandler in rendering such opinion. See
"THE MERGER -- Opinion of Maryland Federal's Financial Advisor."
Conditions to the Merger
The consummation of the Merger is subject to various conditions, including
the approval of the Reorganization Agreement and the Plan of Merger by the
shareholders of Maryland Federal, receipt of necessary regulatory approvals,
receipt of a legal opinion regarding the tax consequences of the Merger and
other customary conditions to closing. See "THE MERGER -- The Reorganization
Agreement -- Conditions to the Merger."
Waiver; Amendment; Termination; Expenses
Before the Effective Time, any provision of the Reorganization Agreement
(except with respect to any required regulatory approval) may be (a) waived by
the party benefitted by the provision or (b) amended or modified at any time,
by mutual agreement of the parties, except that after the Meeting the
consideration to be received by the Maryland Federal shareholders for each
share of Maryland Federal Common Stock may not thereby be decreased.
The Reorganization Agreement may be terminated and the Merger abandoned
(a) by the mutual consent of the parties, (b) by either party if the other
party materially breaches any of its covenants or agreements contained in the
Reorganization Agreement and fails to cure by the earlier of 30 days after
notice of such breach and the Effective Time, (c) by either party in the event
of an inaccuracy of any representation or warranty of the other party contained
in the Reorganization Agreement that would provide the nonbreaching party the
ability to refuse to consummate the Merger under the applicable standard set
forth in the Reorganization Agreement (see "THE MERGER -- The Reorganization
Agreement -- Conditions to the Merger") and such inaccuracy has not been cured
by the earlier of 30 days after notice of such inaccuracy and the Effective
Time, (d) by either party in the event that the Merger is not consummated by
December 31, 1998 and the party seeking to terminate has not breached its
representations, warranties, covenants or undertakings in the Reorganization
Agreement, or (e) by either party, in the event (i) any of the regulatory
approvals required for consummation of the Merger and the other transactions
contemplated by the Reorganization Agreement have been denied and the time
period for appeals and requests for reconsideration have run, (ii) the required
shareholder approval is not obtained at the Meeting or (iii) any of the other
conditions precedent to the obligations of the other party cannot be satisfied
or fulfilled before the scheduled date of the closing of the transactions
contemplated by the Reorganization Agreement (the "Closing Date") and the party
seeking to terminate has not breached its representations, warranties,
covenants or undertakings in the Reorganization Agreement. In addition, the
Reorganization Agreement may be terminated by the Maryland Federal Board if
certain conditions concerning the trading price of BB&T Common Stock are met,
unless BB&T in turn determines to increase the Exchange Ratio. See "THE MERGER
- -- Exchange Ratio."
3
<PAGE>
Each party to the Reorganization Agreement will bear all expenses incurred
by it in connection with the Reorganization Agreement and the transactions
contemplated thereby, except that printing expenses and Commission registration
fees will be borne 50% by BB&T and 50% by Maryland Federal. See "THE MERGER --
The Reorganization Agreement -- Waiver; Amendment; Termination; Expenses."
Interests of Certain Persons in the Merger
Pursuant to the Reorganization Agreement, Robert H. Halleck, President and
Chief Executive Officer of Maryland Federal, and six other members of the
management of Maryland Federal will enter into employment agreements with
BB&T-NC at the Effective Time that provide for employment for terms of up to
five years and severance payments and other benefits upon the occurrence of a
merger or other change in control of BB&T after the Merger. The Reorganization
Agreement also provides that the members of the Maryland Federal Board will
serve as members of BB&T's Maryland Regional Advisory Board after the Merger,
and that Richard B. Bland, Chairman of the Board of Maryland Federal, will be
offered the chairmanship of such Advisory Board. The Reorganization Agreement
further obligates BB&T to indemnify the directors and officers of Maryland
Federal and MFB after the Merger against certain liabilities arising before the
Merger and obligates BB&T to obtain directors' and officers' liability
insurance for the benefit of Maryland Federal's directors and officers covering
periods before and after the Merger. See "THE MERGER -- Interests of Certain
Persons in the Merger."
Regulatory Considerations
The Merger must be approved by the Board of Governors of the Federal
Reserve System (the "Federal Reserve") under the Bank Holding Company Act and
the Federal Reserve's Regulation Y thereunder. BB&T must also provide notice of
the Merger to the Bureau of Financial Institutions of the State Corporation
Commission of the Commonwealth of Virginia (the "BFI") under the Code of
Virginia. The MFB Bank Merger, which is expected to occur during the fourth
quarter of 1998, must be approved by the Federal Deposit Insurance Corporation
(the "FDIC") under the Bank Merger Act and by the North Carolina Commissioner
of Banks (the "NC Commissioner") under the North Carolina General Statutes. The
required applications relating to the Merger were submitted to the appropriate
regulatory authorities in June 1998, and it is anticipated that the required
applications relating to the MFB Bank Merger will be submitted to the
appropriate regulatory authorities during the third quarter of 1998. See "THE
MERGER -- Regulatory Considerations." Completion of the Merger is not
conditioned upon regulatory approval or completion of the MFB Bank Merger.
No Rights of Dissent and Appraisal
Pursuant to the Maryland General Corporation Law (the "MGCL"), holders of
Maryland Federal Common Stock do not have the right to object to the Merger and
demand payment of the "fair value" of their shares because, as of the Record
Date, shares of Maryland Federal Common Stock were listed on the Nasdaq
National Market. See "COMPARISON OF SHAREHOLDERS' RIGHTS -- Shareholders'
Rights of Dissent and Appraisal -- Maryland Federal."
Certain Federal Income Tax Consequences
The Merger has been structured to qualify as a nontaxable transaction
under the Internal Revenue Code of 1986, as amended (the "Code"). Womble
Carlyle Sandridge & Rice, PLLC, counsel to BB&T, has issued an opinion to the
effect that the Merger will constitute one or more reorganizations under
Section 368 of the Code and that no gain or loss will be recognized by reason
of the Merger by the holders of Maryland Federal Common Stock to the extent
that such shareholders exchange shares of Maryland Federal Common Stock for
shares of BB&T Common Stock (gain or loss will be recognized with respect to
cash received in lieu of a fractional share interest). See "THE MERGER --
Certain Federal Income Tax Consequences of the Merger."
Accounting Treatment
It is anticipated that the Merger will be accounted for as a "purchase"
for accounting and financial reporting purposes. See "THE MERGER -- Accounting
Treatment."
Comparison of Shareholders' Rights
The rights of the shareholders of Maryland Federal currently are
determined by the MGCL, the Articles of Incorporation of Maryland Federal (the
"Maryland Federal Articles") and the Bylaws of Maryland Federal (the "Maryland
Federal Bylaws"). At the Effective Time, the shareholders of Maryland Federal
will become shareholders of BB&T. Their rights as
4
<PAGE>
shareholders will then be determined by the North Carolina Business Corporation
Act (the "NCBCA"), the Articles of Incorporation of BB&T (the "BB&T Articles")
and the Bylaws of BB&T (the "BB&T Bylaws"). See "DESCRIPTION OF BB&T CAPITAL
STOCK" and "COMPARISON OF SHAREHOLDERS' RIGHTS."
Option Agreement
As a condition to BB&T entering into the Reorganization Agreement and to
increase the probability that the Merger will be consummated, BB&T and Maryland
Federal entered into an Option Agreement, dated as of February 25, 1998 (the
"Option Agreement"), pursuant to which BB&T was granted an option to purchase
up to 1,290,000 shares of Maryland Federal Common Stock (approximately 19.9% of
the number of shares of Maryland Federal Common Stock currently outstanding),
subject to adjustment, at an exercise price of $30.50 per share (the "Option").
The exercise of the Option is permitted only upon the occurrence of certain
events that generally relate to an acquisition of control of Maryland Federal,
or the public offer or announcement of such an acquisition of control, by a
party other than BB&T, or upon the acquisition by a third party of, or an offer
or an announcement of an intention by a third party to acquire, a significant
interest in the equity or assets of Maryland Federal. To the knowledge of BB&T
and Maryland Federal, the Option is not presently exercisable. See "THE MERGER
- -- The Option Agreement."
Effect on Employees, Employee Benefit Plans and Stock Options
Each employee of Maryland Federal or any of its subsidiaries at the time
of the Merger who becomes, immediately following the Merger, an employee of
BB&T or one of its subsidiaries will be eligible to receive benefits comparable
to those provided to similarly situated employees of BB&T or the subsidiary in
question. BB&T will merge the 401(k) plan of Maryland Federal with the 401(k)
plan maintained by BB&T and its subsidiaries, and the account balances of the
employees who are participants in the Maryland Federal plan will be transferred
to accounts under the BB&T 401(k) plan. BB&T also intends to terminate Maryland
Federal's Employee Stock Ownership Plan and its Recognition and Retention Plan
and distribute the assets of these plans to grant recipients. At the time of
the Merger, all rights with respect to Maryland Federal Common Stock
outstanding at the Effective Time pursuant to stock options granted by Maryland
Federal under the existing stock option plan of Maryland Federal, whether or
not exercisable, will be converted into and become options with respect to BB&T
Common Stock on a basis that reflects the Exchange Ratio. See "THE MERGER --
Exchange Ratio" and " -- Effect on Employees, Employee Benefit Plans and Stock
Options."
Comparative Market Prices and Dividends
BB&T Common Stock is listed on the NYSE under the symbol "BBK." Maryland
Federal Common Stock is included in the Nasdaq National Market under the symbol
"MFSL." The following table sets forth, for the periods indicated, the high and
low closing sales price of BB&T Common Stock and Maryland Federal Common Stock
on the NYSE Composite Transactions List and the Nasdaq National Market,
respectively, and cash dividends paid per share. The prices do not include
retail markups, markdowns or commissions.
5
<PAGE>
<TABLE>
<CAPTION>
BB&T Maryland Federal
---------------------------------- ------------------------------------
Cash Cash
High Low Dividend High Low Dividend(1)
----------- ----------- ---------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Quarter Ended
March 31, 1998 ...................... $ 67.69 $ 58.06 $ .31 $ 39.13 $ 29.50 $ .1125
June 30, 1998 (through June 12) ..... 68.13 64.56 .31 40.00 37.81 .1125
Quarter Ended
March 31, 1997 ...................... 40.75 35.25 .27 19.00 16.63 .10
June 30, 1997 ....................... 47.13 35.75 .27 23.38 17.19 .10
September 30, 1997 .................. 55.13 45.31 .31 25.50 21.25 .105
December 31, 1997 ................... 65.00 51.94 .31 36.75 22.62 .1125
For year 1997 ....................... 65.00 35.25 1.16 36.75 16.63 .4175
Quarter Ended
March 31, 1996 ...................... 29.75 25.88 .23 16.13 15.00 .075
June 30, 1996 ....................... 31.75 28.88 .23 15.44 14.88 .075
September 30, 1996 .................. 33.88 28.63 .27 17.31 14.75 .08
December 31, 1996 ................... 36.75 33.38 .27 17.44 15.38 .0825
For year 1996 ....................... 36.75 25.88 1.00 17.44 14.75 .3125
</TABLE>
(1) For information with respect to provisions in the Reorganization Agreement
relating to Maryland Federal's ability to pay dividends on Maryland
Federal Common Stock prior to the Effective Time, see "THE MERGER -- The
Reorganization Agreement -- Conduct of Maryland Federal's and BB&T's
Business Prior to the Effective Time."
The following table sets forth the last reported sales price for shares of
BB&T Common Stock and Maryland Federal Common Stock on February 24, 1998, the
last trading day before the public announcement of the proposed Merger, and
June 12, 1998, the last trading day prior to the filing of the Registration
Statement, on the NYSE Composite Transactions List and the Nasdaq National
Market, respectively. The Maryland Federal Equivalent represents the last sales
price of a share of BB&T Common Stock on those dates multiplied by the Exchange
Ratio. The Exchange Ratio may be subject to upward adjustment under certain
circumstances. See "THE MERGER -- Exchange Ratio."
<TABLE>
<CAPTION>
Maryland Federal
Date BB&T Maryland Federal Equivalent
- ----------------------------- ----------- ------------------ -----------------
<S> <C> <C> <C>
February 24, 1998 ......... $ 62.00 $ 31.75 $ 37.05
June 12, 1998 ............. 65.75 38.75 39.29
</TABLE>
Selected Consolidated Financial Data
The following selected historical financial information has been derived
from historical consolidated financial statements of BB&T and Maryland Federal,
respectively, and should be read in conjunction with such historical
consolidated financial statements, and the notes thereto, which are
incorporated herein by reference. Results of BB&T for the three months ended
March 31, 1998, are not necessarily indicative of results expected for the
entire year. All adjustments, consisting only of normal recurring adjustments,
necessary for a fair statement of results of interim periods have been
included.
BB&T
The following table sets forth certain consolidated financial data of BB&T
for the five years ended December 31, 1997, and the three months ended March
31, 1998 and March 31, 1997. This consolidated financial data has been restated
to include the accounts of Life Bancorp, Inc. ("Life") and its subsidiaries,
which merged into BB&T Financial Corporation of Virginia ("BB&T Financial-VA")
on March 1, 1998 in a transaction accounted for as a pooling of interests. The
information is qualified in its entirety by the detailed information and
consolidated financial statements included in the documents incorporated herein
by reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
6
<PAGE>
<TABLE>
<CAPTION>
As of/For the three
months ended
March 31,
-------------------------------
1998 1997
--------------- ---------------
(Dollars in thousands, except
per share data)
<S> <C> <C>
Summary of Operations
Interest income ........................ $ 592,225 $ 526,983
Interest expense ....................... 296,129 252,914
----------- -----------
Net interest income .................... 296,096 274,069
Provision for loan and lease losses 22,000 21,120
----------- -----------
Net interest income after provision
for loan and lease losses ............. 274,096 252,949
Noninterest income ..................... 121,097 98,149
Noninterest expense .................... 228,998 198,674
----------- -----------
Income before income taxes ............. 166,195 152,424
Provision for income taxes ............. 52,477 52,346
----------- -----------
Income before cumulative effect
of changes in accounting
principles ............................ 113,718 100,078
Less: cumulative effect of
changes in accounting
principles, net of income
taxes .............................. -- --
----------- -----------
Net income ............................. $ 113,718 $ 100,078
=========== ===========
Per Common Share
Average shares outstanding (000's)
Basic ................................. 142,066 142,347
Diluted ............................... 145,078 144,828
Basic earnings
Income before cumulative effect ........ $ 0.80 $ 0.70
Less: cumulative effect ................ -- --
----------- -----------
Net income ............................. $ 0.80 $ 0.70
----------- -----------
Diluted earnings .......................
Income before cumulative effect ........ $ 0.78 $ 0.69
Less: cumulative effect ................ -- --
----------- -----------
Net income ............................. $ 0.78 $ 0.69
=========== ===========
Cash dividends declared ................ $ 0.31 $ 0.27
Shareholders' equity ................... 17.22 15.83
Average Balance Sheets
Securities at carrying value ........... $ 7,543,626 $ 6,838,454
Loans and leases* ...................... 20,807,833 18,494,122
Other assets ........................... 2,391,132 1,842,772
----------- -----------
Total assets ........................... $30,742,591 $27,175,348
=========== ===========
Deposits ............................... $20,524,967 $19,770,969
Total borrowed funds ................... 7,283,363 4,817,444
Other liabilities ...................... 477,640 329,358
Common shareholders' equity ............ 2,456,621 2,257,577
Preferred shareholders' equity ......... -- --
----------- -----------
Total liabilities and shareholders'
equity ................................ $30,742,591 $27,175,348
=========== ===========
Period End Balances
Total assets ........................... $31,535,710 $27,921,399
Deposits ............................... 20,794,808 20,337,283
Total borrowed funds ................... 7,808,722 4,977,697
Shareholders' equity ................... 2,440,046 2,256,287
Selected Performance Ratios
Rate of return on:
Average total assets ................... 1.50% 1.49%
Average common shareholders'
equity ................................ 18.77 17.98
Dividend payout ........................ 38.75 38.57
Average equity to average assets ....... 7.99 8.31
<CAPTION>
As of/For the twelve months ended December 31,
----------------------------------------------------------------------------------
1997 1996 1995 1994 1993
---------------- ---------------- ---------------- ---------------- --------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
Summary of Operations
Interest income ........................ $ 2,229,621 $ 2,029,703 $ 1,957,182 $ 1,643,532 $ 1,480,194
Interest expense ....................... 1,092,628 987,799 997,105 713,990 622,740
------------ ------------ ------------ ------------ -----------
Net interest income .................... 1,136,993 1,041,904 960,077 929,542 857,454
Provision for loan and lease losses 97,526 62,246 42,378 25,161 60,544
------------ ------------ ------------ ------------ -----------
Net interest income after provision
for loan and lease losses ............. 1,039,467 979,658 917,699 904,381 796,910
Noninterest income ..................... 455,901 339,489 255,279 269,939 267,699
Noninterest expense .................... 954,831 814,710 818,318 742,519 803,108
------------ ------------ ------------ ------------ -----------
Income before income taxes ............. 540,537 504,437 354,660 431,801 261,501
Provision for income taxes ............. 186,087 165,648 118,244 150,010 97,328
------------ ------------ ------------ ------------ -----------
Income before cumulative effect
of changes in accounting
principles ............................ 354,450 338,789 236,416 281,791 164,173
Less: cumulative effect of
changes in accounting
principles, net of income
taxes .............................. -- -- -- -- (32,629)
------------ ------------ ------------ ------------ -----------
Net income ............................. $ 354,450 $ 338,789 $ 236,416 $ 281,791 $ 131,544
============ ============ ============ ============ ===========
Per Common Share
Average shares outstanding (000's)
Basic ................................. 141,062 141,550 141,829 139,972 134,911
Diluted ............................... 143,798 144,561 147,871 146,199 141,748
Basic earnings
Income before cumulative effect ........ $ 2.51 $ 2.39 $ 1.63 $ 1.98 $ 1.18
Less: cumulative effect ................ -- -- -- -- 0.24
------------ ------------ ------------ ------------ -----------
Net income ............................. $ 2.51 $ 2.39 $ 1.63 $ 1.98 $ 0.94
------------ ------------ ------------ ------------ -----------
Diluted earnings .......................
Income before cumulative effect ........ $ 2.46 $ 2.34 $ 1.60 $ 1.93 $ 1.16
Less: cumulative effect ................ -- -- -- -- 0.23
------------ ------------ ------------ ------------ -----------
Net income ............................. $ 2.46 $ 2.34 $ 1.60 $ 1.93 $ 0.93
============ ============ ============ ============ ===========
Cash dividends declared ................ $ 1.16 $ 1.00 $ 0.86 $ 0.74 $ 0.64
Shareholders' equity ................... 16.93 15.58 14.81 13.26 11.86
Average Balance Sheets
Securities at carrying value ........... $ 7,124,652 $ 6,802,133 $ 6,803,072 $ 6,468,094 $ 5,686,306
Loans and leases* ...................... 19,308,577 17,538,038 16,736,054 15,089,645 13,562,910
Other assets ........................... 1,956,015 1,725,086 1,741,841 1,775,937 1,689,903
------------ ------------ ------------ ------------ -----------
Total assets ........................... $ 28,389,244 $ 26,065,257 $ 25,280,967 $ 23,333,676 $20,939,119
============ ============ ============ ============ ===========
Deposits ............................... $ 20,051,207 $ 19,280,809 $ 18,289,320 $ 17,888,784 $16,777,490
Total borrowed funds ................... 5,699,452 4,315,393 4,602,388 3,337,830 2,233,639
Other liabilities ...................... 367,038 331,906 338,747 292,634 244,725
Common shareholders' equity ............ 2,271,547 2,121,990 1,978,167 1,740,285 1,609,122
Preferred shareholders' equity ......... -- 15,159 72,345 74,143 74,143
------------ ------------ ------------ ------------ -----------
Total liabilities and shareholders'
equity ................................ $ 28,389,244 $ 26,065,257 $ 25,280,967 $ 23,333,676 $20,939,119
============ ============ ============ ============ ===========
Period End Balances
Total assets ........................... $ 30,642,799 $ 27,127,408 $ 25,768,277 $ 24,494,732 $23,043,669
Deposits ............................... 20,948,177 19,735,662 18,928,847 18,046,347 18,123,340
Total borrowed funds ................... 6,851,694 4,860,802 4,329,919 4,153,846 2,457,621
Shareholders' equity ................... 2,399,827 2,222,505 2,186,053 1,952,399 1,734,386
Selected Performance Ratios
Rate of return on:
Average total assets ................... 1.25% 1.30% 0.94% 1.21% 0.63%
Average common shareholders'
equity ................................ 15.60 15.94 11.69 15.89 7.85
Dividend payout ........................ 46.22 41.84 52.76 37.37 68.09
Average equity to average assets ....... 8.00 8.20 8.11 7.78 8.04
</TABLE>
- ---------
* Loans and leases are net of unearned income and the allowance for losses.
Amounts include loans held for sale.
7
<PAGE>
Maryland Federal
The following table sets forth certain consolidated financial data of
Maryland Federal for the five years ended February 28, 1998. The information is
qualified in its entirety by the detailed information and consolidated
financial statements included in the documents incorporated herein by
reference. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
<TABLE>
<CAPTION>
As of/For the twelve months ended
------------------------------------------------------------------------------
February 28, February 28,
------------------------------- February 29, -----------------------------
1998 1997 1996 1995 1994
--------------- --------------- ---------------- --------------- -------------
(Dollars in thousands, except per share data)
<S> <C> <C> <C> <C> <C>
At Year End:
Total assets ................................. $1,192,046 $1,128,483 $1,143,338 $1,058,781 $ 872,167
Loans receivable(1) .......................... 989,186 991,952 991,184 898,728 696,993
Mortgage-backed and related securities ....... 58,067 64,135 66,195 75,436 44,106
Investment securities and other
interest-earning assets(2) .................. 119,229 54,083 62,367 60,765 105,100
Deposits ..................................... 831,590 788,933 788,931 763,754 678,050
Borrowed funds ............................... 236,680 226,280 243,780 190,730 103,180
Stockholders' equity ......................... 104,453 95,261 93,982 85,796 77,623
For the Year Ended:
Total interest income ........................ 84,697 81,889 80,118 69,091 63,250
Total interest expense ....................... 53,700 52,205 52,890 38,972 32,411
---------- ---------- ---------- ---------- ---------
Net interest income .......................... 30,997 29,684 27,228 30,119 30,839
Provision for loan losses .................... 310 275 120 300 662
---------- ---------- ---------- ---------- ---------
Net interest income after provision
for loan losses ............................. 30,687 29,409 27,108 29,819 30,177
Banking service charges and fees ............. 2,294 1,736 1,492 1,392 1,594
Gain on sales of interest-earning assets ..... 775 570 3,834 134 566
Other noninterest income ..................... 597 439 401 518 792
SAIF recapitalization assessment ............. -- 5,077 -- -- --
Other noninterest expense .................... 19,420 19,058 18,566 17,125 14,320
---------- ---------- ---------- ---------- ---------
Income before income taxes and
cumulative effect of accounting change ...... 14,933 8,019 14,269 14,738 18,809
Income tax expense ........................... 6,158 1,494 5,530 5,675 7,097
---------- ---------- ---------- ---------- ---------
Income before cumulative effect
of accounting change ........................ 8,775 6,525 8,739 9,063 11,712
Cumulative effect of change in
accounting for income taxes ................. -- -- -- -- 547
---------- ---------- ---------- ---------- ---------
Net income ................................... $ 8,775 $ 6,525 $ 8,739 $ 9,063 $ 12,259
========== ========== ========== ========== =========
Earnings per share: (3)
Basic ....................................... $ 1.36 $ 1.02 $ 1.35 $ 1.40 $ 1.85
Diluted ..................................... $ 1.32 $ .99 $ 1.31 $ 1.35 $ 1.77
Return on equity ............................. 8.8% 6.9% 9.7% 11.1 % 16.7%
Equity-to-assets ............................. 8.6% 8.3% 8.2% 8.5 % 8.7%
Cash dividends declared per share(3) ......... $ .43 $ .338 $ .274 $ .219 $ .188
Dividend payout ratio ........................ 31.6% 33.1% 20.3% 15.6 % 10.2%
Number of full service facilities ............ 28 25 25 26 21
</TABLE>
- ---------
(1) Includes loans held for sale.
(2) Includes investment securities, federal funds sold, securities purchased
under agreements to resell and interest-bearing deposits with banks.
(3) As adjusted for stock dividends and stock splits.
8
<PAGE>
Comparative Per Share Data
The following table sets forth certain per share, pro forma combined per
share and pro forma equivalent per share information with respect to BB&T
Common Stock and Maryland Federal Common Stock at the dates and for the periods
indicated, giving effect to the Merger using the purchase method of accounting.
In order to conform to the per share data relating to BB&T Common Stock, the
per share data relating to Maryland Federal Common Stock has been prepared by
utilizing financial information at the calendar dates and periods indicated
rather than the fiscal dates and periods utilized by Maryland Federal for
financial reporting purposes. The comparative per share data presented should
be read in conjunction with the historical consolidated financial statements
and the related notes thereto of each of BB&T and Maryland Federal incorporated
by reference herein. Results of each of BB&T and Maryland Federal for the three
months ended March 31, 1998 are not necessarily indicative of results expected
for the entire year, nor are pro forma amounts necessarily indicative of
results of operations or combined financial position that would have resulted
had the Merger been consummated at the beginning of the periods indicated. All
adjustments, consisting of only normal adjustments, necessary for a fair
statement of results of interim periods have been included.
<TABLE>
<CAPTION>
As of/For the Twelve
As of/For the Three Months Months Ended
Ended March 31, 1998 December 31, 1997
---------------------------- ---------------------
<S> <C> <C>
Earnings per common share
Basic
BB&T historical ............................... $ 0.80 $ 2.51
Maryland Federal historical ................... $ 0.26 $ 1.48
Pro forma combined (1) ........................ $ 0.77 $ 2.45
Maryland Federal pro forma equivalent (2) ..... $ 0.46 $ 1.46
Diluted
BB&T historical ............................... $ 0.78 $ 2.46
Maryland Federal historical ................... $ 0.25 $ 1.44
Pro forma combined (1) ........................ $ 0.76 $ 2.40
Maryland Federal pro forma equivalent (2) ..... $ 0.45 $ 1.43
Cash dividends declared per common share
BB&T historical ................................ $ 0.31 $ 1.16
Maryland Federal historical .................... $ 0.11 $ 0.42
Pro forma combined (1) ......................... $ 0.31 $ 1.16
Maryland Federal pro forma equivalent (2) ...... $ 0.19 $ 0.69
Shareholders' equity per common share
BB&T historical ................................ $ 17.22 $ 16.93
Maryland Federal historical .................... $ 16.22 $ 15.95
Pro forma combined (1) ......................... $ 17.49 $ 17.19
Maryland Federal pro forma equivalent (2) ...... $ 10.45 $ 10.27
</TABLE>
- ---------
(1) Reflects estimated purchase accounting adjustments to be recorded in
connection with the Merger, consisting of mark-to-market valuation
adjustments for significant tangible net assets acquired and adjustments for
intangible assets established, and the resultant amortization/accretion of
all such adjustments over appropriate future periods. See "THE MERGER --
Accounting Treatment."
(2) Represents the pro forma combined amounts multiplied by an assumed Exchange
Ratio of 0.5975. The Exchange Ratio may be subject to upward adjustment
under certain circumstances. See "THE MERGER -- Exchange Ratio."
9
<PAGE>
MEETING OF SHAREHOLDERS
General
This Proxy Statement/Prospectus is being furnished to the shareholders of
Maryland Federal as of the Record Date and is accompanied by a form of proxy
that is solicited by the Maryland Federal Board for use at the Meeting to be
held on Tuesday, July 21, 1998 at 10:00 a.m., Eastern Time, at La Fontaine
Bleu, located at 7963 Annapolis Road, Lanham, Maryland. At the Meeting, the
shareholders of Maryland Federal will vote upon proposals (a) to approve the
Reorganization Agreement and the Plan of Merger attached hereto as Appendix I,
(b) to elect three directors of Maryland Federal for terms expiring at the
earlier of the effective time of the Merger, the date of the 2001 annual
meeting of Maryland Federal shareholders or such time as their respective
successors are elected and qualified and (c) to ratify the appointment of Stoy,
Malone & Company, P.C. as Maryland Federal's independent auditors for the
fiscal year ending February 28, 1999 if the Merger is not completed. Proxies
may be voted on such other matters as may properly come before the Meeting at
the discretion of the proxy holders named therein. The Maryland Federal Board
knows of no such other matters except matters incidental to the conduct of the
Meeting.
Holders of Maryland Federal Common Stock are requested to complete, date
and sign the accompanying proxy and return it promptly to Maryland Federal in
the enclosed postage prepaid envelope.
Record Date, Voting Rights and Vote Required
Only the holders of Maryland Federal Common Stock on the Record Date (June
5, 1998) are entitled to receive notice of and to vote at the Meeting. On the
Record Date, there were 6,571,961 shares of Maryland Federal Common Stock
outstanding, which were held by approximately 2,400 holders of record. Each
share of Maryland Federal Common Stock outstanding on the Record Date is
entitled to one vote as to each of the matters submitted at the Meeting.
Approval of the Reorganization Agreement and the Plan of Merger requires
the affirmative vote of the holders of two thirds of the outstanding shares of
Maryland Federal Common Stock. FAILURE OF A HOLDER OF MARYLAND FEDERAL COMMON
STOCK TO VOTE SUCH SHARES WILL HAVE THE SAME EFFECT AS A VOTE "AGAINST" THE
REORGANIZATION AGREEMENT AND THE PLAN OF MERGER.
Directors will be elected by a plurality of the shares of Maryland Federal
Common Stock voted in the election of directors. Holders of Maryland Federal
Common Stock do not have cumulative voting rights in the election of directors.
See "ELECTION OF DIRECTORS."
Ratification of the appointment of Stoy, Malone & Company, P.C. as
Maryland Federal's independent auditors for the fiscal year ending February 28,
1999 if the Merger is not completed requires the affirmative vote of a majority
of the shares of Maryland Federal Common Stock voted on such matter. See
"RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS."
As of the Record Date, the directors and executive officers of Maryland
Federal and their affiliates beneficially owned a total of 420,163 shares, or
6.39%, of the issued and outstanding shares of Maryland Federal Common Stock,
exclusive of shares that may be acquired pursuant to the exercise of stock
options. Each director and executive officer of Maryland Federal has indicated
such person's intention to vote those shares of Maryland Federal Common Stock
over which such person has voting authority (other than in a fiduciary
capacity) in favor of the Reorganization Agreement and the Plan of Merger. As
of the Record Date, neither the directors and executive officers of BB&T and
their affiliates nor BB&T and its subsidiaries beneficially owned any shares of
Maryland Federal Common Stock.
Voting and Revocation of Proxies
The shares of Maryland Federal Common Stock represented by properly
completed proxies received at or before the time for the Meeting will be voted
as directed by the shareholders unless revoked as described below. If no
instructions are given, executed proxies will be voted "FOR" approval of the
Reorganization Agreement and the Plan of Merger, "FOR" the proposed slate of
directors and "FOR" ratification of the appointment of Stoy, Malone & Company,
P.C. as Maryland Federal's independent auditors for the fiscal year ending
February 28, 1999. Proxies marked "FOR" approval of the Reorganization
Agreement and the Plan of Merger and executed but unmarked proxies will be
voted in the discretion of the persons named in the accompanying proxies as to
any proposed adjournment of the Meeting. Proxies which are voted "AGAINST"
approval of the Reorganization Agreement and the Plan of Merger will not be
voted in favor of any motion to adjourn the Meeting to solicit more votes in
favor of this proposal.
10
<PAGE>
Shares held in street name that have been designated by brokers on proxy
cards as not voted with respect to a proposal ("Broker Shares") will not be
counted as votes cast on the proposal. Shares with respect to which proxies
have been marked as abstentions also will not be counted as votes cast on the
proposal. Shares with respect to which proxies have been marked as abstentions
and Broker Shares, however, will be treated as shares present for purposes of
determining whether a quorum is present.
The proposal to adopt the Reorganization Agreement and the Plan of Merger
is considered a "non-discretionary" item whereby brokerage firms may not vote
in their discretion on behalf of their clients if such clients have not
furnished voting instructions. Because the proposal to adopt the Reorganization
Agreement and the Plan of Merger is required to be approved by the holders of
two thirds of the outstanding shares of Maryland Federal Common Stock,
abstentions and Broker Shares will have the same effect as a vote against this
proposal at the Meeting.
If any other matters are properly presented at the Meeting and may be
properly voted on, the proxies solicited hereby will be voted on such matters
at the discretion of the proxy holders named therein. The Maryland Federal
Board is not aware of any other business to be presented at the Meeting, other
than matters incidental to the conduct of the Meeting. See "OTHER BUSINESS."
The presence of a shareholder at the Meeting will not automatically revoke
such shareholder's proxy. A shareholder may, however, revoke a proxy at any
time before its exercise by filing a written notice of revocation with, or by
delivering a duly executed proxy bearing a later date to, the Secretary of
Maryland Federal at Maryland Federal's principal executive offices before the
Meeting, or by attending the Meeting and voting in person. The proxy will not
be revoked by the death or incapacity of the shareholder executing it unless,
before the shares are voted, notice of such death or incapacity is filed with
the Secretary of Maryland Federal or other person authorized to tabulate the
votes.
BECAUSE APPROVAL OF THE REORGANIZATION AGREEMENT AND THE PLAN OF MERGER
REQUIRES THE AFFIRMATIVE VOTE OF THE HOLDERS OF TWO THIRDS OF THE OUTSTANDING
SHARES OF MARYLAND FEDERAL COMMON STOCK, ABSTENTIONS AND BROKER SHARES WILL
HAVE THE SAME EFFECT AS NEGATIVE VOTES. ACCORDINGLY, THE MARYLAND FEDERAL BOARD
URGES ITS SHAREHOLDERS TO COMPLETE, DATE AND SIGN THE ACCOMPANYING PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE PREPAID ENVELOPE.
Solicitation of Proxies
BB&T and Maryland Federal will each bear 50% of the cost of printing this
Proxy Statement/Prospectus, and Maryland Federal will bear all other costs of
soliciting proxies. In addition to the use of the mails, proxies may be
solicited personally or by telephone or facsimile by directors, officers, and
other employees of Maryland Federal, who will not be specially compensated for
such solicitation activities. Arrangements also will be made with brokerage
firms and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of stock held of record by such
persons, and Maryland Federal will reimburse such custodians, nominees and
fiduciaries for their reasonable out-of-pocket expenses in connection
therewith. Maryland Federal presently intends to utilize the services of Morrow
& Co., Inc., a professional proxy solicitation firm, in connection with the
solicitation of proxies for the Meeting, at an estimated cost of $6,500 plus
individual solicitation and out-of-pocket expenses.
Recommendations of the Maryland Federal Board
The Maryland Federal Board has unanimously adopted the Reorganization
Agreement and the Plan of Merger and believes that the proposed transaction is
fair to and in the best interests of Maryland Federal and its shareholders. The
Maryland Federal Board unanimously recommends that Maryland Federal's
shareholders vote "FOR" approval of the Reorganization Agreement and the Plan
of Merger. The Maryland Federal Board also recommends that Maryland Federal's
shareholders vote "FOR" the proposed slate of directors and "FOR" ratification
of the appointment of Stoy, Malone & Company, P.C. as Maryland Federal's
independent auditors for the fiscal year ending February 28, 1999. See "THE
MERGER -- Background of the Merger," " -- Reasons for the Merger," "ELECTION OF
DIRECTORS" and "RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS."
SHAREHOLDERS SHOULD NOT SEND IN STOCK CERTIFICATES WITH THEIR PROXY CARDS.
See "THE MERGER -- Exchange of Maryland Federal Common Stock Certificates."
11
<PAGE>
THE MERGER
(Proposal One)
The following information describes the material aspects of the Merger.
This description does not purport to be complete and is qualified in its
entirety by reference to the Appendices hereto, including the Reorganization
Agreement and the Plan of Merger, which are attached to this Proxy
Statement/Prospectus as Appendix I and incorporated herein by reference. All
shareholders are urged to read the Appendices in their entirety.
General
In the Merger, Maryland Federal will be merged with and into BB&T, and
BB&T will be the surviving corporation in the Merger. Shareholders of Maryland
Federal will receive shares of BB&T Common Stock in exchange for their shares
of Maryland Federal Common Stock, plus cash in lieu of fractional share
interests, as described below. It is expected that the MFB Bank Merger will be
effected during the fourth quarter of 1998, with BB&T-NC as the surviving
entity. Thereafter, BB&T-NC will continue to operate as a North Carolina
chartered commercial bank, with branches throughout North Carolina and the
metropolitan Washington, D.C. area.
Background of the Merger
Since MFB converted from mutual to stock form in 1987 and became a
subsidiary of Maryland Federal in 1989, the Maryland Federal Board has from
time to time reviewed Maryland Federal's strategic alternatives. In recent
years, the Maryland Federal Board has devoted particular attention in this
regard to the continuing consolidation and increasing competition in the
banking and financial services industries, which has narrowed the profit margin
for traditional home lenders such as Maryland Federal. The alternatives
considered by the Maryland Federal Board have included potential acquisitions
of other financial institutions, as well as potential acquisitions of Maryland
Federal.
From time to time other financial institutions have expressed general
interest in an acquisition of Maryland Federal. Since January 1996, and prior
to commencement of negotiations with BB&T, senior management of Maryland
Federal, with the assistance of Sandler in one case, engaged in preliminary
discussions with two other bank holding companies concerning a possible
acquisition of Maryland Federal. None of such discussions advanced beyond
preliminary discussions.
In December 1997, after BB&T announced that it had entered into an
agreement to acquire Franklin Bancorporation, Inc. in the District of Columbia
(see "INFORMATION ABOUT BB&T -- Acquisitions"), Sandler asked Robert H.
Halleck, President and Chief Executive Officer of Maryland Federal, whether
Maryland Federal would be receptive to an initial contact by a representative
of BB&T to explore a potential acquisition of Maryland Federal. Mr. Halleck
indicated to Sandler, that it would like such a meeting with BB&T.
On January 12, 1998, management of Maryland Federal met with a
representative of BB&T. Several points came out of this discussion: (i) the
strong interest of BB&T in acquiring Maryland Federal; (ii) the experience BB&T
had in acquiring thrifts and adding value to their franchise; and (iii) the
opportunity for the offices of Maryland Federal to be the basis for a Maryland
Region of BB&T's Virginia-based banking subsidiary. Following this meeting and
over the next several days, representatives of Sandler had discussions with
representatives of BB&T to determine if an acceptable agreement was possible
for the acquisition of Maryland Federal by BB&T. This proposal was subject to a
satisfactory due diligence review of Maryland Federal's financial condition and
operations by BB&T.
On February 3, 1998, Richard Bland, Chairman of Maryland Federal, Robert
Halleck and Christopher Quackenbush, a principal of Sandler, traveled to
Winston-Salem, North Carolina to meet with John Allison, Chairman of BB&T. At
the conclusion of the meeting, BB&T made a proposal for the acquisition of
Maryland Federal at an exchange rate of 0.5975 of a share of BB&T Common Stock
for each outstanding share of Maryland Federal Common Stock. On February 4,
1998, the Maryland Federal Board met to discuss BB&T's proposal. During the
meeting, representatives of Sandler gave a lengthy presentation covering (i)
Maryland Federal's past and projected performance; (ii) BB&T's past and
projected performance; (iii) all bank and thrift acquisitions since 1992
(pricing, size, etc.); and (iv) the proposal made by BB&T on February 3, 1998.
The proposal was viewed by Sandler as a transaction that was at the high end of
the price range for recent comparable acquisitions and provided better results
for shareholders than Maryland Federal remaining independent. The proposed
transaction also was deemed to be one that generally could provide employment
opportunities for management and the other employees of Maryland Federal. At
this meeting the Maryland Federal Board asked Sandler to discuss with BB&T
representatives the possibility of obtaining some protection against declines
in the price of the BB&T Common Stock prior to consummation of the proposed
transaction. At the conclusion of the meeting, the Maryland Federal Board
unanimously approved a motion to ask BB&T to prepare a definitive agreement for
the acquisition of Maryland Federal by BB&T.
12
<PAGE>
Over the period February 19-21, 1998, representatives of BB&T conducted
due diligence and met with a number of Maryland Federal's senior officers to
discuss matters regarding Maryland Federal and the potential acquisition.
On February 25, 1998, the Maryland Federal Board met to consider the
proposed Reorganization Agreement, Plan of Merger and Option Agreement, as well
as the results of Maryland Federal's due diligence evaluation of BB&T.
Presentations were made by both Sandler and Elias, Matz, Tiernan & Herrick
L.L.P. ("Elias, Matz"), special counsel to Maryland Federal. Sandler reviewed
the background of the proposed transaction and the potential benefits of the
transaction. Sandler also reviewed the financial and valuation analyses
performed by it in connection with its evaluation of the fairness of the
consideration to be received by Maryland Federal's shareholders from a
financial point of view, and gave its opinion that the consideration to be
received by the holders of the Maryland Federal Common Stock upon consummation
of the Merger was fair to the holders of the Maryland Federal Common Stock from
a financial point of view. Elias, Matz reviewed the terms of the proposed
agreements and discussed the obligations of the Maryland Federal Board in its
consideration of the proposed transaction with BB&T.
After consideration and discussion of the proposed transaction and
consultation with Maryland Federal's financial and legal advisors, the Maryland
Federal Board unanimously approved the Reorganization Agreement, Plan of Merger
and Option Agreement as being in the best interests of Maryland Federal and its
shareholders, and directed that the Reorganization Agreement and Plan of Merger
be submitted for approval by the holders of the Maryland Federal Common Stock.
As originally contemplated in the Reorganization Agreement, Maryland
Federal would have merged into BB&T Financial-VA, which is a wholly owned
subsidiary of BB&T and the holding company for BB&T-VA. In June 1998 the
parties agreed to restructure the Merger so that Maryland Federal will merge
into BB&T, and executed an amended and restated version of the Reorganization
Agreement to provide for this.
Reasons for the Merger
BB&T
BB&T management believes that the metropolitan Washington area represents
a growing and promising market, that BB&T's entry into the region is a natural
extension of its efforts to build a statewide franchise in Virginia and that
the acquisition of Maryland Federal will strengthen its position in this market
as well as establish a presence in the state of Maryland. BB&T management
believes that Maryland Federal is a quality institution with a strong capital
position and an outstanding reputation for superior customer service.
Maryland Federal
In reaching its decision to approve the Reorganization Agreement and the
Plan of Merger and the transactions contemplated thereby, the Maryland Federal
Board considered a number of factors, including:
(i) the respective business, operations, asset quality, financial
condition, earnings, strategic business plans, competitive positions and stock
price performance of Maryland Federal and BB&T;
(ii) the pro forma financial effects of the proposed transaction (see
"SUMMARY -- Comparative Per Share Data");
(iii) BB&T's successful acquisition history (see "INFORMATION ABOUT BB&T
- -- Acquisitions");
(iv) the opportunity for Maryland Federal's franchise to be the basis of
BB&T's operations in Maryland;
(v) the likely impact of the proposed Merger on the employees and
customers of Maryland Federal and its subsidiaries, on the communities in which
Maryland Federal presently conducts its business and on Maryland Federal's
other constituencies;
(vi) the current and prospective economic, regulatory and competitive
climate facing independent community banking organizations, including the
consolidation currently underway in the banking industry and competition from
larger institutions and from nonbank providers of financial services;
(vii) the Exchange Ratio in the Merger from a number of valuation
perspectives, as presented by Sandler and the current market value of the
Merger to Maryland Federal's shareholders;
(viii) the February 25, 1998 opinion of Sandler that the consideration to
be received by Maryland Federal's shareholders in the Merger was fair to such
shareholders from a financial point of view (see " -- Opinion of Maryland
Federal's Financial Advisor");
13
<PAGE>
(ix) the terms of the Reorganization Agreement, Plan of Merger and Option
Agreement;
(x) the regulatory and shareholder approvals required for the consummation
of the Merger (see " -- Regulatory Considerations"); and
(xi) the treatment of the Merger as a purchase for financial accounting
purposes and as a tax-free reorganization for federal income tax purposes (see
" -- Certain Federal Income Tax Consequences of the Merger" and " -- Accounting
Treatment").
The foregoing discussion of the information and factors considered by the
Maryland Federal Board is not intended to be exhaustive but includes all
material factors considered by the Maryland Federal Board. In reaching its
determination to approve and recommend the Merger, the Maryland Federal Board
did not assign relative or specific weights to the foregoing factors, and
individual directors may have given differing weights to different factors.
Opinion of Maryland Federal's Financial Advisor
Pursuant to an engagement letter dated as of January 7, 1998 (the "Sandler
Agreement"), Maryland Federal retained Sandler as an independent financial
advisor in connection with Maryland Federal's consideration of a possible
business combination with another party. Sandler is a nationally-recognized
investment banking firm whose principal business specialty is banks and savings
institutions, and as part of its investment banking business is regularly
engaged in the valuation of such businesses and their securities in connection
with mergers and acquisitions and other corporate transactions.
Pursuant to the terms of the Sandler Agreement, Sandler acted as financial
advisor to Maryland Federal in connection with the Merger. In connection
therewith, the Maryland Federal Board requested Sandler to render its opinion
as to the fairness, from a financial point of view, of the Merger consideration
to the holders of Maryland Federal Common Stock. At the February 25, 1998
meeting at which the Maryland Federal Board approved and adopted the
Reorganization Agreement, Sandler delivered to the Maryland Federal Board its
oral opinion, subsequently confirmed in writing, that, as of such date, the
consideration to be received by the holders of shares of Maryland Federal
Common Stock in the Merger was fair, from a financial point of view, to such
shareholders. Sandler has also delivered to the Maryland Federal Board a
written opinion dated as of the date of this Proxy Statement/Prospectus (the
"Sandler Fairness Opinion") which is substantially identical to the February
25, 1998 opinion. The full text of the Sandler Fairness Opinion, which sets
forth the procedures followed, assumptions made, matters considered and
qualifications and limitations on the review undertaken in connection with such
opinion, is attached as Appendix II to this Proxy Statement/Prospectus and is
incorporated herein by reference. The description of the opinion set forth
herein is qualified in its entirety by reference to Appendix II. Holders of
shares of Maryland Federal Common Stock are urged to read the Sandler Fairness
Opinion in its entirety in connection with their consideration of the proposed
Merger.
The Sandler Fairness Opinion was provided to the Maryland Federal Board
for its information and is directed only to the fairness, from a financial
point of view, of the consideration to be received by holders of shares of
Maryland Federal Common Stock in the Merger. It does not address the underlying
business decision of Maryland Federal to engage in the Merger or any other
aspect of the Merger and does not constitute a recommendation to any holder of
shares of Maryland Federal Common Stock as to how such stockholder should vote
at the Meeting with respect to the Reorganization Agreement or any other matter
related thereto.
In connection with rendering its February 25, 1998 opinion, Sandler
performed a variety of financial analyses. The following is a summary of the
material analyses performed by Sandler, but does not purport to be a complete
description of all the analyses underlying Sandler's opinion. The preparation
of a fairness opinion is a complex process involving subjective judgments and
is not necessarily susceptible to a partial analysis or summary description.
Accordingly, Sandler believes that its analyses must be considered as a whole
and that selecting portions of such analyses and the factors considered by it,
without considering all factors and analyses, could create an incomplete view
of the evaluation processes underlying its opinion. In performing its analyses,
Sandler made numerous assumptions with respect to industry performance,
business and economic conditions and various other matters, many of which
cannot be predicted and are beyond the control of Maryland Federal, BB&T and
Sandler. Any estimates contained in Sandler's analyses are not necessarily
indicative of future results or values, which may be significantly more or less
favorable than such estimates. Estimates on the values of companies do not
purport to be appraisals or necessarily reflect the prices at which companies
or their securities may actually be sold. Because such estimates are inherently
subject to uncertainty, none of Maryland Federal, BB&T and Sandler assumes
responsibility for their accuracy.
14
<PAGE>
Summary of Proposal. Sandler reviewed the financial terms of the proposed
transaction. Based on the closing price of BB&T Common Stock on February 24,
1998 of $62.00, Sandler calculated an implied transaction value per share of
Maryland Federal Common Stock of $37.05. Based upon Maryland Federal's November
30, 1997 financial information, Sandler calculated the price to tangible book
value, price to last twelve months' earnings and core deposit premium. This
analysis yielded a price to tangible book value multiple of 2.36x, a price to
last twelve months' earnings multiple of 25.55x and a core deposit premium of
16.46%.
Stock Trading History. Sandler reviewed the history of the reported
trading prices and volume of the Maryland Federal Common Stock and the BB&T
Common Stock, and the relationship between the movements in the prices of the
Maryland Federal Common Stock and the BB&T Common Stock, respectively, to
movements in certain stock indices, including the Standard & Poor's 500 Index,
the NASDAQ Banking Index and composite groups of publicly traded savings
institutions (in the case of Maryland Federal) and publicly traded commercial
banks (in the case of BB&T) in geographic proximity and of similar asset size
to Maryland Federal and BB&T, respectively. During the one-year period ended
February 24, 1998, each of the Maryland Federal Common Stock and the BB&T
Common Stock outperformed each of the indices to which it was compared.
Analysis of Selected Publicly Traded Companies. Sandler used publicly
available information to compare selected financial and market trading
information, including balance sheet composition, asset quality ratios, loan
loss reserve levels, profitability, capital adequacy, dividends and trading
multiples, for Maryland Federal and two different groups of savings
institutions. The first group consisted of Maryland Federal and the following
15 publicly-traded regional savings institutions (the "Regional Group"):
Commonwealth Bancorp Inc., Reliance Bancorp Inc., Haven Bancorp Inc., Queens
County Bancorp Inc., JSB Financial Inc., WSFS Financial Corp., Ocean Financial
Corp., Dime Community Bancorp Inc., PennFed Financial Services Inc, York
Financial Corp., Flushing Financial Corp., Parkvale Financial Corp., ESB
Financial Corp., GA Financial Inc. and MSB Bancorp, Inc. Sandler also compared
Maryland Federal to a group of 7 publicly-traded savings institutions which had
a return on average equity (based on last twelve months' earnings) of greater
than 16.0% and a price to tangible book value of greater than 256% (the "Highly
Valued Group"). The Highly Valued Group included the following institutions:
Flagstar Bancorp Inc., Anchor BanCorp Wisconsin, First Federal Capital Corp.,
WSFS Financial Corp., Metropolitan Financial Corp., CFSB Bancorp Inc. and Great
Southern Bancorp Inc. The analysis compared publicly available financial
information for Maryland Federal for each of the years ended February 28, 1993
through February 29, 1996 and as of and for the twelve months ended November
30, 1997 and each of the groups as of and for each of the years ended December
31, 1992 through December 31, 1997.
Sandler also used publicly available information to perform a similar
comparison of selected financial and market trading information for BB&T and
two different groups of commercial banks. The first group consisted of BB&T and
the following 14 publicly-traded commercial banks (the "Peer Group"): Wachovia
Corp., Comerica Inc., SouthTrust Corp., Summit Bancorp, Mercantile Bancorp,
Huntington Bancshares Inc., Northern Trust Corp., Crestar Financial Corp.,
Regions Financial Corp., Fifth Third Bancorp, Firstar Corp., Marshall & Ilsley
Corp., AmSouth Bancorp and Union Planters Corp. Sandler also compared BB&T to a
group of 6 publicly-traded commercial banks which had a return on average
equity (based on last twelve months' earnings) of greater than 18.4% and a
price to tangible book value of greater than 354% (the "Commercial Highly
Valued Group"). The Commercial Highly Valued Group included the following
institutions: National City Corp., State Street Corp., Comerica Inc., Northern
Trust Corp., Fifth Third Bancorp and Firstar Corp. The analysis compared
publicly available financial information for BB&T and each of the groups as of
and for each of the years ended December 31, 1992 through December 31, 1997.
Analysis of Selected Merger Transactions. Sandler reviewed 77 transactions
announced from January 1, 1997 to February 24, 1998 involving public savings
institutions nationwide as acquired institutions with transaction values over
$15 million ("Nationwide Transactions"), 15 transactions announced from January
1, 1997 to February 24, 1998 involving public savings institutions in the
Mid-Atlantic (Delaware, District of Columbia, Pennsylvania, Maryland, New
Jersey and New York) as acquired institutions with transaction values over $15
million ("Mid-Atlantic Transactions"), and 14 transactions announced from
January 1, 1997 to February 24, 1998 involving public savings institutions
nationwide as acquired institutions with transaction values greater than $200
million and less than $500 million ("Large Nationwide Transactions"). Sandler
reviewed the ratios of price to last twelve months' earnings, price to book
value, price to tangible book value, price to deposits, price to assets and
deposit premium paid in each such transaction and computed high, low, mean, and
median ratios and premiums for the respective groups of transactions. These
multiples were applied to Maryland Federal's financial information as of and
for the twelve months ended November 30, 1997. Based upon the median multiples
for Large Nationwide Transactions, Sandler derived an imputed range of values
per share of the Maryland Federal Common Stock of $29.71 to $32.15. Based upon
the median multiples for Mid-Atlantic Transactions, Sandler derived an imputed
range of values per
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share of the Maryland Federal Common Stock of $27.53 to $32.03. Based upon the
median multiples for Large Nationwide Transactions, Sandler derived an imputed
range of values per share of the Maryland Federal Common Stock of $28.32 to
$38.54.
No company involved in the transactions included in the above analysis is
identical to Maryland Federal and no transaction included in the above analysis
is identical to the Merger. Accordingly, an analysis of the results of the
foregoing analysis is not mathematical; rather, it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the companies and other factors that could affect the public
trading value of Maryland Federal and BB&T and the companies to which they are
being compared.
Discounted Dividend Stream and Terminal Value Analysis. Sandler also
performed an analysis which estimated the future stream of after-tax dividend
flows of Maryland Federal through February 28, 2003 under various
circumstances, assuming Maryland Federal performed in accordance with
information regarding potential future earnings provided by its management and
certain variations thereof (including variations with respect to the levels of
assets, net interest spread, non-interest income, non-interest expense and
dividend payout ratio). To approximate the terminal value of the Maryland
Federal Common Stock at the end of the five-year period, Sandler applied price
to earnings multiples ranging from 12x to 30x and applied multiples of tangible
book value ranging from 180% to 270%. The dividend income streams and terminal
values were then discounted to present values using different discount rates
(ranging from 9% to 14%) chosen to reflect different assumptions regarding
required rates of return of holders or prospective buyers of the Maryland
Federal Common Stock. This analysis, assuming the current dividend payout
ratio, indicated an imputed range of values per share of the Maryland Federal
Common Stock of between $12.61 and $36.30 when applying the price to earnings
multiples, and an imputed range of values per share of the Maryland Federal
Common Stock of between $21.09 and $38.41 when applying multiples of tangible
book value. In connection with its analysis, Sandler extensively used
sensitivity analyses to illustrate the effects changes in the underlying
assumptions would have on the resulting present value, and discussed these
changes with the Maryland Federal Board. Sandler noted that the discounted
dividend stream and terminal value analysis is a widely used valuation
methodology, but the results of such methodology are highly dependent upon the
numerous assumptions that must be made, and the results thereof are not
necessarily indicative of actual values or actual future results.
Pro Forma Merger Analysis. Based upon earnings forecasts of Maryland
Federal and BB&T, expected one-time merger related charges, projected cost
savings, projected revenue enhancements and certain other assumptions discussed
with Maryland Federal's and BB&T's respective managements, Sandler analyzed
certain potential pro forma effects of the Merger on BB&T over a six-year
period. This analysis indicated that the Merger would be slightly dilutive to
BB&T's GAAP earnings per share in 1999 and 2000 and slightly accretive to GAAP
earnings per share in all other periods analyzed, and slightly accretive to
cash earnings per share in 1999 and thereafter for all other periods analyzed.
The Merger would be accretive to tangible book value per share for all periods
analyzed. From the perspective of a shareholder of Maryland Federal, as
compared to the projected stand-alone performance of Maryland Federal, the
Merger would be accretive to earnings per share and dividends per share for all
periods analyzed and dilutive to tangible book value per share for all periods
analyzed. The actual results achieved by BB&T may vary from projected results
and the variations may be material.
Contribution Analysis. Sandler reviewed the relative contributions to,
among other things, total assets, total loans, total deposits, total equity,
total tangible equity, last twelve months' ("LTM") net income and market
capitalization to be made by Maryland Federal and BB&T to the combined
institution based on data at and for the twelve months ended November 30, 1997
and December 31, 1997, respectively. This analysis indicated that Maryland
Federal's implied contribution was 3.90% of total assets, 4.64% of total loans,
3.92% of total deposits, 4.38% of total equity, 4.76% of total tangible equity,
2.30% of normalized LTM net income and 2.24% of market capitalization. Based
upon an Exchange Ratio of 0.5975, holders of the Maryland Federal Common Stock
would own approximately 2.70% of the outstanding shares of the combined
institution.
In connection with rendering its February 25, 1998 opinion, Sandler
reviewed, among other things: (i) the Reorganization Agreement and exhibits
thereto; (ii) the Option Agreement; (iii) Maryland Federal's audited
consolidated financial statements and management's discussion and analysis of
financial condition and results of operations as contained in its Annual Report
on Form 10-K for the year ended February 28, 1997; (iv) BB&T's audited
consolidated financial statements and management's discussion and analysis of
financial condition and results of operations contained in its Annual Report on
Form 10-K for the year ended December 31, 1996; (v) Maryland Federal's
unaudited consolidated financial statements and management's discussion and
analysis of financial condition and results of operations contained in its
Quarterly Report on Form 10-Q for the quarters ended May 31, August 31 and
November 30, 1997, respectively; (vi) BB&T's unaudited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations contained in its Quarterly Report on Form 10-Q for the
quarters ended March 31, June 30 and September 30, 1997, respectively; (vii)
summary financial information contained in BB&T's press release dated January
14, 1998 concerning BB&T's
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financial condition and results of operations for the year ended December 31,
1997; (viii) certain financial analyses and forecasts of Maryland Federal
prepared by and reviewed with management of Maryland Federal and the views of
senior management of Maryland Federal regarding Maryland Federal's past and
current business operations, results thereof, financial condition and future
prospects; (ix) certain financial analyses and forecasts of BB&T prepared by
and reviewed with management of BB&T and the views of senior management of BB&T
regarding BB&T's past and current business operations, results thereof,
financial condition and future prospects, including the pro forma impact of
BB&T's pending acquisitions of Franklin Bancorporation and Life Bancorp, Inc.;
(x) the potential pro forma impact of the Merger on BB&T; (xi) the publicly
reported historical price and trading activity for the Maryland Federal Common
Stock and the BB&T Common Stock, respectively, including a comparison of
certain financial and stock market information for Maryland Federal and BB&T
with similar publicly available information for certain other companies the
securities of which are publicly traded; (xii) the financial terms of recent
business combinations in the savings institution industry, to the extent
publicly available; (xiii) the current market environment generally and the
banking environment in particular; and (xiv) such other information, financial
studies, analyses and investigations and financial, economic and market
criteria as Sandler considered relevant. In connection with rendering its
opinion, Sandler was not asked to, and did not, solicit indications of interest
in a potential transaction from other third parties.
In connection with rendering the Sandler Fairness Opinion, Sandler
confirmed the appropriateness of its reliance on the analyses used to render
the February 25, 1998 opinion by performing procedures to update certain of
such analyses and by reviewing the assumptions upon which such analyses were
based and the factors considered in connection therewith.
In performing its reviews and analyses and preparing its opinion, Sandler
assumed and relied upon, without independent verification, the accuracy and
completeness of all the financial information, analyses and other information
that was publicly available or otherwise furnished to, reviewed by or discussed
with it, and Sandler does not assume any responsibility or liability therefor.
Sandler did not make an independent evaluation or appraisal of the specific
assets, the collateral securing assets or the liabilities of Maryland Federal
or BB&T or any of their respective subsidiaries, or the collectibility of any
such assets, nor was it furnished with any such evaluations or appraisals
(relying, where relevant, on the analyses and estimates of Maryland Federal and
BB&T). With respect to the information regarding potential future financial
performance provided by each company's management, Sandler assumed that they
have been reasonably prepared on bases reflecting the best currently available
estimates and judgments of the respective managements of the respective future
financial performances of Maryland Federal and BB&T and that such performances
will be achieved. Sandler expressed no opinion as to such financial forecasts
or the assumptions on which they were based.
Sandler's opinion was necessarily based upon market, economic and other
conditions as they existed on, and could be evaluated as of, the date of such
opinion. For purposes of rendering its opinion, Sandler assumed, in all
respects material to its analyses, that all of the representations and
warranties contained the Reorganization Agreement and all related agreements
are true and correct, that each party to such agreements will perform all of
the covenants required to be performed by such party under such agreements and
that the conditions precedent in the Reorganization Agreement are not waived.
Sandler also assumed that there has been no material change in Maryland
Federal's or BB&T's assets, financial condition, results of operations,
business or prospects since the dates of the last financial statements reviewed
by it, and that Maryland Federal and BB&T will remain as going concerns for all
periods relevant to its analyses.
Under the Sandler Agreement, Maryland Federal has agreed to pay Sandler a
transaction fee in connection with the Merger, a substantial portion of which
is contingent upon the consummation of the Merger. Under the terms of the
Sandler Agreement, Maryland Federal has agreed to pay Sandler a transaction fee
equal to 0.75% of the aggregate transaction value, of which approximately 25%
has been paid and the remainder is payable upon closing of the transaction.
Sandler has also received a fee of $100,000 for rendering its fairness opinion,
which shall be credited against that portion of the transaction fee payable at
closing. Maryland Federal has also agreed to reimburse Sandler for its
reasonable out-of-pocket expenses incurred in connection with its engagement
and to indemnify Sandler and its affiliates and their respective partners,
directors, officers, employees, agents and controlling persons against certain
expenses and liabilities, including liabilities under securities laws.
In the ordinary course of its business, Sandler may actively trade the
debt and/or equity securities of Maryland Federal and BB&T and their respective
affiliates for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
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Exchange Ratio
At the Effective Time, Maryland Federal will be merged with and into BB&T,
and BB&T will be the surviving corporation in the Merger. Upon consummation of
the Merger, each share of Maryland Federal Common Stock outstanding at the
Effective Time will be converted into the right to receive 0.5975 of a share of
BB&T Common Stock, subject to possible upward adjustment as described in the
following paragraphs.
The Exchange Ratio will be determined by reference to the Average Closing
Price, which is the average closing price of BB&T Common Stock on the NYSE for
the ten trading days immediately preceding the tenth calendar day preceding the
Effective Time. The Exchange Ratio has been initially set at 0.5975 of a share
of BB&T Common Stock per share of Maryland Federal Common Stock; however, if
the implied market value (based on the Average Closing Price) of the BB&T
Common Stock to be received for each share of Maryland Federal Common Stock,
using an Exchange Ratio of 0.5975, is less than $36.00 (i.e., if the Average
Closing Price is less than $60.25), then the Exchange Ratio will be increased
to the lesser of (i) the amount necessary to increase the implied market value
to $36.00 or (ii) 0.6102 of a share of BB&T Common Stock per share of Maryland
Federal Common Stock. The result is that the Exchange Ratio would float between
0.5975 and 0.6102 in the event that the Average Closing Price is less than
$60.25 but more than $59.00, and be fixed at 0.6102 in the event that the
Average Closing Price is $59.00 or less.
Under certain circumstances, the Exchange Ratio could be adjusted further
upward pursuant to the Reorganization Agreement. An upward adjustment to the
Exchange Ratio in excess of 0.6102 could occur only if Maryland Federal should
elect to terminate the Reorganization Agreement as described below, and if BB&T
then elects to avoid termination of the Reorganization Agreement by adjusting
the Exchange Ratio. Under no circumstances would the Exchange Ratio be less
than 0.5975 of a share of BB&T Common Stock for each share of Maryland Federal
Common Stock.
Maryland Federal may elect to terminate the Reorganization Agreement and
abandon the Merger if the circumstances in both (a) and (b) exist:
(a) the implied market value (based on the Average Closing Price) of the
BB&T Common Stock to be received for each share of Maryland Federal Common
Stock, using an Exchange Ratio of 0.6102 shares of BB&T Common Stock per share
of Maryland Federal Common Stock, is less than $30.60 (i.e., the Average
Closing Price is less than $50.15), and
(b) (i) the amount obtained by dividing the Average Closing Price by
$62.00 (the "BB&T Ratio") is less than (ii) 90% of the amount obtained by
dividing the Index Price on the Determination Date by the Index Price on the
Starting Date (as such terms are defined below) (the amount determined pursuant
to clause (ii) the "Index Ratio").
Maryland Federal may refuse to consummate the Merger pursuant to this
provision by giving written notice to BB&T during the five-day period following
the Determination Date. BB&T will thereafter have a five-day period in which it
may elect to increase the Exchange Ratio so that holders of Maryland Federal
Common Stock would receive consideration having an implied market value (based
on the Average Closing Price) of $30.60 per share of Maryland Federal Common
Stock. BB&T WOULD HAVE NO OBLIGATION TO ELECT TO INCREASE THE EXCHANGE RATIO.
Such an election would be made by giving notice to Maryland Federal of the
election and the revised Exchange Ratio, whereupon Maryland Federal would be
required to proceed with the Merger with the adjusted Exchange Ratio in
accordance with all other terms of the Reorganization Agreement. Maryland
Federal may withdraw its notice of termination at any time during the ten-day
period following the Determination Date, and could elect to proceed with the
Merger at the Exchange Ratio of 0.6102 if BB&T were to determine not to adjust
the Exchange Ratio.
For purposes of the rights of termination and adjustment described above,
the following terms are defined as follows:
"Determination Date" means the tenth calendar day preceding the date
designated by BB&T as the Closing Date.
"Index Group" means 14 bank holding companies designated in the
Reorganization Agreement, the common stocks of all of which must be publicly
traded and as to which there may not have been, since the Starting Date and
before the Determination Date, any public announcement of a proposal for such
company to be acquired or for such company to acquire another company or
companies in transactions with a value exceeding 25% of the acquiror's market
capitalization. In the event that any such company or companies are removed
from the Index Group, the weights (which have been determined based upon the
number of shares of outstanding common stock) will be redistributed
proportionately for purposes of determining the Index Price. If any company
belonging to the Index Group, or BB&T, declares or effects a stock dividend,
reclassification, recapitalization, split-up, combination, exchange of shares
or similar transaction between the Starting Date and the Determination Date,
the prices for the common stock of such company or BB&T will be appropriately
adjusted for the purposes of applying the provision set forth above.
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"Index Price" on a given date means the weighted average (weighted in
accordance with the factors listed above) of the closing sales prices of the
companies composing the Index Group.
"Starting Date" means February 25, 1998.
These conditions reflect the parties' agreement that Maryland Federal's
shareholders will assume certain risks of decline in the market value of BB&T
Common Stock. If the value of BB&T Common Stock were to decline so that the
Average Closing Price was below $50.15, but the Average Closing Price did not
reflect a decline in the price of BB&T Common Stock from $62.00 (the closing
price of BB&T Common Stock on February 24, 1998) (the "Starting Price") of more
than 10% in comparison to the stock prices of the group of comparable bank
holding company stocks (the Index Group referenced above) as measured from
February 25, 1998 to the Determination Date, then Maryland Federal's
shareholders would continue to assume the risk of decline in the value of BB&T
Common Stock. Maryland Federal will have the right to terminate the
Reorganization Agreement only when both (a) the Average Closing Price of BB&T
Common Stock is less than $50.15 and (b) the decline from the value of the
Starting Price to the Average Closing Price exceeds by more than 10% the
decline in value for the group of comparable bank holding companies from
February 25, 1998 to the Determination Date.
If the Maryland Federal Board elects to terminate the Reorganization
Agreement because of a decline in the price of BB&T Common Stock, BB&T may
avoid termination by increasing the Exchange Ratio. In deciding whether to
increase the Exchange Ratio, the principal factors BB&T would consider include,
without limitation, the projected effect of the Merger on BB&T's pro forma
earnings and book value per share and whether BB&T's assessment of Maryland
Federal's earning potential as part of BB&T justifies the issuance of a greater
number of shares of BB&T Common Stock. If BB&T should decline to adjust the
Exchange Ratio, Maryland Federal may elect to withdraw its election to
terminate and to proceed with the Merger without adjustment. In making this
determination, the principal factors the Maryland Federal Board would consider
include, without limitation, whether the Merger remains in the best interest of
Maryland Federal and its shareholders, despite a decline in the BB&T Common
Stock price, and whether the consideration to be received by the holders of
Maryland Federal Common Stock remains fair from a financial point of view.
Prior to making any determination to terminate the Reorganization Agreement or
to proceed with the Merger without adjustment of the Exchange Ratio, the
Maryland Federal Board would consult with its financial and other advisors and
would consider all financial and other information it deemed relevant to its
decision, including without limitation considerations relating to the necessity
or desirability of resoliciting Maryland Federal shareholders under the
circumstances. If Maryland Federal elected not to exercise its right to
terminate the Reorganization Agreement, the Exchange Ratio would remain 0.6102
and the dollar value of the consideration which the Maryland Federal
shareholders would receive for each share of Maryland Federal Common Stock
would be the value of 0.6102 of a share of BB&T Common Stock at the Effective
Time.
The operation of the Exchange Ratio and the adjustment mechanism can be
illustrated by five scenarios. (For purposes of the numerical examples, the
Index Price, as of February 25, 1998, is deemed to be $100.)
(a) The first scenario is that the Average Closing Price of the BB&T
Common Stock is not less than $60.25. Under this scenario, the Exchange Ratio
would be 0.5975 and there would be no potential adjustment to the Exchange
Ratio and no right on the part of Maryland Federal to terminate the
Reorganization Agreement due to a decline in the price of BB&T Common Stock.
The implied market value (based on the Average Closing Price) of the
consideration to be received by Maryland Federal shareholders would be not less
than $36.00.
(b) The second scenario is that the Average Closing Price is at least
$59.00 and less than $60.25. Under this scenario, the Exchange Ratio would be
set at the amount between 0.5975 and 0.6102 such that the implied market value
(based on the Average Closing Price) of the consideration to be received by
Maryland Federal shareholders would be $36.00, and there would be no right on
the part of Maryland Federal to terminate the Reorganization Agreement.
(c) The third scenario is that the Average Closing Price is at least
$50.15 and less than $59.00. Under this scenario, the Exchange Ratio would be
0.6102 and there would be no right on the part of Maryland Federal to terminate
the Reorganization Agreement due to a decline in the value of BB&T Common Stock
and therefore no potential adjustment to the Exchange Ratio, even though the
implied market value of the consideration to be received by Maryland Federal
shareholders could have fallen from a pro forma $37.05 as of February 24, 1998
to $30.60 per share (based on an Average Closing Price of $50.15) as of the
Determination Date, assuming that the value at the Determination Date equals
the Average Closing Price.
(d) The fourth scenario is that the Average Closing Price is less than
$50.15 but the BB&T Ratio is equal to or above the Index Ratio. In this case,
the Exchange Ratio would be 0.6102 and there would be no right on the part of
Maryland Federal to terminate the Reorganization Agreement due to the decline
in the value of BB&T Common Stock and therefore
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no potential adjustment to the Exchange Ratio, even though the implied market
value of the consideration to be received by Maryland Federal shareholders
would have fallen from a pro forma $37.05 as of February 24, 1998 to less than
$30.60 per share. For example, if the Average Closing Price were $48.00 and the
Index Price were $80.00, the BB&T Ratio would be 0.77 ($48.00 / $62.00) and the
Index Ratio would be 0.72 (0.9 x ($80.00 / $100.00)). Based upon the assumed
$48.00 Average Closing Price, the consideration to be received by Maryland
Federal shareholders would have an implied market value of $29.29 per share.
(e) The fifth scenario is that both the Average Closing Price is less than
$50.15 and the BB&T Ratio is less than the Index Ratio. In this case, Maryland
Federal would have the right to terminate the Reorganization Agreement based on
the decline in BB&T's stock price. BB&T would have the right, but not the
obligation, to reinstate the Reorganization Agreement by adjusting the Exchange
Ratio so that Maryland Federal shareholders would receive shares of BB&T Common
Stock having an implied market value (based upon the Average Closing Price)
equal to $30.60 per share. For example, if the Average Closing Price were
$46.00 and the Index Price were $90.00, the BB&T Ratio would be 0.74 ($46.00 /
$62.00) and the Index Ratio would be 0.81 (0.9 x ($90.00 / $100.00)). Based
upon the assumed $46.00 Average Closing Price, the consideration to be received
by Maryland Federal shareholders would have an implied market value of $28.07
per share. If the Maryland Federal Board elected to terminate the
Reorganization Agreement, BB&T would have the right, but not the obligation, to
reinstate the Reorganization Agreement by increasing the Exchange Ratio within
five days to 0.6652, which represents $30.60 divided by the Average Closing
Price. Based upon the assumed $46.00 Average Closing Price, the new Exchange
Ratio would represent a value to Maryland Federal shareholders of $30.60 per
share.
Maryland Federal shareholders should be aware that the actual market value
of a share of BB&T Common Stock at the Effective Time and at the time
certificates for those shares are delivered following surrender and exchange of
certificates for shares of Maryland Federal Common Stock may be more or less
than the Average Closing Price. Maryland Federal shareholders are urged to
obtain information on the trading value of BB&T Common Stock that is more
recent than that provided in this Proxy Statement/Prospectus. See "SUMMARY --
Comparative Market Prices and Dividends."
No fractional shares of BB&T Common Stock will be issued in the Merger.
Holders of Maryland Federal Common Stock otherwise entitled to a fractional
share will be paid an amount in cash determined by multiplying the fractional
part of such share of BB&T Common Stock by the Average Closing Price.
Exchange of Maryland Federal Common Stock Certificates
At the Effective Time, by virtue of the Merger and without any action on
the part of Maryland Federal or the holders of Maryland Federal Common Stock,
each share of Maryland Federal Common Stock issued and outstanding immediately
before the Effective Time will be converted into and will represent the right
to receive, upon surrender of the certificate representing such share of
Maryland Federal Common Stock as described below, whole shares of BB&T Common
Stock and cash in lieu of any fractional share interest (the "Merger
Consideration"). Promptly after the Effective Time, BB&T will deliver or mail
to each Maryland Federal shareholder a form of letter of transmittal and
instructions for use in effecting the surrender of the certificates that,
immediately before the Effective Time, represented any shares of Maryland
Federal Common Stock. Upon surrender of these certificates or other
satisfactory evidence of ownership, together with such letter of transmittal
duly executed and completed in accordance with its instructions and such other
documents as may be reasonably requested, BB&T will promptly transfer the
Merger Consideration to the persons entitled to receive it.
HOLDERS OF MARYLAND FEDERAL COMMON STOCK SHOULD NOT SEND IN THEIR STOCK
CERTIFICATES UNTIL THEY RECEIVE TRANSMITTAL FORMS AND INSTRUCTIONS.
Until surrendered as described above, each outstanding certificate that
prior to the Effective Time represented one or more shares of Maryland Federal
Common Stock will be deemed upon the Effective Time for all purposes to
represent only the right to receive the Merger Consideration. No interest will
be paid or accrued on the Merger Consideration upon the surrender of the
certificate or certificates representing shares of Maryland Federal Common
Stock. With respect to any certificate for Maryland Federal Common Stock that
has been lost or destroyed, BB&T will pay the Merger Consideration attributable
to such certificate upon receipt of a surety bond or other adequate indemnity
as required in accordance with BB&T's standard policy and evidence reasonably
satisfactory to BB&T of ownership of the shares in question. After the
Effective Time, no transfer of the shares of Maryland Federal Common Stock
outstanding immediately before the Effective Time will be made on the stock
transfer books of BB&T.
BB&T will pay any dividends or other distributions with a record date
before the Effective Time that have been declared or made by Maryland Federal
in respect of shares of Maryland Federal Common Stock in accordance with the
terms of the
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Reorganization Agreement and that remain unpaid at the Effective Time. To the
extent permitted by law, former shareholders of record of Maryland Federal will
be entitled to vote after the Effective Time at any meeting of BB&T
shareholders the number of whole shares of BB&T Common Stock into which their
respective shares of Maryland Federal Common Stock are converted, regardless of
whether such holders have exchanged their certificates representing Maryland
Federal Common Stock for certificates representing BB&T Common Stock. Whenever
a dividend or other distribution is declared by BB&T on the BB&T Common Stock,
the record date for which is at or after the Effective Time, the declaration
will include dividends or other distributions on all shares of BB&T Common
Stock issuable pursuant to the Reorganization Agreement, but after the
Effective Time no dividend or other distribution payable to the holders of
record of BB&T Common Stock as of any time subsequent to the Effective Time
will be delivered to the holder of any certificate representing Maryland
Federal Common Stock until such holder surrenders such certificate for exchange
as described above. Upon surrender of such certificate, both the BB&T Common
Stock certificate and any undelivered dividends and cash payments payable
hereunder (without interest) will be delivered and paid with respect to each
share of Maryland Federal Common Stock represented by such certificate.
The Reorganization Agreement
Effective Date and Time of the Merger
The Reorganization Agreement provides that the closing of the transactions
contemplated therein will take place on the business day designated by BB&T
that is within 30 days following the satisfaction of the conditions to the
consummation of the Merger, or such later date as the parties may otherwise
agree. The Effective Time will occur at the time and date specified in the
Articles of Merger to be filed with Department of Assessments and Taxation of
the State of Maryland and the Office of the Secretary of State of North
Carolina. It is currently anticipated that the filing of the Articles of Merger
will take place as soon as practicable following the date on which the
Reorganization Agreement and the Plan of Merger is approved by the Maryland
Federal shareholders and all other conditions to the respective obligations of
BB&T and Maryland Federal to consummate the Merger have been satisfied. If the
Merger is approved at the Meeting, it is currently anticipated that the filing
of the Articles of Merger and the Effective Time will occur by September 30,
1998.
Conditions to the Merger
The respective obligations of BB&T and Maryland Federal to carry out the
Merger and the other transactions contemplated by the Reorganization Agreement
are subject to satisfaction (or, if permissible, waiver) of the following
conditions at or before the Effective Time: (a) all corporate action necessary
to authorize the execution, delivery and performance of the Reorganization
Agreement and the Plan of Merger must have been duly and validly taken,
including the approval of the shareholders of Maryland Federal of the
Reorganization Agreement and the Plan of Merger; (b) the Registration Statement
(including any post-effective amendments) must be effective under the
Securities Act, no proceedings may be pending or threatened by the Commission
to suspend the effectiveness of the Registration Statement and the BB&T Common
Stock to be issued in the Merger must either have been registered or be subject
to exemption from registration under applicable state securities laws; (c) the
parties must have received all regulatory approvals required in connection with
the transactions contemplated by the Reorganization Agreement, all notice
periods and waiting periods required with respect to the approvals must have
passed and all approvals must be in effect; (d) neither BB&T nor Maryland
Federal nor any of their respective subsidiaries may be subject to any order,
decree or injunction of a court or agency of competent jurisdiction that
enjoins or prohibits consummation of the transactions contemplated by the
Reorganization Agreement; and (e) Maryland Federal and BB&T must have received
an opinion of BB&T's legal counsel, Womble Carlyle Sandridge & Rice, PLLC, in
form and substance satisfactory to Maryland Federal and BB&T, substantially to
the effect that the Merger will constitute one or more reorganizations under
Section 368 of the Code and that the shareholders of Maryland Federal will not
recognize any gain or loss to the extent that they exchange shares of Maryland
Federal Common Stock for shares of BB&T Common Stock.
The obligations of Maryland Federal to carry out the transactions
contemplated by the Reorganization Agreement are also subject to the
satisfaction of the following additional conditions at or before the Effective
Time, unless, where permissible, waived by Maryland Federal: (a) BB&T must have
performed in all material respects all obligations and complied in all material
respects with all covenants required by the Reorganization Agreement to be
preformed at or before the Effective Time; (b) all approvals of the
transactions contemplated in the Reorganization Agreement from the Federal
Reserve and any other state or federal government agency, department or body
whose approval is required for the consummation of the Merger must have been
received and all waiting periods with respect to such approvals must have
expired; (c) the shares of BB&T Common Stock to be issued in the Merger must
have been approved for listing on the NYSE, subject to official notice of
issuance; and (d) Maryland Federal must have received certain closing
certificates and legal opinions from BB&T and its counsel.
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In addition, all representations and warranties of BB&T will be evaluated
as of the date of the Reorganization Agreement and as of the Effective Time as
though made on and as of the Effective Time (or on the date designated, in the
case of any representation and warranty that specifically relates to an earlier
date), except as otherwise contemplated by the Reorganization Agreement or
consented to in writing by Maryland Federal. The representations and warranties
of BB&T concerning (a) its capitalization, (b) its and its subsidiaries'
organization and authority to conduct business, (c) its authorization and the
binding nature of the Reorganization Agreement, (d) the absence of any conflict
between the transactions contemplated by the Reorganization Agreement and the
BB&T Articles or BB&T Bylaws and (e) tax and regulatory matters must be true
and correct (except for inaccuracies that are de minimis in amount). Moreover,
there must not exist inaccuracies in any of the representations and warranties
of BB&T set forth in the Reorganization Agreement such that the aggregate
effect of such inaccuracies has, or is reasonably likely to have, a material
adverse effect on BB&T.
The obligations of BB&T to carry out the transactions contemplated by the
Reorganization Agreement are also subject to satisfaction of the following
additional conditions at or before the Effective Time, unless, where
permissible, waived by BB&T: (a) no regulatory approval may have imposed any
condition or requirement that, in the reasonable opinion of the BB&T Board,
would so materially adversely affect the business or economic benefits to BB&T
of the transactions contemplated by the Reorganization Agreement as to render
their consummation inadvisable or unduly burdensome; (b) Maryland Federal must
have performed in all material respects all obligations and complied in all
material respects with all covenants required by the Reorganization Agreement
to be performed at or before the Effective Time; and (c) BB&T must have
received certain closing certificates and legal opinions from Maryland Federal
and its counsel.
In addition, all representations and warranties of Maryland Federal will
be evaluated as of the date of the Reorganization Agreement and as of the
Effective Time as though made on and as of the Effective Time (or on the date
designated, in the case of any representation and warranty that specifically
relates to an earlier date), except as otherwise contemplated by the
Reorganization Agreement or consented to in writing by BB&T. The
representations and warranties of Maryland Federal concerning (a) its
capitalization, (b) its and its subsidiaries' organization and authority to
conduct business, (c) its ownership of its subsidiaries, (d) its authorization
and the binding nature of the Reorganization Agreement, (e) the absence of
conflict between the transactions contemplated by the Reorganization Agreement
and the Maryland Federal Articles or the Maryland Federal Bylaws, (f) its
forbearance from taking any actions that would negatively affect the tax-free
element of the Merger or the receipt of necessary regulatory approvals and (g)
actions taken to exempt the Merger from Maryland anti-takeover laws must be
true and correct (except for inaccuracies that are de minimis in amount).
Moreover, there must not exist inaccuracies in any of the representations and
warranties of Maryland Federal set forth in the Reorganization Agreement such
that the effect of such inaccuracies individually or in the aggregate has, or
is reasonably likely to have, a material adverse effect with respect to
Maryland Federal.
Conduct of Maryland Federal's and BB&T's Business Prior to the Effective
Time of the Merger
Except with the prior written consent of BB&T, before the Effective Time
Maryland Federal may not, and must cause each of its subsidiaries not to:
(a) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as conducted prior to the date of the
Reorganization Agreement, or establish or acquire any new subsidiary or engage
in any new category or type of business activity;
(b) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock, other than regularly scheduled quarterly
dividends of $.1125 per share of Maryland Federal Common Stock payable on
record dates and in amounts consistent with past practices (except that any
dividend declared or payable on the shares of Maryland Federal Common Stock for
the quarterly period during which the Effective Time occurs will, unless
otherwise agreed upon in writing by BB&T and Maryland Federal, be declared with
a record date prior to the date of the Merger only if the normal record date
for payment of the corresponding quarterly dividend to holders of BB&T Common
Stock is prior to the Effective Time);
(c) issue any shares of its capital stock, except pursuant to its stock
purchase plan, its stock option plans or the Option Agreement, or issue, grant
or authorize any rights to purchase any shares of its capital stock or effect
any recapitalization, reclassification, stock dividend, stock split or like
change in capitalization;
(d) amend the Maryland Federal Articles or the Maryland Federal Bylaws;
impose or permit imposition of any lien, charge or encumbrance on any share of
stock held by it in any subsidiary, or permit any such lien, charge or
encumbrance to exist; or waive or release any material right or cancel or
compromise any debt or claim, in each case other than in the ordinary course of
business;
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(e) merge with any other entity or permit any other entity to merge into
it, consolidate with any other entity, acquire control over any other entity or
liquidate, sell or otherwise dispose of any assets or acquire any assets, other
than in the ordinary course of its business consistent with past practices;
(f) fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of its
business;
(g) increase the rate of compensation of any of its directors, officers or
employees (excluding increases in compensation resulting from (i) in the case
of officers and employees, increases in the ordinary course of business
consistent with past practice and (ii) the exercise of stock options
outstanding on the date of the Reorganization Agreement), or pay or agree to
pay any bonus to, or provide any new employee benefit or incentive to, any of
its directors, officers or employees (except for any bonus that might be earned
and payable for the fiscal year ended February 28, 1998 pursuant to Maryland
Federal's bonus program, if any, as in effect at the beginning of that year);
(h) enter into or substantially modify (except as may be required by
applicable law or regulation) any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees (except that this provision does not prevent renewal of any of the
foregoing consistent with past practice);
(i) solicit or encourage inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, Maryland Federal or any
subsidiary or any business combination with Maryland Federal or any subsidiary
other than as contemplated by the Reorganization Agreement; or authorize any
officer, director, agent or affiliate of Maryland Federal or any subsidiary to
do any of the above; or fail to notify BB&T immediately if any such inquiries
or proposals are received, any such information is requested or required, or
any such negotiations or discussions are sought to be initiated (except that
this commitment will not apply to furnishing information, negotiations or
discussions following an unsolicited offer if, as a result of such offer,
Maryland Federal is advised in writing by independent legal counsel that the
failure to so furnish information or negotiate would more likely than not
constitute a breach of the fiduciary duties of the Maryland Federal Board to
its shareholders);
(j) enter into any (i) material agreement, arrangement or commitment not
made in the ordinary course of business, (ii) agreement, indenture or other
instrument not made in the ordinary course of business relating to the
borrowing of money by Maryland Federal or any subsidiary or guarantee by
Maryland Federal or any subsidiary of any obligation, (iii) agreement,
arrangement or commitment relating to the employment or severance of a
consultant or the employment, severance, election or retention in office of any
present or former director, officer or employee (except that this commitment
will not apply to the election of directors by shareholders in the normal
course or the reappointment of officers in the normal course); or (iv)
contract, agreement or understanding with a labor union;
(k) change its lending, investment or asset liability management policies
in any material respect, except as may be required by applicable law,
regulation or directives, and except that after approval of the Reorganization
Agreement and the Plan of Merger by its shareholders and receipt of required
regulatory approvals Maryland Federal will cooperate in good faith with BB&T to
adopt policies, practices and procedures consistent with those utilized by
BB&T, effective on or before the Effective Time;
(l) change its methods of accounting in effect at February 28, 1997,
except as required by changes in generally accepted accounting principles
concurred with by BB&T, which concurrence may not be unreasonably withheld, or
change any of its methods of reporting income and deductions for federal income
tax purposes from those employed in the preparation of its federal income tax
returns for the year ended February 28, 1997, except as required by changes in
law or regulation;
(m) incur any commitments for capital expenditures or obligation to make
capital expenditures in excess of $50,000 for any one expenditure or $150,000
in the aggregate, or incur any indebtedness other than deposits from customers,
advances from the Federal Home Loan Bank and reverse repurchase arrangements in
the ordinary course of business;
(n) take any action which would or could reasonably be expected to (i)
cause the Merger not to constitute a reorganization under Section 368 of the
Code as determined by BB&T, (ii) result in any inaccuracy of a representation
or warranty that would allow for a termination of the Reorganization Agreement
or (iii) cause any of the conditions precedent to the transactions contemplated
by the Reorganization Agreement to fail to be satisfied; or
(o) agree to do any of the foregoing.
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Except with the prior written consent of Maryland Federal, before the
Effective Time neither BB&T nor any subsidiary of BB&T may take any action that
would or might be expected to (a) cause the Merger not to constitute a
reorganization under Section 368 of the Code; (b) result in any inaccuracy of a
representation or warranty that would allow for termination of the
Reorganization Agreement; (c) cause any of the conditions precedent to the
transactions contemplated by the Reorganization Agreement to fail to be
satisfied; or (d) fail to comply in any material respect with any laws,
regulations, ordinances or governmental actions applicable to it and to the
conduct of its business.
Waiver; Amendment; Termination; Expenses
Except with respect to any required regulatory approval, BB&T or Maryland
Federal may at any time (whether before or after approval of the Reorganization
Agreement and the Plan of Merger by the Maryland Federal shareholders) extend
the time for the performance of any of the obligations or other acts of the
other party and may waive (a) any inaccuracies of the other party in the
representations or warranties contained in the Reorganization Agreement, the
Plan of Merger or any document delivered pursuant thereto, (b) compliance with
any of the covenants, undertakings or agreements of the other party, or
satisfaction of any of the conditions precedent to its obligations, contained
in the Reorganization Agreement or in the Plan of Merger or (c) the performance
by the other party of any of its obligations set out therein. No such extension
or waiver, or amendment or supplement executed after approval by the Maryland
Federal shareholders of the Reorganization Agreement and the Plan of Merger,
however, may modify either the amount or the form of the consideration to be
provided to holders of Maryland Federal Common Stock upon completion of the
Merger.
In the event of nonfulfillment of any of the conditions to the obligation
of either party to complete the Merger, such party will consider the
materiality of such nonfulfillment. In the case of the nonfulfillment of a
condition to Maryland Federal's obligations, Maryland Federal will, if
appropriate under the circumstances, resolicit shareholder approval of the
Reorganization Agreement and the Plan of Merger and in connection therewith
provide appropriate information concerning such nonfulfillment.
The Reorganization Agreement may be terminated, and the Merger may be
abandoned:
(a) at any time before the Effective Time, by the mutual consent in
writing of BB&T and Maryland Federal;
(b) at any time before the Effective Time, by either party (i) in the
event of a material breach by the other party of any covenant or agreement
contained in the Reorganization Agreement or (ii) in the event of an inaccuracy
of any representation or warranty of the other party contained in the
Reorganization Agreement that would provide the nonbreaching party the ability
to refuse to consummate the Merger under the applicable standard set forth in
the Reorganization Agreement (see " -- Conditions to the Merger"); and, in the
case of (i) or (ii), if such breach or inaccuracy has not been cured by the
earlier of 30 days following written notice of such breach to the party
committing such breach or inaccuracy or the Effective Time;
(c) at any time before the Effective Time, by either party in writing, if
any of the conditions precedent to the obligations of the other party to
consummate the transactions contemplated in the Reorganization Agreement cannot
be satisfied or fulfilled before the Closing Date, and the party giving the
notice is not in breach of any of its representations, warranties, covenants or
undertakings;
(d) at any time, by either party in writing, if any of the applications
for prior regulatory approval are denied, and the time period for appeals and
requests for reconsideration has run;
(e) at any time, by either party in writing, if the shareholders of
Maryland Federal do not approve the Reorganization Agreement and the Plan of
Merger;
(f) at any time following December 31, 1998, by either party in writing,
if the Effective Time has not occurred by the close of business on such date
and the party giving the notice is not in breach of any of its representations,
warranties, covenants or undertakings; or
(g) by Maryland Federal, pursuant to the provisions of the Reorganization
Agreement described above under
" -- Exchange Ratio."
If the Reorganization Agreement is terminated pursuant to any of the
provisions described above, both the Reorganization Agreement and the Plan of
Merger will become void and have no effect, except that (a) provisions in the
Reorganization Agreement relating to confidentiality and expenses will survive
any such termination and (b) a termination for an uncured breach of a covenant
or agreement or inaccuracy in a representation or warranty will not relieve the
breaching party from liability for that breach or inaccuracy. The Option
Agreement is governed by its own terms. See " -- Option Agreement."
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Each party to the Reorganization Agreement will bear all expenses incurred
by it in connection with the Reorganization Agreement and the transactions
contemplated thereby, except that printing expenses and Commission registration
fees incurred in connection with the Registration Statement will be borne 50%
by BB&T and 50% by Maryland Federal.
Interests of Certain Persons in the Merger
Certain members of Maryland Federal's management, including all of its
directors, have certain interests in the Merger that are in addition to their
interests as shareholders of Maryland Federal generally. The Maryland Federal
Board was aware of these factors and considered them, among other matters, in
approving the Reorganization Agreement and the Plan of Merger.
Employment Agreements
In connection with the Merger, it is anticipated that BB&T-NC will enter
into a five-year employment agreement with Mr. Halleck, a three-year employment
agreement with each of David E. Baker, Nancy B. Cohen and J. Diane Stevenson
and a two year employment agreement with each of Lynn B. Hounslow and Ronald R.
O'Brien (referred to herein individually as an "Executive" and collectively as
the "Executives"). The employment agreements will provide for the employment of
Mr. Halleck as Regional President of BB&T-NC's Maryland Region and each of the
remaining Executives as a Vice President of BB&T-NC.
The employment agreement for each of the Executives provides that the
Executive will receive a base salary at least equal to the base salary received
by that Executive from MFB as of the day before the agreement is executed, with
an annual increase each year based on BB&T-NC's performance and the Executive's
performance, but in no event less than the average percentage increase provided
to similarly situated officers of BB&T-NC. Each Executive will be entitled to
participate in any bonus or incentive plan, whether it provides for awards in
cash or securities, made available to officers of BB&T-NC similarly situated to
the Executive, or such other similar plans for which the Executive may become
eligible and designated a participant. Each Executive also will be entitled to
receive, on the same basis as other officers of BB&T-NC, employee pension and
welfare benefits and group employee benefits such as sick leave, vacation,
group disability and health, dental, life and accident insurance, stock option
plan and similar indirect compensation that BB&T-NC may from time to time
extend to its similarly situated officers.
In addition, in the case of the agreement with Mr. Halleck, BB&T-NC will
pay the amount of $26,400 each year in lieu of providing the use of an
automobile and certain other fringe benefits. These payments will not be deemed
to constitute salary for purposes of calculating the base salaries to be paid
under the employment agreements, nor will they be deemed to be compensation for
purposes of determining accruals, contributions, grants or benefits under any
employee benefit plan or program. Also, BB&T-NC agrees in the employment
agreement with Mr. Halleck that it will assume and honor the terms of a certain
existing non-qualified executive deferred compensation plan between Maryland
Federal and Mr. Halleck, including a related trust agreement. See "EXECUTIVE
COMPENSATION -- Non-Qualified Executive Deferred Compensation Plan."
Each Executive's employment agreement provides that, in the event BB&T-NC
terminates his or her employment other than by reason of disability or for
cause, the Executive will, if he or she complies with certain noncompetition
provisions, be entitled to receive an annual salary for the remainder of what
would otherwise have been the term of the agreement equal to the highest amount
of cash compensation (including bonuses) received during any of the preceding
three calendar years ("Termination Compensation"). In addition, each Executive
would continue to receive health insurance coverage from BB&T-NC on the same
terms as were in effect before the termination, either under BB&T-NC's plans or
comparable coverage, during the time payments of Termination Compensation are
made.
Each of the employment agreements provides that if the Executive were to
elect to resign from employment after the one-year anniversary of the date of
the agreement other than for "Good Reason" or on account of disability, he or
she would be entitled to receive a lump sum amount equal to his or her annual
Termination Compensation times the lesser of (a) the number of years until the
end of the term of the agreement, with partial years rounded to two decimal
places, or (b) in the case of Mr. Halleck, the amount of 2.99; in the case of
Mr. Baker, Ms. Cohen or Ms. Stevenson, the amount of 2.00; and in the case of
Ms. Hounslow or Mr. O'Brien, the amount of 1.00.
Each of the employment agreements provides that, in the event of a Change
of Control of BB&T-NC or BB&T, the Executive may voluntarily terminate
employment with BB&T-NC up until twelve months after the Change of Control for
"Good Reason" and (a) be entitled to receive in a lump sum (i) any compensation
due but not yet paid through the date of
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termination and (ii) in lieu of any further salary payments from the date of
termination to the end of the term of the agreement, an amount equal to the
Termination Compensation times 2.99, and (b) continue to participate in the
same group hospitalization plan, health care plan, dental care plan, life or
other insurance or death benefit plan, and any other present or future similar
group employee benefit plan or program for which officers of BB&T-NC generally
are eligible, or comparable plans or coverage, for a period of three years
following termination of employment by the Executive, on the same terms as were
in effect either (A) at the date of termination, or (B) if such plans and
programs in effect before the Change of Control of BB&T-NC or BB&T were,
considered together as a whole, materially more generous to the officers of
BB&T-NC than such plans and programs at the date of termination, then at the
date of the Change of Control.
The employment agreements provide that if any of the payments to be made
pursuant thereto would constitute a "parachute payment," as defined in Section
280G of the Code, the payments shall be reduced by the smallest amount
necessary so that no portion of such payments would be a "parachute payment." A
"parachute payment" generally is a payment which is contingent on a change in
the control of the corporation and the present value of which equals or exceed
three times the "base amount," which is generally defined as the executive's
annualized includable compensation for the "base period," which is generally
the most recent five taxable years of the executive ending before the date of
the change in control. Sections 280G and 4999 of the Code generally provide
that if "parachute payments" are paid to an individual, everything above one
time the base amount will be subject to a 20% excise tax payable by the
individual (in addition to the payment of regular income taxes on the
payments), as well as be nondeductible by the employer for federal income tax
purposes.
"Good Reason" means the occurrence of any of the following events without
the Executive's express written consent: (a) the assignment to the Executive of
duties inconsistent with the position and status of the Executive's title; (b)
a reduction by BB&T-NC in the Executive's pay grade or base salary as then in
effect, or the exclusion of the Executive from participation in BB&T-NC's
benefit plans in which he or she previously participated, or BB&T-NC's failure
to increase (within twelve months of the Executive's last increase in base
salary) the Executive's base salary in an amount at least equal, on a
percentage basis, to the average percentage increase in base salary for
similarly situated officers of BB&T-NC; (c) an involuntary relocation of the
Executive more than 100 miles from the location where the Executive worked
immediately before a Change in Control or the breach by BB&T-NC of any material
provision of the employment agreement; or (d) any purported termination of the
employment of the Executive by BB&T-NC that is not effected in accordance with
the employment agreement.
A "Change of Control" would be deemed to occur if (a) any person or group
of persons (as defined in the Exchange Act) together with its affiliates,
excluding employee benefit plans of BB&T-NC or BB&T, is or becomes the
beneficial owner of securities of BB&T-NC or BB&T representing 20% or more of
the combined voting power of BB&T-NC's or BB&T's then outstanding securities;
(b) as a result of a tender offer or exchange offer for the purchase of
securities of BB&T-NC or BB&T (other than an offer by BB&T for its own
securities), or as a result of a proxy contest, merger, consolidation or sale
of assets, or as a result of any combination of the foregoing, individuals who
at the beginning of any two-year period constitute the BB&T Board, plus new
directors whose election or nomination for election by BB&T's shareholders is
approved by a vote of at least two-thirds of the directors still in office who
were directors at the beginning of the two-year period, cease for any reason
during the two-year period to constitute at least two-thirds of the members of
the BB&T Board; (c) the shareholders of BB&T approve a merger or consolidation
of BB&T with any other corporation or entity regardless of which entity is the
survivor, other than a merger or consolidation that would result in the voting
securities of BB&T outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or being converted into voting
securities of the surviving entity) at least 60% of the combined voting power
of the voting securities of BB&T or the other surviving entity outstanding
immediately after the merger or consolidation; (d) the shareholders of BB&T
approve a plan of complete liquidation or winding-up of BB&T or an agreement
for the sale or disposition by BB&T of all or substantially all of BB&T's
assets; or (e) any other event occurs that BB&T's Board of Directors determines
should constitute a Change of Control.
The Executives' employment agreements with BB&T-NC will supersede any of
their existing employment agreements and change of control arrangements with
Maryland Federal and MFB. See "EXECUTIVE COMPENSATION -- Employment Agreements."
Maryland Region Advisory Board
The Reorganization Agreement provides that at the Effective Time and for
at least three years thereafter, BB&T will offer to each of the members of the
Maryland Federal Board a seat on the Advisory Board of its newly created
Maryland Region, and will offer to Richard B. Bland, Chairman of the Board of
Maryland Federal, the position of Chairman of the Advisory Board. For three
years after the Effective Time, the Advisory Board members elected pursuant to
this provision
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and who continue to serve will receive, as compensation for service on the
Advisory Board, member's fees (annual retainer and attendance fees) equal in
amount each year (prorated for any partial year) to the annual retainer and
schedule of attendance fees for directors of Maryland Federal in effect on
January 1, 1998. In addition, the chairman will receive for the three-year
period (or lesser period of his service as chairman) the special chairman's
compensation which was in effect with respect to him on January 1, 1998.
Following such three-year period, Advisory Board members and the chairman, if
they continue to serve in such capacities, will receive fees in accordance with
the standard schedule of fees for service as in effect from time to time. For
three years after the Effective Time, no such Advisory Board member may be
prohibited from serving on the grounds that he has attained the maximum age for
service (currently age 70).
Indemnification of Directors and Officers
The Reorganization Agreement provides that BB&T or one of its subsidiaries
will purchase and keep in force for a period of three years after the Effective
Time directors' and officers' liability insurance providing coverage to
directors and officers of Maryland Federal for acts or omissions occurring
before the Effective Time. This insurance will provide at least the same
coverage and amounts as contained in Maryland Federal's policy on the date of
the Reorganization Agreement, except that in no event may the annual premium on
this policy exceed 150% of the annual premium payments on Maryland Federal's
policy then in effect (the "Maximum Amount"). If the amount of the premiums
necessary to maintain or procure this insurance coverage exceeds the Maximum
Amount, BB&T will use its reasonable best efforts to maintain the most
advantageous policies of directors' and officers' liability insurance
obtainable for a premium equal to the Maximum Amount. In addition, BB&T has
agreed in the Reorganization Agreement to indemnify and advance expenses to all
individuals who are or have been officers, directors or employees of Maryland
Federal or any Maryland Federal subsidiary before the Effective Time from any
acts or omissions in these capacities before the Effective Time, to the fullest
extent that such indemnification is provided pursuant to the Maryland Federal
Articles and is permitted under the MGCL. The Reorganization Agreement also
provides that limitations on liability contained in the Maryland Federal
Articles on the date thereof will be applicable after the Merger with respect
to actions preceding the Merger and which were subject to such limitations. See
"COMPARISON OF SHAREHOLDERS' RIGHTS -- Exculpation and Indemnification --
Maryland Federal."
Regulatory Considerations
Bank holding companies (such as BB&T), savings and loan holding companies
(such as Maryland Federal) and their respective depository institution
subsidiaries (including BB&T-NC and MFB, respectively) are highly regulated
institutions, with numerous federal and state laws and regulations governing
their activities. Among these laws and regulations are requirements of prior
approval by applicable government regulatory authorities in connection with
acquisition and merger transactions such as the Merger, as summarized below. In
addition, these institutions are subject to ongoing supervision, regulation and
periodic examination by various federal and state financial institution
regulatory agencies. Detailed discussions of such ongoing regulatory oversight
and the laws and regulations under which it is carried out can be found in the
Annual Reports on Forms 10-K of each of BB&T and Maryland Federal incorporated
by reference herein. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN
DOCUMENTS BY REFERENCE." Those summaries are qualified in their entirety by the
actual language of the laws and regulations, which are subject to change based
on possible future legislation and action by regulatory agencies.
The Merger and the MFB Bank Merger are subject to certain regulatory
approvals, as set forth below. To the extent that the following information
describes statutes and regulations, it is qualified in its entirety by
reference to those particular statutes and regulations.
The Merger
BB&T is required to provide notice of the Merger to the Federal Reserve
under Section 4 of the Bank Holding Company Act and the Federal Reserve's
Regulation Y. Under the Bank Holding Company Act, a bank holding company, such
as BB&T, may not acquire direct or indirect ownership or control of a company
engaged in nonbanking activities unless the company is engaged in an activity
that the Federal Reserve has determined to be so closely related to banking, or
managing or controlling banks, as to be a proper incident thereto. The Federal
Reserve has determined by regulation that owning a savings institution is
closely related to banking. However, the Federal Reserve is required by the
Bank Holding Company Act to review the Merger to determine whether it
reasonably can be expected to produce benefits to the public (such as greater
convenience, increased competition or gains in efficiency) that outweigh
possible adverse effects (such as undue concentration of resources, decreased
or unfair competition, conflicts of interest or unsound banking practices).
This consideration includes an evaluation by the Federal Reserve of the
financial and managerial resources of BB&T and its subsidiaries, and Maryland
Federal and its subsidiaries, and the effect of the proposed transaction on
those resources, as well as
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whether the Merger would result in a monopoly or otherwise would substantially
lessen competition. By statute, the Federal Reserve is required to forward a
copy of the notice required to be filed by BB&T to the Office of Thrift
Supervision ("OTS") for its review and comment. However, because bank holding
companies that acquire savings institutions are exempt from the provisions of
the federal law relating to savings and loan holding companies, BB&T is not
required to file a separate application with the OTS for approval of the
Merger.
BB&T is also required to provide notice to the BFI under Section
6.1-194.105 of the Virginia Code, which permits an out-of-state savings
institution holding company that controls a Virginia savings institution, such
as BB&T, to acquire directly or indirectly more than twenty-five percent (25%)
of the voting shares of a savings institution outside of Virginia, such as MFB,
if the BFI approves the transaction. The BFI is required to approve the
proposed transaction if it determines the transaction would not be detrimental
to the safety and soundness of the savings institution holding company's
Virginia savings institution.
The MFB Bank Merger
Although not required by the terms of the Reorganization Agreement or the
Plan of Merger, BB&T expects to effect the MFB Bank Merger during the fourth
quarter of 1998. The MFB Bank Merger is subject to approval of the FDIC under
the Bank Merger Act. In granting its approval under the Bank Merger Act, the
FDIC must consider the financial and managerial resources and future prospects
of the existing and proposed institutions and the convenience and needs of the
communities to be served. Further, the FDIC may not approve the MFB Bank Merger
if it would result in a monopoly, if it would be in furtherance of any
combination or conspiracy to monopolize or to attempt to monopolize the
business of banking in any part of the United States, if the effect of the MFB
Bank Merger in any section of the country may be substantially to lessen
competition or to tend to create a monopoly or if it would be in any other
manner in restraint of trade, unless the FDIC finds that the anticompetitive
effects of the MFB Bank Merger are clearly outweighed in the public interest by
the probable effect of such merger in meeting the convenience and needs of the
communities to be served. In addition, the FDIC must take into account the
record of performance of the existing and proposed institution under the
Community Reinvestment Act in meeting the credit needs of the entire community,
including low- and moderate-income neighborhoods, served by such institution.
Applicable regulations also require publication of notice of the application
for approval of the MFB Bank Merger and an opportunity for the public to
comment on the application in writing and to request a hearing.
The N.C. Commissioner must approve the MFB Bank Merger under Section 53-12
of the North Carolina General Statutes, which authorizes the merger between a
federal savings bank and a North Carolina chartered bank, when, among other
things, the N.C. Commissioner determines that the interests of depositors,
creditors and shareholders of each institution are protected and the merger is
for legitimate purposes. In addition, notice of the MFB Bank Merger must be
provided to the OTS under its regulations.
The Bank Merger Act requires that any bank merger, including the MFB Bank
Merger, may not be consummated before the thirtieth day after approval by the
FDIC, during which time the U.S. Department of Justice (the "DOJ") may
challenge the MFB Bank Merger on antitrust grounds. If the FDIC has not
received any adverse comments from the DOJ concerning the competitive effects
of the proposed transaction, this time period may be shortened to no less than
fifteen days after the date of approval.
All of the required applications and notices for the Merger have been
submitted to the appropriate regulatory agencies, and BB&T anticipates that the
regulatory approvals described herein will be obtained in time to allow
consummation of the Merger by September 30, 1998. However, there can be no
assurance that other regulatory approvals will be obtained so as to permit
consummation of the Merger or that such approvals will not be conditioned upon
matters that would cause BB&T to abandon the Merger in the manner permitted by
the Reorganization Agreement. There likewise is no assurance that the DOJ or a
state Attorney General will not challenge the Merger or the MFB Bank Merger,
or, if such a challenge is made, as to the results thereof.
BB&T and Maryland Federal are not aware of any other governmental
approvals or actions that are required for consummation of the Merger or the
MFB Bank Merger, except as described above. Should any other approval or action
be required, it is contemplated presently that such approval or action would be
sought. There can be no assurance that any such approval or action, if needed,
could be obtained, would not delay consummation of the Merger or would not be
conditioned in a manner that would cause BB&T to abandon the Merger in the
manner permitted by the Reorganization Agreement.
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Certain Federal Income Tax Consequences of the Merger
The following is a summary description of certain anticipated federal
income tax consequences of the Merger to the shareholders of Maryland Federal
and to BB&T and Maryland Federal. This summary is not intended to be a complete
description of all of the federal income tax consequences of the Merger. No
information is provided with respect to the tax consequences of the Merger
under any other tax laws, including applicable state, local and foreign tax
laws. In addition, the following discussion may not be applicable with respect
to certain specific categories of shareholders, including but not limited to
persons who are corporations, trusts, dealers in securities, financial
institutions, insurance companies or tax exempt organizations; persons who are
not United States citizens or resident aliens or domestic entities
(partnerships or trusts); persons who are subject to alternative minimum tax
(to the extent that tax affects the tax consequences of the Merger) or are
subject to the "golden parachute" provisions of the Code (to the extent that
tax affects the tax consequences of the Merger); persons who acquired Maryland
Federal Common Stock pursuant to employee stock options or otherwise as
compensation if such shares are subject to any restriction related to
employment; persons who do not hold their shares as capital assets; or persons
who hold their shares as part of a "straddle" or "conversion transaction." The
federal income tax laws are complex, and a shareholder's individual
circumstances may affect the tax consequences to the shareholder. Consequently,
each Maryland Federal shareholder is urged to consult his or her own tax
advisor regarding the tax consequences of the Merger. No ruling has been or
will be requested from the IRS with respect to the tax effects of the Merger.
In the opinion of Womble Carlyle Sandridge & Rice, PLLC, counsel to BB&T:
(a) the Merger will constitute a reorganization under Section 368 of the Code;
(b) no gain or loss will be recognized by BB&T or Maryland Federal by reason of
the Merger; (c) the shareholders of Maryland Federal will recognize no gain or
loss for federal income tax purposes to the extent BB&T Common Stock is
received in the Merger in exchange for Maryland Federal Common Stock; (d) a
shareholder of Maryland Federal who receives cash in lieu of a fractional share
of BB&T Common Stock will recognize gain or loss as if the shareholder received
the fractional share and it was then redeemed for cash in an amount equal to
the amount paid by BB&T in respect of such fractional share; (e) the tax basis
in the BB&T Common Stock received by a shareholder (including any fractional
share interest deemed received) will be the same as the tax basis in the
Maryland Federal Common Stock surrendered in exchange therefor; and (f) the
holding period for BB&T Common Stock received (including any fractional share
interest deemed received) in exchange for shares of Maryland Federal Common
Stock will include the period during which the shareholder held the shares of
Maryland Federal Common Stock surrendered in the exchange, provided that the
Maryland Federal Common Stock was held as a capital asset at the Effective
Time.
The consummation of the Merger is conditioned upon the receipt by BB&T and
Maryland Federal of the legal opinion of Womble Carlyle Sandridge & Rice, PLLC,
counsel to BB&T, dated as of the Closing Date to the effect of items (a) and
(c) as described above.
Accounting Treatment
It is anticipated that the Merger will be accounted for under the purchase
method of accounting, wherein BB&T will record the acquired identifiable assets
and liabilities assumed at the fair market value at the time of consummation of
the Merger. Any excess of the cost of Maryland Federal and the sum of the fair
values of tangible and identifiable intangible assets less liabilities assumed
will be recorded as goodwill. Any goodwill recorded is expected to be amortized
over of the period of expected benefit. BB&T's reported income shall include
the operations of Maryland Federal after acquisition, based on the cost of the
transaction. Financial statements of BB&T issued after consummation of the
Merger would reflect the impact of Maryland Federal. Financial statements of
BB&T issued after consummation of the Merger would not be restated
retroactively to reflect Maryland Federal's historical financial position or
results of operations. The unaudited pro forma financial information contained
in this Proxy Statement/Prospectus has been prepared using the purchase method
of accounting. See "SUMMARY -- Comparative Per Share Data."
The Option Agreement
General
As a condition to BB&T entering into the Reorganization Agreement,
Maryland Federal (as issuer) entered into the Option Agreement with BB&T (as
grantee), pursuant to which Maryland Federal granted the Option to BB&T to
purchase from Maryland Federal up to 1,290,000 shares of Maryland Federal
Common Stock (subject to adjustment in certain circumstances, but not to exceed
19.9% of the shares of Maryland Federal Common Stock outstanding upon any
exercise of
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the Option) at a price of $30.50 per share (subject to adjustment under certain
circumstances, as described below) (the "Purchase Price"). The purchase of any
shares of Maryland Federal Common Stock pursuant to the Option is subject to
compliance with applicable law, including the receipt of necessary approvals
under the Bank Holding Company Act, and to BB&T's compliance with its covenants
in the Reorganization Agreement.
The Option Agreement is intended to increase the likelihood that the
Merger will be consummated in accordance with the terms set forth in the
Reorganization Agreement. Consequently, certain aspects of the Option Agreement
may have the effect of discouraging persons who might now, or before the
Effective Time, be interested in acquiring all of or a significant interest in
Maryland Federal from considering or proposing such an acquisition, even if
they were prepared to offer to pay consideration to shareholders of Maryland
Federal with a higher current market price than the fraction of a share of BB&T
Common Stock to be received for each share of Maryland Federal Common Stock
pursuant to the Reorganization Agreement.
The Option Agreement is filed as an exhibit to the Registration Statement,
and reference is made thereto for the complete terms of the Option Agreement
and the Option. The following discussion is qualified in its entirety by
reference to the Option Agreement. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
Exercisability
If BB&T is not in material breach of the Option Agreement or its covenants
and agreements contained in the Reorganization Agreement and if no injunction
or other court order against delivery of the shares covered by the Option is in
effect, BB&T may generally exercise the Option, in whole or in part, at any
time and from time to time prior to its termination, as described below,
following the happening of either of the following events (each a "Purchase
Event"):
(a) without BB&T's prior written consent, Maryland Federal authorizes,
recommends, publicly proposes (or publicly announces an intention to authorize,
recommend or propose) or enters into an agreement with any third party to
effect any of the following (each an "Acquisition Transaction"): (i) a merger,
consolidation or similar transaction involving Maryland Federal or any of its
significant subsidiaries, (ii) the sale, lease, exchange or other disposition
of 15% or more of the consolidated assets or deposits of Maryland Federal and
its subsidiaries or (iii) the issuance, sale or other disposition of securities
representing 15% or more of the voting power of Maryland Federal or any of its
significant subsidiaries; or
(b) any third party or group of third parties acquire or has the right to
acquire beneficial ownership of securities representing 25% or more of the
outstanding shares of Maryland Federal Common Stock.
The obligation of Maryland Federal to issue shares of Maryland Federal
Common Stock upon exercise of the Option will be deferred (but will not
terminate) (i) until the receipt of all required governmental or regulatory
approvals or consents, or until the expiration or termination of any waiting
period required by law, or (ii) so long as any injunction or other order,
decree or ruling issued by any federal or state court of competent jurisdiction
is in effect that prohibits the sale or delivery of the shares.
Termination
The Option will terminate upon the earliest to occur of the following
events: (a) the Effective Time; (b) the termination of the Reorganization
Agreement prior to the occurrence of a Purchase Event or a Preliminary Purchase
Event (as defined below) (other than a termination by BB&T based on either a
material breach by Maryland Federal of a covenant or agreement in the
Reorganization Agreement or an inaccuracy in Maryland Federal's representations
or warranties in the Reorganization Agreement of a nature entitling BB&T to
terminate (a "Default Termination"); (c) 12 months after a Default Termination;
(d) 12 months after termination of the Reorganization Agreement (other than a
Default Termination) following the occurrence of a Purchase Event or a
Preliminary Purchase Event; or (e) 12 months after a termination of the
Reorganization Agreement based on the failure of the shareholders of Maryland
Federal to approve the Reorganization Agreement and the Plan of Merger.
A "Preliminary Purchase Event" is defined as either of the following:
(a) the commencement by any third party of a tender or exchange offer such
that it would thereafter own 10% or more of the outstanding shares of Maryland
Federal Common Stock or the filing of a registration statement with respect to
such an offer, or
(b) the failure of the shareholders of Maryland Federal to approve the
Reorganization Agreement, the failure of the Meeting to have been held, the
cancellation of the Meeting prior to the termination of the Reorganization
Agreement or the Maryland Federal Board having withdrawn or modified in any
manner adverse to BB&T its recommendations with respect
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to the Reorganization Agreement, in any case after a third party: (i) proposes
to engage in an Acquisition Transaction, (ii) commences a tender offer or files
a registration statement under the Securities Act with respect to an exchange
offer such that it would thereafter own 10% or more of the outstanding shares
of Maryland Federal Common Stock or (iii) files an application or notice under
federal or state statutes relating to the regulation of financial institutions
or their holding companies to engage in an Acquisition Transaction.
To the knowledge of BB&T and Maryland Federal, no Purchase Event or
Preliminary Purchase Event has occurred as of the date of this Proxy
Statement/Prospectus.
Adjustments
The Option Agreement provides for certain adjustments in the Option in the
event of any change in Maryland Federal Common Stock by reason of a stock
dividend, stock split, split-up, recapitalization, combination, exchange of
shares or similar transaction or in the event of the issuance of any additional
shares of Maryland Federal Common Stock before termination of the Option.
Repurchase Rights
At the request of the holder of the Option any time during the 12 months
after the first occurrence of a Repurchase Event (as defined below), Maryland
Federal must, if the Option has not terminated, and subject to any required
regulatory approval, repurchase from the holder (a) the Option and (b) all
shares of Maryland Federal Common Stock purchased by the holder pursuant to the
Option with respect to which the holder then has beneficial ownership. The
repurchase will be at an aggregate price equal to the sum of:
(a) the aggregate Purchase Price paid by the holder for any shares of
Maryland Federal Common Stock acquired pursuant to the Option with respect to
which the holder then has beneficial ownership, plus
(b) the excess, if any, of (i) the Applicable Price (as defined in the
Option Agreement) for each share of Maryland Federal Common Stock over the
Purchase Price, multiplied by (ii) the number of shares of Maryland Federal
Common Stock with respect to which the Option has not been exercised, plus
(c) the excess, if any, of (i) the Applicable Price over the Purchase
Price paid (or, in the case of shares of Maryland Federal Common Stock covered
by the Option with respect to which the Option has been exercised but the
closing date for the purchase has not occurred, payable) by the holder for each
share of Maryland Federal Common Stock with respect to which the Option has
been exercised and with respect to which the holder then has beneficial
ownership, multiplied by (ii) the number of such shares.
A "Repurchase Event" occurs if: (a) any third party acquires actual
ownership or control of, or any "group" (as such term is defined under the
Exchange Act) is formed that has acquired actual ownership or control of, 50%
or more of the then outstanding shares of Maryland Federal Common Stock, or (b)
any of the merger or other business combination transactions described in
subsections (a) through (d) in the paragraph below describing substitute
options is consummated.
Substitute Options
If, before the termination of the Option Agreement, Maryland Federal
enters into an agreement:
(a) to consolidate with or merge into any third party and will not be the
continuing or surviving corporation of the consolidation or merger;
(b) to permit any third party to merge into Maryland Federal with Maryland
Federal as the continuing or surviving corporation, but, in connection
therewith, the then outstanding shares of Maryland Federal Common Stock are
changed into or exchanged for stock or other securities of Maryland Federal or
any other person or cash or any other property, or the outstanding shares of
Maryland Federal Common Stock after the merger represent less than 50% of the
outstanding shares and share equivalents of the merged company;
(c) to permit any third party to acquire all of the outstanding shares of
Maryland Federal Common Stock pursuant to a statutory share exchange; or
(d) to sell or otherwise transfer all or substantially all of its assets
or deposits to any third party,
then the agreement must provide that the Option will be converted or
exchanged for an option (a "Substitute Option") to purchase shares of common
stock of, at the holder's option, either (x) the continuing or surviving
corporation of a merger or consolidation or the transferee of all or
substantially all of Maryland Federal's assets or (y) any person controlling
the
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continuing or surviving corporation or transferee. The number of shares subject
to the Substitute Option and the exercise price per share will be determined in
accordance with a formula in the Option Agreement. To the extent possible, the
Substitute Option will contain terms and conditions that are the same as those
in the Option Agreement.
Registration Rights
The Option Agreement grants to BB&T and any permitted transferee of the
Option certain rights to require Maryland Federal to prepare and file a
registration statement under the Securities Act if registration is necessary in
order to permit the sale or other disposition of any or all shares of Maryland
Federal Common Stock or other securities that have been acquired by or are
issuable upon exercise of the Option.
Effect on Employees, Employee Benefit Plans and Stock Options
Employees
Each employee of Maryland Federal at the Effective Time who becomes an
employee immediately after the Effective Time of BB&T or one of its
subsidiaries will be eligible to participate in the group hospitalization,
medical, dental, life, disability and other welfare benefit plans and programs
available to employees of BB&T or the subsidiary, subject to the terms of such
plans and programs. Service with Maryland Federal will be deemed to be service
with BB&T or the subsidiary for the purpose of determining eligibility to
participate in such welfare plans and programs. Each employee of Maryland
Federal or one of its subsidiaries who becomes an employee of BB&T or a BB&T
subsidiary and is terminated by BB&T or the BB&T subsidiary after the Effective
Time, excluding any employee who has an existing employment or special
termination agreement, will be entitled to severance pay in accordance with the
general severance policy maintained by BB&T, if and to the extent that such
employee is entitled to severance pay under such policy. Such employee's
service with Maryland Federal or a Maryland Federal subsidiary will be treated
as service with BB&T for purposes of determining the amount of severance pay,
if any, under BB&T's severance policy.
BB&T has agreed in the Reorganization Agreement to honor all employment
agreements, severance agreements and the deferred compensation agreement
(including related trust agreement) that Maryland Federal and its subsidiaries
have entered into with or on behalf of their current and former employees and
directors and which have been disclosed to BB&T pursuant to the Reorganization
Agreement, except to the extent any such agreements will be superseded or
terminated at or after the Effective Time.
401(k) Plan
BB&T will cause the 401(k) plan of Maryland Federal to be merged with the
401(k) plan maintained by BB&T and its subsidiaries, and the account balances
of former employees of Maryland Federal or its subsidiaries who are
participants in the Maryland Federal plan will be transferred to the accounts
of such employees under the BB&T 401(k) plan. After this merger and transfer,
these accounts will be governed and controlled by the terms of the BB&T 401(k)
plan as in effect from time to time (and subject to BB&T's right to terminate
the plan). For purposes of administering the BB&T 401(k) plan, service with
Maryland Federal and its subsidiaries will be deemed to be service with BB&T or
its subsidiaries for participation and vesting purposes, but not for purposes
of benefit accrual.
Defined Benefit Pension Plan
Depending on what is in the best interests of the Maryland Federal
participants and BB&T, BB&T will either merge or terminate Maryland Federal's
defined benefit pension plan (the "Maryland Federal Pension Plan") pursuant to a
standard termination in accordance with Section 4041 of the Employee Retirement
Income Security Act of 1974, as amended. Any such termination would provide for
full vesting of the accrued benefits of all participants in the Maryland Federal
Pension Plan and the distribution of the assets thereof to the participants.
Actions relating to a termination or merger of the Maryland Federal Pension Plan
would be conditioned upon receiving a favorable determination letter from the
Internal Revenue Service with regard to the termination or merger. BB&T would
use its reasonable best efforts to seek the issuance of such letter as soon as
practicable after the Effective Time. Each employee of Maryland Federal or its
subsidiaries at the Effective Time who becomes an employee immediately after the
Effective Time of BB&T or its subsidiaries will be given credit under BB&T's
defined benefit pension plan for service with Maryland Federal and its
subsidiaries for participation and vesting purposes, but not for purposes of
benefit accrual.
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Stock Options
At the Effective Time, each stock option ("Stock Option") granted under
Maryland Federal's 1992 Stock Incentive Plan, 1993 Directors' Stock Option Plan
or 1995 Stock Option Plan (the "Maryland Federal Option Plans") then
outstanding (and that by its terms does not lapse on or before the Effective
Time), whether or not then exercisable, will be converted automatically into
and become an option under the BB&T 1995 Omnibus Stock Incentive Plan or
successor plan (the "BB&T Option Plan"), and will be governed by the terms and
conditions of the BB&T Option Plan, except that in no event will the vesting,
exercise and duration provisions of any Stock Option be less favorable
following conversion than as provided under the individual stock option
agreements as in effect under the applicable Maryland Federal Option Plan
immediately before the Effective Time. In making this conversion, (a) the
number of shares of BB&T Common Stock subject to each Stock Option will be the
number of whole shares of BB&T (omitting any fractional share) determined by
multiplying the number of shares of Maryland Federal Common Stock subject to
such Stock Option immediately before the Effective Time by the Exchange Ratio,
(b) the per share exercise price under each Stock Option will be adjusted by
dividing the per share exercise price under the Stock Option by the Exchange
Ratio and rounding up to the nearest cent, and (c) no restrictions on transfers
will be placed on shares of BB&T Common Stock received through the exercise of
the Stock Option except to the extent such restrictions would have been placed
on such shares under the Maryland Federal Option Plans or are required by the
securities laws. In addition, each Stock Option that is an "incentive stock
option" will be adjusted as required by the Code so as to continue as an
incentive stock option under the Code, and so as not to constitute a
modification, extension or renewal of the Stock Option within the meaning of
the Code.
As soon as practicable following the Effective Time, BB&T will deliver to
the participants receiving converted options under the BB&T Option Plan an
appropriate notice setting forth such participant's rights pursuant thereto.
BB&T has reserved under the BB&T Option Plan adequate shares of BB&T Common
Stock for delivery upon exercise of any such converted options, and such shares
of BB&T Common Stock will be registered under the Securities Act when the
Effective Time occurs.
Based on stock options outstanding as of the date of execution of the
Reorganization Agreement and subsequent exercises, options to purchase an
aggregate of up to approximately 545,000 shares of Maryland Federal Common
Stock may be outstanding at the Effective Time. Any shares of Maryland Federal
Common Stock issued pursuant to the exercise of Stock Options under the
Maryland Federal Option Plans before the Effective Time will be converted into
shares of BB&T Common Stock and cash in lieu of any fractional share interest
in the same manner as other outstanding shares of Maryland Federal Common
Stock.
Restrictions on Resales by Affiliates
All shares of BB&T Common Stock issuable in the Merger will be registered
under the Securities Act and will be freely transferable, except that any such
shares received by "persons" who are deemed to be "affiliates" (as such terms
are defined under the Securities Act) of Maryland Federal at the Effective Time
may be resold by them only in transactions registered under the Securities Act
or permitted by the resale provisions of Rule 145 under the Securities Act or
as otherwise permitted by the Securities Act. Those who may be deemed
affiliates of Maryland Federal generally include individuals or entities that
directly, or indirectly through one or more intermediaries, control, are
controlled by or are under common control with Maryland Federal and include
certain executive officers and directors of Maryland Federal. The restrictions
on resales by an affiliate extend also to certain related parties of the
affiliate, including spouse, relatives and spouse's relatives who in each case
have the same home as the affiliate. The Reorganization Agreement requires
Maryland Federal to use its reasonable best efforts to cause each of its
affiliates to deliver to BB&T a written agreement to the effect that such
person will not offer or otherwise dispose of any shares of BB&T Common Stock
issued to that person in the Merger except in compliance with the Securities
Act and the rules and regulations promulgated thereunder.
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INFORMATION ABOUT BB&T
General
BB&T is a multi-bank holding company headquartered in Winston-Salem, North
Carolina. BB&T conducts operations in North Carolina, South Carolina and
Virginia primarily through its commercial banking subsidiaries and, to a lesser
extent, through its other subsidiaries. Substantially all of BB&T's loans are
to businesses and individuals in the Carolinas and Virginia. BB&T's bank
subsidiaries are BB&T-NC, a North Carolina chartered bank; BB&T-SC, a South
Carolina chartered bank; BB&T-VA, a Virginia chartered bank; and LSB, a
federally chartered savings bank. The principal assets of BB&T are all of the
issued and outstanding shares of common stock of BB&T-NC, BB&T Financial
Corporation of South Carolina, Greenville, South Carolina, which in turn owns
all of the issued and outstanding shares of BB&T-SC, and BB&T Financial-VA,
which in turn owns all of the issued and outstanding shares of BB&T-VA and LSB.
Subsidiaries
BB&T-NC, BB&T's largest subsidiary, is the oldest bank in North Carolina
and currently operates through 353 banking offices throughout North Carolina.
BB&T-NC provides a wide range of banking services in its local market for
retail and commercial customers, including small and mid-size businesses,
public agencies and local governments, trust customers, and individuals. BB&T
Leasing Corporation, a wholly owned subsidiary of BB&T-NC, located in
Charlotte, North Carolina, offers lease financing to commercial businesses and
municipal governments. BB&T Investment Services, Inc., also a wholly owned
subsidiary of BB&T-NC, located in Charlotte, North Carolina, offers customers
investment alternatives, including discount brokerage services, fixed-rate and
variable-rate annuities, mutual funds, and government and municipal bonds. BB&T
Insurance Services, Inc., located in Raleigh, North Carolina, is also a
subsidiary of BB&T-NC and offers life, property and casualty and title
insurance on an agency basis. Additional subsidiaries of BB&T-NC include Prime
Rate Premium Finance Corporation, Inc., which provides insurance premium
financing and services to customers in Virginia and the Carolinas.
BB&T-SC serves South Carolina through 93 banking offices. BB&T-SC provides
a wide range of banking services in its local market for retail and commercial
customers, including small and mid-size businesses, public agencies, local
governments, trust customers and individuals. BB&T-SC's subsidiaries include
BB&T Investment Services of South Carolina, Inc., which is licensed as a
general broker/dealer of securities and is currently engaged in retailing of
mutual funds, U.S. Government securities, municipal securities, fixed and
variable insurance annuity products and unit investment trusts.
BB&T-VA offers a full range of commercial and retail banking services
through 52 banking offices in the Hampton Roads and Richmond areas and the
southern, central and southwestern regions of Virginia.
LSB was acquired on March 1, 1998, upon the merger of its parent company,
Life, with and into BB&T Financial-VA. LSB operates 20 banking offices in the
Hampton Roads region of Virginia.
Regional Acceptance Corporation ("RAC"), of Greenville, North Carolina,
was acquired on September 1, 1996. RAC, which has 28 branch offices in North
Carolina, South Carolina, Tennessee and Virginia, specializes in indirect
financing for consumer purchases of mid-model and late-model used automobiles.
Craigie Incorporated ("Craigie") is a registered broker-dealer that
specializes in the origination, trading and distribution of fixed income
securities and equity products. Phillips Factors Corporation, which buys and
manages account receivables primarily in the furniture, textiles and home
furnishings-related industries, and Sheffield Financial Corp., which
specializes in loans to small commercial lawn care businesses across the
country, are other subsidiaries of BB&T.
Acquisitions
BB&T's profitability and market share have been enhanced through both
internal growth and acquisitions during recent years. Specifically, BB&T has
expanded by both the acquisition of financial institutions (including thrift
institutions) and the purchase of deposits and assets from the Resolution Trust
Corporation in federally assisted transactions.
On March 1, 1997, BB&T completed the acquisition of Fidelity Financial
Bankshares Corporation, which was a Virginia corporation that served as the
holding company for Fidelity Federal Savings Bank ("FFSB"), in a transaction
accounted for as a purchase. Effective April 17, 1998, FFSB, which operated
seven banking offices in the Richmond, Virginia area, was merged into BB&T-VA.
Effective July 1, 1997, United Carolina Bancshares Corporation ("UCB"), a
bank holding company headquartered in Whiteville, North Carolina, merged with
and into BB&T (the "UCB Merger"). Each share of the common stock of UCB
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issued and outstanding at the effective time of the UCB Merger was converted
into and exchanged for 1.135 shares of BB&T Common Stock. Approximately 27.7
million shares of BB&T Common Stock were issued in the UCB Merger. The UCB
Merger constituted a tax-free transaction under the Code, and has been
accounted for as a pooling of interests. Through its two bank subsidiaries,
United Carolina Bank and United Carolina Bank of South Carolina, UCB operated
153 banking offices in 89 communities in North Carolina and South Carolina.
Effective September 19, 1997, United Carolina Bank and United Carolina Bank of
South Carolina were merged into BB&T-NC and BB&T-SC, respectively.
On October 1, 1997, BB&T completed the acquisition of the investment
banking firm Craigie. With offices in Richmond and Charlotte, North Carolina,
Craigie specializes in the origination, trading and distribution of
fixed-income securities and equity products in both the public and private
capital markets. Craigie's public finance department provides investment
banking services, financial advisory services and municipal bond financing to a
variety of regional tax-exempt issuers. The firm's corporate finance department
specializes in raising capital for corporate clients and has an active mergers
and acquisitions practice. Established in 1929, Craigie continues to operate as
a subsidiary of BB&T.
On December 1, 1997, BB&T completed the acquisition of Virginia First
Financial Corporation, which was a Virginia corporation that served as the
holding company for Virginia First Savings Bank, F.S.B. ("VFSB"), in a
transaction accounted for as a purchase. Effective April 17, 1998, VFSB, which
operated 23 banking offices in the south, central and southwestern areas of
Virginia, was merged into BB&T-VA.
On March 1, 1998, BB&T completed the acquisition of Life, which was a
Virginia corporation that served as the holding company for LSB, in a
transaction accounted for as a pooling of interests. BB&T intends to effect the
merger of LSB, which is currently a wholly owned subsidiary of BB&T
Financial-VA, into BB&T-VA during the second half of 1998.
On December 16, 1997, BB&T announced that it will acquire Franklin
Bancorporation, Inc. ("Franklin"), of Washington, D.C., in a transaction valued
at $165.1 million based on the closing price of BB&T Common Stock of $63.75 on
December 15, 1997. Franklin, with approximately $535 million in assets,
operates nine banking offices through its banking subsidiary, Franklin National
Bank of Washington, D.C. ("FNB"), in the metropolitan Washington area. The
acquisition, which is intended to be accounted for as a pooling of interests,
is subject to the approval of the shareholders of Franklin and federal and
state banking regulators and is expected to be completed on or around July 1,
1998. If this acquisition is completed, BB&T intends to effect the merger of
FNB, which will become a wholly owned subsidiary of BB&T, into BB&T-NC during
the first quarter of 1999.
BB&T expects to continue to take advantage of the consolidation of the
financial services industry by further developing its franchise through the
acquisition of financial and financial services institutions. Such acquisitions
may entail the payment by BB&T of consideration in excess of the book value of
the underlying net assets acquired, may result in the issuance of additional
shares of BB&T capital stock or the incurring of an additional indebtedness by
BB&T, and could have a dilutive effect on the per share earnings or book value
of BB&T Common Stock. Moreover, such acquisitions sometimes result in
significant front-end charges against earnings, although cost savings,
especially incident to in-market acquisitions, also are frequently anticipated.
Capital
The Federal Reserve has established a minimum requirement for a bank
holding company's ratio of capital to risk-weighted assets (including certain
off-balance-sheet activities, such as standby letters of credit) of 8%. At
least half of the total capital is required to be composed of common equity,
retained earnings, and qualifying perpetual preferred stock, less certain
intangibles ("Tier 1 capital"). The remainder may consist of certain
subordinated debt, certain hybrid capital instruments and other qualifying
preferred stock, and a limited amount of the loan loss allowance ("Tier 2
capital" and, together with Tier 1 capital, "total capital"). At March 31,
1998, BB&T's Tier 1 and total capital ratios were 10.4% and 14.1%,
respectively. Effective January 1, 1997, with mandatory compliance as of
January 1, 1998, the Federal Reserve also is requiring certain bank holding
companies that engage in trading activities to adjust their risk-based capital
to take into consideration market risk that may result from movements in market
prices of covered trading positions in trading accounts, or from foreign
exchange or commodity positions, whether or not in trading accounts, including
changes in interest rates, equity prices, foreign exchange rates or commodity
prices. Any capital required to be maintained pursuant to these provisions may
consist of new "Tier 3 capital" consisting of certain short term subordinated
debt. In addition, the Federal Reserve has issued a policy statement, pursuant
to which a bank holding company that is determined to have weaknesses in its
risk management processes or a high level of interest rate risk exposure may be
required, among other things, to hold additional capital.
The Federal Reserve also has established minimum leverage ratio
requirements for bank holding companies. These requirements provide for a
minimum leverage ratio of Tier 1 capital to adjusted average quarterly assets
("leverage ratio")
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equal to 3% for bank holding companies that meet certain specified criteria,
including that they have the highest regulatory rating. All other bank holding
companies generally are required to maintain a leverage ratio of from at least
100 to 200 basis points above the stated minimum. BB&T's leverage ratio at
March 31, 1998 was 7.1%. Bank holding companies experiencing internal growth or
making acquisitions are expected to maintain strong capital positions
substantially above the minimum supervisory levels without significant reliance
on intangible assets. Furthermore, the requirements indicate that the Federal
Reserve will continue to consider a "tangible Tier 1 leverage ratio" (deducting
all intangibles) in evaluating proposals for expansion or new activity.
The FDIC has adopted minimum risk-based and leverage ratio regulations to
which BB&T's bank subsidiaries are subject that are substantially similar to
those requirements established by the Federal Reserve described above. Under
federal banking laws, failure to meet the minimum regulatory capital
requirements could subject a banking institution to a variety of enforcement
remedies available to federal regulatory authorities, including, in the most
severe cases, the termination of deposit insurance by the FDIC and placing the
institution into conservatorship or receivership. The capital ratios of each of
BB&T's bank subsidiaries exceeded all minimum regulatory capital requirements
as of March 31, 1997.
Deposit Insurance Assessments
The deposits of each of BB&T's bank subsidiaries are insured by the FDIC
up to the limits set forth under applicable law. A majority of the deposits of
the banks are subject to the deposit insurance assessments of the Bank
Insurance Fund ("BIF") of the FDIC. However, approximately 40% of the deposits
of BB&T-NC and BB&T-SC and a portion of the deposits of BB&T-VA (related to the
banks' acquisition of various savings associations) are subject to assessments
imposed by the Savings Association Insurance Fund ("SAIF") of the FDIC.
Pursuant to budget reconciliation legislation enacted in 1996, the FDIC
imposed a special assessment on SAIF-assessable deposits of 65.7 basis points
per $100 of SAIF-assessable deposits in order to increase the SAIF's net worth
to 1.25 percent of SAIF-insured deposits as of October 1, 1996. This special
assessment was applied by the FDIC to the amount of SAIF-assessable deposits
held by institutions as of March 31, 1995. Certain institutions that engaged in
thrift acquisitions, including BB&T-NC, received a 20 percent discount on the
assessment. As a result, the pre-tax impact of the special assessment on BB&T
was approximately $38 million, and was recorded as an expense as of September
30, 1996.
The FDIC also lowered the assessment rates for SAIF-insured deposits,
effective January 1, 1997, to the same levels as the assessment rates currently
applicable to BIF-insured deposits. Thus, for the semi-annual period beginning
January 1, 1997, the effective rate of assessments imposed on all FDIC deposits
for deposit insurance ranges from 0 to 27 basis points per $100 of insured
deposits, depending on the institution's capital position and other supervisory
factors. However, because the 1996 legislation requires that both SAIF-insured
and BIF-insured deposits pay a pro rata portion of the interest due on the
obligations issued by the Financing Corporation, the FDIC is currently
assessing BIF-insured deposits an additional 1.24 basis points per $100 of
deposits, and SAIF-insured deposits an additional 6.22 basis points per $100 of
deposits, in each case on an annualized basis, to cover those obligations.
INFORMATION ABOUT MARYLAND FEDERAL
Maryland Federal was incorporated under the laws of the State of Maryland
in June 1989 and is the unitary savings and loan holding company and sole
stockholder of MFB, its only direct subsidiary. MFB's business is conducted
through 28 branch offices located in Prince George's, Montgomery, Charles,
Calvert and Anne Arundel counties, Maryland, five loan production offices and
one wholly-owned subsidiary. The principal executive offices of both Maryland
Federal and MFB are located at 3505 Hamilton Street, Hyattsville, Maryland
20782, and their telephone number is (301) 779-1200.
On a consolidated basis, at February 28, 1998, Maryland Federal had total
assets of $1.19 billion, total liabilities of $1.09 billion and total
stockholders' equity of $104.5 million. Maryland Federal had net income of $8.8
million for the fiscal year ended February 28, 1998, as compared to $6.5
million for the fiscal year ended February 28, 1997 (inclusive of a one-time
assessment of $3.1 million, net of applicable income tax benefits, to
recapitalize the SAIF).
MFB is primarily engaged in the business of attracting deposits from the
general public and investing such deposits primarily in permanent loans secured
by first liens on one-to-four family residential properties and, to a lesser
extent, commercial real estate located in MFB's market area and in consumer
loans. MFB also maintains a substantial portfolio of mortgage-backed
securities, U.S. Government and agency securities and other permissible
investments and, through a subsidiary, engages in insurance agency activities
to a limited extent.
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DESCRIPTION OF BB&T CAPITAL STOCK
General
The authorized capital stock of BB&T consists of 500,000,000 shares of
BB&T Common Stock and 5,000,000 shares of preferred stock, par value $5.00 per
share (the "BB&T Preferred Stock"). As of March 31, 1998, there were
141,681,441 shares of BB&T Common Stock issued and outstanding. There were no
shares of BB&T Preferred Stock issued and outstanding as of such date, although
2,000,000 shares of BB&T Preferred Stock have been designated as Series B
Junior Participating Preferred Stock (the "BB&T Junior Preferred Stock") and
are reserved for issuance in connection with BB&T's shareholder rights plan.
See " -- Shareholder Rights Plan." Based on the number of shares of Maryland
Federal Common Stock outstanding at the Record Date, if the Average Closing
Price is $65.75, it is estimated that approximately 3,926,745 shares of BB&T
Common Stock would be issued in the Merger.
BB&T Common Stock
Each share of BB&T Common Stock is entitled to one vote on all matters
submitted to a vote at any meeting of shareholders. Holders of BB&T Common
Stock are entitled to receive dividends when, as, and if declared by the BB&T
Board out of funds legally available therefor and, upon liquidation, to receive
pro rata all assets, if any, of BB&T available for distribution after the
payment of necessary expenses and all prior claims. Holders of BB&T Common
Stock have no preemptive rights to subscribe for any additional securities of
any class that BB&T may issue, nor any conversion, redemption or sinking fund
rights. Holders of BB&T Common Stock have no right to cumulate votes in the
election of directors. The rights and privileges of holders of BB&T Common
Stock are subject to any preferences provided for by resolution of the BB&T
Board for any series of BB&T Preferred Stock that BB&T may issue in the future.
The terms of the BB&T Junior Preferred Stock reserved for issuance in
connection with BB&T's shareholders rights plan provide that holders of such
shares will have rights and privileges that are substantially identical to
those of holders of BB&T Common Stock.
The transfer agent and registrar for BB&T Common Stock is BB&T-NC. The
Company intends to apply for the listing on the NYSE, subject to official
notice of issuance, of the shares of BB&T Common Stock to be issued in the
Merger.
BB&T Preferred Stock
Under the BB&T Articles, BB&T may issue shares of BB&T Preferred Stock in
one or more series as may be determined by the BB&T Board or a duly authorized
committee. The BB&T Board or committee may also establish, from time to time,
the number of shares to be included in each series and may fix the designation,
powers, preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof, and may increase or
decrease the number of shares of any series without any further vote or action
by the shareholders. Any BB&T Preferred Stock issued may rank senior to the
BB&T Common Stock with respect to the payment of dividends or amounts upon
liquidation, dissolution or winding up of BB&T, or both. In addition, any
shares of BB&T Preferred Stock may have class or series voting rights. Under
certain circumstances, the issuance of BB&T Preferred Stock or the existence of
the unissued BB&T Preferred Stock may tend to discourage or render more
difficult a merger or other change in control of BB&T. See " -- Shareholder
Rights Plan."
Shareholder Rights Plan
BB&T has adopted a shareholder rights plan pursuant to which holders of
shares of BB&T Common Stock also hold rights to purchase securities or other
property that may be exercised upon the occurrence of certain "triggering
events." Shareholder rights plans such as BB&T's plan are intended to encourage
potential hostile acquirors of a "target" corporation to negotiate with the
board of directors of the target corporation in order to avoid occurrence of
the "triggering events" specified in such plans. Shareholder rights plans are
intended to give the directors of a target corporation the opportunity to
assess the fairness and appropriateness of a proposed transaction in order to
determine whether or not it is in the best interests of the corporation and its
shareholders. Notwithstanding these purposes and intentions of shareholder
rights plans, such plans, including that of BB&T, could have the effect of
discouraging a business combination that shareholders believe to be in their
best interests. The provisions of BB&T's shareholder rights plan are discussed
below.
On December 17, 1996, the BB&T Board declared a dividend distribution of
one right (a "Right," and collectively the "Rights") for each outstanding share
of BB&T Common Stock to shareholders of record at the close of business on
January 17, 1997. One Right will also be distributed for each share of BB&T
Common Stock issued between January 17, 1997 and the occurrence of a
"Distribution Date" (described in the next paragraph). Each Right entitles the
registered holder to
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purchase from BB&T a unit consisting of one-hundredth of a share (a "Unit") of
BB&T Junior Preferred Stock at a Purchase Price of $145.00 per Unit, subject to
adjustment, or, under certain circumstances, other securities or property. The
description and terms of the Rights are set forth in the Rights Agreement,
dated as of December 17, 1996, between BB&T and BB&T-NC in the capacity of
Rights Agent (the "Rights Agreement").
Initially, the Rights will be attached to all BB&T Common Stock
certificates representing shares then outstanding, and no separate Rights
Certificates will be distributed. A "Distribution Date" will occur, and the
Rights will separate from shares of BB&T Common Stock, upon the earliest of (a)
10 business days following a public announcement that a person or group of
affiliated or associated persons (an "Acquiring Person") has acquired, or
obtained the right to acquire, beneficial ownership of 20% or more of the
outstanding shares of BB&T Common Stock (the "Stock Acquisition Date"), (b) 10
business days following the commencement of a tender offer or exchange offer
that would if consummated result in a person or group beneficially owning 20%
or more of such outstanding shares of BB&T Common Stock or (c) 10 business days
after the BB&T Board declares any Person to be an "Adverse Person," as
described in the following paragraph.
The BB&T Board will declare a person to be an Adverse Person upon its
determinations (a) that such person, alone or together with its affiliates and
associates, has or will become the beneficial owner of 10% or more of the
outstanding shares of BB&T Common Stock (provided that any such determination
will not be effective until such person has in fact become the beneficial owner
of 10% or more of the outstanding shares of BB&T Common Stock) and (b)
following consultation with such persons as the BB&T Board deems appropriate,
that (i) such beneficial ownership by such person is intended to cause, is
reasonably likely to cause or will cause BB&T to repurchase the BB&T Common
Stock beneficially owned by such person or to cause pressure on BB&T to take
action or enter into a transaction or series of transactions intended to
provide such person with short-term financial gain under circumstances where
the BB&T Board determines that the best long-term interests of BB&T and its
shareholders would not be served by taking such action or entering into such
transactions or series of transactions at that time or (ii) such beneficial
ownership is causing or is reasonably likely to cause a material adverse impact
(including, but not limited to, impairment of relationships with customers or
impairment of BB&T's ability to maintain its competitive position) on the
business or prospects of BB&T or (iii) such beneficial ownership otherwise is
determined to be not in the best interests of BB&T and its shareholders,
employees, customers and communities in which BB&T and its subsidiaries do
business.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on December 31, 2006, subject to extension by the BB&T
Board, or unless earlier redeemed by BB&T as described below.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of BB&T Common Stock as of the close of
business on the Distribution Date and, thereafter, the separate Rights
Certificates alone will represent the Rights. Except for certain issuances in
connection with outstanding options and convertible securities and as otherwise
determined by the BB&T Board, only shares of BB&T Common Stock issued before
the Distribution Date will be issued with Rights.
In the event that the BB&T Board determines that a person is an Adverse
Person or, at any time following the Distribution Date, a person becomes the
beneficial owner of 25% or more of the then-outstanding shares of BB&T Common
Stock, each holder of a Right will thereafter have the right to receive at the
time specified in the Rights Agreement, (a) upon exercise and payment of the
exercise price, BB&T Common Stock (or, in certain circumstances, cash, property
or other securities of BB&T) having a value equal to two times the exercise
price of the Right or (b) at the discretion of the BB&T Board, upon exercise
and without payment of the exercise price, BB&T Common Stock (or, in certain
circumstances, cash, property or other securities of BB&T) having a value equal
to the difference between the exercise price of the Right and the value of the
consideration that would be payable under clause (a). Notwithstanding any of
the foregoing, following the occurrence of any of the events set forth in this
paragraph, all Rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person or
Adverse Person will be null and void. Rights will not become exercisable
following the occurrence of either of the events set forth above, however,
until such time as the Rights are no longer redeemable by BB&T as set forth
below.
For example, at an exercise price of $145.00 per Right, each Right not
owned by an Acquiring Person or an Adverse Person (or by certain related
parties) following an event set forth in the preceding paragraph would entitle
its holder to purchase $290.00 worth of BB&T Common Stock (or other
consideration, as noted above) for $145.00. Assuming that the BB&T Common Stock
had a per share value of $72.50 at such time, the holder of each valid Right
would be entitled to purchase four shares of BB&T Common Stock for $145.00.
Alternatively, at the discretion of the BB&T Board, each Right following an
event set forth in the preceding paragraph, without payment of the exercise
price, would entitle its holder to BB&T Common Stock (or other consideration,
as noted above) worth $145.00.
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In the event that, at any time following the Stock Acquisition Date, (a)
BB&T is acquired in a merger, statutory share exchange or other business
combination transaction in which BB&T is not the surviving corporation or (b)
50% or more of BB&T's assets or earning power is sold or transferred, each
holder of a Right (except Rights that previously have been voided as set forth
above) will thereafter have the right to receive, upon exercise, common stock
of the acquiring company having a value equal to two times the exercise price
of the Right. The Purchase Price payable, and the number of Units of BB&T
Junior Preferred Stock or other securities or property issuable, upon exercise
of the Rights are subject to adjustment from time to time to prevent dilution
in the event of certain events.
In general, BB&T may redeem the Rights in whole, but not in part, at a
price of $0.01 per Right at any time until 10 business days following the
earlier of the Stock Acquisition Date or the effective date of any declaration
by the BB&T Board that any person is an Adverse Person. After the redemption
period has expired, BB&T's right of redemption may be reinstated if an
Acquiring Person or Adverse Person reduces his beneficial ownership to less
than 10% of the outstanding shares of BB&T Common Stock in a transaction or
series of transactions not involving BB&T and if there are no other Acquiring
Persons or Adverse Persons.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a shareholder of BB&T, including, without limitation, the right to
vote or to receive dividends. While the distribution of the Rights will not be
taxable to shareholders or to BB&T, shareholders may, depending upon the
circumstances, recognize taxable income in the event that the Rights become
exercisable for stock (or other consideration) of BB&T or for common stock of
the acquiring company as set forth above.
Other than those provisions relating to the principal economic terms of
the Rights, any of the provisions of the Rights Agreement may be amended by the
BB&T Board before the Distribution Date. After the Distribution Date, the
provisions of the Rights Agreement may be amended by the BB&T Board in order to
cure any ambiguity, to make changes that do not adversely affect the interests
of holders of Rights (excluding the interests of any Acquiring Person or
Adverse Person) or to shorten or lengthen any time period under the Rights
Agreement; provided, however, that no amendment to adjust the time period
governing redemption may be made when the Rights are not redeemable.
The Rights Agreement is filed as an exhibit to a Registration Statement on
Form 8-A dated January 10, 1997 that has been filed by BB&T with the
Commission. This registration statement and the Rights Agreement are
incorporated by reference in this Proxy Statement/Prospectus, and reference is
made to them for the complete terms of the Rights Agreement and the Rights. The
foregoing discussion is qualified in its entirety by reference to the Rights
Agreement. See "AVAILABLE INFORMATION" and "INCORPORATION OF CERTAIN DOCUMENTS
BY REFERENCE."
BB&T has agreed in the Reorganization Agreement that any Rights issued
pursuant to the Rights Agreement will be issued with respect to each share of
BB&T Common Stock issued in connection with the Merger regardless of whether a
"Distribution Date" has occurred under the terms of the Rights Agreement before
the Effective Time (a) to the extent permitted by the Rights Agreement and (b)
unless all Rights in respect of outstanding shares of BB&T Common Stock have
been redeemed or otherwise terminated before the Effective Time. Also, subject
to the foregoing, BB&T has agreed to take all action reasonably necessary or
advisable to enable the holders of such shares of BB&T Common Stock to obtain
the benefit of the Rights notwithstanding their prior distribution, including,
without limitation, amendment of the Rights Agreement (to the extent
permissible under its terms) in connection with any such distribution of
Rights.
Certain Provisions of the NCBCA, BB&T Articles and BB&T Bylaws
Certain provisions of the NCBCA, the BB&T Articles and the BB&T Bylaws
deal with matters of corporate governance and the rights of shareholders.
Certain of these provisions, as well as the ability of the BB&T Board to issue
shares of BB&T Preferred Stock and to set the voting rights, preferences and
other terms thereof, may be deemed to have an anti-takeover effect and may
delay or prevent takeover attempts not first approved by the BB&T Board. These
provisions also could delay or deter the removal of incumbent directors or the
assumption of control by shareholders. BB&T believes that these provisions are
appropriate to protect the interests of BB&T and all of its shareholders. The
following describes the principal provisions of the NCBCA applicable to BB&T,
the BB&T Articles and BB&T Bylaws that may be deemed to have anti-takeover
effects.
Control Share Act
The Control Share Acquisition Act of the NCBCA may make an unsolicited
attempt to gain control of BB&T more difficult by restricting the right of
certain shareholders to vote newly acquired large blocks of stock. For a
description of this statute, see "COMPARISON OF SHAREHOLDERS' RIGHTS --
Anti-takeover Statutes."
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Provisions Regarding the BB&T Board
The provisions of the BB&T Articles and the BB&T Bylaws with respect to
the classification of the BB&T Board and the removal of directors only for
cause could have the effect of making it more difficult for a third party to
acquire, or of discouraging a third party from acquiring, control of BB&T. For
a description of such provisions, see "COMPARISON OF SHAREHOLDERS' RIGHTS --
Directors."
Meeting of Shareholders; Shareholders' Nominations and Proposals
Under the BB&T Bylaws, meetings of the shareholders may be called by the
Chief Executive Officer or the BB&T Board. Shareholders of BB&T may not request
that a special meeting of shareholders be called. This provision could have the
effect of delaying until the next annual shareholders' meeting shareholder
actions that are favored by the holders of a majority of the outstanding voting
securities of BB&T.
Certain procedures governing the submission of nominations for directors
and other proposals by shareholders may have some deterrent effect on
shareholder actions designed to result in change of control in BB&T. See
"COMPARISON OF SHAREHOLDERS' RIGHTS -- Notice of Shareholder Nominations and
Shareholder Proposals."
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COMPARISON OF SHAREHOLDERS' RIGHTS
At the Effective Time, holders of Maryland Federal Common Stock will
become shareholders of BB&T. The following is a summary of material differences
between the rights of holders of BB&T Common Stock and holders of Maryland
Federal Common Stock. Since BB&T is organized under the laws of the State of
North Carolina and Maryland Federal is organized under the laws of the State of
Maryland, differences in the rights of holders of BB&T Common Stock and those
of holders of Maryland Federal Common Stock arise from differing provisions of
the NCBCA and the MGCL in addition to differing provisions of their respective
articles of incorporation and bylaws.
The following summary does not purport to be a complete statement of the
provisions affecting, and differences between, the rights of holders of BB&T
Common Stock and holders of Maryland Federal Common Stock. The identification
of specific provisions or differences is not meant to indicate that other
equally or more significant differences do not exist. This summary is qualified
in its entirety by reference to the NCBCA and the MGCL and the governing
corporate instruments of BB&T and Maryland Federal, to which the shareholders
of Maryland Federal are referred.
Authorized Capital Stock
BB&T
BB&T's authorized capital stock consists of 500,000,000 shares of BB&T
Common Stock and 5,000,000 shares of BB&T Preferred Stock. The BB&T Articles
authorize the BB&T Board to issue shares of BB&T Preferred Stock in one or more
series and to fix the designation, powers, preferences, and rights of the
shares of BB&T Preferred Stock in each such series. As of March 31, 1998,
141,681,441 shares of BB&T Common Stock were outstanding. No shares of BB&T
Preferred Stock were issued and outstanding as of such date, although 2,000,000
shares of BB&T Preferred Stock have been designated as BB&T Junior Preferred
Stock and are reserved for issuance in connection with BB&T's shareholder
rights plan. See "DESCRIPTION OF BB&T CAPITAL STOCK -- Shareholder Rights
Plan."
Maryland Federal
Maryland Federal's authorized capital stock consists of 15,000,000 shares
of Maryland Federal Common Stock and 10,000,000 shares of preferred stock, par
value $0.01 per share ("Maryland Federal Preferred Stock"). As of the Record
Date, 6,571,961 shares of Maryland Federal Common Stock were outstanding. No
shares of Maryland Federal Preferred Stock were issued and outstanding as of
such date, although 100,000 shares of Maryland Federal Preferred Stock have
been designated as Series A Junior Participating Preferred Stock and are
reserved for issuance in connection with Maryland Federal's shareholder rights
plan.
Special Meetings of Shareholders and Action by Shareholders without a Meeting
BB&T
Special meetings of the shareholders of BB&T may be called at any time by
BB&T's Chief Executive Officer, President or Secretary or by the BB&T Board.
Under the NCBCA, shareholders of a North Carolina corporation may take action
without a meeting by one or more written consents signed by all shareholders
entitled to vote on the matter in question, provided that any required notice
is given to any shareholders not entitled to vote on such matter.
Maryland Federal
Special meetings of the shareholders of Maryland Federal may be called at
any time by (i) the affirmative vote of a majority of the Maryland Federal
Board, (ii) the Chairman of the Maryland Federal Board or (iii) the President
of Maryland Federal and, subject to the MGCL, special meetings of shareholders
shall be called upon the written request of the holders of at least one-fourth
of the votes entitled to be cast at the meeting. Any action required to be
taken at a meeting of shareholders of Maryland Federal, or any other action
which may be taken at a meeting of such shareholders, may be taken without a
meeting if (i) a consent in writing, setting forth the action so taken, shall
be given by all of the shareholders entitled to vote with respect to the
subject matter thereof and filed with the Secretary of Maryland Federal and
(ii) a waiver in writing of any right to dissent shall be given by all
shareholders entitled to notice of a meeting but not entitled to vote thereat.
Directors
BB&T
The BB&T Articles and the BB&T Bylaws provide for a board of directors
having not less than three nor more than 30 members as determined from time to
time by vote of a majority of the members of the BB&T Board or by resolution
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of the shareholders of BB&T. Currently, the BB&T Board consists of 22
directors. The BB&T Board is divided into three classes, with directors serving
staggered three-year terms. Under the BB&T Articles and the BB&T Bylaws, BB&T
directors may be removed only for cause and only by the vote of a majority of
the outstanding shares entitled to vote in the election of directors. Holders
of BB&T Common Stock do not have cumulative voting rights in the election of
directors.
Maryland Federal
The Maryland Federal Bylaws provide that the Maryland Federal Board shall
consist of not less than five nor more than 15 members as determined by a vote
of a majority of the Maryland Federal Board. Currently, the Maryland Federal
Board consists of seven directors. The Maryland Federal Board is divided into
three classes, with directors serving staggered three-year terms. Under the
Maryland Federal Articles and the Maryland Federal Bylaws, Maryland Federal
directors may be removed only for cause by the affirmative vote of the holders
of not less than a majority of the outstanding shares entitled to vote
generally in an election of directors. Holders of Maryland Federal Common Stock
do not have cumulative voting rights in the election of directors.
Dividends and Other Distributions
BB&T
The NCBCA prohibits a North Carolina corporation from making any
distributions to shareholders, including the payment of cash dividends, that
would render it insolvent or unable to meet its obligations as they become due
in the ordinary course of business. BB&T is not subject to other express
regulatory restrictions on payments of dividends and other distributions. The
ability of BB&T to pay distributions to the holders of BB&T Common Stock will
depend, however, to a large extent upon the amount of dividends its bank
subsidiaries, which are subject to restrictions imposed by regulatory
authorities, pay to BB&T. In addition, the Federal Reserve could oppose a
distribution by BB&T if it determined that such a distribution would harm
BB&T's ability to support its bank subsidiaries. There can be no assurances
that dividends will be paid in the future. The declaration, payment and amount
of any such future dividends would depend on business conditions, operating
results, capital, reserve requirements and the consideration of other relevant
factors by the BB&T Board.
Maryland Federal
The MGCL prohibits a Maryland corporation from making any distributions to
shareholders, including the payment of cash dividends, if either (a) the
corporation would not be able to pay its indebtedness as it becomes due in the
usual course of business or (b) the corporation's total assets would be less
than the sum of the corporation's total liabilities plus, unless the charter
permits 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 dissolution of shareholders whose preferential rights on
dissolution are superior to those receiving the distribution. Maryland Federal
is not subject to other express regulatory restrictions on payments of
dividends and other distributions. The ability of Maryland Federal to pay
distributions to the holders of Maryland Federal Common Stock may depend,
however, upon the amount of dividends its savings bank subsidiary, which is
subject to the restrictions imposed by regulatory authorities, pays to Maryland
Federal.
Notice of Shareholder Nominations and Shareholder Proposals
BB&T
The BB&T Bylaws establish advance notice procedures for shareholder
proposals and the nomination, other than by or at the direction of the BB&T
Board or a committee thereof, of candidates for election as directors. The BB&T
Bylaws provide that a shareholder wishing to nominate a person as a candidate
for election to the BB&T Board must submit such nomination in writing to the
Secretary of BB&T not later than 60 days before one year after the date of the
immediately preceding annual meeting of shareholders, together with
biographical information about the candidate and the shareholder's name and
shareholdings. Nominations not made in accordance with the foregoing provisions
may be ruled out of order by the presiding officer or the chairman of the
meeting.
Similarly, a shareholder must notify the Secretary of BB&T in writing not
later than 60 days before one year after the date of the immediately preceding
annual meeting of shareholders of the shareholder's intention to make a
proposal for consideration at the next annual meeting. The notice must contain:
(a) a brief description of the proposal, (b) the name and shareholdings of the
shareholder submitting the proposal and (c) any material interest of the
shareholder in such proposal.
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Maryland Federal
Article IV, Section 4.14 of the Maryland Federal Bylaws governs
nominations for election to the Maryland Federal Board and requires all such
nominations for election, other than those made by the Maryland Federal Board
or a committee appointed by the Maryland Federal Board, to be made pursuant to
timely notice in writing to the Secretary of Maryland Federal, as set forth in
Section 4.14. See "ELECTION OF DIRECTORS -- Stockholder Nominations."
Shareholder proposals which are not submitted for inclusion in Maryland
Federal's proxy materials pursuant to Rule 14a-8 under the Exchange Act may be
brought before an annual meeting pursuant to Article II, Section 2.15 of the
Maryland Federal Bylaws, which provides that to be properly brought before an
annual meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Maryland Federal Board,
(b) otherwise properly brought before the meeting by or at the direction of the
Maryland Federal Board, or (c) otherwise properly brought before the meeting by
a shareholder. For business 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 Maryland Federal. To be timely, a shareholder's notice must
be delivered to, or mailed and received at, the principal executive offices of
Maryland Federal not less than 60 days prior to the anniversary date of the
mailing of proxy materials by Maryland Federal in connection with the
immediately preceding annual meeting of shareholders. A shareholder's notice
must set forth as to each matter the shareholder proposes to bring before an
annual meeting (a) a brief description of the business desired to be brought
before the annual meeting and (b) certain other information set forth in the
Maryland Federal Bylaws.
Exculpation and Indemnification
BB&T
The NCBCA requires that a director of a North Carolina corporation
discharge the duties as a director (a) in good faith, (b) with the care an
ordinarily prudent person in a like position would exercise under similar
circumstances and (c) in a manner the director reasonably believes to be in the
best interests of the corporation. The NCBCA expressly provides that a director
facing a change of control situation shall not be subject to any different
duties or a higher standard of care. The BB&T Articles provide that, to the
fullest extent permitted by applicable law, no director of BB&T will have any
personal liability for monetary damage for breach of a duty as a director. The
BB&T Bylaws require BB&T to indemnify its directors and officers against
liabilities arising out of such person's status as such, excluding any
liability relating to activities that were at the time taken known or believed
by such person to be clearly in conflict with the best interests of BB&T.
Maryland Federal
The MGCL requires that a director of a Maryland corporation discharge
duties as a director in good faith, in a manner reasonably believed to be in
the best interests of the corporation and with the care that an ordinarily
prudent person in a like position would use under similar circumstances. The
MGCL also provides that a corporation's charter may include a provision
expanding or limiting the personal liability of a director or officer to the
corporation or its shareholders as described under Section 5-418 of the Courts
and Judicial Proceedings Article, which generally provides that liability may
not be limited (a) to the extent that it is proved that the person actually
received an improper benefit or profit in money, property or services, for the
amount of the benefit or profit in money, property, or services actually
received or (b) to the extent that a court finds that the person's action, or
failure to act, was the result of active and deliberate dishonesty and was
material to the cause of action adjudicated in the proceeding. The Maryland
Federal Articles provide that a director or officer of Maryland Federal shall
not be personally liable for monetary damages for any action taken, or any
failure to take any action, as a director or officer, except to the extent that
a director's or officer's liability may not be limited by law. Under the MGCL,
a corporation may indemnify any director or officer made a party to any
proceeding unless it is established that (a) the director's or officer's act or
omission was material to the cause of action and was committed in bad faith or
resulted from active and deliberate dishonesty, (b) the director or officer
actually received an improper personal benefit in money, property or services,
or (c) in the case of criminal proceedings, the director or officer had
reasonable cause to believe the act or omission was unlawful. In addition, a
director or officer who is successful, on the merits or otherwise, in any
proceeding must be indemnified by the corporation for reasonable expenses
(including attorneys' fees). The Maryland Federal Articles provide that
Maryland Federal shall indemnify its directors, officers and employees to the
maximum extent permitted by the MGCL.
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Mergers, Share Exchanges and Sales of Assets
BB&T
The NCBCA generally requires that any merger, share exchange or sale of
substantially all the assets of a corporation not in the ordinary course of
business be approved by the affirmative vote of the majority of the issued and
outstanding shares of each voting group entitled to vote. Approval of a merger
by the shareholders of the surviving corporation is not required in certain
instances, however, including (as in the case of the Merger) a merger in which
the number of voting shares outstanding immediately after the merger, plus the
number of voting shares issuable as a result of the merger, does not exceed by
more than 20% the number of voting shares outstanding immediately before the
merger. BB&T is also subject to certain statutory anti-takeover provisions. See
" -- Anti-takeover Statutes."
Maryland Federal
The MGCL generally requires that any merger, share exchange or sale of
substantially all of the assets of a corporation not in the ordinary course of
business be approved by at least two thirds of the votes entitled to be cast by
each voting group entitled to vote, unless the articles of incorporation
provide for a greater or lesser vote (but in no event less than a majority of
votes entitled to be cast by on the matter). Maryland Federal also is subject
to certain statutory anti-takeover provisions. See " -- Anti-takeover
Statutes."
Anti-takeover Statutes
BB&T
The North Carolina Control Share Acquisition Act (the "Control Share Act")
applies to BB&T. The Control Share Act is designed to protect shareholders of
publicly owned North Carolina corporations based within the state against
certain changes in control and to provide shareholders with the opportunity to
vote on whether to afford voting rights to certain shareholders. The Control
Share Act is triggered upon the acquisition by a person of shares of voting
stock of a covered corporation that, when added to all other shares
beneficially owned by the person, would result in that person holding one-fifth,
one-third or a majority of the voting power in the election of directors. Under
the Control Share Act, the shares acquired that result in the crossing of any
of these thresholds ("Control Shares") have no voting rights until such rights
are conferred by the affirmative vote of the holders of a majority of all
outstanding voting shares, excluding those shares held by any person involved
or proposing to be involved in the acquisition of Control Shares, any officer
of the corporation and any employee of such corporation who is also a director
of such corporation. If voting rights are conferred on Control Shares, all
shareholders of such corporation have the right to require that their shares be
redeemed at the highest price paid per share by the acquiror for any Control
Shares.
In accordance with the provisions of such statute, BB&T has elected not to
be governed by the North Carolina Shareholder Protection Act, which requires
that certain business combinations with existing shareholders either be
approved by a supermajority of the other shareholders or meet certain "fair
price" requirements.
Maryland Federal
The MGCL establishes special requirements with respect to a "business
combination" between a Maryland corporation and an "interested stockholder,"
unless exemptions are applicable. "Interested stockholders" are all persons
owning beneficially, directly or indirectly, 10% or more of the outstanding
voting stock of a Maryland corporation. "Business combinations" include any
merger or similar transaction subject to a statutory vote and additional
transactions involving transfers of assets or securities in specified amounts
to interested stockholders or their affiliates. Unless an exemption is
available, a Maryland corporation may not engage in certain business
combinations with any interested stockholder (or its affiliates) for a period
of five years after the most recent date on which the stockholder became an
interested stockholder. After such five-year period, business combinations with
interested stockholders must be recommended by the board of directors and
approved by (a) the affirmative vote of at least 80% of the votes entitled to
be cast by all holders of outstanding shares of voting stock and (b) at least
two-thirds of the votes entitled to be cast by all holders of outstanding
shares of voting stock other than the interested stockholder. A business
combination with an interested stockholder which is approved by the board of
directors of a Maryland corporation at any time before an interested
stockholder first becomes an interest stockholder is not subject to the special
voting requirements. An amendment to a Maryland corporation's charter electing
not to be subject to the foregoing requirements must be approved by the
affirmative vote of at least 80% of the votes entitled to be cast by all
holders of outstanding shares of voting stock and at least two-thirds of the
votes entitled to be cast by holders of outstanding shares of voting stock who
are not interested stockholders. Any such amendment is not effective until 18
months after the vote of
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stockholders and does not apply to any business combination of a corporation
with a stockholder who was an interested stockholder on the date of the
stockholder vote.
The MGCL also imposes limitations on the voting rights of "control shares"
acquired in a "control share acquisition." The MGCL provides that "control
shares" of a Maryland corporation acquired in a "control share acquisition"
have no voting rights except to the extent approved by a vote of two-thirds of
the votes entitled to be cast on the matter, excluding shares of stock owned by
the acquiror or by officers or directors who are employees of the corporation.
"Control shares" are voting shares of stock which, if aggregated with all other
shares of stock previously acquired by such a person, would entitle the
acquiror to exercise voting power in electing directors within one of the
following ranges of voting power: (a) 20% or more but less than 33 1/3%; (b)
33 1/3% or more but less than a majority; or (c) a majority of all voting
power. Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder
approval. A "control share acquisition" means, subject to certain exceptions,
the acquisition of, ownership of, or the power to direct the exercise of voting
power with respect to, control shares. The statute also requires Maryland
corporations to hold a special meeting at the request of an actual or proposed
control share acquiror generally within 50 days after a request is made with
the submission of an "acquiring person statement," of such special meeting
(and, if requested by the board of directors, a bond to secure such
undertaking). In addition, unless the charter or bylaws provide otherwise, the
statute gives the Maryland corporation, subject to certain conditions and
limitations, various redemption rights if there is a shareholder vote on the
issue and the grant of voting rights is not approved, or if an "acquiring
person statement" is not delivered to the target within 10 days following a
control share acquisition. Moreover, unless the articles of incorporation or
bylaws provide otherwise, the statute provides that if, before a control share
acquisition occurs, voting rights are accorded to control shares at a special
meeting of shareholders that results in the acquiring person having majority
voting power, then minority shareholders have appraisal rights. An acquisition
of shares may be exempted from the control share statute, provided that an
articles of incorporation or bylaw provision is adopted for such purpose prior
to the control share acquisition.
Amendments to Articles of Incorporation and Bylaws
BB&T
The NCBCA provides generally that a North Carolina corporation's articles
of incorporation may be amended if the amendment is affirmatively approved by a
majority of the votes cast within each voting group entitled to vote. The BB&T
Articles and BB&T Bylaws also require the affirmative vote of two thirds of the
outstanding shares entitled to vote to approve an amendment to the BB&T
Articles or BB&T Bylaws amending, altering or repealing the portions of such
articles or bylaws relating to classification and staggered terms of the board,
removal of directors or any requirement for a supermajority vote on such an
amendment. The NCBCA provides that a North Carolina corporation's bylaws may be
amended by its shareholders, and the BB&T Articles authorize the BB&T Board to
amend the BB&T Bylaws.
Maryland Federal
Under the MGCL, unless otherwise provided in the corporation's charter, a
proposed charter amendment requires an affirmative vote of two-thirds of all
the votes entitled to be cast on the matter. The MGCL also provides that the
power to adopt, alter, and repeal a Maryland corporation's bylaws is vested in
the shareholders, except to the extent that the charter or the bylaws vest such
power in the board of directors. No amendment to the Maryland Federal Articles
generally may be made unless it is first proposed by the Maryland Federal Board
and thereafter approved by the holders of two thirds of the outstanding shares
of Maryland Federal entitled to vote generally in an election of directors,
provided that unless approved by a resolution adopted by the affirmative vote
of two thirds of the directors then in office, the affirmative vote of the
holders of at least three quarters of the outstanding shares of Maryland
Federal entitled to vote generally in an election of directors shall be
required to amend the provisions of the Maryland Federal Articles dealing with
preemptive rights, directors, liability of directors and officers,
indemnification and amendment of the Maryland Federal Articles and the Maryland
Federal Bylaws. The Maryland Federal Articles and the Maryland Federal Bylaws
provide that the Maryland Federal Bylaws may be amended by the affirmative vote
of a majority of the Maryland Federal Board or by the affirmative vote of the
holders of not less than two thirds of the shares of Maryland Federal entitled
to vote generally in an election of directors.
Shareholders' Rights of Dissent and Appraisal
BB&T
Under the NCBCA, a shareholder of a North Carolina corporation is entitled
to dissent from, and obtain payment of the "full value" of his shares in the
event of, any of the following corporate transactions: (a) consummation of a
plan of merger to which the corporation is a party, unless (i) the corporation
is a parent merging with a subsidiary pursuant to a
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particular NCBCA provision for such transactions; (ii) the merger is subject to
an NCBCA provision that exempts from the shareholder approval requirement
certain mergers that do not result in a substantial change to the corporation
or the rights of its shareholders; or (iii) the shares in question are then
redeemable by the corporation at a price not greater than the cash to be
received for such shares; (b) consummation of a plan of share exchange to which
the corporation is a party as the corporation whose shares will be acquired,
unless such shares are then redeemable by the corporation at a price not
greater than the cash to be received in exchange for such shares; (c)
consummation of a sale or exchange of all or substantially all of the property
of the corporation other than in the regular course of business, including a
sale in dissolution but not including a sale pursuant to court order or a sale
pursuant to a plan by which all or substantially all of the net proceeds are to
be distributed in cash to shareholders within one year; (d) an amendment to the
articles of incorporation that materially and adversely affects rights in
respect of a dissenter's shares because it (i) alters or abolishes a
preferential right of the shares; (ii) creates, alters or abolishes a right in
respect of redemption, including a provision respecting a sinking fund for the
redemption or repurchase, of the shares; (iii) alters or abolishes a preemptive
right of the holder of the shares to acquire shares or other securities; (iv)
excludes or limits the right of shares to vote on any matter; (v) reduces the
number of shares owned by the shareholder to a fraction of a share if the
fractional share so created is to be acquired for cash; or (vi) changes the
corporation into a nonprofit corporation or cooperative organization; or (e)
any corporate action taken pursuant to a shareholder vote to the extent the
articles of incorporation, bylaws or a resolution of the board of directors
provides that voting or nonvoting shareholders are entitled to dissent and
obtain payment for their shares.
With respect to corporations that have a class or series of shares either
listed on a national securities exchange or held by more than 2,000 record
shareholders, dissenters' rights are not available to the holders of these
shares by reason of a merger, share exchange or sale or exchange of property
unless (a) the articles of incorporation of the corporation that issued the
shares provide otherwise or (b) in the case of a merger or share exchange, the
holders of the shares are required to accept anything other than (i) cash, (ii)
shares in another corporation that are either listed on a national securities
exchange or held by more than 2,000 record shareholders or (iii) a combination
of cash and such shares.
A shareholder who has the right to dissent from a transaction and receive
payment of the "fair value" of his shares must follow specific procedural
requirements as set forth in the NCBCA in order to maintain such right and
obtain such payment.
Maryland Federal
Under the MGCL, except as otherwise provided therein, objecting
shareholders have the right to demand and receive payment of the "fair value"
of their stock in the event of (a) a merger or consolidation, (b) a share
exchange, (c) a transfer of all or substantially all assets not in the ordinary
course of business, (d) an amendment to the charter that alters the contract
rights, as expressly set forth in the charter, of any outstanding stock and
which substantially adversely affects the shareholder's rights, unless the
right to do so is preserved by the charter, (e) certain business combinations
or (f) an approval by the shareholders of voting rights for control shares
which constitute a majority of the voting power of the corporation. However,
except as otherwise provided by the MGCL, shareholders do not have appraisal
rights if, among other things, the stock is listed on the Nasdaq National
Market: (a) with respect to a merger of a 90% or more owned subsidiary into its
parent, on the date notice of such merger is given or waived, or (b) with
respect to any other transaction, on the record date for determining
shareholders entitled to vote on the transaction.
A shareholder who has the right to object to a transaction and receive
payment of the "fair value" of his shares must follow specific procedural
requirements as set forth in the MGCL in order to maintain such right and
obtain such payment.
Holders of Maryland Federal Common Stock do not have appraisal rights in
connection with the Merger because, as of the Record Date, shares of Maryland
Federal Common Stock were listed on the Nasdaq National Market.
Liquidation Rights
BB&T
In the event of the liquidation, dissolution or winding-up of the affairs
of BB&T, holders of outstanding shares of BB&T Common Stock are entitled to
share, in proportion to their respective interests, in BB&T's assets and funds
remaining after payment, or provision for payment, of all debts and other
liabilities of BB&T.
Because BB&T is a bank holding company, its rights, the rights of its
creditors and of its shareholders, including the holders of the shares of any
BB&T Preferred Stock that may be issued, to participate in the assets of any
subsidiary upon the latter's liquidation or recapitalization may be subject to
the prior claims of (i) the subsidiary's creditors, except to the
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extent that BB&T may itself be a creditor with recognized claims against the
subsidiary, and (ii) any interests in the liquidation accounts established by
savings associations or savings banks acquired by BB&T for the benefit of
eligible account holders in connection with conversion of such savings
associations from mutual to stock form.
Maryland Federal
The rights of holders of Maryland Federal Common Stock upon liquidation
are virtually identical to those of holders of BB&T Common Stock.
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ELECTION OF DIRECTORS
(Proposal Two)
Nominees for Director
Pursuant to a resolution adopted by the Maryland Federal Board, the number
of directors of Maryland Federal has been set at seven. The Maryland Federal
Bylaws provide that the Maryland Federal Board shall be divided into three
classes as nearly equal in number as possible. The members of each class are to
be elected for a term of three years or until their successors are elected and
qualified, and one class of directors is to be elected annually. There are no
arrangements or understandings between Maryland Federal and any person pursuant
to which such person has been elected a director, and no director is related to
any other director or executive officer of Maryland Federal by blood, marriage
or adoption.
Unless otherwise directed, each proxy executed and returned by a
stockholder will be voted for the election of each of the nominees listed
below. If any person named as a nominee should be unable or unwilling to stand
for election at the time of the Meeting, the Maryland Federal Board, as
proxies, will nominate and vote for any replacement nominee or nominees
recommended by the Maryland Federal Board. At this time, the Maryland Federal
Board knows of no reason why any of the nominees listed below may not be able
to serve as a director if elected.
Nominees for Terms Expiring in 2001
<TABLE>
<CAPTION>
Principal Occupation During Director
Name Age the Past Five Years Since(1)
- --------------------------- ----- ----------------------------------------------------------- ---------
<S> <C> <C> <C>
Richard B. Bland 66 Chairman of the Board of Maryland Federal since 1980
incorporation; Chairman of the Board of MFB since
October 1987, and General Counsel; Senior Partner, law
firm of Lancaster, Bland, Eisele and Herring, Hyattsville,
Maryland.
Robert H. Halleck 55 Director of Maryland Federal and MFB; President and 1982
Chief Executive Officer of Maryland Federal since
incorporation; President and Chief Executive Officer of
MFB since October 1987.
Willie L. Harkless, Sr 65 Director of Maryland Federal and MFB; owner of 1997
Harkless Construction Company.
</TABLE>
The Maryland Federal Board recommends that stockholders vote "FOR" election of
the above nominees as directors.
MEMBERS OF THE MARYLAND FEDERAL BOARD CONTINUING IN OFFICE
Directors Whose Terms Expire in 1999
<TABLE>
<CAPTION>
Principal Occupation During Director
Name Age the Past Five Years Since (1)
- ------------------------- ----- -------------------------------------------------------- ----------
<S> <C> <C> <C>
Thomas H. Welsh, III 52 Director of Maryland Federal and MFB; Self-employed as 1986
a real estate developer and builder in Prince George's
County, Maryland.
A. William Blake, Jr 59 Director of Maryland Federal and MFB; Executive Vice 1990
President of Maryland Federal and MFB since November
1989.
</TABLE>
Directors Whose Terms Expire in 2000
<TABLE>
<CAPTION>
Principal Occupation During Director
Name Age the Past Five Years Since(1)
- -------------------- ----- -------------------------------------------------------- ---------
<S> <C> <C> <C>
Richard R. Mace 59 Director of Maryland Federal and MFB; Self-employed as 1977
a sporting goods dealer in Potomac, Maryland.
David A. McNamee 73 Director of Maryland Federal and MFB; President, law 1973
firm of McNamee, Hosea, Jernigan and Kim, P.A.,
Greenbelt, Maryland; Director, Allied Fund, Inc.,
Greenbelt, Maryland, since 1956; Director, National
Harmony Memorial Park, Inc., Hyattsville, Maryland,
since 1961.
</TABLE>
- ---------
(1) Includes term as a director of MFB. All directors of Maryland Federal
currently serve as directors of MFB.
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Stockholder Nominations
Article IV, Section 4.14 of the Maryland Federal Bylaws governs
nominations for election to the Maryland Federal Board and requires all
nominations for election to the Maryland Federal Board, other than those made
by the Board or a committee appointed by the Maryland Federal Board, to be made
pursuant to timely notice in writing to the Secretary of Maryland Federal, as
set forth in Section 4.14. To be timely, a stockholder's notice must be
delivered to, or mailed and received at, the principal executive offices of
Maryland Federal not later than (i) with respect to an election to be held at
an annual meeting of stockholders, 60 days prior to the anniversary date of the
mailing of proxy materials by Maryland Federal in connection with the
immediately preceding annual meeting of stockholders of Maryland Federal, and
(ii) with respect to a special meeting of stockholders for the election of
directors, the close of business on the tenth day following the date on which
notice of such meeting is first given to the stockholders. Each written notice
of a stockholder nomination must set forth certain information specified in
Maryland Federal's Bylaws. The presiding officer of the meeting may refuse to
acknowledge the nomination of any person not made in compliance with the
procedures set forth in the Maryland Federal Bylaws.
Board Meetings and Committees
The Maryland Federal Board generally meets monthly. The Maryland Federal
Board met 16 times during the fiscal year ended February 28, 1998. The Maryland
Federal Board maintains standing audit, compensation and nominating committees.
No director of Maryland Federal attended fewer than 75% in the aggregate of the
meetings of the Maryland Federal Board held during fiscal 1998 and the total
number of meetings held by all committees of the Maryland Federal Board on
which he or she served during the year.
The Audit Committee of the Maryland Federal Board examines and reviews the
affairs and reports of Maryland Federal as well as reports of independent
auditors. The Audit Committee, which met five times in fiscal 1998, consists of
Messrs. McNamee (Chairman), Mace, Welsh and Harkless.
The Compensation Committee of the Maryland Federal Board reviews existing
compensation, investigates new and different forms of compensation and makes
recommendations with respect thereto to the Maryland Federal Board. The
Compensation Committee, which met one time in fiscal 1998, consists of Messrs.
Bland, McNamee, Mace and Welsh.
The Nominating Committee of Maryland Federal selects nominees for election
as directors of Maryland Federal. The Nominating Committee, which met one time
during fiscal 1998, consists of the whole Maryland Federal Board.
Compensation of Directors
Directors of Maryland Federal generally receive no fees from Maryland
Federal for attending Board or committee meetings of Maryland Federal, although
such meetings are generally held in conjunction with comparable meetings of MFB
for which fees are paid. Directors of MFB (other than directors who are also
executive officers) receive fees of $1,250 per Board meeting of MFB attended.
Directors who are executive officers do not receive fees for attendance at
Board meetings. Members of MFB's Audit Committee receive fees of $1,000 per
committee meeting attended. In addition, Richard B. Bland, Chairman of the
Board of Maryland Federal and MFB, is paid additional compensation of $2,500
per month by MFB.
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
(Proposal Three)
The Maryland Federal Board has appointed Stoy, Malone & Company, P.C. as
independent auditors for Maryland Federal for the fiscal year ending February
28, 1999 if the Merger is not completed, and has further directed that the
selection of such auditors be submitted for ratification by the stockholders at
the Meeting. Maryland Federal has been advised by Stoy, Malone & Company, P.C.
that neither the firm nor any of its associates has any relationship with
Maryland Federal, MFB or its subsidiary other than the usual relationship that
exists between independent public accountants and clients. Stoy, Malone &
Company, P.C. will have one or more representatives at the Meeting who will
have an opportunity to make a statement, if he or she so desires, and will be
available to respond to appropriate questions.
The Maryland Federal Board recommends that stockholders vote "FOR"
ratification of the appointment of Stoy, Malone & Company, P.C. as independent
auditors for the fiscal year ending February 28, 1999 if the Merger is not
completed.
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<PAGE>
EXECUTIVE OFFICERS WHO ARE NOT DIRECTORS
The following sets forth information with respect to executive officers of
Maryland Federal and/or MFB who do not serve on the Maryland Federal Board.
There are no arrangements or understandings between Maryland Federal or MFB and
any person pursuant to which such person has been elected as an officer.
DAVID E. BAKER (age 52) -- Mr. Baker is Senior Vice President and Chief
Lending Officer of MFB and has served as such since December 1989. From
December 1985 to November 1989, Mr. Baker was Senior Vice President with James
Madison Mortgage Company. Prior to December 1985, Mr. Baker was a Vice
President of MFB.
NANCY B. COHEN (age 48) -- Ms. Cohen is Senior Vice President and Director
of Human Resources of MFB. She joined MFB in 1987 and was named Senior Vice
President in March 1994.
CLARICE M. GEORGE (age 64) -- Ms. George is Senior Vice President, Deposit
Administrator and Treasurer of MFB. She joined MFB in 1971 and was named Senior
Vice President in 1988.
LYNN B. HOUNSLOW (age 39) -- Ms. Hounslow is Senior Vice President,
Treasurer and Chief Financial Officer of Maryland Federal and Senior Vice
President and Comptroller of MFB. She joined Maryland Federal in 1993. Prior to
joining Maryland Federal, Ms. Hounslow was a Partner with Stoy, Malone &
Company, P.C., Bethesda, Maryland, a certified public accounting firm.
RONALD R. O'BRIEN (age 54) -- Mr. O'Brien is Senior Vice President and
head of Information Systems of MFB. He joined MFB in 1983 and was named Senior
Vice President in 1986. Prior to joining MFB, Mr. O'Brien was Data Processing
Operations Manager for Perpetual American Bank, F.S.B., Alexandria, Virginia.
J. DIANE STEVENSON (age 50) -- Ms. Stevenson is Senior Vice President and
Branch Coordinator of MFB. She joined MFB in 1976 and was named Senior Vice
President in 1992.
50
<PAGE>
BENEFICIAL OWNERSHIP OF MARYLAND FEDERAL COMMON STOCK
BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Beneficial Ownership
The following table sets forth the beneficial ownership of the Maryland
Federal Common Stock as of the Record Date, and certain other information with
respect to (i) any persons or entities, including any "group" as that term is
used in Section 13(d) of the Exchange Act, who or which was known to Maryland
Federal to be the beneficial owner of more than 5% of the issued and
outstanding Maryland Federal Common Stock, (ii) each director of Maryland
Federal, (iii) certain executive officers who are not directors and (iv) all
directors and executive officers of Maryland Federal and MFB as a group.
<TABLE>
<CAPTION>
Amount and Nature
Name of Beneficial of Beneficial
Owner or Number of Ownership as of Percent of
Persons in Group June 5, 1998(1)(2) Maryland Federal Common Stock
- -------------------------------------- -------------------- ------------------------------
<S> <C> <C>
Robert I. Schattner, D.D.S. 529,888(3) 8.0%
5901 Montrose Road, Suite 12005
Rockville, Maryland 20852
First Manhattan Co. 430,238(4) 6.6
437 Madison Avenue
New York, New York 10022
Directors:
A. William Blake, Jr. 89,476(5) 1.4
Richard B. Bland 168,896(6) 2.5
Robert H. Halleck 98,265(7) 1.5
Willie L. Harkless, Sr. -- --
Richard R. Mace 91,354(8) 1.4
David A. McNamee 115,180(9) 1.7
Thomas H. Welsh, III 122,062(10) 1.8
Executive Officer:
David E. Baker 47,057(11) *
All directors and 805,697(12) 11.6
executive officers as
a group (13 persons)
</TABLE>
- ---------
* Represents less than 1% of the outstanding Maryland Federal Common
Stock.
(1) Based upon filings made pursuant to the Exchange Act and information
furnished by the respective individuals. Under regulations promulgated
pursuant to the Exchange Act, shares of Maryland Federal Common Stock are
deemed to be beneficially owned by a person if he or she directly or
indirectly has or shares (i) voting power, which includes the power to
vote or to direct the voting of the shares, or (ii) investment power,
which includes the power to dispose or to direct the disposition of the
shares. Unless otherwise indicated, the named beneficial owner has sole
voting and dispositive power with respect to the shares.
(2) Under applicable regulations, a person is deemed to have beneficial
ownership of any shares of Maryland Federal Common Stock which may be
acquired within 60 days of the Record Date pursuant to the exercise of
outstanding stock options. Shares of Maryland Federal Common Stock which
are subject to stock options are deemed to be outstanding for the purpose
of computing the percentage of outstanding Maryland Federal Common Stock
owned by such person or group but not deemed outstanding for the purpose
of computing the percentage of Maryland Federal Common Stock owned by any
other person or group.
(3) Based on a Schedule 13D filed under the Exchange Act, as amended, Mr.
Schattner, D.D.S. has sole voting power and sole dispositive power over
the indicated shares. II.
(4) Based on a Schedule 13G filed under the Exchange Act, First Manhattan Co.
has sole voting power and sole dispositive power over 366,672 shares,
shares voting power over 61,824 shares and shares dispositive power over
63,566 shares.
51
<PAGE>
(5) Includes 33,659 shares jointly owned by Mr. Blake and his spouse, with whom
voting and dispositive power is shared and 51,817 shares which may be
acquired upon the exercise of stock options exercisable within 60 days of
the Record Date.
(6) Includes 10,306 shares owned jointly by Mr. Bland and his spouse, with whom
voting and dispositive power is shared, and 54,100 shares which may be
acquired upon the exercise of stock options exercisable within 60 days of
the Record Date.
(7) Includes 44,905 shares held by Mr. Halleck's spouse and 48,400 shares which
may be acquired upon the exercise of stock options exercisable within 60
days of the Record Date.
(8) Includes 4,854 shares held in Mr. Mace's Keogh account and 54,100 shares
which may be acquired upon the exercise of stock options exercisable
within 60 days of the Record Date.
(9) Includes 54,100 shares which may be acquired upon the exercise of stock
options exercisable within 60 days of the Record Date.
(10) Includes 4,060 shares held by Mr. Welsh's spouse, 8,314 shares owned by
Mr. Welsh as trustee and 54,100 shares which may be acquired upon the
exercise of stock options exercisable within 60 days of the Record Date.
(11) Includes 14,640 shares jointly owned by Mr. Baker and his spouse, with
whom voting and dispositive power is shared, and 23,000 shares which may
be acquired upon the exercise of stock options exercisable with 60 days of
the Record Date.
(12) Includes 385,534 shares which may be acquired by all directors and
executive officers as a group upon the exercise of stock options
exercisable within 60 days of the Record Date.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Exchange Act requires Maryland Federal's directors
and executive officers, and persons who own more than 10% of the Maryland
Federal Common Stock, to file reports of ownership and changes in ownership
with the Commission and the National Association of Securities Dealers, Inc.
Directors, officers and greater than 10% stockholders are required by
regulation to furnish Maryland Federal with copies of all forms they file under
Section 16(a). Maryland Federal knows of no person who owns 10% or more of the
Maryland Federal Common Stock.
Based solely on a review of the copies of such forms furnished to Maryland
Federal, Maryland Federal believes that during fiscal 1998, all Section 16(a)
filing requirements applicable to its directors and executive officers were
complied with.
52
<PAGE>
EXECUTIVE COMPENSATION
Summary Compensation Table
The following table sets forth a summary of certain information concerning
the compensation awarded or paid by Maryland Federal for services rendered in
all capacities during the last three fiscal years to the Chief Executive
Officer and other executive officers of Maryland Federal and MFB whose total
compensation during the last fiscal year exceeded $100,000.
<TABLE>
<CAPTION>
Annual Compensation
------------------------------------------------
Long Term
Other Compensation
Name and Fiscal Annual Awards (3) All Other
Principal Position Year Salary (1) Bonus Compensation (2) Options Compensation (4)
- ----------------------- -------- ------------ ------- ------------------ ------------- -----------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Halleck 1998 $273,653 -- -- -- $3,750
President and Chief 1997 242,667 -- -- 30,000 3,678
Executive Officer 1996 216,523 -- -- 39,900 4,582
A. William Blake, Jr. 1998 $170,440 -- -- -- $3,750
Executive Vice 1997 156,707 -- -- 20,000 3,814
President 1996 150,731 -- -- 29,400 3,771
David E. Baker 1998 $123,417 -- -- -- $3,395
Senior Vice President 1997 118,132 -- -- 6,000 2,996
1996 109,535 -- -- 14,700 2,953
</TABLE>
- ---------
(1) Includes amounts deferred by the named executive officer pursuant to
Maryland Federal's Savings 401(k) Plan which allows employees to defer up
to 15% of compensation, up to the maximum established by law.
(2) Does not include amounts attributable to miscellaneous benefits received by
executive officers, including the use of Maryland Federal-owned
automobiles. In the opinion of management of Maryland Federal, the costs
to Maryland Federal of providing such benefits to such executive officers
during the year ended February 28, 1998 did not exceed the lesser of
$50,000 or 10% of the total of annual salary and bonus reported for such
individual. Does not include the value of the discount on shares of
Maryland Federal Common Stock purchased pursuant to Maryland Federal's
1988 Employee Stock Purchase Plan.
(3) Consists of awards granted pursuant to Maryland Federal's Key Employee
Stock Compensation Program, the 1989 Stock Option and Stock Appreciation
Rights Plan, the 1992 Stock Incentive Plan or the 1995 Stock Option Plan.
(4) Consists of matching contributions by Maryland Federal on behalf of the
named executive officer pursuant to Maryland Federal's Savings 401(k)
Plan.
Aggregated Option Exercises and Year-End Option Values
The following table sets forth certain information concerning exercises of
stock options by the named executive officers during the year ended February
28, 1998 and options held at February 28, 1998.
<TABLE>
<CAPTION>
Number of Unexercised Value of Unexercised
Shares Options at Year End Options Year End (1)
Acquired on Value ----------------------------- ----------------------------
Name Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------------- ------------- ----------- ------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Robert H. Halleck ...... 10,500 $157,826 55,500 33,300 $1,227,156 $643,113
A. William Blake, Jr. .. 2,300 57,943 55,267 23,133 1,261,777 449,389
David E. Baker ......... 8,400 209,664 20,200 8,900 460,008 180,858
</TABLE>
- ---------
(1) Based on a per share market price of $35.94 at February 28, 1998.
Pension Plan
MFB maintains a qualified, defined benefit, noncontributory retirement
plan in which all full-time employees are eligible to participate after
attaining a minimum age and meeting a required period of service. The Maryland
Federal Pension Plan provides for monthly payments to, or on behalf of, each
covered employee upon retirement at age 65, or disability, or
53
<PAGE>
death, with the benefits based upon the employee's highest five-year average
annual salary and length of service. The Maryland Federal Pension Plan recently
was amended to provide benefits based on 50% of an employee's highest five-year
average annual salary, as opposed to 60%, and to increase the length of service
which is necessary to obtain full benefits from 15 years to 30 years.
The following table sets forth, in straight-line annuity amounts, the
estimated annual benefits payable upon retirement to participants at normal
retirement age (65), in the average five-years salary and years of credited
service classifications specified. The benefits listed in the table are based
on 60% of an employee's highest five-year average salary, which Maryland
Federal believes is more representative of the benefits to be received by
employees who will be retiring in the near future. The indicated benefits are
not subject to any deduction for social security or other offset amounts.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Years of Service
-------------------------------------------
Remuneration 15 20 30 40
- ------------------ ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
$100,000 ......... $31,020 $41,360 $62,040 $62,040
125,000 ......... 38,775 51,700 77,550 77,550
150,000 ......... 46,530 62,040 93,060 93,060
175,000 ......... 49,632 66,176 99,264 99,264
200,000 ......... 49,632 66,176 99,264 99,264
225,000 ......... 49,632 66,176 99,264 99,264
250,000 ......... 49,632 66,176 99,264 99,264
275,000 ......... 49,632 66,176 99,264 99,264
300,000 ......... 49,632 66,176 99,264 99,264
325,000 ......... 49,632 66,176 99,264 99,264
</TABLE>
The maximum annual compensation which may be taken into account under the
Code (as adjusted from time to time by the Internal Revenue Service) for
calculating contributions under qualified defined benefit plans currently is
$160,000 and the maximum annual benefit permitted under such plans currently is
$130,000.
At February 28, 1998, Messrs. Halleck, Blake and Baker had 26, 33 and 24
years, respectively, of credited service under the Maryland Federal Pension
Plan.
Non-Qualified Executive Deferred Compensation Plan
As of May 16, 1996, Maryland Federal established a Non-Qualified Executive
Deferred Compensation Plan (the "Plan") to provide deferred compensation to Mr.
Halleck in order to compensate him for reduced retirement benefits payable
under MFB's Pension Plan due to limitations imposed by the Code. Pursuant to
the Plan, Maryland Federal shall make annual contributions in the amount of
$65,000 to a trust (the "Trust"), which Maryland Federal established in
conjunction with the Plan. Maryland Federal shall make such contributions to
the Trust every year, commencing with the calendar year ended December 31,
1995, and continuing until Mr. Halleck's retirement or other termination of
employment. However, Maryland Federal shall make no contributions in any year
in which Mr. Halleck provides less than 1,000 hours of service. The deferred
amounts shall be payable in installments following Mr. Halleck's retirement,
death or disability.
Compensation Committee
The Compensation Committee of the Maryland Federal Board (the "Committee")
currently consists of the five independent outside directors of Maryland
Federal. The Committee has been designated by the Maryland Federal Board with
the responsibility of administering Maryland Federal's executive compensation
program. No member of the Committee is a current or former officer or employee
of Maryland Federal or any of its subsidiaries. The report of the Committee
with respect to compensation for the Chief Executive Officer and all other
executive officers is set forth below.
Report of the Compensation Committee
The goals of the Committee are to assist Maryland Federal and its
subsidiary in attracting and retaining qualified management, motivating
executives to achieve performance goals established by the Maryland Federal
Board, and to ensure that the financial interests of Maryland Federal's
management and shareholders are congruent.
54
<PAGE>
The Committee considers the following in setting the compensation of the
Chief Executive Officer and the other executive officers of Maryland Federal:
(1) The overall performance during the fiscal year after adjusting for
economic conditions occurring during the year.
(2) The individual performance appraisals of the officers and their
contributions toward meeting Maryland Federal's performance goals,
maintenance of loan quality and capital ratios, and other objectives as
established by the Maryland Federal Board.
(3) The compensation levels of similar positions of executives at other
peer group companies, defined as thrift institutions of similar size and
operating characteristics, operating within the Middle Atlantic Region.
The Committee also considers the overall compensation level of all
employees of Maryland Federal with the intent that the salary of the
Chief Executive Officer of Maryland Federal shall not exceed ten times
the amount of the average salary of all employees of Maryland Federal.
The compensation arrangements adopted by the Committee include three
components: (1) a base salary, (2) incentive stock options, and (3) a bonus set
at the same percentage as that given to all Company employees if Maryland
Federal performance is judged to warrant such a bonus.
The Committee encourages all executives of Maryland Federal to commit a
portion of their base salary to the purchase of Maryland Federal Common Stock
through the Employee Stock Purchase Plan. The belief is that substantial
ownership encourages management to take action favorable to shareholders of
Maryland Federal.
In October 1997, the Compensation Committee set Mr. Halleck's base salary
at $283,500 for the next 12 months, which was a 13% increase over his previous
base salary. At this level, Mr. Halleck's salary is approximately 7.4 times the
average Maryland Federal salary. The Committee felt the adjustment this year
was justified by the efficiency results being achieved in the current fiscal
year, the substantial increase in Maryland Federal's core profitability, and a
comparative salary survey which showed that at the new salary level, Mr.
Halleck's compensation would still be only 47% of the Chief Executive Officer
salaries within Maryland Federal's peer groups.
Recommendations regarding the base salary of Maryland Federal officers
other than Mr. Halleck are made to the Committee by Mr. Halleck and are subject
to its approval. Recommendations are made based on a review of their
performance and their attainment of mutually agreed upon goals.
This report has been prepared by members of the Compensation Committee.
Members of this Committee are:
Richard B. Bland
David A. McNamee
Richard R. Mace
Thomas H. Welsh, III
Performance Graph
The following graph compares the yearly cumulative total return of the
Maryland Federal Common Stock over a five year measurement period with (i) the
yearly cumulative total return on the stocks included in the Nasdaq National
Market and (ii) the yearly cumulative total return on the stocks included in
the Standard Industrial Classification ("SIC") Code for federally chartered
savings institutions as reported by Media General Financial Services, Richmond,
Virginia. All of these cumulative returns are computed assuming the
reinvestment of dividends at the frequency with which dividends were paid
during the applicable years.
55
<PAGE>
Compare 5-Year Cumulative Total Return
Among Maryland Federal Bancorp, Inc.
NASDAQ Market Index and SIC Code Index
[Performance graph appears here with the following plot points]
<TABLE>
<CAPTION>
<S> <C>
1993 1994 1995 1996 1997 1998
Maryland Federal Bancorp, Inc. 100.00 120.14 123.51 152.18 199.98 391.73
NASDAQ Market Index 100.00 107.36 117.96 161.18 242.95 360.83
SIC Code Index 100.00 127.41 121.65 167.97 201.61 274.20
</TABLE>
Assumes $100 Invested in Mar. 1, 1993
Assumes Dividends Reinvested
Fiscal Year Ended Feb. 28, 1998
56
<PAGE>
Employment Agreements
Maryland Federal and MFB have entered into a three-year employment
agreement with Robert H. Halleck, President and Chief Executive Officer of
Maryland Federal and MFB, which became effective May 1, 1991 and was amended in
July 1993 (Maryland Federal and MFB are hereinafter sometimes collectively
referred to as the "Employers"). MFB has also entered into a three-year
employment agreement with Mr. Blake, which became effective April 1, 1993, and
a two-year employment agreement with Mr. Baker, which became effective February
1, 1992. The agreements provide for a salary level which may be adjusted each
year as determined by the Maryland Federal Board. Under such agreements,
Messrs. Halleck, Blake and Baker currently receive annual base compensation of
$283,500, $179,550 and $126,787, respectively. After the initial term, the
agreements renew automatically for successive terms of one year each, unless
either the Maryland Federal Board or the employee gives contrary written notice
to the other not less than 45 days in advance of any annual anniversary date.
The agreements may be terminated by the Employers for "just cause," as
defined, at any time or upon the occurrence of certain events specified by OTS
regulations. "Just cause" is defined in the agreements to mean termination for
personal dishonesty, willful misconduct, breach of fiduciary duty involving
personal profit, conviction of a felony, willful violation of any law or
regulation to be enforced by the OTS, willful violation of a final
cease-and-desist order, willful or intentional breach or neglect by the
employee of his duties under the agreement, persistent negligence or misconduct
in the performance of such duties or material breach of any provision of the
agreement, as determined by a court of competent jurisdiction or a federal or
state regulatory agency having jurisdiction over the Employers.
The agreements also provide for severance payments and other benefits in
the event that the employee terminates his employment for "good reason." "Good
reason" is defined in the agreements to mean: (i) a failure by the Employers to
comply with any material provision of the agreement or, without the employee's
written consent, the assignment to him of any duties inconsistent with his
positions, duties, responsibilities and status with the Employers; or (ii)
subsequent to a change in control of the Employers, as defined, and without the
employee's written consent, the assignment to the employee of any duties
inconsistent with his positions, duties, responsibilities and status with the
Employers immediately prior to a change in control of the Employers, or a
change in his reporting responsibilities, titles or offices as in effect
immediately prior to a change in control of the Employers, any removal of the
employee from or any failure to re-elect him to any of his positions, a
reduction in his annual salary as in effect immediately prior to a change in
control or as his salary may be increased from time-to-time, or the failure of
the Employers to continue in effect any bonus, benefit or compensation plan or
life, health, accident or disability plan in which he is participating at the
time of a change in control of the Employers, or the taking of any actions by
the Employers which adversely affects his participation in or materially
reduces his benefits under any such plans, unless agreed to. The employment
agreements define "change in control" to include any of the following: (i) any
change in control required to be reported pursuant to Item 6(e) of Schedule 14A
promulgated under the Exchange Act; (ii) the acquisition of beneficial
ownership by any person (as defined in Sections 13(d) and 14(d) of the Exchange
Act) of 25% or more of the combined voting power of the Employer's then
outstanding securities; or (iii) during any period of two consecutive years, a
change in the majority of the Maryland Federal Board for any reason unless the
election of each new director was approved by at least two-thirds of the
directors then still in office who were directors at the beginning of the
period.
If the employee terminates his employment for good reason pursuant to
clause (i) as described above, or if the agreement is terminated by the
Employers for other than just cause, he would be entitled to a severance
payment equal to the product of his monthly base salary in effect as of the
date of termination multiplied by the number of months remaining in the term of
employment under the agreement.
If the employee terminates his employment for good reason pursuant to
clause (ii) as described above, or if subsequent to a change in control, the
Employers terminate his employment other than for just cause, then the
Employers would provide severance payments to the employee in an amount equal
to 2.99 times his average annual compensation for the preceding five calendar
years. Average annual compensation includes base compensation and bonuses. Such
severance payment is to be paid in a lump sum on or before the fifth day
following the date of termination. If the employment is terminated during
calendar 1998 pursuant to a change in control of the Employers, as defined,
Messrs. Halleck, Blake and Baker would be entitled to receive a severance
payment amounting to approximately $669,022, $424,771 and $331,171,
respectively. The employment agreements further provide that, in the event of a
change in control of the Employers, if the severance payments under the
respective employment agreements, either alone or together with any other
payments which the employee has a right to receive from the Employers, are
deemed to constitute an "excess parachute payment" under Section 280G of the
Code, the Employers shall reimburse the employee for any federal income tax
liability which would not otherwise have been incurred by him.
57
<PAGE>
It is anticipated that the above-described employment agreements will be
superseded by employment agreements entered into by the executives and BB&T-NC
upon consummation of the Merger. See "THE MERGER -- Interests of Certain
Persons in the Merger -- Employment Agreements."
Indebtedness of Management
MFB offers single-family residential mortgage loans and consumer loans to
its directors, officers and employees. In the judgment of management, these
loans do not involve more than the normal risk of collectibility. All loans,
with the exception of mortgage and automobile loans, are made on exactly the
same terms as those prevailing at the time for non-affiliated persons. For
first trust mortgage loans, employees with at least one year of service with
MFB are not charged an origination fee. For automobile loans, a rate is charged
which is equal to 1% less than the rate which would be charged to a non-employee
customer. In no case may this rate be below MFB's cost of funds. The
preferential rates on mortgage and automobile loans are charged as long as the
borrower remains employed by MFB. If the borrower ceases to be employed by MFB,
the rate charged is increased to the market rate in effect at the inception of
the loan.
The following table sets forth information with respect to each director
and executive officer of Maryland Federal and MFB and where appropriate their
affiliates who had borrowings of $60,000 or greater from MFB during the period
shown. All first mortgage loans are secured by the named individual's primary
residence, unless otherwise indicated.
<TABLE>
<CAPTION>
Highest
Principal
Balance from
March 1, 1997
to Balance at
Year February 28, February 28, Interest
Name Type of Loan Made 1998 1998 Rate
- ------------------------------- ------------------------ ------ -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
A. William Blake, Jr. ......... Mortgage 1993 $130,019 $118,758 6.125%
Home Equity LOC 1997 84,533 -- --
Robert H. Halleck ............. Mortgage 1995 257,105 254,301 7.625
Home Equity LOC 1995 18,125 4,173 8.50
Ronald R. O'Brien ............. Mortgage 1987 67,219 63,269 7.515
J. Diane Stevenson ............ Mortgage 1992 78,319 76,414 7.00
Automobile 1994 16,263 -- --
Automobile 1997 34,247 31,309 6.75
Overdraft -- Unsecured 1989 2,367 2,296 15.0
Overdraft -- Unsecured 1991 4,913 4,455 15.0
Clarice M. George ............. Mortgage 1993 104,028 102,370 6.25
Richard B. Bland .............. Mortgage 1998 187,750 187,750 7.00
Mortgage 1993 189,052 -- --
Home Equity LOC 1995 99,837 99,837 8.50
Beatrice Bland ................ Mortgage 1997 58,100 57,963 7.25
Nancy B. Cohen ................ Mortgage 1989 117,808 115,272 7.545
Richard R. Mace ............... Mortgage 1998 500,000 500,000 7.00
Lynn B. Hounslow .............. Mortgage 1997 167,900 163,753 7.50
Mortgage 1995 169,642 -- --
David E. Baker ................ Mortgage 1998 134,700 134,700 6.50
Home Equity LOC 1992 6,316 5,066 8.50
</TABLE>
Certain Transactions
The law firm of Lancaster, Bland, Eisele & Herring, in which Chairman of
the Board Richard B. Bland is a partner, performs legal services for MFB in the
ordinary course of business. For the year ended February 28, 1998, the firm
received fees of $417,611 for services performed for MFB, in addition to fees
which were paid by borrowers.
58
<PAGE>
STOCKHOLDER PROPOSALS
Any proposal which a stockholder wishes to have presented at the next
annual meeting of stockholders, which will not be held if the Merger is
completed, must be received at the main office of Maryland Federal, 3505
Hamilton Street, Hyattsville, Maryland 20782, no later than January 16, 1999.
If such proposal is in compliance with all of the requirements of Rule 14a-8 of
the Exchange Act, it will be included in the proxy statement and set forth on
the form of proxy issued for the next annual meeting of stockholders, if
applicable. It is urged that any such proposals be sent by certified mail,
return receipt requested.
OTHER BUSINESS
The Maryland Federal Board is not aware of any business to come before the
Meeting other than those matters described in this Proxy Statement/Prospectus.
However, if any other matters should properly come before the Meeting, it is
intended that the proxies solicited hereby will be voted with respect to those
other matters in accordance with the judgment of the persons voting the
proxies.
ANNUAL REPORTS
A copy of Maryland Federal's Annual Report to Stockholders for the fiscal
year ended February 28, 1998 accompanies or precedes this Proxy
Statement/Prospectus. A copy of Maryland Federal's Annual Report on Form 10-K
for the fiscal year ended February 28, 1998 is available upon written or oral
request in the manner set forth under "INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE."
LEGAL MATTERS
The validity of the Shares offered hereby will be passed upon by Womble
Carlyle Sandridge & Rice, PLLC, Charlotte, North Carolina, as counsel to BB&T.
As of the date of this Proxy Statement/Prospectus, certain members of Womble
Carlyle Sandridge & Rice, PLLC owned an aggregate of approximately 19,000
shares of BB&T Common Stock.
EXPERTS
The consolidated financial statements of BB&T Corporation and its
subsidiaries which are incorporated by reference in this Proxy
Statement/Prospectus from BB&T's Current Report on Form 8-K dated May 13, 1998,
which restates the consolidated financial statements that are incorporated by
reference from BB&T's Annual Report on Form 10-K for the year ended December
31, 1997, to reflect the acquisition of Life Bancorp, Inc. by BB&T on March 1,
1998, have been audited by Arthur Andersen LLP, independent public accountants,
as indicated in their report with respect thereto, and are incorporated by
reference herein in reliance upon the authority of said firm as experts in
giving said report.
The consolidated financial statements of Maryland Federal Bancorp, Inc.
and Subsidiary which are incorporated in this Proxy Statement/Prospectus by
reference from Maryland Federal's Annual Report on Form 10-K for the year ended
February 28, 1998, have been audited by Stoy, Malone & Company, P.C.,
independent auditors, as stated in their report, which is incorporated herein
by reference, and have been so incorporated in reliance upon the report of such
firm given upon their authority as experts in accounting and auditing.
59
<PAGE>
APPENDIX I
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
MARYLAND FEDERAL BANCORP, INC.,
BB&T FINANCIAL CORPORATION OF VIRGINIA
and
BB&T CORPORATION
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
------
<S> <C> <C>
ARTICLE I
DEFINITIONS ..................................................................................................... I-1
1.1 Definitions ..................................................................................... I-1
1.2 Terms Defined Elsewhere ......................................................................... I-4
ARTICLE II
THE MERGER ...................................................................................................... I-4
2.1 Merger .......................................................................................... I-4
2.2 Filing; Plan of Merger .......................................................................... I-5
2.3 Effective Time .................................................................................. I-5
2.4 Closing ......................................................................................... I-5
2.5 Effect of Merger ................................................................................ I-5
2.6 Further Assurances .............................................................................. I-5
2.7 Merger Consideration ............................................................................ I-6
2.8 Conversion of Shares; Payment of Merger Consideration ........................................... I-6
2.9 Conversion of Stock Options ..................................................................... I-7
2.10 Merger of Subsidiary ............................................................................ I-7
2.11 Anti-Dilution ................................................................................... I-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MARYLAND FEDERAL .............................................................. I-8
3.1 Capital Structure ............................................................................... I-8
3.2 Organization, Standing and Authority ............................................................ I-8
3.3 Ownership of Subsidiaries ....................................................................... I-8
3.4 Organization, Standing and Authority of the Subsidiaries ........................................ I-8
3.5 Authorized and Effective Agreement; Redemption of Rights or Termination of Rights Agreement ..... I-9
3.6 Securities Filings; Financial Statements; Statements True ....................................... I-9
3.7 Minute Books .................................................................................... I-10
3.8 Adverse Change .................................................................................. I-10
3.9 Absence of Undisclosed Liabilities .............................................................. I-10
3.10 Properties ...................................................................................... I-10
3.11 Environmental Matters ........................................................................... I-10
3.12 Loans; Allowance for Loan Losses ................................................................ I-11
3.13 Tax Matters ..................................................................................... I-11
3.14 Employees; Compensation; Benefit Plans .......................................................... I-12
3.15 Certain Contracts ............................................................................... I-14
3.16 Legal Proceedings; Regulatory Approvals ......................................................... I-14
3.17 Compliance with Laws; Filings ................................................................... I-14
3.18 Brokers and Finders ............................................................................. I-15
3.19 Repurchase Agreements; Derivatives .............................................................. I-15
3.20 Deposit Accounts ................................................................................ I-15
3.21 Related Party Transactions ...................................................................... I-15
3.22 Certain Information ............................................................................. I-15
3.23 Tax and Regulatory Matters ...................................................................... I-15
3.24 State Takeover Laws ............................................................................. I-16
3.25 Labor Relations ................................................................................. I-16
3.26 Fairness Opinion ................................................................................ I-16
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BB&T .......................................................................... I-16
4.1 Capital Structure of BB&T ....................................................................... I-16
4.2 Organization, Standing and Authority of BB&T .................................................... I-16
4.3 Authorized and Effective Agreement .............................................................. I-16
4.4 Organization, Standing and Authority of BB&T Subsidiaries ....................................... I-17
4.5 Securities Documents; Statements True ........................................................... I-17
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
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<S> <C> <C>
4.6 Financial Statements ........................................... I-17
4.7 Adverse Change ................................................. I-17
4.8 Absence of Undisclosed Liabilities ............................. I-17
4.9 Compliance with Laws ........................................... I-18
4.10 Certain Information ............................................ I-18
4.11 Tax and Regulatory Matters ..................................... I-18
4.12 Share Ownership ................................................ I-18
ARTICLE V
COVENANTS ........................................................... I-18
5.1 Maryland Federal Shareholder Meeting ........................... I-18
5.2 Registration Statement; Proxy Statement/Prospectus ............. I-18
5.3 Plan of Merger; Reservation of Shares .......................... I-19
5.4 Additional Acts ................................................ I-19
5.5 Best Efforts ................................................... I-19
5.6 Certain Accounting Matters ..................................... I-19
5.7 Access to Information .......................................... I-20
5.8 Press Releases ................................................. I-20
5.9 Forbearances of Maryland Federal ............................... I-20
5.10 Employment Agreements .......................................... I-22
5.11 Affiliates ..................................................... I-22
5.12 Employee Benefits .............................................. I-22
5.13 Directors and Officers Protection .............................. I-23
5.14 Forbearances of BB&T ........................................... I-23
5.15 Reports ........................................................ I-23
5.16 Exchange Listing ............................................... I-23
5.17 Advisory Board for Maryland Region. ............................ I-23
5.18 BB&T Rights Agreement .......................................... I-24
ARTICLE VI
CONDITIONS PRECEDENT ................................................ I-24
6.1 Conditions Precedent -- BB&T and Maryland Federal .............. I-24
6.2 Conditions Precedent -- Maryland Federal ....................... I-24
6.3 Conditions Precedent -- BB&T ................................... I-25
ARTICLE VII
TERMINATION, DEFAULT, WAIVER AND AMENDMENT .......................... I-26
7.1 Termination .................................................... I-26
7.2 Effect of Termination .......................................... I-27
7.3 Survival of Representations, Warranties and Covenants .......... I-27
7.4 Waiver ......................................................... I-27
7.5 Amendment or Supplement ........................................ I-28
ARTICLE VIII
MISCELLANEOUS ....................................................... I-28
8.1 Expenses ....................................................... I-28
8.2 Entire Agreement ............................................... I-28
8.3 No Assignment; Successors ...................................... I-28
8.4 Notices ........................................................ I-28
8.5 Specific Performance ........................................... I-29
8.6 Captions ....................................................... I-29
8.7 Counterparts ................................................... I-29
8.8 Governing Law .................................................. I-29
8.9 Initial Merger Agreement ....................................... I-29
8.10 BB&T Option Agreement .......................................... I-29
</TABLE>
<PAGE>
ANNEXES
Annex A Form of Articles of Merger for North Carolina
Annex B Form of Articles of Merger for Maryland
Annex C Form of Employment Agreement with Robert H. Halleck
Annex D Form of Employment Agreements with David E. Baker, Nancy B.
Cohen and J. Diane Stevenson
Annex E Form of Employment Agreements with Lynn B. Hounslow and Ronald
R. O'Brien
<PAGE>
AMENDED AND RESTATED
AGREEMENT AND PLAN OF REORGANIZATION
THIS AMENDED AND RESTATED AGREEMENT AND PLAN OF REORGANIZATION
("Agreement"), dated as of February 25, 1998, is among MARYLAND FEDERAL BANCORP,
INC. ("Maryland Federal"), a Maryland corporation having its principal office
at Hyattsville, Maryland, BB&T FINANCIAL CORPORATION OF VIRGINIA, a Virginia
corporation having its principal office at Virginia Beach, Virginia ("BB&T
Financial"), and BB&T CORPORATION ("BB&T"), a North Carolina corporation having
its principal office at Winston-Salem, North Carolina;
RECITALS:
By Agreement and Plan of Reorganization dated February 25, 1998 (the
"Initial Merger Agreement"), Maryland Federal agreed to be merged with and into
BB&T Financial. The parties have determined that it is in their best interest
to restructure the merger contemplated in the Initial Merger Agreement to
provide that Maryland Federal shall be merged with and into BB&T, and BB&T
Financial shall no longer be a party to such transaction. Accordingly, the
parties desire to amend and restate the Initial Merger Agreement such that
Maryland Federal shall be merged with and into BB&T (said transaction being
hereinafter referred to as the "Merger") pursuant to a plan of merger (the
"Plan of Merger") substantially in the form set forth in Articles of Merger
attached as Annexes A and B hereto ("Articles of Merger"), and the parties
desire to provide for certain undertakings, conditions, representations,
warranties and covenants in connection with the transactions contemplated
hereby.
NOW, THEREFORE, in consideration of the premises and of the mutual
representations, warranties, covenants and agreements herein contained, and
intending to be legally bound hereby, the parties hereto agree to amend and
restate the Initial Merger Agreement in its entirety as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions
When used herein, the capitalized terms set forth below shall have the
following meanings:
"Affiliate" means, with respect to any Person, any Person, who directly or
indirectly, through one or more intermediaries, controls or is controlled by,
or is under common control with such Person and, without limiting the
generality of the foregoing, includes any executive officer or director of such
Person and any Affiliate of such executive officer or director.
"Bank Holding Company Act" shall mean the Federal Bank Holding Company Act
of 1956, as amended.
"BB&T Common Stock" shall mean the shares of voting common stock, par
value $5.00 per share, of BB&T, with BB&T Rights attached issued pursuant to
the BB&T Rights Agreement.
"BB&T Option Agreement" shall mean the Stock Option Agreement dated as of
February 25, 1998 under which BB&T has an option to purchase shares of Maryland
Federal Common Stock, as amended from time to time, which shall be executed
concurrently with execution of this Agreement.
"BB&T Rights" shall mean rights issued by BB&T pursuant to the BB&T Rights
Agreement.
"BB&T Rights Agreement" shall mean the Rights Agreement, dated December
17, 1996, between BB&T and Branch Banking and Trust Company, as Rights Agent,
relating to BB&T's Series B Junior Participating Preferred Stock, $5.00 par
value per share.
"BB&T Subsidiaries" shall mean all bank Subsidiaries of BB&T at the
Effective Time.
"Business Day" shall mean all days other than Saturdays, Sundays and
Federal Reserve holidays.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Commission" shall mean the Securities and Exchange Commission.
"CRA" shall mean the Community Reinvestment Act of 1977, as amended.
"Department" shall mean the Department of Assessments and Taxation of the
State of Maryland.
"Disclosed" shall mean disclosed in the Maryland Federal Disclosure
Memorandum, referencing the Section number herein pursuant to which such
disclosure is being made.
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"Environmental Claim" means any notice from any governmental authority or
third party alleging potential liability (including, without limitation,
potential liability for investigatory costs, cleanup or remediation costs,
governmental response costs, natural resources damages, property damages,
personal injuries or penalties) arising out of, based upon, or resulting from a
violation of the Environmental Laws or the presence or release into the
environment of any Hazardous Substances.
"Environmental Laws" means all applicable federal, state and local laws
and regulations, as amended, relating to pollution or protection of human
health or the environment (including ambient air, surface water, ground water,
land surface, or subsurface strata) and which are administered, interpreted, or
enforced by the United States Environmental Protection Agency and state and
local agencies with jurisdiction over and including common law in respect of,
pollution or protection of the environment, including the Comprehensive
Environmental Response Compensation and Liability Act, as amended, 42 U.S.C.
9601 et seq. ("CERCLA"), the Resource Conservation and Recovery Act, as
amended, 42 U.S.C. 6901 et seq., and other laws and regulations relating to
emissions, discharges, releases, or threatened releases of any Hazardous
Substances, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport, or handling of any Hazardous
Substances.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974, as
amended.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended.
"FDIC" shall mean the Federal Deposit Insurance Corporation.
"Federal Reserve Board" shall mean the Board of Governors of the Federal
Reserve System.
"Financial Advisor" shall mean Sandler O'Neill & Partners, L.P.
"Financial Statements" shall mean (a) with respect to BB&T, (i) the
consolidated balance sheet (including related notes and schedules, if any) of
BB&T as of December 31, 1996, 1995, and 1994, and the related consolidated
statements of income, shareholders' equity and cash flows (including related
notes and schedules, if any) for each of the three years ended December 31,
1996, 1995, and 1994, as filed by BB&T in Securities Documents and (ii) the
consolidated balance sheets of BB&T (including related notes and schedules, if
any) and the related consolidated statements of income, shareholders' equity
and cash flows (including related notes and schedules, if any) included in
Securities Documents filed by BB&T with respect to periods ended subsequent to
December 31, 1996, and (b) with respect to Maryland Federal, (i) the
consolidated statements of financial condition (including related notes and
schedules, if any) of Maryland Federal as of February 28, 1997, February 29,
1996 and February 28, 1995, and the related consolidated statements of income
and retained earnings, and cash flows (including related notes and schedules,
if any) for each of the three years ended February 28, 1997, February 29, 1996
and February 28, 1995 as filed by Maryland Federal in Securities Documents and
(ii) the consolidated statements of financial condition of Maryland Federal
(including related notes and schedules, if any) and the related consolidated
statements of income and retained earnings, and cash flows (including related
notes and schedules, if any) included in Securities Documents filed by Maryland
Federal with respect to periods ended subsequent to February 28, 1997.
"GAAP" shall mean generally accepted accounting principles applicable to
financial institutions and their holding companies, as in effect at the
relevant date.
"Hazardous Substances" means any substance or material (i) identified in
CERCLA; (ii) determined to be toxic, a pollutant or a contaminant under any
applicable federal, state or local statutes, law, ordinance, rule or
regulation, including but not limited to petroleum products; (iii) asbestos;
(iv) radon; (v) poly-chlorinated biphiphenyls and (vi) such other materials,
substances or waste which are otherwise dangerous, hazardous, harmful to human
health or the environment.
"IRS" shall mean the Internal Revenue Service.
"Maryland Federal Common Stock" shall mean the shares of voting common
stock, par value $.01 per share, of Maryland Federal, with Maryland Federal
Rights attached issued pursuant to the Maryland Federal Rights Agreement.
"Maryland Federal Disclosure Memorandum" shall mean the written
information in one or more documents, each of which is entitled "Maryland
Federal Disclosure Memorandum" and dated on or before the date of this
Agreement and delivered not later than the date of execution of this Agreement
by Maryland Federal to BB&T, and describing in reasonable detail the matters
contained therein. Each disclosure made therein shall be in existence on the
date of this Agreement and shall specifically reference each Section of this
Agreement under which such disclosure is made. Information disclosed with
respect to one Section shall be deemed to be disclosed for purposes of any
other Section only if such disclosure is sufficient to put BB&T on notice that
the disclosure is intended to be responsive with respect to such other Section.
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"Maryland Federal Rights" shall mean rights issued by Maryland Federal
pursuant to the Maryland Federal Rights Agreement.
"Maryland Federal Rights Agreement" shall mean the Rights Agreement, dated
January 18, 1990, between Maryland Federal and Registrar and Transfer Company,
as Rights Agent, relating to Maryland Federal's Series A Junior Participating
Preferred Stock, par value $.01 per share.
"Maryland Federal Subsidiaries" shall mean Maryland Federal Savings and
Loan Association, any and all other Subsidiaries of Maryland Federal as of the
date hereof and any corporation, bank, savings association, or other
organization acquired as a Subsidiary of Maryland Federal after the date hereof
and held as a Subsidiary by Maryland Federal at the Effective Time.
"Material Adverse Effect" on BB&T or Maryland Federal shall mean an event,
change, or occurrence which, individually or together with any other event,
change or occurrence, (i) has a material adverse effect on the financial
condition, results of operations, business or business prospects of BB&T and
the BB&T Subsidiaries taken as a whole, or Maryland Federal and the Maryland
Federal Subsidiaries taken as a whole, or (ii) materially impairs the ability
of BB&T or Maryland Federal to perform its obligations under this Agreement or
to consummate the Merger and the other transactions contemplated by this
Agreement; provided that "Material Adverse Effect" shall not be deemed to
include the impact of (a) actions and omissions of BB&T or Maryland Federal
taken with the prior written consent of the other in contemplation of the
transactions contemplated hereby (including any actions taken by Maryland
Federal pursuant to Section 5.6 hereof), (b) the direct effects of compliance
with this Agreement on the operating performance of the parties, including
expenses incurred by the parties in consummating the transactions contemplated
by this Agreement or relating to any litigation arising as a result of the
Merger and (c) any effect with respect to either BB&T or Maryland Federal
caused, in whole or in part, by the other.
"MGCL" shall mean the General Corporation Law of the State of Maryland, as
amended.
"NCBCA" shall mean the North Carolina Business Corporation Act, as
amended.
"NYSE" shall mean the New York Stock Exchange, Inc.
"OTS" shall mean the Office of Thrift Supervision.
"Proxy Statement/Prospectus" shall mean the proxy statement and
prospectus, together with any supplements thereto, to be sent to shareholders
of Maryland Federal to solicit their votes in connection with a proposal to
approve this Agreement and the Plan of Merger.
"Registration Statement" shall mean the registration statement of BB&T
(including the Proxy Statement/Prospectus) as declared effective by the
Commission under the Securities Act, including any post-effective amendments or
supplements thereto as filed with the Commission under the Securities Act, with
respect to the BB&T Common Stock to be issued in connection with the
transactions contemplated by this Agreement.
"Rights" shall mean warrants, options, rights, convertible securities and
other arrangements or commitments which obligate an entity to issue or dispose
of any of its capital stock or other ownership interests (other than rights
pursuant to the Rights Agreements described under the definitions of "BB&T
Common Stock" and "Maryland Federal Common Stock"), and stock appreciation
rights, performance units and similar stock-based rights whether or not they
obligate the issuer thereof to issue stock or other securities or to pay cash.
"SAIF" shall mean the Savings Association Insurance Fund administered by
the FDIC.
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Securities Documents" shall mean all reports, proxy statements,
registration statements and all similar documents filed, or required to be
filed, pursuant to the Securities Laws, including but not limited to periodic
and other reports filed pursuant to Section 13 of the Exchange Act.
"Securities Laws" shall mean the Securities Act; the Exchange Act; the
Investment Company Act of 1940, as amended; the Investment Advisers Act of
1940, as amended; the Trust Indenture Act of 1939 as amended; and the rules and
regulations of the Commission promulgated thereunder.
"Stock Option" shall mean, collectively, any option granted under the
Stock Option Plans, outstanding and unexercised on the date hereof to acquire
shares of Maryland Federal Common Stock, aggregating 631,253 shares.
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<PAGE>
"Stock Option Plans" shall mean Maryland Federal's 1992 Stock Incentive
Plan, 1993 Directors' Stock Option Plan and 1995 Stock Option Plan.
"Stock Purchase Plan" shall mean Maryland Federal's 1988 Employee Stock
Purchase Plan.
"Subsidiaries" shall mean all those corporations, associations, or other
business entities of which the entity in question either owns or controls 50%
or more of the outstanding equity securities either directly or through an
unbroken chain of entities as to each of which 50% or more of the outstanding
equity securities is owned directly or indirectly by its parent (in determining
whether one entity owns or controls 50% or more of the outstanding equity
securities of another, equity securities owned or controlled in a fiduciary
capacity shall be deemed owned and controlled by the beneficial owner).
"TILA" shall mean the Truth in Lending Act, as amended.
1.2 Terms Defined Elsewhere
The capitalized terms set forth below are defined in the following
sections:
<TABLE>
<S> <C>
Agreement Introduction
Articles of Merger Recitals
BB&T Introduction
BB&T Financial Introduction
BB&T Option Agreement Recitals
BB&T Option Plan Section 2.9(a)
BB&T Ratio Section 7.1(g)
Closing Section 2.4
Closing Date Section 2.4
Constituent Corporations Section 2.1
Converted Value Section 7.1(g)
Determination Date Section 7.1(g)
Effective Time Section 2.3
Exchange Ratio Section 2.7(a)
Index Group Section 7.1(g)
Index Price Section 7.1(g)
Maryland Federal Introduction
Maryland Federal Preferred Stock Section 3.1
Merger Recitals
Merger Consideration Section 2.7
PBGC Section 3.14(b)(iv)
Plan Section 3.14(b)(i)
Plan of Merger Recitals
Starting Date Section 7.1(g)
Surviving Corporation Section 2.1(a)
</TABLE>
ARTICLE II
THE MERGER
2.1 Merger
BB&T and Maryland Federal are constituent corporations (the "Constituent
Corporations") to the Merger as contemplated by the NCBCA. At the Effective
Time:
(a) Maryland Federal shall be merged with and into BB&T in accordance with
the applicable provisions of the MGCL and the NCBCA, with BB&T being the
surviving corporate entity (hereinafter sometimes referred to as the "Surviving
Corporation").
(b) The separate existence of Maryland Federal shall cease and the Merger
shall in all respects have the effect provided in Section 2.5.
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<PAGE>
(c) The Articles of Incorporation of BB&T at the Effective Time shall
become the Articles of Incorporation of the Surviving Corporation.
(d) The Bylaws of BB&T at the Effective Time shall become the Bylaws of
the Surviving Corporation.
2.2 Filing; Plan of Merger
The Merger shall not become effective unless this Agreement and the Plan
of Merger are duly approved by shareholders holding the requisite number of
shares of Maryland Federal. Upon fulfillment or waiver of the conditions
specified in Article VI and provided that this Agreement has not been
terminated pursuant to Article VII, the Constituent Corporations will cause the
Articles of Merger to be executed and filed with the Department as provided in
Section 3-107 of the MGCL and the Office of the Secretary of State of North
Carolina as provided in Section 55-11-05 of the NCBCA. The Plan of Merger is
incorporated herein by reference, and adoption of this Agreement by the Boards
of Directors of the Constituent Corporations and approval by the shareholders
of Maryland Federal shall constitute adoption and approval of the Plan of
Merger.
2.3 Effective Time
The Merger shall be effective at the day and hour specified in the
Articles of Merger filed with the Department and the Office of the Secretary of
State of North Carolina (herein sometimes referred to as the "Effective Time").
2.4 Closing
The closing of the transactions contemplated by this Agreement (the
"Closing") shall take place at the offices of Womble Carlyle Sandridge & Rice,
PLLC, Winston-Salem, North Carolina, at 10:00 a.m. on the date designated by
BB&T which is within thirty days following the satisfaction of the conditions
to Closing set forth in Article VI (other than the delivery of certificates,
opinions and other instruments and documents to be delivered at the Closing, or
such later date as the parties may otherwise agree (the "Closing Date").
2.5 Effect of Merger
From and after the Effective Time, the Merger shall have the effects
specified in Section 55-11-06 of the NCBCA and Section 3-114 of the MGCL.
Without limiting the foregoing, from and after the Effective Time, the separate
existence of Maryland Federal shall cease, and the Surviving Corporation shall
thereupon and thereafter, to the extent consistent with its Articles of
Incorporation, possess all of the rights, privileges, immunities and
franchises, of a public as well as a private nature, of each of the Constituent
Corporations; and all property, real, personal and mixed, and all debts due on
whatever account, and all other chooses in action, and each and every other
interest of or belonging to or due to each of the Constituent Corporations
shall be taken and deemed to be transferred to and vested in the Surviving
Corporation without further act or deed; and the title to any real estate or
any interest therein vested in either of the Constituent Corporations shall not
revert or be in any way impaired by reason of the Merger. The Surviving
Corporation shall thenceforth be responsible for all the liabilities,
obligations and penalties of each of the Constituent Corporations; and any
claim, existing action or proceeding, civil or criminal, pending by or against
either of the Constituent Corporations may be prosecuted as if the Merger had
not taken place, or the Surviving Corporation may be substituted in its place;
and any judgment rendered against either of the Constituent Corporations may be
enforced against the Surviving Corporation. Neither the rights of creditors nor
any liens upon the property of either of the Constituent Corporations shall be
impaired by reason of the Merger.
2.6 Further Assurances
If, at any time after the Effective Time, the Surviving Corporation shall
consider or be advised that any further deeds, assignments or assurances in law
or any other actions are necessary, desirable or proper to vest, perfect or
confirm of record or otherwise, in the Surviving Corporation, the title to any
property or rights of the Constituent Corporations acquired or to be acquired
by reason of, or as a result of, the Merger, the Constituent Corporations agree
that such Constituent Corporations and their proper officers and directors
shall and will execute and deliver all such proper deeds, assignments and
assurances in law and do all things necessary, desirable or proper to vest,
perfect or confirm title to such property or rights in the Surviving
Corporation and otherwise to carry out the purpose of this Agreement, and that
the proper officers and directors of the Surviving Corporation are fully
authorized and directed in the name of the Constituent Corporations or
otherwise to take any and all such actions.
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2.7 Merger Consideration
As used herein, the term "Merger Consideration" shall mean the portion of
a whole share of BB&T Common Stock to be exchanged for each share of Maryland
Federal Common Stock issued and outstanding as of the Effective Time and cash
(without interest) to be payable in exchange for any fractional share of BB&T
Common Stock which would otherwise be exchanged for a share of Maryland Federal
Common Stock, determined as follows:
(a) The number of shares of BB&T Common Stock to be issued in exchange for
each issued and outstanding share of Maryland Federal Common Stock shall be in
the ratio of .5975 shares of BB&T Common Stock for each share of Maryland
Federal Common Stock, subject to adjustment in the manner set forth in this
Section 2.7(a) and pursuant to Sections 2.11 and 7.1(g) (the "Exchange Ratio");
provided, that if the product of the Exchange Ratio multiplied by the Average
Closing Price (as defined in Section 7.1(g)) is less than $36.00, the Exchange
Ratio shall be increased to the lesser of (i) the amount necessary to increase
such product to $36.00, or (ii) .6102 (subject to potential adjustment pursuant
to Section 7.01(g)).
(b) The amount of cash payable with respect to any fractional share of
BB&T Common Stock shall be determined by multiplying the fractional part of
such share by the Average Closing Price. No person will be entitled to
dividends, voting rights or any other rights as a BB&T shareholder in respect
of any fractional share.
2.8 Conversion of Shares; Payment of Merger Consideration
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of Maryland Federal or the holders of record of Maryland Federal
Common Stock, each share of Maryland Federal Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into and
shall represent the right to receive, upon surrender of the certificate
representing such share of Maryland Federal Common Stock (as provided in
subsection (d) below), the Merger Consideration.
(b) Each share of the common stock of BB&T issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding.
(c) Until surrendered, each outstanding certificate which prior to the
Effective Time represented one or more shares of Maryland Federal Common Stock
shall be deemed upon the Effective Time for all purposes to represent only the
right to receive the Merger Consideration. No interest will be paid or accrued
on the Merger Consideration upon the surrender of the certificate or
certificates representing shares of Maryland Federal Common Stock. With respect
to any certificate for Maryland Federal Common Stock that has been lost or
destroyed, BB&T shall pay the Merger Consideration attributable to such
certificate upon receipt of a surety bond or other adequate indemnity as
required in accordance with BB&T's standard policy, and evidence reasonably
satisfactory to BB&T of ownership of the shares represented thereby. After the
Effective Time, no transfer of the shares of Maryland Federal Common Stock
outstanding immediately prior to the Effective Time shall be made on the stock
transfer books of the Surviving Corporation.
(d) Promptly after the Effective Time, BB&T shall cause to be delivered or
mailed to each Maryland Federal shareholder a form of letter of transmittal and
instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any shares of Maryland
Federal Common Stock. Upon surrender of such certificates or other evidence of
ownership meeting the requirements of Section 2.8(c), together with such letter
of transmittal duly executed and completed in accordance with the instructions
thereto, and such other documents as may be reasonably requested, BB&T shall
promptly cause the transfer to the persons entitled thereto of the Merger
Consideration.
(e) The Surviving Corporation shall pay any dividends or other
distributions with a record date prior to the Effective Time which have been
declared or made by Maryland Federal in respect of shares of Maryland Federal
Common Stock in accordance with the terms of this Agreement and which remain
unpaid at the Effective Time. To the extent permitted by law, former
shareholders of record of Maryland Federal shall be entitled to vote after the
Effective Time at any meeting of BB&T shareholders the number of whole shares
of BB&T Common Stock into which their respective shares of Maryland Federal
Common Stock are converted, regardless of whether such holders have exchanged
their certificates representing Maryland Federal Common Stock for certificates
representing BB&T Common Stock in accordance with the provisions of this
Agreement. Whenever a dividend or other distribution is declared by BB&T on the
BB&T Common Stock, the record date for which is at or after the Effective Time,
the declaration shall include dividends or other distributions on all shares of
BB&T Common Stock issuable pursuant to this Agreement, but after the Effective
Time no dividend or other distribution payable to the holders of record of BB&T
Common Stock as of any time subsequent to the Effective Time shall be delivered
to the holder of any certificate representing Maryland Federal Common Stock
until such holder surrenders such
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certificate for exchange as provided in this Section 2.8. Upon surrender of
such certificate, both the BB&T Common Stock certificate and any undelivered
dividends and cash payments payable hereunder (without interest) shall be
delivered and paid with respect to each share of Maryland Federal Common Stock
represented by such certificate.
2.9 Conversion of Stock Options
(a) At the Effective Time, each Stock Option then outstanding (and which
by its terms does not lapse on or before the Effective Time), whether or not
then exercisable, shall be converted automatically into and become an option
under the BB&T 1995 Omnibus Stock Incentive Plan or successor plan thereto (the
"BB&T Option Plan"), and shall be governed by the terms and conditions of the
BB&T Option Plan; provided, however, that in no event shall the vesting,
exercise and duration provisions of any Stock Option be less favorable
following conversion to an option under the BB&T Option Plan than as provided
under the individual stock option agreements as in effect under the applicable
Stock Option Plan immediately preceding the Effective Time. In making such
conversion, (i) the number of shares of BB&T Common Stock subject to each such
Stock Option shall be the number of whole shares of BB&T (omitting any
fractional share) determined by multiplying the number of shares of Maryland
Federal Common Stock subject to such Stock Option immediately prior to the
Effective Time by the Exchange Ratio, (ii) the per share exercise price under
each such Stock Option shall be adjusted by dividing the per share exercise
price under each such Stock Option by the Exchange Ratio and rounding up to the
nearest cent and (iii) no restrictions on transfers shall be placed on shares
of BB&T Common Stock received through the exercise of the option, except to the
extent that such restrictions would have been placed on such shares under the
Stock Option Plans or are required by the Securities Laws. In addition, each
such Stock Option which is an "incentive stock option" shall be adjusted as
required by Section 424 of the Code, and the regulations promulgated
thereunder, so as to continue as an incentive stock option under Section 424(a)
of the Code, and so as not to constitute a modification, extension, or renewal
of the option, within the meaning of Section 424(h) of the Code. BB&T and
Maryland Federal agree to take all necessary steps to effectuate the foregoing
provisions of this Section 2.9. Each grant of a converted option to any
individual who subsequent to the Merger will be a director or officer of BB&T
as construed under Rule 16b-3 shall, as a condition to such conversion, be
approved in accordance with the provisions of Rule 16b-3.
(b) As soon as practicable following the Effective Time, BB&T shall
deliver to the participants receiving converted options under the BB&T Option
Plan an appropriate notice setting forth such participant's rights pursuant
thereto. BB&T has reserved under the BB&T Option Plan adequate shares of BB&T
Common Stock for delivery upon exercise of any such converted options, and such
shares of BB&T Common Stock shall be registered under the Securities Act as of
the Effective Time.
2.10 Merger of Subsidiary
In the event that BB&T shall request, Maryland Federal shall take such
actions, and shall cause the Maryland Federal Subsidiaries to take such
actions, as may be required in order to effect, at the Effective Time, the
merger of one or more of the Maryland Federal Subsidiaries with and into, in
each case, one of the BB&T Subsidiaries.
2.11 Anti-Dilution
In the event BB&T changes the number of shares of BB&T Common Stock issued
and outstanding prior to the Effective Time as a result of a stock split, stock
dividend or other similar recapitalization, and the record date thereof (in the
case of a stock dividend) or the effective date thereof (in the case of a stock
split or similar recapitalization for which a record date is not established)
shall be prior to the Effective Time, the Merger Consideration and the Exchange
Ratio shall be proportionately adjusted.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF MARYLAND FEDERAL
Except as Disclosed, Maryland Federal represents and warrants to BB&T as
follows (no representation or warranty herein of Maryland Federal shall be
deemed to be inaccurate unless the inaccuracy would permit BB&T to refuse to
consummate the Merger under the applicable standard set forth in Section
6.3(a)):
3.1 Capital Structure
The authorized capital stock of Maryland Federal consists of 15,000,000
shares of Maryland Federal Common Stock, par value $.01 per share, and
10,000,000 shares of preferred stock ("Maryland Federal Preferred Stock"). As
of the date hereof, 6,481,912 shares of Maryland Federal Common Stock are
issued and outstanding, and no shares of the Maryland Federal Preferred Stock
are issued and outstanding. No other classes of capital stock of Maryland
Federal, common or preferred, are authorized, issued or outstanding. All
outstanding shares of Maryland Federal Common Stock have been duly authorized
and are validly issued, fully paid and nonassessable. No shares of capital
stock have been reserved for any purpose, except for (i) shares of Maryland
Federal Common Stock reserved in connection with the Stock Option Plans and the
Stock Purchase Plan, (ii) shares of Series A Junior Participating Preferred
Stock of Maryland Federal reserved for issuance pursuant to the Maryland
Federal Rights Agreement, and (iii) 1,290,000 shares of Maryland Federal Common
Stock reserved in connection with the BB&T Option Agreement. Maryland Federal
has granted options to acquire 631,253 shares of Maryland Federal Common Stock
under the Stock Option Plans, which options remain outstanding as of the date
hereof. Except with respect to the Stock Purchase Plan and as set forth in this
Section 3.1, there are no Rights authorized, issued or outstanding with respect
to the capital stock of Maryland Federal. Holders of Maryland Federal Common
Stock do not have preemptive rights.
3.2 Organization, Standing and Authority
Maryland Federal is a corporation duly organized, validly existing and in
good standing under the laws of the State of Maryland, with full corporate
power and authority to carry on its business as now conducted and to own, lease
and operate its assets. Maryland Federal is not required to be qualified to do
business in any other state of the United States or foreign jurisdiction.
3.3 Ownership of Subsidiaries
Section 3.3 of the Maryland Federal Disclosure Memorandum lists all of the
Maryland Federal Subsidiaries and, with respect to each, its jurisdiction of
organization, jurisdictions in which it is qualified or otherwise licensed to
conduct business, the number of shares or ownership interests owned by Maryland
Federal (directly or indirectly), the percentage ownership interest so owned by
Maryland Federal and its business activities. The outstanding shares of capital
stock or other equity interests of the Maryland Federal Subsidiaries are
validly issued and outstanding, fully paid and nonassessable, and all such
shares are directly or indirectly owned by Maryland Federal free and clear of
all liens, claims and encumbrances or preemptive rights of any person. No
Rights are authorized, issued or outstanding with respect to the capital stock
or other equity interests of the Maryland Federal Subsidiaries, and there are
no agreements, understandings or commitments relating to the right of Maryland
Federal to own, to vote or to dispose of said interests. None of the shares of
capital stock or other equity interests of the Maryland Federal Subsidiaries
have been issued in violation of the preemptive rights of any person. Section
3.3 of the Maryland Federal Disclosure Memorandum also lists all shares of
capital stock or other securities or ownership interests of any corporation,
partnership, joint venture, or other organization (other than the Maryland
Federal Subsidiaries) owned directly or indirectly by Maryland Federal.
3.4 Organization, Standing and Authority of the Subsidiaries
Each Maryland Federal Subsidiary which is a depository institution is a
federally chartered savings and loan association, the deposits of which are
insured by the SAIF. Each of the Maryland Federal Subsidiaries is validly
existing and in good standing under the laws of its jurisdiction of
organization. Each of the Maryland Federal Subsidiaries has full power and
authority to carry on its business as now conducted, and is duly qualified to
do business in each jurisdiction Disclosed with respect to it. No Maryland
Federal Subsidiary is required to be qualified to do business in any other
state of the United States or foreign jurisdiction, or is engaged in any type
of activities that have not been Disclosed.
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3.5 Authorized and Effective Agreement; Redemption of Rights or Termination of
Rights Agreement
(a) Maryland Federal has all requisite corporate power and authority to
enter into and (subject to receipt of all necessary governmental approvals and
the receipt of approval of the Maryland Federal shareholders of this Agreement
and the Plan of Merger) to perform all of its obligations under this Agreement,
the Articles of Merger and the BB&T Option Agreement. The execution and
delivery of this Agreement, the Articles of Merger and the BB&T Option
Agreement, and consummation of the transactions contemplated hereby and
thereby, have been duly and validly authorized by all necessary corporate
action, except, in the case of this Agreement and the Plan of Merger, the
approval of the Maryland Federal shareholders pursuant to and to the extent
required by applicable law. This Agreement and the Plan of Merger constitute
legal, valid and binding obligations of Maryland Federal, and each is
enforceable against Maryland Federal in accordance with its terms, in each such
case subject to (i) bankruptcy, fraudulent transfer, insolvency, moratorium,
reorganization, conservatorship, receivership, or other similar laws from time
to time in effect relating to or affecting the enforcement of the rights of
creditors of FDIC insured institutions or the enforcement of creditors' rights
generally; and (ii) general principles of equity, and except that the
availability of equitable remedies or injunctive relief is within the
discretion of the appropriate court.
(b) Neither the execution and delivery of this Agreement, the Articles of
Merger or the BB&T Option Agreement, nor consummation of the transactions
contemplated hereby or thereby, nor compliance by Maryland Federal with any of
the provisions hereof or thereof, shall (i) conflict with or result in a breach
of any provision of the Articles of Incorporation or bylaws of Maryland Federal
or any Maryland Federal Subsidiary, (ii) constitute or result in a breach of
any term, condition or provision of, or constitute a default under, or give
rise to any right of termination, cancellation or acceleration with respect to,
or result in the creation of any lien, charge or encumbrance upon any property
or asset of Maryland Federal or any Maryland Federal Subsidiary pursuant to,
any note, bond, mortgage, indenture, license, permit, contract, agreement or
other instrument or obligation, or (iii) subject to receipt of all required
governmental approvals, violate any order, writ, injunction, decree, statute,
rule or regulation applicable to Maryland Federal or any Maryland Federal
Subsidiary.
(c) Other than consents or approvals required from, or notices to,
regulatory authorities as provided in Section 5.4(b) hereof, no notice to,
filing with, or consent of, any public body or authority is necessary for the
consummation by Maryland Federal of the Merger and the other transactions
contemplated in this Agreement.
(d) Effective prior to execution of this Agreement, Maryland Federal has
taken all action necessary to amend the Maryland Federal Rights Agreement so
that execution of this Agreement and the BB&T Option Agreement and consummation
of the transactions contemplated herein and therein, including without
limitation consummation of the Merger pursuant to this Agreement or acquisition
of shares pursuant to the BB&T Option Agreement, shall not result in the grant
of any Maryland Federal Rights to any person under the Maryland Federal Rights
Agreement or enable or require any of the Maryland Federal Rights thereunder to
be exercised, distributed or triggered.
3.6 Securities Filings; Financial Statements; Statements True
(a) Maryland Federal has timely filed all Securities Documents required by
the Securities Laws since February 28, 1994. Maryland Federal has Disclosed or
made available to BB&T a true and complete copy of each Securities Document
filed by Maryland Federal with the Commission after February 28, 1994 and prior
to the date hereof, which are all of the Securities Documents that Maryland
Federal was required to file during such period. As of their respective dates
of filing, such Securities Documents complied with the Securities Laws as then
in effect, and did not contain any untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(b) The Financial Statements of Maryland Federal fairly present the
consolidated financial position of Maryland Federal and the Maryland Federal
Subsidiaries as of the dates indicated and the consolidated statements of
income and retained earnings, changes in shareholders' equity and statements of
cash flows for the periods then ended (subject, in the case of unaudited
interim statements, to the absence of notes and to normal year-end audit
adjustments that are not material in amount or effect) in conformity with GAAP
applied on a consistent basis.
(c) No statement, certificate, instrument or other writing furnished or to
be furnished hereunder by Maryland Federal or any Maryland Federal Subsidiary
to BB&T contains or will contain any untrue statement of a material fact or
will omit to state a material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
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3.7 Minute Books
The minute books of Maryland Federal and each of the Maryland Federal
Subsidiaries contain or will contain at Closing accurate records of all
meetings and other corporate actions of its shareholders and Board of Directors
(including committees of its Board of Directors).
3.8 Adverse Change
Since February 28, 1997, Maryland Federal and the Maryland Federal
Subsidiaries have not incurred any liability except as disclosed in the most
recent Maryland Federal Financial Statements, or entered into any transactions
with Affiliates, in each case other than in the ordinary course of business
consistent with past practices, nor has there been any adverse change or any
event involving a prospective adverse change in the business, financial
condition, results of operations or business prospects of Maryland Federal and
the Maryland Federal Subsidiaries on a consolidated basis.
3.9 Absence of Undisclosed Liabilities
All liabilities (including contingent liabilities) of Maryland Federal and
the Maryland Federal Subsidiaries are disclosed in the most recent Financial
Statements of Maryland Federal or were incurred in the ordinary course of its
business since the date of Maryland Federal's most recent Financial Statements.
3.10 Properties
(a) Maryland Federal and the Maryland Federal Subsidiaries have good and
marketable title, free and clear of all liens, encumbrances, charges, defaults
or equitable interests, to all of the properties and assets, real and personal,
reflected on the consolidated balance sheet included in the Financial
Statements of Maryland Federal as of February 28, 1997 or acquired after such
date, except (i) liens for current taxes not yet due and payable, (ii) pledges
to secure deposits and other liens incurred in the ordinary course of banking
business, (iii) such imperfections of title, easements and encumbrances, if
any, as are not material in character, amount or extent, or (iv) dispositions
and encumbrances for adequate consideration in the ordinary course of business.
(b) All leases and licenses pursuant to which Maryland Federal or any
Maryland Federal Subsidiary, as lessee or licensee, leases or licenses rights
to real or personal property, are valid and enforceable in accordance with
their respective terms.
3.11 Environmental Matters
(a) Maryland Federal and the Maryland Federal Subsidiaries are and at all
times have been in compliance with all Environmental Laws. Neither Maryland
Federal nor any Maryland Federal Subsidiary has received any communication
alleging that Maryland Federal or the Maryland Federal Subsidiary is not in
such compliance, and there are no present circumstances that would prevent or
interfere with the continuation of such compliance.
(b) There are no pending Environmental Claims, neither Maryland Federal
nor any Maryland Federal Subsidiary has received notice of any pending
Environmental Claims, and, to the best knowledge of Maryland Federal, there are
no conditions or facts existing which might reasonably be expected to result in
legal, administrative, arbitral or other proceedings asserting Environmental
Claims or other claims, causes of action or governmental investigations of any
nature seeking to impose, or that could result in the imposition of, any
liability arising under any Environmental Laws upon (i) Maryland Federal or any
Maryland Federal Subsidiary, (ii) any person or entity whose liability for any
Environmental Claim Maryland Federal or any Maryland Federal Subsidiary has or
may have retained or assumed, either contractually or by operation of law,
(iii) any real or personal property owned or leased by Maryland Federal or any
Maryland Federal Subsidiary, or any real or personal property which Maryland
Federal or any Maryland Federal Subsidiary has or is judged to have managed or
supervised or participated in the management of, or (iv) any real or personal
property in which Maryland Federal or any Maryland Federal Subsidiary holds a
security interest securing a loan recorded on the books of Maryland Federal or
any Maryland Federal Subsidiary. Neither Maryland Federal nor any Maryland
Federal Subsidiary is subject to any agreement, order, judgment, decree or
memorandum by or with any court, governmental authority, regulatory agency or
third party imposing any liability under any Environmental Laws.
(c) Maryland Federal and the Maryland Federal Subsidiaries are in
compliance with all recommendations contained in any environmental audits,
analyses and surveys received by Maryland Federal relating to all real and
personal property
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owned or leased by Maryland Federal or any Maryland Federal Subsidiary and all
real and personal property of which Maryland Federal or any Maryland Federal
Subsidiary has or is judged to have managed or supervised or participated in
the management of.
(d) There are no past or present actions, activities, circumstances,
conditions, events or incidents that could reasonably form the basis of any
Environmental Claim, or other claim or action or governmental investigation
that could result in the imposition of any liability arising under any
Environmental Laws, against Maryland Federal or any Maryland Federal Subsidiary
or against any person or entity whose liability for any Environmental Claim
Maryland Federal or any Maryland Federal Subsidiary has or may have retained or
assumed, either contractually or by operation of law.
3.12 Loans; Allowance for Loan Losses
(a) All of the loans on the books of Maryland Federal and the Maryland
Federal Subsidiaries are valid and properly documented, and were made in the
ordinary course of business. Neither the terms of such loans, nor any of the
loan documentation, nor the manner in which such loans have been administered
and serviced, violates any federal, state or local law, rule, regulation or
ordinance applicable thereto, including without limitation, the TILA,
Regulations O and Z of the Federal Reserve Board, the CRA, the Equal Credit
Opportunity Act, as amended, and state laws, rules and regulations relating to
consumer protection, installment sales and usury.
(b) The allowances for loan losses reflected on the consolidated balance
sheets included in the Financial Statements of Maryland Federal are adequate as
of their respective dates under the requirements of GAAP and applicable
regulatory requirements and guidelines.
3.13 Tax Matters
(a) Maryland Federal and the Maryland Federal Subsidiaries and each of
their predecessors have timely filed (or requests for extensions have been
timely filed and any such extensions either are pending or have been granted
and have not expired) all federal, state and local (and, if applicable,
foreign) tax returns required by applicable law to be filed by them (including,
without limitation, estimated tax returns, income tax returns, information
returns, and withholding and employment tax returns) and have paid, or where
payment is not required to have been made, have set up an adequate reserve or
accrual for the payment of, all taxes required to be paid in respect of the
periods covered by such returns and, as of the Effective Time, will have paid,
or where payment is not required to have been made, will have set up an
adequate reserve or accrual for the payment of, all taxes for any subsequent
periods ending on or prior to the Effective Time. Neither Maryland Federal nor
any Maryland Federal Subsidiary has or will have any liability for any such
taxes in excess of the amounts so paid or reserves or accruals so established.
Maryland Federal and the Maryland Federal Subsidiaries have paid, or where
payment is not required to have been made have set up an adequate reserve or
accrual for payment of, all taxes required to be paid or accrued for the
preceding or current fiscal year for which a return is not yet due.
(b) All federal, state and local (and, if applicable, foreign) tax returns
filed by Maryland Federal and the Maryland Federal Subsidiaries are complete
and accurate. Neither Maryland Federal nor any Maryland Federal Subsidiary is
delinquent in the payment of any tax, assessment or governmental charge. No
deficiencies for any tax, assessment or governmental charge have been proposed,
asserted or assessed (tentatively or otherwise) against Maryland Federal or any
Maryland Federal Subsidiary which have not been settled and paid. There are
currently no agreements in effect with respect to Maryland Federal or any
Maryland Federal Subsidiary to extend the period of limitations for the
assessment or collection of any tax. No audit examination or deficiency or
refund litigation with respect to such returns is pending.
(c) Deferred taxes have been provided for in accordance with GAAP
consistently applied.
(d) Neither Maryland Federal nor any of the Maryland Federal Subsidiaries
is a party to any tax allocation or sharing agreement or has been a member of
an affiliated group filing a consolidated federal income tax return (other than
a group the common parent of which was Maryland Federal or a Maryland Federal
subsidiary) or has any liability for taxes of any person (other than Maryland
Federal and the Maryland Federal Subsidiaries) under Treasury Regulation
Section 1.1502-6 (or any similar provision of state, local or foreign law) as a
transferee or successor or by contract or otherwise.
(e) Each of Maryland Federal and the Maryland Federal Subsidiaries is in
compliance with, and its records contain all information and documents
(including properly completed IRS Forms W-9) necessary to comply with, all
applicable information reporting and tax withholding requirements under
federal, state, and local tax laws, and such records identify with specificity
all accounts subject to backup withholding under Section 3406 of the Code.
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(f) Neither Maryland Federal nor any of the Maryland Federal Subsidiaries
has made any payments, is obligated to make any payments, or is a party to any
contract that could obligate it to make any payments that would be disallowed
as a deduction under Sections 280G or 162(m) of the Code.
3.14 Employees; Compensation; Benefit Plans
(a) Compensation. Maryland Federal has Disclosed a complete and correct
list of the name, age, position, rate of compensation and any incentive
compensation arrangements, bonuses or commissions or fringe or other benefits,
whether payable in cash or in kind, of each director, shareholder, independent
contractor, consultant and agent of Maryland Federal and of each Maryland
Federal Subsidiary and each other person (in each case other than as an
employee) to whom Maryland Federal or any Maryland Federal Subsidiary pays or
provides, or has an obligation, agreement (written or unwritten), policy or
practice of paying or providing, retirement, health, welfare or other benefits
of any kind or description whatsoever.
(b) Employee Benefit Plans.
(i) Maryland Federal has Disclosed an accurate and complete list of all
Plans, as defined below, contributed to, maintained or sponsored by
Maryland Federal or any Maryland Federal Subsidiary, to which Maryland
Federal or any Maryland Federal Subsidiary is obligated to contribute or
has any liability or potential liability, whether direct or indirect,
including all Plans contributed to, maintained or sponsored by each member
of the controlled group of corporations, within the meaning of Sections
414(b), 414(c), 414(m) and 414(o) of the Code, of which Maryland Federal or
any Maryland Federal Subsidiary is a member. For purposes of this
Agreement, the term "Plan" shall mean a plan, arrangement, agreement or
program described in the foregoing provisions of this Section 3.14(b)(i)
and which is: (A) a profit-sharing, deferred compensation, bonus, stock
option, stock purchase, pension, retainer, consulting, retirement,
severance, welfare or incentive plan, agreement or arrangement, whether or
not funded and whether or not terminated, (B) an employment agreement, (C)
a personnel policy or fringe benefit plan, policy, program or arrangement
providing for benefits or perquisites to current or former employees,
officers, directors or agents, whether or not funded, and whether or not
terminated, including without limitation benefits relating to automobiles,
clubs, vacation, child care, parenting, sabbatical, sick leave, severance,
medical, dental, hospitalization, life insurance and other types of
insurance, or (D) any other employee benefit plan as defined in Section
3(3) of ERISA, whether or not funded and whether or not terminated.
(ii) Neither Maryland Federal nor any Maryland Federal Subsidiary
contributes to, has an obligation to contribute to or otherwise has any
liability or potential liability with respect to (A) any multiemployer plan
as defined in Section 3(37) of ERISA, (B) any plan of the type described in
Sections 4063 and 4064 of ERISA or in Section 413 of the Code (and
regulations promulgated thereunder), or (C) any plan which provides health,
life insurance, accident or other "welfare-type" benefits to current or
future retirees or former employees or directors, their spouses or
dependents, other than in accordance with Section 4980B of the Code or
applicable state continuation coverage law.
(iii) None of the Plans obligates Maryland Federal or any Maryland
Federal Subsidiary to pay separation, severance, termination or
similar-type benefits solely as a result of any transaction contemplated by
this Agreement or solely as a result of a "change in control," as such term
is used in Section 280G of the Code (and regulations promulgated
thereunder).
(iv) Each Plan has been maintained, funded and administered in compliance
in all respects with its own terms and in compliance in all respects with
all applicable laws and regulations, including but not limited to ERISA and
the Code. No actions, suits, claims, complaints, charges, proceedings,
hearings, examinations, investigations, audits or demands with respect to
the Plans (other than routine claims for benefits) are pending or
threatened, and there are no facts which could give rise to or be expected
to give rise to any actions, suits, claims, complaints, charges,
proceedings, hearings, examinations, investigations, audits or demands. No
Plan that is subject to the funding requirements of Section 412 of the Code
or Section 302 of ERISA has incurred any "accumulated funding deficiency"
as such term is defined in such Sections of ERISA and the Code, whether or
not waived, and each Plan has always fully met the funding standards
required under Title I of ERISA and Section 412 of the Code. No liability
to the Pension Benefit Guaranty Corporation ("PBGC") (except for routine
payment of premiums) has been or is expected to be incurred with respect to
any Plan that is subject to Title IV of ERISA, no reportable event (as such
term is defined in Section 4043 of ERISA) has occurred with respect to any
such Plan, and the PBGC has not commenced or threatened the termination of
any Plan. None of the assets of Maryland Federal or any Maryland Federal
Subsidiary is the subject of any lien arising under Section 302(f) of ERISA
or Section 412(n) of the Code, neither Maryland Federal nor any Maryland
Federal Subsidiary has been required to post any security pursuant to
Section 307 of ERISA or Section 401(a)(29) of the Code, and
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there are no facts which could be expected to give rise to such lien or
such posting of security. No event has occurred and no condition exists
that would subject Maryland Federal or any Maryland Federal Subsidiary to
any tax under Sections 4971, 4972, 4976, 4977 or 4979 of the Code or to a
fine or penalty under Section 502(c) of ERISA.
(v) Each Plan that is intended to be qualified under Section 401(a) of
the Code, and each trust (if any) forming a part thereof, has received a
favorable determination letter from the IRS as to the qualification under
the Code of such Plan and the tax exempt status of such related trust, and
nothing has occurred since the date of such determination letter that could
adversely affect the qualification of such Plan or the tax exempt status of
such related trust.
(vi) No underfunded "defined benefit plan" (as such term is defined in
Section 3(35) of ERISA) has been, during the five years preceding the
Closing Date, transferred out of the controlled group of corporations
(within the meaning of Sections 414(b), (c), (m) and (o) of the Code) of
which Maryland Federal or any Maryland Federal Subsidiary is a member or
was a member during such five-year period.
(vii) As of the Closing Date, the fair market value of the assets of each
Plan that is a tax qualified defined benefit plan equals or exceeds the
present value of all vested and non-vested liabilities thereunder
determined in accordance with reasonable actuarial methods, factors and
assumptions applicable to a defined benefit plan on an ongoing basis. With
respect to each Plan that is subject to the funding requirements of Section
412 of the Code and Section 302 of ERISA, all required contributions for
all periods ending prior to or as of the Closing Date (including periods
from the first day of the then-current plan year to the Closing Date and
including all quarterly contributions required in accordance with Section
412(m) of the Code) shall have been made. With respect to each other Plan,
all required payments, premiums, contributions, reimbursements or accruals
for all periods ending prior to or as of the Closing Date shall have been
made. No tax qualified Plan has any unfunded liabilities.
(viii) No prohibited transaction (which shall mean any transaction
prohibited by Section 406 of ERISA and not exempt under Section 408 of
ERISA or Section 4975 of the Code, whether by statutory, class or
individual exemption) has occurred with respect to any Plan which would
result in the imposition, directly or indirectly, of any excise tax,
penalty or other liability under Section 4975 of the Code or Section 409 or
502(i) of ERISA. Neither Maryland Federal nor, to the best knowledge of
Maryland Federal, any Maryland Federal Subsidiary, any trustee,
administrator or other fiduciary of any Plan, or any agent of any of the
foregoing has engaged in any transaction or acted or failed to act in a
manner that could subject Maryland Federal or any Maryland Federal
Subsidiary to any liability for breach of fiduciary duty under ERISA or any
other applicable law.
(ix) With respect to each Plan, all reports and information required to
be filed with any government agency or distributed to Plan participants and
their beneficiaries have been duly and timely filed or distributed.
(x) Maryland Federal and each Maryland Federal Subsidiary has been and is
presently in compliance with all of the requirements of Section 4980B of
the Code.
(xi) Neither Maryland Federal nor any Maryland Federal Subsidiary has a
liability as of February 28, 1997 under any Plan that, to the extent
disclosure is required under GAAP, is not reflected on the consolidated
balance sheet included in the Financial Statements of Maryland Federal as
of February 28, 1997 or otherwise Disclosed.
(xii) Neither the consideration nor implementation of the transactions
contemplated under this Agreement will increase (A) Maryland Federal's or
any Maryland Federal Subsidiary's obligation to make contributions or any
other payments to fund benefits accrued under the Plans as of the date of
this Agreement or (B) the benefits accrued or payable with respect to any
participant under the Plans (except to the extent benefits may be deemed
increased by accelerated vesting, accelerated allocation of previously
unallocated Plan assets or by the conversion of all stock options in
accordance with Section 2.9 hereof.
(xiii) With respect to each Plan, Maryland Federal has Disclosed or made
available to BB&T, true, complete and correct copies of (A) all documents
pursuant to which the Plans are maintained, funded and administered,
including summary plan descriptions, (B) the three most recent annual
reports (Form 5500 series) filed with the IRS (with attachments), (C) the
three most recent actuarial reports, if any, (D) the three most recent
financial statements, (E) all governmental filings for the last three
years, including without limitation, excise tax returns and reportable
events filings, and (F) all governmental rulings, determinations, and
opinions (and pending requests for governmental rulings, determinations,
and opinions) during the past three years.
(xiv) Each of the Plans as applied to Maryland Federal and any Maryland
Federal Subsidiary may be amended or terminated at any time by action of
Maryland Federal's Board of Directors, committee of the board of Directors
or duly
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authorized officer, in each case subject to the terms of the Plan and
compliance with applicable laws and regulations (and limited, in the case
of multiemployer plans, to termination of the participation of Maryland
Federal or a Maryland Federal Subsidiary thereunder).
3.15 Certain Contracts
(a) Neither Maryland Federal nor any Maryland Federal Subsidiary is a
party to, is bound or affected by, or receives benefits under (i) any
agreement, arrangement or commitment, written or oral, the default of which
would have a Material Adverse Effect, whether or not made in the ordinary
course of business (other than loans or loan commitments made or certificates
or deposits received or borrowings obtained in the ordinary course of the
banking business), or any agreement restricting its business activities,
including without limitation agreements or memoranda of understanding with
regulatory authorities, (ii) any agreement, indenture or other instrument,
written or oral, relating to the borrowing of money by Maryland Federal or any
Maryland Federal Subsidiary or the guarantee by Maryland Federal or any
Maryland Federal Subsidiary of any such obligation, which cannot be terminated
within less than 30 days after the Closing Date by Maryland Federal or any
Maryland Federal Subsidiary (without payment of any penalty or cost, except
with respect to Federal Home Loan Bank or Federal Reserve Bank advances), (iii)
any agreement, arrangement or commitment, written or oral, relating to the
employment of a consultant, independent contractor or agent, or the employment,
election or retention in office of any present or former director or officer,
which cannot be terminated within less than 30 days after the Closing Date by
Maryland Federal or any Maryland Federal Subsidiary (without payment of any
penalty or cost), or that provides benefits which are contingent, or the
application of which is materially altered, upon the occurrence of a
transaction involving Maryland Federal of the nature contemplated by this
Agreement or the BB&T Option Agreement, or (iv) any agreement or plan, written
or oral, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
BB&T Option Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement or the BB&T Option Agreement. Each matter Disclosed pursuant to this
Section 3.15(a) is in full force and effect as of the date hereof.
(b) Neither Maryland Federal nor any Maryland Federal Subsidiary is in
default under any agreement, commitment, arrangement, lease, insurance policy,
or other instrument, whether entered into in the ordinary course of business or
otherwise and whether written or oral, and there has not occurred any event
that, with the lapse of time or giving of notice or both, would constitute such
a default.
3.16 Legal Proceedings; Regulatory Approvals
There are no actions, suits, claims, governmental investigations or
proceedings instituted, pending or, to the best knowledge of Maryland Federal,
threatened against Maryland Federal or any Maryland Federal Subsidiary or
against any asset, interest, plan or right of Maryland Federal or any Maryland
Federal Subsidiary, or, to the best knowledge of Maryland Federal, against any
officer, director or employee of any of them in their capacity as such. There
are no actions, suits or proceedings instituted, pending or, to the best
knowledge of Maryland Federal, threatened against any present or former
director or officer of Maryland Federal or any Maryland Federal Subsidiary that
would reasonably be expected to give rise to a claim against Maryland Federal
or any Maryland Federal Subsidiary for indemnification. There are no actual or,
to the best knowledge of Maryland Federal, threatened actions, suits or
proceedings which present a claim to restrain or prohibit the transactions
contemplated herein or in the BB&T Option Agreement. To the best knowledge of
Maryland Federal, no fact or condition relating to Maryland Federal or any
Maryland Federal Subsidiary exists (including without limitation noncompliance
with the CRA) that would prevent Maryland Federal or BB&T from obtaining all of
the federal and state regulatory approvals contemplated herein.
3.17 Compliance with Laws; Filings
Each of Maryland Federal and each Maryland Federal Subsidiary is in
compliance with all statutes and regulations (including, but not limited to,
the CRA, TILA and regulations promulgated thereunder, and other consumer
banking laws), and has obtained and maintained all permits, licenses and
registrations applicable to the conduct of its business, and neither Maryland
Federal nor any Maryland Federal Subsidiary has received notification that has
not lapsed, been withdrawn or abandoned by any agency or department of federal,
state or local government (i) asserting a violation or possible violation of
any such statute or regulation, (ii) threatening to revoke any permit, license,
registration, or other government authorization, or (iii) restricting or in any
way limiting its operations. Neither Maryland Federal nor any Maryland Federal
Subsidiary is subject to any regulatory or supervisory cease and desist order,
agreement, directive, memorandum of understanding or commitment, and none of
them has received any communication requesting that it enter into any of the
foregoing. Since
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February 28, 1994, Maryland Federal and each of the Maryland Federal
Subsidiaries has filed all reports, registrations, notices and statements, and
any amendments thereto, that it was required to file with federal and state
regulatory authorities, including without limitation the OTS, Commission and
the FDIC. Each such report, registration, notice and statement, and each
amendment thereto, complied with applicable legal requirements.
3.18 Brokers and Finders
Neither Maryland Federal nor any Maryland Federal Subsidiary, nor any of
their respective officers, directors or employees, has employed any broker,
finder or financial advisor or incurred any liability for any fees or
commissions in connection with the transactions contemplated herein, in the
Plan of Merger or in the BB&T Option Agreement, except for fees to accountants
and lawyers and an obligation to the Financial Advisor, the nature and extent
of which have been Disclosed, for investment banking services.
3.19 Repurchase Agreements; Derivatives
(a) With respect to all agreements currently outstanding pursuant to which
Maryland Federal or any Maryland Federal Subsidiary has purchased securities
subject to an agreement to resell, Maryland Federal or the Maryland Federal
Subsidiary has a valid, perfected first lien or security interest in the
securities or other collateral securing such agreement, and the value of such
collateral equals or exceeds the amount of the debt secured thereby. With
respect to all agreements currently outstanding pursuant to which Maryland
Federal or any Maryland Federal Subsidiary has sold securities subject to an
agreement to repurchase, neither Maryland Federal nor the Maryland Federal
Subsidiary has pledged collateral materially in excess of the amount of the
debt secured thereby. Neither Maryland Federal nor any Maryland Federal
Subsidiary has pledged collateral materially in excess of the amount required
under any interest rate swap or other similar agreement currently outstanding.
(b) Neither Maryland Federal nor any Maryland Federal Subsidiary is a
party to or has agreed to enter into an exchange-traded or over-the-counter
swap, forward, future, option, cap, floor, or collar financial contract, or any
other interest rate or foreign currency protection contract not included on its
balance sheets in the Financial Statements, which is a financial derivative
contract (including various combinations thereof), except for options and
forwards entered into in the ordinary course of its mortgage lending business
consistent with past practice and current policy.
3.20 Deposit Accounts
The deposit accounts of the Maryland Federal Subsidiaries that are
depository institutions are insured by the SAIF to the maximum extent permitted
by federal law, and the Maryland Federal Subsidiaries have paid all premiums
and assessments and filed all reports required to have been paid or filed under
all rules and regulations applicable to the SAIF.
3.21 Related Party Transactions
Maryland Federal has Disclosed all existing transactions, investments and
loans, including loan guarantees existing as of the date hereof (other than
deposit relationships and consumer loans entered into in the ordinary course of
business and on arm's length terms), to which Maryland Federal or any Maryland
Federal Subsidiary is a party with any director, executive officer or 5%
shareholder of Maryland Federal or any person, corporation, or enterprise
controlling, controlled by or under common control with any of the foregoing.
All such transactions, investments and loans are on terms no less favorable to
Maryland Federal than could be obtained from unrelated parties.
3.22 Certain Information
When the Proxy Statement/Prospectus is mailed, and at the time of the
meeting of shareholders of Maryland Federal to vote on the Plan of Merger, the
Proxy Statement/Prospectus and all amendments or supplements thereto, with
respect to all information set forth therein provided by Maryland Federal, (i)
shall comply with the applicable provisions of the Securities Laws, and (ii)
shall not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
contained therein, in light of the circumstances in which they were made, not
misleading.
3.23 Tax and Regulatory Matters
Neither Maryland Federal nor any Maryland Federal Subsidiary has taken or
agreed to take any action which would or could reasonably be expected to (i)
cause the Merger not to constitute a reorganization under Section 368 of the
Code or
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(ii) materially impede or delay receipt of any consents of regulatory
authorities referred to in Section 5.4(b) or result in failure of the condition
in Section 6.3(b).
3.24 State Takeover Laws
Maryland Federal and each Maryland Federal Subsidiary have taken all
necessary action to exempt the transactions contemplated by this Agreement from
any applicable moratorium, fair price, business combination, control share or
other anti-takeover laws, including without limitation the provisions of
Sections 3-601 to 3-604 and 3-701 to 3-709 of the MGCL.
3.25 Labor Relations
Neither Maryland Federal nor any Maryland Federal Subsidiary is the
subject of any claim or allegation that it has committed an unfair labor
practice (within the meaning of the National Labor Relations Act or comparable
state law) or seeking to compel it to bargain with any labor organization as to
wages or conditions of employment, nor is Maryland Federal or any Maryland
Federal Subsidiary party to any collective bargaining agreement. There is no
strike or other labor dispute involving Maryland Federal or any Maryland
Federal Subsidiary, pending or threatened, or to the best knowledge of Maryland
Federal, is there any activity involving any employees of Maryland Federal or
any Maryland Federal Subsidiary seeking to certify a collective bargaining unit
or engaging in any other organization activity.
3.26 Fairness Opinion
Maryland Federal has received from the Financial Advisor an opinion that,
as of the date hereof, the Merger Consideration is fair to the shareholders of
Maryland Federal from a financial point of view.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF BB&T
BB&T represents and warrants to Maryland Federal as follows (no
representation or warranty herein of BB&T shall be deemed to be inaccurate
unless the inaccuracy would permit Maryland Federal to refuse to consummate the
Merger under the applicable standard set forth in Section 6.2(a)):
4.1 Capital Structure of BB&T
The authorized capital stock of BB&T consists of (i) 5,000,000 shares of
preferred stock, par value $5.00 per share, of which 2,000,000 shares have been
designated as Series B Junior Participating Preferred Stock and the remainder
are undesignated, and none of which shares are issued and outstanding, and (ii)
300,000,000 shares of BB&T Common Stock (or such larger number as shall be
approved from time to time by the shareholders), of which 136,051,623 shares
were issued and outstanding on December 31, 1997. All outstanding shares of
BB&T Common Stock have been duly authorized and are validly issued, fully paid
and nonassessable. The shares of BB&T Common Stock reserved as provided in
Section 5.3 are free of any Rights and have not been reserved for any other
purpose, and such shares are available for issuance as provided pursuant to the
Plan of Merger. Holders of BB&T Common Stock do not have preemptive rights.
4.2 Organization, Standing and Authority of BB&T
BB&T is a corporation duly organized, validly existing and in good
standing under the laws of the State of North Carolina, with full corporate
power and authority to carry on its business as now conducted and to own, lease
and operate its assets, and is duly qualified to do business in the states of
the United States where its ownership or leasing of property or the conduct of
its business requires such qualification. BB&T is registered as a bank holding
company under the Bank Holding Company Act.
4.3 Authorized and Effective Agreement
(a) BB&T has all requisite corporate power and authority to enter into and
(subject to receipt of all necessary government approvals) perform all of its
obligations under this Agreement. The execution and delivery of this Agreement
and consummation of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action in respect thereof on the
part of BB&T. This Agreement and the Plan of Merger attached hereto constitute
legal, valid and binding obligations of BB&T, and each is enforceable against
BB&T in accordance with its terms, in each case subject to (i) bankruptcy,
insolvency, moratorium, reorganization, conservatorship, receivership or other
similar laws in effect from
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time to time relating to or affecting the enforcement of the rights of
creditors; and (ii) general principles of equity (whether applied in a court of
law or in equity), and except that the availability of equitable remedies or
injunctive relief is within the discretion of the appropriate court.
(b) Neither the execution and delivery of this Agreement or the Articles
of Merger, nor consummation of the transactions contemplated hereby, nor
compliance by BB&T with any of the provisions hereof or thereof shall (i)
conflict with or result in a breach of any provision of the Articles of
Incorporation or bylaws of BB&T or any BB&T Subsidiary, (ii) constitute or
result in a breach of any term, condition or provision of, or constitute a
default under, or give rise to any right of termination, cancellation or
acceleration with respect to, or result in the creation of any lien, charge or
encumbrance upon any property or asset of BB&T or any BB&T Subsidiary pursuant
to, any note, bond, mortgage, indenture, license, agreement or other instrument
or obligation, or (iii) violate any order, writ, injunction, decree, statute,
rule or regulation applicable to BB&T or any BB&T Subsidiary.
(c) Other than consents or approvals required from, or notices to,
regulatory authorities as provided in Section 5.4(b) hereof, no notice to,
filing with, or consent of, any public body or authority is necessary for the
consummation by BB&T of the Merger and the other transactions contemplated in
this Agreement.
4.4 Organization, Standing and Authority of BB&T Subsidiaries
Each of the BB&T Subsidiaries is duly organized, validly existing and in
good standing under applicable laws. BB&T owns, directly or indirectly, all of
the issued and outstanding shares of capital stock of each of the BB&T
Subsidiaries. Each of the BB&T Subsidiaries (i) has full power and authority to
carry on its business as now conducted and (ii) is duly qualified to do
business in the states of the United States and foreign jurisdictions where its
ownership or leasing of property or the conduct of its business requires such
qualification.
4.5 Securities Documents; Statements True
BB&T has timely filed all Securities Documents required by the Securities
Laws since December 31, 1994. As of their respective dates of filing, such
Securities Documents complied with the Securities Laws as then in effect, and
did not contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading. No statement, certificate, instrument or other writing furnished or
to be furnished hereunder by BB&T or any BB&T Subsidiary to Maryland Federal
contains or will contain any untrue statement of material fact or will omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
4.6 Financial Statements
The Financial Statements of BB&T fairly present or will fairly present, as
the case may be, the consolidated financial position of BB&T and the BB&T
Subsidiaries as of the dates indicated and the consolidated results of
operations, changes in shareholders' equity and changes in cash flows for the
periods then ended (subject, in the case of unaudited interim statements, to
the absence of any notes and to normal year-end audit adjustments that are not
material in amount or effect) in conformity with GAAP consistently applied.
4.7 Adverse Change
Since December 31, 1996, BB&T and the BB&T Subsidiaries on a consolidated
basis have not incurred any liability except as disclosed on the most recent
BB&T Financial Statements, or entered into any transactions with Affiliates,
other than in the ordinary course of business consistent with past practices,
nor has there been any adverse change or any event involving a prospective
adverse change in the business, financial condition, results of operations or
business prospects of BB&T and the BB&T Subsidiaries on a consolidated basis.
4.8 Absence of Undisclosed Liabilities
All liabilities (including contingent liabilities) of BB&T and the BB&T
Subsidiaries are disclosed in the most recent Financial Statements of BB&T or
on a consolidated basis incurred in the ordinary course of business since the
date of BB&T's most recent Financial Statements.
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4.9 Compliance with Laws
Each of BB&T and the BB&T Subsidiaries is in compliance with all statutes
and regulations (including, but not limited to, the CRA, TILA and regulations
promulgated thereunder and other consumer banking laws) and has obtained and
maintained all permits, licenses and registrations applicable to the conduct of
its business, and neither BB&T nor any of the BB&T Subsidiaries has received
any notification that has not lapsed, been withdrawn or abandoned from any
agency or department of federal, state or local government (i) asserting a
violation or possible violation of any such statute or regulation, (ii)
threatening to revoke any license, franchise, permit or government
authorization, or (iii) restricting or in any way limiting its operations.
Neither BB&T nor any of the BB&T Subsidiaries is subject to any regulatory or
supervisory cease and desist order, agreement, directive, memorandum of
understandor commitment, and none of them has received any communication
requesting that they enter into any of the foregoing.
4.10 Certain Information
When the Proxy Statement/Prospectus is mailed, and at all times subsequent
to such mailing up to and including the time of the meeting of shareholders of
Maryland Federal to vote on the Merger, the Proxy Statement/Prospectus and all
amendments or supplements thereto, with respect to all information set forth
therein relating to BB&T, (i) shall comply with the applicable provisions of
the Securities Laws, and (ii) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein or
necessary to make the statements contained therein, in light of the
circumstances in which they were made, not misleading.
4.11 Tax and Regulatory Matters
Neither BB&T nor any BB&T Subsidiary has taken or agreed to take any
action which would or could reasonably be expected to (i) cause the Merger not
to constitute a reorganization under Section 368 of the Code, provided,
however, that nothing contained herein shall limit the ability of BB&T to
exercise its rights under the BB&T Option Agreement, or (ii) materially impede
or delay receipt of any consents of regulatory authorities referred to in
Section 5.4(b) hereof or result in failure of the condition in Section 6.3(b)
hereof.
4.12 Share Ownership
As of the date of this Agreement, BB&T does not own (except in a fiduciary
capacity) any shares of Maryland Federal Common Stock.
4.13 Legal Proceedings; Regulatory Approvals
There are no actual or, to the best knowledge of BB&T, threatened actions,
suits or proceedings instituted, which present a claim to restrain or prohibit
the transactions contemplated herein. To the best knowledge of BB&T, no fact or
condition relating to BB&T or any BB&T Subsidiary exists (including without
limitation noncompliance with the CRA) that would prevent BB&T or Maryland
Federal from obtaining all of the federal and state regulatory approvals
contemplated herein.
ARTICLE V
COVENANTS
5.1 Maryland Federal Shareholder Meeting
Maryland Federal shall submit this Agreement and the Plan of Merger to its
shareholders for approval at a meeting to be held as soon as practicable, and
by approving execution of this Agreement, the Board of Directors of Maryland
Federal agrees that it shall, at the time the Proxy Statement/Prospectus is
mailed to the shareholders of Maryland Federal, recommend that Maryland
Federal's shareholders vote for such approval; provided, that the Board of
Directors of Maryland Federal may withdraw or modify such recommendation only
if the Board of Directors shall determine in good faith that such
recommendation should not be made in light of its fiduciary duty to Maryland
Federal's shareholders following consideration of written advice of independent
legal counsel to the effect that making such recommendation or failing to
withdraw or modify such recommendation would more likely than not constitute a
breach of the fiduciary duties of such Board to the shareholders of Maryland
Federal.
5.2 Registration Statement; Proxy Statement/Prospectus
As promptly as practicable after the date hereof, BB&T shall prepare and
file the Registration Statement with the Commission. Maryland Federal will
furnish to BB&T the information required to be included in the Registration
Statement with
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respect to its business and affairs before it is filed with the Commission and
again before any amendments are filed, and shall have the right to review and
consult with BB&T on the form of, and any characterizations of such information
included in, the Registration Statement prior to the filing with the
Commission. Such Registration Statement, at the time it becomes effective and
at the Effective Time, shall in all material respects conform to the
requirements of the Securities Act and the applicable rules and regulations of
the Commission. The Registration Statement shall include the form of Proxy
Statement/ Prospectus. BB&T and Maryland Federal shall use their reasonable
best efforts to cause the Proxy Statement/Prospectus to be approved by the
Commission for mailing to the Maryland Federal shareholders, and such Proxy
Statement/Prospectus shall, on the date of mailing, conform in all material
respects to the requirements of the Securities Laws and the applicable rules
and regulations of the Commission thereunder. Maryland Federal shall cause the
Proxy Statement/Prospectus to be mailed to shareholders in accordance with all
applicable notice requirements under the Securities Laws and the MGCL.
5.3 Plan of Merger; Reservation of Shares
At the Effective Time, the Merger shall be effected in accordance with the
Plan of Merger. In connection therewith, BB&T undertakes and agrees (i) to
adopt the Plan of Merger; and (ii) to pay or cause to be paid when due the
Merger Consideration. BB&T has reserved for issuance such number of shares of
BB&T Common Stock as shall be necessary to pay the Merger Consideration and
agrees not to take any action that would cause the aggregate number of
authorized shares of BB&T Common Stock available for issuance hereunder not to
be sufficient to effect the Merger.
5.4 Additional Acts
(a) Maryland Federal agrees to take such actions requested by BB&T as may
be reasonably necessary to modify the structure of, or to substitute parties to
(so long as such substitute is BB&T or a BB&T Subsidiary) the transactions
contemplated hereby, provided that such modifications do not (i) change the
amount or form of Merger Consideration, (ii) adversely affect the tax treatment
of receiving the Merger Consideration, or (iii) abrogate the covenants and
other agreements contained in this Agreement, including without limitation the
covenant not to take any action that would substantially delay or impair the
prospects of completing the Merger pursuant to this Agreement and the Plan of
Merger.
(b) As promptly as practicable after the date hereof, BB&T and Maryland
Federal shall submit notice or applications for prior approval of the
transactions contemplated herein to the Federal Reserve Board, the OTS and any
other federal, state or local government agency, department or body to which
notice is required or from which approval is required for consummation of the
Merger and the other transactions contemplated hereby. Maryland Federal and
BB&T each represents and warrants to the other that all information included
(or submitted for inclusion) concerning it, its respective Subsidiaries, and
any of its respective directors, officers and shareholders, shall be true,
correct and complete in all material respects as of the date presented.
(c) BB&T agrees that its Board of Directors or authorized Board committee
shall approve prior to the Effective Time each grant of a converted option (as
described in Section 2.9(a)) to any individual who, subsequent to consummation
of the Merger, will be a director or officer of BB&T under Rule 16b-3 of the
Exchange Act.
5.5 Best Efforts
Each of BB&T and Maryland Federal shall use, and shall cause each of their
respective Subsidiaries to use, its reasonable best efforts in good faith to
(i) furnish such information as may be required in connection with and
otherwise cooperate in the preparation and filing of the documents referred to
in Sections 5.2 and 5.4 or elsewhere herein, and (ii) take or cause to be taken
all action necessary or desirable on its part to fulfill the conditions in
Article VI and to consummate the transactions herein contemplated at the
earliest practicable date. Neither BB&T nor Maryland Federal shall take, or
cause, or to the best of its ability permit to be taken, any action that would
substantially delay or impair the prospects of completing the Merger pursuant
to this Agreement and the Plan of Merger.
5.6 Certain Accounting Matters
Maryland Federal shall cooperate with BB&T concerning accounting and
financial matters necessary or appropriate to facilitate the Merger (taking
into account BB&T's policies, practices and procedures), including without
limitation issues arising in connection with record keeping, loan
classification, valuation adjustments, levels of loan loss reserves and other
accounting practices; provided, that any action taken pursuant to this Section
5.6 shall not be deemed to constitute or result in the breach of any
representation or warranty of Maryland Federal contained in this Agreement; and
provided further, that Maryland Federal shall not be required to implement any
changes in accounting or financial matters pursuant to this Section 5.6(i) if
such action is not in accordance with generally accepted accounting principles
or is prohibited by applicable
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law, and (ii) unless and until BB&T agrees in writing that it believes, in its
good faith judgment, that the Merger will constitute a reorganization under
Section 368 of the Code, and that all conditions to BB&T's obligation to
consummate the Merger set forth in Sections 6.1 and 6.3 (other than the
delivery of certificates, opinions and other instruments and documents to be
delivered at the Closing or otherwise to be dated at the Effective Time, the
delivery of which shall continue to be conditions to BB&T's obligation to
consummate the Merger) have been satisfied or waived.
5.7 Access to Information
Maryland Federal and BB&T will each keep the other advised of all material
developments relevant to its business and the businesses of its Subsidiaries,
and to consummation of the Merger, and each shall provide to the other, upon
request, reasonable details of any such development. Upon reasonable notice,
Maryland Federal shall afford to representatives of BB&T access, during normal
business hours during the period prior to the Effective Time, to all of the
properties, books, contracts, commitments and records of Maryland Federal and
the Maryland Federal Subsidiaries and, during such period, shall make available
all information concerning their businesses as may be reasonably requested.
Upon reasonable notice, BB&T shall afford to representatives of Maryland
Federal access during normal business hours, during the period prior to the
Effective Time, to appropriate records as may reasonably be required to fulfill
any fiduciary duty to review such records as the Board of Directors of Maryland
Federal may have to its shareholders. No investigation pursuant to this Section
5.7 shall affect or be deemed to modify any representation or warranty made by,
or the conditions to the obligations hereunder of, either party hereto. Each
party hereto shall, and shall cause each of its directors, officers, attorneys
and advisors to, maintain the confidentiality of all information obtained
hereunder which is not otherwise publicly disclosed by the other party, said
undertakings with respect to confidentiality to survive any termination of this
Agreement pursuant to Section 7.1. In the event of the termination of this
Agreement, each party shall return to the other party upon request all
confidential information previously furnished in connection with the
transactions contemplated by this Agreement.
5.8 Press Releases
BB&T and Maryland Federal shall agree with each other as to the form and
substance of any press release related to this Agreement and the Plan of Merger
or the transactions contemplated hereby and thereby, and consult with each
other as to the form and substance of other public disclosures related thereto;
provided, that nothing contained herein shall prohibit either party, following
notification to the other party, from making any disclosure which in the
opinion of its counsel is required by law.
5.9 Forbearances of Maryland Federal
Except with the prior written consent of BB&T, between the date hereof and
the Effective Time, Maryland Federal shall not, and shall cause each of the
Maryland Federal Subsidiaries not to:
(a) carry on its business other than in the usual, regular and ordinary
course in substantially the same manner as heretofore conducted, or establish
or acquire any new Subsidiary or engage in any new category or type of business
activity;
(b) declare, set aside, make or pay any dividend or other distribution in
respect of its capital stock, other than regularly scheduled quarterly
dividends of $.1125 per share of Maryland Federal Common Stock payable on
record dates and in amounts consistent with past practices; provided that any
dividend declared or payable on the shares of Maryland Federal Common Stock for
the quarterly period during which the Effective Time occurs shall, unless
otherwise agreed upon in writing by BB&T and Maryland Federal, be declared with
a record date prior to the Effective Time only if the normal record date for
payment of the corresponding quarterly dividend to holders of BB&T Common Stock
is before the Effective Time;
(c) issue any shares of its capital stock (including treasury shares),
except pursuant to (i) the Stock Purchase Plan for the offering period pursuant
thereto which commenced on February 1, 1998 and ends on July 31, 1998 (and only
with respect to elections to purchase in effect on the date hereof, which
elections provide for purchases of shares in numbers consistent with past
experience), (ii) Stock Options outstanding as of the date hereof pursuant to
the Stock Option Plans, or (iii) the BB&T Option Agreement;
(d) issue, grant or authorize any Rights or effect any recapitalization,
reclassification, stock dividend, stock split or like change in capitalization;
(e) amend its articles of incorporation or bylaws; impose or permit
imposition, of any lien, charge or encumbrance on any share of stock held by it
in any Maryland Federal Subsidiary, or permit any such lien, charge or
encumbrance to exist; or waive or release any material right or cancel or
compromise any debt or claim, in each case other than in the ordinary course of
business;
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(f) merge with any other entity or permit any other entity to merge into
it, or consolidate with any other entity; acquire control over any other
entity; or liquidate, sell or otherwise dispose of any assets or acquire any
assets, other than in the ordinary course of its business consistent with past
practices;
(g) fail to comply in any material respect with any laws, regulations,
ordinances or governmental actions applicable to it and to the conduct of its
business;
(h) increase the rate of compensation of any of its directors, officers or
employees (excluding increases in compensation resulting from (x) in the case
of officers and employees, increases in the ordinary course of business
consistent with past practice and (y) the exercise of Stock Options outstanding
as of the date of this Agreement), or pay or agree to pay any bonus to, or
provide any new employee benefit or incentive to, any of its directors,
officers or employees (except for any bonus that might be earned and payable
for the year ending February 28, 1998 pursuant to Maryland Federal's bonus
program, if any, as in effect at the beginning of such year);
(i) enter into or substantially modify (except as may be required by
applicable law or regulation) any pension, retirement, stock option, stock
purchase, stock appreciation right, savings, profit sharing, deferred
compensation, consulting, bonus, group insurance or other employee benefit,
incentive or welfare contract, plan or arrangement, or any trust agreement
related thereto, in respect of any of its directors, officers or other
employees; provided, however, that this subparagraph shall not prevent renewal
of any of the foregoing consistent with past practice;
(j) solicit or encourage inquiries or proposals with respect to, furnish
any information relating to, or participate in any negotiations or discussions
concerning, any acquisition or purchase of all or a substantial portion of the
assets of, or a substantial equity interest in, Maryland Federal or any
Maryland Federal Subsidiary or any business combination with Maryland Federal
or any Maryland Federal Subsidiary other than as contemplated by this
Agreement; or authorize any officer, director, agent or affiliate of Maryland
Federal or any Maryland Federal Subsidiary to do any of the above; or fail to
notify BB&T immediately if any such inquiries or proposals are received, any
such information is requested or required, or any such negotiations or
discussions are sought to be initiated; provided, that this subsection (j)
shall not apply to furnishing information, negotiations or discussions
following an unsolicited offer if, as a result of such offer, Maryland Federal
is advised in writing by independent legal counsel that the failure to so
furnish information or negotiate would more likely than not constitute a breach
of the fiduciary duties of Maryland Federal's Board of Directors to its
shareholders;
(k) enter into (i) any material agreement, arrangement or commitment not
made in the ordinary course of business, (ii) any agreement, indenture or other
instrument not made in the ordinary course of business relating to the
borrowing of money by Maryland Federal or a Maryland Federal Subsidiary or
guarantee by Maryland Federal or a Maryland Federal Subsidiary of any
obligation, (iii) any agreement, arrangement or commitment relating to the
employment or severance of a consultant or the employment, severance, election
or retention in office of any present or former director, officer or employee
(this clause shall not apply to the election of directors by shareholders or
the reappointment of officers in the normal course), or (iv) any contract,
agreement or understanding with a labor union;
(l) change its lending, investment or asset liability management policies
in any material respect, except as may be required by applicable law,
regulation, or directives, and except that after approval of the Agreement and
the Plan of Merger by its shareholders and after receipt of the requisite
regulatory approvals for the transactions contemplated by this Agreement and
the Plan of Merger, Maryland Federal shall cooperate in good faith with BB&T to
adopt policies, practices and procedures consistent with those utilized by
BB&T, effective on or before the Closing Date;
(m) change its methods of accounting in effect at February 28, 1997,
except as required by changes in GAAP concurred in by BB&T, which concurrence
shall not be unreasonably withheld, or change any of its methods of reporting
income and deductions for federal income tax purposes from those employed in
the preparation of its federal income tax returns for the year ended February
28, 1997, except as required by changes in law or regulation;
(n) incur any commitments for capital expenditures or obligation to make
capital expenditures in excess of $50,000, for any one expenditure, or
$150,000, in the aggregate;
(o) incur any indebtedness other than deposits from customers, advances
from the Federal Home Loan Bank or Federal Reserve Bank and reverse repurchase
arrangements in the ordinary course of business;
(p) take any action which would or could reasonably be expected to (i)
cause the Merger not to constitute a reorganization under Section 368 of the
Code as determined by BB&T, (ii) result in any inaccuracy of a representation
or warranty herein which would allow for a termination of this Agreement, or
(iii) cause any of the conditions precedent to the transactions contemplated by
this Agreement to fail to be satisfied;
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<PAGE>
(q) dispose of any material assets other than in the ordinary course of
business; or
(r) agree to do any of the foregoing.
5.10 Employment Agreements
BB&T (or its specified banking subsidiary) agrees to enter into an
employment agreement with Robert H. Halleck substantially in the form of Annex
C hereto, employment agreements with David E. Baker, Nancy B. Cohen and J.
Diane Stevenson substantially in the form of Annex D hereto, and employment
agreements with Lynn B. Hounslow and Ronald R. O'Brien substantially in the
form of Annex E hereto.
5.11 Affiliates
Maryland Federal shall use its reasonable best efforts to cause all
persons who are Affiliates of Maryland Federal to deliver to BB&T promptly
following execution of this Agreement a written agreement providing that such
person will not dispose of BB&T Common Stock received in the Merger except in
compliance with the Securities Act and the rules and regulations promulgated
thereunder, and in any event shall use its reasonable best efforts to cause
such affiliates to deliver to BB&T such written agreement prior to the Closing
Date.
5.12 Employee Benefits
(a) BB&T shall cause the 401(k) plan of Maryland Federal to be merged with
the 401(k) plan maintained by BB&T and the BB&T Subsidiaries, and the account
balances of former employees of Maryland Federal or the Maryland Federal
Subsidiaries who are participants in the Maryland Federal plan shall be
transferred to the accounts of such employees under the BB&T 401(k) plan.
Following such merger and transfer, such accounts shall be governed and
controlled by the terms of the BB&T 401(k) plan as in effect from time to time
(and subject to BB&T's right to terminate such plan). For purposes of
administering the 401(k) plan, service with Maryland Federal and the Maryland
Federal Subsidiaries shall be deemed to be service with BB&T or the BB&T
Subsidiaries for participation and vesting purposes, but not for purposes of
benefit accrual.
(b) As soon as practicable following the Effective Time, BB&T shall take
any and all action necessary to either terminate Maryland Federal's defined
benefit pension plan (the "Maryland Federal Pension Plan") pursuant to a
standard termination in accordance with Section 4041 of ERISA and to provide for
full vesting of the accrued benefits of all participants in the Maryland Federal
Pension Plan and the distribution of the assets thereof to the participants or
merge the Maryland Federal Pension Plan with and into the BB&T Pension Plan. The
actions relating to termination or merger of the Maryland Federal Pension Plan
shall be conditioned upon receiving a favorable determination letter from the
IRS with regard to the termination or merger of the Maryland Federal Pension
Plan. BB&T will use its reasonable best efforts to seek the issuance of such
letter as soon as practicable following the Effective Time. Each employee of
Maryland Federal or a Maryland Federal Subsidiary at the Effective Time who
becomes an employee immediately following the Effective Time of BB&T or a BB&T
Subsidiary ("Employer Entity") shall be given credit under BB&T's defined
benefit pension plan for service with Maryland Federal and the Maryland Federal
Subsidiaries for participation and vesting purposes, but not for purposes of
benefit accrual.
(c) Each employee of Maryland Federal at the Effective Time who becomes an
employee immediately following the Effective Time of an Employer Entity shall
be eligible to participate in the group hospitalization, medical, dental, life,
disability and other welfare benefit plans and programs available to employees
of the Employer Entity, subject to the terms of such plans and programs;
provided, that service with Maryland Federal shall be deemed to be service with
the Employer Entity for the purpose of determining eligibility to participate
in such welfare plans and programs.
(d) Each employee of Maryland Federal or a Maryland Federal Subsidiary who
becomes an employee of BB&T or a BB&T Subsidiary and is terminated by BB&T or a
BB&T Subsidiary subsequent to the Effective Time, excluding any employee who
has an existing employment or special termination agreement which is Disclosed,
shall be entitled to severance pay in accordance with the general severance
policy maintained by BB&T, if and to the extent that such employee is entitled
to severance pay under such policy. Such employee's service with Maryland
Federal or a Maryland Federal Subsidiary shall be treated as service with BB&T
for purposes of determining the amount of severance pay, if any, under BB&T's
severance policy.
(e) BB&T agrees to honor all employment agreements, severance agreements
and the deferred compensation agreement (including related trust agreement)
that Maryland Federal and the Maryland Federal Subsidiaries have with their
current and former employees and directors and which have been Disclosed to
BB&T pursuant to this Agreement, except to the extent any such agreements shall
be superseded or terminated at the Closing or following the Closing Date.
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<PAGE>
5.13 Directors and Officers Protection
BB&T or a BB&T Subsidiary shall purchase and keep in force for a period of
three years after the Effective Time directors' and officers' liability
insurance providing coverage to directors and officers of Maryland Federal for
acts or omissions occurring prior to the Effective Time. Such insurance shall
provide at least the same coverage and amounts as contained in Maryland
Federal's policy on the date hereof; provided, that in no event shall the
annual premium on such policy exceed 150% of the annual premium payments on
Maryland Federal's policy in effect as of the date hereof (the "Maximum
Amount"). If the amount of the premiums necessary to maintain or procure such
insurance coverage exceeds the Maximum Amount, BB&T shall use its reasonable
best efforts to maintain the most advantageous policies of directors' and
officers' liability insurance obtainable for a premium equal to the Maximum
Amount. Notwithstanding the foregoing, BB&T further agrees to indemnify (and
advance expenses to) all individuals who are or have been officers, directors
or employees of Maryland Federal or any Maryland Federal Subsidiary prior to
the Effective Time from any acts or omissions in such capacities prior to the
Effective Time, to the fullest extent that such indemnification is provided
pursuant to the Articles of Incorporation of Maryland Federal on the date
hereof and is permitted under the MGCL. Limitations on liability contained in
the Articles of Incorporation of Maryland Federal on the date hereof shall be
applicable following the Merger with respect to actions preceding the Merger
and which were subject to such limitations.
5.14 Forbearances of BB&T
Except with the prior written consent of Maryland Federal, between the
date hereof and the Effective Time, neither BB&T nor any BB&T Subsidiary shall
take any action which would or might be expected to (i) cause the business
combination contemplated hereby not to constitute a reorganization under
Section 368 of the Code; (ii) result in any inaccuracy of a representation or
warranty herein which would allow for termination of this Agreement; (iii)
cause any of the conditions precedent to the transactions contemplated by this
Agreement to fail to be satisfied; or (iv) fail to comply in any material
respect with any laws, regulations, ordinances or governmental actions
applicable to it and to the conduct of its business.
5.15 Reports
Each of Maryland Federal and BB&T shall file (and shall cause the Maryland
Federal Subsidiaries and the BB&T Subsidiaries, respectively, to file), between
the date of this Agreement and the Effective Time, all reports required to be
filed by it with the Commission and any other regulatory authorities having
jurisdiction over such party, and shall deliver to BB&T or Maryland Federal, as
the case may be, copies of all such reports promptly after the same are filed.
If financial statements are contained in any such reports filed with the
Commission, such financial statements will fairly present the consolidated
financial position of the entity filing such statements as of the dates
indicated and the consolidated results of operations, changes in shareholders'
equity, and cash flows for the periods then ended in accordance with GAAP
(subject in the case of interim financial statements to the absence of notes
and to normal recurring year-end adjustments that are not material). As of
their respective dates, such reports filed with the Commission will comply in
all material respects with the Securities Laws and will not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. Any financial
statements contained in any other reports to a regulatory authority other than
the Commission shall be prepared in accordance with requirements applicable to
such reports.
5.16 Exchange Listing
BB&T shall use its reasonable best efforts to list, prior to the Effective
Time, on the NYSE, subject to official notice of issuance, the shares of BB&T
Common Stock to be issued to the holders of Maryland Federal Common Stock
pursuant to the Merger, and BB&T shall give all notices and make all filings
with the NYSE required in connection with the transactions contemplated herein.
5.17 Advisory Board for Maryland Region
As of the Effective Time and for at least three years thereafter, BB&T
shall offer to each of the members of the Board of Directors of Maryland
Federal a seat on the Advisory Board of its newly created Maryland Region, and
shall offer to the Chairman of the Board of Directors of Maryland Federal the
position of Chairman of such Advisory Board. For three years following the
Effective Time, the Advisory Board members elected pursuant to this Section
5.17 and who continue to serve shall receive, as compensation for service on
the Advisory Board of the Maryland Region, Advisory Board member's fees (annual
retainer and attendance fees) equal in amount each year (prorated for any
partial year) to the annual retainer and schedule of attendance fees for
Directors of Maryland Federal in effect on January 1, 1998. In addition, such
Chairman shall
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<PAGE>
receive for the three-year period (or lesser period of his service as Chairman)
the special Chairman's compensation which was in effect with respect to him on
January 1, 1998. Following such three-year period, Advisory Board Members and
the Chairman, if they continue to serve in such capacities, shall receive fees
in accordance with the standard schedule of fees for service thereon as in
effect from time to time. For three years after the Effective Time, no such
Advisory Board Member shall be prohibited from serving thereon because he shall
have attained the maximum age for service thereon (currently age 70).
5.18 BB&T Rights Agreement
BB&T agrees (a) that any BB&T Rights issued pursuant to the BB&T Rights
Agreement shall be issued with respect to each share of BB&T Common Stock
issued pursuant to the terms hereof regardless of whether there has occurred a
"Distribution Date" under the terms of the BB&T Rights Agreement prior to the
Effective Time, (i) to the extent permitted by Section 22 of the BB&T Rights
Agreement and (ii) unless all BB&T Rights in respect of outstanding shares of
BB&T Common Stock have been redeemed or otherwise terminated prior to the
Effective Time and (b) subject to the foregoing, to take all action reasonably
necessary or advisable to enable the holder of each such share of BB&T Common
Stock to obtain the benefit of such BB&T Rights notwithstanding their prior
distribution, including, without limitation, amendment of the BB&T Rights
Agreement (to the extent permissible under the terms thereof) in connection
with any such distribution of BB&T Rights.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 Conditions Precedent -- BB&T and Maryland Federal
The respective obligations of BB&T and Maryland Federal to effect the
transactions contemplated by this Agreement shall be subject to satisfaction or
waiver of the following conditions at or prior to the Effective Time:
(a) All corporate action necessary to authorize the execution, delivery
and performance of this Agreement and the Plan of Merger, and consummation of
the transactions contemplated hereby and thereby, shall have been duly and
validly taken, including without limitation the approval of the shareholders of
Maryland Federal of the Agreement and the Plan of Merger;
(b) The Registration Statement (including any post-effective amendments
thereto) shall be effective under the Securities Act, no proceedings shall be
pending or to the knowledge of BB&T threatened by the Commission to suspend the
effectiveness of such Registration Statement and the BB&T Common Stock to be
issued as contemplated in the Plan of Merger shall have either been registered
or be subject to exemption from registration under applicable state securities
laws;
(c) The parties shall have received all regulatory approvals required in
connection with the transactions contemplated by this Agreement and the Plan of
Merger, all notice periods and waiting periods with respect to such approvals
shall have passed and all such approvals shall be in effect;
(d) None of BB&T, any of the BB&T Subsidiaries, Maryland Federal or any of
the Maryland Federal Subsidiaries shall be subject to any order, decree or
injunction of a court or agency of competent jurisdiction which enjoins or
prohibits consummation of the transactions contemplated by this Agreement; and
(e) Maryland Federal and BB&T shall have received an opinion of BB&T's
legal counsel, in form and substance satisfactory to Maryland Federal and BB&T,
substantially to the effect that the Merger will constitute one or more
reorganizations under Section 368 of the Code and that the shareholders of
Maryland Federal will not recognize any gain or loss to the extent that such
shareholders exchange shares of Maryland Federal Common Stock for shares of
BB&T Common Stock.
6.2 Conditions Precedent -- Maryland Federal
The obligations of Maryland Federal to effect the transactions
contemplated by this Agreement shall be subject to the satisfaction of the
following additional conditions at or prior to the Effective Time, unless
waived by Maryland Federal pursuant to Section 7.4:
(a) All representations and warranties of BB&T shall be evaluated as of
the date of this Agreement and as of the Effective Time as though made on and
as of the Effective Time (or on the date designated in the case of any
representation and warranty which specifically relates to an earlier date),
except as otherwise contemplated by this Agreement or consented to in writing
by Maryland Federal. The representations and warranties of BB&T set forth in
Sections 4.1, 4.2, 4.3(a), 4.3(b)(i),
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<PAGE>
4.4 and 4.11 shall be true and correct (except for inaccuracies which are de
minimis in amount). There shall not exist inaccuracies in the representations
and warranties of BB&T set forth in this Agreement (including the
representations and warranties set forth in Sections 4.1, 4.2, 4.3(a),
4.3(b)(i) and 4.4) such that the aggregate effect of such inaccuracies has, or
is reasonably likely to have, a Material Adverse Effect on BB&T.
(b) BB&T shall have performed in all material respects all obligations and
complied in all material respects with all covenants required by this Agreement
to be performed at or prior to the Effective Time.
(c) BB&T shall have delivered to Maryland Federal a certificate, dated the
Closing Date and signed by its Chairman or President or an Executive Vice
President, acting on behalf of BB&T in his or her capacity as such officer, to
the effect that the conditions set forth in Sections 6.1(a), 6.1(b), 6.1(c),
6.1(d), 6.2(a) and 6.2(b) hereof, to the extent applicable to BB&T, have been
satisfied and that there are no actions, suits, claims, governmental
investigations or procedures instituted, pending or, to the best of such
officer's knowledge, threatened that reasonably may be expected to have a
Material Adverse Effect on BB&T or that present a claim to restrain or prohibit
the transactions contemplated herein or in the Plan of Merger.
(d) Maryland Federal shall have received opinions of counsel to BB&T in
the form reasonably acceptable to Maryland Federal's legal counsel.
(e) All approvals of the transactions contemplated herein from the Federal
Reserve Board and any other state or federal government agency, department or
body, the approval of which is required for the consummation of the Merger,
shall have been received and all waiting period with respect to such approvals
shall have expired.
(f) The shares of BB&T Common Stock issuable pursuant to the Merger shall
have been approved for listing on the NYSE, subject to official notice of
issuance.
6.3 Conditions Precedent -- BB&T
The obligations of BB&T to effect the transactions contemplated by this
Agreement shall be subject to satisfaction of the following additional
conditions at or prior to the Effective Time, unless waived by BB&T pursuant to
Section 7.4:
(a) All representations and warranties of Maryland Federal shall be
evaluated as of the date of this Agreement and as of the Effective Time as
though made on and as of the Effective Time (or on the date designated in the
case of any representation and warranty which specifically relates to an
earlier date), except as otherwise contemplated by this Agreement or consented
to in writing by BB&T. The representations and warranties of Maryland Federal
set forth in Sections 3.1, 3.2 (except the last sentence thereof), 3.3 (except
the last sentence thereof), 3.4 (except the last sentence thereof), 3.5(a),
3.5(b)(i), 3.23 and 3.24 shall be true and correct (except for inaccuracies
which are de minimis in amount). There shall not exist inaccuracies in the
representations and warranties of Maryland Federal set forth in this Agreement
(including the representations and warranties set forth in the Sections
designated in the preceding sentence) such that the effect of such inaccuracies
individually or in the aggregate has, or is reasonably likely to have, a
Material Adverse Effect with respect to Maryland Federal.
(b) No regulatory approval shall have imposed any condition or requirement
which, in the reasonable opinion of the Board of Directors of BB&T, would so
materially adversely affect the business or economic benefits to BB&T of the
transactions contemplated by this Agreement as to render consummation of such
transactions inadvisable or unduly burdensome.
(c) Maryland Federal shall have performed in all material respects all
obligations and complied in all material respects with all covenants required
by this Agreement to be performed at or prior to the Effective Time.
(d) Maryland Federal shall have delivered to BB&T a certificate, dated the
Closing Date and signed by its Chairman or President, acting on behalf of
Maryland Federal and in his or her capacity as such officer, to the effect that
the conditions set forth in Sections 6.1(a), 6.1(c), 6.1(d), 6.3(a) and 6.3(c)
hereof, to the extent applicable to Maryland Federal, have been satisfied and
that there are no actions, suits, claims, governmental investigations or
procedures instituted, pending or, to the best of such officer's knowledge,
threatened that reasonably may be expected to have a Material Adverse Effect on
Maryland Federal or that present a claim to restrain or prohibit the
transactions contemplated herein or in the Plan of Merger.
(e) BB&T shall have received opinions of counsel to Maryland Federal in
the form reasonably acceptable to BB&T's legal counsel.
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<PAGE>
ARTICLE VII
TERMINATION, DEFAULT, WAIVER AND AMENDMENT
7.1 Termination
This Agreement may be terminated:
(a) At any time prior to the Effective Time, by the mutual consent in
writing of the parties hereto.
(b) At any time prior to the Effective Time, by either party (i) in the
event of a material breach by the other party of any covenant or agreement
contained in this Agreement, or (ii) in the event of an inaccuracy of any
representation or warranty of the other party contained in this Agreement,
which inaccuracy would provide the nonbreaching party the ability to refuse to
consummate the Merger under the applicable standard set forth in Section 6.2(a)
hereof in the case of Maryland Federal and Section 6.3(a) hereof in the case of
BB&T; and, in the case of (i) or (ii), if such breach or inaccuracy has not
been cured by the earlier of thirty days following written notice of such
breach to the party committing such breach or the Effective Time.
(c) At any time prior to the Effective Time, by either party hereto in
writing, if any of the conditions precedent to the obligations of the other
party to consummate the transactions contemplated hereby cannot be satisfied or
fulfilled prior to the Closing Date, and the party giving the notice is not in
breach of any of its representations, warranties, covenants or undertakings
herein.
(d) At any time, by either party hereto in writing, if any of the
applications for prior approval referred to in Section 5.4 hereof are denied,
and the time period for appeals and requests for reconsideration has run.
(e) At any time, by either party hereto in writing, if the shareholders of
Maryland Federal do not approve the Agreement and the Plan of Merger.
(f) At any time following December 31, 1998 by either party hereto in
writing, if the Effective Time has not occurred by the close of business on
such date, and the party giving the notice is not in breach of any of its
representations, warranties, covenants or undertakings herein.
(g) By Maryland Federal at any time during the five-day period commencing
on the Determination Date if both of the following conditions are satisfied:
(1) the Converted Value shall be less than $30.60; and
(2) (i) the quotient obtained by dividing the Average Closing Price by
$62.00 (such number being referred to herein as the "BB&T Ratio") shall be
less than (ii) 90% of the quotient obtained by dividing the Index Price on
the Determination Date by the Index Price on the Starting Date;
subject, however, to the following three sentences. If Maryland Federal
determines not to consummate the Merger pursuant to this Section 7.1(g), it
shall give prompt written notice of its election to terminate to BB&T, which
notice may be withdrawn at any time prior to the lapse of the five-day period
commencing on the Determination Date. During the five-day period commencing
with its receipt of such notice, BB&T shall have the option to elect to
increase the Exchange Ratio to a number such that the Converted Value is not
less than $30.60. The election contemplated by the preceding sentence shall be
made by giving notice to Maryland Federal of such election and the revised
Exchange Ratio, whereupon no termination shall have occurred pursuant to this
Section 7.1(g), and this Agreement shall remain in effect in accordance with
its terms (except as the Exchange Ratio shall have been so modified), and any
references in this Agreement to "Exchange Ratio" shall thereafter be deemed to
refer to the Exchange Ratio as adjusted pursuant to this Section 7.1(g). If the
Closing Date shall occur during the five-day period such option is in effect,
the Closing Date shall be extended until the fifth Business Day following the
close of such five-day period.
For purposes of this Section 7.1(g), the following terms shall have the
meanings indicated:
"Converted Value" shall mean the product of the Average Closing Price
multiplied by the Exchange Ratio.
"Average Closing Price" shall mean the average closing price per share of
the BB&T Common Stock on the NYSE Composite Transactions List (as reported by
The Wall Street Journal) for the ten trading days (determined by excluding days
on which the NYSE is closed) ending on the trading date prior to the
Determination Date.
"Determination Date" shall mean the tenth calendar day preceding the
Effective Time (the tenth day to be determined by counting the day preceding
the Effective Time as the first day).
"Index Group" shall mean the 14 bank holding companies listed below, the
common stocks of all of which shall be publicly traded and as to which there
shall not have been, since the Starting Date and before the Determination Date,
any public announcement of a proposal for such company to be acquired or for
such company to acquire another company or
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companies in transactions with a value exceeding 25% of the acquiror's market
capitalization. In the event that any such company or companies are removed
from the Index Group, the weights (which have been determined based upon the
number of shares of outstanding common stock) shall be redistributed
proportionately for purposes of determining the Index Price. The 14 bank
holding companies and the weights attributed to them are as follows:
<TABLE>
<CAPTION>
Bank Holding Companies % Weighting
- ---------------------------------------------- ------------
<S> <C>
Wachovia Corp. ...................... 11.22
Fifth Third Bancorp ................. 8.46
Comerica Inc. ....................... 5.70
Summit Bancorp ...................... 9.62
Mercantile Bancorp .................. 7.11
Northern Trust Corp. ................ 6.07
Huntington Bancshares Inc. .......... 10.45
Firstar Corp. ....................... 7.90
Crestar Financial Corp. ............. 6.07
South Trust Corp. ................... 5.58
Regions Financial Corp. ............. 7.45
Marshall & Ilsley Corp. ............. 5.53
AmSouth Bancorp ..................... 4.39
Union Planters Corp. ................ 4.45
------
Total ............................... 100.00%
======
</TABLE>
"Index Price" on a given date shall mean the weighted average (weighted in
accordance with the "% Weighting" listed above) of the closing sales prices of
the companies composing the Index Group (determined as of the Starting Date
based on the average closing price per share (as reported by The Wall Street
Journal on the day preceding the Starting Date) and as provided with respect to
the Average Closing Price in the case of the Determination Date).
"Starting Date" shall mean the date of this Agreement.
If any company belonging to the Index Group or BB&T declares or effects a
stock dividend, reclassification, recapitalization, split-up, combination,
exchange of shares, or similar transaction between the Starting Date and the
Determination Date, the prices for the common stock of such company or BB&T
shall be appropriately adjusted for the purposes of applying this Section
7.1(g).
7.2 Effect of Termination
In the event this Agreement and the Plan of Merger is terminated pursuant
to Section 7.1 hereof, both this Agreement and the Plan of Merger shall become
void and have no effect, except that (i) the provisions hereof relating to
confidentiality and expenses set forth in the last two sentences of Section 5.7
and in Section 8.1, respectively, shall survive any such termination and (ii) a
termination pursuant to Section 7.1(b) hereof shall not relieve the breaching
party from liability for an uncured breach of the covenant, agreement,
representation or warranty giving rise to such termination. The BB&T Option
Agreement shall be governed by its own terms.
7.3 Survival of Representations, Warranties and Covenants
All representations, warranties and covenants in this Agreement or the
Plan of Merger or in any instrument delivered pursuant hereto or thereto shall
expire on, and be terminated and extinguished at, the Effective Time, other
than covenants that by their terms are to be performed after the Effective Time
(including, without limitation, Sections 5.10, 5.12, 5.13 and 5.17), provided
that no such representations, warranties or covenants shall be deemed to be
terminated or extinguished so as to deprive BB&T or Maryland Federal (or any
director, officer or controlling person thereof) of any defense at law or in
equity which otherwise would be available against the claims of any person,
including, without limitation, any shareholder or former shareholder of either
BB&T or Maryland Federal, the aforesaid representations, warranties and
covenants being material inducements to consummation by BB&T and Maryland
Federal of the transactions contemplated herein.
7.4 Waiver
Except with respect to any required regulatory approval, each party
hereto, by written instrument signed by an executive officer of such party, may
at any time (whether before or after approval of the Agreement and the Plan of
Merger by the Maryland Federal shareholders) extend the time for the
performance of any of the obligations or other acts of the other party hereto
and may waive (i) any inaccuracies of the other party in the representations or
warranties contained in this Agreement, the Plan of Merger or any document
delivered pursuant hereto or thereto, (ii) compliance with any of the
covenants, undertakings or agreements of the other party, or satisfaction of
any of the conditions precedent to its obligations,
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contained herein or in the Plan of Merger, or (iii) the performance by the
other party of any of its obligations set out herein or therein; provided that
no such extension or waiver, or amendment or supplement pursuant to this
Section 7.4, executed after approval by the Maryland Federal shareholders of
this Agreement and the Plan of Merger, shall modify either the amount or the
form of the consideration to be provided to holders of Maryland Federal Common
Stock upon consummation of the Merger.
7.5 Amendment or Supplement
This Agreement or the Plan of Merger may be amended or supplemented at any
time in writing by mutual agreement of BB&T and Maryland Federal, subject to
the proviso to Section 7.4 hereof.
ARTICLE VIII
MISCELLANEOUS
8.1 Expenses
Each party hereto shall bear and pay all costs and expenses incurred by it
in connection with the transactions contemplated by this Agreement, including
fees and expenses of its own financial consultants, accountants and counsel;
provided, however, that the filing fees and printing costs incurred in
connection with the Registration Statement shall be borne 50% by BB&T and 50%
by Maryland Federal.
8.2 Entire Agreement
This Agreement, including the documents and other writings referenced
herein or delivered pursuant hereto, contains the entire agreement between the
parties with respect to the transactions contemplated hereunder and thereunder
and supersedes all arrangements or understandings with respect thereto, written
or oral, entered into on or before the date hereof. The terms and conditions of
this Agreement and the BB&T Option Agreement shall inure to the benefit of and
be binding upon the parties hereto and thereto and their respective successors.
Nothing in this Agreement or the BB&T Option Agreement, expressed or implied,
is intended to confer upon any party, other than the parties hereto and
thereto, and their respective successors, any rights, remedies, obligations or
liabilities, except for the rights of directors and officers of Maryland
Federal to enforce rights in Sections 5.13 and 5.17.
8.3 No Assignment; Successors
None of the parties hereto may assign any of its rights or obligations
under this Agreement to any other person, except upon the prior written consent
of each other party. The terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective
successors and permitted assigns.
8.4 Notices
All notices or other communications which are required or permitted
hereunder shall be in writing and sufficient if delivered personally or sent by
nationally recognized overnight express courier or by facsimile transmission,
addressed or directed as follows:
If to Maryland Federal:
Robert H. Halleck
Maryland Federal Bancorp, Inc.
3505 Hamilton Street
Hyattsville, Maryland 20782
Telephone: 301-779-1200
Fax: 301-864-2076
With a required copy to:
Timothy B. Matz, Esq.
Gerard L. Hawkins, Esq.
Elias, Matz, Tiernan & Herrick L.L.P.
734 15th Street, N.W.
12th Floor
Washington D.C., 20005
Telephone: 202-347-0300
Fax: 202-347-2172
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If to BB&T:
Scott E. Reed
BB&T Corporation
150 South Stratford Road
4th Floor
Winston-Salem, North Carolina 27104
Telephone: 336-733-3088
Fax: 336-733-2296
With a required copy to:
William A. Davis, II
Womble Carlyle Sandridge & Rice, PLLC
200 West Second Street
Winston-Salem, North Carolina 27102
Telephone: 336-721-3624
Fax: 336-733-8364
Any party may by notice change the address to which notice or other
communications to it are to be delivered.
8.5 Specific Performance
Maryland Federal acknowledges that the Maryland Federal Common Stock and
the Maryland Federal business and assets are unique, and that if Maryland
Federal shall refuse to consummate the transaction contemplated by this
Agreement without cause and in breach of its obligations hereunder, such
failure by Maryland Federal will cause irreparable harm to BB&T for which there
will be no adequate remedy at law, in which event BB&T shall be entitled, in
addition to its other remedies at law, to specific performance of this
Agreement.
8.6 Captions
The captions contained in this Agreement are for reference only and are
not part of this Agreement.
8.7 Counterparts
This Agreement may be executed in any number of counterparts, and each
such counterpart shall be deemed to be an original instrument, but all such
counterparts together shall constitute but one agreement.
8.8 Governing Law
This Agreement shall be governed by and construed in accordance with the
laws of the State of North Carolina applicable to agreements made and entirely
to be performed within such jurisdiction, except to the extent that mandatory
provisions of federal law or the MGCL is applicable.
8.9 Initial Merger Agreement
This Agreement, executed June 10, 1998, amends and supersedes in its
entirety the Initial Merger Agreement effective as of February 25, 1998, the
date of execution of the Initial Merger Agreement, and following execution
hereof the Initial Merger Agreement shall have no further force or effect. All
references in this Agreement to "the date hereof" shall mean February 25, 1998,
and all agreements, covenants, representations and warranties set forth in this
Agreement shall be deemed to have been made on February 25, 1998.
8.10 BB&T Option Agreement
The parties acknowledge that this Agreement represents ongoing
consideration for the BB&T Option Agreement, and that the BB&T Option Agreement
shall continue in effect in accordance with its terms.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto, intending to be legally bound
hereby, have caused this Agreement to be executed in counterparts by their duly
authorized officers, all as of the day and year first above written.
BB&T CORPORATION
By: ------------------------------------
Name: ---------------------------------
Title: ---------------------------------
BB&T FINANCIAL CORPORATION OF VIRGINIA
By: ------------------------------------
Name: ---------------------------------
Title: ---------------------------------
MARYLAND FEDERAL BANCORP, INC.
By:
------------------------------------
Name:
Title:
I-30
<PAGE>
ANNEX A
ARTICLES OF MERGER
OF
MARYLAND FEDERAL BANCORP, INC.
WITH AND INTO
BB&T CORPORATION
Pursuant to the provisions of Section 55-11-05 of the General Statutes of
North Carolina, BB&T Corporation, a North Carolina corporation ("BB&T"), the
surviving corporation, submits these Articles of Merger for the purpose of
merging Maryland Federal Bancorp, Inc., a Maryland corporation ("Maryland
Federal") into BB&T (the "Merger").
ARTICLE I
The Plan of Merger attached hereto as Annex A and incorporated herein by
reference (the "Plan of Merger") was duly approved in the manner prescribed by
law by the shareholders of Maryland Federal on the day of ,
1998, pursuant to the terms of the Agreement and Plan of Reorganization, dated
as of February 25, 1998, as amended and restated, with BB&T and Maryland
Federal as parties thereto.
ARTICLE II
Approval of the Plan of Merger by the shareholders of BB&T was not
required.
ARTICLE III
The merger shall become effective at .m. on , 1998.
This the day of , 1998.
BB&T CORPORATION
By:
--------------------------------
Name:
------------------------------
Title:
------------------------------
MARYLAND FEDERAL BANCORP, INC.
By:
--------------------------------
Name:
------------------------------
Title:
------------------------------
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<PAGE>
ANNEX A
PLAN OF MERGER
OF
MARYLAND FEDERAL BANCORP, INC.
WITH AND INTO
BB&T CORPORATION
Section 1. Corporations Proposing to Merge and Surviving Corporation.
Maryland Federal Bancorp, Inc., a Maryland corporation ("Maryland Federal"),
shall be merged (the "Merger") with and into BB&T Corporation, a North Carolina
corporation ("BB& T"), pursuant to the terms and conditions of this Plan of
Merger (the "Plan of Merger") and of the Agreement and Plan of Reorganization,
dated as of February 25, 1998, as amended and restated (the "Agreement"), by
and among Maryland Federal, BB&T and BB&T Financial Corporation of Virginia, a
Virginia corporation and wholly owned subsidiary corporation of BB&T. The
effective time for the Merger (the "Effective Time") shall be set forth in the
Articles of Merger to be filed with the Office of the Secretary of State of
North Carolina and the Articles of Merger to be filed with the Department of
Assessments and Taxation of the State of Maryland. BB&T shall continue as the
surviving corporation (the "Surviving Corporation") in the Merger and the
separate corporate existence of Maryland Federal shall cease.
Section 2. Effects of the Merger. The Merger shall have the effects set
forth in Section 3-114 of the General Corporation Law of the State of Maryland
(the "MGCL") and in Section 55-11-06 of the North Carolina Business Corporation
Act (the "NCBCA").
Section 3. Articles of Incorporation and Bylaws. The Articles of
Incorporation and the Bylaws of BB&T as in effect immediately prior to the
Effective Time shall remain in effect as the Articles of Incorporation and
Bylaws of the Surviving Corporation following the Effective Time until changed
in accordance with their terms and the NCBCA.
Section 4. Conversion of Shares; Payment of Merger Consideration
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of Maryland Federal or the holders of record of shares of the
common stock, par value $.01 per share, of Maryland Federal ("Maryland Federal
Common Stock"), each share of Maryland Federal Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into and
shall represent the right to receive, upon surrender of the certificate
representing such share of Maryland Federal Common Stock (as provided in
subsection (d) below), the Merger Consideration (as defined below in Section
5).
(b) Each share of the common stock of BB&T issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding.
(c) Until surrendered, each outstanding certificate which prior to the
Effective Time represented one or more shares of Maryland Federal Common Stock
shall be deemed upon the Effective Time for all purposes to represent only the
right to receive the Merger Consideration. No interest will be paid or accrued
on the Merger Consideration upon the surrender of the certificate or
certificates representing shares of Maryland Federal Common Stock. With respect
to any certificate for Maryland Federal Common Stock that has been lost or
destroyed, BB&T shall pay the Merger Consideration attributable to such
certificate upon receipt of a surety bond or other adequate indemnity as
required in accordance with BB&T's standard policy, and evidence reasonably
satisfactory to BB&T of ownership of the shares represented thereby. After the
Effective Time, no transfer of the shares of Maryland Federal Common Stock
outstanding immediately prior to the Effective Time shall be made on the stock
transfer books of the Surviving Corporation.
(d) Promptly after the Effective Time, BB&T shall cause to be delivered or
mailed to each Maryland Federal shareholder a form of letter of transmittal and
instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any shares of Maryland
Federal Common Stock (the "Instruction Letter"). Upon surrender of such
certificates or other evidence of ownership meeting the requirements of the
foregoing subsection (c), together with such letter of transmittal duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably requested, BB&T shall promptly cause the
transfer to the persons entitled thereto of the Merger Consideration.
(e) The Surviving Corporation shall pay any dividends or other
distributions with a record date prior to the Effective Time which have been
declared or made by Maryland Federal in respect of shares of Maryland Federal
Common Stock in accordance with the terms of the Agreement and which remain
unpaid at the Effective Time. To the extent permitted by law,
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former shareholders of record of Maryland Federal shall be entitled to vote
after the Effective Time at any meeting of BB&T shareholders the number of
whole shares of BB&T Common Stock into which their respective shares of
Maryland Federal Common Stock are converted, regardless of whether such holders
have exchanged their certificates representing Maryland Federal Common Stock
for certificates representing shares of the voting common stock, par value
$5.00 per share, of BB&T ("BB&T Common Stock") in accordance with the
provisions of this Plan of Merger. Whenever a dividend or other distribution is
declared by BB&T on the BB&T Common Stock, the record date for which is at or
after the Effective Time, the declaration shall include dividends or other
distributions on all shares of BB&T Common Stock issuable pursuant to this
Agreement, but after the Effective Time no dividend or other distribution
payable to the holders of record of BB&T Common Stock as of any time subsequent
to the Effective Time shall be delivered to the holder of any certificate
representing Maryland Federal Common Stock until such holder surrenders such
certificate for exchange as provided in this Section 4. Upon surrender of such
certificate, both the BB&T Common Stock certificate and any undelivered
dividends and cash payments payable hereunder (without interest) shall be
delivered and paid with respect to each share of Maryland Federal Common Stock
represented by such certificate.
Section 5. Merger Consideration
As used herein, the term "Merger Consideration" shall mean the portion of
a whole share of BB&T Common Stock to be exchanged for each share of Maryland
Federal Common Stock issued and outstanding as of the Effective Time and cash
(without interest) to be payable in exchange for any fractional share of BB&T
Common Stock which would otherwise be exchanged for a share of Maryland Federal
Common Stock, determined as follows:
(a) The number of shares of BB&T Common Stock to be issued in exchange for
each issued and outstanding share of Maryland Federal Common Stock shall be in
the ratio of .5975 shares of BB&T Common Stock for each share of Maryland
Federal Common Stock, subject to adjustment in the manner set forth below and
pursuant to Sections 2.11 and 7.1(g) of the Agreement (the "Exchange Ratio");
provided, that if the product of the Exchange Ratio multiplied by the Average
Closing Price (as defined in subsection (b) below) is less than $36.00, the
Exchange Ratio shall be increased to the lesser of (i) the amount necessary to
increase such product to $36.00, or (ii) .6102, subject to potential adjustment
pursuant to Section 7.1(g) of the Agreement.
(b) For purposes of this Section 5, the "Average Closing Price" shall mean
the average closing price per share of BB&T Common Stock on the New York Stock
Exchange, Inc. ("NYSE") Composite Transactions List (as reported by The Wall
Street Journal) for the ten trading days (determined by excluding days on which
the NYSE is closed) immediately preceding the tenth calendar day preceding the
Effective Time (the tenth day to be determined by counting the day preceding
the Effective Time as the first day).
(c) The amount of cash payable with respect to any fractional share of
BB&T Common Stock shall be determined by multiplying the fractional part of
such share by the Average Closing Price. No person will be entitled to
dividends, voting rights or any other rights as a BB&T shareholder in respect
of any fractional share.
(d) In the event BB&T changes the number of shares of BB&T Common Stock
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend or other similar recapitalization, and the record date
thereof (in the case of a stock dividend) or the effective date thereof (in the
case of a stock split or similar recapitalization for which a record date is
not established) shall be prior to the Effective Time, the Merger Consideration
and the Exchange Ratio shall be proportionately adjusted.
Section 6. Conversion of Stock Options
(a) At the Effective Time, each option (a "Stock Option") granted under
Maryland Federal's 1992 Stock Incentive Plan, 1993 Directors' Stock Option Plan
and 1995 Stock Option Plan (collectively, the "Stock Option Plans"),
outstanding and unexercised as of the Effective Time to acquire shares of
Maryland Federal Common Stock, aggregating 631,253 shares as of February 25,
1998 (and which by its terms does not lapse on or before the Effective Time),
whether or not then exercisable, shall be converted automatically into and
become an option under the BB&T 1995 Omnibus Stock Incentive Plan or successor
plan thereto (the "BB&T Option Plan"), and shall be governed by the terms and
conditions of the BB&T Option Plan; provided, however, that in no event shall
the vesting, exercise and duration provisions of any Stock Option be less
favorable following conversion to an option under the BB&T Option Plan than as
provided under the individual stock option agreements as in effect under the
applicable Stock Option Plan immediately preceding the Effective Time. In
making such conversion, (i) the number of shares of BB&T Common Stock subject
to each such Stock Option shall be the number of whole shares of BB&T (omitting
any fractional share) determined by multiplying the number of shares of
Maryland Federal Common Stock subject to such Stock Option immediately prior to
the Effective Time by the Exchange Ratio, (ii) the
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<PAGE>
per share exercise price under each such Stock Option shall be adjusted by
dividing the per share exercise price under each such Stock Option by the
Exchange Ratio and rounding up to the nearest cent and (iii) no restrictions on
transfers shall be placed on shares of BB&T Common Stock received through the
exercise of the option, except to the extent that such restrictions would have
been placed on such shares under the Stock Option Plans or are required by the
Securities Act of 1933, as amended; the Securities Exchange Act of 1934, as
amended; the Investment Company Act of 1940, as amended; the Trust Indenture
Act of 1939, as amended; and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder. In addition, each such Stock Option
which is an "incentive stock option" shall be adjusted as required by Section
424 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder, so as to continue as an incentive stock
option under Section 424(a) of the Code, and so as not to constitute a
modification, extension, or renewal of the option, within the meaning of
Section 424(h) of the Code. BB&T and Maryland Federal agree to take all
necessary steps to effectuate the foregoing provisions of this Section 6. Each
grant of a converted option to any individual who subsequent to the Merger will
be a director or officer of BB&T as construed under Rule 16b-3 of the
Securities Exchange Act of 1934, as amended, shall, as a condition to such
conversion, be approved in accordance with the provisions of Rule 16b-3.
(b) As soon as practicable following the Effective Time, BB&T shall
deliver to the participants receiving converted options under the BB&T Option
Plan an appropriate notice setting forth such participant's rights pursuant
thereto. BB&T has reserved under the BB&T Option Plan adequate shares of BB&T
Common Stock for delivery upon exercise of any such converted options, and such
shares of BB&T Common Stock shall be registered under the Securities Act of
1933, as amended, as of the Effective Time.
Section 7. No Fractional Shares. Notwithstanding any other term or
provision hereof, no fraction of a share of BB&T Common Stock, and no
certificates or script therefor or other evidence of ownership thereof, will be
issued in connection with the conversion of Maryland Federal Common Stock in
the Merger, and no right to receive cash in lieu thereof shall entitle the
holder thereof to any voting or other rights of a holder of shares or
fractional share interests of the Surviving Corporation. In lieu of such
fractional shares, any holder of shares who would otherwise be entitled to
fractional shares of BB&T Common Stock will, upon receipt by the Surviving
Corporation of the Instruction Letter and other documents described in Section
4(c), above, be paid the cash value of each such fraction, computed in
accordance with the ratio set forth in Section 5 above.
Section 8. Amendment. At any time before the Effective Time, this Plan of
Merger may be amended, provided that no such amendment executed after approval
by the Maryland Federal shareholders of the Agreement and this Plan of Merger
shall modify either the amount or the form of the consideration to be provided
to holders of Maryland Federal Common Stock upon consummation of the Merger.
A-4
<PAGE>
ANNEX B
ARTICLES OF MERGER
MERGING
MARYLAND FEDERAL BANCORP, INC.
(a Corporation of the State of Maryland)
INTO
BB&T CORPORATION
(a Corporation of the State of North Carolina)
FIRST: BB&T Corporation, a corporation organized and existing under the
laws of the State of North Carolina ("BB&T"), and Maryland Federal Bancorp,
Inc., a corporation organized and existing under the laws of the State of
Maryland ("Maryland Federal"), agree that Maryland Federal shall be merged into
BB&T, and the mode of carrying the same into effect are as herein set forth in
these Articles of Merger and the Plan of Merger attached hereto as Annex A.
SECOND: BB&T shall survive the merger and shall continue under the name
BB&T Corporation.
THIRD: The parties to the Articles of Merger are BB&T, a corporation
organized on the 24th day of September, 1968, under the North Carolina Business
Corporation Act, as amended, and Maryland Federal, a corporation organized and
existing under the laws of the State of Maryland.
FOURTH: The following amendments to the charter of the surviving
corporation are to be effected as part of the merger:
The Articles of Incorporation and Bylaws of the surviving corporation
shall continue as the Articles of Incorporation and Bylaws of the
surviving corporation until amended in accordance with their terms and
the North Carolina Business Corporation Act.
FIFTH: The total number of shares of stock of all classes which BB&T has
authority to issue is Five Hundred Five Million (505,000,000) shares, divided
into Five Hundred Million (500,000,000) shares of common stock of the par value
of Five Dollars ($5.00) each and Five Million (5,000,000) shares of preferred
stock of the par value of Five Dollars ($5.00) each, of the aggregate par value
of Two Billion Five Hundred Twenty Five Million Dollars ($2,525,000,000).
The total number of shares of stock of all classes which said Maryland
Federal has authority to issue is Twenty-Five Million (25,000,000) shares,
divided into Fifteen Million (15,000,000) shares of common stock of the par
value of $0.01 per share, of the aggregate par value of One Hundred Fifty
Thousand Dollars ($150,000), and Ten Million (10,000,000) shares of preferred
stock without par value.
SIXTH: The manner and basis of converting or exchanging issued stock of
the merged corporation into different stock or other consideration and the
manner of dealing with any issued stock of the merged corporation not to be so
converted or exchanged shall be as set forth in the Plan of Merger set forth as
Annex A hereto.
SEVENTH: The principal office of said Maryland Federal is located in the
County of Prince George's, State of Maryland.
Maryland Federal owns property in the Counties of Anne Arundel, Montgomery
and Prince George's, State of Maryland, the title to which could be affected by
the recording of an instrument among the Land Records.
EIGHTH: The location of the principal office of the surviving corporation
in the State of North Carolina, the state of its incorporation, is ,
and the name and post office address of a resident agent of said surviving
corporation in Maryland is , at .
NINTH: The terms and conditions of the merger transaction as set forth in
these Articles of Merger and the Plan of Merger set forth as Annex A hereto
were advised, authorized and approved by Maryland Federal, in the manner and by
the vote required by its Articles of Incorporation and the laws of Maryland.
The manner in which the merger was approved is as follows:
The merger was (a) duly advised by the board of directors of Maryland
Federal by the adoption on February 25, 1998 of a resolution approving the
merger substantially upon the terms and conditions set forth in these
Articles of Merger and directing that the proposed merger be submitted for
action thereon at a meeting of the stockholders of said corporation, and
(b) duly approved by the stockholders of said corporation in the manner and
by the vote required by law at the said meeting of the stockholders held on
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<PAGE>
, 1998, by the affirmative vote of the holders of two-thirds
of all the votes entitled to be cast on the matter by the holders of the
only class of stock entitled to vote separately thereon.
TENTH: The terms and conditions of the transaction as set forth in these
articles were duly advised and authorized and approved by said BB&T in the
manner and by the vote required by the laws of the State of North Carolina and
by the charter of the said corporation. The manner in which the merger was
approved is as follows:
The merger was duly advised by the board of directors of BB&T by the
adoption on February 24, 1998 of a resolution approving the merger
substantially upon the terms and conditions set forth in these Articles of
Merger.
ELEVENTH: The following other provisions are deemed by the merging
corporation necessary to effect the merger: See Plan of Merger set forth as
Annex A hereto.
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<PAGE>
IN WITNESS WHEREOF, Maryland Federal and BB&T, the parties to the merger,
have caused these articles of merger to be signed in their respective corporate
names and on their behalf by their respective presidents or vice-presidents and
witnessed or attested by their respective secretaries or assistant secretaries,
as of the day of , 1998.
MARYLAND FEDERAL BANCORP, INC.
By:
----------------------------
President (or Vice-President)
Attest: (Witness:)
Secretary (or Assistant Secretary)
BB&T CORPORATION
By:
----------------------------
President (or Vice-President)
Attest: (Witness:)
Secretary (or Assistant Secretary)
THE UNDERSIGNED, President (or Vice-President) of Maryland Federal
Bancorp, Inc., who executed on behalf of said corporation the foregoing
Articles of Merger, of which this certificate is made a part, hereby
acknowledges, in the name and on behalf of said corporation, the foregoing
Articles of Merger to be the corporate act of said corporation and further
certifies that, to the best of his knowledge, information and belief, the
matters and facts set forth therein with respect to the approval thereof are
true in all material respects, under the penalties of perjury.
MARYLAND FEDERAL BANCORP, INC.
By:
----------------------------
Title:
----------------------
THE UNDERSIGNED, President (or Vice-President) of BB&T Corporation, who
executed on behalf of said corporation the foregoing Articles of Merger, of
which this certificate is made a part, hereby acknowledges, in the name and on
behalf of said corporation, the foregoing Articles of Merger to be the
corporate act of said corporation and further certifies that, to the best of
his knowledge, information and belief, the matters and facts set forth therein
with respect to the approval thereof are true in all material respects, under
the penalties of perjury.
BB&T CORPORATION
By:
----------------------------
Title:
-----------------------
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<PAGE>
ANNEX A
PLAN OF MERGER
OF
MARYLAND FEDERAL BANCORP, INC.
WITH AND INTO
BB&T CORPORATION
Section 1. Corporations Proposing to Merge and Surviving Corporation.
Maryland Federal Bancorp, Inc., a Maryland corporation ("Maryland Federal"),
shall be merged (the "Merger") with and into BB&T Corporation, a North Carolina
corporation ("BB&T"), pursuant to the terms and conditions of this Plan of
Merger (the "Plan of Merger") and of the Agreement and Plan of Reorganization,
dated as of February 25, 1998, as amended and restated (the "Agreement"), by
and among Maryland Federal, BB&T and BB&T Financial Corporation of Virginia, a
Virginia corporation and wholly owned subsidiary corporation of BB&T. The
effective time for the Merger (the "Effective Time") shall be set forth in the
Articles of Merger to be filed with the Office of the Secretary of State of
North Carolina and the Articles of Merger to be filed with the Department of
Assessments and Taxation of the State of Maryland. BB&T shall continue as the
surviving corporation (the "Surviving Corporation") in the Merger and the
separate corporate existence of Maryland Federal shall cease.
Section 2. Effects of the Merger. The Merger shall have the effects set
forth in Section 3-114 of the General Corporation Law of the State of Maryland
(the "MGCL") and in Section 55-11-06 of the North Carolina Business Corporation
Act (the "NCBCA").
Section 3. Articles of Incorporation and Bylaws. The Articles of
Incorporation and the Bylaws of BB&T as in effect immediately prior to the
Effective Time shall remain in effect as the Articles of Incorporation and
Bylaws of the Surviving Corporation following the Effective Time until changed
in accordance with their terms and the NCBCA.
Section 4. Conversion of Shares; Payment of Merger Consideration
(a) At the Effective Time, by virtue of the Merger and without any action
on the part of Maryland Federal or the holders of record of shares of the
common stock, par value $.01 per share, of Maryland Federal ("Maryland Federal
Common Stock"), each share of Maryland Federal Common Stock issued and
outstanding immediately prior to the Effective Time shall be converted into and
shall represent the right to receive, upon surrender of the certificate
representing such share of Maryland Federal Common Stock (as provided in
subsection (d) below), the Merger Consideration (as defined below in Section
5).
(b) Each share of the common stock of BB&T issued and outstanding
immediately prior to the Effective Time shall continue to be issued and
outstanding.
(c) Until surrendered, each outstanding certificate which prior to the
Effective Time represented one or more shares of Maryland Federal Common Stock
shall be deemed upon the Effective Time for all purposes to represent only the
right to receive the Merger Consideration. No interest will be paid or accrued
on the Merger Consideration upon the surrender of the certificate or
certificates representing shares of Maryland Federal Common Stock. With respect
to any certificate for Maryland Federal Common Stock that has been lost or
destroyed, BB&T shall pay the Merger Consideration attributable to such
certificate upon receipt of a surety bond or other adequate indemnity as
required in accordance with BB&T's standard policy, and evidence reasonably
satisfactory to BB&T of ownership of the shares represented thereby. After the
Effective Time, no transfer of the shares of Maryland Federal Common Stock
outstanding immediately prior to the Effective Time shall be made on the stock
transfer books of the Surviving Corporation.
(d) Promptly after the Effective Time, BB&T shall cause to be delivered or
mailed to each Maryland Federal shareholder a form of letter of transmittal and
instructions for use in effecting the surrender of the certificates which,
immediately prior to the Effective Time, represented any shares of Maryland
Federal Common Stock (the "Instruction Letter"). Upon surrender of such
certificates or other evidence of ownership meeting the requirements of the
foregoing subsection (c), together with such letter of transmittal duly
executed and completed in accordance with the instructions thereto, and such
other documents as may be reasonably requested, BB&T shall promptly cause the
transfer to the persons entitled thereto of the Merger Consideration.
(e) The Surviving Corporation shall pay any dividends or other
distributions with a record date prior to the Effective Time which have been
declared or made by Maryland Federal in respect of shares of Maryland Federal
Common Stock in accordance with the terms of the Agreement and which remain
unpaid at the Effective Time. To the extent permitted by law,
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<PAGE>
former shareholders of record of Maryland Federal shall be entitled to vote
after the Effective Time at any meeting of BB&T shareholders the number of
whole shares of BB&T Common Stock into which their respective shares of
Maryland Federal Common Stock are converted, regardless of whether such holders
have exchanged their certificates representing Maryland Federal Common Stock
for certificates representing shares of the voting common stock, par value
$5.00 per share, of BB&T ("BB&T Common Stock") in accordance with the
provisions of this Plan of Merger. Whenever a dividend or other distribution is
declared by BB&T on the BB&T Common Stock, the record date for which is at or
after the Effective Time, the declaration shall include dividends or other
distributions on all shares of BB&T Common Stock issuable pursuant to this
Agreement, but after the Effective Time no dividend or other distribution
payable to the holders of record of BB&T Common Stock as of any time subsequent
to the Effective Time shall be delivered to the holder of any certificate
representing Maryland Federal Common Stock until such holder surrenders such
certificate for exchange as provided in this Section 4. Upon surrender of such
certificate, both the BB&T Common Stock certificate and any undelivered
dividends and cash payments payable hereunder (without interest) shall be
delivered and paid with respect to each share of Maryland Federal Common Stock
represented by such certificate.
Section 5. Merger Consideration
As used herein, the term "Merger Consideration" shall mean the portion of
a whole share of BB&T Common Stock to be exchanged for each share of Maryland
Federal Common Stock issued and outstanding as of the Effective Time and cash
(without interest) to be payable in exchange for any fractional share of BB&T
Common Stock which would otherwise be exchanged for a share of Maryland Federal
Common Stock, determined as follows:
(a) The number of shares of BB&T Common Stock to be issued in exchange for
each issued and outstanding share of Maryland Federal Common Stock shall be in
the ratio of .5975 shares of BB&T Common Stock for each share of Maryland
Federal Common Stock, subject to adjustment in the manner set forth below and
pursuant to Sections 2.11 and 7.1(g) of the Agreement (the "Exchange Ratio");
provided, that if the product of the Exchange Ratio multiplied by the Average
Closing Price (as defined in subsection (b) below) is less than $36.00, the
Exchange Ratio shall be increased to the lesser of (i) the amount necessary to
increase such product to $36.00, or (ii) .6102, subject to potential adjustment
pursuant to Section 7.1(g) of the Agreement.
(b) For purposes of this Section 5, the "Average Closing Price" shall mean
the average closing price per share of BB&T Common Stock on the New York Stock
Exchange, Inc. ("NYSE") Composite Transactions List (as reported by The Wall
Street Journal) for the ten trading days (determined by excluding days on which
the NYSE is closed) immediately preceding the tenth calendar day preceding the
Effective Time (the tenth day to be determined by counting the day preceding
the Effective Time as the first day).
(c) The amount of cash payable with respect to any fractional share of
BB&T Common Stock shall be determined by multiplying the fractional part of
such share by the Average Closing Price. No person will be entitled to
dividends, voting rights or any other rights as a BB&T shareholder in respect
of any fractional share.
(d) In the event BB&T changes the number of shares of BB&T Common Stock
issued and outstanding prior to the Effective Time as a result of a stock
split, stock dividend or other similar recapitalization, and the record date
thereof (in the case of a stock dividend) or the effective date thereof (in the
case of a stock split or similar recapitalization for which a record date is
not established) shall be prior to the Effective Time, the Merger Consideration
and the Exchange Ratio shall be proportionately adjusted.
Section 6. Conversion of Stock Options
(a) At the Effective Time, each option (a "Stock Option") granted under
Maryland Federal's 1992 Stock Incentive Plan, 1993 Directors' Stock Option Plan
and 1995 Stock Option Plan (collectively, the "Stock Option Plans"),
outstanding and unexercised as of the Effective Time to acquire shares of
Maryland Federal Common Stock, aggregating 631,253 shares as of February 25,
1998 (and which by its terms does not lapse on or before the Effective Time),
whether or not then exercisable, shall be converted automatically into and
become an option under the BB&T 1995 Omnibus Stock Incentive Plan or successor
plan thereto (the "BB&T Option Plan"), and shall be governed by the terms and
conditions of the BB&T Option Plan; provided, however, that in no event shall
the vesting, exercise and duration provisions of any Stock Option be less
favorable following conversion to an option under the BB&T Option Plan than as
provided under the individual stock option agreements as in effect under the
applicable Stock Option Plan immediately preceding the Effective Time. In
making such conversion, (i) the number of shares of BB&T Common Stock subject
to each such Stock Option shall be the number of whole shares of BB&T (omitting
any fractional share) determined by multiplying the number of shares of
Maryland Federal Common Stock subject to such Stock Option immediately prior to
the Effective Time by the Exchange Ratio, (ii) the
B-5
<PAGE>
per share exercise price under each such Stock Option shall be adjusted by
dividing the per share exercise price under each such Stock Option by the
Exchange Ratio and rounding up to the nearest cent and (iii) no restrictions on
transfers shall be placed on shares of BB&T Common Stock received through the
exercise of the option, except to the extent that such restrictions would have
been placed on such shares under the Stock Option Plans or are required by the
Securities Act of 1933, as amended; the Securities Exchange Act of 1934, as
amended; the Investment Company Act of 1940, as amended; the Trust Indenture
Act of 1939, as amended; and the rules and regulations of the Securities and
Exchange Commission promulgated thereunder. In addition, each such Stock Option
which is an "incentive stock option" shall be adjusted as required by Section
424 of the Internal Revenue Code of 1986, as amended (the "Code"), and the
regulations promulgated thereunder, so as to continue as an incentive stock
option under Section 424(a) of the Code, and so as not to constitute a
modification, extension, or renewal of the option, within the meaning of
Section 424(h) of the Code. BB&T and Maryland Federal agree to take all
necessary steps to effectuate the foregoing provisions of this Section 6. Each
grant of a converted option to any individual who subsequent to the Merger will
be a director or officer of BB&T as construed under Rule 16b-3 of the
Securities Exchange Act of 1934, as amended, shall, as a condition to such
conversion, be approved in accordance with the provisions of Rule 16b-3.
(b) As soon as practicable following the Effective Time, BB&T shall
deliver to the participants receiving converted options under the BB&T Option
Plan an appropriate notice setting forth such participant's rights pursuant
thereto. BB&T has reserved under the BB&T Option Plan adequate shares of BB&T
Common Stock for delivery upon exercise of any such converted options, and such
shares of BB&T Common Stock shall be registered under the Securities Act of
1933, as amended, as of the Effective Time.
Section 7. No Fractional Shares. Notwithstanding any other term or
provision hereof, no fraction of a share of BB&T Common Stock, and no
certificates or script therefor or other evidence of ownership thereof, will be
issued in connection with the conversion of Maryland Federal Common Stock in
the Merger, and no right to receive cash in lieu thereof shall entitle the
holder thereof to any voting or other rights of a holder of shares or
fractional share interests of the Surviving Corporation. In lieu of such
fractional shares, any holder of shares who would otherwise be entitled to
fractional shares of BB&T Common Stock will, upon receipt by the Surviving
Corporation of the Instruction Letter and other documents described in Section
4(c), above, be paid the cash value of each such fraction, computed in
accordance with the ratio set forth in Section 5 above.
Section 8. Amendment. At any time before the Effective Time, this Plan of
Merger may be amended, provided that no such amendment executed after approval
by the Maryland Federal shareholders of the Agreement and this Plan of Merger
shall modify either the amount or the form of the consideration to be provided
to holders of Maryland Federal Common Stock upon consummation of the Merger.
B-6
<PAGE>
APPENDIX II
[Sandler O'Neill & Partners letterhead appears here]
June 15, 1998
Board of Directors
Maryland Federal Bancorp, Inc.
3505 Hamilton Street
Hyattsville, MD 20782
Gentlemen:
Maryland Federal Bancorp, Inc. ("Maryland Federal") and BB&T Corporation
("BB&T") have entered into an Agreement and Plan of Reorganization, dated as of
February 25, 1998, as amended and restated (the "Agreement"), pursuant to which
Maryland Federal will be merged with and into BB&T (the "Merger"). Upon
consummation of the Merger, each share of Maryland Federal common stock, par
value $0.01 per share (together with the rights attached thereto issued
pursuant to the Rights Agreement dated January 18, 1990 between Maryland
Federal and Registrar and Transfer Company, as Rights Agent, the "Maryland
Federal Shares"), issued and outstanding immediately prior to the Merger will
be converted into the right to receive 0.5975 shares of BB&T common stock, par
value $5.00 per share (together with the rights attached thereto issued
pursuant to the Rights Agreement dated December 17, 1996 between BB&T and
Branch Banking and Trust Company, as Rights Agent, the "BB&T Common Stock"),
subject to increase to a maximum of 0.6102 shares of BB&T Common Stock if the
product of 0.5975 multiplied by the Average Closing Price (as defined in the
Agreement) of BB&T Common Stock is less than $36.00 per share and subject to
possible further upward adjustment under certain circumstances as set forth in
the Agreement (the "Merger Consideration"). The terms and conditions of the
Merger are more fully set forth in the Agreement. You have requested our
opinion as to the fairness, from a financial point of view, of the Merger
Consideration to the holders of Maryland Federal Shares.
Sandler O'Neill & Partners, L.P., as part of its investment banking
business, is regularly engaged in the valuation of financial institutions and
their securities in connection with mergers and acquisitions and other
corporate transactions. In connection with this opinion, we have reviewed,
among other things: (i) the Agreement and exhibits thereto; (ii) the Stock
Option Agreement, dated as of February 25, 1998, by and between Maryland
Federal and BB&T; (iii) Maryland Federal's audited consolidated financial
statements and management's discussion and analysis of financial condition and
results of operations as contained in its Annual Report on Form 10-K for the
years ended February 28, 1997 and 1998, respectively; (iv) BB&T's audited
consolidated financial statements and management's discussion and analysis of
financial condition and results of operations as contained in its Annual Report
on Form 10-K for the years ended December 31, 1996 and 1997, respectively; (v)
BB&T's unaudited consolidated financial statements and management's discussion
and analysis of financial condition and results of operations contained in its
Quarterly Report on Form 10-Q for the quarter ended March 31, 1998; (vi)
certain financial analyses and forecasts of Maryland Federal prepared by and
reviewed with management of Maryland Federal and the views of senior management
of Maryland Federal regarding Maryland Federal's past and current business
operations, results thereof, financial condition and future prospects; (vii)
certain financial analyses and forecasts of BB&T prepared by and reviewed with
management of BB&T and the views of senior management of BB&T regarding BB&T's
past and current business operations, results thereof, financial condition and
future prospects, including the pro forma impact of BB&T's acquisitions of
Franklin Bancorporation and Life Bancorp, Inc.; (viii) the pro forma impact of
the Merger on BB&T; (ix) the publicly reported historical price and trading
activity for Maryland Federal's and BB&T's common stock, including a comparison
of certain financial and stock market information for Maryland Federal and BB&T
with similar publicly available information for certain other companies the
securities of which are publicly traded; (x) the financial terms of recent
business combinations in the savings institution industry, to the extent
publicly available; (xi) the
[GRAPHIC OMITTED]
<PAGE>
Sandler O'Neill
current market environment generally and the banking environment in particular;
and (xii) such other information, financial studies, analyses and
investigations and financial, economic and market criteria as we considered
relevant. In connection with rendering this opinion, we were not asked to, and
did not, solicit indications of interest in a potential transaction from other
third parties.
In performing our review, we have assumed and relied upon, without
independent verification, the accuracy and completeness of all the financial
information, analyses and other information that was publicly available or
otherwise furnished to, reviewed by or discussed with us, and we do not assume
any responsibility or liability for the accuracy or completeness thereof. We
did not make an independent evaluation or appraisal of the specific assets, the
collateral securing assets or the liabilities (contingent or otherwise) of
Maryland Federal or BB&T or any of their subsidiaries, or the collectibility of
any such assets, nor have we been furnished with any such evaluations or
appraisals (relying, where relevant, on the analyses and estimates of Maryland
Federal and BB&T). With respect to the financial projections reviewed with
management, we have assumed that they have been reasonably prepared on bases
reflecting the best currently available estimates and judgments of the
respective managements of the respective future financial performances of
Maryland Federal and BB&T and that such performances will be achieved, and we
express no opinion as to such financial projections or the assumptions on which
they are based. We have also assumed that there has been no material change in
Maryland Federal's or BB&T's assets, financial condition, results of
operations, business or prospects since February 28, 1998 and March 31, 1998,
respectively, the dates of the last financial statements noted above. We have
assumed in all respects material to our analysis that Maryland Federal and BB&T
will remain as going concerns for all periods relevant to our analyses, that
all of the representations and warranties contained in the Agreement and all
related agreements are true and correct, that each party to such agreements
will perform all of the covenants required to be performed by such party under
such agreements and that the conditions precedent in the Agreement are not
waived.
Our opinion is necessarily based on financial, economic, market and other
conditions as in effect on, and the information made available to us as of, the
date hereof. Events occurring after the date hereof could materially affect
this opinion. We have not undertaken to update, revise or reaffirm this opinion
or otherwise comment upon events occurring after the date hereof. We are
expressing no opinion herein as to what the value of BB&T common stock will be
when issued to Maryland Federal's shareholders pursuant to the Agreement or the
prices at which Maryland Federal's or BB&T's common stock will trade at any
time.
We have acted as Maryland Federal's financial advisor in connection with
the Merger and will receive a fee for our services, a significant portion of
which is contingent upon consummation of the Merger. We will also receive a fee
for rendering this opinion.
In the ordinary course of our business, we may actively trade the debt and
equity securities of Maryland Federal and BB&T for our own account and for the
accounts of our customers and, accordingly, may at any time hold a long or
short position in such securities.
Our opinion is directed to the Board of Directors of Maryland Federal in
connection with its consideration of the Merger and does not constitute a
recommendation to any stockholder of Maryland Federal as to how such
stockholder should vote at any meeting of stockholders called to consider and
vote upon the Merger. Our opinion is not to be quoted or referred to, in whole
or in part, in a registration statement, prospectus, proxy statement or in any
other document, nor shall this opinion be used for any other purposes, without
Sandler O'Neill's prior written consent; provided, however, that we hereby
consent to the inclusion of this opinion as an exhibit to the Proxy
Statement/Prospectus of Maryland Federal and BB&T dated the date hereof.
Based upon and subject to the foregoing, it is our opinion, as of the date
hereof, that the Merger Consideration is fair, from a financial point of view,
to the holders of Maryland Federal Shares.
Very truly yours,
/s/ Sandler O'Neil & Partners, L.P.
<PAGE>
PART II. INFORMATION NOT REQUIRED IN PROSPECTUS
Item 20. Indemnification of Directors and Officers
Sections 55-8-50 through 55-8-58 of the North Carolina Business
Corporation Act contain specific provisions relating to indemnification of
directors and officers of North Carolina corporations. In general, such
sections provide that: (i) a corporation must indemnify a director or officer
who is wholly successful in his defense of a proceeding to which he is a party
because of his status as such, unless limited by the articles of incorporation,
and (ii) a corporation may indemnify a director or officer if he is not wholly
successful in such defense if it is determined as provided by statute that the
director or officer meets a certain standard of conduct, except that when a
director or officer is liable to the corporation or is adjudged liable on the
basis that personal benefit was improperly received by him, the corporation may
not indemnify him. A director or officer of a corporation who is a party to a
proceeding may also apply to a court for indemnification, and the court may
order indemnification under certain circumstances set forth in statute. A
corporation may, in its articles of incorporation or bylaws or by contract or
resolution of the board of directors, provide indemnification in addition to
that provided by statute, subject to certain conditions.
The registrant's bylaws provide for the indemnification of any director or
officer of the registrant against liabilities and litigation expenses arising
out of his status as such, excluding: (i) any liabilities or litigation
expenses relating to activities that were at the time taken known or believed
by such person to be clearly in conflict with the best interest of the
registrant and (ii) that portion of any liabilities or litigation expenses with
respect to which such person is entitled to receive payment under any insurance
policy.
The registrant's articles of incorporation provide for the elimination of
the personal liability of each director of the registrant to the fullest extent
permitted by law.
The registrant maintains directors' and officers' liability insurance
that, in general, insures: (i) the registrant's directors and officers against
loss by reason of any of their wrongful acts and (ii) the registrant against
loss arising from claims against the directors and officers by reason of their
wrongful acts, all subject to the terms and conditions contained in the policy.
Certain rules of the Federal Deposit Insurance Corporation limit the
ability of certain depository institutions, their subsidiaries and their
affiliated depository institution holding companies to indemnify affiliated
parties, including institution directors. In general, subject to the ability to
purchase directors and officers liability insurance and to advance professional
expenses under certain circumstances, the rules prohibit such institutions from
indemnifying a director for certain costs incurred with regard to an
administrative or enforcement action commenced by any federal banking agency
that results in a final order or settlement pursuant to which the director is
assessed a civil money penalty, removed from office, prohibited from
participating in the affairs of an insured depository institution or required
to cease and desist from or take an affirmative action described in Section
8(b) of the Federal Deposit Insurance Act (12 U.S.C. [00a7] 1818(b)).
Item 21. Exhibits and Financial Statement Schedules
(a) The following documents are filed as exhibits to this registration
statement on Form S-4:
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- ------------------------------------------------------------------------------------------------------
<S> <C>
2 Agreement and Plan of Reorganization, dated as of February 25, 1998, as amended and restated,
between BB&T Corporation and Maryland Federal Bancorp, Inc. (included as Appendix I to the Proxy
Statement/Prospectus)
3(a) Amended and Restated Articles of Incorporation of BB&T Corporation, as amended (incorporated
herein by reference to Exhibit No. 3(a) to the registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1996, Exhibit No. 3(a)(ii) to the registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1997 and Exhibit No. 3(b) to the registrant's Registration
Statement on Form S-4 (File no. 333-53071) filed on May 19, 1998)
3(b) Bylaws of BB&T Corporation (incorporated herein by reference to Exhibit No. 3(b) to the registrant's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997)
5 Opinion of Womble Carlyle Sandridge & Rice, PLLC
8 Opinion of Womble Carlyle Sandridge & Rice, PLLC
23(a) Consent of Womble Carlyle Sandridge & Rice, PLLC (included in Exhibits 5 and 8)
23(b) Consent of Arthur Andersen LLP
23(c) Consent of Stoy, Malone & Company, P.C.
23(d) Consent of Sandler O'Neill & Partners, L.P.
24 Power of Attorney
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Description
- ------------- -----------------------------------------------------------------------------------------
<S> <C>
99(a) Form of Maryland Federal Bancorp, Inc. Proxy Card
99(b) Option Agreement, dated February 25, 1998, between BB&T Corporation and Maryland Federal
Bancorp, Inc.
</TABLE>
(b) Financial statement schedules: Not applicable.
Item 22. Undertakings
A. The undersigned registrant hereby undertakes:
1. To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth in
the registration statement; and
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
2. That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
3. To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination
of the offering.
B. The undersigned registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act of 1933, each filing of the
registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. The undersigned registrant hereby undertakes as follows: That prior to
any public reoffering of the securities registered hereunder through use of a
prospectus which is a part of this registration statement, by any person or
party who is deemed to be an underwriter within the meaning of Rule 145(c), the
issuer undertakes that such reoffering prospectus will contain the information
called for by the applicable registration form with respect to reofferings by
persons who may be deemed underwriters, in addition to the information called
for by the other Items of the applicable form.
D. The registrant undertakes that every prospectus (i) that is filed
pursuant to Paragraph (C) immediately preceding, or (ii) that purports to meet
the requirements of section 10(a)(3) of the Securities Act of 1933 and is used
in connection with an offering of securities subject to Rule 415, will be filed
as a part of an amendment to the registration statement and will not be used
until such amendment is effective, and that, for purposes of determining any
liability under the Securities Act of 1933, each such post-effective amendment
shall be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
E. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act of 1933 and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the registrant of expenses incurred or paid by a director, officer or
controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of such
issue.
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<PAGE>
F. The undersigned registrant hereby undertakes to respond to requests for
information that is incorporated by reference into the prospectus pursuant to
Items 4, 10(b), 11 or 13 of this Form, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the registration statement through
the date of responding to the request.
G. The undersigned registrant hereby undertakes to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the registration statement when it became effective.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the registrant has duly caused this Registration Statement on Form S-4 to be
signed on its behalf by the undersigned, thereunto duly authorized, in the City
of Winston-Salem, State of North Carolina, on June 15, 1998.
BB&T CORPORATION
By: /s/ JERONE C. HERRING
----------------------------------
Name: Jerone C. Herring
Title: Executive Vice President and
Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-4 has been signed by the following
persons in the capacities indicated on June 15, 1998.
<TABLE>
<S> <C> <C> <C>
/s/ JOHN A. ALLISON IV* /s/ SCOTT E. REED*
------------------------------- -------------------------------
Name: John A. Allison IV Name: Scott E. Reed
Title: Chairman of the Board and Title: Senior Executive Vice President
Chief Executive Officer and Chief Financial Officer
(principal executive officer) (principal financial officer)
/s/ SHERRY A. KELLETT* /s/ PAUL B. BARRINGER*
------------------------------- -------------------------------
Name: Sherry A. Kellett Name: Paul B. Barringer
Title: Executive Vice President Title: Director
and Controller
(principal accounting officer)
/s/ ALFRED E. CLEVELAND* /s/ W. R. CUTHBERTSON, JR.*
------------------------------- -------------------------------
Name: Alfred E. Cleveland Name: W. R. Cuthbertson, Jr.
Title: Director Title: Director
/s/ RONALD E. DEAL* /s/ A. J. DOOLEY, SR.*
------------------------------- -------------------------------
Name: Ronald E. Deal Name: A. J. Dooley, Sr.
Title: Director Title: Director
/s/ TOM D. EFIRD* /s/ PAUL S. GOLDSMITH*
------------------------------- -------------------------------
Name: Tom D. Efird Name: Paul S. Goldsmith
Title: Director Title: Director
/s/ L. VINCENT HACKLEY* /s/ ERNEST F. HARDEE*
------------------------------- -------------------------------
Name: L. Vincent Hackley Name: Ernest F. Hardee
Title: Director Title: Director
/s/ JANE P. HELM* /s/ RICHARD JANEWAY, M.D.*
------------------------------- -------------------------------
Name: Jane P. Helm Name: Richard Janeway, M.D.
Title: Director Title: Director
/s/ J. ERNEST LATHEM, M.D.* /s/ JAMES H. MAYNARD*
------------------------------- -------------------------------
Name: J. Ernest Lathem, M.D. Name: James H. Maynard
Title: Director Title: Director
</TABLE>
II-4
<PAGE>
<TABLE>
<S> <C> <C> <C>
/s/ JOSEPH A. MCALEER, JR.* /s/ ALBERT O. MCCAULEY*
-------------------------------
-------------------------------
Name: Joseph A. McAleer, Jr. Name: Albert O. McCauley
Title: Director Title: Director
/s/ RICHARD L. PLAYER, JR.* /s/ C. EDWARD PLEASANTS, JR.*
------------------------------- -------------------------------
Name: Richard L. Player, Jr. Name: C. Edward Pleasants, Jr.
Title: Director Title: Director
/s/ NIDO R. QUBEIN* /s/ E. RHONE SASSER*
------------------------------- -------------------------------
Name: Nido R. Qubein Name: E. Rhone Sasser
Title: Director Title: Director
/s/ JACK E. SHAW* /s/ HAROLD B. WELLS*
------------------------------- -------------------------------
Name: Jack E. Shaw Name: Harold B. Wells
Title: Director Title: Director
</TABLE>
*By: /s/ JERONE C. HERRING
----------------------------------
Jenone C. Herring
Attorney-in-Fact
II-5
<PAGE>
EXHIBIT 5
June 16, 1998
BB&T Corporation
200 West Second Street
Winston-Salem, North Carolina 27101
Re: Registration Statement on Form S-4 (the "Registration Statement") with
respect to shares to be issued pursuant to the Agreement and Plan of
Reorganization by and between BB&T Corporation ("BB&T") and Maryland
Federal Bancorp, Inc. dated as of February 25, 1998, as amended and
restated (the "Reorganization Agreement")
Ladies and Gentlemen:
We have acted as counsel to BB&T in connection with the registration of
4,344,519 shares of its Common Stock, par value $5.00 per share (the "Common
Stock"), issuable pursuant to the Reorganization Agreement, as set forth in the
Registration Statement that is being filed on the date hereof by BB&T with the
Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). This opinion is
provided pursuant to the requirements of Item 21(a) of Form S-4 and Item
601(b)(5) of Regulation S-K.
In connection with the foregoing, we have examined such records,
documents, and proceedings as we have deemed relevant as a basis for the
opinion expressed herein, and we have relied upon an officer's certificate as
to certain factual matters.
Based on the foregoing, we are of the opinion that when (1) the
Registration Statement shall have been declared effective by order of the
Commission and (2) the shares of Common Stock have been issued upon the terms
and conditions set forth in the Reorganization Agreement and in accordance with
the Registration Statement, then the shares of Common Stock will be legally
issued, fully paid, and nonassessable.
We hereby consent to be named in the Registration Statement under the
heading "LEGAL MATTERS" as attorneys who passed upon the validity of the shares
of Common Stock and to the filing of a copy of this opinion as Exhibit 5 to the
Registration Statement. In giving this consent, we do not admit that we are
within the category of persons whose consent is required by Section 7 of the
Securities Act or other rules and regulations of the Commission thereunder.
Very truly yours,
WOMBLE CARLYLE SANDRIDGE & RICE,
A PROFESSIONAL LIMITED LIABILITY
COMPANY
By: /s/ GARZA BALDWIN, III
-------------------------------------
Garza Baldwin, III
EXHIBIT 8
June 16, 1998
BB&T Corporation
200 West Second Street
Winston-Salem, North Carolina 27101
RE: Registration Statement on Form S-4 (the "Registration Statement") with
respect to shares to be issued pursuant to the Agreement and Plan of
Reorganization by and between BB&T Corporation, a North Carolina
corporation ("BB&T"), and Maryland Federal Bancorp, Inc., a Maryland
corporation ("Maryland Federal"), dated as of February 25, 1998, as
amended and restated (the "Reorganization Agreement")
Ladies and Gentlemen:
We have acted as counsel to BB&T in connection with the registration of
4,344,519 shares of its Common Stock, par value $5.00 per share (the "BB&T
Common Stock"), issuable pursuant to the Reorganization Agreement, as set forth
in the Registration Statement that is being filed on the date hereof by BB&T
with the Securities and Exchange Commission (the "Commission") pursuant to the
Securities Act of 1933, as amended (the "Securities Act"). This opinion is
provided pursuant to the requirements of Item 21(a) of Form S-4 and Item
601(b)(8) of Regulation S-K. All capitalized terms not otherwise defined herein
shall have the meanings given to them in the Reorganization Agreement.
In the Merger, Maryland Federal will merge into BB&T pursuant to North
Carolina and Maryland law, and each outstanding share of Maryland Federal
Common Stock (the only class outstanding) is to be converted into a number of
shares of BB&T Common Stock determined under a formula in the Reorganization
Agreement. Also, cash will be paid in lieu of issuance of fractional shares.
Maryland Federal shareholders are not entitled by state law to dissent from the
Merger.
In giving this opinion we have reviewed, and with your permission we have
relied upon the representations and warranties contained in or the facts
described in, the Reorganization Agreement, the Registration Statement, and
certificates dated June 15, 1998 and June 10, 1998 in which officers of
Maryland Federal and officers of BB&T make certain representations on behalf of
Maryland Federal and BB&T regarding the Merger (the "Tax Certificates"). We
also have reviewed such other documents as we have considered necessary and
appropriate for the purposes of this opinion.
In giving this opinion we have with your permission assumed that the
statements in the Tax Certificates are correct as of the date of this opinion,
and any representation or statement made "to the best of knowledge" or
similarly qualified is correct without such qualification. As to all matters in
which a person or entity has represented that such person or entity either is
not a party to, or does not have, or is not aware of, any plan or intention,
understanding or agreement, we have assumed that there is in fact no such plan,
intention, understanding or agreement. We also assume that (a) the Merger will
be consummated in accordance with the Reorganization Agreement, (b) Maryland
Federal's only outstanding stock (as that term is used in Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code")) is the Maryland Federal
Common Stock, and (c) the Rights attached to the shares of BB&T Common Stock
issued in the Merger will not be exchanged by BB&T for any part of the value of
the Maryland Federal Common Stock, and such Rights will have no ascertainable
fair market value at the Effective Time.
Based on the foregoing, and subject to the limitations herein, we are of
the opinion that under existing law, upon consummation of the Merger in
accordance with the Reorganization Agreement, for federal income tax purposes:
(1) The Merger will constitute a "reorganization" within the meaning of
Section 368 of the Code.
(2) No gain or loss will be recognized by Maryland Federal or BB&T by
reason of the Merger.
(3) No gain or loss will be recognized by the shareholders of Maryland
Federal upon the receipt of BB&T Common Stock (including any fractional
share interest to which they may be entitled) solely in exchange for their
shares of Maryland Federal Common Stock.
(4) A shareholder of Maryland Federal who receives cash in lieu of a
fractional share of BB&T Common Stock will recognize gain or loss as if the
fractional share has been received and then redeemed for cash equal to the
amount paid by BB&T in respect of such fractional share, subject to the
provisions and limitations of Section 302 of the Code.
<PAGE>
(5) The tax basis in the BB&T Common Stock received by a Maryland Federal
shareholder (including any fractional share interest deemed received) will
be the same as the tax basis in the Maryland Federal Common Stock
surrendered in exchange therefor.
(6) The holding period for BB&T Common Stock received (including any
fractional share interest deemed received) in exchange for shares of
Maryland Federal Common Stock will include the period during which the
shareholder held the shares of Maryland Federal Common Stock surrendered in
the exchange, provided that the Maryland Federal Common Stock was held as a
capital asset at the Effective Time.
We express no opinion as to the laws of any jurisdiction other than the
United States of America. Further, our opinion is limited to the specific
conclusions set forth above, and no other opinions are expressed or implied.
The opinions stated with respect to shares of Maryland Federal Common Stock do
not apply to any stock rights, warrants or options to acquire Maryland Federal
Common Stock. The opinions stated as to Maryland Federal shareholders are
general in nature and do not necessarily apply to any particular Maryland
Federal shareholder, and, for example, may not apply to shareholders who are
corporations, trusts, financial institutions, insurance companies, tax exempt
organizations or dealers in securities or persons who must mark securities to
market; or to persons who are not United States citizens or resident aliens or
domestic entities (partnerships or trusts), are subject to the alternative
minimum tax (to the extent that tax affects the tax consequences), or are
subject to the "golden parachute" provisions of the Code (to the extent that
tax affects the tax consequences); or to shareholders who acquired Maryland
Federal Common Stock pursuant to employee stock options or otherwise as
compensation if such shares are subject to any restriction related to
employment, who do not hold their shares as capital assets, or who hold their
shares as part of a "straddle" or "conversion transaction."
This opinion represents our best legal judgment, but it has no binding
effect or official status of any kind. Changes to the Code or in regulations or
rulings thereunder, or changes by the courts in the interpretation of the
authorities relied upon, may be applied retroactively and may affect the
opinions expressed herein. Any material defect in any assumption or
representation on which we have relied would adversely affect our opinion.
We furnish this opinion to you solely to support the discussion set forth
under the headings "SUMMARY -- The Merger -- Certain Federal Income Tax
Consequences," "THE MERGER -- The Reorganization Agreement -- Conditions to
the Merger," "THE MERGER -- Certain Federal Income Tax Consequences of the
Merger" and "LEGAL MATTERS" in the Registration Statement, and we do not
consent to its use for any other purpose. We hereby consent to be named in the
Registration Statement under the foregoing headings and to the filing of a copy
of this opinion as Exhibit 8 to the Registration Statement. In giving this
consent, we do not admit that we are within the category of persons whose
consent is required by Section 7 of the Securities Act or the rules and
regulations of the Commission thereunder.
Very truly yours,
WOMBLE CARLYLE SANDRIDGE & RICE,
A PROFESSIONAL LIMITED LIABILITY
COMPANY
By: /s/ JASPER L. CUMMINGS, JR.
-------------------------------------
Jasper L. Cummings, Jr.
EXHIBIT 23(b)
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation
by reference in this registration statement of our report dated May 13, 1998,
included in BB&T Corporation's Form 8-K dated May 13, 1998, and to all
references to our firm included in this registration statement. Our report
dated January 14, 1998, included in BB&T Corporation's financial statements
previously filed on Form 10-K and incorporated by reference in this
registration statement is no longer appropriate since restated financial
statements have been presented giving effect to a business combination
accounted for as a pooling-of-interests.
/s/ ARTHUR ANDERSEN LLP
----------------------------------------
Charlotte, North Carolina
June 16, 1998.
EXHIBIT 23(c)
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Registration
Statement of BB&T Corporation on Form S-4 of our report dated April 10, 1998,
which is incorporated by reference in the Annual Report on Form 10-K of
Maryland Federal Bancorp, Inc. for the year ended February 28, 1998, and to the
reference to us under the heading "Experts" in the Proxy Statement/Prospectus,
which is part of this Registration Statement.
/s/ STOY, MALONE & COMPANY, P.C.
----------------------------------------
Bethesda, Maryland
June 15, 1998
EXHIBIT 23(d)
CONSENT OF SANDLER O'NEILL & PARTNERS, L.P.
We hereby consent to the inclusion of our opinion letter to the Board of
Directors of Maryland Federal Bancorp, Inc. (the "Company") as Appendix II to
the Proxy Statement/Prospectus relating to the proposed merger of the Company
with and into BB&T Corporation contained in the Registration Statement on Form
S-4, filed with the Securities and Exchange Commission as of the date hereof,
and to the references to our firm and such opinion in such Proxy
Statement/Prospectus. In giving such consent, we do not admit that we come
within the category of persons whose consent is required under Section 7 of the
Securities Act of 1933, as amended (the "Act"), or the rules and regulations of
the Securities and Exchange Commission thereunder (the "Regulations"), nor do
we admit that we are experts with respect to any part of such Registration
Statement within the meaning of the term "experts" as used in the Act or the
Regulations.
/s/ SANDLER O'NEILL & PARTNERS, L.P.
----------------------------------------
June 16, 1998
EXHIBIT 24
POWER OF ATTORNEY
Each of the undersigned, being a director and/or officer of BB&T
Corporation (the "Company"), hereby nominates, constitutes and appoints John A.
Allison, Scott E. Reed and Jerone C. Herring, or any one of them severally, to
be his or her true and lawful attorney-in-fact and to sign in his or her name
and on his or her behalf in any and all capacities stated below, and to file
with the Securities and Exchange Commission (the "Commission"), a Registration
Statement on Form S-4 (the "Registration Statement") relating to the issuance
of shares of the Company's common stock, $5.00 par value per share, in
connection with the acquisition by the Company of Maryland Federal Bancorp,
Inc., a Maryland corporation, and to file any and all amendments, including
post-effective amendments, to the Registration Statement, making such changes
in the Registration Statement as such attorney-in-fact deems appropriate, and
generally to do all such things on his or her behalf in any and all capacities
stated below to enable the Company to comply with the provisions of the
Securities Act of 1933, as amended, and all requirements of the Commission.
This Power of Attorney has been signed by the following persons in the
capacities indicated on April 28, 1998.
<TABLE>
<S> <C> <C> <C>
/s/ JOHN A. ALLISON IV /s/ SCOTT E. REED
------------------------------- -------------------------------
Name: John A. Allison IV Name: Scott E. Reed
Title: Chairman of the Board and Title: Senior Executive Vice President
Chief Executive Officer and Chief Financial Officer
(principal executive officer) (principal financial officer)
/s/ SHERRY A. KELLETT /s/ PAUL B. BARRINGER
------------------------------- -------------------------------
Name: Sherry A. Kellett Name: Paul B. Barringer
Title: Executive Vice President Title: Director
and Controller
(principal accounting officer)
/s/ ALFRED E. CLEVELAND /s/ W. R. CUTHBERTSON, JR.
------------------------------- -------------------------------
Name: Alfred E. Cleveland Name: W. R. Cuthbertson, Jr.
Title: Director Title: Director
/s/ RONALD E. DEAL /s/ A. J. DOOLEY, SR.
------------------------------- -------------------------------
Name: Ronald E. Deal Name: A. J. Dooley, Sr.
Title: Director Title: Director
/s/ TOM D. EFIRD /s/ PAUL S. GOLDSMITH
------------------------------- -------------------------------
Name: Tom D. Efird Name: Paul S. Goldsmith
Title: Director Title: Director
/s/ L. VINCENT HACKLEY /s/ ERNEST F. HARDEE
------------------------------- -------------------------------
Name: L. Vincent Hackley Name: Ernest F. Hardee
Title: Director Title: Director
/s/ JANE P. HELM /s/ RICHARD JANEWAY, M.D.
------------------------------- -------------------------------
Name: Jane P. Helm Name: Richard Janeway, M.D.
Title: Director Title: Director
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
/s/ J. ERNEST LATHEM, M.D. /s/ JAMES H. MAYNARD
-------------------------------
-------------------------------
Name: J. Ernest Lathem, M.D. Name: James H. Maynard
Title: Director Title: Director
/s/ JOSEPH A. MCALEER, JR. /s/ ALBERT O. MCCAULEY
------------------------------- -------------------------------
Name: Joseph A. McAleer, Jr. Name: Albert O. McCauley
Title: Director Title: Director
/s/ L. GLENN ORR, JR. /s/ RICHARD L. PLAYER, JR.
------------------------------- -------------------------------
Name: L. Glenn Orr, Jr. Name: Richard L. Player, Jr.
Title: Director Title: Director
/s/ C. EDWARD PLEASANTS, JR. /s/ NIDO R. QUBEIN
------------------------------- -------------------------------
Name: C. Edward Pleasants, Jr. Name: Nido R. Qubein
Title: Director Title: Director
/s/ E. RHONE SASSER /s/ JACK E. SHAW
------------------------------- -------------------------------
Name: E. Rhone Sasser Name: Jack E. Shaw
Title: Director Title: Director
/s/ HAROLD B. WELLS
-------------------------------
Name: Harold B. Wells
Title: Director
</TABLE>
EXHIBIT 99(a)
REVOCABLE PROXY
MARYLAND FEDERAL BANCORP, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF MARYLAND FEDERAL
BANCORP, INC. (THE "COMPANY") FOR USE ONLY AT THE ANNUAL MEETING OF
STOCKHOLDERS TO BE HELD ON JULY 21, 1998 AND ANY ADJOURNMENT THEREOF
The undersigned, being a stockholder of the Company, hereby authorizes the
Board of Directors of the Company or any successors thereto as proxies with
full power of substitution, to represent the undersigned at the Annual Meeting
of Stockholders of the Company to be held at La Fontaine Bleu, located at 7963
Annapolis Road, Lanham, Maryland, on Tuesday, July 21, 1998 at 10:00 a.m.,
Eastern Time, and at any adjournment of said meeting, and thereat to act with
respect to all votes that the undersigned would be entitled to cast, if then
personally present, as follows:
1. PROPOSAL to approve the Amended and Restated Agreement and Plan of
Reorganization, dated as of February 25, 1998 (the "Reorganization Agreement"),
between Maryland Federal and BB&T Corporation, a North Carolina corporation
("BB&T"), and a related Plan of Merger (the "Plan of Merger"), pursuant to
which Maryland Federal will merge with and into BB&T and each share of common
stock of Maryland Federal outstanding immediately prior thereto will be
converted into the right to receive 0.5975 of a share of common stock of BB&T,
subject to possible adjustment as set forth in the Reorganization Agreement and
the Plan of Merger, plus cash in lieu of any fractional share interest. A copy
of the Reorganization Agreement and the Plan of Merger set forth therein is
attached to the Proxy Statement/Prospectus as Appendix I.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
2. ELECTION OF DIRECTORS:
Nominees: Richard B. Bland, Robert H. Halleck, Willie L. Harkless, Sr.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] WITHHOLD [ ] FOR ALL EXCEPT
</TABLE>
INSTRUCTION: To withhold authority to vote for any individual nominee, mark
"For All Except" and write that nominee's name in the space provided below.
---------------------------------------------------------------------------
3. PROPOSAL to ratify the appointment of Stoy, Malone & Company, P.C. as
independent auditors for the fiscal year ending February 28, 1999 if the Merger
is not completed.
<TABLE>
<S> <C> <C>
[ ] FOR [ ] AGAINST [ ] ABSTAIN
</TABLE>
4. In their discretion, the proxies are authorized to vote with respect to
any other matter that may properly come before the Annual Meeting.
THIS PROXY MAY BE REVOKED AT ANY TIME BEFORE IT IS EXERCISED
Please be sure to sign and date this Proxy in the box below.
Date
---------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Stockholder sign above Co-holder (if any) sign above
Detach above card, sign, date and mail in the postage paid envelope provided.
MARYLAND FEDERAL BANCORP, INC.
SHARES OF COMMON STOCK OF THE COMPANY WILL BE VOTED AS SPECIFIED. IF NO
SPECIFICATION IS MADE ABOVE, SHARES WILL BE VOTED FOR PROPOSAL 1, FOR THE
ELECTION OF THE BOARD OF DIRECTORS' NOMINEES TO THE BOARD OF DIRECTORS AND FOR
PROPOSAL 3. THIS PROXY MAY NOT BE VOTED FOR ANY PERSON WHO IS NOT A NOMINEE OF
THE BOARD OF DIRECTORS OF THE COMPANY.
<PAGE>
The above signed hereby acknowledges receipt of the Notice of the Annual
Meeting of Stockholders of Maryland Federal Bancorp, Inc. called for July 21,
1998, and any adjournment thereof, and a Proxy Statement/Prospectus for the
Annual Meeting prior to the signing of this proxy.
Please sign exactly as your name(s) appear(s) on this proxy card. Only one
signature is required in the case of a joint account. When signing in a
representative capacity, please give title.
PLEASE ACT PROMPTLY
SIGN, DATE AND MAIL YOUR PROXY CARD TODAY
EXHIBIT 99(b)
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement") is made and entered into as
of February 25, 1998 by and between MARYLAND FEDERAL BANCORP, INC., a Maryland
corporation ("Maryland Federal" or "Issuer"), and BB&T CORPORATION, a North
Carolina corporation ("Grantee").
WHEREAS, Grantee, BB&T Financial Corporation of Virginia, a wholly-owned
subsidiary of Grantee ("BB&T Financial") and Issuer have entered into that
certain Agreement and Plan of Reorganization, dated this date (the "Merger
Agreement"), providing for, among other things, the merger of Issuer with and
into BB&T Financial, with the result that Issuer will become a part of a wholly
owned subsidiary of Grantee; and
WHEREAS, as a condition and inducement to Grantee's execution of the
Merger Agreement, Grantee has required that Issuer agree, and Issuer has
agreed, to grant to Grantee the Option (as defined below);
NOW, THEREFORE, in consideration of the respective representations,
warranties, covenants and agreements set forth herein and in the Merger
Agreement, and intending to be legally bound hereby, Issuer and Grantee agree
as follows:
1. Defined Terms. Capitalized terms which are used but not defined herein
shall have the meanings ascribed to such terms in the Merger Agreement.
2. Grant of Option. Subject to the terms and conditions set forth herein,
Issuer hereby grants to Grantee an irrevocable option (the "Option") to
purchase up to 1,290,000 shares (as adjusted as set forth herein the "Option
Shares," which shall include the Option Shares before and after any transfer of
such Option Shares), of the common stock of Issuer, par value $.01 per share
("Issuer Common Stock"), at a purchase price per Option Share (subject to
adjustment as set forth herein, the "Purchase Price") equal to $30.50.
3. Exercise of Option.
(a) Provided that (i) Grantee or Holder (as hereinafter defined), as
applicable, shall not be in material breach of its agreements or covenants
contained in this Agreement or the Merger Agreement, and (ii) no
preliminary or permanent injunction or other order against the delivery of
shares covered by the Option issued by any court of competent jurisdiction
in the United States shall be in effect, Holder may exercise the Option, in
whole or in part, at any time and from time to time following the
occurrence of a Purchase Event (as hereinafter defined); provided that the
Option shall terminate and be of no further force and effect upon the
earliest to occur of (A) the Effective Time, (B) subject to clause (E)
below, termination of the Merger Agreement in accordance with the terms
thereof prior to the occurrence of a Purchase Event or a Preliminary
Purchase Event (as hereinafter defined) (other than a termination of the
Merger Agreement by Grantee pursuant to Section 7.1(b) thereof (a "Default
Termination")), (C) 12 months after a Default Termination, (D) 12 months
after any termination of the Merger Agreement (other than a Default
Termination) following the occurrence of a Purchase Event or a Preliminary
Purchase Event and (E) subject to clause (D) above, 12 months after
termination of the Merger Agreement pursuant to Section 7.1(e) thereof;
provided further, that any purchase of shares upon exercise of the Option
shall be subject to compliance with applicable law, including, without
limitation, the Bank Holding Company Act of 1956, as amended (the "BHC
Act"). Notwithstanding anything to the contrary contained herein, the
Option may not be exercised (nor may any of Grantee's rights under Sections
8 and 9 hereof be exercised) at any time when Grantee shall be in willful
breach of any of its covenants or agreements contained in the Merger
Agreement under circumstances that would entitle Issuer to terminate the
Merger Agreement. Subject to compliance with Section 12(h) hereof, the term
"Holder" shall mean the holder or holders of the Option from time to time,
including initially Grantee. The rights set forth in Section 8 hereof shall
terminate when the right to exercise the Option terminates (other than as a
result of a complete exercise of the Option) as set forth herein.
(b) As used herein, a "Purchase Event" means any of the following events
subsequent to the date of this Agreement:
(i) without Grantee's prior written consent, Issuer shall have
authorized, recommended, publicly proposed or publicly announced an
intention to authorize, recommend or propose, or entered into an
agreement with any person (other than Grantee or any Subsidiary of
Grantee) to effect an Acquisition Transaction (as defined below). As used
herein, the term "Acquisition Transaction" shall mean (A) a merger,
consolidation or similar transaction involving Issuer or any of its
Subsidiaries (other than transactions solely between Issuer's
Subsidiaries and other subsidiaries of Issuer), (B) the disposition, by
sale, lease, exchange or otherwise, of assets of Issuer or any of its
Subsidiaries representing in either case 15% or more of the consolidated
assets of Issuer and its Subsidiaries (other
<PAGE>
than a sale of loan receivables in a financing transaction in the normal
course of business consistent with past practices), or (C) the issuance,
sale or other disposition of (including by way of merger, consolidation,
share exchange or any similar transaction) securities representing 15% or
more of the voting power of Issuer or any of its Subsidiaries; or
(ii) any person (other than Grantee or any Subsidiary of Grantee)
shall have acquired beneficial ownership (as such term is defined in Rule
13d-3 promulgated under the Exchange Act) of or the right to acquire
beneficial ownership of, or any "group" (as such term is defined under
the Exchange Act), other than a group of which Grantee or any of the
Subsidiaries of Grantee is a member, shall have been formed which
beneficially owns or has the right to acquire beneficial ownership of,
25% or more of the then-outstanding shares of Issuer Common Stock.
(c) As used herein, a "Preliminary Purchase Event" means any of the
following events:
(i) any person (other than Grantee or any Subsidiary of Grantee) shall
have commenced (as such term is defined in Rule 14d-2 under the Exchange
Act), or shall have filed a registration statement under the Securities
Act with respect to, a tender offer or exchange offer to purchase any
shares of Issuer Common Stock such that, upon consummation of such offer,
such person would own or control 10% or more of the then-outstanding
shares of Issuer Common Stock (such an offer being referred to herein as
a "Tender Offer" or an "Exchange Offer," respectively); or
(ii) the holders of Issuer Common Stock shall not have approved the
Merger Agreement at the meeting of such shareholders held for the purpose
of voting on the Merger Agreement, such meeting shall not have been held
or shall have been canceled prior to termination of the Merger Agreement,
or Issuer's Board of Directors shall have withdrawn or modified in a
manner adverse to Grantee the recommendation of Issuer's Board of
Directors with respect to the Merger Agreement, in each case after any
person (other than Grantee or any Subsidiary of Grantee) shall have (A)
made, or disclosed an intention to make, a proposal to engage in an
Acquisition Transaction, (B) commenced a Tender Offer or filed a
registration statement under the Securities Act with respect to an
Exchange Offer, or (C) filed an application (or given a notice), whether
in draft or final form, under any federal or state statute or regulation
(including an application or notice filed under the BHC Act, the Bank
Merger Act, the Home Owners' Loan Act or the Change in Bank Control Act
of 1978) seeking the consent to an Acquisition Transaction from any
federal or state governmental or regulatory authority or agency.
As used in this Agreement, "person" shall have the meaning specified in
Sections 3(a)(9) and 13(d)(3) of the Exchange Act.
(d) Notwithstanding the foregoing, the obligation of Maryland Federal to
issue Option Shares upon exercise of the Option shall be deferred (but
shall not terminate): (i) until the receipt of all required governmental or
regulatory approvals or consents necessary for Maryland Federal to issue
the Option Shares or Holder to exercise the Option, or until the expiration
or termination of any waiting period required by law, or (ii) so long as
any injunction or other order, decree or ruling issued by any federal or
state court of competent jurisdiction is in effect which prohibits the sale
or delivery of the Option Shares.
(e) In the event Holder wishes to exercise the Option, it shall send to
Issuer a written notice (the date of which being herein referred to as the
"Notice Date") specifying (i) the total number of Option Shares it intends
to purchase pursuant to such exercise and (ii) a place and date not earlier
than three business days nor later than 15 business days from the Notice
Date for the closing (the "Closing") of such purchase (the "Closing Date").
If prior consent of any governmental or regulatory agency or authority is
required in connection with such purchase, Issuer shall cooperate with
Holder in the filing of the required notice or application for such consent
and the obtaining of such consent at Holder's expense, and the Closing
shall occur not earlier than three business days nor later than 15 business
days following receipt of such consents (and expiration of any mandatory
waiting periods).
4. Payment and Delivery of Certificates.
(a) On each Closing Date, Holder shall (i) pay to Issuer, in immediately
available funds by wire transfer to a bank account designated by Issuer, an
amount equal to the Purchase Price multiplied by the number of Option
Shares to be purchased on such Closing Date, and (ii) present and surrender
this Agreement to the Issuer at the address of the Issuer referenced in
Section 12(f) hereof.
(b) At each Closing, simultaneously with the delivery of immediately
available funds and surrender of this Agreement as provided in Section 4(a)
hereof, (i) Issuer shall deliver to Holder (A) a certificate or
certificates representing
<PAGE>
the Option Shares to be purchased at such Closing, which Option Shares
shall be free and clear of all liens, claims, charges and encumbrances of
any kind whatsoever and subject to no preemptive rights, and (B) if the
Option is exercised in part only, an executed new agreement with the same
terms as this Agreement evidencing the right to purchase the balance of the
shares of Issuer Common Stock purchasable hereunder, and (ii) Holder shall
deliver to Issuer a letter evidencing Holder's agreement not to offer, sell
or otherwise dispose of such Option Shares in violation of applicable
federal and state law or of the provisions of this Agreement.
(c) In addition to any other legend that is required by applicable law,
certificates for the Option Shares delivered at each Closing shall be
endorsed with a restrictive legend which shall read substantially as
follows:
THE TRANSFER OF THE STOCK REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO
RESTRICTIONS ARISING UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
PURSUANT TO THE TERMS OF A STOCK OPTION AGREEMENT DATED AS OF FEBRUARY
25, 1998. A COPY OF SUCH AGREEMENT WILL BE PROVIDED TO THE HOLDER HEREOF
WITHOUT CHARGE UPON RECEIPT BY THE ISSUER OF A WRITTEN REQUEST THEREFOR.
It is understood and agreed that the above legend shall be removed by delivery
of substitute certificate(s) without such legend if Holder shall have delivered
to Issuer a copy of a letter from the staff of the Commission, or an opinion of
counsel in form and substance reasonably satisfactory to Issuer and its
counsel, to the effect that such legend is not required for purposes of the
Securities Act.
5. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Grantee as follows:
(a) Issuer has all requisite corporate power and authority to enter into
this Agreement and, subject to its obtaining any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Issuer. This Agreement has been duly
executed and delivered by Issuer.
(b) Issuer has taken all necessary corporate and other action to
authorize and reserve and to permit it to issue and, at all times from the
date hereof until the obligation to deliver Issuer Common Stock upon the
exercise of the Option terminates, will have reserved for issuance, upon
exercise of the Option, the number of shares of Issuer Common Stock
necessary for Holder to exercise the Option, and Issuer will take all
necessary corporate action to authorize and reserve for issuance all
additional shares of Issuer Common Stock or other securities which may be
issued pursuant to Section 7 hereof upon exercise of the Option. The shares
of Issuer Common Stock to be issued upon due exercise of the Option,
including all additional shares of Issuer Common Stock or other securities
which may be issuable pursuant to Section 7 hereof, upon issuance pursuant
hereto, shall be duly and validly issued, fully paid, and nonassessable,
and shall be delivered free and clear of all liens, claims, charges, and
encumbrances of any kind or nature whatsoever, including any preemptive
rights of any shareholder of Issuer.
6. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that:
(a) Grantee has all requisite corporate power and authority to enter into
this Agreement and, subject to its obtaining any approvals or consents
referred to herein, to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the consummation of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Grantee. This Agreement has been duly
executed and delivered by Grantee.
(b) Grantee represents that it is acquiring the Option for Grantee's own
account and not with a view to, or for sale in connection with, any
distribution of the Option or the Option Shares. Grantee represents that it
is aware that neither the Option nor the Option Shares is the subject of a
registration statement filed with and declared effective by the Commission
pursuant to Section 5 of the Securities Act, but instead each is being
offered in reliance upon the exemption from the registration requirement
provided by Section 4(2) thereof and the representations and warranties
made by Grantee in connection therewith. Grantee represents that neither
the Option nor the Option Shares will be transferred or otherwise disposed
of except in a transaction registered or exempt from registration under the
Securities Laws, and that with respect to any transfer or other disposition
proposed to be made in reliance upon an exemption from registration, such
transfer or other disposition shall not be made unless Maryland Federal
first receives an opinion of counsel in form and substance reasonably
acceptable to it regarding the availability of such exemption.
<PAGE>
7. Adjustment upon Changes in Capitalization, etc.
(a) In the event of any change in Issuer Common Stock by reason of a
stock dividend, stock split, split-up, recapitalization, combination,
exchange of shares or similar transaction, the type and number of shares or
securities subject to the Option and the Purchase Price therefor shall be
adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that Holder shall receive, upon
exercise of the Option, the number and class of shares or other securities
or property that Holder would have received in respect of Issuer Common
Stock if the Option had been exercised immediately prior to such event, or
the record date therefor, as applicable. If any additional shares of Issuer
Common Stock are issued after the date of this Agreement (other than
pursuant to an event described in the first sentence of this Section 7(a)),
the number of shares of Issuer Common Stock subject to the Option shall be
adjusted so that, after such issuance, it, when added to the number of
shares of Issuer Common Stock previously issued pursuant hereto, equals
19.9% of the number of shares of Issuer Common Stock then issued and
outstanding, without giving effect to any shares subject to or issued
pursuant to the Option.
(b) In the event that Issuer shall enter into an agreement (prior to
termination of the Option pursuant to Section 3(a) hereof): (i) to
consolidate with or merge into any person, other than Grantee or one of its
Subsidiaries, and Issuer shall not be the continuing or surviving
corporation of such consolidation or merger; (ii) to permit any person,
other than Grantee or one of its Subsidiaries, to merge into Issuer, and
Issuer shall be the continuing or surviving corporation, but, in connection
with such merger, the then outstanding shares of Issuer Common Stock shall
be changed into or exchanged for stock or other securities of Issuer or any
other person or cash or any other property or the outstanding shares of
Issuer Common Stock immediately prior to such merger shall after such
merger represent less than 50% of the outstanding shares and share
equivalents of the merged company; (iii) to permit any person, other than
Grantee or one of its Subsidiaries, to acquire all of the outstanding
shares of Issuer Common Stock pursuant to a statutory share exchange; or
(iv) to sell or otherwise transfer all or substantially all of its assets
to any person, other than Grantee or one of its Subsidiaries, then, and in
each such case, the agreement governing such transaction shall make proper
provisions so that the Option shall, upon the consummation of any such
transaction and upon the terms and conditions set forth herein, be
converted into, or exchanged for, an option (the "Substitute Option"), at
the election of Grantee, deemed granted by either (x) the Acquiring
Corporation (as defined below), (y) any person that controls the Acquiring
Corporation, or (z) in the case of a merger described in clause (ii), the
Issuer (in each case, such person being referred to as the "Substitute
Option Issuer").
(c) The Substitute Option shall have the same terms as the Option,
provided that, if the terms of the Substitute Option cannot, for legal
reasons, be identical to those of the Option, such terms shall be as
similar as possible and in no event less advantageous to Grantee. The
Substitute Option Issuer shall also enter into an agreement with the then-
holder or holders of the Substitute Option in substantially the same form
as this Agreement, which agreement shall be applicable to the Substitute
Option.
(d) The Substitute Option shall be exercisable for such number of shares
of the Substitute Common Stock (as hereinafter defined) as is equal to the
Assigned Value (as hereinafter defined) multiplied by the number of shares
of the Issuer Common Stock for which the Option was theretofore
exercisable, divided by the Average Price (as hereinafter defined). The
exercise price of the Substitute Option per share of the Substitute Common
Stock (the "Substitute Purchase Price") shall then be equal to the Purchase
Price multiplied by a fraction in which the numerator is the number of
shares of the Issuer Common Stock for which the Option was theretofore
exercisable and the denominator is the number of shares for which the
Substitute Option is exercisable.
(e) The following terms have the meanings indicated:
(i) "Acquiring Corporation" shall mean the continuing or surviving
corporation of a consolidation or merger with Issuer (if other than
Issuer), Issuer in a merger in which Issuer is the continuing or
surviving person, the corporation that shall acquire all of the
outstanding shares of Issuer Common Stock pursuant to a statutory share
exchange, or the transferee of all or substantially all of the Issuer's
assets (or the assets of its Subsidiaries).
(ii) "Substitute Common Stock" shall mean the common stock issued by
the Substitute Option Issuer upon exercise of the Substitute Option.
(iii) "Assigned Value" shall mean the highest of (x) the price per
share of the Issuer Common Stock at which a Tender Offer or Exchange
Offer therefor has been made by any person (other than Grantee), (y) the
price per share of the Issuer Common Stock to be paid by any person
(other than the Grantee) pursuant to an agreement with Issuer, and (z)
the highest closing sales price per share of Issuer Common Stock quoted
on the Nasdaq
<PAGE>
National Market System within the six-month period immediately preceding
the agreement; provided, that in the event of a sale of less than all of
Issuer's assets, the Assigned Value shall be the sum of the price paid in
such sale for such assets and the current market value of the remaining
assets of Issuer as determined by a nationally recognized investment
banking firm selected by Grantee (or by a majority in interest of the
Grantees if there shall be more than one Grantee (a "Grantee Majority")),
divided by the number of shares of the Issuer Common Stock outstanding at
the time of such sale. In the event that an exchange offer is made for
the Issuer Common Stock or an agreement is entered into for a merger or
consolidation involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the
Issuer Common Stock shall be determined by a nationally recognized
investment banking firm mutually selected by Grantee and Issuer (or if
applicable, Acquiring Corporation). (If there shall be more than one
Grantee, any such selection shall be made by a Grantee Majority.)
(iv) "Average Price" shall mean the average closing price of a share
of the Substitute Common Stock for the one-year period immediately
preceding effectiveness of the consolidation, merger, share exchange or
sale in question, but in no event higher than the closing price of the
shares of the Substitute Common Stock on the day preceding the
effectiveness of such consolidation, merger, share exchange or sale;
provided that if Issuer is the issuer of the Substitute Option, the
Average Price shall be computed with respect to a share of common stock
issued by Issuer, the person merging into Issuer or by any company which
controls or is controlled by such merger person, as Grantee may elect.
(f) In no event pursuant to any of the foregoing sections shall the
Substitute Option be exercisable for more than 19.9% of the aggregate of
the shares of the Substitute Common Stock outstanding prior to exercise of
the Substitute Option. In the event that the Substitute Option would be
exercisable for more than 19.9% of the aggregate of the shares of
Substitute Common Stock but for this clause (f), the Substitute Option
Issuer shall make a cash payment to Grantee equal to the excess of (i) the
value of the Substitute Option without giving effect to the limitation in
this clause (f) over (ii) the value of the Substitute Option after giving
effect to the limitation in this clause (f). This difference in value shall
be determined by a nationally recognized investment banking firm selected
by Grantee (or a Grantee Majority).
(g) Issuer shall not enter into any transaction described in subsection
(b) of this Section 7 unless the Acquiring Corporation and any person that
controls the Acquiring Corporation assume in writing all the obligations of
Issuer hereunder and take all other actions that may be necessary so that
the provisions of this Section 7 are given full force and effect
(including, without limitation, any action that may be necessary so that
the shares of Substitute Common Stock are in no way distinguishable from or
have lesser economic value than other shares of common stock issued by the
Substitute Option Issuer).
(h) The provisions of Sections 8, 9, 10 and 11 hereof shall apply, with
appropriate adjustments, to any securities for which the Option becomes
exercisable pursuant to this Section 7 and, as applicable, references in
such sections to "Issuer," "Option," "Purchase Price" and "Issuer Common
Stock" shall be deemed to be references to "Substitute Option Issuer,"
"Substitute Option," "Substitute Purchase Price" and "Substitute Common
Stock," respectively.
8. Repurchase at the Option of Holder.
(a) Subject to the last sentence of Section 3(a) hereof, at the request
of Holder at any time commencing upon the first occurrence of a Repurchase
Event (as defined in Section 8(d)) and ending 12 months immediately
thereafter, Issuer shall repurchase from Holder the Option and all shares
of Issuer Common Stock purchased by Holder pursuant hereto with respect to
which Holder then has beneficial ownership. The date on which Holder
exercises its rights under this Section 8 is referred to as the "Request
Date." Such repurchase shall be at an aggregate price (the "Section 8
Repurchase Consideration") equal to the sum of:
(i) the aggregate Purchase Price paid by Holder for any shares of
Issuer Common Stock acquired by Holder pursuant to the Option with
respect to which Holder then has beneficial ownership;
(ii) the excess, if any, of (x) the Applicable Price (as defined
below) for each share of Issuer Common Stock over (y) the Purchase Price
(subject to adjustment pursuant to Section 7), multiplied by the number
of shares of Issuer Common Stock with respect to which the Option has not
been exercised; and
(iii) the excess, if any, of the Applicable Price over the Purchase
Price (subject to adjustment pursuant to Section 7) paid (or, in the case
of Option Shares with respect to which the Option has been exercised but
the Closing Date has not occurred, payable) by Holder for each share of
Issuer Common Stock with respect to which the
<PAGE>
Option has been exercised and with respect to which Holder then has
beneficial ownership, multiplied by the number of such shares.
(b) If Holder exercises its rights under this Section 8, Issuer shall,
within ten business days after the Request Date, pay the Section 8
Repurchase Consideration to Holder in immediately available funds, and
contemporaneously with such payment Holder shall surrender to Issuer the
Option and the certificates evidencing the shares of Issuer Common Stock
purchased thereunder with respect to which Holder then has beneficial
ownership, and Holder shall warrant that it has sole record and beneficial
ownership of such shares and that the same are then free and clear of all
liens, claims, charges and encumbrances of any kind whatsoever.
Notwithstanding the foregoing, to the extent that prior notification to or
the consent or approval of any governmental or regulatory agency or
authority is required in connection with the payment of all or any portion
of the Section 8 Repurchase Consideration, Holder shall have the ongoing
option to revoke its request for repurchase pursuant to Section 8, in whole
or in part, or to require that Issuer deliver from time to time that
portion of the Section 8 Repurchase Consideration that it is not then so
prohibited from paying and promptly file the required notice or application
for approval and expeditiously process the same (and each party shall
cooperate with the other in the filing of any such notice or application
and the obtaining of any such approval), in which case the ten business day
period of time that would otherwise run pursuant to the preceding sentence
for the payment of the portion of the Section 8 Repurchase Consideration
shall run instead from the date on which, as the case may be, any required
notification period has expired or been terminated or such approval has
been obtained and, in either event, any requisite waiting period shall have
passed. If any governmental or regulatory agency or authority disapproves
of any part of Issuer's proposed repurchase pursuant to this Section 8,
Issuer shall promptly give notice of such fact to Holder. If any
governmental or regulatory agency or authority prohibits the repurchase in
part but not in whole, then Holder shall have the right (i) to revoke the
repurchase request or (ii) to the extent permitted by such agency or
authority, determine whether the repurchase should apply to the Option
and/or Option Shares and to what extent to each, and Holder shall thereupon
have the right to exercise the Option as to the number of Option Shares for
which the Option was exercisable at the Request Date less the sum of the
number of shares covered by the Option in respect of which payment has been
made pursuant to Section 8(a)(ii) and the number of shares covered by the
portion of the Option (if any) that has been repurchased. Holder shall
notify Issuer of its determination under the preceding sentence within five
business days of receipt of notice of disapproval of the repurchase.
Notwithstanding anything herein to the contrary, all of Holder's rights
under this Section 8 shall terminate on the date of termination of this Option
pursuant to Section 3(a) hereof.
(c) For purposes of this Agreement, the "Applicable Price" means the
highest of (i) the highest price per share of Issuer Common Stock paid for
any such share by the person or groups described in Section 8(d)(i) hereof,
(ii) the price per share of Issuer Common Stock received by holders of
Issuer Common Stock in connection with any merger or other business
combination transaction described in Sections 7(b)(i), 7(b)(ii), 7(b)(iii)
or 7(b)(iv) hereof, or (iii) the highest closing sales price per share of
Issuer Common Stock quoted on the Nasdaq National Market (or if Issuer
Common Stock is not quoted on the Nasdaq National Market, the highest bid
price per share as quoted on the principal trading market or securities
exchange on which such shares are traded as reported by a recognized source
chosen by Holder) during the 60 business days preceding the Request Date;
provided, however, that in the event of a sale of less than all of Issuer's
assets, the Applicable Price shall be the sum of the price paid in such
sale for such assets and the current market value of the remaining assets
of Issuer as determined by an independent nationally recognized investment
banking firm selected by Holder and reasonably acceptable to Issuer (which
determination shall be conclusive for all purposes of this Agreement),
divided by the number of shares of the Issuer Common Stock outstanding at
the time of such sale. If the consideration to be offered, paid or received
pursuant to either of the foregoing clauses (i) or (ii) shall be other than
in cash, the value of such consideration shall be determined in good faith
by an independent nationally recognized investment banking firm selected by
Holder and reasonably acceptable to Issuer, which determination shall be
conclusive for all purposes of this Agreement.
(d) As used herein, "Repurchase Event" shall occur if (i) any person
(other than Grantee or any Subsidiary of Grantee) shall have acquired
actual ownership or control, or any "group" (as such term is defined under
the Exchange Act) shall have been formed which shall have acquired actual
ownership or control, of 50% or more of the then-outstanding shares of
Issuer Common Stock, or (ii) any of the transactions described in Section
7(b)(i), 7(b)(ii), 7(b)(iii) or 7(b)(iv) shall be consummated.
<PAGE>
9. Registration Rights.
(a) For a period of 24 months following termination of the Merger
Agreement, Issuer shall, subject to the conditions of subsection (c) below,
if requested by any Holder, including Grantee and any permitted transferee
of the Option Shares ("Selling Holder"), as expeditiously as possible
prepare and file a registration statement under the Securities Laws if
necessary in order to permit the sale or other disposition of any or all
shares of Issuer Common Stock or other securities that have been acquired
by or are issuable to Selling Holder upon exercise of the Option in
accordance with the intended method of sale or other disposition stated by
the Selling Holder in such request, including, without limitation, a
"shelf" registration statement under Rule 415 under the Securities Act or
any successor provision, and Issuer shall use its best efforts to qualify
such shares or other securities for sale under any applicable state
securities laws.
(b) If Issuer at any time after the exercise of the Option proposes to
register any shares of Issuer Common Stock under the Securities Laws in
connection with an underwritten public offering of such Issuer Common
Stock, Issuer will promptly give written notice to Holder of its intention
to do so and, upon the written request of Holder given within 30 days after
receipt of any such notice (which request shall specify the number of
shares of Issuer Common Stock intended to be included in such underwritten
public offering by Selling Holder), Issuer will cause all such shares, the
holders of which shall have requested participation in such registration,
to be so registered and included in such underwritten public offering;
provided, that Issuer may elect to cause any such shares not to be so
registered (i) if the underwriters in good faith object for a valid
business reason, or (ii) in the case of a registration solely to implement
a dividend reinvestment or similar plan, an employee benefit plan or a
registration filed on Form S-4 or any successor form, or a registration
filed on a form which does not permit registration of resales; provided,
further, that such election pursuant to clause (i) may be made only one
time. If some but not all the shares of Issuer Common Stock, with respect
to which Issuer shall have received requests for registration pursuant to
this subsection (b), shall be excluded from such registration, Issuer shall
make appropriate allocation of shares to be registered among Selling
Holders and any other person (other than Issuer or any person exercising
demand registration rights in connection with such registration) who or
which is permitted to register their shares of Issuer Common Stock in
connection with such registration pro rata in the proportion that the
number of shares requested to be registered by each Selling Holder bears to
the total number of shares requested to be registered by all persons then
desiring to have Issuer Common Stock registered for sale.
(c) Issuer shall use all reasonable efforts to cause each registration
statement referred to in subsection (a) above to become effective and to
obtain all consents or waivers of other parties which are required therefor
and to keep such registration statement effective, provided, that Issuer
may delay any registration of Option Shares required pursuant to subsection
(a) above for a period not exceeding 90 days in the event that Issuer shall
in good faith determine that any such registration would adversely affect
an offering or contemplated offering of other securities by Issuer, and
Issuer shall not be required to register Option Shares under the Securities
Laws pursuant to subsection (a) above:
(i) prior to the occurrence of a Purchase Event;
(ii) on more than two occasions;
(iii) more than once during any calendar year;
(iv) within 90 days after the effective date of a registration
referred to in subsection (b) above pursuant to which the Selling Holders
concerned were afforded the opportunity to register such shares under the
Securities Laws and such shares were registered as requested; and
(v) unless a request therefor is made to Issuer by Selling Holders
holding at least 25% or more of the aggregate number of Option Shares
then outstanding.
In addition to the foregoing, Issuer shall not be required to maintain the
effectiveness of any registration statement after the expiration of nine months
from the effective date of such registration statement. Issuer shall use all
reasonable efforts to make any filings, and take all steps, under all
applicable state securities laws to the extent necessary to permit the sale or
other disposition of the Option Shares so registered in accordance with the
intended method of distribution for such shares, provided, that Issuer shall
not be required to consent to general jurisdiction or qualify to do business in
any state where it is not otherwise required to so consent to such jurisdiction
or to so qualify to do business.
(d) Except where applicable state law prohibits such payments, Issuer
will pay all expenses (including without limitation registration fees,
qualification fees, blue sky fees and expenses (including the fees and
expenses of counsel), accounting expenses, legal expenses, including
reasonable fees and expenses of one counsel to the Selling Holders whose
Option Shares are being registered, printing expenses, reasonable expenses
of underwriters, excluding discounts
<PAGE>
and commissions but including liability insurance if Issuer so desires or
the underwriters so require, and the reasonable fees and expenses of any
necessary special experts) in connection with each registration pursuant to
subsection (a) or (b) above (including the related offerings and sales by
Selling Holders) and all other qualifications, notifications or exemptions
pursuant to subsection (a) or (b) above. Underwriting discounts and
commissions relating to Option Shares and any other expenses incurred by
such Selling Holders in connection with any such registration shall be
borne by such Selling Holders.
(e) In connection with any registration under subsection (a) or (b) above
Issuer hereby indemnifies the Selling Holders, and each underwriter
thereof, including each person, if any, who controls such holder or
underwriter within the meaning of Section 15 of the Securities Act, against
all expenses, losses, claims, damages and liabilities caused by any untrue
statement of a material fact contained in any registration statement or
prospectus or notification or offering circular (including any amendments
or supplements thereto) or any preliminary prospectus, or caused by any
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, except insofar as
such expenses, losses, claims, damages or liabilities of such indemnified
party are caused by any untrue statement or alleged untrue statement or
omission or alleged omission that was included by Issuer in any such
registration statement or prospectus or notification or offering circular
(including any amendments or supplements thereto) in reliance upon and in
conformity with, information furnished in writing to Issuer by such
indemnified party expressly for use therein, and Issuer and each officer,
director and controlling person of Issuer shall be indemnified by such
Selling Holder, or by such underwriter, as the case may be, for all such
expenses, losses, claims, damages and liabilities caused by any untrue or
alleged untrue statement or omission or alleged omission that was included
by Issuer in any such registration statement or prospectus or notification
or offering circular (including any amendments or supplements thereto) in
reliance upon, and in conformity with, information furnished in writing to
Issuer by such holder or such underwriter, as the case may be, expressly
for such use.
Promptly upon receipt by a party indemnified under this subsection (e) of
notice of the commencement of any action against such indemnified party in
respect of which indemnity or reimbursement may be sought against any
indemnifying party under this subsection (e), such indemnified party shall
notify the indemnifying party in writing of the commencement of such action,
but the failure so to notify the indemnifying party shall not relieve it of any
liability which it may otherwise have to any indemnified party under this
subsection (e). In case notice of commencement of any such action shall be
given to the indemnifying party as above provided, the indemnifying party shall
be entitled to participate in and, to the extent it may wish, jointly with any
other indemnifying party similarly notified, to assume the defense of such
action at its own expense, with counsel chosen by it and satisfactory to such
indemnified party. The indemnified party shall have the right to employ
separate counsel in any such action and participate in the defense thereof, but
the fees and expenses of such counsel (other than reasonable costs of
investigation) shall be paid by the indemnified party unless (i) the
indemnifying party agrees to pay them, (ii) the indemnifying party fails to
assume the defense of such action with counsel satisfactory to the indemnified
party, or (iii) the indemnified party has been advised by counsel that one or
more legal defenses may be available to the indemnifying party that may be
contrary to the interest of the indemnified party, in which case the
indemnifying party shall be entitled to assume the defense of such action
notwithstanding its obligation to bear fees and expenses of such counsel. No
indemnifying party shall be liable for any settlement entered into without its
consent, which consent may not be unreasonably withheld.
If the indemnification provided for in this subsection (e) is unavailable
to a party otherwise entitled to be indemnified in respect of any expenses,
losses, claims, damages or liabilities referred to herein, then the
indemnifying party, in lieu of indemnifying such party otherwise entitled to be
indemnified, shall contribute to the amount paid or payable by such party to be
indemnified as a result of such expenses, losses, claims, damages or
liabilities in such proportion as is appropriate to reflect the relative
benefits received by Issuer, all Selling Holders and the underwriters from the
offering of the securities and also the relative fault of Issuer, all Selling
Holders and the underwriters in connection with the statements or omissions
which resulted in such expenses, losses, claims, damages or liabilities, as
well as any other relevant equitable considerations. The amount paid or payable
by a party as a result of the expenses, losses, claims, damages and liabilities
referred to above shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim; provided, that in no case shall any Selling
Holder be responsible, in the aggregate, for any amount in excess of the net
offering proceeds attributable to its Option Shares included in the offering.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. Any obligation by any
holder to indemnify shall be several and not joint with other holders.
<PAGE>
In connection with any registration pursuant to subsection (a) or (b)
above, Issuer and each Selling Holder (other than Grantee) shall enter into an
agreement containing the indemnification provisions of this subsection (e).
(f) Issuer shall comply with all reporting requirements and will do all
such other things as may be necessary to permit the expeditious sale at any
time of any Option Shares by the Selling Holders in accordance with and to
the extent permitted by any rule or regulation promulgated by the
Commission from time to time, including, without limitation, Rules 144 and
144A. Issuer shall at its expense provide the Selling Holders with any
information necessary in connection with the completion and filing of any
reports or forms required to be filed by them under the Securities Laws, or
required pursuant to any state securities laws or the rules of any stock
exchange.
(g) Issuer will pay all stamp taxes in connection with the issuance and
the sale of the Option Shares and in connection with the exercise of the
Option, and will save Holder harmless, without limitation as to time,
against any and all liabilities, with respect to all such taxes.
10. Quotation; Listing. If Issuer Common Stock or any other securities to
be acquired upon exercise of the Option are then authorized for quotation or
trading or listing on the Nasdaq National Market or any other securities
exchange or any automated quotations system maintained by a self-regulatory
organization, Issuer will promptly file an application, if required, to
authorize for quotation or trading or listing the shares of Issuer Common Stock
or other securities to be acquired upon exercise of the Option on the Nasdaq
National Market or any other securities exchange or any automated quotations
system maintained by a self-regulatory organization and will use its best
efforts to obtain approval, if required, of such quotation or listing as soon
as practicable.
11. Division of Option. This Agreement (and the Option granted hereby) is
exchangeable, without expense, at the option of Holder, upon presentation and
surrender of this Agreement at the principal office of Issuer for other
Agreements providing for Options of different denominations entitling the
holder thereof to purchase in the aggregate the same number of shares of Issuer
Common Stock purchasable hereunder. The terms "Agreement" and "Option" as used
herein include any other Agreements and related Options for which this
Agreement (and the Option granted hereby) may be exchanged. Upon receipt by
Issuer of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Agreement, and (in the case of loss, theft or
destruction) of reasonably satisfactory indemnification, and upon surrender and
cancellation of this Agreement, if mutilated, Issuer will execute and deliver a
new Agreement of like tenor and date. Any such new Agreement executed and
delivered shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or mutilated
shall at any time be enforceable by anyone.
12. Miscellaneous.
(a) Expenses. Except as otherwise provided herein, each of the parties
hereto shall bear and pay all costs and expenses incurred by it or on its
behalf in connection with the transactions contemplated hereunder,
including fees and expenses of its own financial consultants, investment
bankers, accountants and counsel.
(b) Waiver and Amendment. Any provision of this Agreement may be waived
at any time by the party that is entitled to the benefits of such
provision. This Agreement may not be modified, amended, altered or
supplemented except upon the execution and delivery of a written agreement
executed by the parties hereto.
(c) Entire Agreement; No Third-Party Beneficiary; Severability. This
Agreement, together with the Merger Agreement and the other documents and
instruments referred to herein and therein, between Grantee and Issuer (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, between the parties with respect to
the subject matter hereof and (b) is not intended to confer upon any person
other than the parties hereto (other than any transferees of the Option
Shares or any permitted transferee of this Agreement pursuant to Section
12(h) hereof) any rights or remedies hereunder. If any term, provision,
covenant or restriction of this Agreement is held by a court of competent
jurisdiction or a federal or state governmental or regulatory agency or
authority to be invalid, void or unenforceable, the remainder of the terms,
provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or
invalidated. If for any reason such court or regulatory agency determines
that the Option does not permit Holder to acquire, or does not require
Issuer to repurchase, the full number of shares of Issuer Common Stock as
provided in Sections 3 and 8 hereof (as adjusted pursuant to Section 7
hereof), it is the express intention of Issuer to allow Holder to acquire
or to require Issuer to repurchase such lesser number of shares as may be
permissible without any amendment or modification hereof.
(d) Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the laws of the State of North Carolina without
regard to any applicable conflicts of law rules, except to the extent that
the federal laws of the United States shall govern.
<PAGE>
(e) Descriptive Headings. The descriptive headings contained herein are
for convenience of reference only and shall not affect in any way the
meaning or interpretation of this Agreement.
(f) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally, telecopied (with
confirmation) or mailed by registered or certified mail (return receipt
requested) to the parties at the addresses set forth in the Merger
Agreement (or at such other address for a party as shall be specified by
like notice).
(g) Counterparts. This Agreement and any amendments hereto may be
executed in two counterparts, each of which shall be considered one and the
same agreement and shall become effective when both counterparts have been
signed, it being understood that both parties need not sign the same
counterpart.
(h) Assignment; Transfer. Neither this Agreement nor any of the rights,
interests or obligations hereunder or under the Option shall be assigned or
transferred by any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other party, except
that Grantee may assign this Agreement to a wholly owned subsidiary of
Grantee and Grantee may assign or transfer its rights hereunder in whole or
in part after the occurrence of a Purchase Event. In the case of any
permitted assignment or transfer of the Option, Issuer shall do all things
necessary to facilitate the same, and the Holder to whom the Option is
assigned or transferred shall make the representations contained in Section
6 hereof (with Holder substituted for Grantee) and shall agree in writing
to the terms and conditions hereof. Subject to the preceding sentence, this
Agreement shall be binding upon, inure to the benefit of and be enforceable
by the parties and their respective successors and assigns.
(i) Further Assurances. In the event of any exercise of the Option by
Holder, Issuer and Holder shall execute and deliver all other documents and
instruments and take all other action that may be reasonably necessary in
order to consummate the transactions provided for by such exercise.
(j) Specific Performance. The parties hereto agree that this Agreement
may be enforced by either party through specific performance, injunctive
relief and other equitable relief. Both parties further agree to waive any
requirement for the securing or posting of any bond in connection with the
obtaining of any such equitable relief and that this provision is without
prejudice to any other rights that the parties hereto may have for any
failure to perform this Agreement.
IN WITNESS WHEREOF, Issuer and Grantee have caused this Stock Option
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the day and year first written above.
MARYLAND FEDERAL BANCORP, INC. BB&T CORPORATION
By: /s/ Robert H. Halleck By: /s/ John A. Allison, IV
Name: Robert H. Halleck Name: John A. Allison, IV
Title: President and Chief Title: Chairman and Chief
Executive Officer Executive Officer
