AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 7, 1996
Registration No. 33-07723
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
F&M NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
VIRGINIA 6711 54-0857462
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
------------------------
38 ROUSS AVENUE
WINCHESTER, VIRGINIA 22601
(540) 665-4200
(Address, including zip code, and telephone number, including area
code of registrant's principal executive office)
------------------------
ALFRED B. WHITT
Senior Vice President and Secretary
F&M National Corporation
38 Rouss Avenue
Winchester, Virginia 22601
(540) 665-4200
(Name, address, including zip code, and telephone number,
including area code of agent for service)
------------------------
COPIES TO:
George P. Whitley, Esq. David H. Baris, Esq.
LeClair Ryan, A Professional Corporation Kennedy & Baris, L.L.P.
707 East Main Street, 11th Floor 4719 Hampden Lane, Suite 300
Richmond, Virginia 23219 Bethesda, Maryland 20814
------------------------
Approximate date of commencement of proposed sale to the public: As
soon as practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are to be offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box.
------------------------
CALCULATION OF REGISTRATION FEE
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE PROPOSED MAXIMUM PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED REGISTERED (1) OFFERING PRICE PER SHARE AGGREGATE OFFERING PRICE(2) REGISTRATION FEE
Common Stock, $2.00 par value 1,816,712 N/A $27,841,400 $9,601
(1) The estimated maximum number of shares to be issued.
(2) Estimated solely for purposes of calculating the registration fee and
calculated in accordance with Rule 457(f)(1) based upon: 1,748,813
shares of Allegiance Common Stock outstanding; 187,980 shares Allegiance
Common Stock issuable upon the exercise of outstanding stock options and
warrants; and a market value of Allegiance Common Stock as of July 2, 1996
of $14.375 per share.
The Registrant hereby amends this Registration Statement on such date or dates
as may be necessary to delay its effective date until the Registrant shall file
a further amendment which specifically states this Registration Statement shall
thereafter become effective in accordance with Section 8(a) of the Securities
Act of 1933 or until the Registration Statement shall become effective on such
date as the Commission, acting pursuant to said Section 8(a), may determine.
F&M NATIONAL CORPORATION
CROSS-REFERENCE SHEET
PURSUANT TO RULE 404(a) OF THE SECURITIES ACT AND ITEM
501(b) OF REGULATION S-K, SHOWING THE LOCATION OR
HEADING IN THE PROSPECTUS AND PROXY STATEMENT
OF THE INFORMATION REQUIRED BY PART I OF FORM S-4
FORM S-4 LOCATION OR HEADING IN
ITEM NUMBER AND CAPTION PROSPECTUS AND PROXY STATEMENT
A. Information About the Transaction
1. Forepart of the Registration Statement and
Outside Cover Page of Prospectus Cover Page of Registration Statement; Outside Front Cover
Page of Proxy Statement/Prospectus
2. Inside Front and Outside Back Cover Pages of
Prospectus Available Information; Incorporation of Certain Information
by Reference; Table of Contents
3. Risk Factors, Ratio of Earnings to Fixed
Charges and Other Information Summary; Comparative Per Share Information; Selected
Financial Data; Recent Financial Data; The Special Meeting;
The Merger; Market Prices and Dividends; Allegiance Banc
Corporation
4. Terms of the Transaction Summary; The Merger; Comparative Rights of Shareholders;
Description of F&M Capital Stock
5. Pro Forma Financial Information Not Applicable
6. Material Contacts with the Company
Being Acquired Summary; The Merger--Background of and Reasons for the
Merger, --Interests of Certain Persons in the Merger
7. Additional Information Required for
Reoffering by Persons and Parties
Deemed to be Underwriters Not Applicable
8. Interests of Named Experts and Counsel Experts; Legal Opinions
9. Disclosure of Commission Position on
Indemnification for Securities Act
Liabilities Not Applicable
B. Information About the Registrant
10. Information with Respect to S-3 Registrants Incorporation of Certain Information by Reference; Summary;
Market Prices and Dividends; Business of F&M; Description of
F&M Capital Stock
11. Incorporation of Certain Information by
Reference Incorporation of Certain Information by Reference
12. Information with Respect to S-2 or S-3
Registrants Not Applicable
13. Incorporation of Certain Information by
Reference Not Applicable
14. Information with Respect to Registrants Other
Than S-3 or S-2 Registrants Not Applicable
FORM S-4 LOCATION OR HEADING IN
ITEM NUMBER AND CAPTION PROSPECTUS AND PROXY STATEMENT
C. Information About the Company Being Acquired
15. Information with Respect to S-3 Companies Not Applicable
16. Information with Respect to S-2 or S-3
Companies Incorporation of Certain Information by Reference; Summary;
Comparative Per Share Information; Selected Financial Data;
Recent Financial Data; Market Prices and Dividends;
Allegiance Banc Corporation
17. Information with Respect to Companies Other
Than S-3 or S-2 Companies Not Applicable
D. Voting and Management Information
18. Information if Proxies, Consents or
Authorizations are to be Solicited Incorporation of Certain Information by Reference; Summary;
The Special Meeting; The Merger
19. Information if Proxies, Consents or
Authorizations are not to be Solicited or
in an Exchange Offer Not Applicable
August __, 1996
Dear Fellow Shareholders:
Enclosed you will find notice of a Special Meeting of Shareholders of
Allegiance Banc Corporation ("Allegiance") to be held at the Main Office of
Allegiance Bank, N.A., at 4719 Hampden Lane, Bethesda, Maryland on Friday,
September 27, 1996 at 10:00 a.m.
The purpose of the meeting is limited to consideration of and voting on
the Agreement and Plan of Reorganization, dated as of April 22, 1996, and a
related Plan of Merger (collectively, the "Merger Agreement") between Allegiance
and F&M National Corporation ("F&M"). Based in Winchester, Virginia, F&M is a
bank holding company with $2.1 billion in total assets at March 31, 1996 and
twelve affiliated banks in Virginia and West Virginia.
Under the Merger Agreement, each share of Allegiance common stock will
be exchanged for shares of F&M common stock whose aggregate market value equals
$15.00, and cash in lieu of any fractional share. In addition, a representative
from our Board, Leonard L. Abel, will be appointed by F&M to its Board of
Directors upon consummation of the merger. F&M common stock is traded on the New
York Stock Exchange under the symbol "FMN." It is anticipated that the merger
will become effective during the latter part of the third quarter or early part
of the fourth quarter of this year.
Your Board of Directors has retained the investment banking firm of
Scott & Stringfellow, Inc. to act as its financial advisor in connection with
this transaction. As discussed in the accompanying Proxy Statement/Prospectus,
Scott & Stringfellow has delivered its written opinion that, as of this date,
the terms of the Merger Agreement are fair from a financial point of view to our
shareholders.
Allegiance shareholders will not recognize gain or loss for federal
income tax purposes to the extent F&M common stock is received in the merger in
exchange for Allegiance common stock, although the receipt of cash in lieu of
fractional shares will be taxable. Details of the proposed transaction with F&M
are set forth in the accompanying Proxy Statement/Prospectus, which you are
urged to read carefully in its entirety. Approval of the transaction with F&M
requires the affirmative vote of at least a majority of the outstanding shares
of Allegiance common stock.
Your Board of Directors has unanimously approved the Merger Agreement
and the transaction with F&M and believes that they are in the best interests of
Allegiance and its shareholders. Accordingly, the Board unanimously recommends
that you VOTE FOR the Merger Agreement.
WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, SIGN AND DATE THE
ENCLOSED PROXY CARD AND RETURN IT PROMPTLY IN THE ENCLOSED ENVELOPE. YOUR VOTE
IS IMPORTANT REGARDLESS OF THE NUMBER OF SHARES YOU OWN.
Thank you for your consideration of this matter.
Sincerely yours,
LEONARD L. ABEL RONALD D. PAUL
Chairman of the Board President
ALLEGIANCE BANC CORPORATION
BETHESDA, MARYLAND
-------------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
SEPTEMBER 27, 1996
-------------------------
A Special Meeting of Shareholders of Allegiance Banc Corporation
("Allegiance") will be held on Friday, September 27, 1996 at 10:00 a.m., at the
Main Office of Allegiance Bank, N.A. located at 4719 Hampden Lane, Bethesda,
Maryland for the following purposes:
1. To approve the Agreement and Plan of Reorganization, dated as of
April 22, 1996, between Allegiance and F&M National Corporation ("F&M") and a
related Plan of Merger (collectively, the "Merger Agreement"), providing for the
merger of Allegiance with and into F&M upon the terms and conditions therein,
including, among other things, that each issued and outstanding share of
Allegiance common stock will be exchanged for shares of F&M common stock with an
aggregate market value equal to $15.00, with cash being paid in lieu of issuing
fractional shares. The Merger Agreement is enclosed as Appendix I to the
accompanying Proxy Statement/Prospectus.
2. To transact such other business as may properly come before the
meeting or any adjournments or postponements thereof.
The Board of Directors has fixed July 31, 1996, as the record date for
the Special Meeting, and only holders of record of Allegiance common stock at
the close of business on that date are entitled to receive notice of and to vote
at the Special Meeting or any adjournments or postponements thereof.
Allegiance shareholders will not be entitled to exercise dissenters'
rights of appraisal in connection with the Merger.
By Order of the Board of Directors
Michele Midlo
Corporate Secretary
August ___, 1996
PLEASE MARK, SIGN, DATE AND RETURN YOUR PROXY PROMPTLY, WHETHER OR NOT YOU
PLAN TO ATTEND THE SPECIAL MEETING.
THE BOARD OF DIRECTORS OF ALLEGIANCE UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS
VOTE FOR THE MERGER AGREEMENT.
ALLEGIANCE BANC CORPORATION
PROXY STATEMENT
F&M NATIONAL CORPORATION
PROSPECTUS
This Proxy Statement/Prospectus is being furnished to shareholders of
Allegiance Banc Corporation ("Allegiance") in connection with the solicitation
of proxies by the Board of Directors of Allegiance for use at its Special
Meeting of Shareholders (the "Special Meeting") to be held on September 27,
1996, and any postponements or adjournments thereof.
At the Special Meeting, shareholders will be asked to approve an
Agreement and Plan of Reorganization, dated as of April 22, 1996, between
Allegiance and F&M National Corporation, a bank holding company based in
Winchester, Virginia ("F&M"), and a related Plan of Merger (collectively, the
"Merger Agreement") providing for the merger of Allegiance with and into F&M
(the "Merger") and the exchange of common stock of Allegiance ("Allegiance
Common Stock") for the common stock of F&M ("F&M Common Stock"). Upon
consummation of the Merger, each outstanding share of Allegiance Common Stock
will be converted into and exchanged for shares of F&M Common Stock with an
aggregate market value equal to $15.00. Cash will be paid in lieu of fractional
shares. Allegiance shareholders will not be entitled to exercise dissenters'
rights of appraisal in connection with the Merger. A copy of the Merger
Agreement is included as Appendix I hereto.
Except as described below, the market value of F&M Common Stock will be
its average closing price as reported on the New York Stock Exchange (the
"NYSE") for each of the ten full trading days ending on the second day prior to
the effective date of the Merger (the "Average Closing Price"). The ratio of
shares of F&M Common Stock that will be exchanged for each outstanding share of
Allegiance Common Stock will then be determined by dividing $15.00 by the
Average Closing Price. Accordingly, the exchange ratio will not, except as
described below, be determined until the effective date of the Merger. The
Merger Agreement includes a price adjustment provision designed to address the
situation in which the market value of F&M Common Stock increases as a result of
certain agreements or proposals relating to the acquisition of control, or
announcements of proposals relating to the acquisition of control, of F&M, which
would thereby reduce the number of shares of F&M Common Stock that would
otherwise be issued to Allegiance shareholders. In that event, the exchange
ratio would be fixed using the average closing price of F&M Common Stock for
each of the ten full trading days immediately preceding the public announcement
of the proposed transaction. See "The Merger - Terms of the Merger." F&M is not
aware of any plan or intention of any person or entity to acquire control of
F&M.
Scott & Stringfellow, Inc. ("Scott & Stringfellow") has rendered
its opinion, updated to the date hereof, that the terms of the Merger are
fair to Allegiance's shareholders from a financial point of view. See "The
Merger - Opinion of Financial Advisor."
THE BOARD OF DIRECTORS OF ALLEGIANCE UNANIMOUSLY RECOMMENDS THAT
SHAREHOLDERS VOTE TO APPROVE THE MERGER AGREEMENT. FAILURE TO VOTE IS EQUIVALENT
TO VOTING AGAINST THE PROPOSAL.
(continued on following page)
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE
SECURITIES AND EXCHANGE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY NOR HAS
THE COMMISSION OR ANY OTHER FEDERAL OR STATE AGENCY PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROXY STATEMENT/PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
The date of this Proxy Statement/Prospectus is August__, 1996.
This Proxy Statement/Prospectus also constitutes a prospectus of F&M
covering up to approximately 1,816,712 shares of F&M Common Stock to be issued
to shareholders of Allegiance in connection with the Merger. The outstanding
shares of F&M Common Stock are, and the shares offered hereby will be, listed on
the NYSE and traded under the symbol "FMN." The closing price of F&M Common
Stock on the NYSE on August 7, 1996 was $18.25.
This Proxy Statement/Prospectus is first being mailed to shareholders
of Allegiance on or about August 12, 1996.
THE SHARES OF F&M COMMON STOCK OFFERED HEREBY ARE NOT SAVINGS ACCOUNTS,
DEPOSITS OR OTHER OBLIGATIONS OF ANY BANK OR SAVINGS ASSOCIATION AND ARE NOT
INSURED BY THE FEDERAL DEPOSIT INSURANCE CORPORATION OR ANY OTHER GOVERNMENTAL
AGENCY.
AVAILABLE INFORMATION
F&M and Allegiance 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 Securities and Exchange Commission (the "Commission"). Such reports, proxy
statements and other information can be inspected and copied at the public
reference facilities maintained by the Commission at Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549, and at its regional offices at
Northwestern Atrium Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois 60661-2511 and 7 World Trade Center (13th Floor), New York, New York
10048. Copies of such material can be obtained from the Public Reference Section
of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549 at
prescribed rates. Such reports, proxy statements and other information with
respect to F&M may also be inspected at the offices of the New York Stock
Exchange, 20 Broad Street, New York, New York 10005, and with respect to
Allegiance may be inspected at the office of the National Association of
Securities Dealers Stock Market, Report Section, 1735 K Street, N.W.,
Washington, D.C. 20006. As permitted by the rules and regulations of the
Commission, this Proxy Statement/Prospectus does not contain all the information
set forth in the Registration Statement on Form S-4, of which this Proxy
Statement/Prospectus is a part, and exhibits thereto (together with the
amendments thereto, the "Registration Statement"), which have been filed by F&M
with the Commission under the Securities Act of 1933 (the "Securities Act") with
respect to F&M Common Stock and to which reference is hereby made for further
information.
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES BY REFERENCE CERTAIN
DOCUMENTS RELATING TO F&M OR ALLEGIANCE THAT ARE NOT PRESENTED HEREIN OR
DELIVERED HEREWITH. THESE DOCUMENTS (OTHER THAN EXHIBITS TO SUCH DOCUMENTS THAT
ARE NOT SPECIFICALLY INCORPORATED BY REFERENCE IN SUCH DOCUMENTS) ARE AVAILABLE
TO ANY PERSON TO WHOM THIS PROXY STATEMENT/PROSPECTUS IS DELIVERED, WITHOUT
CHARGE, UPON WRITTEN OR ORAL REQUEST DIRECTED TO F&M'S SECRETARY, 38 ROUSS
AVENUE, P.O. BOX 2800, WINCHESTER, VIRGINIA 22604; TELEPHONE NUMBER (540)
665-4200 OR UPON WRITTEN OR ORAL REQUEST DIRECTED TO ALLEGIANCE'S SECRETARY,
4719 HAMPDEN LANE, BETHESDA, MARYLAND 20814; TELEPHONE NUMBER (301) 656-5300. IN
ORDER TO ENSURE TIMELY DELIVERY OF ANY REQUESTED DOCUMENTS, THE REQUEST SHOULD
BE MADE BY __________________, 1996.
The information contained in this Proxy Statement/Prospectus relating
to F&M has been supplied by F&M, and the information relating to Allegiance has
been supplied by Allegiance.
NO PERSON HAS BEEN AUTHORIZED TO MAKE ANY REPRESENTATIONS OR GIVE ANY
INFORMATION NOT CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS OR INCORPORATED BY
REFERENCE HEREIN AND, IF MADE OR GIVEN, SUCH REPRESENTATION OR INFORMATION
SHOULD NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY ALLEGIANCE OR F&M.
NEITHER THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR THE ISSUANCE OF ANY
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF ALLEGIANCE OR F&M 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 INFORMATION BY REFERENCE
The following documents filed with the Commission by F&M (File No.
0-05929) under the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus: (i) F&M's Annual Report on Form 10-K for the year ended
December 31, 1995, the consolidated financial statements and certain other
information therein having been superseded by the consolidated financial
statements and certain other information for the year ended December 31, 1995
that are included in F&M's current Report on Form 8-K, dated July 2, 1996, to
reflect F&M's acquisition of FB&T Financial Corporation; (ii) F&M's Quarterly
Report on Form 10-Q for the quarter ended March 31, 1996; and (iii) F&M's
Current Reports on Form 8-K, dated April 11, April 22, May 9, 1996 and July 2,
1996.
All documents filed by F&M pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act subsequent to the date hereof and prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein.
The following documents filed with the Commission by Allegiance (File
No. 0-16706) under the Exchange Act are incorporated by reference in this Proxy
Statement/Prospectus: (i) Allegiance's Annual Report on Form 10-K for the year
ended December 31, 1995; (ii) Allegiance's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1996; (iii) Allegiance's Current Report on Form 8-K,
dated April 22, 1996; (iv) all other reports filed by Allegiance pursuant to
Section 13(a) or 15(d) of the Exchange Act since the end of the year covered in
its Annual Report referred to in (i) above; and (v) the following portions of
Allegiance's 1995 Annual Report to Shareholders included as Appendix IV hereto:
PAGE NUMBER IN
ANNUAL REPORT
Selected Financial Data - Five Years Ended December 31, 1995............................ 3
Quarterly Summary of Operations - Two Years Ended December 31, 1995..................... 24
Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................................... 6 - 10
Market Price of Common Stock, Dividend Information and Related Shareholder Matters...... 10
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement/Prospectus to the extent that a statement
contained herein, or in any other subsequently filed document that also is
incorporated or deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any such statement so modified or superseded shall
not be deemed, except as so modified or superseded, to constitute a part of this
Proxy Statement/Prospectus.
Also incorporated by reference herein is the Merger Agreement, which is
included as Appendix I to the Proxy Statement/Prospectus.
TABLE OF CONTENTS
Available Information.................................................
Incorporation of Certain Information by Reference.....................
Summary...............................................................
Comparative Per Share Information.....................................
Selected Financial Data...............................................
Recent Financial Data.................................................
The Special Meeting...................................................
The Merger............................................................
Market Prices and Dividends...........................................
Allegiance Banc Corporation...........................................
Business of F&M ......................................................
Comparative Rights of Shareholders....................................
Description of F&M Capital Stock......................................
Experts...............................................................
Legal Opinions........................................................
Other Matters.........................................................
APPENDICES
I Agreement and Plan of Reorganization and Plan of Merger
II Stock Option Agreement
III Opinion of Scott & Stringfellow, Inc.
IV Allegiance's 1995 Annual Report to Shareholders
V Allegiance's Form 10-Q for the quarter ended March 31, 1996
SUMMARY
The following summary is not intended to be complete description of all
material facts regarding F&M, Allegiance and the matters to be considered at the
Special Meeting and is qualified in all respects by the more detailed
information and financial statements contained elsewhere in this Proxy
Statement/Prospectus including the Appendices hereto and the documents
incorporated herein by reference.
THE PARTIES
F&M. F&M is a multi-bank holding company headquartered in Winchester,
Virginia. F&M has twelve subsidiary banks (the "Subsidiary Banks") that operate
89 banking offices which offer a full range of banking services principally to
individuals and to small and medium sized businesses in the Shenandoah Valley of
Virginia, central and northern Virginia and the eastern panhandle of West
Virginia. F&M was formed in 1969 to serve as the parent holding company of its
then sole subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its
organization, F&M has acquired fifteen banks, which have expanded its market
area and increased its market share in Virginia and West Virginia. At March 31,
1996, F&M had total assets of $2.1 billion, total deposits of $1.8 billion and
total shareholders' equity of $211.9 million. F&M's principal executive offices
are located at 38 Rouss Avenue, Winchester, Virginia 22601, and its telephone
number is (540) 665-4200. See "Selected Financial Data," "Recent Financial Data"
and "Business of F&M."
F&M Common Stock is listed for trading on the NYSE under the symbol
"FMN."
ALLEGIANCE. Allegiance is a one bank holding company that serves as the
parent company for Allegiance Bank, N.A. ("Allegiance Bank"). Allegiance Bank, a
locally oriented national banking association based in Bethesda, Maryland,
provides commercial and consumer banking services through seven full-service
banking offices to customers in central and eastern Montgomery County and in
northern Prince George's County, Maryland. At March 31, 1996, Allegiance had
total assets of $138.1 million, total deposits of $112.7 million, and total
shareholders' equity of $12.0 million. The principal executive offices of
Allegiance are located at 4719 Hampden Lane, Bethesda, Maryland 20814 and its
telephone number is (301) 656-5300. See "Selected Financial Data," "Recent
Financial Data" and "Allegiance Banc Corporation." For additional information
concerning Allegiance, the Allegiance's 1995 Annual Report to Shareholders and
Form 10-Q for the quarter ended March 31, 1996 that are included as Appendices
IV and V, respectively, to this Proxy Statement/Prospectus.
Allegiance Common Stock is traded on the Nasdaq National Market under
the symbol "ALLG."
THE SPECIAL MEETING
TIME, PLACE AND PURPOSE. The Special Meeting will be held on September
27, 1996 at 10:00 a.m. at the Main Office of Allegiance located at 4719 Hampden
Lane, Bethesda, Maryland 20814. At the Special Meeting, Allegiance shareholders
will be asked to consider and vote upon a proposal to approve the Merger
Agreement, attached hereto as Appendix I.
RECORD DATE. Only holders of record of Allegiance Common Stock at the
close of business on July 31, 1996 (the "Record Date"), will be entitled to
notice of and to vote at the Special Meeting. At the record date, there were 672
holders of record of the 1,748,813 shares of Allegiance Common Stock then
outstanding and entitled to vote at the Special Meeting. See "The Special
Meeting."
THE MERGER
Allegiance and F&M have entered into an Agreement and Plan of
Reorganization and related Plan of Merger dated as of April 22, 1996
(collectively, the "Merger Agreement") pursuant to which Allegiance will be
merged with and into F&M (the "Merger"). In connection with the Merger, each
outstanding share of Allegiance Common Stock at the Effective Date will
automatically and without further action be exchanged for the number of shares
of F&M Common Stock having an aggregate market value of $15.00 per share. As a
result of the Merger, F&M will serve as the parent bank holding company for
Allegiance Bank, which will continue to carry on its banking business in
substantially the same manner as before the Merger.
At the Effective Date of the Merger, each outstanding share of
Allegiance Common Stock will be exchanged for shares of F&M Common Stock with an
aggregate market value equal to $15.00, with cash paid in lieu of any fractional
shares. Except as described below, the market value of F&M Common Stock will be
its average closing price as reported on the NYSE for each of the ten full
trading days ending on the second day prior to the Effective Date of the Merger
(the "Average Closing Price"). The number of shares of F&M Common Stock for
which each outstanding share of Allegiance Common Stock will be exchanged will
be established at the Effective Date by dividing $15.00 by the Average Closing
Price (the "Exchange Ratio").
The Merger Agreement includes an adjustment provision for the Exchange
Ratio designed to address the situation in which the market value of F&M Common
Stock increases in the unanticipated event of a proposed acquisition of F&M
which would thereby reduce the number of shares of F&M Common Stock that would
otherwise be issued to Allegiance shareholders. Accordingly, in the event: (a)
F&M shall have entered into an agreement with any person to (i) acquire, merge
or consolidate, or enter into any similar transaction, with F&M, (ii) purchase,
lease or otherwise acquire all or substantially all of the assets of F&M or
(iii) purchase or otherwise acquire securities representing 10% or more of the
voting power of F&M; or (b) any person shall have made a bona fide proposal to
F&M by public announcement or written communication that is or becomes the
subject of public disclosure to acquire F&M by merger, share exchange,
consolidation, purchase of all or substantially all of its assets or any similar
transaction, the Exchange Ratio will thereupon be fixed using the average
closing price of F&M Common Stock for each of the ten trading days immediately
preceding the public announcement of a transaction or event described in either
(a) or (b). F&M is not aware of any plan or intention of any person or entity to
acquire control of F&M.
There is no minimum number of shares of F&M Common Stock which must be
issued in connection with the Merger in exchange for shares of Allegiance Common
Stock. Allegiance has no right to terminate the Merger or to obtain an
adjustment of the consideration to be received solely as a result of a decrease
in the Exchange Ratio below a specified level. Similarly, there is no maximum
number of shares of F&M Common Stock which may be issued in connection with the
Merger, and F&M has no right to terminate the Merger or obtain an adjustment in
the consideration to be paid to Allegiance shareholders solely as a result of an
increase in the Exchange Ratio above a specified level. See "The Merger - Terms
of the Merger."
The Merger Agreement also provides for the adjustment of the Exchange
Ratio to reflect any stock split, stock dividend, recapitalization or similar
transaction with respect to the F&M Common Stock occurring during the period for
determination of the Exchange Ratio. At the Effective Date, Allegiance's
obligations with respect to outstanding employee options granted under its
Employee Stock Option Plans and outstanding warrants held by directors of
Allegiance and Allegiance Bank will be assumed by F&M, and each stock option and
director warrant outstanding at the Effective Date will become the right to
receive, upon payment by the holder of the adjusted exercise price, that number
of shares of F&M Common Stock which such person would have received pursuant to
the Merger if he or she had exercised such option or warrant immediately prior
thereto, and cash in lieu of any fractional shares. Shares of F&M Common Stock
received by holders of Allegiance stock options and warrants will be subject to
the same holding periods or other restrictions, if any, to which they would be
otherwise subject. See "The Merger - Terms of the Merger" and "Interests of
Certain Persons in the Merger."
RECOMMENDATION OF THE BOARD OF DIRECTORS OF ALLEGIANCE
The Board of Directors of Allegiance has unanimously approved the
Merger and the Merger Agreement. The Board of Directors believes that the Merger
is fair to and in the best interests of the shareholders of Allegiance and
recommends that shareholders VOTE FOR the Merger and the Merger Agreement. See
"The Merger Background of and Reasons for the Merger."
OPINION OF FINANCIAL ADVISOR
The Board of Directors of Allegiance has retained Scott & Stringfellow,
an investment banking firm experienced in the valuation of financial
institutions and their securities in connection with merger and acquisition
transactions, to act as its financial advisor in connection with the Merger.
Scott & Stringfellow has rendered its opinion that the terms of the Merger are
fair from a financial point of view to the Allegiance shareholders. The full
text of Scott & Stringfellow's opinion, including the assumptions made and other
matters considered and limitations on the review undertaken, updated to the date
hereof, is set forth as Appendix III to this Proxy Statement/Prospectus.
Shareholders are urged to read and consider the opinion in its entirety. See
"The Merger - Opinion of Financial Advisor."
VOTE REQUIRED
Approval of the Merger requires the affirmative vote of the holders of
at least a majority of the shares of Allegiance Common Stock outstanding at the
Record Date. As of the Record Date, directors and executive officers of
Allegiance and their affiliates beneficially owned 341,044 shares of Allegiance
Common Stock, or approximately 19.5% of the shares of Allegiance Common Stock
outstanding on such date (exclusive of shares of Allegiance Common Stock subject
to options and warrants). The directors and executive officers of Allegiance
have indicated their intention to vote their shares of Allegiance Common Stock
in favor of the Merger. See "The Allegiance Special Meeting - Vote Required."
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, AND BROKER "NON-VOTES" WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
EFFECTIVE DATE
The Merger will become effective at the date and time set forth on the
Certificates of Merger issued by the Virginia State Corporation Commission (the
"Effective Date") and filed with the Delaware Secretary of State. The Effective
Date will occur as soon as practicable, and in any event, unless the parties
otherwise agree, within fifteen days following the date that all conditions
specified in the Merger Agreement have been satisfied or waived. The Merger is
expected to be made effective on or about October 1, 1996. F&M and Allegiance
each has the right, acting unilaterally, to terminate the Merger Agreement
should the Merger not be consummated by January 15, 1997. See "The Merger - The
Effective Date."
DISTRIBUTION OF STOCK CERTIFICATES AND PAYMENT FOR FRACTIONAL SHARES
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each Allegiance shareholder a letter of
transmittal and instructions for use in order to surrender the certificates
representing shares of Allegiance Common Stock in exchange for certificates
representing shares of F&M Common Stock. Cash (without interest) will be paid to
Allegiance shareholders in lieu of the issuance of any fractional shares, in an
amount equal to the fraction of a share of F&M Common Stock to which such
shareholder would otherwise be entitled multiplied by the Average Closing Price
of F&M Common Stock. See "The Merger - Surrender of Stock Certificates."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
LeClair Ryan, counsel for F&M, has delivered an opinion that, among
other things, (i) no gain or loss will be recognized by Allegiance shareholders
to the extent they receive shares of F&M Common Stock solely in exchange for
their Allegiance Common Stock (ii) the aggregate tax basis of F&M Common Stock
received by an Allegiance shareholder will equal the aggregate tax basis of the
Allegiance Common Stock surrendered in exchange therefor (reduced by any amount
allocable to fractional share interests for which cash is received), and (iii)
the holding period of the F&M Common Stock received will generally include the
holding period of the Allegiance Common Stock surrendered if the Allegiance
Common Stock is held as a capital asset at the Effective Date. For a more
complete description of the federal income tax consequences of the Merger, see
"The Merger - Certain Federal Income Tax Consequences."
DUE TO THE INDIVIDUAL NATURE OF THE TAX CONSEQUENCES OF THE MERGER, IT
IS RECOMMENDED THAT EACH ALLEGIANCE SHAREHOLDER CONSULT HIS OR HER OWN TAX
ADVISOR CONCERNING THE TAX CONSEQUENCES OF THE MERGER WITH RESPECT TO HIS OR HER
PARTICULAR TAX SITUATION.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of Allegiance's management, as well as certain members
of the Allegiance Board of Directors, have interests in the Merger in addition
to their interests as shareholders of Allegiance. These include, among other
things, provisions in the Merger Agreement relating to indemnification of
directors and officers of Allegiance, appointment of an Allegiance director to
the Board of Directors of F&M, assumption by F&M of outstanding employee stock
options and director warrants to acquire up to 187,980 shares of Allegiance
Common Stock held by directors, officers and employees of Allegiance and
Allegiance Bank, and eligibility for certain F&M employee benefits. In each
case, the Allegiance Board was aware of these potential interests, and
considered them, among other matters, in approving the Merger Agreement and the
transactions contemplated thereby.
Directors. F&M has agreed to cause Leonard L. Abel, Chairman of the
Board of Allegiance, or if he is unavailable, Ronald D. Paul, President of
Allegiance, or such other person selected by the Board of Directors of
Allegiance and reasonably acceptable to F&M, to be appointed to the Board of
Directors of F&M at the Effective Date or as soon thereafter as practicable.
Stock Options and Warrants. Certain officers and employees of
Allegiance hold stock options under Allegiance's two employee stock option plans
to acquire aggregate of 68,980 shares of Allegiance Common Stock as of June 30,
1996 at exercise prices ranging from $3.33 to $9.50 per share. In addition, the
directors of Allegiance and Allegiance Bank hold warrants to purchase an
aggregate of 119,000 shares of Allegiance Common Stock at exercise prices
ranging from $5.00 to $6.50 per share. Such options and warrants, to the extent
not exercised prior to the Effective Date, will become, by virtue of the Merger,
the right to receive, upon payment of the adjusted exercise price specified in
the option or warrant, that number of shares of F&M Common Stock the holder
would have received pursuant to the Merger if he or she had exercised such
option or warrant immediately prior thereto, and cash in lieu of any fractional
shares.
See "The Merger - Interests of Certain Persons in the Merger" and "The
Merger - Terms of the Merger."
REGULATORY APPROVALS
The Merger is subject to the prior approval of the Board of Governors
of the Federal Reserve System (the "Federal Reserve") under the Bank Holding
Company Act of 1956, as amended (the "BHC Act"), the Virginia State Corporation
Commission (the "Virginia SCC") and the Maryland State Bank Commissioner (the
"Maryland Commissioner"). Applications were filed this June by F&M with the
Federal Reserve, the Virginia SCC and the Maryland Commissioner. Each
application has been accepted for processing. There can be no assurance that the
approval of the Federal Reserve, the Virginia SCC or the Maryland Commissioner
will be obtained or as to the timing or conditions of such approvals. See "The
Merger - Regulatory Approvals."
CONDITIONS TO CONSUMMATION OF THE MERGER; TERMINATION
Consummation of the Merger is contingent upon the following unwaivable
conditions: (i) receipt of the approval of the shareholders of Allegiance
solicited hereby; (ii) receipt of an opinion of counsel as to the tax-free
nature of the Merger (except for cash received in lieu of fractional shares);
and (iii) approval of the Federal Reserve, the Virginia SCC, and the Maryland
Commissioner. The receipt by F&M of an opinion from Yount, Hyde & Barbour, P.C.,
that the Merger may be accounted for under the pooling of interests accounting
method is a condition to consummation of the Merger that may be waived by F&M.
The Merger is also subject to satisfaction or waiver of other conditions. See
"The Merger - Representations and Warranties; Conditions to the Merger" and "The
Merger - Regulatory Approvals."
The Merger Agreement may be terminated and the Merger abandoned
notwithstanding shareholder approval (i) by mutual agreement of the Boards of
Directors of F&M and Allegiance, (ii) by either F&M or Allegiance if the
Effective Date has not occurred by January 15, 1997, except that the party whose
failure to perform any obligation under the Merger Agreement resulted in the
delay may not terminate as a result of the delay, or (iii) by either Allegiance
or F&M if the satisfaction in any material respect of one or more conditions to
that party's obligation to consummate the Merger becomes impossible of
satisfaction. See "The Merger - Waivers, Amendment and Termination."
OPTION AGREEMENT
As a condition of F&M's entering into the Merger Agreement and to
increase the probability that the Merger will be consummated, Allegiance and F&M
entered into an Option Agreement, dated as of April 22, 1996 (the "Option
Agreement"). The Option Agreement provides for the acquisition by F&M of up to
343,785 shares of Allegiance Common Stock (approximately 19.9% of the Allegiance
Common Stock outstanding as of the date of the Merger Agreement), subject to
adjustment, at an exercise price of $11.50 per share (the "F&M Option"). The
last trade price of Allegiance Common Stock on the Nasdaq National Market on
April 19, 1996, the trading day immediately prior to the announcement of the
Merger, was $11.25 per share. The Option Agreement is attached to this Proxy
Statement/Prospectus as Appendix II.
Exercise of the F&M Option is permitted only upon the occurrence
of the events and subject to the limitations specified in the Option
Agreement. See "The Merger - The Option Agreement."
EFFECT OF THE MERGER ON THE RIGHTS OF ALLEGIANCE SHAREHOLDERS
Upon consummation of the Merger, Allegiance shareholders will become
shareholders of F&M, and their rights as such will be governed by the Virginia
Stock Corporation Act (the "Virginia SCA") and by the Articles of Incorporation
and Bylaws of F&M. The rights of the shareholders of Allegiance are different in
certain material respects from the rights of the shareholders of F&M. See
"Comparative Rights of Shareholders."
ACCOUNTING TREATMENT
It is intended that the Merger will be accounted for as a pooling of
interests . It is a condition to F&M's obligation to consummate the Merger that
it receive an opinion from its outside auditors that the Merger will be
accounted for as a pooling of interests. See "The Merger - Accounting
Treatment."
ABSENCE OF APPRAISAL RIGHTS
Shareholders of Allegiance WILL NOT be entitled to dissent from the
Merger and obtain the judicially determined fair value of their shares of
Allegiance Common Stock in connection with the Merger. See "The Merger - Absence
of Appraisal Rights."
RESALES OF F&M COMMON STOCK
Shares of F&M Common Stock received in the Merger will be freely
transferable by the holders thereof, except for those shares held by those
holders who may be deemed to be "affiliates" (generally including directors,
certain executive officers and major shareholders) of Allegiance under
applicable federal securities laws. See "The Merger - Resales of F&M Common
Stock."
MARKET PRICES
The following table sets forth the price per share of F&M Common Stock
and Allegiance Common Stock based on the last reported sales prices per share of
F&M Common Stock on the NYSE Composite Transactions List and of Allegiance
Common Stock on the Nasdaq National Market on April 19, 1996, the last business
day prior to public announcement of the execution of the Merger Agreement, and
on August 7, 1996. See "Market Prices and Dividends."
BECAUSE THE MARKET PRICE OF F&M COMMON STOCK, AND THEREFORE THE AVERAGE
CLOSING PRICE, IS SUBJECT TO FLUCTUATION AND WILL LIKELY CHANGE PRIOR TO THE
TIME THE EXCHANGE RATIO IS FIXED, THE NUMBER OF SHARES OF F&M COMMON STOCK THAT
ALLEGIANCE SHAREHOLDERS WILL RECEIVE PURSUANT TO THE MERGER, AND THE PER SHARE
VALUE THEREOF, MAY INCREASE OR DECREASE PRIOR TO THE EFFECTIVE DATE, BUT THE
AGGREGATE VALUE OF F&M COMMON STOCK RECEIVED BY ALLEGIANCE SHAREHOLDERS WILL
STILL EQUAL $15.00. ALLEGIANCE SHAREHOLDERS ARE URGED TO OBTAIN CURRENT MARKET
QUOTATIONS FOR F&M COMMON STOCK.
F&M ALLEGIANCE
April 19, 1996............. $16.00 $11.25
August 7, 1996............. $18.25 $
If the Merger had been effective on April 19, 1996, the Exchange Ratio
would have been 0.938 shares of F&M Common stock per share of Allegiance Common
Stock, using the closing price for F&M Common Stock on the NYSE on April 19,
1996 ($16.00) as the Average Closing Price. If the Merger had been effective on
August 7, 1996, the Exchange Ratio would have been .822 shares of F&M Common
Stock per share of Allegiance Common Stock, using the closing price of F&M
Common Stock on August 7, 1996 ($18.25) as the Average Closing Price.
THERE CAN BE NO ASSURANCE AS TO THE AVERAGE CLOSING PRICE OR THE
EXCHANGE RATIO AT THE EFFECTIVE DATE, OR AS TO THE NUMBER OF SHARES OF F&M
COMMON STOCK FOR WHICH EACH SHARE OF ALLEGIANCE COMMON STOCK WILL BE EXCHANGED,
OR AS TO THE MARKET OR TRADING VALUE OF SUCH SHARES OF F&M COMMON STOCK AT ANY
TIME AFTER THE EFFECTIVE DATE.
F&M'S ACQUISITION PROGRAM
F&M has expanded its market area and increased its market share through
both internal growth and strategic acquisitions. Since the beginning of 1988,
F&M has acquired approximately $1.1 billion in assets and approximately $917
million in deposits through eleven bank acquisitions. Management believes there
are additional opportunities to acquire financial institutions or to acquire
assets and deposits that will allow F&M to enter new markets or increase market
share in existing markets. Management intends to pursue acquisition
opportunities in strategic markets where its managerial, operational and capital
resources will enhance the performance of acquired institutions and may, after
the date of this Proxy Statement/Prospectus, enter into agreements to acquire
one or more financial institutions. See "Business of F&M's Acquisition Program."
There can be no assurance that F&M will be able to successfully effect
any additional acquisition activity, or that any such acquisition activity will
have a positive effect on the value of shares of F&M Common Stock.
COMPARATIVE PER SHARE INFORMATION
The table below presents selected comparative unaudited per share
information (i) for F&M on a historical basis and on a pro forma combined basis
assuming the Merger had been effective during the periods presented and
accounted for as a pooling of interests and (ii) for Allegiance on a historical
basis and on a pro forma equivalent basis. The information shown below should be
read in conjunction with the historical financial statements of F&M and
Allegiance and the respective notes thereto that are incorporated herein by
reference. Results for F&M and Allegiance for the three months ended March 31,
1996 are not necessarily indicative of results to be expected for their entire
fiscal years, nor are pro forma amounts necessarily indicative of results that
will be obtained on a combined basis.
As explained more fully in Note 1 below, because the number of shares
of F&M Common Stock issuable pursuant to the Exchange Ratio will not be
established until the Effective Date, it is assumed for purposes of this table
that _________ shares of F&M Common Stock will be issued for each share of
Allegiance Common Stock. BECAUSE THE MARKET PRICE OF F&M COMMON STOCK IS SUBJECT
TO FLUCTUATION AND WILL LIKELY CHANGE PRIOR TO THE FIXING OF THE EXCHANGE RATIO,
THE PRO FORMA COMBINED AND ALLEGIANCE PRO FORMA EQUIVALENT AMOUNTS ARE SUBJECT
TO CHANGE.
THREE MONTHS ENDED YEAR ENDED
MARCH 31 DECEMBER 31,
--------------------------------------
1996 1995 1994 1993
---- ---- ---- ----
PER COMMON SHARE:
NET INCOME:
Allegiance-historical........................... $ 0.16 $ 0.49 $ 0.71 $ 0.66
F&M-historical.................................. 0.35 1.32 1.21 1.14
Pro forma combined.............................. 0.34 1.27 1.19 1.11
Allegiance pro forma equivalent (1)............. 0.28 1.04 0.98 0.91
CASH DIVIDENDS DECLARED:
Allegiance-historical........................... $ -- $ -- $ -- $ --
F&M-historical.................................. 0.16 0.61 0.54 0.58
Pro forma combined.............................. 0.16 0.61 0.54 0.58
Allegiance pro forma equivalent (1)............. 0.13 0.50 0.44 0.48
MARCH 31, DECEMBER 31,
1996 1995
---- ----
BOOK VALUE:
Allegiance-historical........................... $ 6.95 $ 6.86
F&M-historical.................................. 11.10 11.03
Pro forma combined.............................. 10.92 10.85
Allegiance pro forma equivalent (1)............. 8.98 8.92
(1) Allegiance pro forma equivalent amounts represents F&M's pro forma combined
information multiplied by an assumed Exchange Ratio of .822 shares of F&M
Common Stock for each share of Allegiance Common Stock, using the closing
price of F&M Common stock on the NYSE on August 7, 1996 ($18.25) as the
Average Closing Price.
SELECTED FINANCIAL DATA
The following table presents selected historical financial information
for F&M and Allegiance. This information is derived from and should be read in
conjunction with the historical financial consolidated statements of F&M and
Allegiance and the respective notes thereto included in documents incorporated
herein by reference. For each of F&M and Allegiance, income statement
information for each of the years ended December 31, 1995, 1994 and 1993, and
balance sheet information as of December 31, 1995 and 1994, are based on, and
should be read in conjunction with, the consolidated audited financial
statements of F&M and Allegiance incorporated herein by reference. For F&M, the
consolidated audited financial statements are included in F&M's Current Report
on Form 8-K dated July 2, 1996 and are restated to give retroactive effect to
F&M's merger on March 29, 1996 with FB&T Financial Corporation, which was
accounted for under the pooling-of-interests method of accounting. For
Allegiance, the consolidated audited financial statements are included in its
1995 Annual Report to shareholders, delivered herewith and incorporated by
reference herein. See "Incorporation of Certain Information by Reference." All
adjustments necessary to present a fair statement of results of interim periods
of F&M and Allegiance (which adjustments were of a normal recurring nature), in
the opinion of the respective management's of F&M and Allegiance, have been
included. Results for F&M and Allegiance for the three months ended March 31,
1996 and 1995, are not necessarily indicative of the results to be expected for
their entire fiscal years.
F&M NATIONAL CORPORATION
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
----------------------------- ----------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA (1)
Interest income............... $ 38,751 $ 35,593 $ 149,040 $ 132,043 $ 117,032 $ 112,602 $ 120,996
Interest expense.............. 16,694 14,045 63,179 50,603 46,374 49,440 65,303
Net interest income........... 22,057 21,548 85,861 81,440 70,658 63,162 55,693
Provision for loan losses..... 472 362 2,149 2,599 3,205 4,424 7,862
Noninterest income............ 4,915 4,489 18,650 18,299 16,595 13,552 12,856
Noninterest expense........... 16,241 15,968 64,952 62,932 53,541 47,755 44,434
Income taxes.................. 3,529 3,186 12,402 11,143 9,770 7,246 4,486
----------- ---------- ----------- ----------- ----------- ----------- ----------
Net income.................... $ 6,730 $ 6,521 $ 25,008 $ 23,065 $ 20,737 $ 17,289 $ 11,765
=========== ========== =========== =========== =========== =========== ==========
PER SHARE DATA (1)
Net income.................... $ 0.35 $ 0.34 $ 1.32 $ 1.21 $ 1.14 $ 1.02 $ 0.70
Cash dividends................ 0.16 0.14 0.61 0.54 0.58 0.41 0.39
Book value, end of period..... 11.10 10.13 11.03 9.82 9.69 8.92 8.05
Average shares outstanding.... 19,056 19,027 19,014 19,028 18,212 16,910 16,727
PERIOD END BALANCES (1)
Assets........................ $ 2,111,097 $1,937,019 $ 2,076,889 $ 1,914,165 $ 1,835,493 $ 1,551,302 $1,431,413
Loans, net of unearned income 1,239,740 1,151,963 1,202,891 1,143,211 1,068,224 869,393 846,943
Securities.................... 600,829 540,627 611,067 562,379 546,343 462,633 375,664
Deposits...................... 1,814,203 1,676,911 1,774,991 1,661,024 1,598,107 1,349,637 1,266,340
Shareholders' equity.......... 211,927 193,210 210,416 184,857 178,776 155,564 130,040
PERFORMANCE RATIOS (1) (2)
Return on average assets...... 1.30% 1.37% 1.26% 1.21% 1.24% 1.18% 0.87%
Return on average equity...... 12.64 13.59 12.44 12.53 12.47 12.37 9.31
CAPITAL RATIOS (1)
Leverage...................... 9.84% 9.91% 10.08% 9.65% 10.35% 10.56% 9.60%
Risk-based:
Tier 1 capital............. 15.96 15.91 16.04 15.73 15.53 17.40 15.14
Total capital.............. 17.21 17.16 17.29 16.98 16.78 18.65 16.39
(1) The amounts previously reported in F&M's report on Form 10-K for the
periods presented have been restated to reflect the acquisition on March
29, 1996 of FB&T Financial Corporation accounted for as a pooling of
interest.
(2) Annualized for the three months ended March 31, 1996 and 1995.
ALLEGIANCE BANC CORPORATION
THREE MONTHS ENDED
MARCH 31,
(UNAUDITED) YEAR ENDED DECEMBER 31,
--------------------------- --------------------------------------------------------------------
1996 1995 1995 1994 1993 1992 1991
---- ---- ---- ---- ---- ---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
INCOME DATA
Interest income............$ 2,567 $ 2,117 $ 9,488 $ 7,763 $ 7,071 $ 7,283 $ 7,175
Interest expense........... 1,078 840 3,977 2,806 2,768 3,384 4,126
Net interest income........ 1,489 1,277 5,511 4,957 4,303 3,899 3,049
Provision (credit) for
loan losses.............. 0 (100) (100) 70 90 375 2,001
Noninterest income......... 234 144 869 241 1,040 912 755
Noninterest expense........ 1,295 1,393 5,214 4,615 4,138 4,058 3,661
Income taxes provision
(benefit)................ 148 44 438 (693) 0 0 0
--------- --------- --------- ----------- --------- --------- ---------
Net income (loss)..........$ 280 $ 84 $ 828 $ 1,206 $ 1,115 $ 378 $ (1,858)
========= ========= ========= ========= ========= ========= ==========
PER SHARE DATA
Net income (loss)..........$ 0.16 $ 0.05 $ 0.49 $ 0.71 $ 0.66 $ 0.22 $ (1.10)
Cash dividends............. 0.00 0.00 0.00 0.00 0.00 0.00 0.00
Book value, end of period.. 6.95 6.37 6.86 6.24 6.06 5.07 4.85
Average shares outstanding. 1,712 1,696 1,696 1,696 1,692 1,692 1,692
PERIOD END BALANCES
Assets.....................$ 138,090 $ 108,267 $ 131,100 $ 106,326 $ 105,474 $ 103,724 $ 94,034
Loans, net of unearned
income................... 94,914 67,683 93,313 66,300 52,642 49,972 54,956
Securities................. 23,464 28,108 23,680 28,009 44,659 40,172 31,946
Deposits................... 112,718 94,462 107,859 93,108 94,922 94,699 85,192
Shareholders' equity....... 12,011 10,806 11,630 10,578 10,262 8,581 8,203
PERFORMANCE RATIOS (1)
Return on average assets... 0.94% 0.34% 0.71% 1.13% 1.12% 0.39% (2.27)%
Return on average equity... 9.38 3.19 7.46 12.21 12.30 4.49 (20.34)
CAPITAL RATIOS
Leverage................... 8.88% 9.75% 9.60% 9.77% 8.97% 7.52% 7.96%
Risk-based:
Tier 1 capital.......... 11.32 14.22 11.39 14.39 15.54 13.18 13.11
Total capital........... 12.57 15.47 12.64 15.64 16.80 14.44 14.64
(1) Annualized for the three months ended March 31, 1996 and 1995.
RECENT FINANCIAL DATA
F&M. For the three months ended June 30, 1996, net income for F&M was
$7.160 million or $0.38 per share, compared to $6.226 million or $0.33 per share
for the same period in 1995. For the six months ended June 30, 1996, net income
for F&M increased to $13.890 million or $0.73 per share, from $12.747 million or
$0.67 per share for the comparable period in 1995. At June 30, 1996, F&M had
total assets of $2.114 billion, an increase of 1.78% over the $2.077 billion in
total assets at December 31, 1995. Total loans at June 30, 1996 increased to
$1.268 billion, up 5.40% from the $1.203 billion total loans at December 31,
1995. Deposits at June 30, 1996, increased to $1.817 billion, up from $1.775
billion at December 31, 1995.
Allegiance. For the three months ended June 30, 1996, net income for
Allegiance was $310 thousand or $0.18 per share, compared to $232 thousand or
$0.14 per share for the same period in 1995. For the six months ended June 30,
1996, net income for Allegiance increased to $590 thousand or $0.34 per share,
from $316 thousand or $0.19 per share for the comparable period in 1995. At June
30, 1996, Allegiance's total assets increased to $133.202 million, up from
$131.100 million at December 31, 1995. Total loans were $98.230 million at June
30, 1996, compared to $92.272 million at December 31, 1995. Deposits at June 30,
1996, increased to $116.795 million, up from $107.859 million at December 31,
1995.
The following tables set forth certain unaudited financial data at or
for the three and six months ended June 30, 1996 and 1995 for F&M and
Allegiance. In the opinion of the respective management's of F&M and Allegiance,
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of the financial position and results of operations of such
unaudited periods have been included.
F&M National Corporation
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
----------------------------- ----------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands, except per share data)
Income Data
Interest income............... $ 39,157 $ 36,952 $ 77,908 $ 72,545
Interest expense.............. 16,562 15,714 33,256 29,759
Net interest income........... 22,595 21,238 44,652 42,786
Provision for loan losses..... 556 220 1,028 582
Noninterest income............ 4,505 4,925 9,420 9,414
Noninterest expense........... 15,568 16,561 31,809 32,529
Income taxes.................. 3,816 3,156 7,345 6,342
------- ------- -------- --------
Net income.................... $ 7,160 $ 6,226 $ 13,890 $ 12,747
======= ======= ======== ========
Per Share Data
Net income.................... $ 0.38 $ 0.33 $ 0.73 $ 0.67
Cash dividend................. 0.16 0.13 0.32 0.27
Book value, end of period..... 11.15 10.58
Closing market price.......... 18.25 16.50
Performance Ratios (Annualized)
Return on average assets...... 1.36% 1.27% 1.33% 1.31%
Return on average equity...... 13.50 12.53 13.07 13.04
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
(Dollars in thousands)
Period End Balances
Assets........................ $ 2,114,383 $ 2,076,889
Loans, net of unearned income. 1,268,461 1,202,890
Securities.................... 608,902 611,067
Deposits...................... 1,816,746 1,774,991
Shareholders' equity.......... 211,828 210,416
Allegiance Banc Corporation
Three Months Ended Six Months Ended
June 30, June 30,
(Unaudited) (Unaudited)
----------------------------- -----------------------------
1996 1995 1996 1995
---- ---- ---- ----
(Dollars in thousands, except per share data)
Income Data
Interest income............... $2,612 $2,345 $5,179 $4,462
Interest expense.............. 1,053 978 2,131 1,818
Net interest income........... 1,559 1,367 3,048 2,644
Provision for loan losses..... -- -- -- (100)
Noninterest income............ 342 233 576 377
Noninterest expense........... 1,463 1,246 2,758 2,639
Income taxes.................. 128 122 276 166
------ ------ ------ ------
Net income.................... $ 310 $ 232 $ 590 $ 316
====== ====== ====== ======
Per Share Data
Net income.................... $ 0.18 $ 0.14 $ 0.34 $ 0.19
Cash dividend................. -- -- -- --
Book value.................... 6.86 6.24
Closing market price.......... 13.875 6.50
Performance Ratios (Annualized)
Return on average assets...... 1.01% 0.90% 0.97 % 0.63 %
Return on average equity...... 10.37 8.49 9.88 5.89
June 30, December 31,
1996 1995
----------- -----------
(Unaudited)
(Dollars in thousands)
Period End Balances
Assets........................ $ 133,202 $ 131,100
Loans, net of unearned income. 98,230 92,272
Securities.................... 25,022 23,681
Deposits...................... 116,795 107,859
Shareholders' equity.......... 12,360 11,630
THE SPECIAL MEETING
DATE, PLACE AND TIME
The Special Meeting will be held at the Main Office of Allegiance Bank
located at 4719 Hampden Lane, Bethesda, Maryland 20814 on Friday, September
27, 1996 at 10:00 a.m.
RECORD DATE
Only shareholders of record at the close of business on July 31, 1996,
(the "Record Date") are entitled to notice of and to vote at the Special Meeting
or any adjournment thereof. At the close of business on the Record Date, there
were 1,748,813 shares of Allegiance Common Stock outstanding, held by
approximately 672 shareholders of record.
VOTE REQUIRED
Each share of Allegiance Common Stock outstanding on the Record Date
entitles the holder to cast one vote upon each matter properly submitted at the
Special Meeting. The affirmative vote of the holders of at least a majority of
the shares of Allegiance Common Stock outstanding as of the Record Date, in
person or by proxy, is required to approve the Merger Agreement.
As of the Record Date, directors and executive officers of Allegiance
and their affiliates, beneficially owned an aggregate of 341,044 shares of
Allegiance Common Stock, or 19.5% of the shares of Allegiance Common Stock
outstanding on such date (exclusive of shares of Allegiance Common Stock subject
to outstanding options and warrants that are currently exercisable). Directors
and executive officers of Allegiance have indicated an intention to vote their
shares of Allegiance Common Stock in favor of the Merger.
A FAILURE TO VOTE, EITHER BY NOT RETURNING THE ENCLOSED PROXY OR BY
CHECKING THE "ABSTAIN" BOX THEREON, AND BROKER "NON-VOTES" WILL HAVE THE SAME
EFFECT AS A VOTE AGAINST APPROVAL OF THE MERGER AGREEMENT.
VOTING AND REVOCATION OF PROXIES.
Shareholders of Allegiance are requested to complete, date and sign the
accompanying form of proxy and return it promptly to Allegiance in the enclosed
envelope. If a proxy is properly executed and returned in time for voting, it
will be voted as indicated thereon. IF A PROXY IS SIGNED AND RETURNED WITHOUT
INDICATING ANY VOTING INSTRUCTIONS, SHARES OF ALLEGIANCE COMMON STOCK
REPRESENTED BY THE PROXY WILL BE VOTED FOR THE MERGER AGREEMENT.
A proxy may be revoked at any time before it is voted by giving written
notice of revocation to Allegiance by executing and delivering a substitute
proxy to Allegiance or by attending the Special Meeting and voting in person. If
a Allegiance shareholder desires to revoke a proxy by written notice, such
notice should be mailed for receipt or delivered, on or prior to the meeting
date, to Michele Midlo, Corporate Secretary, Allegiance Banc Corporation, 4719
Hampden Lane, Bethesda, Maryland 20814.
SOLICITATION OF PROXIES
Allegiance will bear the costs of this solicitation of proxies.
Solicitations may be made by mail, telephone, telegraph or personally by
directors, officers and employees at Allegiance, none of whom will receive
additional compensation for performing such services. F&M shall pay all of the
expenses of printing and mailing the Proxy Statement/Prospectus.
RECOMMENDATION
The Board of Directors of Allegiance has unanimously approved the
Merger Agreement and believes that the proposed transaction is fair to and in
the best interests of Allegiance and its shareholders. The Board of Directors of
Allegiance unanimously recommends that Allegiance shareholders VOTE FOR approval
of the Merger Agreement.
In making its recommendation, the Board of Directors of Allegiance has
considered, among other things, the opinion of Scott & Stringfellow that F&M's
proposal is fair to Allegiance shareholders from a financial point of view. See
"The Merger - Opinion of Financial Advisor."
THE MERGER
The following is a summary description of the material terms of the
Merger, and is qualified in its entirety by reference to the Merger Agreement
which is attached as Appendix I hereto. All holders of Allegiance Common Stock
are urged to read the Merger Agreement in its entirety.
TERMS OF THE MERGER
Allegiance and F&M have entered into an Agreement and Plan of
Reorganization and related Plan of Merger dated as of April 22, 1996
(collectively, the "Merger Agreement") pursuant to which Allegiance will be
merged with and into F&M (the "Merger"). In connection with the Merger, each
outstanding share of Allegiance Common Stock will automatically and without
further action, be exchanged for the number of shares of F&M Common Stock having
an aggregate market value of $15.00 per share. As a result of the Merger, F&M
will serve as the parent bank holding company for Allegiance Bank, which will
continue to carry on its banking business in substantially the same manner as
before the Merger.
At the Effective Date of the Merger, each outstanding share of
Allegiance Common Stock will be exchanged for shares of F&M Common Stock having
an aggregate market value equal to $15.00, and cash in lieu of any fractional
shares. Except as described below, the market value of F&M Common Stock will be
its average closing price as reported on the NYSE for each of the ten full
trading days ending on the second day prior to the Effective Date (the "Average
Closing Price"). The number of shares of F&M Common Stock that will be exchanged
for each outstanding share of Allegiance Common Stock will then be established
at the closing date by dividing $15.00 by the Average Closing Price (the
"Exchange Ratio").
The Merger Agreement includes an adjustment provision for the Exchange
Ratio designed to address the situation in which the market value of F&M Common
Stock increases in the unanticipated event of a proposed acquisition of F&M
which would thereby reduce the number of shares of F&M Common Stock that would
otherwise be issued to Allegiance shareholders. Accordingly, in the event:
(a) F&M shall have entered into an agreement with any person to (i) acquire,
merge or consolidate, or enter into any similar transaction, with F&M, (ii)
purchase, lease or otherwise acquire all or substantially all of the assets of
F&M or (iii) purchase or otherwise acquire securities representing 10% or more
of the voting power of F&M; or (b) any person shall have made a bona fide
proposal to F&M by public announcement or written communication that is or
becomes the subject of public disclosure to acquire F&M by merger, share
exchange, consolidation, purchase of all or substantially all of its assets or
any similar transaction, the Exchange Ratio will thereupon be fixed using the
average closing price of F&M Common Stock for each of the ten full trading days
immediately preceding the public announcement of a transaction or event
described in either (a) or (b). F&M is not aware of any plan or intention of any
person or entity to acquire control of F&M.
There is no minimum number of shares of F&M Common Stock which must be
issued in connection with the Merger in exchange for shares of Allegiance Common
Stock. Allegiance has no right to terminate the Merger or to obtain an
adjustment of the consideration to be received solely as a result of a decrease
in the Exchange Ratio below a specified level. Similarly, there is no maximum
number of shares of F&M Common Stock which may be issued in connection with the
Merger, and F&M has no right to terminate the Merger or obtain an adjustment in
the consideration to be paid to Allegiance shareholders solely as a result of an
increase in the Exchange Ratio above a specified level. There can be no
assurance as to the Average Closing Price, or the actual Exchange Ratio at which
shares of Allegiance Common Stock are exchanged as of the Effective Date, or as
to the market or trading value of shares of F&M Common Stock following the
Effective Date.
The Merger Agreement also provides for the adjustment of the Exchange
Ratio to reflect any stock split, stock dividend, recapitalization or similar
transaction with respect to the F&M Common Stock occurring during the period for
determination of the Exchange Ratio. At the Effective Date, Allegiance's
obligations with respect to outstanding employee options granted under its 1988
and 1994 Employee Stock Option Plans and outstanding warrants held by the
directors of Allegiance and Allegiance Bank will be assumed by F&M, and each
stock option or director warrant outstanding at the Effective Date will become
the right to receive, upon payment by the holder of the adjusted exercise price,
that number of shares of F&M Common Stock the option holder would have received
pursuant to the Merger if he or she had exercised such option or warrant
immediately prior thereto, and cash in lieu of any fractional shares. Shares of
F&M Common Stock received by holders of Allegiance stock options and warrants
will be subject to the same holding periods or other restrictions, if any, to
which they would be otherwise subject.
EFFECTIVE DATE
If the Merger is approved by the requisite vote of the shareholders of
Allegiance and by the Federal Reserve, the Virginia SCC and the Maryland
Commissioner (see "The Merger Regulatory Approvals") and other conditions to the
Merger are satisfied (or waived to the extent permitted by the Merger Agreement
or applicable law), the Merger will be consummated and effected at the time
indicated in the certificates of merger issued by the Virginia SCC pursuant to
the Virginia SCA and filed with the Delaware Secretary of State. The Effective
Date will occur as soon as practicable, and in any event, unless the parties
otherwise agree, within fifteen days following the date that all conditions
specified in the Merger Agreement have been satisfied or waived. See "The Merger
- - Conditions to the Merger."
It is anticipated that the Effective Date will occur on or about
October 1, 1996.
REASONS FOR AND BACKGROUND OF THE MERGER
The ten years since the organization of Allegiance in 1986 and the
commencement of operations by Allegiance Bank in 1987 have represented a time of
significant upheaval in the financial services industry, in general, and in the
suburban Washington DC market served by Allegiance and Allegiance Bank in
particular. This period has been marked by rapid consolidation, rapid changes in
technology, increased regulation and intensified competition, both from
traditional sources and from non-bank competitors, such as thrift institutions,
insurance companies, brokerage firms, mutual funds and other lending
institutions.
In this rapidly changing and increasingly competitive environment,
Allegiance's Board of Directors has continuously sought to expand the products
and quality of service provided to customers, while controlling expenses,
maintaining and improving asset quality and enhancing long term shareholder
value. As part of its effort to enhance shareholder value, and as part of its
planning process, the Board of Directors of Allegiance has periodically reviewed
and examined the ability of Allegiance to continue to grow and successfully
compete as an independent institution in a manner that will maximize long term
shareholder value, and the various strategic alternatives available to
Allegiance. Among the strategic alternatives which the Board periodically
considered were the acquisition of smaller institutions, a merger of equals, the
affiliation of Allegiance and Allegiance Bank with a larger institution, and a
policy of internal growth.
During the summer and fall of 1995, Allegiance engaged in informal
preliminary discussions with a small number of institutions with respect to the
acquisition of Allegiance and the acquisition by Allegiance of other
institutions, none of which proceeded to more formal discussions. During
November 1995, the Board of Directors determined, based upon its consideration
of Allegiance's inability to successfully effect an acquisition strategy and the
difficulty of continuing on a course of internally generated growth while
maintaining a highly competitive posture and adequately rewarding shareholders,
the Board of Directors determined that it would be in the best interests of
Allegiance and its shareholders to actively pursue an affiliation of Allegiance
and Allegiance Bank with a larger financial institution. During the course of
its discussions with other institutions and its consideration of various
alternatives, the Board of Directors was advised, on an informal basis, by Scott
& Stringfellow, an investment banking firm experienced in the valuation of
banking institutions. In light of the foregoing, the Board of Directors of
Allegiance, at its meeting on November 29, 1995, authorized the establishment of
contact, on a confidential and no-name basis, with a limited number of regional
bank holding companies operating in the Maryland/Virginia area, to determine
whether or not there was any interest in an affiliation with Allegiance.
In all, a total of seven institutions were contacted during December
1995 and January 1996. Of these institutions, three executed confidentiality
agreements with representatives of Allegiance and received certain financial and
other information regarding Allegiance and Allegiance Bank, and members of the
Board of Directors had one meeting with one additional institution regarding
interest in a possible transaction involving Allegiance. During late December
1995 and early January 1996, representatives of Allegiance had a number of
discussions and one meeting with representatives of F&M regarding F&M's interest
in pursuing a transaction with Allegiance. As a result of these discussions, on
January 11, 1996 F&M submitted its proposal for the merger of Allegiance with
F&M for stock having a value of $13.75 per share of Allegiance Common Stock,
which consideration F&M subsequently orally offered to increase to $14.00 per
share. During late January and early February 1996, representatives of
Allegiance had further discussions and a meeting with representatives of F&M
to discuss a possible transaction. In early February, F&M requested a temporary
hiatus in the discussions pending consummation of its acquisition of FB&T
Financial Corporation.
In late February 1996, Allegiance's legal counsel wrote F&M on behalf
of Allegiance, setting forth the factors Allegiance believed required a higher
level of consideration than that offered by F&M, including better than projected
earnings, the delay requested by F&M, and the comparable pricing ratios on prior
acquisitions by F&M. On March 21, 1996, F&M submitted its proposal to merge
Allegiance with F&M in exchange for stock having a value of $15.00 per share of
Allegiance Common Stock. At its meeting on March 27, 1996, after discussion of
the merits of F&M and its offer, including its intention to maintain Allegiance
Bank as an independent subsidiary under the direction of its local Board of
Directors, and after consideration of the presentation of its financial advisor,
the Board of Directors of Allegiance voted to accept F&M's proposal as a basis
upon which to negotiate a definitive agreement. During the period between March
27 and April 19, 1996, representatives of Allegiance and its legal and financial
advisors were in contact with F&M with respect to the negotiation of the
definitive agreement.
At its meeting on April 19, 1996, following a review and discussion of
the Merger Agreement and after consideration of the presentation of the report
and opinion of Scott and Stringfellow regarding the fairness of the
consideration offered by F&M in connection with the Merger, the Board of
Directors of Allegiance unanimously approved the Merger and the Merger
Agreement.
The Allegiance Board of Directors believes that the Merger and the Merger
Agreement are in the best interests of Allegiance and its shareholders. In
considering the terms and conditions of the Merger Agreement, the Board of
Directors considered a number of factors, including the opinion of its
independent financial advisor. The Board of Directors did not assign any
relative or specific weights to the factors considered. The material factors
considered were:
(i) The Financial Terms of the Merger. The Board of Directors was of
the view that, based on historical and anticipated trading ranges for
F&M Common Stock, the value of consideration to be received by
Allegiance shareholders pursuant to the proposed Merger represented a
fair multiple of Allegiance's book value and earnings. The Board of
Directors also considered that, pursuant to the proposed Merger, the
Merger would likely result in an increase in pro forma book value per
share to Allegiance shareholders, and that based on the Board of
Directors' belief that F&M would continue to pay dividends at its
current rate, the Merger would result in a substantial increase in
dividend income to Allegiance shareholders, although there can be no
assurance that current dividends are indicative of future dividends.
See "Comparative Per Share Information" and "The Merger -- Opinion of
Financial Advisor."
(ii) The Terms, Other Than the Financial Terms, and Structure of the
Merger. The Board of Directors considered the benefits to the customers
and employees of Allegiance and Allegiance Bank and the communities
they serve of allowing Allegiance to continue operating as a separate
bank after the Merger, under the direction of its Board of Directors
made up of local representatives. As part of these benefits, the Board
considered its enhanced ability to serve the communities which it
serves in a competitive manner, and to effect continued improvement in
services as a result of the greater resources available to Allegiance
Bank as a subsidiary of F&M and as a result of cooperation with other
F&M subsidiaries. The Board of Directors also considered that the
Merger would qualify as a tax-free reorganization under the Internal
Revenue Code of 1986, as amended. See "--Certain Federal Income Tax
Consequences."
(iii) Certain Financial and Other Information Concerning F&M and
Opinion of Financial Advisor. The Board of Directors considered, among
other things, the established record of F&M as a strong community based
financial institution in terms of profitability, capital adequacy, and
asset quality. The Board of Directors considered that the historical
dividends per share, net income per share, and book value per share of
F&M Common Stock to be received by Allegiance shareholders, would
likely represent an increase in the historical dividends per share, net
income per share, and book value per share of Allegiance Common Stock,
although there can be no assurance that pro forma amounts are
indicative of future dividends, income per share or book value per
share of F&M, or as to the actual Exchange Ratio at which shares of
Allegiance Common Stock are exchanged. The Board of Directors also
considered the greater liquidity and the trading history of F&M Common
Stock, which is traded on the NYSE and has substantially greater and
more consistent daily trading volume than does Allegiance Common Stock,
and greater institutional interest and coverage. In connection with its
evaluation of the value and prospects of F&M and the adequacy of the
consideration offered by F&M, the Board of Directors also considered
the report of Scott and Stringfellow and its opinion that the terms of
the Merger are fair from a financial point of view to the shareholders
of Allegiance.
THE ALLEGIANCE BOARD OF DIRECTORS BELIEVES THAT THE MERGER IS IN THE
BEST INTERESTS OF ALLEGIANCE AND ITS SHAREHOLDERS. THE ALLEGIANCE BOARD OF
DIRECTORS UNANIMOUSLY RECOMMENDS THAT SHAREHOLDERS VOTE "FOR" THE MERGER AND THE
MERGER AGREEMENT.
OPINION OF FINANCIAL ADVISOR
The Allegiance Board of Directors retained the investment banking firm
of Scott & Stringfellow to evaluate the terms of the Merger Agreement, and Scott
& Stringfellow has rendered its opinion to the Board of Directors of Allegiance
that the terms of the Merger Agreement are fair from a financial point of view.
In developing its opinion, Scott & Stringfellow reviewed and analyzed: (1) the
Merger Agreement; (2) the Registration Statement; (3) Allegiance's audited
financial statements for the three years ended December 31, 1995; (4)
Allegiance's unaudited financial statements for the three months ended March 31,
1996 and 1995, and other internal information relating to Allegiance prepared by
Allegiance's management; (5) information regarding the trading markets for
Allegiance Common Stock and F&M Common Stock and the price ranges within which
the respective stocks have traded; (6) the relationship of prices paid to
relevant financial data such as net worth, earnings, deposits and assets in
certain bank and bank holding company mergers and acquisitions in Virginia and
Maryland in recent years; (7) F&M's annual reports to stockholders and its
financial statements for the three years ended December 31, 1995; and (8) F&M's
unaudited financial statements for the three months ended March 31, 1996 and
1995 and other internal information relating to F&M prepared by F&M's
management. Scott & Stringfellow has discussed with members of Allegiance's and
F&M's management the background of the Merger, the reasons and basis for the
Merger, and the business and future prospects of Allegiance and F&M individually
and as combined entity. No instructions or limitations were given or imposed in
connection with the scope of or the examination or investigations made by Scott
& Stringfellow in arriving at its findings. Finally, Scott & Stringfellow has
conducted such other studies, analysis and investigations, particularly of the
banking industry, and considered such other information as it deemed
appropriate, the material portion of which is described below. A copy of Scott &
Stringfellow's opinion, which sets forth the assumptions made, matters
considered and qualifications made on the review undertaken, is attached as
Appendix III hereto and should be read in its entirety.
Scott & Stringfellow evaluated the financial terms of the transaction
using standard valuation methods, including discounted cash flow analysis,
market comparable analysis, comparable acquisition analysis, and dilution
analysis.
Discounted Cash Flow Analysis. Scott & Stringfellow performed a
discounted cash flow analysis under various projections to estimate the fair
market value of Allegiance Common Stock. Among other things, Scott &
Stringfellow considered a range of asset and earnings growth for Allegiance of
between 7% and 10% and required equity capital level of 8.00% assets. A range of
discount rates from 12% to 14% were applied to the cash flows resulting from the
projections during the first five years and the residual values. The residual
values were estimated by capitalizing the projected final year earnings by the
discount rates, less the projected long-term growth rate of Allegiance's
earnings. The discount rates, growth rates and capital levels were chosen based
on what Scott & Stringfellow, in its judgment, considered to be appropriate
taking into account, among other things, Allegiance's past and current financial
performance and condition, the general level of inflation, rates of return for
fixed income and equity securities in the marketplace generally and particularly
in the banking industry. The discounted cash flow analysis indicated a reference
range of $6.85 to $8.81 per share for Allegiance Common Stock. These values
compare to the value of $15.00 per share of consideration for each share of
Allegiance Common Stock. Accordingly, the present value of Allegiance Common
Stock was calculated at less than the value of the consideration to be received
from F&M pursuant to the Merger Agreement.
Comparable Acquisition Analysis. Scott & Stringfellow compared the
relationship of prices paid to relevant financial data such as tangible net
worth, assets, deposits and earnings in 30 bank and bank holding company mergers
and acquisitions in Virginia and Maryland since January 1, 1993, representing
all such transactions known to Scott & Stringfellow to have occurred during this
period involving bank and bank holding companies in Virginia and Maryland, with
the proposed Merger and found the consideration to be received by Allegiance's
shareholders from F&M to be within the relevant pricing ranges acceptable for
such recent transactions. Specifically, based upon the most recent transactions
either closed or announced in Virginia and Maryland since January 1, 1993, other
than the Merger, the average price to tangible book value in these transactions
was 2.08 times, compared with 2.15 times for the Merger, the average price to
earnings ratio was 21.8 times, compared to 25.2 times for the Merger, the
average deal price to deposits was 19.9%, compared with 22.9% for the Merger,
and the average deal price to assets was 17.6%, compared with 18.7% for the
Merger. For purposes of computing the information with respect to the Merger,
$15.00 per share of consideration for each share of Allegiance Common Stock was
used.
Analysis of F&M and Virginia/Maryland Bank Group. Scott & Stringfellow
analyzed the performance and financial condition of F&M relative to the
Virginia/Maryland Bank Group, which includes the following Virginia and Maryland
based financial institutions: Central Fidelity Banks, Inc., Crestar Financial
Corporation, First Virginia Banks, Inc., George Mason Bankshares, Inc.,
Jefferson Bankshares, Inc., MainStreet BankGroup Inc., Premier Bankshares
Corporation, Signet Banking Corporation, Union Bankshares Corporation, Citizens
Bancorp, FCNB Corp., F&M Bancorp, Inc., Mason-Dixon Bancshares, Inc., Mercantile
Bankshares Corp., Provident Bankshares Corp., and Sandy Spring Bancorp, Inc.
Among the financial information compared was information relating to tangible
equity to assets, loans to deposits, net interest margin, nonperforming assets,
total assets, non-accrual loans, and efficiency ratio, as well as a comparison
of common stock liquidity. Additional information compared for the period ended
March 31, 1996, was (i) price to tangible book value ratio which was 1.66x for
F&M, compared to an average of 1.72x for the Virginia/Maryland Bank Group, (ii)
price to earnings ratio which was 12.6x for F&M, compared to an average of 13.7x
for the Virginia/Maryland Bank Group, (iii) return on assets which was 1.30% for
F&M, compared to an average of 1.16% for the Virginia/Maryland Bank Group, (iv)
return on equity which was 12.48% for F&M, compared to an average of 12.68% for
the Virginia/Maryland Bank Group, and (v) a dividend yield of 3.61% for F&M,
compared to an average of 3.02% for the Virginia/Maryland Bank Group. Overall,
in the opinion of Scott & Stringfellow, F&M's operating performance and
financial condition were comparable to the Virginia/Maryland Bank Group average
and F&M's market value was reasonable when compared to the Virginia/Maryland
Bank Group. Accordingly, in the opinion of Scott & Stringfellow, Allegiance
stockholders shall receive F&M Common Stock that is reasonably valued when
compared to the Virginia/Maryland Bank Group.
Dilution Analysis. Based upon publicly available financial information
on Allegiance and F&M, Scott & Stringfellow considered the effect of the
transaction on the book value, earnings, and market value of Allegiance and F&M.
The immediate effect on F&M -- assuming minimal cost savings of 10% of
Allegiance's non-interest expense -- was to decrease earnings by $.02 per share
or 2.0% and to dilute book value by $.21 or 1.9%. The effect on Allegiance under
the same assumptions is to increase earnings $.47 per share or 79.2%, to
increase book value by $2.36 per share or 33.9%, to increase dividends by $.55,
and to increase the April 19, 1996 market value of Allegiance of $11.25 per
share to $15.00. This dilution analysis does not take into account the longer
term benefits for the combined companies resulting from the combination. Scott &
Stringfellow concluded from this analysis that the transaction would have a
significant positive effect on Allegiance and the Allegiance shareholders in
that, historical dividends per share, net income per share and book value per
share of F&M Common Stock to be received by the Allegiance stockholders, after
giving effect to the Exchange Ratio, would represent a substantial increase in
the historical dividends per share, net income per share, and book value per
share of Allegiance Common Stock, although there can be no assurance that pro
forma amounts are indicative of future results. See "Comparative Per Share
Information."
The summary set forth above includes the material factors considered,
but does not purport to be a complete description of the presentation by Scott &
Stringfellow to the Allegiance Board or of the analyses performed by Scott &
Stringfellow. The preparation of a fairness opinion involves various
determinations as to the most appropriate and relevant methods of financial
analysis and the application of those methods to the particular circumstances
and, therefore, such an opinion is not readily susceptible to partial analysis
or summary description. Accordingly, notwithstanding the separate factors
summarized above, Scott & Stringfellow believes that its analyses must be
considered as a whole and that selecting portions of its analyses and the
factors considered by it, without considering all analyses and factors, would
create an incomplete view of the process underlying the preparation of its
opinion. As a whole, these various analyses, contributed to Scott &
Stringfellow's opinion that the terms of the Merger Agreement are fair from a
financial point of view to Allegiance shareholders.
Scott & Stringfellow is a full service investment banking and brokerage
firm headquartered in Richmond, Virginia, that provides a broad array of
services to corporations, financial institutions and state and local
governments. The Financial Institutions Group of Scott & Stringfellow actively
works with financial institutions in Maryland, Virginia, North Carolina, the
District of Columbia, and West Virginia on these and other matters. As part of
its investment banking practice, it is continually engaged in the valuation of
financial institutions and their securities in connection with mergers and
acquisitions, negotiated underwritings, and secondary distribution of listed and
unlisted securities. Scott & Stringfellow was selected by the Allegiance Board
based upon its expertise and reputation in providing valuation and merger and
acquisition and advisory services to financial institutions.
In addition to the financial advisory services described above, Scott &
Stringfellow has from time to time provided financial advisory and/or brokerage
services to Allegiance, for which Scott & Stringfellow has received customary
compensation. In the ordinary course of business, Scott & Stringfellow makes a
market in Allegiance Common Stock and F&M Common Stock and trades such
securities for its own account and for the accounts of its customers.
In exchange for its services, Scott & Stringfellow will receive from
Allegiance on the Effective Date of the Merger a fee of $50,000.
SURRENDER OF STOCK CERTIFICATES
As soon as practicable after the Effective Date, F&M shall cause
American Stock Transfer & Trust Company, acting as the exchange agent (the
"Exchange Agent"), to mail to each Allegiance shareholder a letter of
transmittal and instructions for use in order to surrender the certificates
representing shares of Allegiance Common Stock in exchange for certificates
representing shares of F&M Common Stock.
ALLEGIANCE SHAREHOLDERS SHOULD NOT SEND IN THEIR CERTIFICATES UNTIL
THEY RECEIVE SUCH INSTRUCTIONS.
Promptly after surrender of one or more certificates for Allegiance
Common Stock, together with a properly completed letter of transmittal, the
holder of such certificates will receive a certificate or certificates
representing the number of shares of F&M Common Stock to which he or she is
entitled and, where applicable, a check for the amount payable in cash in lieu
of issuing a fractional share. Lost, stolen, mutilated or destroyed certificates
will be treated in accordance with the existing procedures of F&M.
Cash (without interest) will be paid to Allegiance shareholders in lieu
of the issuance of any fractional shares in an amount equal to the fraction of a
share of F&M Common Stock to which such shareholder would otherwise be entitled
multiplied by the Average Closing Price of F&M Common Stock.
After the Effective Date, Allegiance shareholders will be entitled to
vote the number of shares of F&M Common Stock into which their Allegiance Common
Stock has been converted, regardless of whether they have surrendered their
Allegiance certificates. The Merger Agreement provides, however, that no
dividend or distribution payable to the holders of record of F&M Common Stock at
or as of any time after the Effective Date will be paid to the holder of any
Allegiance certificate until such holder physically surrenders such certificate,
promptly after which time all such dividends or distributions will be paid
(without interest).
CONDITIONS TO THE MERGER
The obligations of F&M and Allegiance to consummate the Merger are
subject to the following conditions, among, others: approval and adoption of the
Merger Agreement by the requisite shareholder vote; receipt of all necessary
regulatory approvals not conditioned or restricted in a manner that, in the
judgment of the Boards of Directors of F&M or Allegiance, materially adversely
affects the economic or business benefits of the Merger so as to render
inadvisable or unduly burdensome consummation of the Merger; the absence of
certain actual or threatened proceedings before a court or other governmental
body relating to the Merger; receipt of a fairness opinion from Scott &
Stringfellow; and the receipt of an opinion of counsel as to certain federal
income tax consequences of the Merger. Also, under the terms of the Merger
Agreement, F&M agreed that, following the Effective Date, it will indemnify
those persons associated with Allegiance and its subsidiaries who are entitled
to indemnification as of the Effective Date of the Merger.
In addition, each party's obligation to effect the Merger, unless
waived, is subject to performance by the other party of its obligations under
the Merger Agreement, the accuracy, in all material respects, of the
representations and warranties of the other party contained therein, and the
receipt of certain opinions and certificates from the other party.
REGULATORY APPROVALS
As indicated above, the consummation of the Merger is conditioned on
the prior approval of the Merger by the Federal Reserve, the Virginia SCA and
the Maryland Commissioner, and any other state or federal regulatory agency
having jurisdiction. As of the date hereof, all regulatory applications have
been filed and accepted, but no approvals have been obtained. Although neither
Allegiance nor F&M know of any reason that any approval should not be granted,
there can be no assurance that necessary approvals will be obtained, or that any
approval will not be conditioned in a manner which makes consummation of the
Merger, in the judgment of the Board of Directors of F&M or Allegiance,
inadvisable or unduly burdensome.
BUSINESS PENDING THE MERGER
Until consummation of the Merger (or termination of the Merger
Agreement), Allegiance is obligated to operate its businesses only in the
ordinary and usual course, consistent with past practice and to use its best
efforts to maintain its business organizations, employees and business
relationships and retain the services of its officers and key employees. Until
consummation of the Merger (or termination of the Merger Agreement) Allegiance
may not, without the consent of F&M, among other things: (a) declare or pay
additional dividends on its capital stock; (b) solicit or encourage inquires or
proposals with respect to, furnish any information relating to, or participate
in any negotiations regarding any acquisition or purchase of all or a
substantial portion of the assets of, or a substantial equity interest in,
Allegiance or Allegiance Bank or any business combination with Allegiance,
except where the failure to do so would constitute a breach of the fiduciary or
legal obligations of the Allegiance Board of Directors to the shareholders of
Allegiance; (c) amend its charter or bylaws; (d) issue any capital stock, except
upon exercise of rights or options issued pursuant to existing employee benefits
plans, programs or arrangements or effect any stock split or otherwise change
its capitalization; or (e) purchase or redeem any of its capital stock.
Pending consummation of the Merger, F&M has agreed that F&M and its
subsidiary banks will operate their respective businesses in the ordinary course
and use best efforts to preserve their respective properties, business and
customer and employee relationships. F&M has further agreed that its will not
solicit or encourage inquiries or proposals with respect to, furnish any
information relating to, or participate in any negotiations regarding, any
acquisition or purchase of all or a substantial portion of the assets of, or a
substantial equity interest in, F&M or any business combination with F&M, which
may, as a condition thereof, result in the termination of the Merger Agreement,
except where the failure to do so would constitute a breach of the fiduciary or
legal obligations of the F&M Board of Directors to the shareholders of F&M.
WAIVER, AMENDMENT AND TERMINATION
At any time on or prior to the Effective Date, any term or condition of
the Merger, except for the general conditions set forth in Section 5.1(a) - (d)
of the Merger Agreement, may be waived by the party which is entitled to the
benefits thereof, without shareholder approval, to the extent permitted under
applicable law. The Merger Agreement may be amended at any time prior to the
Effective Date by agreement of the parties whether before or after the Special
Meeting (except that the Exchange Ratio shall not be changed after approval of
the Merger Agreement by the Allegiance shareholders). Any material change in a
material term of the Merger Agreement would require a resolicitation of
Allegiance's shareholders. Such a material change would include, but not be
limited to, a change in the tax consequences to Allegiance's shareholders.
The Merger Agreement may be terminated by F&M or Allegiance, whether
before or after the approval of the Merger Agreement by the shareholders of
Allegiance: (a) by mutual consent of Allegiance and F&M; (b) unilaterally by
Allegiance or F&M, in the event that the Effective Date has not occurred on or
before January 15, 1997, except that the party whose failure to perform any
obligation under the Merger Agreement is the cause of the delay may not
terminate the Merger based upon the delay; or (c) unilaterally by Allegiance or
F&M if the satisfaction in any material respect of one or more conditions to the
obligation of that party is rendered impossible of satisfaction. In the event of
termination, the Merger Agreement shall become null and void, except that
certain provisions thereof relating to expenses and confidentiality of
information exchanged between the parties shall survive any such termination.
RESALES OF F&M COMMON STOCK
All shares of F&M Common Stock received by Allegiance shareholders in
connection with the Merger will be freely transferable, except that F&M Common
Stock received by persons who are deemed to be "affiliates" of Allegiance for
purposes of Rule 145 under the 1933 Act. To the best knowledge of Allegiance and
F&M, the only persons who may be deemed to be affiliates of Allegiance subject
to these limitations are the directors and executive officers of Allegiance.
ACCOUNTING TREATMENT
It is anticipated that the Merger will be accounted for as a pooling of
interests for accounting and financial reporting purposes. Under this method of
accounting, recorded assets and liabilities of F&M and Allegiance are carried
forward at their previously recorded amounts, income of the combined
corporations will include income of F&M and Allegiance for the entire fiscal
year in which the Merger occurs, and the reported income of the separate
corporations for prior periods will be combined. No recognition of goodwill in
the combination is required of any party to the Merger.
For the Merger to qualify as a pooling of interests, it must satisfy a
number of conditions including that substantially all of the Allegiance Common
Stock be exchanged for F&M Common Stock. In the event that any of the conditions
to pooling of interests accounting is not satisfied, then the Merger would not
qualify for pooling of interests accounting treatment, and a condition to the
obligation of F&M to consummate the Merger would not be satisfied. Each of F&M
and Allegiance have agreed that they will use their respective best efforts to
ensure that the Merger will qualify for pooling of interests accounting
treatment. In addition, affiliates of F&M and Allegiance have agreed that they
will not sell any F&M Common Stock or Allegiance Common Stock within 30 days
prior to the Effective Date, nor sell any F&M Common Stock until such time as
F&M has published financial results covering at least 30 days of the combined
operations of F&M and Allegiance after the Merger.
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain members of management of Allegiance and the Allegiance Board
may be deemed to have interests in the Merger in addition to their interests as
shareholders of Allegiance generally. These interests include, among others,
provisions in the Merger Agreement relating to indemnification of Allegiance
directors and officers, directors' and officers' liability insurance, the
election or appointment of a member of the Allegiance Board to the F&M Board,
and certain employee benefits, as described below. In each case, the Allegiance
Board was aware of their potential interests, and considered them, among other
matters, in approving the Merger Agreement and the transactions contemplated
thereby.
Directors. F&M has agreed to cause Leonard L. Abel, Chairman of the
Board of Allegiance, or if he is unavailable, Ronald D. Paul, President of
Allegiance, or such other person selected by the Board of Directors of
Allegiance and reasonably acceptable to F&M, to be appointed to the Board of
Directors of F&M at the Effective Date or as soon thereafter as practicable. F&M
currently pays each director $500 for attendance at each Board meeting and, in
addition, pays each nonemployee director an annual retainer of $6,500.
Indemnification of Directors and Officers. Following the Effective
Date, F&M has agreed to indemnify the directors and officers of Allegiance who
are currently entitled to indemnification from Allegiance to the same extent and
on the same conditions as they are entitled to indemnification pursuant to
Virginia law and Allegiance's Articles of Incorporation or Bylaws with respect
to matters occurring on or prior to the Effective Date. In addition, F&M has
agreed to use its reasonable best efforts to maintain Allegiance's existing
directors' and officers' liability policy, or some other policy providing at
least comparable coverage, for a period of three years after the Effective Date.
Stock Options and Warrants. Certain officers and employees of
Allegiance hold stock options under Allegiance's employee stock option plans to
acquire an aggregate of 68,980 shares of Allegiance Common Stock as of June 30,
1996 at exercise prices ranging from $3.33 to $9.50 per share. In addition, the
directors of Allegiance hold warrants to purchase up to an aggregate of 119,000
shares of Allegiance Common Stock at exercise prices ranging from $5.00 to $6.50
per share. Such options and warrants, to the extent not exercised prior to the
Effective Date, will become, by virtue of the Merger, the right to receive, upon
payment of the adjusted exercise price specified in the option or warrant, that
number of shares of F&M Common Stock the holder would have received pursuant to
the Merger if he or she had exercised such option or warrant immediately prior
thereto, and cash in lieu of any fractional shares.
Employees and Benefit Plans. The Merger Agreement provides that the
officers and employees of Allegiance Bank will not change as a result of the
Merger. As soon as administratively practicable following the Merger, employees
of Allegiance will be entitled to participate in the F&M pension, benefit and
similar plans on the same terms and conditions as employees of F&M. Employees of
Allegiance will receive credit for their years of service to Allegiance for
participation and vesting purposes only.
THE OPTION AGREEMENT
The Option Agreement was entered into as a condition to F&M's entering
into the Merger Agreement and is intended to increase the probability that the
Merger will be consummated. Exercise of the F&M Option may tend to make the
acquisition of a controlling interest in Allegiance more expensive to any
prospective acquiror other than F&M, even if such an acquisition would be
beneficial to Allegiance's shareholders. The existence of the F&M Option is
intended to make it less likely that a prospective acquiror, other than F&M,
will seek a business combination with Allegiance. The following is a brief
summary of the F&M Option and is qualified in its entirety by reference to the
Option Agreement, a copy of which is attached to this Proxy Statement/Prospectus
as Appendix II and incorporated by reference herein.
The Option Agreement permits the exercise by F&M of the Allegiance
Option to acquire up to 343,785 shares of Allegiance Common Stock at a price of
$11.50 per share, an amount in excess of the per share market price of
Allegiance Common Stock on the last trading day prior to the public announcement
of the Merger Agreement), subject to adjustment upon the occurrence of certain
events described below. The shares subject to the Allegiance Option represent
approximately 19.9% of the outstanding shares of Allegiance Common Stock as of
the date of the Merger Agreement.
F&M may exercise the F&M Option, in whole or in part, at any time or
from time to time, upon or after the occurrence of a "Purchase Event." As used
in the Option Agreement, a "Purchase Event" means:
(a) Allegiance or Allegiance Bank shall have entered into an
agreement with a person (other than F&M or its affiliates) to: (i)
acquire, merge or consolidate with, or enter into any similar
transaction with Allegiance or Allegiance Bank, (ii) purchase, lease or
otherwise acquire all or substantially all of the assets of Allegiance
or Allegiance Bank, or (iii) purchase or otherwise acquire (including
by way of merger, consolidation, share exchange or any similar
transaction) securities representing more than 10% of the voting power
of Allegiance or Allegiance Bank;
(b) any person shall have acquired beneficial ownership of
more than 20% of the outstanding shares of Allegiance Common Stock; or
(c) a bona fide proposal is made by any person (other than F&M
or its affiliates) by public announcement or written communication that
is or becomes the subject of public disclosure to acquire, merge or
consolidate with, or enter into any similar transaction with Allegiance
or Allegiance Bank, and following such proposal the shareholders of
Allegiance vote not to approve the Merger Agreement.
Allegiance is required to notify F&M upon the occurrence of a
transaction, offer or event giving rise to a Purchase Event. In the event F&M
wishes to exercise the Allegiance Option, it must send Allegiance written notice
specifying (i) the total number of shares it will purchase and (ii) the place
and date not earlier than three business days nor later than 60 business days
after the date on which such notice is given for the closing of such purchase.
If prior notification to, or approval of, any federal or state regulatory agency
is required, F&M will promptly file the required notice or application for
approval and the period of time that otherwise would run pursuant to such notice
period will run instead from the date on which the last required notification
period has expired or has been terminated or such approvals have been obtained
and any requisite waiting period has passed.
The Allegiance Option will expire and terminate, to the extent not
previously exercised, upon the earlier of (i) the Effective Date; (ii) the date
on which the Merger Agreement is terminated, other than a termination based upon
(a) a material breach by Allegiance of any covenant in the Merger Agreement or
(b) the failure of Allegiance to obtain shareholder approval of the transactions
contemplated by the Merger Agreement by the vote required by applicable law, in
either case following the occurrence of a Purchase Event or (iii) twelve months
after the Merger Agreement is terminated based upon a material breach by
Allegiance of certain specified covenants or the failure of Allegiance to obtain
shareholder approval of the transactions contemplated by the Merger Agreement by
the vote required under applicable law, in either case following the occurrence
of a Purchase Event.
In the event that Allegiance's capitalization changes by reason of
stock dividend, split-up merger, recapitalization, combination, exchange of
shares or the like, the number of shares subject to the Allegiance Option and
the purchase price per share thereof will be adjusted so that the economic value
of the Allegiance Option remains unaltered.
CERTAIN FEDERAL INCOME TAX MATTERS
F&M and Allegiance have received an opinion from LeClair Ryan, counsel
for F&M, to the effect that 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 F&M or Allegiance as a result
of the Merger;
3. No gain or loss will be recognized by a Allegiance shareholder
to the extent he or she receives F&M Common Stock solely in exchange for his
Allegiance Common Stock pursuant to the Merger;
4. The tax basis of the F&M Common Stock received by each
Allegiance shareholder will be the same as the tax basis of the Allegiance
Common Stock surrendered in exchange therefor; and
5. The holding period for each share of F&M Common Stock received by
each Allegiance shareholder in exchange for Allegiance Common Stock will include
the period for which such shareholder held the Allegiance Common Stock exchanged
therefor, provided such Allegiance Common Stock is a capital asset in the hands
of such holder at the Effective Date.
The opinion from LeClair Ryan has been filed as an exhibit to the
Registration Statement, and receipt of the tax opinion is a non-waivable
condition to consummation of the Merger. The opinion from LeClair Ryan is based
on certain customary assumptions and representations regarding, among other
things, the lack of previous dealings between F&M and Allegiance, the existing
and future ownership of Allegiance and F&M Common Stock and the future business
plans of F&M.
Any cash received by shareholders in lieu of the issuance of fractional
shares could result in taxable income to the shareholders. The receipt of such
cash generally will be treated as a sale or exchange of the stock resulting in
capital gain or loss measured by the difference between the cash received and an
allocable portion of the basis of the stock relinquished. The receipt of such
cash may be treated as a dividend and taxed as ordinary income in certain
limited situations.
The preceding discussion summarizes the material federal income tax
consequences of the Merger to Allegiance shareholders. It does not discuss all
potentially relevant federal income tax matters or consequences to any foreign
or other shareholders subject to special tax treatment, nor does it discuss, and
no opinion has been requested regarding, any state or local tax consequences of
the Merger. The tax consequences to any particular shareholder may depend on the
shareholder's circumstances. Allegiance shareholders are urged to consult their
own tax advisors concerning federal, state and local tax consequences of the
Merger with respect to their particular tax situation.
ABSENCE OF APPRAISAL RIGHTS
Under Section 262 of the General Corporation Law of the State of
Delaware (the "DGCL"), shareholders of Allegiance WILL NOT be entitled to
dissent from the Merger and obtain the judicially determined fair value of their
shares of Allegiance Common Stock because Allegiance Common Stock is traded on
the Nasdaq National Market. See "Market Prices and Dividends."
CERTAIN DIFFERENCES IN RIGHTS OF SHAREHOLDERS
As a Virginia corporation, F&M is subject to the provisions of the
Virginia SCA, while Allegiance, as a Delaware corporation, is subject to the
DGCL. Shareholders of Allegiance, whose rights are governed by the DGCL and
Allegiance's Certificate of Incorporation and Bylaws, will, upon consummation of
the Merger, become shareholders of F&M. The rights of the former Allegiance
shareholders will then be governed by the Articles of Incorporation and Bylaws
of F&M and the Virginia SCA.
A discussion of certain material differences between the rights of an
Allegiance shareholder under the DGCL and Allegiance's Certificate of
Incorporation and Bylaws, on the one hand, and the rights of an F&M shareholder
under the Virginia SCA and the Articles of Incorporation and Bylaws of F&M, on
the other hand, is set forth below in the section "Comparative Rights of
Shareholders."
EXPENSES OF THE MERGER
In general, whether or not the Merger is consummated, Allegiance and
F&M will pay their own expenses incident to preparing, entering into and
carrying out the Merger Agreement, and preparing and filing the Registration
Statement of which this Proxy Statement/Prospectus is a part, except that F&M
will pay the expenses of printing and mailing this Proxy Statement/Prospectus,
and under circumstances involving willful and material breaches of certain
provisions of the Merger Agreement.
If either party willfully and materially breaches the Merger Agreement,
that party must pay the costs associated with this transaction incurred by the
non-breaching party. If the Merger Agreement is terminated by Allegiance because
it is not approved by the Allegiance shareholders, Allegiance must pay 50% of
F&M's costs in this transaction, up to $50,000.
MARKET PRICES AND DIVIDENDS
MARKET PRICES
F&M Common Stock has been listed for trading on the NYSE under the
symbol "FMN" since December 28, 1994. Prior thereto, F&M Common Stock was traded
on the Nasdaq National Market under the symbol "FMNT". Allegiance Common Stock
is traded on the Nasdaq National Market under the symbol "ALLG."
The following tables set forth: (i) in the case of F&M, the high and
low closing sales prices for F&M Common Stock as quoted on the Nasdaq National
Market for the periods indicated through December 27, 1994, and subsequent
thereto the high and low closing sales prices as reported on the NYSE Composite
Transactions List; and (ii) in the case of Allegiance, the high and low closing
sales prices for Allegiance Common Stock as quoted on the Nasdaq National Market
for the periods indicated.
F&M
CLOSING SALES PRICES
--------------------
1996 1995 1994
----------------- ----------------- -----------------
HIGH LOW HIGH LOW HIGH LOW
1st Quarter............................ $19.75 $17.25 $17.125 $15.75 $16.50 $15.75
2nd Quarter............................ $18.50 $16.00 17.375 15.50 16.25 15.50
3rd Quarter (through August 7, 1996)... 18.125 15.625 17.375 16.00
4th Quarter............................ 20.00 17.25 17.25 14.75
The closing price of F&M Common Stock on the NYSE Composite
Transactions List on April 19, 1996, the last full trading day preceding the
public announcement of the execution of the Merger Agreement, was $16.00 per
share. The closing price of F&M Common Stock on the NYSE Composite Transactions
List on August 7, 1996, the latest practicable date prior to the date of the
Proxy Statement/Prospectus was $_______ per share.
ALLEGIANCE
CLOSING SALES PRICES
--------------------
1996 1995 1994
------------------- ------------------ -----------------
HIGH LOW HIGH LOW HIGH LOW
1st Quarter............................. $11.50 $ 9.00 $ 8.00 $6.50 $8.50 $6.50
2nd Quarter............................. 14.625 10.25 7.50 6.50 9.00 6.125
3rd Quarter (through August 7, 1996).... 7.875 6.50 8.50 6.50
4th Quarter............................. 11.00 6.875 9.00 7.00
As of March 31, 1996, there were 7,730 record holders of F&M Common
Stock. As of the Record Date, there were 672 record holders of Allegiance
Common Stock.
DIVIDENDS
The following tables reflect the cash dividends per share paid during
each quarter on F&M Common Stock for the periods indicated. Allegiance has not
paid any cash dividends to date. The policy of the Board of Directors of
Allegiance has been to retain earnings in order to provide funds for the
growth and development of Allegiance's business.
The information in the table below concerning F&M may vary for
certain periods from the dividends declared during the quarter in cases where
the dividend was paid in the quarter following its declaration. In addition,
the amounts shown for F&M have not been restated and adjusted to reflect (i) the
acquisitions on March 29, 1996 of FB&T Financial Corporation, on April 6,
1995 of Bank of the Potomac and on July 1, 1994 of both PNB Financial
Corporation and Hallmark Bank and Trust Company, and (ii) a 2.5% stock dividend
effective September 1, 1994. See "Selected Financial Data" for such restated
dividend information for F&M.
F&M
1996 1995 1994
---- ---- ----
1st Quarter.................. $0.16 $0.15 $0.145
2nd Quarter.................. 0.16 0.15 0.145
3rd Quarter.................. 0.16 0.15 0.145
4th Quarter.................. 0.16 0.150
- ------------------
F&M or F&M Bank-Winchester has paid regular cash dividends for more
than 50 consecutive years.
F&M is a legal entity separate and distinct from its subsidiaries,
and its revenues depend primarily on the payment of dividends from its
subsidiary banks. F&M's subsidiary banks are subject to certain legal
restrictions on the amount of dividends they are permitted to pay to F&M. For
example, a Virginia chartered bank, of which there are nine within the F&M
system, is prohibited from paying a dividend that would impair its paid-in
capital. In addition, the Virginia SCC may limit the payment by any Virginia
chartered bank if it determines that the limitation is in the public interest
and is necessary to ensure the bank's financial soundness.
Under current federal law, insured depository institutions, such as the
Subsidiary Banks, are prohibited from making capital distributions, including
the payment of dividends, if, after making such distribution, the institution
would become "undercapitalized" (as such term is defined in federal law). Based
on the Subsidiary Banks current financial condition, F&M does not expect that
this provision will have any impact on its ability to obtain dividends from its
insured depository institution subsidiaries.
As a result of these legal restrictions, there can be no assurance that
dividends would be paid in the future by F&M's bank subsidiaries. The final
determination of the timing, amount and payment of dividends on F&M Common Stock
is at the discretion of F&M's Board of Directors and will depend upon the
earnings of F&M and its subsidiaries, principally its subsidiary banks, the
financial condition of F&M and other factors, including general economic
conditions and applicable governmental regulations and policies.
ALLEGIANCE BANC CORPORATION
GENERAL
Financial and other information relating to Allegiance is set forth in
the Allegiance's Annual Report to Shareholders for the year ended December 31,
1995, and its Quarterly Report on Form 10-Q for the quarter ended March 31,
1996, copies of which are included herewith as Appendices IV and V. Additional
financial and other information relating to Allegiance, including information
relating to Allegiance's officers and directors, is included in Allegiance's
Annual Report on Form 10-K and Allegiance's Proxy Statement relating to its
Annual Meeting of Shareholders held on May 22, 1996. See "Available
Information" and "Incorporation of Certain Information by Reference."
HISTORY AND BUSINESS
Allegiance was organized in 1986, under the name "Montgomery
Bancorp, Inc." to serve as the holding company for Allegiance Bank, which
commenced operations in 1987. In 1990, Allegiance formed a second national
bank subsidiary to service the Prince George's County market, which was
subsequently merged into Allegiance Bank in 1992. As of March 31, 1996,
Allegiance had total consolidated assets of $138.1 million, total deposits of
$112.7 million, and total consolidated shareholder's equity of $12.0 million.
Allegiance Bank is a locally oriented community bank which seeks to
serve the needs of small and medium size businesses, professionals and consumers
in the southern Montgomery County and northern Prince George's County portions
of the Washington, DC suburban area, which areas constitutes Allegiance Bank's
primary service area. Allegiance Bank, Allegiance's sole subsidiary, currently
operates seven banking offices in Montgomery and Prince George's counties.
Allegiance Bank offers a full line of commercial banking services to businesses
and professionals in its service area, as well as comprehensive deposit and
lending services for consumers. Allegiance Bank is a member of the Federal
Reserve System, and its deposits are insured to the fullest extent provided by
law by the Bank Insurance Fund of the Federal Deposit Insurance Corporation.
Allegiance Bank offers a complete line of commercial banking
services to its business and professional clients, as well as comprehensive
banking services to individuals residing or employed in the its service
area. While it attracts some lending and deposit business from outside its
primary service area, Allegiance Bank has concentrated on servicing its
primary markets. Business lending constitutes the bulk of Allegiance
Bank's lending business, with most loans having variable rates and/or
maturities of three to five years. In making business loans, the cash flow
of the borrower is the principal consideration in terms of the repayment
sources, with collateral constituting a secondary consideration. Commercial
and business loans are made for a variety of purposes, including working
capital, equipment financing, real estate acquisition, lines of credit,
and government contract financing. Asset based lending, and accounts and
inventory financing are available on a selective basis. Real estate
collateralized loans for both commercial and residential purposes are generally
structured with variable rates and three to five year maturities. Residential
first mortgages with a fifteen year maturity are available, but are not typical
of Allegiance Bank's lending activity. Allegiance Bank also offers consumer
installment loans, personal lines of credit and equity lines of credit.
COMPETITION
In attracting deposits and making loans, Allegiance Bank encounters
competition from other institutions, including larger commercial banking
organizations, savings banks, credit unions, other financial institutions and
non-bank financial service companies serving the Bank's service area.
Competitors include major financial companies whose substantially greater
resources may afford them a marketplace advantage by enabling them to maintain
numerous banking locations and mount extensive promotional and advertising
campaigns. In light of the deregulation of the financial service industry and
the absence of interest rate controls on deposits, Allegiance Bank anticipates
that it will face continuing competition from all of these institutions in the
future. Additionally, as a result of recently enacted state and federal
legislation regarding reduced restrictions on interstate banking, Allegiance
Bank may face additional competition from institutions outside Maryland which
may take advantage of such legislation to acquire or establish banks or branches
in Maryland. The interstate banking legislation will allow commercial banks to
branch at a national level through acquisition of existing commercial banks or
bank branches, and/or the opening of new branches. Additional changes in the
financial services industry, including rapid technology changes and proposed
statutory changes regarding the Glass-Steagall Act, which generally prohibits
certain affiliations between banking and securities businesses, may act as a
catalyst for further basic structural change within the financial services
industry and may result in additional competition.
BUSINESS OF F&M
HISTORY AND BUSINESS
F&M was formed in 1969 to serve as the parent holding company of its
then sole subsidiary bank, F&M Bank-Winchester, organized in 1902. Since its
organization, F&M has acquired fifteen banks, which expanded its market area
and increased market share in Virginia and West Virginia. F&M has twelve
subsidiary banks (the "Subsidiary Banks") that operate 89 banking offices
offering a full range of banking services, principally to individuals and
small and middle-market businesses in the Shenandoah Valley, central and
northern Virginia, Southside Virginia, and the eastern panhandle of West
Virginia.
The Subsidiary Banks are community-oriented and offer services
customarily provided by full-service banks, including individual and
commercial demand and time deposit accounts, commercial and consumer loans,
residential mortgages, credit card services and safe deposit boxes. Lending
is focused on individuals and small and middle-market businesses in the
local market regions of the Subsidiary Banks. In addition, F&M
Bank-Winchester, F&M Bank-Blakeley and F&M Bank-Keyser operate trust
departments offering a range of fiduciary services. F&M also operates Big
Apple Mortgage which engages in residential mortgage origination and
servicing in the Shenandoah Valley and the eastern panhandle of West Virginia.
F&M has maintained its community orientation by allowing the Subsidiary
Banks latitude to tailor products and services to meet community and customer
needs. While F&M has preserved the autonomy of its Subsidiary Banks, it has
established system-wide policies governing, among other things, lending
practices, credit analysis and approval procedures, as well as guidelines for
deposit pricing and investment portfolio management. In addition, F&M has
established a centralized loan review team that regularly performs a detailed,
on-site review and analysis of each Subsidiary Bank's loan portfolio to ensure
the consistent application of credit policies and procedures system-wide. One or
more senior holding company officers serve on the board of directors of each
Subsidiary Bank to monitor operations and to serve as a liaison to F&M.
F&M currently operates in six market regions: the Shenandoah Valley and
Loudoun County; the eastern panhandle of West Virginia;
Charlottesville/Albemarle County and surrounding areas; Greenville County in
southside Virginia; suburban Richmond, primarily Henrico and Chesterfield
Counties; the northern Virginia area that includes the eastern portions of
Fairfax and Prince William Counties, Loudoun County and the Warrenton and
surrounding Fauquier County area. F&M operates thirty-nine banking offices in
the Shenandoah Valley from Winchester to Harrisonburg and in Loudoun County with
deposits of $857.5 million at March 31, 1996, nine banking offices in the
eastern panhandle of West Virginia with deposits of $245.7 million at March 31,
1996, seven banking offices in the Charlottesville/Albemarle County and
surrounding area with deposits of $64.8 million at March 31, 1996, three banking
offices in Emporia, Virginia and surrounding Greenville County with deposits of
$57.8 million at March 31, 1996, nine banking offices in suburban Richmond with
deposits of $143.6 million at March 31, 1996, eighteen banking offices in the
Fairfax and Prince William County area of northern Virginia area with deposits
of $360.1 million at March 31, 1996 and four offices in the Warrenton and
surrounding Fauquier County area with deposits of $87.4 million at March 31,
1996. F&M's principal banking market is Winchester and the surrounding five
Virginia counties where its lead bank, F&M Bank-Winchester, is the dominant
financial institution in terms of deposit market share.
At March 31, 1996, F&M had total consolidated assets of
approximately $2.1 billion, total consolidated deposits through its banking
subsidiaries of approximately $1.8 billion and consolidated shareholders'
equity of approximately $211.9 million. F&M's total consolidated net income
for the three months ended March 31, 1996, was approximately $6.7 million, or
$0.35 per share.
F&M'S ACQUISITION PROGRAM
F&M has expanded its market area and increased its market share
through both internal growth and strategic acquisitions. Since the
beginning of 1988, F&M has acquired approximately $1.1 billion in assets and
approximately $917 million in deposits through eleven bank acquisitions. Most
recently, F&M completed on March 29, 1996 the acquisition of FB&T
Financial Corporation, the parent bank holding company of Fairfax Bank & Trust
Company which operates eleven banking offices in the Fairfax and Prince
William County area of Northern Virginia.
Management believes there are additional opportunities to acquire
financial institutions or to acquire assets and deposits that will allow F&M to
enter new markets or increase market share in existing markets. Management
intends to pursue acquisition opportunities in strategic markets where its
managerial, operational and capital resources will enhance the performance of
acquired institutions and may, after the date of this Proxy
Statement/Prospectus, enter into agreements to acquire one or more financial
institutions. THERE CAN BE NO ASSURANCE THAT F&M WILL BE ABLE TO SUCCESSFULLY
EFFECT ANY ADDITIONAL ACQUISITION ACTIVITY, OR THAT ANY SUCH ACQUISITION
ACTIVITY WILL HAVE A POSITIVE EFFECT ON THE VALUE OF SHARES OF F&M COMMON STOCK.
For additional information about F&M's business, see "Available
Information" and "Incorporation of Certain Information by Reference."
COMPARATIVE RIGHTS OF SHAREHOLDERS
GENERAL
As a Virginia corporation, F&M is subject to the provisions of
the Virginia Stock Corporation Act (the "Virginia SCA"). Allegiance is a
Delaware corporation and is therefore subject to the General Corporation
Law of Delaware (the "DGCL"). Shareholders of Allegiance, whose rights are
governed by Allegiance's Certificate of Incorporation and Bylaws and by the
DGCL will become shareholders of F&M upon consummation of the Merger. The
rights of such shareholders as shareholders of F&M will then be governed by
the Articles of Incorporation and Bylaws of F&M and by the Virginia SCA.
The following is a summary of certain material differences in the
rights of shareholders of Allegiance and F&M. THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE ARTICLES OR CERTIFICATE OF INCORPORATION AND
BYLAWS OF EACH CORPORATION AND TO THE VIRGINIA SCA AND THE DGCL.
AUTHORIZED CAPITAL
F&M. F&M is authorized to issue (i) 30,000,000 shares of Common Stock,
par value $2.00 per share, of which 19,095,349 shares were issued and
outstanding as of March 31, 1996, and (ii) 5,000,000 shares of serial
Preferred Stock, without par value, of which no shares were issued and
outstanding as of March 31, 1996. F&M's Articles of Incorporation authorize
the F&M Board, without shareholder approval, to fix the preferences,
limitations and relative rights of the preferred stock and to establish
series of such preferred stock and determine the variations between each
series. If any shares of preferred stock are issued, the rights of holders of
F&M Common Stock would be subject to the rights and preferences conferred
to holders of such preferred stock. See "Description of F&M Capital
Stock" for additional information.
Allegiance. Allegiance is authorized to issue 10,000,000 shares of
Allegiance Common Stock, par value $1.00 per share, of which 1,748,813 shares
were issued and outstanding as of June 30, 1996. Allegiance does not have an
authorized class of preferred stock.
DIVIDEND RIGHTS
F&M. The holders of F&M Common Stock are entitled to share
ratably in dividends when and as declared by the F&M Board of Directors out
of funds legally available therefor. One of the principal sources of income
to F&M is dividends from its subsidiary banks. For a description of certain
restrictions on the payment of dividends by banks, see "Market Prices and
Dividends." F&M's Articles of Incorporation permit the F&M Board to issue
preferred stock with terms set by the F&M Board, which terms may include the
right to receive dividends ahead of the holders of F&M Common Stock. No shares
of preferred stock are presently outstanding.
Allegiance. The holders of Allegiance Common Stock also are
entitled to share ratably in dividends when and as declared by the Allegiance
Board of Directors out of funds legally available therefor. The principal
source of income to Allegiance is dividends from Allegiance Bank. As a result
of regulatory restrictions, Allegiance Bank, and therefore Allegiance, have
not paid any cash dividends to date.
VOTING RIGHTS
The holders of both F&M and Allegiance Common Stock have one vote for
each share held on any matter presented for consideration by the shareholders.
Neither the holders of F&M nor Allegiance Common Stock are entitled to
cumulative voting in the election of directors.
DIRECTORS AND CLASSES OF DIRECTORS
F&M. All of F&M's directors are elected each year. F&M's Articles
of Incorporation do not include a provision relating to the removal of
directors. Accordingly, the removal of F&M directors is governed by the
Virginia SCA which provides that shareholders may remove directors with or
without cause if, in the case of F&M, the number of votes cast to remove him
constitutes a majority of the outstanding shares of F&M Common Stock.
Allegiance. Similar to F&M, all of Allegiance's directors are elected
each year. Allegiance's Certificate of Incorporation does not contain any
provision regarding the removal of directors, which is therefore governed
by the DGCL. The DGCL provides that any director, or the entire board of
directors, may be removed at any time, with or without cause, by a majority of
the shares entitled to vote in the election of directors.
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Virginia SCA and the DGCL, and of the
Articles of Incorporation and Bylaws of F&M, may discourage an attempt to
acquire control of F&M or Allegiance, respectively, that a majority of either
corporation's shareholders determined was in their best interests. These
provisions also may render the removal of one or all directors more difficult or
deter or delay corporate changes of control that the F&M Board or Allegiance
Board, respectively, did not approve.
Authorized Preferred Stock. The Articles of Incorporation of F&M
authorize the issuance of preferred stock. The F&M Board may, subject to
applicable law and the rules of the NYSE, authorize the issuance of preferred
stock at such times, for such purposes and for such consideration as it may
deem advisable without further shareholder approval. The issuance of
preferred stock under certain circumstances may have the effect of
discouraging an attempt by a third party to acquire control of F&M by, for
example, authorizing the issuance of a series of preferred stock with rights
and preferences designed to impede the proposed transaction.
Supermajority Voting Provisions. The Virginia SCA provides that,
unless a corporation's articles of incorporation provide for a higher or lower
vote, certain significant corporate actions must be approved by the
affirmative vote of the holders of more than two-thirds of the votes entitled
to be cast on the matter. Corporate actions requiring a two-thirds vote
include amendments to a corporation's articles of incorporation, adoption of
plans of merger or exchange, sales of all or substantially all of a
corporation's assets other than in the ordinary course of business and
adoption of plans of dissolution ("Fundamental Actions"). The Virginia SCA
provides that a corporation's articles may either increase the vote required
to approve Fundamental Actions or may decrease the required vote to not less
than a majority of the votes entitled to be cast.
The Articles of Incorporation of F&M provide that a Fundamental Action
shall be approved by a vote of a majority of all votes entitled to be cast on
such transactions by each voting group entitled to vote on the transaction,
provided that the transaction has been approved and recommended by at least
two-thirds of the directors in office at the time of such approval and
recommendation. If the transaction is not so approved and recommended, then the
transaction shall be approved by the vote of 80% or more of all votes entitled
to be cast on such transactions by each voting group entitled to vote on the
transaction.
The Certificate of Incorporation of Allegiance and, except with
respect to the approval of certain business combinations with "interested
stockholders," the DGCL, do not contain any provisions requiring a supermajority
vote to approve Fundamental Actions. Approval of Fundamental Actions generally
requires the vote of only a majority of the shares entitled to vote.
The provisions of the Articles of Incorporation of F&M and the
Virginia SCA could tend to make the acquisition of F&M more difficult to
accomplish without the cooperation or favorable recommendation of the F&M.
Shareholder Meetings. Shareholders of F&M may not request that a
special meeting of shareholders be called, while shareholders owning 10% or
more of the issued and outstanding shares of Allegiance may call a special
meeting of shareholders.
State Anti-Takeover Statutes. Virginia has two anti-takeover
statutes in force, the Affiliated Transaction Statute and the Control Share
Acquisitions Statute. Delaware has one statute in effect, Section 203 of the
DGCL, which relates to certain business combinations with interested
stockholders (i.e., a person that acquires 15% or more of a corporation's
voting stock), which may have an anti-takeover effect.
Virginia Anti-Takeover Statutes:
Affiliated Transactions. The Virginia SCA contains provisions governing
"affiliated transactions" (including, among other various transactions, mergers,
share exchanges, sales, leases, or other dispositions of material assets,
issuances of securities, dissolutions, and similar transactions) with an
"interested shareholder" (generally the beneficial owner of more than 10% of any
class of the corporation's outstanding voting shares). During the three years
following the date a shareholder becomes an interested shareholder, any
affiliated transaction with the interested shareholder must be approved by both
a majority of the "disinterested directors" (those directors who were directors
before the interested shareholder became an interested shareholder or who were
recommended for election by a majority of disinterested directors) and by the
affirmative vote of the holders of two-thirds of the corporation's voting shares
other than shares beneficially owned by the interested shareholder. The
foregoing requirements do not apply to affiliated transactions if, among other
things, a majority of the disinterested directors approve the interested
shareholder's acquisition of voting shares making such a person an interested
shareholder prior to such acquisition. Beginning three years after the
shareholder becomes an interested shareholder, the corporation may engage in an
affiliated transaction with the interested shareholder if (i) the transaction is
approved by the holders of two-thirds of the corporation's voting shares, other
than shares beneficially owned by the interested shareholder, (ii) the
affiliated transaction has been approved by a majority of the disinterested
directors, or (iii) subject to certain additional requirements, in the
affiliated transaction the holders of each class or series of voting shares will
receive consideration meeting specified fair price and other requirements
designed to ensure that all shareholders receive fair and equivalent
consideration, regardless of when they tendered their shares.
Control Share Acquisitions. Under the Virginia SCA's control share
acquisitions law, voting rights of shares of stock of a Virginia corporation
acquired by an acquiring person at ownership levels of 20%, 33 1/3%, and 50% of
the outstanding shares may, under certain circumstances, be denied unless
conferred by a special shareholder vote of a majority of the outstanding shares
entitled to vote for directors, other than shares held by the acquiring person
and officers and directors of the corporation or, among other exceptions, such
acquisition of shares is made pursuant to a merger agreement with the
corporation or the corporation's articles of incorporation or by-laws permit
the acquisition of such shares prior to the acquiring person's acquisition
thereof. If authorized in the corporation's articles of incorporation or
by-laws, the statute also permits the corporation to redeem the acquired
shares at the average per share price paid for them if the voting rights are
not approved or if the acquiring person does not file a "control share
acquisition statement" with the corporation within sixty days of the last
acquisition of such shares. If voting rights are approved for control shares
comprising more than fifty percent of the corporation's outstanding stock,
objecting shareholders may have the right to have their shares repurchased by
the corporation for "fair value".
The provisions of the Affiliated Transactions Statute and the Control
Share Acquisition Statute are only applicable to public corporations that
have more than 300 shareholders. Corporations may provide in their articles
of incorporation or bylaws to opt-out of the Control Share Acquisition Statute,
but F&M has not done so.
Delaware Anti-takeover Statutes:
Section 203 of the DGCL generally restricts certain transactions
between a Delaware corporation and a person, who owns, together with such
person's affiliates and associates, 15% or more of a corporation's outstanding
voting stock (an "interested stockholder"). For a period of three years
following the date on which a person becomes an interested stockholder, Section
203 prohibits the following types of transactions between the corporation and
the interested stockholder unless certain conditions described below are met:
(i) mergers or consolidations; (ii) sales, leases, exchanges or other transfers
of 10% or more of the aggregate assets of the corporation; (iii) issuances or
transfers by the corporation of any stock of the corporation which would have
the effect of increasing the interested stockholder's proportionate share of any
class or series of stock; (iv) receipt by the interested stockholder of the
benefit of loans, advances, pledges, or other financial benefits from the
corporation, other than proportionately as a stockholder; and (v) any other
transaction which has the effect of increasing the proportionate share of any
class or series of stock of the corporation owned by the interested stockholder.
The three year prohibition does not apply under certain circumstances, including
where the proposed transaction with the interested stockholder or the
transaction by which the interested stockholder became an interested stockholder
is approved by the board of directors prior to the date such stockholder became
an interested stockholder. The Board of Directors of Allegiance has approved the
Merger, and therefore the prohibition of Section 203 is not applicable to the
Merger.
DIRECTOR AND OFFICER EXCULPATION
The Virginia SCA provides that in any proceeding brought by or in the
right of a corporation or brought by or on behalf of shareholders of the
corporation, the damages assessed against an officer or director arising out of
a single transaction, occurrence or course of conduct may not exceed the lesser
of (i) the monetary amount, including the elimination of liability, specified in
the articles of incorporation or, if approved by the shareholders, in the bylaws
as a limitation on or elimination of the liability of the officer or director,
or (ii) the greater of (a) $100,000 or (b) the amount of cash compensation
received by the officer or director from the corporation during the twelve
months immediately preceding the act or omission for which liability was
imposed. The liability of an officer or director is not limited under the
Virginia SCA or a corporation's articles of incorporation and bylaws if the
officer or director engaged in willful misconduct or a knowing violation of the
criminal law or of any federal or state securities law.
The DGCL permits the certificate of incorporation of a Delaware
corporation to include a provision limiting or eliminating the personal
liability of a director to the corporation or its stockholders for monetary
damages for breach of a director's fiduciary duty, except that such provision
may not limit or eliminate a director's liability for monetary damages: (i) for
any breach of a director's duty of loyalty to the corporation or its
stockholders; (ii) for acts or omissions not in good faith or which involve
intentional misconduct or a knowing violation of law; (iii) for unlawful
distributions; or (iv) for any transaction from which the director obtained an
improper personal benefit.
F&M. The Articles of Incorporation of F&M provide that to the full
extent that the Virginia SCA permits the limitation or elimination of the
liability of directors or officers, a director or officer of F&M shall not be
liable to F&M or its shareholders for monetary damages in excess of one dollar
($1.00).
Allegiance. The Certificate of Incorporation of Allegiance provides
that a director shall not be liable to the corporation or its stockholders for
monetary damages for a breach of fiduciary duty to the fullest extent permitted
by the DGCL.
INDEMNIFICATION
F&M. The Articles of Incorporation of F&M provide that to the
full extent permitted by the Virginia SCA and any other applicable law,
F&M is required to indemnify a director or officer of F&M who is or was a party
to any proceeding by reason of the fact that he is or was such a director or
officer or is or was serving at the request of the corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise. The board
of directors is empowered, by majority vote of a quorum of disinterested
directors, to contract in advance to indemnify any director or officer.
Allegiance. The Certificate of Incorporation of Allegiance provides
that Allegiance shall have the power to the full extent permitted by the DGCL
to indemnify any person that it may indemnify thereunder. The Bylaws of
Allegiance provide that Allegiance shall indemnify, to the fullest extent
provided by law, any person who is or was a party or threatened to be made a
party to any action suit or proceeding by reason of the fact that such person
was a director, advisory director, officer, employee, agent or fiduciary
of Allegiance or was serving as such for another entity at the request of
Allegiance.
DESCRIPTION OF F&M CAPITAL STOCK
F&M is authorized to issue (i) 30,000,000 shares of Common Stock, par
value $2.00 per share, and (ii) 5,000,000 shares of serial Preferred Stock,
without par value, which may be issued in series with such powers,
designations, and rights as may be established from time to time by the Board
of Directors. On March 31, 1996, F&M had issued and outstanding 19,095,349
shares of F&M Common Stock held by 7,730 shareholders of record. All
outstanding shares of F&M Common Stock are fully paid and nonassessable. On
March 31, 1996, F&M had 143,350 shares of F&M Common Stock reserved for
issuance pursuant to outstanding stock options granted to its employees. No
shares of Preferred Stock have been issued.
COMMON STOCK
Holders of shares of F&M Common Stock are entitled to receive dividends
when and as declared by the Board of Directors out of funds legally available
therefor. F&M's ability to pay dividends is dependent upon its earnings and
financial condition of F&M and certain legal requirements. Specifically, the
Federal Reserve has stated that bank holding companies should not pay dividends
except out of current earnings and unless the prospective rate of earnings
retention by the company appears consistent with its capital needs, asset
quality and overall financial condition. In addition, Virginia law precludes any
distribution to shareholders if, after giving it effect, (a) F&M would not be
able to pay its debts as they become due in the usual course of business; or (b)
F&M's total assets would be less than the sum of its total liabilities plus the
amount that would be needed, if F&M were to be dissolved at the time of the
distribution, to satisfy the preferential rights upon dissolution of
shareholders whose preferential rights are superior to those receiving the
distribution. Upon the liquidation, dissolution or winding up of F&M, whether
voluntary or involuntary, holders of F&M Common Stock are entitled to share
ratably, after satisfaction in full of all liabilities, in all remaining assets
of F&M available for distribution. The dividend and liquidation rights of F&M
Common Stock are subject to the rights of any Preferred Stock that may be issued
and outstanding.
Holders of F&M Common Stock are entitled to one vote per share
on all matters submitted to shareholders. There are no cumulative voting
rights in the election of directors or preemptive rights to purchase
additional shares of any class of F&M's capital stock. Holders of F&M Common
Stock have no conversion or redemption rights. The shares of F&M Common Stock
presently outstanding are, and those shares of F&M Common Stock to be issued
in connection with the Merger will be when issued, fully paid and
nonassessable. Since December 28, 1994, F&M Common Stock has been listed for
trading on the NYSE. Prior to its listing on the NYSE, F&M Common Stock was
traded on the Nasdaq National Market.
F&M maintains an Employee Stock Purchase Plan (the "ESP Plan")
providing that all F&M employees who have served F&M full time for over twelve
months may purchase shares of F&M Common Stock through payroll
deduction. An eligible employee who wishes to participate elects to
contribute from 2% to 15% of his or her actual adjusted base pay (actual
base pay plus overtime and shift premiums) by payroll deduction. In
November, a participant may elect to bring his or her total actual
contribution up to 15% of his or her annual base pay. Shares are sold by F&M
to the ESP Plan fund on behalf of those participating employees at 85% of the
lesser of market value on January 1 or December 31 of the year. The maximum
number of shares is limited for any calendar year to 50,000 plus shares
available to be offered but not purchased in prior years. A total of 67,570
shares of F&M Common Stock have been issued under the ESP Plan since its
inception in 1993, and a maximum of 138,293 shares are available for issuance
in 1996. The administrator may decide to offer fewer than the maximum
available number.
PREFERRED STOCK
The Board of Directors of F&M is empowered to authorize the issuance,
in one or more series, of shares of Preferred Stock at such times, for such
purposes and for such consideration as it may deem advisable without
shareholder approval. The Board of Directors is also authorized to fix the
designations, voting, conversion, preference and other relative rights,
qualifications and limitations of any such series of Preferred Stock.
The Board of Directors, without shareholder approval, may authorize the
issuance of one or more series of Preferred Stock with voting and conversion
rights which could adversely affect the voting power of the holders of F&M
Common Stock and, under certain circumstances, discourage an attempt by others
to gain control of F&M.
The creation and issuance of any series of Preferred Stock, and the
relative rights, designations and preferences of such series, if and when
established, will depend upon, among other things, the future capital needs of
F&M, then existing market conditions and other factors that, in the judgment of
the Board of Directors, might warrant the issuance of Preferred Stock.
EXPERTS
The consolidated financial statements of F&M incorporated in this Proxy
Statement/Prospectus by reference to F&M's Annual Report on Form 10-K for the
year ended December 31, 1995 have been so incorporated in reliance upon the
report of Yount, Hyde & Barbour, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in auditing and accounting. Such financial statements have been restated in
F&M's Current Report on Form 8-K dated July 2, 1996.
The consolidated financial statements of F&M that are incorporated
herein by reference from F&M's Current Report on Form 8-K dated July 2, 1996,
which restates the consolidated financial statements that are incorporated by
reference from F&M's Annual Report on Form 10-K for the year ended December 31,
1995, to reflect the acquisition of FB&T Financial Corporation by F&M on March
29, 1996, have been incorporated by reference herein in reliance upon the report
of Yount, Hyde & Barbour, P.C., independent certified public accountants,
incorporated by reference herein, and upon the authority of such firm as experts
in accounting and auditing.
The consolidated financial statements of Allegiance contained in the
Allegiance Annual Report included in this Proxy Statement/Prospectus as Appendix
IV and incorporated by reference herein have been so included and incorporated
in reliance upon the report of Stegman & Company, independent certified public
accountants, and upon authority of such firm as experts in auditing and
accounting.
LEGAL OPINIONS
The validity of the shares of F&M Common Stock offered hereby is
being passed upon for F&M by LeClair Ryan, A Professional Corporation,
Richmond, Virginia. LeClair Ryan will deliver an opinion to F&M and
Allegiance concerning certain federal income tax consequences of the Merger.
See "The Merger - Certain Federal Income Tax Consequences."
Certain matters relating to the Merger will be passed upon for
Allegiance by Kennedy & Baris, L.L.P., Bethesda, Maryland.
OTHER MATTERS
The Board of Directors does not intend to bring any matter before the
Special Meeting other than as specifically set forth in the Notice of Special
Meeting of Shareholders, nor does it know of any matter to be brought before the
Special Meeting by others. If, however, any other matters properly come before
the Special Meeting, it is the intention of each of the proxyholders to vote
such proxy in accordance with the decision of a majority of the Allegiance Board
of Directors.
PART II -- INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF OFFICERS AND DIRECTORS
The laws of the Commonwealth of Virginia pursuant to which the Company
is incorporated permit it to indemnify its officers and directors against
certain liabilities with the approval of its shareholders. The articles of
incorporation of the Company, which have been approved by its shareholders,
provide for the indemnification of each director and officer (including former
directors and officers and each person who may have served at the request of the
Company as a director or officer of any other legal entity and, in all such
cases, his or her heirs, executors and administrators) against liabilities
(including expenses) reasonably incurred by him or her in connection with any
actual or threatened action, suit or proceeding to which he or she may be made
party by reason of his or her being or having been a director or officer of the
Company, except in relation to any action, suit or proceeding in which he or she
has been adjudged liable because of willful misconduct or a knowing violation of
the criminal law.
The Company has purchased officers' and directors' liability insurance
policies. Within the limits of their coverage, the policies insure (1) the
directors and officers of the Company against certain losses resulting from
claims against them in their capacities as directors and officers to the extent
that such losses are not indemnified by the Company and (2) the Company to the
extent that it indemnifies such directors and officers for losses as permitted
under the laws of Virginia.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibit Index
Exhibit No. Description of Exhibit
1 Not Applicable
2.1 Agreement and Plan of Reorganization, dated April 22,
1996, between F&M National Corporation ("F&M") and
Allegiance Banc Corporation ("Allegiance") and a
related Plan of Merger, filed as Appendix I to the
Proxy Statement/Prospectus included in this
Registration Statement.
2.2 Stock Option Agreement, dated April 22, 1996, between
F&M and Allegiance, filed as Appendix II to the Proxy
Statement/Prospectus included in this Registration
Statement.
3.1 Articles of Incorporation of F&M. Incorporated
herein by reference to Exhibit 3.1 to F&M's
Registration Statement on Form S-4 (Registration No.
33-45717).
3.2 Bylaws of F&M. Incorporated herein by reference
to F&M's Registration Statement on Form S-4
(Registration No. 33-45717).
5 Opinion of LeClair Ryan, A Professional
Corporation, regarding the legality of the
securities being registered and consent.
8.1 Form of tax opinion of LeClair Ryan, A
Professional Corporation, regarding the tax-free
nature of the merger between F&M and FB&T.
Exhibit No. Description of Exhibit
21 Subsidiaries of F&M: F&M Bank-Winchester; F&M
Bank-Central Virginia; F&M Bank-Emporia; F&M
Bank-Fairfax; F&M Bank-Hallmark; F&M
Bank-Massanutten; F&M Bank-Peoples; F&M Bank-Potomac;
F&M Bank-Richmond; F&M Bank-Blakely; F&M Bank-Keyser;
F&M Bank-Martinsburg; Big Apple Mortgage Company;
Apple Title Company; Winchester Credit Corporation;
Credit Bureau of Winchester, Inc.
23.1 Consent of Yount, Hyde & Barbour, P.C., as
accountants for F&M.
23.2 Consent of Stegman & Company, as accountants for
Allegiance.
23.3 Consent of LeClair Ryan, (included as part of
Exhibit 5).
23.4 Consent of Scott & Stringellow, Inc. relating to
inclusion of its opinion given to Allegiance in the
Proxy Statement/Prospectus included in this
Registration Statement.
99.1 Form of proxy of Allegiance Banc Corporation.
(b) No financial statement schedules are required to be filed
herewith pursuant to Item 21(b) of this Form.
ITEM 22. UNDERTAKINGS
(a) Item 512 of Regulation S-K.
RULE 415 OFFERINGS. 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;
(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.
FILINGS INCORPORATING SUBSEQUENT EXCHANGE ACT DOCUMENTS BY REFERENCE.
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.
REGISTRATION ON FORM S-4. (1) 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 which 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.
(2) The registrant undertakes that every prospectus (i) that
is filed pursuant to paragraph immediately preceding, or (ii) that purports to
meet the requirements of Section 10(a)(3) of the Act 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.
REQUEST FOR ACCELERATION OF EFFECTIVE DATE OR FILING REGISTRATION
STATEMENT ON FORM S-8. Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payments 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 Act and will
be governed by the final adjudication of such issue.
(b) Item 22(b) of Form S-4
The undersigned registrant hereby undertakes to respond to
requests for information that is incorporated by reference into the prospectus
pursuant to Item 4, 10(b), 11 or 13 of this form, within one business day of
receipt of such request, and to send the incorporated documents by first class
mail or other equally prompt means. This includes information contained in
documents filed subsequent to the effective date of the registration statement
through the date of responding to the request.
(c) Item 22(c) of Form S-4
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.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized in the City of Winchester,
Commonwealth of Virginia on August 7, 1996.
F&M NATIONAL CORPORATION
By: /s/ Jack R. Huyett
Jack R. Huyett, President and
Chief Administrative Officer
Pursuant to the requirements of the Securities Act of 1933, this
registration statement has been signed below by the following persons in the
capacities and on the dates indicated.
Each person whose signature appears below constitutes and appoints Jack
R. Huyett and Alfred B. Whitt, and each of them singly, as his or her true and
lawful attorneys-in-fact and agents, with full power of substitution, for him or
her and in his or her name, place and stead, in any and all capacities, to sign
any and all registration statements or applications to the Securities and
Exchange Commission, the regulatory authorities of any state in the United
States or any other regulatory authorities as may be necessary to permit shares
of Common Stock of the Company to be offered in the United States in connection
with the proposed merger of Allegiance Banc Corporation with and into the
Company, including without limitation any and all amendments or post-effective
amendments to this registration statement, and to file the same, with all
exhibits thereto and other documents in connection therewith, with the
Securities and Exchange Commission or any other such regulatory authority,
granting unto said attorneys-in-fact and agents full power and authority to do
and perform each and every act and thing requisite or necessary to be done to
enable F&M National Corporation to comply with the provisions of the Securities
Act of 1933, and all requirements of the Securities and Exchange Commission as
well as all other laws, rules and regulations relating to the offer and sale of
securities.
SIGNATURE CAPACITY DATE
/s/ W. M. Feltner Chairman of the Board and Chief August 7, 1996
W. M. Feltner Executive Officer and Director
(Principal Executive Officer)
/s/ Jack R. Huyett President and Chief Administrative August 7, 1996
Jack R. Huyett Officer and Director
/s/ Alfred B. Whitt Senior Vice President and August 7, 1996
Alfred B. Whitt Secretary (Principal Financial and
Accounting Officer)
/s/ Frank Armstrong* Director August 7, 1996
Frank Armstrong
/s/ James L. Bowman* Director August 7, 1996
James L. Bowman
/s/ William H. Clement* Director August 7, 1996
William H. Clement
/s/ Charles E. Curtis* Director August 7, 1996
Charles E. Curtis
/s/ William R. Harris* Director August 7, 1996
William R. Harris
/s/ L. David Horner, III* Director August 7, 1996
L. David Horner, III
/s/ William A. Julias* Director August 7, 1996
William A. Julias
/s/ George L. Romine* Director August 7, 1996
George L. Romine
/s/ John S. Scully, III* Director August 7, 1996
John S. Scully, III
/s/ J. D. Shockey, Jr.* Director August 7, 1996
J. D. Shockey, Jr.
/s/ Ronald W. Tydings* Director August 7, 1996
Ronald W. Tydings
/s/ Fred G. Wayland, Jr.* Director August 7, 1996
Fred G. Wayland, Jr.
/s/ C. Ridgely White* Director August 7, 1996
C. Ridgely White
/s/ Alfred B. Whitt
Alfred B. Whitt
as Attorney in Fact