UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 14-A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[X] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[ ] Definitive Proxy Statement
[ ] Definitive Additional Materials
[ ] Soliciting Material Pursuant to ss.240.14a-12
Greater Atlantic Financial Corp.
----------------------------------------------------
(Name of Registrant as Specified In Its Charter)
-------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[ ] No fee required.
[X] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.10 per share of Greater Atlantic
Financial Corp.
2) Aggregate number of securities to which transaction applies:
3,024,220 shares
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which
the filing fee is calculated and state how it was determined):
The filing fee was determined based upon the outstanding shares of
common stock, 3,024,220 shares multiplied by $0.10. In accordance
with Section 14(g) of the Securities Exchange Act of 1934, as
amended, the filing fee was determined by multiplying $302,422 by
.00005580.
4) Proposed maximum aggregate value of transaction:
$302,422
5) Total fee paid:
$16.88
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number, or
the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed: ______________, 200___
[Greater Atlantic Financial Corp. Logo]
Merger Proposal - Your Vote is Very Important
[Mail Date], 2009
Dear Stockholder:
You are cordially invited to attend a special meeting of the stockholders
of Greater Atlantic Financial Corp. ("GAFC"), the holding company for Greater
Atlantic Bank. The meeting will be held at the Crowne Plaza Tysons Corner, 1960
Chain Bridge Road, McLean, Virginia on [Meeting Date], 2009, at 2:00 p.m., Local
time.
At the special meeting, you will be asked to approve a merger agreement by
and among GAFC, MidAtlantic Bancorp, Inc. and GAF Merger Corp. The merger
agreement provides for the acquisition of GAFC by MidAtlantic Bancorp, Inc. Upon
completion of the merger, you will be entitled to receive a cash payment of
$0.10 (without interest) for each share of GAFC stock that you own. Following
completion of the merger, GAFC stockholders who do not properly exercise
dissenters' rights will no longer have any rights or interest in GAFC.
The completion of the merger is subject to certain conditions, including
the approval of the merger agreement by the affirmative vote of a majority of
the outstanding shares of GAFC common stock and the approval of bank regulatory
authorities. We urge you to read the attached proxy statement carefully. It
describes the merger agreement in detail and includes a copy of the merger
agreement as Appendix A.
Your Board of Directors has approved the merger agreement and unanimously
recommends that you vote "FOR" approval of the merger agreement because the
board believes it to be in the best interests of the GAFC stockholders.
The receipt of cash in exchange for your GAFC stock in the merger generally
will be a taxable transaction for United States federal income tax purposes. We
urge you to consult your own tax advisor for a full understanding of the
merger's tax consequences that are particular to you.
Your Vote Is Very Important
Whether or not you plan to attend the special meeting, please complete,
date and sign the enclosed proxy card and return it promptly in the postage-paid
envelope provided.
On behalf of the Board of Directors, I thank you for your prompt attention
to this important matter.
Sincerely,
Carroll E. Amos
President and Chief Executive Officer
This proxy statement and the enclosed proxy card are being first mailed on
or about [Mail Date], 2009 to stockholders of record.
Greater Atlantic Financial Corp.
10700 Parkridge Boulevard, Suite P-50
Reston, Virginia 20191
(703) 391-1300
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
DATE AND TIME
[Meeting Date], 2009 at 2:00 p.m., Local
time.
PLACE
Crowne Plaza Tysons Corner, 1960 Chain
Bridge Road, McLean, Virginia
ITEMS OF BUSINESS
(1) To approve and adopt the Agreement
and Plan of Merger, dated June 15, 2009,
by and among MidAtlantic Bancorp, Inc.,
GAF Merger Corp. and Greater Atlantic
Financial Corp. ("GAFC"). Upon
completion of the merger, you will be
entitled to receive $0.10 in cash
(without interest) for each share of
GAFC common stock that you own unless
you properly exercise and perfect
dissenters' rights as discussed below;
and
(2) To consider and vote upon a proposal
to adjourn the special meeting to a
later date, if necessary, to permit
further solicitation of proxies if there
are not sufficient votes at the time of
the meeting to adopt and approve the
merger agreement; and
(3) To authorize the Board of Directors,
in its discretion, to vote upon or
transact any other business that may
properly come before the special meeting
(or any adjournment or postponement
thereof).
RECORD DATE
In order to vote, you must have been a
stockholder at the close of business on
July 6, 2009.
PROXY VOTING
It is important that your shares be
represented and voted at the special
meeting. You can vote your shares by
completing and returning the proxy card
sent to you. Voting instructions are
printed on your proxy card. You can
revoke a proxy at any time prior to its
exercise at the special meeting by
following the instructions in the proxy
statement.
Holders of GAFC common stock who submit a written demand for appraisal of
their stock in connection with the proposed merger and who perfect their
dissenters' rights by complying with the applicable statutory procedures under
Delaware law will be entitled to receive a cash payment for the fair value of
their stock. A summary of the applicable requirements of Delaware law is
contained in this document. See "The Merger-Dissenters' Appraisal Rights." In
addition, the text of the applicable provisions of Delaware law is attached as
Appendix B to this document.
Edward C. Allen
Corporate Secretary
The Board of Directors of Greater Atlantic Financial Corp. unanimously
recommends that you vote "FOR" the approval and adoption of the merger agreement
and "FOR" the proposal to adjourn the special meeting, if necessary, to solicit
additional proxies to vote in favor of the merger agreement. Whether or not you
plan to attend the special meeting, please vote by marking, signing, dating and
promptly returning the enclosed proxy card in the enclosed envelope.
Table of Contents
Page
---------
SUMMARY
- -------
QUESTIONS AND ANSWERS ABOUT THE MERGER
- --------------------------------------
THE SPECIAL MEETING
- -------------------
Place, Date and Time
--------------------
Purpose of the Meeting
----------------------
Who Can Vote at the Meeting; Record Date
----------------------------------------
Quorum and Vote Required
------------------------
Shares Held by Directors and Officers of GAFC; Voting Agreements.
-----------------------------------------------------------------
Voting by Proxy
---------------
How to Revoke Your Proxy
------------------------
Proxy Solicitation Costs
------------------------
PROPOSAL 1: APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
- ---------------------------------------------------------
THE MERGER
- ----------
The Parties to the Merger
-------------------------
Form of the Merger
------------------
Treatment of GAFC Stock Options
-------------------------------
Procedures for Surrendering Your Certificates
---------------------------------------------
Material Federal Income Tax Consequences of the Merger
------------------------------------------------------
Background of the Merger
------------------------
GAFC's Reasons for the Merger and Recommendation of the Board of Directors
--------------------------------------------------------------------------
Opinion of GAFC's Financial Advisor
-----------------------------------
Interests of Directors and Officers in the Merger that Are Different From Your Interests
----------------------------------------------------------------------------------------
Approvals Needed to Complete the Merger
---------------------------------------
Financing the Merger
--------------------
Accounting Treatment of the Merger
----------------------------------
Dissenters' Appraisal Rights
----------------------------
THE MERGER AGREEMENT
- --------------------
When Will the Merger Be Completed
---------------------------------
Conditions to Completing the Merger
-----------------------------------
Other Provisions of the Merger Agreement
----------------------------------------
PROPOSAL 2: OTHER MATTERS ADJOURNMENT OF THE SPECIAL MEETING
- ------------------------------------------------------------
STOCK OWNERSHIP
- ---------------
WHERE YOU CAN FIND MORE INFORMATION
- -----------------------------------
APPENDIX A Agreement and Plan of Merger, dated June 15, 2009 by and among
MidAtlantic Bancorp, Inc., GAF Merger Corp. and Greater Atlantic
Financial Corp. (exhibits omitted)
APPENDIX B Section 262 of the Delaware General Corporation Law
Summary
This summary highlights selected information regarding the merger from this
proxy statement and does not contain all the information that is important to
you. For a more complete description of the terms of the proposed merger, we
urge you to read carefully the entire document and the other documents to which
we refer, including the merger agreement, attached as Appendix A.
THE COMPANIES
Greater Atlantic Financial Corp.
10700 Parkridge Boulevard, Suite P-50
Reston, Virginia 20191
(703) 391-1300
Greater Atlantic Financial Corp. ("GAFC"
or "we") is a Delaware corporation and
the parent company of Greater Atlantic
Bank, a federally chartered stock
savings bank (the "Bank"). We operate
four banking offices in Virginia and a
banking office in Maryland. At March 31,
2009, we had consolidated total assets
of $218.6 million, consolidated deposits
of $189.5 million and a consolidated
stockholders' (deficit) of $(10.4)
million. Effective April 25, 2008,
Greater Atlantic Bank consented to the
issuance of a cease and desist order by
the Office of Thrift Supervision
("OTS"). On February 10, 2009, the Bank
received written notification from the
OTS that the Bank was undercapitalized.
Effective May 22, 2009, the Board of
Directors of the Bank entered into a
"Stipulation and Consent to Prompt
Corrective Action Directive" with the
OTS. By execution of the Stipulation and
Consent, the Bank consented to the
appointment by the OTS of a conservator
or receiver at any time the Bank is
significantly undercapitalized. As of
March 31, 2009, the Bank was
significantly undercapitalized for
purposes of the prompt corrective action
provisions of the Federal Deposit
Insurance Act. The OTS has directed the
Bank to be recapitalized by a merger
with or acquisition by another financial
institution or other entity, or to the
sale of all or substantially all of the
Bank's assets and liabilities to another
financial institution or other entity.
On June 15, 2009, we entered into a
merger agreement with MidAtlantic
Bancorp, Inc. and GAF Merger Corp.
For details of these significant
enforcement actions against Greater
Atlantic Bank, see "The Merger - The
Parties to the Merger - Greater Atlantic
Financial Corp."
MidAtlantic Bancorp, Inc.
11465 Sunset Hills Road, Suite 230
Reston, Virginia 20190
MidAtlantic Bancorp, Inc.
("MidAtlantic") is a newly organized
Virginia corporation formed by Comstock
Partners, LC, a Northern Virginia-based
private investor group, for the purpose
of effecting the merger and acquiring
Greater Atlantic Bank. Upon consummation
of the acquisition, MidAtlantic will
become the savings and loan holding
company of Greater Atlantic Bank.
GAF Merger Corp.
11465 Sunset Hills Road, Suite 230
Reston, Virginia 20190
GAF Merger Corp. is a Virginia
corporation formed by MidAtlantic solely
for the purpose of facilitating the
completion of the merger. GAF Merger
Corp. has not participated in any
activities to date other than activities
incident to its formation and the
transactions contemplated by the merger
agreement. As of the date of this proxy
statement, MidAtlantic is the sole
stockholder of GAF Merger Corp.
THE SPECIAL MEETING
Place, Date and Time (page ___)
A special meeting of our stockholders
will be held at the Crowne Plaza Tysons
Corner, 1960 Chain Bridge Road, McLean,
Virginia on [Meeting Date], 2009, at
2:00 p.m., Local time.
Purpose of the Meeting
(page ___)
At the special meeting, our stockholders
will be asked to approve and adopt the
merger agreement with MidAtlantic. You
will also be asked to vote on a proposal
to adjourn the special meeting, if
necessary, to permit further
solicitation of proxies if there are not
sufficient votes at the time of the
meeting to approve the merger agreement.
Who Can Vote at the Meeting
(page ___)
You can vote at the special meeting of
GAFC stockholders if you owned our
common stock at the close of business on
July 6, 2009. You will be able to cast
one vote for each share of our common
stock you owned on that date. As of July
6, 2009, there were 3,024,220 shares of
our common stock outstanding.
What Vote is Required for Approval and
Adoption of the Merger Agreement (page ___)
In order to approve and adopt the merger
agreement, the holders of a majority of
the outstanding shares of our common
stock entitled to vote must vote in
favor of the approval and adoption of
the merger agreement. You can vote your
shares by attending the special meeting
and voting in person or by completing
and mailing the enclosed proxy card.
Shares held by Directors and Officers;
Voting Agreements (page ___)
As of July 6, 2009, the directors and
executive officers of GAFC and Greater
Atlantic Bank beneficially owned
approximately 9.98% of our outstanding
common stock (excluding shares that may
be acquired upon the exercise of
options).
All of our directors have entered into
voting agreements with MidAtlantic
requiring each individual to vote all of
the shares of GAFC common stock he or
2
she owned or controlled on July 6, 2009
in favor of the proposal to approve the
merger agreement.
THE MERGER
Overview of the Transaction (page ___)
We propose a business combination in
which we will merge with a wholly owned
subsidiary of MidAtlantic, with GAFC as
the surviving entity and a wholly owned
subsidiary of MidAtlantic following the
merger. It is expected that immediately
following the completion of the merger,
GAFC will be merged or liquidated into
MidAtlantic.
Each GAFC Share Will Be Exchanged for $0.10
in Cash (page ___)
As a GAFC stockholder, upon the closing
of the merger, each of your shares of
our common stock will automatically be
converted into the right to receive
$0.10 in cash (without interest) unless
you properly exercise and perfect your
dissenters' rights under applicable
Delaware law.
How to Receive Cash in Exchange for Your
GAFC Stock Certificates
(page ___)
In order to receive cash in exchange for
your GAFC stock certificates, you will
need to surrender your GAFC stock
certificates. The paying agent, American
Stock Transfer & Trust Company, will
send you written instructions for
surrendering your certificates after we
have completed the merger.
GAFC Stock Price
Since February 22, 2007, our common
stock has been quoted on the Pink Sheets
under the symbol "GAFC.PK." Before that
date, our common stock was quoted on the
NASDAQ Capital Market. The closing sale
price reported for Greater Atlantic
common stock on June 9, 2009, the last
trading date preceding the public
announcement of the merger agreement,
was $0.10. On _______, which is the last
practicable trading day before the
printing of this proxy statement, our
common stock closed at $_______ per
share.
Tender Offer for Trust Preferred Securities
(page __)
In connection with the merger, GAFC will
initiate a tender offer for each share
of the outstanding trust preferred
securities issued by its subsidiary,
Greater Atlantic Capital Trust I
("GACT"), for $1.05 in cash, or
aggregate consideration no greater than
$688,558. The directors of GAFC and
certain other trust preferred holders
have agreed to surrender their trust
preferred securities for $0.01 per
share. The amount that would have been
paid to these directors and certain
other holders of the trust preferred
securities above the $0.01 per share
would be allocated to the remaining
trust preferred holders to provide them
with a greater return.
3
The completion of the merger is subject
to the condition that at least 816,827
of the 960,738 shares of convertible
trust preferred securities outstanding
are irrevocably tendered or surrendered.
Tax Consequences of the Merger (page ___)
When you exchange your GAFC shares
solely for cash, you generally should
recognize a capital gain or loss on the
exchange.
This tax treatment may not apply to all
GAFC stockholders. Determining the
actual tax consequences of the merger to
you can be complicated. You should
consult your own tax advisor for a full
understanding of the merger's tax
consequences that are particular to you.
GAFC's Board of Directors Recommends That
Stockholders Approve the Merger (page ___)
Our Board of Directors believes that the
merger is fair and in our stockholders'
best interests, and unanimously
recommends that you vote "FOR" the
proposal to approve and adopt the merger
agreement. For a discussion of the
circumstances surrounding the merger and
the factors considered by our Board of
Directors in approving the merger
agreement, see "The Merger - GAFC's
Reasons for the Merger."
Interests of GAFC's Directors and Officers in the
Merger That Differ From Your Interests (page
___)
Certain of our directors and officers
have interests in the merger that are
different from, or are in addition to,
their interests as stockholders in GAFC.
The members of our Board of Directors
knew about these additional interests,
and considered them, when they approved
the merger. These include:
o provisions in the merger agreement
whereby MidAtlantic will use its
reasonable best efforts to obtain
coverage under its directors' and
officers' liability policy for a
period of three years for claims made
against directors and officers of
GAFC and its subsidiaries related to
matters existing prior to the closing
of the merger; and
o MidAtlantic's plan to appoint Carroll
E. Amos, our President and Chief
Executive Officer of GAFC and Greater
Atlantic Bank, to be President and
Chief Executive Officer of Greater
Atlantic Bank after the closing of
the merger.
Regulatory Approval Needed to Complete the
Merger (page ___)
We cannot complete the merger unless it
is first approved by the OTS.
MidAtlantic has filed the required
application with the OTS. As of the date
of this proxy statement, MidAtlantic has
not received the approval from the OTS.
While we do not know of any reason why
MidAtlantic would not be able to obtain
approval in a timely manner, we cannot
be certain when or if regulatory
approval will be received.
4
You Have Dissenters' Appraisal Rights in the
Merger (page ___ )
Under Delaware law, if you do not vote
in favor of the merger you have the
right to seek an appraisal of the fair
value of your GAFC common stock and
receive a cash payment of such fair
value. GAFC stockholders electing to
exercise dissenters' appraisal rights
must comply with the provisions of
Section 262 of the Delaware General
Corporation Law in order to perfect
their rights. Strict compliance with the
statutory procedures is required. A copy
of Section 262 of the Delaware General
Corporation Law is attached as Appendix
B.
THE MERGER AGREEMENT
A copy of the merger agreement is provided as Appendix A to this proxy
statement. Please read the entire merger agreement carefully. It is the legal
document that governs the merger.
Conditions to Completing the Merger (page ___)
The completion of the merger depends on
a number of conditions being met. These
conditions include:
o approval of the merger agreement by
our stockholders;
o approval of the merger by regulatory
authorities;
o the absence of any injunctions or
restraints by any court or regulatory
authority;
o receipt of any necessary third party
consents;
o the continued accuracy of certain
representations and warranties made
on the date of the merger agreement;
o the absence of material adverse
changes in certain aspects of our
operations and financial position;
o both parties will have performed all
obligations required to be performed;
o both parties will have delivered
certificates by their chief executive
officer and chief financial officer
to the effect that certain conditions
have been satisfied;
o that no more than 10% of our
outstanding shares shall have
exercised dissenters' rights;
o that at least 816,827 of the
convertible trust preferred
securities outstanding shall have
been irrevocably tendered in our
contemporaneous tender offer or
otherwise surrendered to GAFC;
o the OTS agrees that, upon completion
of the merger, our cease and desist
order and our prompt corrective
action order are terminated or
modified or replaced with commitments
that are satisfactory to MidAtlantic,
and Greater Atlantic Bank's
"troubled" bank designation is
terminated; and
o the termination of certain employee
benefit plans and an employment
agreement with Carroll E. Amos.
5
We cannot be certain when or if the
conditions to the merger will be
satisfied or waived, or that the merger
will be completed.
Agreement Not to Solicit Other Proposals (page
___)
We have agreed not to directly or
indirectly solicit, initiate or
encourage, or take any other action to
facilitate, any inquiries, discussions
or the making of any proposal that
constitutes or could reasonably be
expected to lead to a proposal by a
third party to acquire or merge with us
or any of our subsidiaries.
We May Amend the Terms of the Merger and
Waive Some Conditions (page ___)
GAFC and MidAtlantic may agree to amend
the merger agreement, and each of us may
waive our right to require the other
party to adhere to the terms and
conditions of the merger agreement.
However, if our stockholders approve the
merger agreement, they must approve any
subsequent amendment or waiver that
changes the form of consideration or
adversely affects or decreases the value
of the consideration to be received in
the merger.
Terminating the Merger Agreement (page ___)
The merger agreement may be terminated,
and the merger abandoned, at any time by
action taken or authorized by the Board
of Directors of the terminating party,
either before or after stockholder
approval of the merger agreement:
(a) by the mutual written consent
of MidAtlantic and us;
(b) by either MidAtlantic or us in
the event our stockholders fail to
approve the merger agreement at the
special meeting; provided, however, that
we are only entitled to terminate the
merger agreement pursuant to this clause
if our Board of Directors has used all
reasonable best efforts to obtain from
our stockholders a vote approving the
merger agreement and shall have
recommended and not withdrawn such
recommendation that stockholders approve
the merger agreement;
(c) by either MidAtlantic or us, if
either (i) any approval of a
governmental entity required to permit
consummation of the merger is denied or
(ii) any governmental entity issues a
final order prohibiting the merger;
(d) by either MidAtlantic or us in
the event that the merger is not
consummated by September 30, 2009,
unless the failure to so consummate is
due to the failure of the party seeking
to terminate the merger agreement to
perform or observe the covenants and
agreements of that party in the merger
agreement;
6
(e) by either MidAtlantic or us
(provided that the party seeking
termination is not then in material
breach of any representation, warranty
or covenant contained in the merger
agreement), in the event of a breach of
any covenant or agreement by the other
party, or if any representation or
warranty of the other party becomes
untrue, in either case such breach or
untrue representation or warranty has
not been or cannot be cured within 30
days following written notice to the
party committing such breach or making
such untrue representation or warranty;
(f) by MidAtlantic (i) if we
materially breach our obligations to use
all reasonable best efforts to obtain
from our stockholders a vote approving
the merger agreement and recommend that
stockholders approve the merger
agreement, or we materially breach our
obligations not to solicit, initiate or
encourage a competing proposal to merge
with us; or (ii) if our Board of
Directors does not publicly recommend in
this proxy statement that stockholders
approve the merger agreement or if,
after so recommending the merger
agreement, our Board of Directors
withdraws, qualifies or revises such
recommendation or takes any action in
any respect materially adverse to
MidAtlantic; or
(g) by MidAtlantic if any
governmental entity imposes a condition
to the consummation of the merger
requiring MidAtlantic to increase the
capital of Greater Atlantic Bank by an
amount greater than $15.0 million.
Termination Fee (page ___)
If MidAtlantic terminates the merger
agreement under the circumstances
described in paragraph (f) above
(provided MidAtlantic is not in material
breach of any representation, warranty
or covenant contained in the merger
agreement), we are required to pay
MidAtlantic a termination fee of
$50,000. In the event of termination of
the merger agreement by either party
under the circumstances described in
paragraph (b) above, or by MidAtlantic
under the circumstances described in
paragraph (e) above, if the breach
giving rise to such termination was
knowing or intentional, or under the
circumstances described by paragraph (f)
above, then so long as (i) at the time
of such termination MidAtlantic is not
in material breach of the merger
agreement, (ii) prior to the special
meeting or the date of termination a
competing acquisition proposal has been
announced, and (iii) within 12 months of
termination we enter into an agreement
with respect to the competing
acquisition proposal, then we are
required to pay MidAtlantic a
termination fee of the lesser of
$250,000, or $50,000 plus 25% of the
7
amount by which the total consideration
paid to our stockholders and holders of
our trust preferred securities under the
competing acquisition agreement exceeds
$990,980.
Questions and Answers about the Merger
What am I being asked to vote on and how does my board recommend that I vote?
You are being asked to vote FOR the approval and adoption of the Agreement
and Plan of Merger, dated as of June 15, 2009, providing for the merger of GAFC
with and into a wholly owned subsidiary of MidAtlantic The GAFC Board of
Directors has determined that the proposed merger is in the best interests of
GAFC stockholders, has approved the merger agreement and unanimously recommends
that GAFC stockholders vote FOR the approval and adoption of the merger
agreement.
What vote is required to adopt the merger agreement?
The approval and adoption of the merger agreement requires the affirmative
vote of a majority of the outstanding shares of GAFC common stock.
What will I receive in the merger?
Under the merger agreement, each share of GAFC common stock you own will be
converted into the right to receive $0.10 in cash (without interest), unless you
properly exercise and perfect dissenters' rights under applicable Delaware law.
Following completion of the merger, you will no longer have any rights or
interests as a stockholder in GAFC.
How do I exchange my GAFC stock certificates?
You will receive instructions on where and how to surrender your GAFC stock
certificates from the paying agent, American Stock Transfer & Trust Company,
after the merger is completed. In any event, you should not forward your GAFC
stock certificates with your proxy card.
What should I do now?
After you have carefully read this document, please indicate on your proxy
card how you want to vote. Sign and mail the proxy card in the enclosed postage
prepaid envelope as soon as possible, so that your shares will be represented at
the special meeting. If you do not return a properly executed proxy card or do
not vote at the special meeting in person, this will have the same effect as a
vote against the adoption of the merger agreement.
If my shares are held in "street name" by my broker, bank or nominee, will my
broker, bank or nominee automatically vote my shares for me?
No. Your broker, bank or nominee will not be able to vote your shares of
GAFC common stock unless you provide instructions on how to vote. You should
instruct your broker, bank or nominee how to vote your shares by following the
procedures your broker provides. If you do not provide instructions to your
broker, bank or nominee, your shares will not be voted, and this will have the
effect of voting against adoption of the merger agreement. Please check the
voting form used by your broker, bank or nominee to see if it offers telephone
or internet voting.
8
Who can help answer my questions?
If you want additional copies of this document, or if you want to ask any
questions about the merger or how to submit your proxy, you should contact:
Carroll E. Amos
President and Chief Executive Officer
Greater Atlantic Financial Corp.
10700 Parkridge Boulevard, Suite P-50
Reston, Virginia 20191
Telephone: (703) 391-1300
9
The Special Meeting
This proxy statement is furnished in connection with the solicitation of
proxies by the Board of Directors of Greater Atlantic Financial Corp. to be used
at the special meeting of stockholders.
Place, Date and Time
The special meeting will be held at the Crowne Plaza Tysons Corner, 1960
Chain Bridge Road, McLean, Virginia on [Meeting Date], 2009, at 2:00 p.m., Local
time.
Purpose of the Meeting
The purpose of the meeting is to consider and vote on a proposal to approve
and adopt the merger agreement and to act on any other matters properly brought
before the meeting. You will also be asked to vote on a proposal to adjourn the
special meeting, if necessary, to permit further solicitation of proxies if
there are not sufficient votes at the time of the meeting to approve the merger
agreement.
Who Can Vote at the Meeting; Record Date
You are entitled to vote your GAFC common stock only if the records of GAFC
show that you held your shares as of the close of business on July 6, 2009. As
of the close of business on July 6, 2009, a total of 3,024,220 shares of GAFC's
common stock were outstanding. Each share of common stock has one vote.
Quorum and Vote Required
Quorum. The special meeting will be held only if there is a quorum present.
A quorum exists if a majority of the outstanding shares of common stock entitled
to vote are represented at the meeting. If you return valid proxy instructions
or attend the meeting in person, your shares will be counted for purposes of
determining whether there is a quorum present, even if you abstain from voting.
Broker non-votes also will be counted for purposes of determining the existence
of a quorum. A broker non-vote occurs when a broker, bank or other nominee
holding shares for a beneficial owner does not vote on a particular proposal
because the nominee does not have discretionary voting power with respect to
that item and has not received voting instructions from the beneficial owner.
Under applicable rules, brokers, banks and other nominees may not exercise their
voting discretion on the proposal to approve and adopt the merger agreement and,
for this reason, may not vote shares held for beneficial owners without specific
instructions from the beneficial owners.
Vote Required. Approval and adoption of the merger agreement requires the
affirmative vote of the majority of the outstanding shares of GAFC's common
stock. Failure to return a properly executed proxy card or to vote in person,
abstentions and broker non-votes will have the same effect as a vote "Against"
the approval and adoption of the merger agreement.
The affirmative vote of a majority of the votes cast is required to approve
the proposal to adjourn the meeting, if necessary, to permit further
solicitation of proxies on the proposal to approve the merger agreement. Broker
non-votes and abstentions will have no effect on the outcome of this proposal.
Shares Held by Directors and Officers of GAFC; Voting Agreements
As of July 6, 2009, directors and executive officers of GAFC and Greater
Atlantic Bank owned approximately 9.98% of the outstanding shares of GAFC common
stock, not including shares that may be acquired upon the exercise of stock
options. All of the directors, who collectively own or control 300,909 shares,
or approximately 9.94% of the outstanding shares of GAFC common stock, have
entered into voting agreements with MidAtlantic requiring each individual to
vote all of the shares of GAFC common stock he or she owned or controlled on
July 6, 2009 in favor of the proposal to approve and adopt the merger agreement.
Voting by Proxy
The Board of Directors of GAFC is sending you this proxy statement for the
purpose of requesting that you allow your shares of GAFC common stock to be
represented at the special meeting by the persons named in the enclosed proxy
card. All shares of GAFC's common stock represented at the special meeting by
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properly executed proxies will be voted according to the instructions indicated
on the proxy card. If you sign, date and return a proxy card without giving
voting instructions, your shares will be voted as recommended by GAFC's Board of
Directors.
The Board of Directors unanimously recommends a vote "FOR" approval and adoption
of the merger agreement and "FOR" the proposal to adjourn the special meeting,
if necessary, to solicit additional proxies to vote in favor of the merger
agreement.
If any matters not described in this proxy statement are properly presented
at the special meeting, the persons named in the proxy card will use their own
best judgment to determine how to vote your shares. If the special meeting is
postponed or adjourned, GAFC common stock may be voted by the persons named in
the proxy card on the new special meeting date as well, unless you have revoked
your proxy. GAFC does not know of any other matters to be presented at the
special meeting.
If GAFC common stock is held in "street name," you will receive
instructions from your broker, bank or other nominee that you must follow in
order to have your shares voted. Your broker, bank or other nominee may allow
you to deliver your voting instructions via the telephone or the Internet.
Please see the instruction form that accompanies this proxy statement.
How to Revoke Your Proxy
You may revoke your proxy at any time before the vote is taken at the
meeting. To revoke your proxy you must either advise the Corporate Secretary of
GAFC in writing before your common stock has been voted at the special meeting,
deliver a later dated proxy card, or attend the meeting and vote your shares in
person. Attendance at the special meeting will not in itself constitute
revocation of your proxy.
GAFC's Corporate Secretary can be reached at the following address:
Edward C. Allen
Corporate Secretary
Greater Atlantic Financial Corp.
10700 Parkridge Boulevard, Suite P-50
Reston, Virginia 20191
Proxy Solicitation Costs
GAFC will pay the cost of this proxy solicitation. GAFC will reimburse
brokerage firms and other custodians, nominees and fiduciaries for reasonable
expenses incurred by them in sending proxy materials to the beneficial owners of
GAFC common stock. GAFC has retained Laurel Hill Advisory Group, LLC, a proxy
solicitation firm, to assist it in soliciting proxies and has agreed to pay them
a fee of $5,000 plus reasonable expenses for these services. In addition to
soliciting proxies by mail, directors, officers and regular employees of GAFC
may solicit proxies personally or by telephone without receiving additional
compensation.
PROPOSAL 1: APPROVAL AND ADOPTION OF THE MERGER AGREEMENT
The Merger
The following discussion of the merger is qualified by reference to the
merger agreement, which is attached to this proxy statement as Appendix A. You
should read the entire merger agreement carefully. It is the legal document that
governs the merger.
The Parties to the Merger
Greater Atlantic Financial Corp. GAFC, a Delaware corporation, is the stock
holding company for Greater Atlantic Bank. As a savings and loan holding
company, GAFC is regulated by the OTS. Since its formation, GAFC's principal
activity has been to direct and coordinate the business of Greater Atlantic
Bank. At March 31, 2009, GAFC had consolidated total assets of $218.6 million,
consolidated total deposits of $189.5 million and a consolidated total
stockholders' (deficit) of $(10.4) million.
Greater Atlantic Bank is a federally chartered savings bank headquartered
in Reston, Virginia. The Bank is regulated by the OTS and its deposits are
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insured by the Federal Deposit Insurance Corporation up to applicable limits.
The Bank conducts its business through four offices in Virginia and one office
in Maryland. The Bank is a community oriented savings institution specializing
in the acceptance of retail deposits from the general public in the areas
surrounding its full-service banking offices and using those funds, together
with funds generated from operations and borrowings, to originate loans.
Effective April 25, 2008, the Bank consented to the issuance of a Cease and
Desist Order (the "Order") by the OTS. The Order required the Bank, among other
things: to have, at June 30, 2008, and maintain a Tier One (Core) Capital Ratio
of at least 6% and a total risk based capital ratio of at least 12%; to cease
making commercial real estate loans, commercial loans and loans on raw land
without the prior written approval of the Regional Director; to cease accepting
brokered deposits; and to cease the payment of dividends or other capital
distributions.
On February 10, 2009, the Bank received written notification from the OTS
that the Bank was "undercapitalized" and subject to restrictions on asset
growth, dividends, other capital distributions and management fees. The
notification also required the Bank to file a written capital restoration plan,
no later than March 16, 2009. The Order that the Bank entered into with the OTS,
as amended, remained in effect.
As an undercapitalized institution, the Bank may not: (1) make or pay any
capital distributions without the prior approval of the OTS; (2) pay any
management fees to any person having control of the Bank; or (3) accept, renew
or roll over any brokered deposit. Further, unless the OTS has accepted the
Bank's capital restoration plan, the Bank may not permit its total average
assets during any calendar quarter to exceed its total average assets during the
preceding calendar quarter unless the increase in assets is consistent with the
capital restoration plan and the Bank increases its ratio of tangible equity in
the quarter at a rate sufficient to enable the Bank to become adequately
capitalized in a reasonable amount of time.
In addition, the Bank may not acquire any interest in any company or
insured depository institution, acquire any additional branch office, or engage
in a new line of business unless: (1) the OTS has accepted the Bank's capital
restoration plan, the Bank is in compliance with the plan and the OTS determines
that the action is consistent with and will further achievement of the plan; or
(2) the Board of Directors of the FDIC approves the action.
Effective May 22, 2009, the Board of Directors of the Bank entered into a
Stipulation and Consent to Prompt Corrective Action Directive (the "Directive")
with the OTS. By execution of the Stipulation and Consent, the Bank consented to
the appointment by the OTS of a conservator or receiver or other legal custodian
at any time the Bank is significantly undercapitalized. The Stipulation and
Consent addressed the Bank's failure to operate under an accepted capital
restoration plan and imposed various corrective measures and operational
limitations mandated by statute. As of March 31, 2009, the Bank was
"significantly undercapitalized" for purposes of the prompt corrective action
provisions of FDIA. The Directive was issued when the OTS notified the Bank that
its previously filed capital restoration plan was unacceptable and directed the
Bank to be recapitalized by a merger with or acquisition by another financial
institution or other entity, or by the sale of all or substantially all of the
Bank's assets and liabilities to another financial institution or other entity,
within ten days of the effective date of the Directive pursuant to a written
definitive agreement, which the Bank was required to submit to the OTS within
five days of the effective date of the Directive unless extended in writing by
the OTS.
By letter dated May 22, 2009, the OTS modified the Directive to extend the
five-day time frame to June 15, 2009, and the ten-day recapitalization deadline
to July 31, 2009. The Directive also authorized the OTS to undertake marketing
efforts to assist the Bank in its efforts to consummate a possible
recapitalization transaction. On June 15, 2009, GAFC entered into a merger
agreement with MidAtlantic and GAF Merger Corp.
The Directive also required the Bank to achieve and maintain, at a minimum,
the following ratios within ten days from the effective date of the Directive:
(i) Total Risk Based Capital Ratio of 8%; (ii) Tier 1 Core Risk Based Capital
Ratio of 4%; and (iii) Leverage Ratio of 4%. The Directive also outlined
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guidelines for reporting to the OTS the status of capital raising efforts and
identified mandatory operating restrictions, including those under which the
Bank had been operating since the issuance of the previously reported Order.
MidAtlantic Bancorp, Inc. MidAtlantic is a newly organized Virginia
corporation formed by Comstock Partners, LC, a Northern Virginia-based private
investor group, for the purpose of acquiring Greater Atlantic Bank in the
merger. Upon consummation of the transaction, MidAtlantic will become a savings
and loan holding company of the Bank.
GAF Merger Corp. GAF Merger Corp. is a Virginia corporation formed by
MidAtlantic solely for the purpose of facilitating the completion of the merger.
GAF Merger Corp. has not participated in any activities to date other than
activities incident to its formation and the transactions contemplated by the
merger agreement. As of the date of this proxy statement, MidAtlantic is the
sole stockholder of GAF Merger Corp.
Form of the Merger
Each of the GAFC and MidAtlantic Boards of Directors has approved the
merger agreement that provides for the acquisition of GAFC by MidAtlantic. Upon
completion of the merger, each share of GAFC common stock (other than shares
with respect to which the holder has properly exercised and perfected
dissenters' rights under applicable Delaware law and other than shares that are
held by MidAtlantic, if any, other than shares held in a fiduciary capacity or
in satisfaction of a debt previously contracted) will be converted into the
right to receive $0.10 in cash (without interest) and GAFC stockholders will no
longer have any rights or interests in GAFC. As soon as possible after the
conditions to consummation of the merger have been satisfied or waived, and
unless the merger agreement has been terminated or an alternative structure is
used as discussed below, the merger will be effected as follows:
o GAF Merger Corp., a newly formed, wholly owned subsidiary of
MidAtlantic, will merge with and into GAFC, with GAFC surviving as a
wholly owned subsidiary of MidAtlantic; and
o immediately after the completion of the merger, GAFC is expected to be
merged or liquidated into MidAtlantic.
Treatment of GAFC Stock Options
Prior to the effective time of the merger, GAFC will take all actions
necessary to terminate each stock option plan of GAFC and will use its best
efforts to obtain from each stock option holder an agreement cancelling such
person's outstanding stock options as of the effective time of the merger.
Procedures for Surrendering Your Certificates
MidAtlantic will deposit with GAFC's transfer agent, American Stock
Transfer & Trust Company, an amount of cash equal to the aggregate merger
consideration. American Stock Transfer & Trust Company will act as paying agent
for the benefit of the holders of GAFC common stock. Each holder of GAFC common
stock who properly surrenders his or her GAFC shares to the paying agent will be
entitled to receive a cash payment of $0.10 per share of GAFC common stock, net
of any required tax withholding upon acceptance of the shares by the paying
agent.
As soon as practicable after the closing of the merger, the paying agent
will send you a letter of transmittal that will contain detailed instructions
for surrendering your certificates of GAFC common stock. If you hold your GAFC
common stock in "street name," your broker, bank or nominee will process the
exchange on your behalf.
You should not return your GAFC common stock certificates with the enclosed
proxy, and you should not send your stock certificates to the paying agent until
you receive the letter of transmittal.
If your GAFC common stock certificates have been lost, stolen or destroyed,
you will have to prove your ownership of these certificates and that they were
lost, stolen or destroyed before you receive any payment for your shares.
At the election of MidAtlantic, the paying agent will deliver to
MidAtlantic any funds not disbursed to former GAFC stockholders within six
13
months following the completion of the merger. Thereafter, the payment
obligation for any certificate representing GAFC common stock that has not been
satisfied will become the responsibility of MidAtlantic only as a general
creditor.
None of GAFC, MidAtlantic, the paying agent or any other party to the
merger will be liable to any former holder of GAFC common stock for any funds
delivered to a public official under applicable abandoned property or escheat
laws.
Material Federal Income Tax Consequences of the Merger
To ensure compliance with Internal Revenue Code Circular 230, you are
hereby notified that any discussion of tax matters set forth in this proxy
statement was written in connection with the promotion or marketing of the
transactions or matters addressed herein and was not intended or written to be
used, and cannot be used, by any stockholder, for the purpose of avoiding
tax-related penalties under federal, state or local tax laws. Each stockholder
should seek advice based on its particular circumstances from an independent tax
advisor.
The following is a general discussion of certain material United States
federal income tax consequences of the merger to holders of GAFC common stock.
This discussion applies only to GAFC stockholders that hold their GAFC common
stock as a capital asset within the meaning of Section 1221 of the Internal
Revenue Code of 1986, as amended. Further, this discussion does not address all
aspects of United States federal taxation that may be relevant to a particular
stockholder in light of his or her personal circumstances or to stockholders
subject to special treatment under the United States federal income tax laws,
including: banks or trusts; tax-exempt organizations; insurance companies;
dealers in securities or foreign currency; traders in securities who elect to
apply a mark-to-market method of accounting; pass-through entities and investors
in such entities; foreign persons; stockholders who received their GAFC common
stock through the exercise of employee stock options, through a tax-qualified
retirement plan or otherwise as compensation; and stockholders who hold GAFC
common stock as part of a hedge, straddle, constructive sale, conversion
transaction or other integrated instrument.
This discussion is based on the Internal Revenue Code, Treasury
regulations, administrative rulings and judicial decisions, all as in effect as
of the date of this proxy statement and all of which are subject to change
(possibly with retroactive effect) and to differing interpretations. Tax
considerations under state, local and foreign laws are not addressed in this
document. The tax consequences of the merger to you may vary depending upon your
particular circumstances. Therefore, you should consult your tax advisor to
determine the particular tax consequences of the merger to you, including those
relating to state and/or local taxes.
Neither GAFC nor MidAtlantic has requested or will request a ruling from
the Internal Revenue Service as to any of the tax effects to GAFC's stockholders
of the transactions discussed in this proxy statement, and no opinion of counsel
has been or will be rendered to GAFC's stockholders with respect to any of the
tax effects of the merger to stockholders.
GAFC stockholders will recognize a gain or loss for federal income tax
purposes equal to the difference, if any, between the cash received and such
stockholder's aggregate adjusted tax basis in the GAFC common stock surrendered
in exchange for the cash. The gain or loss will be a capital gain or loss,
provided that such shares were held as capital assets of the GAFC stockholder at
the effective time of the merger. The gain or loss will be long-term capital
gain or loss if the GAFC stockholder's holding period is more than one year;
otherwise, the capital gain or loss will be short-term. The Internal Revenue
Code contains limitations on the extent to which a taxpayer may deduct capital
losses from ordinary income.
Under the Internal Revenue Code, a holder of GAFC common stock may be
subject, under certain circumstances, to information reporting on the cash
received in the merger unless such holder is a corporation or other exempt
recipient. Backup withholding will also apply (currently at a rate of 28%) with
respect to the amount of cash received, unless a holder provides proof of an
applicable exemption or a correct taxpayer identification number, and otherwise
complies with the applicable requirements of the backup withholding rules.
Backup withholding is not an additional tax and any amounts withheld under the
backup withholding rules may be refunded or credited against a holder's United
States federal income tax liability, if any, provided that such holder furnishes
the required information to the Internal Revenue Service in a timely manner.
14
Background of the Merger
Periodically, the management and the Board of Directors of GAFC has
evaluated GAFC's strategic options, including continuing to operate as an
independent entity. On January 30, 2006, GAFC engaged Sandler O'Neill &
Partners, L.P., a financial advisory firm ("Sandler O'Neill"), to serve as
independent financial advisor to the Board of Directors in connection with
GAFC's review of its strategic options.
In March 2006, representatives of Sandler O'Neill made a presentation to
the Board of Directors regarding strategic options and focused on the merits of
engaging in a potential business combination transaction (either a whole-bank
merger or acquisition or sale of one or more branch offices) versus remaining
independent. At the conclusion of the discussion, the Board of Directors
directed the Executive Committee of the Board of Directors to determine what, if
any, level of interest other parties might have in entering into a potential
business combination transaction with GAFC.
On March 29, 2006, Sandler O'Neill identified for GAFC 69 parties Sandler
O'Neill believed might have an interest in exploring a potential business
combination with GAFC. During April and May 2006, 16 indications of interest
were received. Three were for a whole-bank transaction, 12 were for a branch
acquisition and one was for an equity investment.
The whole-bank indications of interest varied. Party "A" indicated a
proposed transaction value of approximately $12.2 million. Party "B" and another
party, Summit Financial Group, Inc. ("Summit"), indicated a proposed transaction
value of approximately $18.2 million. Parties "A" and "B" proposed all-cash
transactions, and Summit proposed a stock/cash transaction. Summit's indication
of interest, however, was conditioned on Greater Atlantic Bank selling its
branch office in Pasadena, Maryland, before the closing of the proposed
transaction.
The Board also reviewed the indications of interest for the separate branch
sales. The highest indication of interest for the Pasadena branch office, at a
9.5% deposit premium, was submitted by Bay-Vanguard Federal Savings Bank.
The Board of Directors then discussed the indication of interest submitted
by the private equity investor. The private equity investor proposed the sale of
two branch offices of Greater Atlantic Bank, a substantial loan sale, a capital
investment of approximately $7.5 million and a consulting contract for the
private equity group.
On June 26, 2006, Summit advised Sandler O'Neill that its Board of
Directors had authorized management to proceed with negotiations toward a
definitive agreement with GAFC, subject to completion of its due diligence
review.
On September 8, 2006, GAFC announced that the former management company of
Greater Atlantic Mortgage Corporation, Greater Atlantic Bank's wholly-owned
mortgage banking subsidiary, and its principal had initiated arbitration
proceedings against GAFC, Greater Atlantic Bank and Mr. Amos related to an
unreconciled inter-company account between Greater Atlantic Bank and Greater
Atlantic Mortgage Corporation. Following this public announcement, in an effort
to continue the process, GAFC authorized Sandler O'Neill to contact Summit and
the other parties that expressed interest in pursuing a whole-bank transaction
to determine whether they would be interested in pursuing a purchase and
assumption transaction, which would permit them to acquire all of GAFC's assets
and liabilities other than the liabilities associated with the internal
accounting issue and the arbitration proceeding. On January 11, 2007, GAFC
received an indication of interest letter from Summit proposing a purchase and
assumption transaction.
On January 16, 2007, the Board of Directors reviewed with Sandler O'Neill
Summit's purchase and assumption proposal as compared to the branch purchase
indications of interest with the highest deposit premiums. The Board of
15
Directors noted that Summit's purchase and assumption proposal indicated a net
transaction value of approximately $13.48 million, or $4.46 per share. Following
a review of the indications of interest received for branch office transactions,
the Board of Directors noted that the aggregate transaction value for those
transactions would amount to approximately $14.99 million, or $4.92 per share.
On January 25, 2007, Party "E" submitted an indication of interest for an
all-cash transaction valuing GAFC at $4.634 per share, subject to an exclusivity
period and other conditions.
On February 7, 2007, Party "F" submitted an indication of interest for an
all-cash transaction that indicated a range of value from approximately $14.5
million to $16.0 million, or a range of $4.79 to $5.30 per share, subject to due
diligence and other conditions.
On February 8, 2007, Party "D" submitted an indication of interest for an
all-cash, whole-bank transaction indicating a transaction value ranging from $15
million to $20 million, or $5.00 to $6.67 per share, subject to due diligence
and other conditions.
On February 9, 2007, Summit submitted a revised indication of interest for
a whole-bank transaction, but with the exclusion of the Pasadena branch office
and with an indicated value of $4.60 per share.
On February 9, 2007, Greater Atlantic announced the resolution of the
arbitration proceeding.
On February 14, 2007, the Board of Directors met to review the various
indications of interest that had been received to date. The Board of Directors
considered and discussed in detail GAFC's prospects as an independent entity and
concluded that it would be in the best interests of GAFC and its stockholders to
pursue a merger transaction with Summit, as well as the sale of the Pasadena
branch office to Bay-Vanguard Federal Savings Bank.
On March 21, 2007, Bay-Vanguard Federal Savings Bank informed GAFC that it
had revised its indication of interest to reduce the deposit premium for the
Pasadena branch office to 8.5%.
On March 28, 2007, senior management of GAFC advised the Board of Directors
that the OTS had inquired recently about the status of the ongoing merger and
acquisition discussions and the prospects of negotiating and entering into a
definitive agreement in the near term. The Board of Directors then discussed
Bay-Vanguard Federal Savings Bank's revised indication of interest for the
purchase of the Pasadena branch office at a deposit premium of 8.5%. The
representative of Sandler O'Neill noted that the new proposed deposit premium,
although reduced from the 9.5% proposed initially, remained the highest proposal
obtained. Following discussion, the Board of Directors authorized management,
with the assistance of GAFC's legal and financial advisors, to negotiate a
definitive purchase and assumption agreement for the sale of the Pasadena branch
office consistent with the terms of the revised indication of interest of
Bay-Vanguard Federal Savings Bank.
On April 12, 2007, the Boards of Directors of GAFC and Greater Atlantic
Bank met to consider and discuss the terms of the definitive merger agreement as
negotiated by with Summit and the terms of the definitive purchase and
assumption agreement as negotiated with Bay-Vanguard Federal Savings Bank for
the purchase the Pasadena branch office. The directors determined that the
merger agreement and the purchase and assumption agreement were advisable and in
the best interests of GAFC and its stockholders.
On August 24, 2007, Greater Atlantic Bank completed the sale of its
Pasadena branch office to Bay-Vanguard Federal Savings Bank.
On December 6, 2007, GAFC and Summit amended the merger agreement to extend
the date (from December 31, 2007 to March 31, 2008) by which either party could
terminate the merger agreement under certain circumstances if the merger was not
consummated by that date.
16
On March 25, 2008, the stockholders of GAFC approved the merger agreement
at a special meeting of stockholders.
On April 4, 2008, GAFC received written notice from Summit that Summit had
exercised its right to terminate the merger agreement. Upon receipt of the
notice, the Board of Directors instructed Sandler O'Neill to determine whether
Summit still had an interest in pursuing a merger with GAFC, and, if so, under
what proposed terms and conditions. Sandler O'Neill reported that Summit would
consider pursuing the merger only if the price was reduced and Summit's
obligations to close the transaction were contingent on GAFC satisfying certain
financial conditions at closing, including minimum capital ratios and asset
quality ratios acceptable to Summit. After discussing and assessing the
strategic options available to GAFC, particularly its prospects as an
independent entity and considering the increased likelihood of adverse
regulatory action by the OTS if GAFC was unable to find an acceptable strategic
partner, the Board of Directors determined to pursue negotiations toward a new
merger agreement with Summit.
On April 9, 2008, GAFC's legal counsel received a draft of a new merger
agreement from Summit's legal counsel that provided for a price of $4.00 per
share of GAFC common stock, payable $1.20 in cash and $2.80 in shares of Summit
common stock.
On April 11, 2008, the OTS notified GAFC that, given GAFC's continuing
adverse financial condition and results of operations, it had determined to
issue a cease and desist order against Greater Atlantic Bank and requested that
Greater Atlantic Bank execute a stipulation and consent to the issuance of the
order within 10 business days. On April 23, 2008, the Board of Directors of
Greater Atlantic Bank agreed to the stipulation and consent to the entry of the
cease and desist order. On April 25, 2008, the OTS accepted the stipulation and
consent and the cease and desist order became effective.
On April 30, 2008, Summit contacted GAFC to inquire whether GAFC would
consider an all-stock transaction, also at $4.00 per share of GAFC common stock,
rather than a cash and stock transaction. On May 1, 2008, GAFC informed Summit
that an all-stock transaction was acceptable, assuming that the remaining terms
and conditions, including the financial closing conditions imposed on GAFC as
required by Summit, could be negotiated to the satisfaction of both parties.
During the period from April 9, 2008, when GAFC announced that it had
entered into new merger negotiations with Summit, until June 9, 2008, neither
GAFC nor its investment adviser received an indication of interest to acquire
GAFC from a third party.
On June 9, 2008, a meeting of the Board of Directors of GAFC was held to
consider and discuss the terms of the definitive merger agreement. Following
discussion regarding the transactions, the directors unanimously approved the
merger agreement.
On September 5, 2008, GAFC stockholders approved the merger of GAFC with
and into Summit.
On December 16, 2008, GAFC announced that it and Summit had mutually agreed
to terminate the merger agreement. The primary reason for the parties' mutual
agreement to terminate the merger agreement was the extremely volatile and
adverse market and financial conditions that prevailed in the fourth quarter of
2008.
On January 12, 2009, Sandler O'Neill identified 52 parties Sandler O'Neill
believed might have an interest in exploring a potential business combination
with GAFC. During February, April, and May 2009, five indications of interest
were received. Three were for a whole-bank transaction, one was for a branch
acquisition and one was for a purchase and assumption transaction.
On February 6, 2009, Party "G" submitted an indication of interest for an
all-cash transaction, pursuant to which it would infuse capital into the Bank
and pay GAFC shareholders $0.25 per share and GAFC convertible trust preferred
17
holders $0.25 per share on a converted basis. Party "G" would require 100%
participation from the GAFC convertible trust preferred holders as a condition
to completing the transaction.
On February 10, 2009, Greater Atlantic Bank received written notification
from the OTS that the Bank was "undercapitalized" and subject to restrictions on
asset growth, dividends, other capital distributions and management fees. The
notification also required the Bank to file with the OTS a written capital
restoration plan no later than March 16, 2009. The Cease and Desist Order that
Greater Atlantic Bank entered into on April 25, 2008 continued in effect.
In April 2009, Party "H" performed due diligence with respect to GAFC, but
did not submit a bid for the company.
During April 2009, Party "G" terminated discussions with GAFC.
On April 30, 2009, Comstock Partners, LC executed a non-disclosure
agreement with GAFC and had preliminary discussions regarding GAFC with Sandler
O'Neill.
In May 2009, Party "I" performed due diligence with respect to GAFC and
submitted a bid which would require 100% participation from the GAFC convertible
trust preferred holders as a condition to completing the transaction. In
addition, it would require a waiver of the affiliated transactions regulations
of the Federal Reserve and was financially inferior to the bid received from
Comstock Partners, LC.
On May 12, 2009, Comstock Partners, LC submitted an indication of interest
for an all-cash transaction, where it would infuse capital into the Bank and pay
GAFC shareholders and convertible trust preferred holders a total of $993,000.
Comstock Partners, LC required that no less than 85% of the GAFC convertible
trust preferred holders tender their shares for cash as a condition to the
transaction.
On May 15, 2009, a conference call was held with GAFC, Comstock Partners,
LC, the OTS and Sandler O'Neill to discuss: (1) the proposed transaction; (2)
Comstock Partners, LC's business plan; and (3) the current capital position of
Comstock Partners, LC.
On May 18, 2009, Comstock Partners, LC began its on-site due diligence at
GAFC. During late May and early June 2009, legal counsel to GAFC negotiated the
terms of the merger agreement with Comstock Partners, LC.
Effective May 22, 2009, the Board of Directors of Greater Atlantic Bank
entered into (the Directive with the OTS as previously described.
By letter dated May 22, 2009, the OTS modified the Directive to extend the
five-day time frame to June 15, 2009, and the ten-day recapitalization deadline
to July 31, 2009. The Directive also authorized the OTS to undertake marketing
efforts to assist the Bank in its efforts to consummate a possible
recapitalization transaction.
On June 11, 2009, a meeting of the board of directors of GAFC was held to
consider and discuss the terms of the merger agreement with MidAtlantic, the
entity formed by Comstock Partners, LC. Representatives of Sandler O'Neill and
of GAFC's legal counsel were present at the meeting. Copies of the merger
agreement and ancillary documents were sent to each director before the meeting.
The representative of Sandler O'Neill made a presentation regarding the economic
terms of the proposed merger to the shareholders of GAFC. The board of directors
considered carefully the presentation of Sandler O'Neill as well as Sandler
O'Neill's experience, qualifications and interest in the proposed transaction.
Representatives of GAFC's legal counsel reviewed in detail the terms of the
merger agreement and the ancillary documents and reviewed with the board of
directors its fiduciary duties in the context of the proposed transaction.
Following those presentations, and extensive discussion regarding the proposed
merger, the directors identified certain issues in the merger agreement that
were unacceptable and instructed GAFC's legal counsel to further negotiate such
issues with legal counsel to MidAtlantic.
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On June 12, 2009, legal counsel to GAFC reached agreement on the resolution
of such issues with legal counsel to MidAtlantic. That same day, a telephonic
meeting of the board of directors of GAFC was held to consider and discuss the
proposed resolution of the remaining issues. Representatives of Sandler O'Neill
and of GAFC's legal counsel participated in the meeting by telephone. Following
a presentation by legal counsel of the proposed resolution of the remaining
issues, and after a full discussion, the directors determined unanimously that
the merger agreement and the transactions contemplated thereby were advisable
and in the best interests of GAFC and its stockholders and authorized Mr. Amos
to execute and deliver the merger agreement and to take all actions appropriate
to effect the transaction contemplated by the merger agreement.
On June 17, 2009, GAFC and MidAtlantic issued a joint press release
announcing the execution of the merger agreement.
GAFC's Reasons for the Merger and Recommendation of the Board of Directors
The GAFC Board of Directors reviewed and discussed the proposed merger with
management and its financial and legal advisors in determining that the proposed
merger is in the best interests of GAFC and its stockholders. In reaching its
conclusion to approve the merger agreement, the Board of Directors considered a
number of factors, including:
o its understanding of the business, operations, financial condition,
earnings and future prospects of GAFC and Greater Atlantic Bank;
o the status of Greater Atlantic Bank with respect to the timeframes set
forth in the prompt corrective action directive issued to Greater
Atlantic Bank by the OTS, including, specifically, the requirement that
Greater Atlantic Bank enter into a merger agreement with a merger or
acquisition partner by June 15, 2009;
o the likelihood that, absent entering into the merger agreement, Greater
Atlantic Bank would be placed into receivership by the Federal Deposit
Insurance Corporation, which would result in the stockholders receiving
no value for their shares;
o the merger price to be paid to GAFC stockholders in relation to the
market value, book value and earnings per share of GAFC common stock;
o the contacts and discussions between GAFC and numerous potential
investors and potential acquirers during the months preceding the
execution of the merger agreement, and the Board of Directors' belief
that a transaction with MidAtlantic offered the best transaction
available to GAFC and its stockholders;
o the review by the GAFC Board of Directors with its legal and financial
advisors of the structure of the merger and the financial and other
terms of the merger agreement; and
o the impact of the merger on the depositors, employees, customers and
communities served by GAFC and Greater Atlantic Bank.
The GAFC Board of Directors also considered potential risks associated with
the merger in connection with its deliberations of the proposed transaction,
including:
o the risk that the terms of the merger agreement, including provisions
relating to the payment of a termination fee under specified
circumstances, although required by MidAtlantic as a condition to its
willingness to enter into a merger agreement, could have the effect of
discouraging other parties that might be interested in a transaction
with GAFC from proposing such a transaction;
19
o the risk that MidAtlantic might not be approved by the OTS as a savings
and loan holding company for Greater Atlantic Bank; and
o the risk that GAFC will not receive the tender or surrender of 816,827
shares of convertible trust preferred securities, a condition to the
completion of the merger.
The Board of Directors evaluated the factors described above, including
asking questions of management and its legal and financial advisors, and reached
the unanimous consensus that the merger was in the best interests of GAFC and
its stockholders. In considering the factors described above, individual members
of the Board of Directors may have given different weights to different factors.
The Board of Directors considered these factors as a whole, and overall
considered them to be favorable to, and in support of, its determination.
The Board of Directors determined that the merger, the merger agreement and
the transactions contemplated thereby are advisable and in the best interests of
GAFC and its stockholders. Accordingly, the Board of Directors unanimously
approved and adopted the merger agreement and unanimously recommends that GAFC
stockholders vote "FOR" approval of the merger agreement.
The foregoing discussion of the information and factors considered by the
Board of Directors is not intended to be exhaustive, but constitutes the
material factors considered by the Board. In reaching its determination to
approve and recommend the merger agreement, the Board did not assign any
relative or specific weights to the foregoing factors, and individual directors
may have weighed factors differently. The terms of the merger agreement were the
product of arm's length negotiations between representatives of GAFC and
MidAtlantic.
Interests of Directors and Officers in the Merger that are Different From Your
Interests
Some members of GAFC's management and Board of Directors may have interests
in the merger that are in addition to or different from the interests of GAFC
stockholders. The GAFC Board of Directors was aware of these interests and
considered them in approving the merger agreement. Included below is a summary
of some of the agreements under which officers or directors participate and
under which benefits will be paid in accordance with the merger agreement.
Appointment of Carroll E. Amos as President and Chief Executive Officer of
Greater Atlantic Bank Following Completion of the Merger. Upon the consummation
of the merger, Carroll E. Amos, the President and Chief Executive Officer and
director of Greater Atlantic Bank and GAFC, is expected to be appointed as
President and Chief Executive Officer of Greater Atlantic Bank. Mr. Amos'
compensation as President and Chief Executive Officer of Greater Atlantic Bank
following the merger has not yet been determined.
Directors' and Officers' Liability Policy for Directors and Officers of
GAFC. The merger agreement provides that MidAtlantic will use its reasonable
best efforts to obtain coverage under its director's and officer's liability
policy for a period of three years for claims made against the directors and
officers of GAFC and its subsidiaries related to matters existing prior to the
time of consummation of the merger, provided that the premium cost of such
coverage, if obtainable, shall not exceed $100,000, and provided, further, that
if the amount of the premiums for such coverage exceeds $100,000, MidAtlantic
will use its reasonable best efforts to obtain such coverage as may be available
for such amount.
Approvals Needed to Complete the Merger
Consummation of the merger is subject to the prior approval by the OTS of
MidAtlantic's application to acquire control of GAFC and to become a savings and
loan holding company. MidAtlantic is in the process of preparing and filing the
required applications and notifications with the OTS. In addition, MidAtlantic's
obligation to consummate the merger is subject to the OTS having terminated the
Order and the Directive or modified or replaced the Order and the Directive with
commitments that are satisfactory to MidAtlantic and Greater Atlantic Bank's
"troubled" bank designation is terminated.
20
The OTS may not approve any transaction that would result in a monopoly or
otherwise substantially lessen competition or restrain trade, unless it finds
that the anti-competitive effects of the transaction are clearly outweighed by
the public interest. Federal law requires the OTS to request from the U.S.
Department of Justice a report on the competitive factors involved in the merger
and consider any report made within 30 days. In addition, the OTS considers the
financial and managerial resources and future prospects of the company and
savings association involved, the effect of the transaction on the savings
association, the insurance risk to the federal deposit insurance fund and the
effectiveness of the parties' compliance with federal anti-money laundering
laws. Consideration of the managerial resources includes consideration of the
competence, experience, and integrity of the officers, directors and principal
stockholders of the company or savings association. Under the Community
Reinvestment Act, the OTS must take into account the record of performance of
each company in meeting the credit needs of its entire communities, including
low and moderate income neighborhoods, served by each company. MidAtlantic is
not currently subject to the Community Reinvestment Act. Greater Atlantic Bank
has a "satisfactory" Community Reinvestment Act rating. Except where the OTS
waives the requirement based on supervisory considerations, federal law requires
publication of notice of, and the opportunity for public comment on, an
application to become a savings and loan holding company, such as MidAtlantic's,
and authorizes the OTS to hold a public hearing in connection with such an
application if it determines that such a hearing would be appropriate. However,
any such hearing or comments provided by third parties could prolong the period
during which the application is subject to review.
Financing the Merger
The total amount of funds required to consummate the merger is estimated to
be approximately $16.0 million. The funds MidAtlantic will use to satisfy its
obligations will be obtained from private investors.
Accounting Treatment of the Merger
The merger will be accounted for under the purchase method of accounting.
Under this method of accounting, MidAtlantic and GAFC will be treated as one
company as of the date of the merger, and MidAtlantic will record the fair value
of GAFC's assets (including intangible assets which arise from either
contractual or other legal rights or are separable) and liabilities on its
consolidated financial statements. Acquisition costs in excess of the fair value
of the net assets acquired will be recorded as goodwill. Goodwill will not be
amortized for financial accounting purposes, but instead will be tested for
impairment annually. GAFC's results of operations will be included in
MidAtlantic's consolidated income statement after completion of the merger.
Dissenters' Appraisal Rights
Under Delaware law, if you both properly make a demand for appraisal in
writing prior to the vote taken at the special meeting and you do not vote in
favor of the merger, you have the right to seek an appraisal of the fair value
of your GAFC common stock and receive a cash payment of such fair value. GAFC
stockholders electing to exercise dissenters' appraisal rights must comply with
the provisions of Section 262 of the Delaware General Corporation Law in order
to perfect their rights. GAFC will require strict compliance with the statutory
procedures. A copy of Section 262 of the Delaware General Corporation Law is
attached as Appendix B.
The following is intended as a brief summary of the material provisions of
the Delaware statutory procedures required to be followed by a stockholder in
order to dissent from the merger and perfect the stockholder's appraisal rights.
This summary, however, is not a complete statement of all applicable
requirements and is qualified in its entirety by reference to Section 262 of the
Delaware General Corporation Law, the full text of which appears in Appendix B
of this proxy statement.
Section 262 requires that stockholders be notified not less than 20 days
before the special meeting to vote on the merger that appraisal rights will be
available. A copy of Section 262 must be included with such notice. This proxy
statement constitutes GAFC's notice to its stockholders of the availability of
appraisal rights in connection with the merger in compliance with the
requirements of Section 262. If you wish to consider exercising your appraisal
rights you should carefully review the text of Section 262 contained in Appendix
C because failure to timely and properly comply with the requirements of Section
262 will result in the loss of your appraisal rights under Delaware law.
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If you elect to exercise your appraisal rights and demand appraisal of your
shares, you must satisfy each of the following conditions:
o You must deliver to GAFC a written demand for appraisal of your shares
before the stockholder vote on the merger is taken. This written demand
for appraisal must be in addition to and separate from any abstention
from or vote against the merger, whether by proxy or in person. Voting
against or failing to vote for the merger by itself does not constitute
a demand for appraisal within the meaning of Section 262.
o You must not vote in favor of the merger. An abstention or failure to
vote will satisfy this requirement, but a vote in favor of the merger,
by proxy or in person, will constitute a waiver of your appraisal rights
in respect of the shares so voted and will nullify any previously filed
written demands for appraisal.
o You must continuously be the record holder of your shares from the date
of making the demand for appraisal through the effective time of the
merger.
o You must otherwise comply with the statutory requirements of Section
262.
If you fail to comply with any of these conditions and the merger is
completed, you will be entitled to receive payment for your shares of GAFC
common stock as provided for in the merger agreement, but you will have no
appraisal rights with respect to your shares of GAFC common stock.
All demands for appraisal should be addressed to the Corporate Secretary,
Greater Atlantic Financial Corp., 10700 Parkridge Boulevard, Suite P-50, Reston,
Virginia 20191, before the vote on the merger is taken at the special meeting.
Any demand should be executed by or on behalf of the record holder of the shares
of GAFC common stock. The demand must reasonably inform GAFC of the identity of
the stockholder and the intention of the stockholder to demand appraisal of his
or her shares.
To be effective, a demand for appraisal by a holder of GAFC common stock
must be made by or in the name of such registered stockholder. A demand cannot
be made by the beneficial owner if he or she does not also hold the shares of
record. The beneficial holder must, in such cases, have the registered owner
submit the required demand in respect of such shares. If you hold your shares of
GAFC common stock in a brokerage account or in other nominee form and you wish
to exercise appraisal rights, you should consult with your broker or other
nominee to determine the appropriate procedures for the making of a demand for
appraisal by such nominee.
If shares are owned of record by a fiduciary, such as a trustee, guardian
or custodian, execution of a demand for appraisal should be made by the record
owner in its fiduciary capacity. If the shares are owned of record by more than
one person, as in a joint tenancy or tenancy in common, the demand should be
executed by or for all joint owners. An authorized agent, including one for two
or more joint owners, may execute the demand for appraisal for a stockholder of
record; however, the agent must identify the record owner or owners and
expressly disclose the fact that, in executing the demand, he or she is acting
as agent for the record owner. A record owner, such as a broker, who holds
shares as a nominee for others may exercise his or her right of appraisal with
respect to the shares held for one or more beneficial owners, while not
exercising this right for other beneficial owners. In such case, the written
demand should state the number of shares as to which appraisal is sought. Where
no number of shares is expressly mentioned, the demand will be presumed to cover
all shares held in the name of such record owner.
Within 10 days after the effective date of the merger, MidAtlantic must
give written notice to each GAFC stockholder who has properly filed a written
demand for appraisal and who did not vote in favor of the merger that the merger
has become effective. Within 120 days after the effective date, either
MidAtlantic or any stockholder who has complied with the requirements of Section
262 and is otherwise entitled to appraisal rights may file a petition in the
Delaware Court of Chancery ("Chancery Court") demanding a determination of the
fair value of the shares held by all stockholders entitled to appraisal.
MidAtlantic does not presently intend to file this petition in the event there
are such stockholders and has no obligation to do so. Accordingly, the failure
of a stockholder to file a petition under Section 262 within the period
specified could nullify such stockholder's previously written demand for
appraisal.
Within 120 days after the effective date of the merger, any GAFC
stockholder who has complied with the requirements of Section 262 is entitled to
22
receive upon written request to MidAtlantic a written statement from MidAtlantic
that sets forth the aggregate number of shares not voted in favor of the merger
and for which demands for appraisal have been received and the aggregate number
of stockholders that made demands for appraisal. The MidAtlantic statement must
be mailed to the stockholder within 10 days after MidAtlantic received the
stockholders' written request or the expiration of the time period for delivery
of demands for appraisals, whichever is later.
At any time within 60 days after the effective date, any stockholder who
has demanded an appraisal has the right to withdraw the demand and to accept the
payment specified by the merger agreement for his or her shares of GAFC common
stock. If a petition for appraisal is duly filed by a stockholder and a copy of
the petition is delivered to MidAtlantic, MidAtlantic will then be obligated
within 20 days after receiving service of a copy of the petition to provide the
Chancery Court with a duly verified list containing the names and addresses of
all stockholders who have demanded an appraisal of their shares and with whom
agreements as to the value of their shares have not been reached. After notice
to the stockholders named on such list, the Chancery Court is empowered to
conduct a hearing upon the petition, to determine those stockholders who have
complied with Section 262 and who have become entitled to appraisal rights. The
Chancery Court may require the stockholders who have demanded payment for their
shares to submit their stock certificates to the Register in Chancery for
notation on the stock certificates of the pendency of the appraisal proceedings;
and if any stockholder fails to comply with such direction, the Chancery Court
may dismiss the proceedings as to such stockholder.
After determination of the stockholders entitled to appraisal of their
shares of GAFC common stock, the Chancery Court will appraise the shares,
determining their fair value exclusive of any element of value arising from the
accomplishment or expectation of the merger, together with a fair rate of
interest. When the fair value is determined, the Chancery Court will direct the
payment of such value, with interest thereon accrued during the pendency of the
proceeding if the Chancery Court so determines, to the stockholders entitled to
receive payment, upon surrender by such holders of the certificates representing
the shares entitled to appraisal.
In determining fair value, the Chancery Court is required to take into
account all relevant factors. You should be aware that the fair value of your
shares as determined under Section 262 could be more, the same, or less than the
value that you are entitled to receive pursuant to the merger agreement.
Costs of the appraisal proceeding may be imposed upon MidAtlantic and the
stockholders participating in the appraisal proceeding by the Chancery Court as
the Chancery Court deems equitable in the circumstances. Upon the application of
a stockholder, the Chancery Court may order all or a portion of the expenses
incurred by any stockholder in connection with the appraisal proceeding,
including, without limitation, reasonable attorneys' fees and the fees and
expenses of experts, to be charged pro rata against the value of all shares
entitled to appraisal. Any stockholder who had demanded appraisal rights will
not, after the effective date of the merger, be entitled to vote shares subject
to such demand for any purpose or to receive payments of dividends or any other
distribution with respect to such shares (other than with respect to payment as
of a record date prior to the effective date of the merger); however, if no
petition for appraisal is filed within 120 days after the effective date, or if
the stockholder delivers a written withdrawal of his or her demand for appraisal
and an acceptance of the merger within 60 days after the effective date of the
merger, then the right of the stockholder to appraisal will cease and the
stockholder will be entitled to receive the cash payment for shares of his or
her GAFC common stock pursuant to the merger agreement. Any withdrawal of a
demand for appraisal made more than 60 days after the effective date of the
merger may only be made with the written approval of the surviving corporation
and must, to be effective, be made within 120 days after the effective date of
the merger.
In view of the complexity of Section 262, GAFC stockholders who may wish to
dissent from the merger and pursue appraisal rights should consult their legal
advisors.
The Merger Agreement
The following discussion of the merger is qualified by reference to the
merger agreement, which is attached to this proxy statement as Appendix A. You
should read the entire merger agreement carefully. It is the legal document that
governs the merger.
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When Will the Merger be Completed
The closing of the merger will take place on a date designated by
MidAtlantic and agreed to by GAFC following satisfaction or waiver of all of the
conditions to the merger contained in the merger agreement. See "--Conditions to
Completing the Merger." On the closing date, MidAtlantic will file a certificate
of merger with the Secretary of State of the State of Delaware. The merger will
become effective at the time stated in the certificate of merger.
GAFC and MidAtlantic expect to complete the merger in the third calendar
quarter of 2009. However, neither GAFC nor MidAtlantic can guarantee when or if
the required regulatory approvals will be obtained. See "The Merger--Approvals
Needed to Complete the Merger." Furthermore, either GAFC or MidAtlantic may
terminate the merger agreement if, among other reasons, the merger has not been
completed on or before September 30, 2009, unless failure to complete the merger
by that time is due to the failure of the party seeking to terminate the
agreement to perform its obligations set forth in the merger agreement. See
"--Other Provisions of the Merger Agreement--Terminating the Merger Agreement."
Conditions to Completing the Merger
The respective obligations of GAFC and MidAtlantic to effect the merger are
subject to the satisfaction or waiver of the following conditions specified in
the merger agreement:
o the merger agreement shall have been approved by the requisite vote of
GAFC's stockholders;
o all approvals, consents or waivers of any governmental entity required
to permit consummation of the merger shall have been obtained and shall
remain in full force and effect; provided, however, that none of such
approvals, consents or waivers shall contain any requirement that would
so materially and adversely impact the economic or business benefits
to MidAtlantic of the merger that, had such condition or requirement
been known, MidAtlantic would not, in its reasonable judgment, have
entered into the merger agreement;
o no party to the merger agreement shall be subject to any order of a
court or agency that o prohibits the consummation of the merger and no
governmental entity shall have instituted any proceeding to prohibit the
consummation of the merger; and
o GAFC and MidAtlantic shall have obtained the consent of each person
(other than the required governmental approvals) whose consent shall be
required to consummate the merger, except those for which failure to
obtain such consents would not, individually or in the aggregate, have a
"material adverse effect" on MidAtlantic.
The obligation of MidAtlantic to complete the merger is also conditioned on the
following:
o each of the representations and warranties of GAFC contained in the
merger agreement shall be true and correct in all material respects at
and as of the closing date of the merger;
o GAFC shall have performed in all material respects all obligations
required to be performed by it under the merger agreement;
o MidAtlantic shall have received a certificate signed by the chief
executive officer and the chief financial officer of GAFC to the effect
that certain conditions have been satisfied;
o since the date of the merger agreement, there shall not have occurred
any "material adverse effect" with respect to GAFC;
o the aggregate number of shares of GAFC common stock for which
stockholders have exercised dissenters' rights shall not exceed 10% of
the outstanding shares of GAFC common stock;
o GAFC shall have received the irrevocable tender or surrender of at least
816,827 of the convertible trust preferred securities outstanding under
the Great Atlantic Capital Trust I;
o the OTS shall have agreed that, upon consummation of the merger, (i) the
Order issued to Greater Atlantic Bank and the Directive are terminated
or modified or replaced with commitments that are o satisfactory to
MidAtlantic, in its sole discretion; and (ii) Greater Atlantic Bank's
"troubled" bank designation is terminated; and
o GAFC shall have (i) terminated certain severance plans, (ii) terminated
the employment agreement dated November 1, 1997 with Carroll E. Amos,
24
and (iii) terminated the GAFC stock option plans and obtained the
cancellation of all stock options outstanding thereunder or a number of
stock options satisfactory to MidAtlantic in its sole discretion.
The obligation of GAFC to complete the merger is also conditioned on the
following:
o each of the representations and warranties of MidAtlantic contained in
the merger agreement shall be true and correct in all material respects
at and as of the closing date of the merger;
o MidAtlantic shall have performed in all material respects all
obligations required to be performed by it under the merger agreement;
and
o GAFC shall have received a certificate signed by the chief executive
officer and the chief financial officer of MidAtlantic to the effect
that certain conditions have been satisfied.
Under the merger agreement, a "material adverse effect" means an effect
which is material and adverse to the business, financial condition or results of
operations of GAFC or MidAtlantic, as the context may dictate, and its
subsidiaries taken as a whole; provided, however, that any such effect resulting
from any (i) changes in laws, rules or regulations or generally accepted
accounting principles or regulatory accounting requirements or interpretations
thereof that apply to MidAtlantic or GAFC, or to financial and/or depository
institutions generally, (ii) changes in economic conditions affecting financial
institutions generally, including but not limited to, changes in the general
level of market interest rates, (iii) actions and omissions of MidAtlantic or
GAFC taken with the prior written consent of the other or (iv) direct effects of
compliance with the merger agreement on the operating performance of the
parties, including expenses incurred by the parties in consummating the
transactions contemplated by the merger agreement, shall not be considered in
determining if a material adverse effect has occurred.
You can find the details of the conditions to the merger in Article VI of
the merger agreement located in Appendix A. Neither party to the merger
agreement can guarantee that all of these conditions will be satisfied or
waived.
Other Provisions of the Merger Agreement
Although the completion of the merger requires stockholder approval, many
provisions of the merger agreement became effective immediately upon its
signing. Your vote was not required to make these provisions binding obligations
of MidAtlantic and GAFC.
Representations and Warranties. MidAtlantic and GAFC have made certain
customary representations and warranties to each other in the merger agreement
relating to each party's business. A party can terminate the merger agreement if
the other party's representations and warranties are not true and correct in all
material respects. If the merger is completed, or if the merger agreement is
terminated for some unrelated reason, the representations and warranties become
void. You can find details of these obligations in Article III of the merger
agreement attached as Appendix A.
Cooperation and Conduct of Business. Each party has agreed to cooperate in
completing the merger and GAFC has agreed to operate its business in the
ordinary course and avoid extraordinary transactions between the signing of the
merger agreement and the completion of the merger. You can find details of these
obligations in Article IV of the merger agreement attached as Appendix A.
Agreement Not to Solicit Other Proposals. The merger agreement provides
that GAFC shall not, and shall not permit any of its officers, directors or
employees or any investment banker or other representative to, directly or
indirectly, (i) solicit, initiate or encourage, or take any other action to
facilitate, the making of any proposal that constitutes or could reasonably be
expected to lead to a competing acquisition proposal, (ii) participate in any
discussions or negotiations regarding a competing acquisition proposal or (iii)
enter into any agreement requiring it to terminate the merger transaction. The
merger agreement further provides that GAFC will immediately cease any existing
discussions or negotiations with any parties conducted prior to the date of the
merger agreement with respect to any of the foregoing.
Employee Matters. The merger agreement provides that all persons who are
employees of Greater Atlantic Bank immediately prior to the consummation of the
merger (a "Continuing Employee") shall, at the time of consummation of the
25
merger, continue as employees of Greater Atlantic Bank. All of the Continuing
Employees shall be employed at the will of Greater Atlantic Bank and no
contractual right to employment shall inure to such employees because of the
merger agreement.
Director and Officer Liability Coverage. The merger agreement provides that
MidAtlantic will use its reasonable best efforts to obtain coverage under its
director's and officer's liability policy for a period of three years for claims
made against the directors and officers of GAFC and its subsidiaries related to
matters existing prior to the time of consummation of the merger, provided that
the premium cost of such coverage, if obtainable, shall not exceed $100,000, and
provided, further, that if the amount of the premiums for such coverage exceeds
$100,000, MidAtlantic will use its reasonable best efforts to obtain such
coverage as may be available for such amount.
Greater Atlantic Capital Trust I. The merger agreement provides that GAFC
shall immediately take steps to commence a tender offer for all of the
convertible trust preferred securities issued under Greater Atlantic Capital
Trust I held by stockholders other than GAFC. GAFC has agreed that consummation
of the tender offer shall be conditioned on the receipt of (i) irrevocable
tenders for or surrender of at least 816,627 of the convertible trust preferred
securities outstanding as of the date of the merger agreement and (ii) all
regulatory approvals required to permit the consummation of the merger and the
approval of the merger agreement by the GAFC stockholders. GAFC further agreed
that the aggregate consideration to be paid for securities tendered in such
offer (assuming 100 percent of such securities are tendered or surrendered)
shall be $688,558 (which amount shall be prorated based on the actual number of
securities tendered or surrendered), provided, however, that the allocation of
the aggregate consideration among the holders of tendered or surrendered
securities may be determined by GAFC in accordance with the terms of the tender
offer and applicable law.
Reston Lease. The merger agreement provides that GAFC shall use its
reasonable best efforts to obtain such modifications to the terms of Greater
Atlantic Bank's Reston, Virginia lease as may be requested by MidAtlantic GAFC
shall act in consultation with MidAtlantic with respect to such lease
modifications and, if requested, shall allow representatives of MidAtlantic to
participate in or otherwise hold direct discussions with the landlord.
Terminating the Merger Agreement. The merger agreement may be terminated,
and the merger abandoned, at any time prior to consummation, by action taken or
authorized by the board of directors of the terminating party, either before or
after stockholder approval at the special meeting:
o by the mutual written consent of MidAtlantic and GAFC;
o by either MidAtlantic or GAFC, in the event of the failure of GAFC's
stockholders to approve the merger agreement at the special meeting;
provided, however, that GAFC shall only be entitled to terminate the
merger agreement pursuant to this clause if it has used all reasonable
best efforts to obtain stockholder approval of the merger agreement at
the special meeting and if it has not withdrawn its recommendation that
stockholders vote to approve the merger agreement;
o by either MidAtlantic or GAFC, if either (i) any approval of a
governmental entity required to o permit consummation of the merger
shall have been denied or (ii) any governmental entity shall have issued
a final order prohibiting consummation of the merger; or
o by either MidAtlantic or GAFC, in the event that the merger is not
consummated by September 30, 2009, unless the failure to so consummate
by such time is due to the failure of the party seeking o to terminate
the merger agreement to perform or observe its covenants and agreements
under the merger agreement; or
o by either MidAtlantic or GAFC (provided that the party seeking
termination is not then in material breach of any representation,
warranty or covenant contained in the merger agreement) in the event of
a breach of any covenant or agreement by the other party, or if any
representation o or warranty of the other party shall not be true in all
material respects, and such breach or untrue representation or warranty
has not been or cannot be cured within thirty (30) days following
written notice to the party committing such breach or making such untrue
representation or warranty; or
o by MidAtlantic, (i) if GAFC shall have materially breached its
obligations under the merger agreement related to competing acquisition
proposals or related to convening the special meeting and recommending
26
stockholder approval of the merger agreement; or (ii) if the Board of
Directors of GAFC does not publicly recommend in this proxy statement
that stockholders approve and adopt the merger agreement or if, after
recommending in this proxy statement that stockholders approve and adopt
the merger agreement, the Board of Directors of GAFC withdraws,
qualifies or revises such recommendation or takes any action in any
respect materially adverse to MidAtlantic; or;
o by MidAtlantic, if there is imposed on MidAtlantic by any governmental
entity a condition to the o consummation of the merger requiring
MidAtlantic to increase the capital of Greater Atlantic Bank by an
amount greater than $15,000,000.
Termination Fee. In the event of termination of the merger agreement by
MidAtlantic because of a material breach by GAFC of its obligations relating to
a competing superior proposal or relating to convening the special meeting and
recommending stockholder approval of the merger agreement, GAFC shall pay
MidAtlantic a termination fee of $50,000.
In the event of a termination of the merger agreement by either party due
to the failure of stockholders to approve the merger agreement at the special
meeting or by MidAtlantic pursuant to Section 7.1(e) of the merger agreement if
the breach giving rise to such termination was knowing or intentional, or
pursuant to Section 7.1(f) of the merger agreement, then so long as (i) at the
time of such termination MidAtlantic is not in material breach of any
representation, warranty or material covenant in the merger agreement, (ii)
prior to the special meeting (in the case of termination pursuant to Section
7.1(b)) of the merger agreement or the date of termination (in the case of
termination pursuant to Sections 7.1(e) or (f)) of the merger agreement, a
competing acquisition proposal has been publicly announced, and (iii) within 12
months of such termination GAFC shall enter into any agreement with respect to a
competing acquisition proposal, GAFC shall pay MidAtlantic a termination fee
equal to the lesser of (i) $250,000 or (ii) $50,000 plus 25 percent of the
amount by which the total consideration payable to the GAFC stockholders and the
holders of Greater Atlantic Capital Trust I trust preferred securities (by way
of a tender offer or otherwise) in connection with such competing acquisition
proposal exceeds $990,980.
Expenses. Except as described above, all costs and expenses in connection
with the merger will be paid by the party incurring the expense.
PROPOSAL 2: ADJOURNMENT OF THE SPECIAL MEETING
If there are not sufficient votes to constitute a quorum or to approve the
merger agreement at the time of the special meeting, the merger agreement cannot
be approved unless the special meeting is adjourned to a later date or dates to
permit further solicitation of proxies. To allow proxies that have been received
by GAFC at the time of the special meeting to be voted for an adjournment, if
deemed necessary, GAFC has submitted the question of adjournment to its
stockholders as a separate matter for their consideration. The board of
directors of GAFC unanimously recommends that stockholders vote "FOR" the
adjournment proposal. If it is deemed necessary to adjourn the special meeting,
no notice of the adjourned meeting is required to be given to stockholders,
other than an announcement at the meeting of the place, date and time to which
the meeting is adjourned.
27
Stock Ownership
The following table provides information as of July 6, 2009 about the
persons, other than directors and executive officers, known to GAFC to be the
beneficial owners of more than 5% of GAFC's outstanding common stock. A person
may be considered to beneficially own any shares of common stock over which he
or she has, directly or indirectly, sole or shared voting or investing power.
Name and Address of Beneficial Amount and Nature of
Title of Class Owner Beneficial Ownership Percent of Class
- ---------------------- --------------------------------- -------------------------- ---------------------
Common Stock Charles W. Calomiris
251 Fox Meadow Road 176,807 shares(1)(2) 5.85%
Scarsdale, New York 10583
Common Stock Robert I. Schattner, DDS
121 Congressional Lane 432,328 shares(1)(3) 14.31%
Rockville, MD 20852
Common Stock The Ochsman Children Trust
1650 Tysons Boulevard 238,597 shares(1)(4) 7.90%
McLean, VA 22102
Common Stock George W. Calomiris
4848 Upton Street, N.W. 190,548 shares(5) 6.41%
Washington, DC 20016
Common Stock Jenifer Calomiris
4919 Upton Street, N.W. 181,271 shares(6) 6.12%
Washington, D.C. 20016
Common Stock Katherine Calomiris Tompros
5100 Van Ness Street, N.W. 181,471 shares(7) 6.13%
Washington, D.C. 20016
- -------------------------
(1) Does not include shares of preferred securities presently convertible into
114,841, 330,099 and 124,521 shares of common stock held, respectively, by
Charles W. Calomiris Dr. Schattner and the Ochsman Children Trust.
(2) The information furnished is derived from a Schedule 13D filed by Charles
W. Calomiris on July 25, 2003, and a Form 4 filed on July 24, 2003.
(3) The information furnished is derived from a Schedule 13D and a Form 4
filed by Robert I. Schattner filed on September 6, 2005.
(4) The information furnished is derived from a Schedule 13D filed by The Ochsman
Children Trust on April 9, 2002.
(5) Includes shares of preferred securities presently convertible into 85,754
shares of common stock held by George W. Calomiris. The information furnished
is derived from a Schedule 13D filed by George Calomiris on December 7, 2004.
(6) Includes shares of preferred securities presently convertible into 79,747
shares of common stock held by Jenifer Calomiris. The information furnished
is derived from a Schedule 13D filed by Jenifer Calomiris on March 21, 2003.
(7) Includes shares of preferred securities presently convertible into 79,747
shares of common stock held by Katherine Calomiris Tompros. The
information furnished is derived from a Schedule 13D filed by Katherine
Calomiris Tompros on March 21, 2003.
The following table provides information as of July 6, 2009 about the
shares of GAFC common stock that may be considered to be beneficially owned by
each director, executive officer, and all directors and executive officers of
GAFC as a group. A person may be considered to beneficially own any shares of
common stock over which he or she has, directly or indirectly, sole or shared
voting or investment power. Unless otherwise indicated, each of the named
individuals has sole voting power and sole investment power with respect to the
number of shares shown.
28
Shares of Common
` Stock Beneficially Ownership as a
Name Owned(1) Percent of Class
--------------------------------------------- ---------------------------- ---------------------
Directors:
Sidney M. Bresler, Director 500 *
Charles W. Calomiris, Chairman of the Board 176,807(2)(3) 5.85%
Jeffrey W. Ochsman, Director 500 *
Carroll E. Amos, President and Chief 44,060(4)(2) 1.46%
Executive Officer and Director
James B. Vito, Director 79,042(2) 2.62%
Shares of
Common Stock
Executive Officers Beneficially Ownership as a
Who Are Not Directors: Owned(1) Percent of Class
- --------------------------------------------------- -------------------- ----------------------
David E. Ritter, Senior Vice President and
Chief Financial Officer 300(4) *
Edward C. Allen, Chief Operating Officer and
Corporate Secretary 550(4) *
All directors and executive officers as a group 301,759 9.98%
(seven persons)
- -------------------------------------
(1) Each person effectively exercises sole voting or dispositive power as to
shares reported.
(2) Does not include shares of preferred securities presently convertible into
114,841, 34,970, and 6,431 shares of common stock held, respectively, by
Messrs. Calomiris, Vito and Amos.
(3) Includes 128,727 shares held directly, 10,000 shares held by his spouse and
38,080 shares held as custodian for minor children.
(4) Does not include presently exercisable options to purchase 75,000 shares
granted to Mr. Amos or 18,000 granted to Mr. Ritter and Mr. Allen under
the Greater Atlantic Financial Corp. 1997 Stock Option and Warrant Plan.
* Does not exceed 1.0% of the GAFC's common stock.
29
Where You Can Find More Information
As a public company, GAFC is obligated to file annual, quarterly and
current reports, proxy statements and other information with the Securities and
Exchange Commission. You may read and copy any reports, statements or other
information that we file at the Securities and Exchange Commission's public
reference rooms in Washington, D.C. Please call the Securities and Exchange
Commission at 1-800-SEC-0330 for further information on the public reference
rooms. In addition, GAFC's public filings are available to the public from
commercial document retrieval services and on the Internet World Wide Website
maintained by the SEC at "http://www.sec.gov."
BY ORDER OF THE BOARD OF DIRECTORS
---------------------------------------
Edward C. Allen
Corporate Secretary
Reston, Virginia
[Mail Date], 2009
Whether or not you plan to attend the special meeting, please vote by
marking, signing, dating and promptly returning the enclosed proxy card in the
enclosed envelope.
30
Appendix A
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF JUNE 15, 2009
BY AND AMONG
MIDATLANTIC BANCORP, INC.
GAF MERGER CORP.
AND
GREATER ATLANTIC FINANCIAL CORP.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
Page Nos.
Introductory Statement.........................................................1
Article I Definitions........................................................1
Article II The Merger.........................................................5
2.1 The Merger.........................................................5
2.2 Closing............................................................5
2.3 Effective Time.....................................................5
2.4 Effects of the Merger..............................................5
2.5 Effect on Outstanding Shares of GAFC Common Stock..................5
2.6 Payment Procedures.................................................6
2.7 Reserved...........................................................7
2.8 Directors of Surviving Corporation After Effective Time............7
2.9 Certificate of Incorporation and Bylaws............................7
2.10 Dissenters' Rights.................................................7
2.11 Alternative Structure..............................................8
2.12 Absence of Control.................................................8
2.13 Treatment of Stock Options.........................................8
Article III Representations and Warranties.....................................8
3.1 Disclosure Letters.................................................8
3.2 Representations and Warranties of GAFC.............................8
3.3 Representations and Warranties of Acquisition Corp................20
Article IV Conduct Pending the Merger........................................22
4.1 Forbearances by GAFC..............................................22
4.2 Forbearances by Acquisition Corp..................................24
Article V Covenants.........................................................24
5.1 Acquisition Proposals.............................................26
5.2 Advice of Changes.................................................25
5.3 Access and Information............................................25
5.4 Applications; Consents............................................26
5.5 Antitakeover Provisions...........................................26
5.6 Additional Agreements.............................................27
5.7 Publicity.........................................................27
5.8 Stockholder Meeting...............................................27
5.9 Proxy Statement...................................................27
5.10 Notification of Certain Matters...................................28
5.11 Employee Benefit Matters..........................................28
5.12 D&O Liability Coverage............................................28
5.13 Cooperation.......................................................28
5.14 Greater Atlantic Capital Trust I..................................28
5.15 Reston Branch Lease...............................................29
Article VI Conditions to Consummation........................................29
6.1 Conditions to Each Party's Obligations............................29
i
6.2 Conditions to the Obligations of Acquisition Corp.................29
6.3 Conditions to the Obligations of GAFC.............................30
Article VII Termination.......................................................31
7.1 Termination.......................................................31
7.2 Termination Fee...................................................31
7.3 Breach; Remedies..................................................32
Article VIII Certain Other Matters............................................32
8.1 Interpretation....................................................32
8.2 Survival..........................................................33
8.3 Waiver; Amendment.................................................33
8.4 Counterparts......................................................33
8.5 Governing Law.....................................................33
8.6 Expenses..........................................................33
8.7 Notices ..........................................................33
8.8 Entire Agreement; etc.............................................34
8.9 Successors and Assigns; Assignment................................34
Exhibits
A Form of Voting Agreement
ii
Agreement and Plan of Merger
This is an Agreement and Plan of Merger, dated as of the 15th day of June, 2009
("Agreement"), by and among MidAtlantic Bancorp, Inc., a Virginia corporation
("Acquisition Corp."), GAF Merger Corp., a Virginia corporation ("Acquisition
Sub") and Greater Atlantic Financial Corp., a Delaware corporation ("GAFC").
Introductory Statement
The Board of Directors of each of Acquisition Corp. and GAFC have determined
that this Agreement and the business combination and related transactions
contemplated hereby are advisable and in the best interests of Acquisition Corp.
or GAFC, as the case may be, and in the best long-term interests of the
stockholder of Acquisition Corp. or the stockholders of GAFC, as the case may
be.
Acquisition Corp. and GAFC each desire to make certain representations,
warranties and agreements in connection with the business combination and
related transactions provided for herein and to prescribe various conditions to
such transactions.
As a condition and inducement to Acquisition Corp.'s willingness to enter into
this Agreement, each of the members of the Board of Directors of GAFC have
entered into an agreement dated as of the date hereof in the form of Exhibit A
pursuant to which he (or she) will vote his (or her) shares of GAFC Common Stock
in favor of this Agreement and the transactions contemplated hereby.
Acquisition Corp. and Acquisition Sub have been formed solely for the purpose of
effectuating the transactions contemplated by this Agreement.
In consideration of their mutual promises and obligations hereunder, the parties
hereto adopt and make this Agreement and prescribe the terms and conditions
hereof and the manner and basis of carrying it into effect, which shall be as
follows:
Article I Definitions
For purposes of this Agreement:
Acquisition Proposal means any proposal or offer with respect to any of the
following (other than the transactions contemplated hereunder): (i) any merger,
consolidation, share exchange, business combination, or other similar
transaction involving GAFC or any of its Subsidiaries; (ii) any sale, lease,
exchange, mortgage, pledge, transfer or other disposition of 50% or more of
GAFC's consolidated assets in a single transaction or series of transactions;
(iii) any tender offer or exchange offer for 50% or more of the outstanding
shares of GAFC's capital stock or the filing of a registration statement under
the Securities Act of 1933, as amended, in connection therewith; or (iv) any
public announcement of a proposal, plan or intention to do any of the foregoing
or any agreement to engage in an any of the foregoing.
Acquisition Sub shall have the meaning given to that term in the preamble.
Acquisition Sub Common Stock means the common stock, par value $.01 per share of
Acquisition Sub.
Agreement means this Agreement, as amended, modified or amended and restated
from time to time in accordance with its terms.
A-1
Articles of Merger shall have the meaning given to that term in Section 2.3.
Certificate shall have the meaning given to that term in Section 2.6(b).
Closing shall have the meaning given to that term in Section 2.2.
Closing Date shall have the meaning given to that term in Section 2.2.
Confidentiality Agreement shall have the meaning given to that term in Section
5.1(a).
Continuing Employee shall have the meaning given to that term in Section
5.11(a).
CRA means the Community Reinvestment Act.
DGCL shall have the meaning given to that term in Section 2.1.
Disclosure Letter shall have the meaning given to that term in Section 3.1.
Dissenters' Shares shall have the meaning given to that term in Section 2.10.
Effective Time shall have the meaning given to that term in Section 2.3.
Environmental Consultant shall have the meaning given to that term in Section
5.13.
Environmental Law means any federal, state or local law, statute, ordinance,
rule, regulation, code, license, permit, authorization, approval, consent,
order, directive, executive or administrative order, judgment, decree,
injunction, or agreement with any Governmental Entity relating to (i) the
protection, preservation or restoration of the environment (which includes,
without limitation, air, water vapor, surface water, groundwater, drinking water
supply, soil, surface land, subsurface land, plant and animal life or any other
natural resource), or to human health or safety as it relates to Hazardous
Materials, or (ii) the exposure to, or the use, storage, recycling, treatment,
generation, transportation, processing, handling, labeling, production, release
or disposal of, Hazardous Materials, in each case as amended and as now in
effect. The term Environmental Law includes, without limitation, the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Superfund Amendments and Reauthorization Act of 1986, the Federal Water
Pollution Control Act of 1972, the Federal Clean Air Act, the Federal Clean
Water Act, the Federal Resource Conservation and Recovery Act of 1976, the
Federal Solid Waste Disposal and the Federal Toxic Substances Control Act, the
Federal Insecticide, Fungicide and Rodenticide Act, the Federal Occupational
Safety and Health Act of 1970 as it relates to Hazardous Materials, the Federal
Hazardous Substances Transportation Act, the Emergency Planning and Community
Right-To-Know Act, the Safe Drinking Water Act, the Endangered Species Act, the
National Environmental Policy Act, the Rivers and Harbors Appropriation Act or
any so-called "Superfund" or "Superlien" law, each as amended and as now in
effect.
ERISA means the Employee Retirement Income Security Act of 1974, as amended.
ERISA Affiliate means any entity that is considered one employer with GAFC under
Section 4001(b)(1) of ERISA or Section 414 of the IRC.
A-2
Excluded Shares shall consist of (i) Dissenters' Shares and (ii) shares held
directly or indirectly by Acquisition Corp. (other than shares held in a
fiduciary capacity or in satisfaction of a debt previously contracted).
FDIA means the Federal Deposit Insurance Act, as amended.
FDIC means the Federal Deposit Insurance Corporation.
GAAP means generally accepted accounting principles.
GAF Acquisition Corp. shall have the meaning given to that term in the preamble.
GAF Merger Sub shall have the meaning given to that term in the preamble.
GAFC shall have the meaning given to that term in the preamble.
GAFC Bank shall have the meaning given to that term in Section 3.2(b)(iv).
GAFC Common Stock means the common stock, par value $1.00 per share, of GAFC.
GAFC Employee Plans shall have the meaning given to that term in Section
3.2(r)(i).
GAFC Property shall have the meaning given to that term in Section 5.13.
GAFC Qualified Plan shall have the meaning given to that term in Section
3.2(r)(iv).
GAFC's Reports shall have the meaning given to that term in Section 3.2(g).
GAFC Stock Option Plans shall have the meaning given to that term in Section
2.13.
Government Regulator means any federal or state governmental authority charged
with the supervision or regulation of depository institutions or depository
institution holding companies or engaged in the insurance of bank deposits.
Governmental Entity means any court, administrative agency or commission or
other governmental authority or instrumentality.
Hazardous Material means any substance (whether solid, liquid or gas) which is
or could be detrimental to human health or safety or to the environment,
currently or hereafter listed, defined, designated or classified as hazardous,
toxic, radioactive or dangerous, or otherwise regulated, under any Environmental
Law, whether by type or by quantity, including any substance containing any such
substance as a component. Hazardous Material includes, without limitation, any
toxic waste, pollutant, contaminant, hazardous substance, toxic substance,
hazardous waste, special waste, industrial substance, oil or petroleum, or any
derivative or by-product thereof, radon, radioactive material, asbestos,
asbestos-containing material, urea formaldehyde foam insulation, lead and
polychlorinated biphenyl.
HOLA means the Home Owners' Loan Act, as amended.
Intellectual Property shall have the meaning given to that term in Section
3.2(p).
IRC means the Internal Revenue Code of 1986, as amended.
A-3
IRS means the Internal Revenue Service.
Knowledge means, with respect to a party hereto, actual knowledge of the members
of the Board of Directors of that party or any officer of that party with the
title ranking not less than senior vice president.
Letter of Transmittal shall have the meaning given to that term in Section
2.6(a).
Lien means any charge, mortgage, pledge, security interest, claim, lien or
encumbrance.
Loan means a loan, lease, advance, credit enhancement, guarantee or other
extension of credit.
Loan Property means any property in which the applicable party (or a subsidiary
of it) holds a security interest and, where required by the context, includes
the owner or operator of such property, but only with respect to such property.
Material Adverse Effect means an effect which is material and adverse to the
business, financial condition or results of operations of GAFC or Acquisition
Corp., as the context may dictate, and its Subsidiaries taken as a whole;
provided, however, that any such effect resulting from any (i) changes in laws,
rules or regulations or generally accepted accounting principles or regulatory
accounting requirements or interpretations thereof that apply to Acquisition
Corp. or GAFC, or to financial and/or depository institutions generally, (ii)
changes in economic conditions affecting financial institutions generally,
including but not limited to, changes in the general level of market interest
rates, (iii) actions and omissions of Acquisition Corp. or GAFC taken with the
prior written consent of the other or (iv) direct effects of compliance with
this Agreement on the operating performance of the parties, including expenses
incurred by the parties in consummating the transactions contemplated by this
Agreement, shall not be considered in determining if a Material Adverse Effect
has occurred.
Merger shall have the meaning given to that term in Section 2.1.
Merger Consideration shall have the meaning given to that term in Section
2.5(a).
OTS means the Office of Thrift Supervision.
Participation Facility means any facility in which the applicable party (or a
Subsidiary of it) participates in the management (including all property held as
trustee or in any other fiduciary capacity) and, where required by the context,
includes the owner or operator of such property, but only with respect to such
property.
Paying Agent shall have the meaning given to that term in Section 2.6(c).
person means an individual, corporation, limited liability company, partnership,
association, trust, unincorporated organization or other entity.
Proxy Statement shall have the meaning given to that term in Section 5.9(a).
SEC means the U.S. Securities and Exchange Commission.
Stockholder Meeting shall have the meaning given to that term in Section 5.8.
A-4
Subsidiary means a corporation, partnership, joint venture or other entity in
which GAFC or Acquisition Corp., as the case may be, has, directly or
indirectly, an equity interest representing 50% or more of any class of the
capital stock thereof or other equity interests therein.
Surviving Corporation shall have the meaning given to that term in Section 2.1.
Taxes means all income, franchise, gross receipts, real and personal property,
real property transfer and gains, wage and employment taxes.
Article II The Merger
2.1 The Merger. Upon the terms and subject to the conditions set forth in this
Agreement, Acquisition Sub will merge with and into GAFC (the "Merger") at the
Effective Time. At the Effective Time, the separate corporate existence of
Acquisition Sub shall cease. GAFC shall be the surviving corporation
(hereinafter sometimes referred to in such capacity as the "Surviving
Corporation") in the Merger and shall continue to be governed by the Delaware
General Corporation Law ("DGCL") and its separate corporate existence, with all
of its rights, privileges, immunities, powers and franchises, shall continue
unaffected by the Merger.
2.2 Closing. The closing of the Merger (the "Closing") will take place by the
electronic (PDF), facsimile or overnight courier exchange of executed documents
or at a location and at a time as agreed to by the parties hereto on the date
designated by Acquisition Corp. following satisfaction or waiver of the
conditions to Closing set forth in Article VI (other than those conditions that
by their nature are to be satisfied at the Closing).
2.3 Effective Time. In connection with the Closing, Acquisition Sub and GAFC
shall duly execute and deliver articles of merger (the "Articles of Merger") to
the Delaware Secretary of State for filing pursuant to the DGCL. The parties
will make all other filings or recordings required under the laws of Delaware.
The Merger shall become effective at such time as the Articles of Merger are
duly filed or at such later date or time as Acquisition Corp. and GAFC agree and
specify in the Articles of Merger (the date and time the Merger becomes
effective being the "Effective Time").
2.4 Effects of the Merger. The Merger will have the effects set forth in the
DGCL. Without limiting the generality of the foregoing, and subject thereto,
from and after the Effective Time, Acquisition Sub shall possess all of the
properties, rights, privileges, powers and franchises of GAFC and be subject to
all of the debts, liabilities and obligations of GAFC.
2.5 Effect on Outstanding Shares of GAFC Common Stock.
(a) By virtue of the Merger, automatically and without any action on the
part of the holder thereof, each share of GAFC Common Stock issued and
outstanding at the Effective Time, other than Excluded Shares, shall become and
be converted into the right to receive $0.10 in cash without interest (the
"Merger Consideration").
(b) As of the Effective Time, each Excluded Share, other than Dissenters'
Shares, shall be canceled and retired and shall cease to exist, and no payment
shall be made with respect thereto. All shares of GAFC Common Stock that are
held by Acquisition Corp., if any, other than shares held in a fiduciary
capacity or in satisfaction of a debt previously contracted, shall be canceled
and shall constitute authorized but unissued shares. In addition, no Dissenters'
Shares shall be converted into the Merger Consideration but instead shall be
treated in accordance with the provisions set forth in Section 2.10 of this
Agreement.
2.6 Payment Procedures.
A-5
(a) Appropriate transmittal materials ("Letter of Transmittal") in a form
satisfactory to Acquisition Corp. and GAFC shall be mailed as soon as
practicable after the Effective Time to each holder of record of GAFC Common
Stock as of the Effective Time. A Letter of Transmittal will be deemed properly
completed only if accompanied by certificates representing all shares of GAFC
Common Stock to be converted thereby.
(b) At and after the Effective Time, each certificate ("Certificate")
previously representing shares of GAFC Common Stock (except as specifically set
forth in Section 2.5) shall represent only the right to receive the Merger
Consideration.
(c) Prior to the Effective Time, Acquisition Corp. shall deposit, or cause
to be deposited, with a bank, trust company, transfer agent and registrar or
other similar entity selected by Acquisition Corp. and consented to by GAFC,
whose consent shall not unreasonably be withheld, which shall act as paying
agent (the "Paying Agent") for the benefit of the holders of shares of GAFC
Common Stock, for exchange in accordance with this Section 2.6, an amount of
cash sufficient to pay the aggregate Merger Consideration.
(d) The Letter of Transmittal shall (i) specify that delivery shall be
effected, and risk of loss and title to the Certificates shall pass, only upon
delivery of the Certificates to the Paying Agent, (ii) be in a form and contain
any other provisions as Acquisition Corp. may reasonably determine and (iii)
include instructions for use in effecting the surrender of the Certificates in
exchange for the Merger Consideration. Upon the proper surrender of the
Certificates to the Paying Agent, together with a properly completed and duly
executed Letter of Transmittal, the holder of such Certificates shall be
entitled to receive in exchange therefor a check in the amount equal to the cash
that such holder has the right to receive pursuant to Section 2.5. Certificates
so surrendered shall forthwith be canceled. As soon as practicable following
receipt of the properly completed Letter of Transmittal and any necessary
accompanying documentation, the Paying Agent shall distribute the Merger
Consideration as provided herein. If there is a transfer of ownership of any
shares of GAFC Common Stock not registered in the transfer records of GAFC, the
Merger Consideration shall be issued to the transferee thereof if the
Certificates representing such GAFC Common Stock are presented to the Paying
Agent, accompanied by all documents required, in the reasonable judgment of
Acquisition Corp. and the Paying Agent, to evidence and effect such transfer and
to evidence that any applicable stock transfer Taxes have been paid.
(e) The stock transfer books of GAFC shall be closed immediately upon the
Effective Time and from and after the Effective Time there shall be no transfers
on the stock transfer records of GAFC of any shares of GAFC Common Stock. If,
after the Effective Time, Certificates are presented to Acquisition Corp., they
shall be canceled and exchanged for the Merger Consideration deliverable in
respect thereof pursuant to this Agreement in accordance with the procedures set
forth in this Section 2.6.
(f) Any portion of the aggregate amount of cash to be paid pursuant to
Section 2.5 or any proceeds from any investments thereof that remains unclaimed
by the stockholders of GAFC for six months after the Effective Time shall be
repaid by the Paying Agent to Acquisition Corp. upon the written request of
Acquisition Corp. After such request is made, any stockholders of GAFC who have
not theretofore complied with this Section 2.6 shall look only to Acquisition
Corp. for the Merger Consideration deliverable in respect of each share of GAFC
Common Stock such stockholder holds, as determined pursuant to Section 2.5 of
this Agreement, without any interest thereon. If outstanding Certificates are
not surrendered prior to the date on which such payments would otherwise escheat
to or become the property of any governmental unit or agency, the unclaimed
items shall, to the extent permitted by any abandoned property, escheat or other
applicable laws, become the property of Acquisition Corp. (and, to the extent
not in its possession, shall be paid over to it), free and clear of all claims
A-6
or interest of any person previously entitled to such claims. Notwithstanding
the foregoing, neither the Paying Agent nor any party to this Agreement (or any
affiliate thereof) shall be liable to any former holder of GAFC Common Stock for
any amount delivered to a public official pursuant to applicable abandoned
property, escheat or similar laws.
(g) Acquisition Corp. and the Paying Agent shall be entitled to rely upon
GAFC's stock transfer books to establish the identity of those persons entitled
to receive the Merger Consideration, which books shall be conclusive with
respect thereto. In the event of a dispute with respect to ownership of stock
represented by any Certificate, Acquisition Corp. and the Paying Agent shall be
entitled to deposit any Merger Consideration represented thereby in escrow with
an independent third party and thereafter be relieved with respect to any claims
thereto.
(h) If any Certificate shall have been lost, stolen or destroyed, upon the
making of an affidavit of that fact by the person claiming such Certificate to
be lost, stolen or destroyed and, if required by the Paying Agent or Acquisition
Corp., the posting by such person of a bond in such amount as the Paying Agent
may direct as indemnity against any claim that may be made against it with
respect to such Certificate, the Paying Agent will issue in exchange for such
lost, stolen or destroyed Certificate the Merger Consideration deliverable in
respect thereof pursuant to Section 2.5.
2.7 Reserved
2.8 Directors of Surviving Corporation After Effective Time. Immediately after
the Effective Time, until their respective successors are duly elected or
appointed and qualified, the directors of the Surviving Corporation shall
consist of the directors of Acquisition Sub serving immediately prior to the
Effective Time.
2.9 Articles of Incorporation and Bylaws. The articles of incorporation of
Acquisition Sub, as in effect immediately prior to the Effective Time, shall be
the certificate of incorporation of GAFC until thereafter amended in accordance
with applicable law. The bylaws of GAFC, as in effect immediately prior to the
Effective Time, shall be the bylaws of the Surviving Corporation until
thereafter amended in accordance with applicable law.
2.10 Dissenters' Rights. Notwithstanding any other provision of this Agreement
to the contrary, shares of GAFC Common Stock that are outstanding immediately
prior to the Effective Time and which are held by stockholders who shall have
not voted in favor of the Merger and who shall have filed with GAFC a written
objection to the Merger at or before the Stockholder Meeting (collectively, the
"Dissenters' Shares") shall not be converted into or represent the right to
receive the Merger Consideration. Such stockholders instead shall be entitled to
receive payment of the fair value of such shares held by them in accordance with
the provisions of the Delaware General Corporation Law ("DGCL"), except that all
Dissenters' Shares held by stockholders who shall have failed to perfect or who
effectively shall have withdrawn or otherwise lost their rights to payment of
the fair value of such shares under the DGCL shall thereupon be deemed to have
been converted into and to have become exchangeable, as of the Effective Time,
for the right to receive, without any interest thereon, the Merger Consideration
upon surrender, in the manner provided in Section 2.6 of the GAFC Certificate(s)
that, immediately prior to the Effective Time, evidenced such shares. GAFC shall
give Acquisition Corp. (i) prompt notice of any written objections to the
Merger, attempted withdrawals of demands for payment and any other instruments
served pursuant to the DGCL and received by GAFC relating to Dissenters' Shares,
and (ii) the opportunity to participate in all negotiations and proceedings with
respect to demands under the DGCL consistent with the obligations of GAFC
thereunder. GAFC shall not, except with prior written consent of Acquisition
Corp., (x) make any payment with respect to such demand, (y) offer to settle or
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settle any demand for payment or (z) waive any failure to timely deliver a
written objection to the Merger or timely take any other action to perfect
dissenters' rights in accordance with the DGCL.
2.11 Alternative Structure. Notwithstanding anything to the contrary contained
in this Agreement, prior to the Effective Time, Acquisition Corp. may specify
that the structure of the transactions contemplated by this Agreement be revised
and the parties shall enter into such alternative transactions as Acquisition
Corp. may reasonably determine to effect the purposes of this Agreement;
provided, however, that such revised structure shall not (i) alter or change the
amount or kind of the Merger Consideration or (ii) adversely impede or delay the
receipt of any regulatory approval referred to in, or the consummation of the
transactions contemplated by, this Agreement. In the event that Acquisition
Corp. elects to make such a revision, the parties agree to execute appropriate
documents to reflect the revised structure.
2.12 Absence of Control. Subject to any specific provisions of this Agreement,
it is the intent of the parties hereto that Acquisition Corp. by reason of this
Agreement shall not be deemed (until consummation of the transactions
contemplated hereby) to control, directly or indirectly, GAFC or to exercise,
directly or indirectly, a controlling influence over the management or policies
of GAFC.
2.13 Treatment of Stock Options. Prior to the Effective Time, GAFC shall take
all action necessary to terminate each stock option plan of GAFC (the "GAFC
Stock Option Plans") and use its reasonable best efforts to obtain from each
stock option holder an agreement cancelling such person's outstanding stock
options as of the Effective Time.
Article III Representations and Warranties
3.1 Disclosure Letters. Prior to the execution and delivery of this Agreement,
Acquisition Corp. and GAFC have each delivered to the other a letter (each, its
"Disclosure Letter") setting forth, among other things, facts, circumstances and
events the disclosure of which is required or appropriate either in response to
an express disclosure requirement contained in a provision hereof or as an
exception to one or more of their respective representations and warranties (and
making specific reference to the Section of this Agreement to which they
relate).
3.2 Representations and Warranties of GAFC. GAFC represents and warrants to
Acquisition Corp. that, except as disclosed in GAFC's Disclosure Letter:
(a) Organization and Qualification. GAFC is a corporation duly organized,
validly existing and in good standing under the laws of the State of Delaware
and is registered with the OTS as a savings and loan holding company. GAFC has
all requisite corporate power and authority to own, lease and operate its
properties and to conduct the business currently being conducted by it. GAFC is
duly qualified or licensed as a foreign corporation to transact business and is
in good standing in each jurisdiction in which the character of the properties
owned or leased by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed and in good standing would not have a Material Adverse
Affect on GAFC. GAFC engages only in activities (and holds properties only of
the types) permitted to savings and loan holding companies by the HOLA and the
rules and regulations of the OTS promulgated thereunder.
(b) Subsidiaries.
(i) GAFC's Disclosure Letter sets forth with respect to each of
GAFC's direct and indirect Subsidiaries its name, its jurisdiction of
incorporation, GAFC's percentage ownership, the number of shares of stock owned
or controlled by GAFC and the name and number of shares held by any other person
who owns any stock of the Subsidiary. GAFC owns of record and beneficially all
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the capital stock of each of its Subsidiaries free and clear of any Liens.
There are no contracts, commitments, agreements or understandings relating to
GAFC's right to vote or dispose of any equity securities of its Subsidiaries.
GAFC's ownership interest in each of its Subsidiaries is in compliance with all
applicable laws, rules and regulations relating to equity investments by savings
and loan holding companies or federally chartered savings banks.
(ii) Each of GAFC's Subsidiaries is a corporation duly organized and
validly existing under the laws of its jurisdiction of incorporation, has all
requisite corporate power and authority to own, lease and operate its properties
and to conduct the business currently being conducted by it and is duly
qualified or licensed as a foreign corporation to transact business and is in
good standing in each jurisdiction in which the character of the properties
owned or leased by it or the nature of the business conducted by it makes such
qualification or licensing necessary, except where the failure to be so
qualified or licensed and in good standing would not have a Material Adverse
Effect on such Subsidiary.
(iii) The outstanding shares of capital stock of each Subsidiary
have been validly authorized and are validly issued, fully paid and
nonassessable. No shares of capital stock of any Subsidiary of GAFC are or may
be required to be issued by virtue of any options, warrants or other rights, no
securities exist that are convertible into or exchangeable for shares of such
capital stock or any other debt or equity security of any Subsidiary, and there
are no contracts, commitments, agreements or understandings of any kind for the
issuance of additional shares of capital stock or other debt or equity security
of any Subsidiary or options, warrants or other rights with respect to such
securities.
(iv) No Subsidiary of GAFC other than Greater Atlantic Bank ("GAFC
Bank") is an "insured depository institution" as defined in the FDIA and the
applicable regulations thereunder. GAFC Bank's deposits are insured by the FDIC
through the Deposit Insurance Fund to the fullest extent permitted by law. GAFC
Bank is a member in good standing of the Federal Home Loan Bank of Atlanta.
(c) Capital Structure.
(i) The authorized capital stock of GAFC consists of 10,000,000
shares of GAFC Common Stock and 2,500,000 shares of preferred stock.
(ii) As of the date of this Agreement:
(A) 3,024,220 shares of GAFC Common Stock are issued and
outstanding, all of which are validly issued, fully paid and nonassessable and
were issued in full compliance with all applicable laws and not in violation of
any preemptive rights and no shares of preferred stock are issued and
outstanding.
(B) No shares of GAFC Common Stock are held in treasury by
GAFC or otherwise directly or indirectly owned by GAFC.
(C) 192,666 shares are reserved for issuance upon the
exercise of options outstanding under the GAFC Stock Option Plans or warrants to
acquire GAFC Common Stock.
(iii) No bonds, debentures, notes or other indebtedness having the
right to vote on any matters on which stockholders of GAFC may vote are issued
or outstanding.
(iv) Except as set forth in this Section 3.2(c), as of the date of
this Agreement, (A) no shares of capital stock or other voting securities of
GAFC are issued, reserved for issuance or outstanding and (B) neither GAFC nor
any of its Subsidiaries has or is bound by any outstanding subscriptions,
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options, warrants, calls, rights, convertible securities, commitments or
agreements of any character obligating GAFC or any of its Subsidiaries to issue,
deliver or sell, or cause to be issued, delivered or sold, any additional shares
of capital stock of GAFC or obligating GAFC or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, right, convertible
security, commitment or agreement. As of the date hereof, there are no
outstanding contractual obligations of GAFC or any of its Subsidiaries to
repurchase, redeem or otherwise acquire any shares of capital stock of GAFC or
any of its Subsidiaries.
(d) Authority. GAFC has all requisite corporate power and authority to
enter into this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated by this Agreement. The execution and
delivery of this Agreement and the consummation of the transactions contemplated
by this Agreement have been duly authorized by all necessary corporate actions
on the part of GAFC's Board of Directors, and no other corporate proceedings on
the part of GAFC are necessary to authorize this Agreement or to consummate the
transactions contemplated by this Agreement other than the approval and adoption
of this Agreement by the affirmative vote of the holders of a majority of the
outstanding shares of GAFC Common Stock. This Agreement has been duly and
validly executed and delivered by GAFC and constitutes a valid and binding
obligation of GAFC, enforceable against GAFC in accordance with its terms,
subject to applicable bankruptcy, insolvency and similar laws affecting
creditors' rights and remedies generally and to general principles of equity,
whether applied in a court of law or a court of equity.
(e) No Violations. The execution, delivery and performance of this
Agreement by GAFC do not, and the consummation of the transactions contemplated
by this Agreement will not, (i) assuming all required governmental approvals
have been obtained and the applicable waiting periods have expired, violate any
law, rule or regulation or any judgment, decree, order, governmental permit or
license to which GAFC or any of its Subsidiaries (or any of their respective
properties) is subject, (ii) violate the certificate of incorporation or bylaws
of GAFC or the similar organizational documents of any of its Subsidiaries or
(iii) constitute a breach or violation of, or a default under (or an event
which, with due notice or lapse of time or both, would constitute a default
under), or result in the termination of, accelerate the performance required by,
or result in the creation of any Lien upon any of the properties or assets of
GAFC or any of its Subsidiaries under, any of the terms, conditions or
provisions of any note, bond, indenture, deed of trust, loan agreement or other
agreement, instrument or obligation to which GAFC or any of its Subsidiaries is
a party, or to which any of their respective properties or assets may be
subject.
(f) Consents and Approvals. No consents or approvals of, or filings or
registrations with, any Governmental Entity or any third party are required to
be made or obtained in connection with the execution and delivery by GAFC of
this Agreement or the consummation by GAFC of the Merger and the other
transactions contemplated by this Agreement, except for filings of applications
and notices with, receipt of approvals or nonobjections from, and expiration of
the related waiting period required by, federal and state banking authorities.
As of the date hereof, GAFC has no knowledge of any reason pertaining to GAFC
why any of the approvals referred to in this Section 3.2(f) should not be
obtained without the imposition of any material condition or restriction
described in Section 6.1(b).
(g) Governmental Filings. GAFC and each of its Subsidiaries has filed all
reports, schedules, registration statements and other documents that it has been
required to file since September 30, 2006 with the SEC, OTS, the FDIC, or any
other Governmental Regulator (collectively, "GAFC's Reports"). No administrative
actions have been taken or, to the knowledge of GAFC, threatened or orders
issued in connection with any of GAFC's Reports. As of their respective dates,
each of GAFC's Reports complied in all material respects with all laws or
regulations under which it was filed (or was amended so as to be in compliance
promptly following discovery of such noncompliance). Any financial statement
contained in any of GAFC's Reports fairly presented in all material respects the
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financial position of GAFC on a consolidated basis, GAFC alone or each of GAFC's
Subsidiaries alone, as the case may be, and was prepared in all material
respects in accordance with GAAP or applicable regulations.
(h) Financial Statements. GAFC's Disclosure Letter contains copies of (i)
the audited consolidated balance sheet of GAFC and its Subsidiaries as of
September 30, 2008 and 2007 and related consolidated statements of income for
each of the years in the two-year period ended September 30, 2008 and (ii) the
unaudited consolidated balance sheet of GAFC and its Subsidiaries as of March
31, 2009 and the related unaudited consolidated statement of income for the
three and six months ended March 31, 2009. Such financial statements were
prepared from the books and records of GAFC and its Subsidiaries, fairly present
the consolidated financial position of GAFC and its Subsidiaries in each case at
and as of the dates indicated and the consolidated results of operations of GAFC
and its Subsidiaries for the periods indicated, and were prepared in accordance
with GAAP consistently applied throughout the periods covered thereby; provided,
however, that the unaudited financial statements for interim periods are subject
to normal year-end adjustments (which will not be material individually or in
the aggregate.
(i) Undisclosed Liabilities. Neither GAFC nor any of its Subsidiaries has
incurred any debt, liability or obligation of any nature whatsoever (whether
accrued, contingent, absolute or otherwise and whether due or to become due)
other than liabilities reflected on or reserved against in the consolidated
balance sheet of GAFC as of September 30, 2008, except for (i) liabilities
incurred since September 30, 2008 in the ordinary course of business consistent
with past practice that, either alone or when combined with all similar
liabilities, have not had, and would not reasonably be expected to have, a
Material Adverse Effect on GAFC and (ii) liabilities incurred for legal,
accounting, financial advisory fees and out-of-pocket expenses in connection
with the transactions contemplated by this Agreement.
(j) Absence of Certain Changes or Events. Since September 30, 2008:
(i) GAFC and its Subsidiaries have conducted their respective
businesses only in the ordinary and usual course of such businesses consistent
with their past practices;
(ii) there has not been any event or occurrence that has had, or is
reasonably expected to have, a Material Adverse Effect on GAFC;
(iii) GAFC has not declared, paid or set aside any dividends or
distributions with respect to the GAFC Common Stock other than as expressly
permitted by this Agreement;
(iv) except for supplies or equipment purchased in the ordinary
course of business, neither GAFC nor any of its Subsidiaries have made any
capital expenditures exceeding individually or in the aggregate $25,000;
(v) there has not been any write-down by GAFC Bank in excess of
$25,000 with respect to any individual Loan or other real estate owned;
(vi) there has not been any sale, assignment or transfer of any
assets by GAFC or any of its Subsidiaries in excess of $25,000 other than in
the ordinary course of business or pursuant to a contract or agreement disclosed
in GAFC's Disclosure Letter;
(vii) there has been no increase in the salary, compensation,
pension or other benefits payable or to become payable by GAFC or any of its
Subsidiaries to any of their respective directors, officers or employees, other
than in conformity with the policies and practices of such entity in the usual
and ordinary course of its business;
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(viii) neither GAFC nor any of its Subsidiaries has paid or made any
accrual or arrangement for payment of bonuses or special compensation of any
kind or any severance or termination pay to any of their directors, officers or
employees other than as expressly permitted by this Agreement; and
(ix) there has been no change in any accounting principles,
practices or methods of GAFC or any of its Subsidiaries.
(k) Litigation. There are no suits, actions or legal, administrative or
arbitration proceedings pending or, to the knowledge of GAFC, threatened against
or affecting GAFC or any of its Subsidiaries or any property or asset of GAFC or
any of its Subsidiaries that (i) is seeking damages or declaratory relief
against GAFC or any of its Subsidiaries or (ii) challenge the validity or
propriety of the transactions contemplated by this Agreement. There are no
judgments, decrees, injunctions, orders or rulings of any Governmental Entity or
arbitrator outstanding against GAFC or any of its Subsidiaries that,
individually or in the aggregate, would reasonably be expected to have a
Material Adverse Effect on GAFC.
(l) Absence of Regulatory Actions. Since September 30, 2006, neither GAFC
nor any of its Subsidiaries has been a party to any cease and desist order,
written agreement or memorandum of understanding with, or any commitment letter
or similar undertaking to, or has been subject to any action, proceeding, order
or directive by any Government Regulator, or has adopted any board resolutions
at the request of any Government Regulator, or has been advised by any
Government Regulator that it is contemplating issuing or requesting (or is
considering the appropriateness of issuing or requesting) any such action,
proceeding, order, directive, written agreement, memorandum of understanding,
commitment letter, board resolutions or similar undertaking. There are no
unresolved violations, criticisms or exceptions by any Government Regulator with
respect to any report or statement relating to any examinations of GAFC or its
Subsidiaries.
(m) Compliance with Laws. GAFC and each of its Subsidiaries conducts its
business in compliance with all statutes, laws, regulations, ordinances, rules,
judgments, orders or decrees applicable to it or the employees conducting such
business, except where noncompliance would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on GAFC.
GAFC and each of its Subsidiaries has all permits, licenses, certificates of
authority, orders and approvals of, and has made all filings, applications and
registrations with, all Governmental Entities that are required in order to
permit it to carry on its business in all material respects as it is presently
conducted; all such permits, licenses, certificates of authority, orders and
approvals are in full force and effect, and no suspension or cancellation of any
of them is, to the knowledge of GAFC, threatened. Neither GAFC nor any of its
Subsidiaries has been given written notice or been charged with any violation
of, any law, ordinance, regulation, order, writ, rule, decree or condition to
approval of any Governmental Entity which, individually or in the aggregate,
would reasonably be expected to have a Material Adverse Effect on GAFC.
(n) Taxes. All federal, state, local and foreign tax returns required to be
filed by or on behalf of GAFC or any of its Subsidiaries have been timely filed
or requests for extensions have been timely filed and any such extension shall
have been granted and not have expired, and all such filed returns are complete
and accurate in all material respects. All Taxes shown on such returns, all
Taxes required to be shown on returns for which extensions have been granted and
all other Taxes required to be paid by GAFC or any of its Subsidiaries have been
paid in full or adequate provision has been made for any such Taxes on GAFC's
balance sheet (in accordance with GAAP). There is no audit examination,
deficiency assessment, tax investigation or refund litigation with respect to
any Taxes of GAFC or any of its Subsidiaries, and no claim has been made in
writing by any authority in a jurisdiction where GAFC or any of its Subsidiaries
do not file tax returns that GAFC or any such Subsidiary is subject to taxation
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in that jurisdiction. All Taxes, interest, additions and penalties due with
respect to completed and settled examinations or concluded litigation relating
to GAFC or any of its Subsidiaries have been paid in full or adequate provision
has been made for any such Taxes on GAFC's balance sheet (in accordance with
GAAP). GAFC and its Subsidiaries have not executed an extension or waiver of any
statute of limitations on the assessment or collection of any tax due that is
currently in effect. GAFC and each of its Subsidiaries has withheld and paid all
Taxes required to have been withheld and paid in connection with amounts paid or
owing to any employee, independent contractor, creditor, stockholder or other
third party, and GAFC and each of its Subsidiaries has timely complied with all
applicable information reporting requirements under Part III, Subchapter A of
Chapter 61 of the IRC and similar applicable state and local information
reporting requirements. Neither GAFC nor any of its Subsidiaries is a party to
any agreement, contract, arrangement or plan that has resulted or would result,
individually or in the aggregate, in connection with this Agreement in the
payment of any "excess parachute payment" within the meaning of Section 280G of
the IRC and neither GAFC nor any of its Subsidiaries has made any payment and is
not a party to any agreement, and does not maintain any plan, program or
arrangement, that could require it to make any payment that would not be fully
deductible by reason of Section 162(m) of the IRC.
(o) Agreements.
(i) GAFC has previously delivered to Acquisition Corp., and GAFC's
Disclosure Letter lists, any contract, arrangement, commitment or understanding
(whether written or oral) to which GAFC or any of its Subsidiaries is a party or
is bound:
(A) with any executive officer or other key employee of GAFC
or any of its Subsidiaries the benefits of which are contingent, or the terms of
which are materially altered, upon the occurrence of a transaction involving
GAFC or any of its Subsidiaries of the nature contemplated by this Agreement;
(B) with respect to the employment of any directors,
officers, employees or consultants;
(C) any of the benefits of which will be increased, or the
vesting or payment of the benefits of which will be accelerated, by the
occurrence of any of the transactions contemplated by this Agreement, or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement (including any stock option
plan, phantom stock or stock appreciation rights plan, restricted stock plan or
stock purchase plan);
(D) containing covenants that limit the ability of GAFC or
any of its Subsidiaries to compete in any line of business or with any person,
or that involve any restriction on the geographic area in which, or method by
which, GAFC (including any successor thereof) or any of its Subsidiaries may
carry on its business (other than as may be required by law or any regulatory
agency);
(E) pursuant to which GAFC or any of its Subsidiaries may
become obligated to invest in or contribute capital to any entity;
(F) that relates to borrowings of money (or guarantees
thereof) by GAFC or any of its Subsidiaries in excess of $50,000;
(G) which is a lease or license with respect to any property,
real or personal, whether as landlord, tenant, licensor or licensee, involving a
liability or obligation as obligor in excess of $25,000 on an annual basis; or
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(H) the termination of which would require payment by
GAFC or any of its Subsidiaries in excess of $25,000.
(ii) Neither GAFC nor any of its Subsidiaries is in default under
(and no event has occurred which, with due notice or lapse of time or both,
would constitute a default under) or is in violation of any provision of any
note, bond, indenture, mortgage, deed of trust, loan agreement, lease or other
agreement to which it is a party or by which it is bound or to which any of its
respective properties or assets is subject and, to the knowledge of GAFC, no
other party to any such agreement (excluding any loan or extension of credit
made by GAFC or any of its Subsidiaries) is in default in any respect
thereunder.
(iii) GAFC's Disclosure Letter lists each agency or brokerage
contract pursuant to which GAFC or any of its Subsidiaries is authorized to
represent an insurer or place insurance through another agency. Neither GAFC nor
any of its Subsidiaries have received written notice of termination of any
existing agency or brokerage contract and, to the knowledge of GAFC, no insurer
or agency has threatened to terminate or is contemplating terminating its agency
or brokerage contract with GAFC or any of its Subsidiaries. There exists no
dispute between GAFC or any of its Subsidiaries and any insurer or agency with
respect to either GAFC's or any of its Subsidiaries or the insurer's or agency's
performance under the agency or brokerage contract between GAFC or any of its
Subsidiaries and the insurer or agency.
(p) Intellectual Property. GAFC and each of its Subsidiaries owns or
possesses valid and binding licenses and other rights to use (in the manner and
the geographic areas in which they are currently used) without payment all
patents, copyrights, trade secrets, trade names, service marks and trademarks
material to its business. GAFC's Disclosure Letter sets forth a complete and
correct list of all material trademarks, trade names, service marks and
copyrights owned by or licensed to GAFC or any of its Subsidiaries for use in
its business, and all licenses and other agreements relating thereto and all
agreements relating to third party intellectual property that GAFC or any of its
Subsidiaries is licensed or authorized to use in its business, including without
limitation any software licenses but excluding any so-called "shrink-wrap"
license agreements and other similar computer software licensed in the ordinary
course of business and/or otherwise resident on desktop computers (collectively,
the "Intellectual Property"). With respect to each item of Intellectual Property
owned by GAFC or any of its Subsidiaries, the owner possesses all right, title
and interest in and to the item, free and clear of any Lien. With respect to
each item of Intellectual Property that GAFC or any of its Subsidiaries is
licensed or authorized to use, the license, sublicense or agreement covering
such item is legal, valid, binding, enforceable and in full force and effect.
Neither GAFC nor any of its Subsidiaries has received any charge, complaint,
claim, demand or notice alleging any interference, infringement,
misappropriation or violation with or of any intellectual property rights of a
third party (including any claims that GAFC or any of its Subsidiaries must
license or refrain from using any intellectual property rights of a third
party). To the knowledge of GAFC, neither GAFC nor any of its Subsidiaries has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any intellectual property rights of third parties and no third party has
interfered with, infringed upon, misappropriated or otherwise come into conflict
with any intellectual property rights of GAFC or any of its Subsidiaries.
(q) Labor Matters. GAFC and its Subsidiaries are in material compliance
with all applicable laws respecting employment, retention of independent
contractors, employment practices, terms and conditions of employment, and wages
and hours. Neither GAFC nor any of its Subsidiaries is or has ever been a party
to, or is or has ever been bound by, any collective bargaining agreement,
contract or other agreement or understanding with a labor union or labor
organization with respect to its employees, nor is GAFC or any of its
Subsidiaries the subject of any proceeding asserting that it has committed an
unfair labor practice or seeking to compel it or any such Subsidiary to bargain
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with any labor organization as to wages and conditions of employment nor, to the
knowledge of GAFC, has any such proceeding been threatened, nor is there any
strike, other labor dispute or organizational effort involving GAFC or any of
its Subsidiaries pending or, to the knowledge of GAFC, threatened.
(r) Employee Benefit Plans.
(i) GAFC's Disclosure Letter contains a complete and accurate list
of all pension, retirement, stock option, stock purchase, stock ownership,
savings, stock appreciation right, profit sharing, deferred compensation,
consulting, bonus, group insurance, severance and other benefit plans,
contracts, agreements and arrangements, including, but not limited to, "employee
benefit plans," as defined in Section 3(3) of ERISA, incentive and welfare
policies, contracts, plans and arrangements and all trust agreements related
thereto with respect to any present or former directors, officers or other
employees of GAFC or any of its Subsidiaries (hereinafter referred to
collectively as the "GAFC Employee Plans"). GAFC has previously delivered or
made available to Acquisition Corp. true and complete copies of each agreement,
plan and other documents referenced in GAFC's Disclosure Letter, along with,
where applicable, copies of the IRS Form 5500 or 5500-C for the most recently
completed year. There has been no announcement or commitment by GAFC or any of
its Subsidiaries to create an additional GAFC Employee Plan, or to amend any
GAFC Employee Plan, except for amendments required by applicable law which do
not materially increase the cost of such GAFC Employee Plan.
(ii) There is no pending or, to the knowledge of GAFC, threatened
litigation, administrative action or proceeding relating to any GAFC Employee
Plan. All of the GAFC Employee Plans comply in all material respects with all
applicable requirements of ERISA, the IRC and other applicable laws. There has
occurred no "prohibited transaction" (as defined in Section 406 of ERISA or
Section 4975 of the IRC) with respect to the GAFC Employee Plans that is likely
to result in the imposition of any penalties or Taxes upon GAFC or any of its
Subsidiaries under Section 502(i) of ERISA or Section 4975 of the IRC.
(iii) No liability to the Pension Benefit Guarantee Corporation has
been or is expected by GAFC or any of its Subsidiaries to be incurred with
respect to any GAFC Employee Plan which is subject to Title IV of ERISA ("GAFC
Pension Plan"), or with respect to any "single-employer plan" (as defined in
Section 4001(a) of ERISA) currently or formerly maintained by GAFC or any ERISA
Affiliate. No GAFC Pension Plan had an "accumulated funding deficiency" (as
defined in Section 302 of ERISA), whether or not waived, as of the last day of
the end of the most recent plan year ending prior to the date hereof; the fair
market value of the assets of each GAFC Pension Plan exceeds the present value
of the "benefit liabilities" (as defined in Section 4001(a)(16) of ERISA) under
such GAFC Pension Plan as of the end of the most recent plan year with respect
to the respective GAFC Pension Plan ending prior to the date hereof, calculated
on the basis of the actuarial assumptions used in the most recent actuarial
valuation for such GAFC Pension Plan as of the date hereof; and no notice of a
"reportable event" (as defined in Section 4043 of ERISA) for which the 30-day
reporting requirement has not been waived has been required to be filed for any
GAFC Pension Plan within the 12-month period ending on the date hereof. Neither
GAFC nor any of its Subsidiaries has provided, or is required to provide,
security to any GAFC Pension Plan or to any single-employer plan of an ERISA
Affiliate pursuant to Section 401(a)(29) of the IRC. Neither GAFC, its
Subsidiaries, nor any ERISA Affiliate has contributed to any "multiemployer
plan," as defined in Section 3(37) of ERISA, on or after September 26, 1980.
(iv) Each GAFC Employee Plan that is an "employee pension benefit
plan" (as defined in Section 3(2) of ERISA) and which is intended to be
qualified under Section 401(a) of the IRC (a "GAFC Qualified Plan") has received
a favorable determination letter from the IRS, and, to the knowledge of GAFC,
there are no circumstances likely to result in revocation of any such favorable
determination letter. Each GAFC Qualified Plan that is an "employee stock
ownership plan" (as defined in Section 4975(e)(7) of the IRC) has satisfied all
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of the applicable requirements of Sections 409 and 4975(e)(7) of the IRC and the
regulations thereunder in all material respects and any assets of any such GAFC
Qualified Plan that, as of the end of the plan year, are not allocated to
participants' individual accounts are pledged as security for, and may be
applied to satisfy, any securities acquisition indebtedness.
(v) No GAFC Employee Plan is a "multiple employer plan" (as defined
in Section 4063 of ERISA).
(vi) Neither GAFC nor any of its Subsidiaries has any obligations
for post-retirement or post-employment benefits under any GAFC Employee Plan
that cannot be amended or terminated upon 60 days' notice or less without
incurring any liability thereunder, except for coverage required by Part 6 of
Title I of ERISA or Section 4980B of the IRC, or similar state laws, the cost of
which is borne by the insured individuals.
(vii) All contributions required to be made with respect to any GAFC
Employee Plan by applicable law or regulation or by any plan document or other
contractual undertaking, and all premiums due or payable with respect to
insurance policies funding any GAFC Employee Plan, for any period through the
date hereof have been timely made or paid in full, or to the extent not required
to be made or paid on or before the date hereof, have been fully reflected in
the financial statements of GAFC. Each GAFC Employee Plan that is an employee
welfare benefit plan under Section 3(1) of ERISA either (A) is funded through an
insurance company contract and is not a "welfare benefit fund" within the
meaning of Section 419 of the IRC or (B) is unfunded.
(s) Properties.
(i) A list and description of all real property owned or leased by
GAFC or a Subsidiary of GAFC is set forth in GAFC's Disclosure Letter. GAFC and
each of its Subsidiaries has good and marketable title to all real property
owned by it (including any property acquired in a judicial foreclosure
proceeding or by way of a deed in lieu of foreclosure or similar transfer), in
each case free and clear of any Liens except (i) liens for Taxes not yet due and
payable and (ii) such easements, restrictions and encumbrances, if any, as are
not material in character, amount or extent, and do not materially detract from
the value, or materially interfere with the present use of the properties
subject thereto or affected thereby. Each lease pursuant to which GAFC or any of
its Subsidiaries as lessee, leases real or personal property is valid and in
full force and effect and neither GAFC nor any of its Subsidiaries, nor, to
GAFC's knowledge, any other party to any such lease, is in default or in
violation of any material provisions of any such lease. GAFC has previously
delivered to Acquisition Corp. a complete and correct copy of each such lease.
All real property owned or leased by GAFC or any of its Subsidiaries are in all
material respects in a good state of maintenance and repair (normal wear and
tear excepted), conform with all applicable ordinances, regulations and zoning
laws and are considered by GAFC to be adequate for the current business of GAFC
and its Subsidiaries. To the knowledge of GAFC, none of the buildings,
structures or other improvements located on any real property owned or leased by
GAFC or any of its Subsidiaries encroaches upon or over any adjoining parcel or
real estate or any easement or right-of-way.
(ii) GAFC and each of its Subsidiaries has good and marketable title
to all tangible personal property owned by it, free and clear of all Liens
except such Liens, if any, that are not material in character, amount or extent,
and that do not materially detract from the value, or materially interfere with
the present use of the properties subject thereto or affected thereby. With
respect to personal property used in the business of GAFC and its Subsidiaries
that is leased rather than owned, neither GAFC nor any of its Subsidiaries is in
default under the terms of any such lease.
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(t) Reserved
(u) Fees. Other than for financial advisory services performed for GAFC by
Sandler O'Neill & Partners L.P. pursuant to an agreement dated January 30, 2006,
a true and complete copy of which is attached as an exhibit to GAFC's Disclosure
Letter, neither GAFC nor any of its Subsidiaries, nor any of their respective
officers, directors, employees or agents, has employed any broker or finder or
incurred any liability for any financial advisory fees, brokerage fees,
commissions or finder's fees, and no broker or finder has acted directly or
indirectly for GAFC or any of its Subsidiaries in connection with this Agreement
or the transactions contemplated hereby.
(v) Environmental Matters.
(i) Each of GAFC and its Subsidiaries, the Participation Facilities,
and, to the knowledge of GAFC, the Loan Properties are, and have been, in
compliance with all Environmental Laws.
(ii) There is no suit, claim, action, demand, executive or
administrative order, directive, investigation or proceeding pending or, to the
knowledge of GAFC, threatened, before any court, governmental agency or board or
other forum against GAFC or any of its Subsidiaries or any Participation
Facility (A) for alleged noncompliance (including by any predecessor) with, or
liability under, any Environmental Law or (B) relating to the presence of or
release into the environment of any Hazardous Material, whether or not occurring
at or on a site owned, leased or operated by GAFC or any of its Subsidiaries or
any Participation Facility.
(iii) To the knowledge of GAFC, there is no suit, claim, action,
demand, executive or administrative order, directive, investigation or
proceeding pending or threatened before any court, governmental agency or board
or other forum relating to or against any Loan Property (or GAFC or any of its
Subsidiaries in respect of such Loan Property) (A) relating to alleged
noncompliance (including by any predecessor) with, or liability under, any
Environmental Law or (B) relating to the presence of or release into the
environment of any Hazardous Material, whether or not occurring at a Loan
Property.
(iv) Neither GAFC nor any of its Subsidiaries has received any
notice, demand letter, executive or administrative order, directive or request
for information from any Governmental Entity or any third party indicating that
it may be in violation of, or liable under, any Environmental Law.
(v) There are no underground storage tanks at any properties owned
or operated by GAFC or any of its Subsidiaries or any Participation Facility.
Neither GAFC nor any of its Subsidiaries nor, to the knowledge of GAFC, any
other person or entity, has closed or removed any underground storage tanks from
any properties owned or operated by GAFC or any of its Subsidiaries or any
Participation Facility.
(vi) During the period of (A) GAFC's or its Subsidiary's ownership
or operation of any of their respective current properties or (B) GAFC's or its
Subsidiary's participation in the management of any Participation Facility,
there has been no release of Hazardous Materials in, on, under or affecting such
properties except for releases of Hazardous Materials in quantities below the
level at which they are regulated under any Environmental Law. To the knowledge
of GAFC, prior to the period of (A) GAFC's or its Subsidiary's ownership or
operation of any of their respective current properties or (B) GAFC's or its
Subsidiary's participation in the management of any Participation Facility,
there was no contamination by or release of Hazardous Material in, on, under or
affecting such properties except for releases of Hazardous Materials in
quantities below the level at which they are regulated under any Environmental
Law.
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(w) Loan Portfolio; Allowance for Loan Losses.
(i) With respect to each Loan owned by GAFC or its Subsidiaries in
whole or in part:
(A) The note and the related security documents are each
legal, valid and binding obligations of the maker or obligor thereof,
enforceable against such maker or obligor in accordance with their terms and the
rights of GAFC with respect to each Loan would not be adversely affected by the
consummation of the transactions contemplated by this Agreement;
(B) neither GAFC nor any of its Subsidiaries, nor any prior
holder of a Loan, has modified the note or any of the related security documents
in any material respect or satisfied, canceled or subordinated the note or any
of the related security documents except as otherwise disclosed by documents in
the applicable Loan file;
(C) GAFC or a Subsidiary of GAFC is the sole holder of legal
and beneficial title to each Loan (or GAFC's or its Subsidiary's applicable
participation interest, as applicable), except as otherwise referenced on the
books and records of GAFC or a Subsidiary of GAFC;
(D) each Loan file is complete in all material respects and
includes the original note and the related security documents, and copies of any
documents in the Loan files are true and correct copies of the documents they
purport to be and have not been suspended, amended, modified, canceled or
otherwise changed except as otherwise disclosed by documents in the applicable
Loan file; and
(E) with respect to a Loan held in the form of a
participation, the participation documentation is legal, valid, binding and
enforceable in accordance with its terms, subject to bankruptcy, insolvency,
fraudulent conveyance and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles.
(ii) Neither the terms of any Loan, any of the documentation for any
Loan, the manner in which any Loans have been administered and serviced, nor
GAFC's practices of approving or rejecting Loan applications, violate in any
material respect any federal, state, or local law, rule or regulation applicable
thereto, including, without limitation, the Truth In Lending Act, Regulations O
and Z of the Federal Reserve Board, the CRA, the Equal Credit Opportunity Act,
and any state laws, rules and regulations relating to consumer protection,
installment sales and usury.
(iii) The allowance for loan losses reflected in GAFC's unaudited
balance sheet at March 31 2009 was, and the allowance for loan losses shown on
the balance sheets in GAFC's Reports for periods ending after such date, in the
opinion of management, was or will be adequate, as of the dates thereof.
(x) Anti-takeover Provisions Inapplicable. GAFC and its Subsidiaries have
taken all actions required to exempt Acquisition Corp., the Agreement and the
Merger from any provisions of an anti-takeover nature contained in their
organizational documents, and the provisions of any federal or state
"anti-takeover," "fair price," "moratorium," "control share acquisition" or
similar laws or regulations.
(y) Material Interests of Certain Persons. Except for deposit and loan
relationships entered into in the ordinary course of business, no current or
former officer or director of GAFC, or any family member or affiliate of any
such person, has any material interest, directly or indirectly, in any contract
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or property (real or personal), tangible or intangible, used in or pertaining to
the business of GAFC or any of its Subsidiaries.
(z) Insurance. In the opinion of management, GAFC and its Subsidiaries are
presently insured for amounts deemed reasonable by management against such risks
as companies engaged in a similar business would, in accordance with good
business practice, customarily be insured. GAFC's Disclosure Letter contains a
list of all policies of insurance carried and owned by GAFC or any of GAFC's
Subsidiaries showing the name of the insurance company and agent, the nature of
the coverage, the policy limit, the annual premiums and the expiration date. All
of the insurance policies and bonds maintained by GAFC and its Subsidiaries are
in full force and effect, GAFC and its Subsidiaries are not in default
thereunder, all premiums and other payments due under any such policy have been
paid and all material claims thereunder have been filed in due and timely
fashion.
(aa) Investment Securities; Derivatives.
(i) Except for restrictions that exist for securities that are
classified as "held to maturity," none of the investment securities held by GAFC
or any of its Subsidiaries is subject to any restriction (contractual or
statutory) that would materially impair the ability of the entity holding such
investment freely to dispose of such investment at any time.
(ii) Neither GAFC nor any of its Subsidiaries is a party to or has
agreed to enter into an exchange-traded or over-the-counter equity, interest
rate, foreign exchange or other swap, forward, future, option, cap, floor or
collar or any other contract that is a derivative contract (including various
combinations thereof) or owns securities that (A) are referred to generically as
"structured notes," "high risk mortgage derivatives," "capped floating rate
notes" or "capped floating rate mortgage derivatives" or (B) are likely to have
changes in value as a result of interest or exchange rate changes that
significantly exceed normal changes in value attributable to interest or
exchange rate changes.
(bb) Indemnification. Except as provided in the certificate of
incorporation or bylaws of GAFC and the similar organizational documents of its
Subsidiaries, neither GAFC nor any of its Subsidiaries is a party to any
agreement that provides for the indemnification of any of its present or former
directors, officers or employees, or other persons who serve or served as a
director, officer or employee of another corporation, partnership or other
enterprise at the request of GAFC and, to the knowledge of GAFC, there are no
claims for which any such person would be entitled to indemnification under the
certificate of incorporation or bylaws of GAFC or the similar organizational
documents of any of its Subsidiaries, under any applicable law or regulation or
under any indemnification agreement.
(cc) Corporate Documents and Records. GAFC's Disclosure Letter includes a
complete and correct copy of the certificate of incorporation, bylaws and
similar organizational documents of GAFC and each of GAFC's Subsidiaries, as in
effect as of the date of this Agreement. Neither GAFC nor any of GAFC's
Subsidiaries is in violation of its certificate of incorporation, bylaws or
similar organizational documents. The minute books of GAFC and each of GAFC's
Subsidiaries constitute a complete and correct record of all actions taken by
their respective boards of directors (and each committee thereof) and their
stockholders. GAFC and each of its Subsidiaries maintains accounting records
that fairly and accurately reflect, in all material respects, its transactions,
and accounting controls exist sufficient to provide reasonable assurances that
such transactions are, in all material respects, (i) executed in accordance with
management's general or specific authorization and (ii) recorded as necessary to
permit the preparation of financial statements in accordance with GAAP.
(dd) GAFC Information. The information regarding GAFC and its Subsidiaries
included in the Proxy Statement, and all amendments and supplements thereto,
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will not contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made, not
misleading. The information supplied, or to be supplied, by GAFC for inclusion
in applications to Governmental Entities to obtain all permits, consents,
approvals and authorizations necessary or advisable to consummate the
transactions contemplated by this Agreement shall be accurate in all material
respects.
(ee) CRA, Anti-Money Laundering, OFAC and Customer Information Security.
GAFC Bank has received a rating of "Satisfactory" in its most recent examination
or interim review with respect to the CRA. GAFC does not have knowledge of any
facts or circumstances that would cause GAFC Bank or any other Subsidiary of
GAFC: (i) to be deemed not to be in satisfactory compliance in any material
respect with the CRA, and the regulations promulgated thereunder, or to be
assigned a rating for CRA purposes by federal or GAFC Bank regulators of lower
than "satisfactory"; or (ii) to be deemed to be operating in violation in any
material respect of the Bank Secrecy Act, the USA PATRIOT Act, any order issued
with respect to anti-money laundering by the U.S. Department of the Treasury's
Office of Foreign Assets Control, or any other applicable anti-money laundering
statute, rule or regulation; or (iii) to be deemed not to be in satisfactory
compliance in any material respect with the applicable privacy of customer
information requirements contained in any federal and sate privacy laws and
regulations, including without limitation, in Title V of the Gramm-Leach-Bliley
Act of 1999 and the regulations promulgated thereunder, as well as the
provisions of the information security program adopted by GAFC Bank. To the
knowledge of GAFC, no non-public customer information has been disclosed to or
accessed by an unauthorized third party in a manner which would cause either
GAFC or of its Subsidiaries to undertake any remedial action. The board of
directors of GAFC Bank (or where appropriate of any other Subsidiary of GAFC)
has adopted, and GAFC Bank (or such other Subsidiary of GAFC) has implemented,
an anti-money laundering program that contains adequate and appropriate customer
identification verification procedures that comply with Section 326 of the USA
PATRIOT Act and such anti-money laundering program meets the requirements in all
material respects of Section 352 of the USA PATRIOT Act and the regulations
thereunder, and GAFC Bank (or such other Subsidiary of GAFC) has complied in all
material respects with any requirements to file reports and other necessary
documents as required by the USA PATRIOT Act and the regulations thereunder.
3.3 Representations and Warranties of Acquisition Corp. Acquisition Corp.
represents and warrants to GAFC that, except as set forth in Acquisition Corp.'s
Disclosure Letter:
(a) Organization and Qualification. Acquisition Corp. is a corporation duly
organized and validly existing under the laws of Virginia. Acquisition Sub is a
corporation duly organized and validly existing under the laws of the Virginia.
Acquisition Corp. has all requisite corporate power and authority to own, lease
and operate its properties and to conduct the business currently being conducted
by it. Acquisition Corp. is duly qualified or licensed as a foreign corporation
to transact business and is in good standing in each jurisdiction in which the
character of the properties owned or leased by it or the nature of the business
conducted by it makes such qualification or licensing necessary, except where
the failure to be so qualified or licensed and in good standing would not have a
Material Adverse Effect on Acquisition Corp..
(b) Subsidiaries. Acquisition Corp. owns of record and beneficially all the
capital stock of Acquisition Sub free and clear of any Liens. Acquisition Sub is
a Virginia corporation duly organized and validly existing under the laws of
Virginia, has all requisite corporate power and authority to own, lease and
operate its properties and to conduct the business currently being conducted by
it and is duly qualified or licensed as a foreign corporation to transact
business and is in good standing in each jurisdiction in which the character of
the properties owned or leased by it or the nature of the business conducted by
it makes such qualification or licensing necessary, except where the failure to
be so qualified or licensed and in good standing would not have a Material
Adverse Effect on Acquisition Corp.
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(c) Authority. Each of Acquisition Corp. and Acquisition Sub has all
requisite corporate power and authority to enter into this Agreement, to perform
its obligations hereunder and to consummate the transactions contemplated by
this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated by this Agreement have been duly
authorized by all necessary corporate actions on the part of Acquisition Corp.'s
and Acquisition Sub's Board of Directors, and no other corporate proceedings on
the part of Acquisition Corp. or Acquisition Sub are necessary to authorize this
Agreement or to consummate the transactions contemplated by this Agreement. This
Agreement has been duly and validly executed and delivered by Acquisition Corp.
and Acquisition Sub and constitutes a valid and binding obligation of
Acquisition Corp. and Acquisition Sub, enforceable against Acquisition Corp. and
Acquisition Sub in accordance with its terms, subject to applicable bankruptcy,
insolvency and similar laws affecting creditors' rights and remedies generally
and to general principles of equity, whether applied in a court of law or a
court of equity.
(d) No Violations. The execution, delivery and performance of this
Agreement by Acquisition Corp. do not, and the consummation of the transactions
contemplated by this Agreement will not, (i) assuming all required governmental
approvals have been obtained and the applicable waiting periods have expired,
violate any law, rule or regulation or any judgment, decree, order, governmental
permit or license to which Acquisition Corp. or any of its Subsidiaries (or any
of their respective properties) is subject, (ii) violate the charter or bylaws
of Acquisition Corp. or the similar organizational documents of any of its
Subsidiaries or (iii) constitute a breach or violation of, or a default under
(or an event which, with due notice or lapse of time or both, would constitute a
default under), or result in the termination of, accelerate the performance
required by, or result in the creation of any Lien upon any of the properties or
assets of Acquisition Corp. or any of its Subsidiaries under, any of the terms,
conditions or provisions of any note, bond, indenture, deed of trust, loan
agreement or other agreement, instrument or obligation to which Acquisition
Corp. or any of its Subsidiaries is a party, or to which any of their respective
properties or assets may be subject except, in the case of (iii), for any such
breaches, violations or defaults that would not, individually or in the
aggregate, have a Material Adverse Effect on Acquisition Corp.
(e) Consents and Approvals. No consents or approvals of, or filings or
registrations with, any Governmental Entity or any third party are required to
be made or obtained in connection with the execution and delivery by Acquisition
Corp. of this Agreement or the consummation by Acquisition Corp. of the Merger
and the other transactions contemplated by this Agreement, except for filings of
applications and notices with, receipt of approvals or nonobjections from, and
expiration of the related waiting period required by, federal and state banking
authorities. Neither Acquisition Corp. nor any shareholder, officer or director
of Acquisition Corp. is aware of any fact or event that would preclude
regulatory approval of the Merger, and Acquisition Corp. is not aware of
anything in the proposed structure and ownership of Acquisition Corp. or its
affiliates that would preclude them from owning or controlling the shares of the
Surviving Corporation following the Merger. As of the date hereof, Acquisition
Corp. knows of no reason pertaining to Acquisition Corp. why any of the
approvals referred to in this Section 3.3(e) should not be obtained without the
imposition of any material condition or restriction described in Section 6.1(b).
(f) Acquisition Corp. Information. The information regarding Acquisition
Corp. and its Subsidiaries to be supplied by Acquisition Corp. for inclusion in
the Proxy Statement will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they are made, not misleading. The information supplied, or to be supplied, by
Acquisition Corp. for inclusion in applications to Governmental Entities to
obtain all permits, consents, approvals and authorizations necessary or
advisable to consummate the transactions contemplated by this Agreement shall be
accurate in all material respects. (g) Availability of Funds. Acquisition Corp.
has and will have available to it at the Effective Time, sources of funds
sufficient to pay the aggregate Merger Consideration and to pay any other
amounts payable pursuant to this Agreement and to effect the transactions
contemplated hereby.
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Article IV Conduct Pending the Merger
4.1 Forbearances by GAFC. Except as expressly contemplated or permitted by this
Agreement or disclosed in GAFC's Disclosure Letter, and except to the extent
required by law or regulation or any Governmental Entity during the period from
the date of this Agreement to the Effective Time, GAFC shall not, nor shall GAFC
permit any of its Subsidiaries to, without the prior written consent of
Acquisition Corp.:
(a) conduct its business other than in the regular, ordinary and usual
course consistent with past practice; fail to use reasonable efforts to maintain
and preserve intact its business organization, properties, leases, employees and
advantageous business relationships and retain the services of its officers and
key employees; or take any action that would adversely affect or delay its
ability to perform its obligations under this Agreement or to consummate the
transactions contemplated hereby;
(b) (i) incur, modify, extend or renegotiate any indebtedness for borrowed
money, or assume, guarantee, endorse or otherwise as an accommodation become
responsible for the obligations of any other individual, corporation or other
entity, other than (A) the creation of deposit liabilities in the ordinary
course of business consistent with past practice and (B) advances from the
Federal Home Loan Bank of Atlanta with a maturity of not more than one year;
(ii) prepay any indebtedness or other similar arrangements so as to
cause GAFC to incur any prepayment penalty thereunder; or
(iii) purchase any brokered certificates of deposit;
(c) (i) adjust, split, combine or reclassify any capital stock;
(ii) make, declare or pay any dividend, or make any other
distribution on its capital stock;
(iii) grant any stock appreciation rights or any limited rights
under the GAFC Employee Plans or grant any individual, corporation or other
entity any right to acquire any shares of its capital stock;
(iv) issue any additional shares of capital stock or any securities
or obligations convertible or exercisable for any shares of its capital stock;
or
(v) directly or indirectly redeem, purchase or otherwise acquire any
shares of its capital stock;
(d) sell, transfer, mortgage, encumber or otherwise dispose of any of its
material properties or assets to any individual, corporation or other entity
other than a Subsidiary, or cancel, release or assign any indebtedness to any
such person or any claims held by any such person, except in the ordinary course
of business consistent with past practice or pursuant to contracts or agreements
in force at the date of this Agreement;
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(e) except pursuant to contracts or agreements in force at the date of or
permitted by this Agreement, make any equity investment, either by purchase of
stock or securities, contributions to capital, property transfers, or purchase
of any property or assets of any other individual, corporation or other entity;
(f) enter into, renew, amend or terminate any contract or agreement, or
make any change in any of its leases or contracts, other than with respect to
those involving aggregate payments of less than, or the provision of goods or
services with a market value of less than, $5,000 per annum and other than
contracts or agreements covered by Section 4.1(g);
(g) make, renegotiate, renew, increase, extend, modify or purchase any
loan, lease (credit equivalent), advance, credit enhancement or other extension
of credit, or make any commitment in respect of any of the foregoing, except (i)
in conformity with existing lending practices in amounts not to exceed $250,000
or (ii) loans or advances as to which GAFC has a binding obligation as of the
date hereof;
(h) make or increase any loan or other extension of credit, or commit to
make or increase any such loan or extension of credit, to any director or
executive officer of GAFC or GAFC Bank, or any entity controlled, directly or
indirectly, by any of the foregoing, other than renewals of existing loans or
commitments to loan;
(i) (i) increase in any manner the compensation, bonuses or other fringe
benefits of any of its employees or directors, or pay any bonus, pension,
retirement allowance or contribution not required by any existing plan or
agreement to any such employees or directors;
(ii) become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee or director;
(iii) voluntarily accelerate the vesting of, or the lapsing of
restrictions with respect to, any stock options or other stock-based
compensation; or
(iv) elect to any senior executive office any person who is not a
member of its senior executive officer team as of the date of this Agreement or
elect to its Board of Directors any person who is not a member of its Board of
Directors as of the date of this Agreement, or hire any employee with annual
compensation in excess of $25,000;
(j) settle any claim, action or proceeding (i) involving payment by it of
money damages in excess of $5,000 or (ii) which would impose any material
restriction on its operations or the operations of any of its Subsidiaries;
(k) amend its certificate of incorporation or bylaws, or similar governing
documents;
(l) restructure or materially change its investment securities portfolio or
its interest rate risk position, through purchases, sales or otherwise, or in
the manner in which the portfolio is classified;
(m) make any investment in any debt security, including mortgage-backed and
mortgage-related securities, other than U.S. government and U.S. government
agency securities with final maturities no greater than one year;
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(n) make any capital expenditures other than pursuant to binding
commitments existing on the date hereof and other than expenditures necessary to
maintain existing assets in good repair or to make payment of necessary Taxes;
(o) establish or commit to the establishment of any new branch or other
office facilities or file any application to relocate or terminate the operation
of any banking office;
(p) take any action that is intended or expected to result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, or in
any of the conditions to the Merger set forth in Article VI not being satisfied
or in a violation of any provision of this Agreement;
(q) implement or adopt any change in its accounting principles, practices
or methods, other than as may be required by GAAP or regulatory guidelines; or
(r) agree to take, make any commitment to take, or adopt any resolutions of
its board of directors in support of, any of the actions prohibited by this
Section 4.1.
Any request by GAFC or response thereto by Acquisition Corp. shall be made
in accordance with the notice provisions of Section 8.7 and shall note that it
is a request pursuant to this Section 4.1.
4.2 Forbearances by Acquisition Corp. Except as expressly contemplated or
permitted by this Agreement, and except to the extent required by law or
regulation or any Governmental Entity, during the period from the date of this
Agreement to the Effective Time, Acquisition Corp. shall not, nor shall
Acquisition Corp. permit any of its Subsidiaries to, without the prior written
consent of GAFC, which shall not unreasonably be withheld:
(a) take any action that would adversely affect or delay its ability to
perform its obligations under this Agreement or to consummate the transactions
contemplated hereby;
(b) take any action that is intended to or expected to result in any of its
representations and warranties set forth in this Agreement being or becoming
untrue in any material respect at any time prior to the Effective Time, or in
any of the conditions to the Merger set forth in Article VI not being satisfied
or in a violation of any provision of this Agreement; or
(c) agree to take, make any commitment to take, or adopt any resolutions of
its Board of Directors in support of, any of the actions prohibited by this
Section 4.2.
Article V Covenants
5.1 Acquisition Proposals.
(a) GAFC shall not, and shall not authorize or permit any of its
Subsidiaries or any of its Subsidiaries' officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by GAFC or any of its Subsidiaries to, directly or
indirectly, (i) solicit, initiate or encourage (including by way of furnishing
non-public information), or take any other action to facilitate, any inquiries,
discussions or the making of any proposal that constitutes or could reasonably
be expected to lead to an Acquisition Proposal, (ii) participate in any
discussions or negotiations, or otherwise communicate in any way with any person
(other than Acquisition Corp.), regarding an Acquisition Proposal or (iii) enter
into or consummate any agreement, arrangement or understanding requiring it to
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abandon, terminate or fail to consummate the transactions contemplated hereby.
Without limiting the foregoing, it is understood that any violation of the
restrictions set forth in the preceding sentence by any officer, director or
employee of GAFC or any of the Subsidiaries or any investment banker, financial
advisor, attorney, accountant or other representative retained by GAFC or any of
its Subsidiaries shall be deemed to be a breach of this Section 5.1 by GAFC.
(b) GAFC will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted prior to the
date of this Agreement with respect to any of the foregoing. GAFC will take the
necessary steps to inform the appropriate individuals or entities referred to in
the first sentence of Section 5.1(a) of the obligations undertaken in this
Section 5.1. GAFC will promptly request each person (other than Acquisition
Corp.) that has executed a confidentiality agreement in the 12 months prior to
the date hereof in connection with its consideration of a business combination
with GAFC or any of its Subsidiaries to return or destroy all confidential
information previously furnished to such person by or on behalf of GAFC or any
of its Subsidiaries. GAFC shall not release any third party from, or waive any
provisions of, any confidentiality agreements or standstill agreement to which
it or any of its Subsidiaries is a party.
5.2 Advice of Changes. Prior to the Closing, each party shall promptly advise
the other party orally and in writing to the extent that it has knowledge of (i)
any representation or warranty made by it contained in this Agreement becoming
untrue or inaccurate in any material respect or (ii) the failure by it to comply
in any material respect with or satisfy in any material respect any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement; provided, however, that no such notification shall affect the
representations, warranties, covenants or agreements of the parties or the
conditions to the obligations of the parties under this Agreement.
5.3 Access and Information.
(a) Upon reasonable notice and subject to applicable laws relating to
the exchange of information, GAFC shall (and shall cause GAFC's Subsidiaries to)
afford Acquisition Corp. and its representatives (including, without limitation,
officers and employees of Acquisition Corp. and its affiliates and counsel,
accountants and other professionals retained by Acquisition Corp.) such
reasonable access during normal business hours throughout the period prior to
the Effective Time to the books, records (including, without limitation, tax
returns and work papers of independent auditors), contracts, properties,
personnel and to such other information relating to GAFC and GAFC's Subsidiaries
as Acquisition Corp. may reasonably request; provided, however, that no
investigation pursuant to this Section 5.3 shall affect or be deemed to modify
any representation or warranty made by GAFC in this Agreement and provided,
further, that such access shall be subject to permissions from such Governmental
Entities as may be required. Neither GAFC nor any of its Subsidiaries shall be
required to provide access to or to disclose information where such access or
disclosure would violate or prejudice the rights of its customers, jeopardize
the attorney-client privilege of the institution in possession or control of
such information or contravene any law, rule, regulation, order, judgment,
decree, fiduciary duty or binding agreement entered into prior to the date of
this Agreement. The parties will make appropriate and reasonable substitute
disclosure arrangements under circumstances in which the restrictions of the
preceding sentence apply.
(b) From the date hereof until the Effective Time, GAFC shall, and shall
cause GAFC's Subsidiaries to, promptly provide Acquisition Corp. with (i) a copy
of each report filed with a Government Regulator, (ii) a copy of each periodic
report to its senior management and all materials relating to its business or
operations furnished to its Board of Directors, (iii) a copy of each press
release made available to the public and (iv) all other information concerning
its business, properties and personnel as Acquisition Corp. may reasonably
request.
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(c) Acquisition Corp. will not, and will cause its representatives not to,
use any information obtained pursuant to this Section 5.3 for any purpose
unrelated to the consummation of the transactions contemplated by this
Agreement. Subject to the requirements of applicable law and the Confidentiality
Agreement, Acquisition Corp. will keep confidential, and will cause its
representatives to keep confidential, all information and documents obtained
pursuant to this Section 5.3 unless such information (i) was already known to
Acquisition Corp. or an affiliate of Acquisition Corp., other than pursuant to a
confidentiality agreement or other confidential relationship, (ii) becomes
available to Acquisition Corp. or an affiliate of Acquisition Corp. from other
sources not known by such party to be bound by a confidentiality agreement or
other obligation of secrecy, (iii) is disclosed with the prior written approval
of GAFC or (iv) is or becomes readily ascertainable from published information
or trade sources.
(d) GAFC shall give notice, and shall cause GAFC Bank to give notice, to a
designee of Acquisition Corp., and shall invite such person to attend all
regular and special meetings of the Board of Directors of GAFC and GAFC Bank and
all meetings of the Loan Committee of GAFC Bank. Such designees shall have no
right to vote and shall not attend sessions of board and committees during which
there is being discussed (i) matters involving this Agreement, (ii) information
or material that GAFC or GAFC Bank is required or obligated to maintain as
confidential under applicable laws or regulations or policies or procedures of
GAFC or GAFC Bank, or (iii) pending or threatened litigation or investigations
if, in the opinion of counsel to GAFC, the presence of such designees would or
might adversely affect the confidential nature of or any privilege relating to
the matters being discussed.
5.4 Applications; Consents.
(a) The parties hereto shall cooperate with each other and shall use their
reasonable best efforts to prepare and file as soon as practicable after the
date hereof all necessary applications, notices and filings to obtain all
permits, consents, approvals and authorizations of all Governmental Entities
that are necessary or advisable to consummate the transactions contemplated by
this Agreement. GAFC and Acquisition Corp. shall furnish each other with all
information concerning themselves, their respective subsidiaries, and their
respective subsidiaries' directors, officers and stockholders and such other
matters as may be reasonably necessary or advisable in connection with any
application, notice or filing made by or on behalf of Acquisition Corp., GAFC or
any of their respective subsidiaries to any Governmental Entity in connection
with the transactions contemplated by this Agreement. Acquisition Corp. and GAFC
shall have the right to review in advance, and to the extent practicable each
will consult with the other on, all the information relating to Acquisition
Corp. and GAFC, as the case may be, and any of their respective subsidiaries,
that appears in any filing made with, or written materials submitted to, any
Governmental Entity pursuant to this Section 5.4(a).
(b) As soon as practicable after the date hereof, each of the parties
hereto shall, and they shall cause their respective subsidiaries to, use its
best efforts to obtain any consent, authorization or approval of any third party
that is required to be obtained in connection with the transactions contemplated
by this Agreement.
5.5 Antitakeover Provisions. GAFC and its Subsidiaries shall take all steps
required by any relevant federal or state law or regulation or under any
relevant agreement or other document to exempt or continue to exempt Acquisition
Corp., Acquisition Sub, the Agreement, and the Merger from any provisions of an
antitakeover nature in GAFC's or its Subsidiaries' certificate of incorporation
and bylaws, or similar organizational documents, and the provisions of any
federal or state antitakeover laws.
5.6 Additional Agreements. Subject to the terms and conditions herein
provided, each of the parties hereto agrees to use all reasonable efforts to
take promptly, or cause to be taken promptly, all actions and to do promptly, or
cause to be done promptly, all things necessary, proper or advisable under
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applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as expeditiously as possible,
including using efforts to obtain all necessary actions or non-actions,
extensions, waivers, consents and approvals from all applicable Governmental
Entities, effecting all necessary registrations, applications and filings
(including, without limitation, filings under any applicable state securities
laws) and obtaining any required contractual consents and regulatory approvals.
5.7 Publicity. The initial press release announcing this Agreement shall be a
joint press release and shall occur only after GAFC has informed its staff of
the Merger. Thereafter GAFC and Acquisition Corp. shall consult with each other
and mutually agree prior to issuing any press releases or otherwise making
public statements (including any written communications to stockholders) with
respect to the Merger and any other transaction contemplated hereby and in
making any filings with any Governmental Entity; provided, however, that nothing
in this Section 5.7 shall be deemed to prohibit any party from making any
disclosure which its counsel deems necessary in order to satisfy such party's
disclosure obligations imposed by law.
5.8 Stockholder Meeting. GAFC will submit to its stockholders this Agreement
and any other matters required to be approved or adopted by stockholders in
order to carry out the intentions of this Agreement. In furtherance of that
obligation, GAFC will, as promptly as practicable after the execution of this
Agreement, take, in accordance with applicable law and its certificate of
incorporation and bylaws, all action necessary to call and give notice of a
meeting of its stockholders (the "Stockholder Meeting") and mail the Proxy
Statement, and convene and hold the Stockholder Meeting. GAFC's Board of
Directors will use all reasonable best efforts to obtain from GAFC's
stockholders a vote approving this Agreement. Subject to the exercise of their
fiduciary duties, GAFC's Board of Directors shall recommend to GAFC's
stockholders approval of this Agreement, the Proxy Statement shall include a
statement to the effect that GAFC's Board of Directors has recommended that
GAFC's stockholders vote in favor of the approval of this Agreement and neither
GAFC's Board of Directors nor any committee thereof shall withdraw, amend or
modify, or propose or resolve to withdraw, amend or modify, the recommendation
of GAFC's Board of Directors that GAFC's stockholders vote in favor of approval
of this Agreement or make any statement in connection with the Stockholder
Meeting inconsistent with such recommendation.
5.9 Proxy Statement. GAFC shall prepare a proxy statement and related
materials relating to the matters to be submitted to the GAFC stockholders at
the Stockholder Meeting (such proxy statement and related materials and any
amendments or supplements thereto, the "Proxy Statement"). Upon request,
Acquisition Corp. will furnish to GAFC the information required to be included
in the Proxy Statement with respect to its business and affairs and shall have
the right to review and consult with GAFC and approve the form of, and any
characterizations of such information included in, the Proxy Statement prior to
its being mailed to stockholders. GAFC shall provide Acquisition Corp. and its
counsel a reasonable opportunity for review and comment on the Proxy Statement
prior to its being mailed to stockholders. If at any time prior to the Effective
Time any information relating to Acquisition Corp. or GAFC, or any of their
respective affiliates, officers or directors, should be discovered by
Acquisition Corp. or GAFC which should be set forth in an amendment or
supplement to the Proxy Statement so that such document would not include any
misstatement of a material fact or omit to state any material fact necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading, the party that discovers such information shall promptly
notify the other party hereto and, to the extent required by law, rules or
regulations, an appropriate amendment or supplement describing such information
shall be promptly disseminated to the stockholders of GAFC.
5.10 Notification of Certain Matters. Each party shall give prompt notice to
the other of: (i) any event or notice of, or other communication relating to, a
default or event that, with notice or lapse of time or both, would become a
default, received by it or any of its Subsidiaries subsequent to the date of
this Agreement and prior to the Effective Time, under any contract material to
the financial condition, properties, businesses or results of operations of each
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party and its Subsidiaries taken as a whole to which each party or any
Subsidiary is a party or is subject; and (ii) any event, condition, change or
occurrence which individually or in the aggregate has, or which, so far as
reasonably can be foreseen at the time of its occurrence, is reasonably likely
to result in a Material Adverse Effect. Each of GAFC and Acquisition Corp. shall
give prompt notice to the other party of any notice or other communication from
any third party alleging that the consent of such third party is or may be
required in connection with any of the transactions contemplated by this
Agreement.
5.11 Employee Benefit Matters. All persons who are employees of GAFC Bank
immediately prior to the Effective Time (a "Continuing Employee") shall, a t the
Effective Time, continue as employees of GAFC Bank. All of the Continuing
Employees shall be employed at the will of GAFC Bank and no contractual right to
employment shall inure to such employees because of this Agreement.
5.12 D&O Liability Coverage. Acquisition Corp. will use its reasonable best
efforts to obtain coverage under Acquisition Corp.'s director's and officers
liability policy for a period of three years for claims made against the
directors and officers of GAFC and its subsidiaries related to matters existing
prior to the Effective Time, provided that the premium cost of such coverage, if
obtainable, shall not exceed $100,000, and provided, further, that if the amount
of the premiums for such coverage exceeds $100,000, Acquisition Corp. will use
its reasonable best efforts to obtain such coverage as may be available for such
amount.
5.13 Cooperation. GAFC agrees that it shall, and shall cause GAFC Bank and the
other GAFC Subsidiaries, to: (i) make any accounting adjustments or entries to
its books of account and other financial records; (ii) make adjustments to GAFC
Bank's loan loss reserve; (iii) sell or transfer any investment securities held
by it; (iv) charge-off any Loan; (v) create any new reserve account or make
additional provisions to any other existing reserve account; (vi) make changes
in any accounting method; (vii) accelerate, defer or accrue any anticipated
obligation, expense or income item; and (viii) make any other adjustments which
would affect the financial reporting of the Surviving Corporation, on a
consolidated basis after the Effective Time, in each case as Acquisition Corp.
shall reasonably request, provided that neither GAFC nor GAFC Bank shall be
obligated to take any such requested action until immediately prior to the
Closing and at such time as all conditions precedent to GAFC's obligations under
this Agreement (except for the completion of actions to be taken at the Closing)
have been satisfied, and that no such adjustment which GAFC or GAFC Bank would
not have been required to make but for the provisions of this Section 5.13 in
and of itself shall result in a breach of any warranty or representation made
herein, change the amount of the Merger Consideration to be paid to the holders
of GAFC Common Stock, or delay the Closing or Acquisition Corp.'s receipt of the
Regulatory Approvals.
5.14 Greater Atlantic Capital Trust I. Immediately upon the execution of this
Agreement, GAFC shall take such steps as may be necessary under applicable law
to commence a tender offer for all of the convertible trust preferred securities
issued under Greater Atlantic Capital Trust I held by shareholders other than
GAFC. GAFC agrees that consummation of the tender offer shall be conditioned on
the receipt of (i) irrevocable tenders for at least 816,627 of the convertible
trust preferred securities outstanding as of the date of this Agreement and (ii)
all regulatory approvals of any Governmental Entity required to permit the
consummation of the transactions contemplated by this Agreement and the approval
of this Agreement by the GAFC stockholders. Notwithstanding anything in this
Agreement to the contrary, GAFC further agrees that the aggregate consideration
to be paid for securities tendered in such offer (assuming 100 percent of such
securities are tendered) shall be $688,558 (which amount shall be prorated based
on the actual number of securities tendered), provided, however, that the
allocation of the aggregate consideration among the holders of tendered
securities may be determined by GAFC in accordance with the terms of the tender
offer and applicable law. GAFC shall consult with Acquisition Corp. regarding
the timing of the tender offer and the timing of payment for the tendered
securities and provide to Acquisition Corp. for review and comment copies of all
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materials related to the tender offer which are to be filed with the SEC and/or
provided to holders.
5.15 Reston Branch Lease. GAFC shall use its reasonable best efforts to obtain
such modifications to the terms of the GAFC Bank's Reston, Virginia branch lease
as may be requested by Acquisition Corp. GAFC shall act in consultation with
Acquisition Corp. with respect to such lease modifications and, if requested,
shall allow representatives of Acquisition Corp. to participate in or otherwise
hold direct discussions with the landlord.
Article VI Conditions to Consummation
6.1 Conditions to Each Party's Obligations. The respective obligations of
each party to effect the Merger shall be subject to the satisfaction of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved by the
requisite vote of GAFC's stockholders in accordance with applicable laws and
regulations.
(b) Regulatory Approvals. All approvals, consents or waivers of any
Governmental Entity required to permit consummation of the transactions
contemplated by this Agreement shall have been obtained and shall remain in full
force and effect, and all statutory waiting periods shall have expired;
provided, however, that none of such approvals, consents or waivers shall
contain any condition or requirement that would so materially and adversely
impact the economic or business benefits to Acquisition Corp. of the
transactions contemplated hereby that, had such condition or requirement been
known, Acquisition Corp. would not, in its reasonable judgment, have entered
into this Agreement.
(c) No Injunctions or Restraints; Illegality. No party hereto shall be
subject to any order, decree or injunction of a court or agency of competent
jurisdiction that enjoins or prohibits the consummation of the Merger and no
Governmental Entity shall have instituted any proceeding for the purpose of
enjoining or prohibiting the consummation of the Merger or any transactions
contemplated by this Agreement. No statute, rule or regulation shall have been
enacted, entered, promulgated or enforced by any Governmental Entity which
prohibits or makes illegal consummation of the Merger.
(d) Third Party Consents. Acquisition Corp. and GAFC shall have obtained
the consent or approval of each person (other than the governmental approvals or
consents referred to in Section 6.1(b)) whose consent or approval shall be
required to consummate the transactions contemplated by this Agreement, except
those for which failure to obtain such consents and approvals would not,
individually or in the aggregate, have a Material Adverse Effect on Acquisition
Corp. (after giving effect to the consummation of the transactions contemplated
hereby).
6.2 Conditions to the Obligations of Acquisition Corp. The obligations of
Acquisition Corp. to effect the Merger shall be further subject to the
satisfaction of the following additional conditions, any one or more of
which may be waived by Acquisition Corp.:
(a) GAFC's Representations and Warranties. Each of the representations and
warranties of GAFC contained in this Agreement and in any certificate or other
writing delivered by GAFC pursuant hereto shall be true and correct in all
material respects at and as of the Closing Date as though made at and as of the
Closing Date, except that those representations and warranties that address
matters only as of a particular date need only be true and correct as of such
date.
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(b) Performance of GAFC's Obligations. GAFC shall have performed in all
material respects all obligations required to be performed by it under this
Agreement at or prior to the Effective Time.
(c) Officers' Certificate. Acquisition Corp. shall have received a
certificate signed by the chief executive officer and the chief financial or
principal accounting officer of GAFC to the effect that the conditions set forth
in Sections 6.2(a) and (b) have been satisfied.
(d) No Material Adverse Effect. Since the date of this Agreement, there
shall not have occurred any Material Adverse Effect with respect to GAFC.
(e) Dissenters Rights. The aggregate number of shares of GAFC Common Stock
with respect to which the holders thereof have exercised their dissenters'
rights shall not exceed 10% of the outstanding shares of GAFC Common Stock as of
the record date for the Stockholder Meeting.
(f) Greater Atlantic Capital Trust I. GAFC shall have received the
irrevocable tender of at least 816,827 of the convertible trust preferred
securities outstanding under the Great Atlantic Capital Trust I.
(g) Cease and Desist Order, Etc. The OTS shall have agreed that, upon the
consummation of the transactions contemplated by this Agreement, (i) the Cease
and Desist Order issued in writing to GAFC Bank (Order SE-08-05, effective April
25, 2008) and the Prompt Corrective Action Order (Order SE-09-028, effective May
22, 2009) are terminated or modified or replaced with commitments that are
satisfactory to Acquisition Corp., in its sole discretion; and (ii) GAFC Bank's
"troubled" bank designation is lifted.
(h) Certain Employee Matters. GAFC shall have (i) terminated the Employee
Severance Plans dated March 31, 2000 and October 2, 2006, (ii) terminated the
employment agreement dated November 1, 1997 with Carroll E. Amos and (iii)
terminated the GAFC stock option plans and obtained the cancellation of all
stock options outstanding thereunder or a number of stock options satisfactory
to Acquisition Corp. in its sole discretion.
6.3 Conditions to the Obligations of GAFC. The obligations of GAFC to effect
the Merger shall be further subject to the satisfaction of the following
additional conditions, any one or more of which may be waived by GAFC:
(a) Acquisition Corp.'s Representations and Warranties. Each of the
representations and warranties of Acquisition Corp. contained in this Agreement
and in any certificate or other writing delivered by Acquisition Corp. pursuant
hereto shall be true and correct in all material respects at and as of the
Closing Date as though made at and as of the Closing Date, except that those
representations and warranties that address matters only as of a particular date
need only be true and correct as of such date.
(b) Performance of Acquisition Corp.'s Obligations. Acquisition Corp. shall
have performed in all material respects all obligations required to be performed
by it under this Agreement at or prior to the Effective Time.
(c) Officers' Certificate. GAFC shall have received a certificate signed by
the chief executive officer and the chief financial or principal accounting
officer of Acquisition Corp. to the effect that the conditions set forth in
Sections 6.3(a) and (b) have been satisfied.
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Article VII Termination
7.1 Termination. This Agreement may be terminated, and the Merger abandoned,
at any time prior to the Effective Time, by action taken or authorized by the
Board of Directors of the terminating party, either before or after any
requisite stockholder approval:
(a) by the mutual written consent of Acquisition Corp. and GAFC; or
(b) by either Acquisition Corp. or GAFC, in the event of the failure of
GAFC's stockholders to approve the Agreement at the Stockholder Meeting;
provided, however, that GAFC shall only be entitled to terminate the Agreement
pursuant to this clause if it has complied in all material respects with its
obligations under Section 5.8; or
(c) by either Acquisition Corp. or GAFC, if either (i) any approval,
consent or waiver of a Governmental Entity required to permit consummation of
the transactions contemplated by this Agreement shall have been denied or (ii)
any Governmental Entity of competent jurisdiction shall have issued a final,
unappealable order enjoining or otherwise prohibiting consummation of the
transactions contemplated by this Agreement; or
(d) by either Acquisition Corp. or GAFC, in the event that the Merger is
not consummated by September 30, 2009, unless the failure to so consummate by
such time is due to the failure of the party seeking to terminate this Agreement
to perform or observe the covenants and agreements of such party set forth
herein; or
(e) by either Acquisition Corp. or GAFC (provided that the party seeking
termination is not then in material breach of any representation, warranty,
covenant or other agreement contained herein), in the event of a breach of any
covenant or agreement on the part of the other party set forth in this
Agreement, or if any representation or warranty of the other party shall have
become untrue, in either case such that the conditions set forth in Sections
6.2(a) and (b) or Sections 6.3(a) and (b), as the case may be, would not be
satisfied and such breach or untrue representation or warranty has not been or
cannot be cured within thirty (30) days following written notice to the party
committing such breach or making such untrue representation or warranty; or
(f) by Acquisition Corp., (i) if GAFC shall have materially breached its
obligations under Section 5.1 or Section 5.8 or (ii) if the Board of Directors
of GAFC does not publicly recommend in the Proxy Statement that stockholders
approve and adopt this Agreement or if, after recommending in the Proxy
Statement that stockholders approve and adopt this Agreement, the Board of
Directors of GAFC withdraws, qualifies or revises such recommendation or takes
any action in any respect materially adverse to Acquisition Corp.; or
(g) by Acquisition Corp., if there is imposed on Acquisition Corp. by any
Governmental Entity a condition to the consummation of the transactions
contemplated by this Agreement requiring Acquisition Corp. to increase the
capital of GAFC Bank by an amount greater than $15,000,000.
7.2 Termination Fee.
(a) In the event of termination of this Agreement by Acquisition Corp.
pursuant to Section 7.1(f), so long as at the time of such termination
Acquisition Corp. is not in material breach of any representation, warranty or
material covenant contained herein, GAFC shall make payment to Acquisition Corp.
of a termination fee in the amount of $50,000.
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(b) Notwithstanding anything in this Agreement to the contrary, in the
event of a termination of this Agreement by either party pursuant to Section
7.1(b) or by Acquisition Corp. pursuant to Section 7.1(e) if the breach giving
rise to such termination was knowing or intentional, or pursuant to Section
7.1(f), then so long as (i) at the time of such termination Acquisition Corp. is
not in material breach of any representation, warranty or material covenant
contained herein, (ii) prior to the Stockholder Meeting (in the case of
termination pursuant to Section 7.1(b)) or the date of termination (in the case
of termination pursuant to Sections 7.1(e) or (f)), an Acquisition Proposal has
been publicly announced, disclosed or communicated and (iii) within 12 months of
such termination GAFC shall consummate or enter into any agreement with respect
to an Acquisition Proposal, GAFC shall make payment to Acquisition Corp. of a
termination fee equal to the lesser of (i) $250,000 or (ii) $50,000 plus 25
percent of the amount by which the total consideration paid or payable to the
GAFC stockholders and the holders of Greater Atlantic Capital Trust I trust
preferred securities (by way of a tender offer or otherwise) in connection with
such Acquisition Proposal exceeds $990,980
(c) Any fee payable pursuant to this Section 7.2 shall be made by wire
transfer of immediately available funds within two days after notice of demand
for payment.
7.3 Breach; Remedies.
(a) Except as provided in Section 7.2(b), in the event of any termination
of this Agreement by Acquisition Corp. or GAFC as provided in Section 7.1(e) due
to a willful failure by other party to perform any of its obligations,
agreements or covenants contained in Articles IV or V of this Agreement, then
the breaching party shall be obligated to pay the non-breaching party $50,000.
(b) Notwithstanding anything contained in this Agreement to the contrary,
the payment of the termination fee pursuant to the provisions of Section 7.2 or
this Section 7.3 is intended by the parties to be, and shall constitute,
liquidated damages and shall be the sole and exclusive remedy and shall be in
lieu of any and all claims that the party terminating this Agreement that is
entitled to such fee and its officers, directors and stockholders have, or might
have against the other parties and their respective officers, directors and
stockholders for any claims arising from, or relating in any way to, this
Agreement or the Merger, and the party terminating this Agreement that is
entitled to such termination fee and its officers, directors and stockholders
shall not have any other rights or claims against the other parties and their
respective officers, directors and stockholders.
Article VIII
Certain Other Matters
8.1 Interpretation. When a reference is made in this Agreement to Sections or
Exhibits such reference shall be to a Section of, or Exhibit to, this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for ease of reference only and shall not affect the meaning or
interpretation of this Agreement. Whenever the words "include," "includes" or
"including" are used in this Agreement, they shall be deemed followed by the
words "without limitation." Any singular term in this Agreement shall be deemed
to include the plural, and any plural term the singular. Any reference to gender
in this Agreement shall be deemed to include any other gender.
8.2 Survival. Only those agreements and covenants of the parties that are by
their terms applicable in whole or in part after the Effective Time, including
Section 5.12 of this Agreement, shall survive the Effective Time. All other
representations, warranties, agreements and covenants shall be deemed to be
conditions of the Agreement and shall not survive the Effective Time.
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8.3 Waiver; Amendment. Prior to the Effective Time, any provision of this
Agreement may be: (i) waived in writing by the party benefited by the provision
or (ii) amended or modified at any time (including the structure of the
transaction) by an agreement in writing between the parties hereto except that,
after the vote by the stockholders of GAFC, no amendment or modification may be
made that would reduce the amount or alter or change the kind of consideration
to be received by holders of GAFC Common Stock or that would contravene any
provision of Virginia law or the DGCL or the applicable state and federal
banking laws, rules and regulations.
8.4 Counterparts. This Agreement may be executed in counterparts each of which
shall be deemed to constitute an original, but all of which together shall
constitute one and the same instrument. A facsimile or electronic copy of a
signature page shall be deemed to be an original signature page.
8.5 Governing Law. This Agreement shall be governed by, and interpreted in
accordance with, the laws of Virginia, without regard to conflicts of laws
principles.
8.6 Expenses. Each party hereto will bear all expenses incurred by it in
connection with this Agreement and the transactions contemplated hereby.
8.7 Notices. All notices, requests, acknowledgments and other communications
hereunder to a party shall be in writing and shall be deemed to have been duly
given when delivered by hand, overnight courier or facsimile transmission to
such party at its address or facsimile number set forth below or such other
address or facsimile transmission as such party may specify by notice (in
accordance with this provision) to the other party hereto.
If to Acquisition Corp: MidAtlantic Bancorp, Inc..
11465 Sunset Hills Road, Suite 230
Reston, VA 20190
Attention: Gary L. Martin
With copies to: Kilpatrick Stockton LLP
Suite 900, 607 14th Street, NW
Washington, DC 20005
Facsimile: (202) 204-5615
Attention: Eric S. Kracov
If to GAFC, to: Greater Atlantic Financial Corp.
10700 Parkridge Blvd
Suite P50
Reston, VA 20191
Attention: Carroll E. Amos
President and Chief Executive
Officer
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With copies to: Luse Gorman Pommerenk & Schick PC
5335 Wisconsin Avenue, NW
Washington, DC 20015
Attention: Eric Luse
John J. Gorman
8.8 Entire Agreement; etc. This Agreement, together with the Disclosure
Letters, represents the entire understanding of the parties hereto with
reference to the transactions contemplated hereby and supersedes any and all
other oral or written agreements heretofore made. All terms and provisions of
this Agreement shall be binding upon and shall inure to the benefit of the
parties hereto and their respective successors and assigns. Except for Section
5.12, which confers rights on the parties described therein, nothing in this
Agreement is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
8.9 Successors and Assigns; Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, however, that this Agreement may not be assigned by
either party hereto without the written consent of the other party.
[Signature page follows]
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In Witness Whereof, the parties hereto have caused this Agreement and Plan of
Merger to be executed by their duly authorized officers as of the date first
above written.
MIDATLANTIC BANCORP, INC.
By: /s/ Gary L. Martin
-----------------------------------------------
President
GAF Merger Corp.
By: /s/ Gary L. Martin
-----------------------------------------------
President
Greater Atlantic Financial Corp.
By: /s/ Carroll E. Amos
-----------------------------------------------
President and Chief Executive Officer
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Appendix B
Delaware General Corporation Law
Section 262
ss. 262. Appraisal rights. (a) Any stockholder of a corporation of this
State who holds shares of stock on the date of the making of a demand pursuant
to subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss. 228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to ss. 251 (other than a merger effected pursuant to ss.
251(g) of this title), ss. 252, ss. 254, ss. 257, ss. 258, ss. 263 or ss. 264 of
this title:
(1) Provided, however, that no appraisal rights under this section
shall be available for the shares of any class or series of stock, which
stock, or depository receipts in respect thereof, at the record date fixed
to determine the stockholders entitled to receive notice of the meeting of
stockholders to act upon the agreement of merger or consolidation, were
either (i) listed on a national securities exchange or (ii) held of record
by more than 2,000 holders; and further provided that no appraisal rights
shall be available for any shares of stock of the constituent corporation
surviving a merger if the merger did not require for its approval the vote
of the stockholders of the surviving corporation as provided in subsection
(f) of ss. 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required
by the terms of an agreement of merger or consolidation pursuant to ss.ss.
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect
thereof;
b. Shares of stock of any other corporation, or depository
receipts in respect thereof, which shares of stock (or depository
receipts in respect thereof) or depository receipts at the effective
date of the merger or consolidation will be either listed on a
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national securities exchange or held of record by more than 2,000
holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts
and cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a., b. and c. of
this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under ss. 253 of this title is not owned by the
parent corporation immediately prior to the merger, appraisal rights shall
be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights
are provided under this section is to be submitted for approval at a
meeting of stockholders, the corporation, not less than 20 days prior to
the meeting, shall notify each of its stockholders who was such on the
record date for notice of such meeting with respect to shares for which
appraisal rights are available pursuant to subsection (b) or (c) hereof
that appraisal rights are available for any or all of the shares of the
constituent corporations, and shall include in such notice a copy of this
section. Each stockholder electing to demand the appraisal of such
stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of
such stockholder's shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of such stockholder's
shares. A proxy or vote against the merger or consolidation shall not
constitute such a demand. A stockholder electing to take such action must
do so by a separate written demand as herein provided. Within 10 days after
the effective date of such merger or consolidation, the surviving or
resulting corporation shall notify each stockholder of each constituent
corporation who has complied with this subsection and has not voted in
favor of or consented to the merger or consolidation of the date that the
merger or consolidation has become effective; or
(2) If the merger or consolidation was approved pursuant to ss. 228 or
ss. 253 of this title, then either a constituent corporation before the
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effective date of the merger or consolidation or the surviving or resulting
corporation within 10 days thereafter shall notify each of the holders of
any class or series of stock of such constituent corporation who are
entitled to appraisal rights of the approval of the merger or consolidation
and that appraisal rights are available for any or all shares of such class
or series of stock of such constituent corporation, and shall include in
such notice a copy of this section. Such notice may, and, if given on or
after the effective date of the merger or consolidation, shall, also notify
such stockholders of the effective date of the merger or consolidation. Any
stockholder entitled to appraisal rights may, within 20 days after the date
of mailing of such notice, demand in writing from the surviving or
resulting corporation the appraisal of such holder's shares. Such demand
will be sufficient if it reasonably informs the corporation of the identity
of the stockholder and that the stockholder intends thereby to demand the
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send
such a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either
notice that such notice has been given shall, in the absence of fraud, be
prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each
constituent corporation may fix, in advance, a record date that shall be
not more than 10 days prior to the date the notice is given, provided, that
if the notice is given on or after the effective date of the merger or
consolidation, the record date shall be such effective date. If no record
date is fixed and the notice is given prior to the effective date, the
record date shall be the close of business on the day next preceding the
day on which the notice is given.
(e) Within 120 days after the effective date of the merger or
consolidation, the surviving or resulting corporation or any stockholder who has
complied with subsections (a) and (d) of this section hereof and who is
otherwise entitled to appraisal rights, may commence an appraisal proceeding by
filing a petition in the Court of Chancery demanding a determination of the
value of the stock of all such stockholders. Notwithstanding the foregoing, at
any time within 60 days after the effective date of the merger or consolidation,
any stockholder who has not commenced an appraisal proceeding or joined that
proceeding as a named party shall have the right to withdraw such stockholder's
demand for appraisal and to accept the terms offered upon the merger or
consolidation. Within 120 days after the effective date of the merger or
consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) of this section hereof, upon written request, shall be
entitled to receive from the corporation surviving the merger or resulting from
the consolidation a statement setting forth the aggregate number of shares not
voted in favor of the merger or consolidation and with respect to which demands
for appraisal have been received and the aggregate number of holders of such
shares. Such written statement shall be mailed to the stockholder within 10 days
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after such stockholder's written request for such a statement is received by the
surviving or resulting corporation or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) of this
section hereof, whichever is later. Notwithstanding subsection (a) of this
section, a person who is the beneficial owner of shares of such stock held
either in a voting trust or by a nominee on behalf of such person may, in such
person's own name, file a petition or request from the corporation the statement
described in this subsection.
(f) Upon the filing of any such petition by a stockholder, service of a
copy thereof shall be made upon the surviving or resulting corporation, which
shall within 20 days after such service file in the office of the Register in
Chancery in which the petition was filed a duly verified list containing the
names and addresses of all stockholders who have demanded payment for their
shares and with whom agreements as to the value of their shares have not been
reached by the surviving or resulting corporation. If the petition shall be
filed by the surviving or resulting corporation, the petition shall be
accompanied by such a duly verified list. The Register in Chancery, if so
ordered by the Court, shall give notice of the time and place fixed for the
hearing of such petition by registered or certified mail to the surviving or
resulting corporation and to the stockholders shown on the list at the addresses
therein stated. Such notice shall also be given by 1 or more publications at
least 1 week before the day of the hearing, in a newspaper of general
circulation published in the City of Wilmington, Delaware or such publication as
the Court deems advisable. The forms of the notices by mail and by publication
shall be approved by the Court, and the costs thereof shall be borne by the
surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal proceedings; and if any stockholder
fails to comply with such direction, the Court may dismiss the proceedings as to
such stockholder.
(h) After the Court determines the stockholders entitled to an appraisal,
the appraisal proceeding shall be conducted in accordance with the rules of the
Court of Chancery, including any rules specifically governing appraisal
proceedings. Through such proceeding the Court shall determine the fair value of
the shares exclusive of any element of value arising from the accomplishment or
expectation of the merger or consolidation, together with interest, if any, to
be paid upon the amount determined to be the fair value. In determining such
fair value, the Court shall take into account all relevant factors. Unless the
Court in its discretion determines otherwise for good cause shown, interest from
the effective date of the merger through the date of payment of the judgment
shall be compounded quarterly and shall accrue at 5% over the Federal Reserve
discount rate (including any surcharge) as established from time to time during
the period between the effective date of the merger and the date of payment of
the judgment. Upon application by the surviving or resulting corporation or by
any stockholder entitled to participate in the appraisal proceeding, the Court
may, in its discretion, proceed to trial upon the appraisal prior to the final
determination of the stockholders entitled to an appraisal. Any stockholder
whose name appears on the list filed by the surviving or resulting corporation
pursuant to subsection (f) of this section and who has submitted such
stockholder's certificates of stock to the Register in Chancery, if such is
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required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Payment shall be so made to each such
stockholder, in the case of holders of uncertificated stock forthwith, and the
case of holders of shares represented by certificates upon the surrender to the
corporation of the certificates representing such stock. The Court's decree may
be enforced as other decrees in the Court of Chancery may be enforced, whether
such surviving or resulting corporation be a corporation of this State or of any
state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just; provided, however that this provision shall not affect the right of any
stockholder who has not commenced an appraisal proceeding or joined that
proceeding as a named party to withdraw such stockholder's demand for appraisal
and to accept the terms offered upon the merger or consolidation within 60 days
after the effective date of the merger or consolidation, as set forth in
subsection (e) of this section.
(l) The shares of the surviving or resulting corporation to which the
shares of such objecting stockholders would have been converted had they
assented to the merger or consolidation shall have the status of authorized and
unissued shares of the surviving or resulting corporation.
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REVOCABLE PROXY
GREATER ATLANTIC FINANCIAL CORP.
SPECIAL MEETING OF STOCKHOLDERS
____________, 2009
The undersigned hereby appoints the full Board of Directors, with full
powers of substitution, to act as attorneys and proxies for the undersigned to
vote all shares of common stock of Greater Atlantic Financial Corp. (the
"Company"), which the undersigned is entitled to vote at the Special Meeting of
Stockholders (the "Meeting") to be held at the Crowne Plaza Tysons Corner, 1960
Chain Bridge Road, McLean, Virginia at 2:00 p.m., (local time) on
______________, 2009. The Board of Directors is authorized to cast all votes to
which the undersigned is entitled as follows:
FOR AGAINST ABSTAIN
--- ------- -------
1. To approve and adopt the Agreement and Plan of
Merger, dated June 15, 2009, by and among [ ] [ ] [ ]
MidAtlantic Bancorp, Inc., GAF Merger Corp. and
Greater Atlantic Financial Corp. (the "Merger
Agreement"). Upon completion of the merger, you
will be entitled to receive $0.10 in cash
(without interest) for each share of Company
common stock that you own unless you properly
exercise and perfect dissenters' rights; and
FOR AGAINST ABSTAIN
2. To consider and vote upon a proposal to adjourn --- ------- -------
the special meeting to a later date, if
necessary, to permit further solicitation of [ ] [ ] [ ]
proxies if there are not sufficient votes at
the time of the meeting to adopt and approve
the Merger Agreement; and
FOR AGAINST ABSTAIN
3. To authorize the Board of Directors, in its --- ------- -------
discretion, to vote upon or transact any other
business that may properly come before the [ ] [ ] [ ]
special meeting (or any adjournment or
postponement thereof).
The Board of Directors recommends a vote "FOR" each of the listed proposals.
THIS PROXY WILL BE VOTED AS DIRECTED, BUT IF NO INSTRUCTIONS ARE SPECIFIED, THIS
PROXY WILL BE VOTED FOR EACH OF THE PROPOSALS STATED ABOVE. IF ANY OTHER
BUSINESS IS PRESENTED AT SUCH MEETING, THIS PROXY WILL BE VOTED BY THE
ABOVE-NAMED PROXIES AT THE DIRECTION OF A MAJORITY OF THE BOARD OF DIRECTORS. AT
THE PRESENT TIME, THE BOARD OF DIRECTORS KNOWS OF NO OTHER BUSINESS TO BE
PRESENTED AT THE SPECIAL MEETING.
THIS PROXY IS SOLICITED BY THE BOARD OF DIRECTORS
Should the undersigned be present and elect to vote at the Meeting or at
any adjournment thereof and after notification to the Secretary of the Company
at the Meeting of the Stockholder's decision to terminate this proxy, then the
power of said attorneys and proxies shall be deemed terminated and of no further
force or effect. This proxy may also be revoked by sending written notice to the
Secretary of the Company at the address set forth on the Notice of Special
Meeting of Stockholders or by the filing of a later dated proxy prior to a vote
being taken on a particular proposal at the Meeting.
The undersigned acknowledges receipt from the Company prior to the
execution of this proxy of a Notice of the Special Meeting and a proxy statement
dated ________________, 2009.
Dated: _________________, 2009 [ ] Check Box if You Plan to Attend
Meeting
- ------------------------------- -----------------------------------
PRINT NAME OF STOCKHOLDER PRINT NAME OF STOCKHOLDER
- ------------------------------- -----------------------------------
SIGNATURE OF STOCKHOLDER SIGNATURE OF STOCKHOLDER
Please sign exactly as your name appears on this card. When signing as attorney,
executor, administrator, trustee or guardian, please give your full title. If
shares are held jointly, each holder should sign.
Please complete and date this proxy and return it promptly
in the enclosed postage-prepaid envelope.